**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form
      10-QSB**




(Mark
      one)




**x**
            **Quarterly
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
                of 1934**




For
      the
      Quarterly Period Ended March 31, 2007




or




** ̈**
            **Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
                1934**




For
      the
      transition period from  to  .




**Commission
      File Number 001-12465**




**CLEVELAND
      BIOLABS, INC.**


**(Exact
      name of small business issuer as specified in its
      charter)**


**DELAWARE**
            
            **20-0077155****(State
                or other jurisdiction of incorporation or
                organization)**
            
            **(I.R.S.
                Employer Identification
                No.)**




**11000
      Cedar Ave., Suite 290**


**CLEVELAND,
      OHIO 44106**


**(Address
      of principal executive offices and zip code)**





**(216) 229-2251**


**(Issuer's
      telephone number)** ****




Check
      whether the issuer (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 x   NO  ̈




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).




YES  ̈ NO x




As
      of
      March 31, 2007 there were 11,889,099 shares of registrant's common stock,
      $0.005 par value





Transitional
      Small Business Disclosure Format (Check One):  YES  ̈ NO x














CLEVELAND
      BIOLABS INC


10-QSB


05/15/2007




TABLE
      OF
      CONTENTS


PAGEPART
                I - FINANCIAL INFORMATIONITEM
                1:
            Financial
                StatementsBalance
                Sheets as of March 31, 2007 and December 31, 2006
            
            2-3Statements
                of Operations For Three Months Ended March 31, 2007 and
                2006
            
            4Statements
                of Cash Flows For Three Months Ended March 31, 2007 and
                2006
            
            5Statement
                of Stockholders' Equity January 1, 2006 to December 31, 2007 and
                to
              March
                31, 2007
            
            6Notes
                to Condensed Consolidated Financial Statements
            
            9ITEM
                2:
            Management's
                Discussion and Analysis of Financial Conditions and Results of
                Operations
            
            18ITEM
                3:
            Controls
                and Procedures
            
            29PART
                II - OTHER INFORMATIONITEM
                1:
            Legal
                Proceedings
            
            30ITEM
                2:
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            30ITEM
                3:
            Defaults
                Upon Senior Securities
            
            30ITEM
                4:
            Submission
                of Matters to a Vote of Securities Holders
            30ITEM
                5:
            Other
                Information
            
            30ITEM
                6:
            Exhibits
            
            31Signatures
            
            
            32




In
      this
      report, “Cleveland BioLabs,” “CBL,”“we,” “us” and “our” refer to Cleveland
      BioLabs, Inc. “common stock” refers to Cleveland BioLabs, Inc.’s common stock,
      par value $0.005 per share.





CLEVELAND
                  BIOLABS, INC.BALANCE
                  SHEETSMarch
                  31, 2007 (unaudited) and December 31, 2006March
                  31
              
              December
                  312007
              
              2006ASSETS
              
              (unaudited)CURRENT
                  ASSETSCash
                  and equivalents
              
              $
              11,968,017
              
              $
              3,061,993Short-term
                  investments
              
              
              18,699,965
              
              
              1,995,836Accounts
                  receivable:Trade
              
              
              214,048
              
              
              159,750Interest
              
              
              53,255
              
              
              42,479Notes
                  Receivable - Orbit Brands
              
              
              300,000
              
              
              50,171Other
                  prepaid expenses
              
              
              512,969
              
              
              434,675Total
                  current assets
              
              
              31,748,254
              
              
              5,744,904EQUIPMENTComputer
                  equipment
              
              
              143,426
              
              
              132,572Lab
                  equipment
              
              
              348,730
              
              
              347,944Furniture
              
              
              65,087
              
              
              65,087557,243
              
              
              545,603Less
                  accumulated depreciation
              
              
              169,677
              
              
              142,011387,566
              
              
              403,592OTHER
                  ASSETSIntellectual
                  Property
              
              
              346,170
              
              
              252,978Deposits
              
              
              15,055
              
              
              15,055361,225
              
              
              268,033TOTAL
                  ASSETS
              
              $
              32,497,045
              
              $
              6,416,529


2


CLEVELAND
                BIOLABS, INC.BALANCE
                SHEETSMarch
                31, 2007 (unaudited) and December 31, 2006March
                31
            
            December
                312007
            
            2006LIABILITIES
                AND STOCKHOLDERS' EQUITY
            
            (unaudited)CURRENT
                LIABILITIESAccounts
                payable:Trade
            
            $
            1,111,836
            
            $
            644,806Accrued
                expenses
            
            
            227,435
            
            
            128,569Total
                current liabilities
            
            
            1,339,271
            
            
            773,375LONG-TERM
                LIABILITIESMilestone
                payables
            
            
            300,000
            
            
            50,000Total
                long-term liabilities
            
            
            300,000
            
            
            50,000STOCKHOLDERS'
                EQUITYSeries
                B convertible preferred stock, $.005 par valueAuthorized
                - 10,000,000 shares at March 31, 2007and
                December 31, 2006
            
            
            22,895
            
            
            -Issued
                and outstanding 4,579,010 and 0shares
                at March 31, 2007 and December 31, 2006, respectivelyAdditional
                paid-in capital
            
            
            28,849,983
            
            
            -Common
                stock, $.005 par valueAuthorized
                - 40,000,000 shares at March 31, 2007and
                December 31, 2006Issued
                and outstanding 11,889,099 and 11,826,389shares
                at March 31, 2007 and December 31, 2006, respectively
            
            
            59,446
            
            
            59,132Additional
                paid-in capital
            
            
            18,807,493
            
            
            18,314,097Accumulated
                other comprehensive income (loss)
            
            
            -
            
            
            (4,165
            )Accumulated
                deficit
            
            
            (16,882,043
            )
            
            (12,775,910
            )Total
                stockholders' equity
            
            
            30,857,774
            
            
            5,593,154TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            32,497,045
            
            $
            6,416,529




3


CLEVELAND
                    BIOLABS, INC.STATEMENT
                    OF OPERATIONSThree
                    Months Ending March 31, 2007 and 2006
                    (unaudited)
  March
                  31
              
              March
                  312007
              
              2006(unaudited)
              
              (unaudited)REVENUESGrant
              
              $
              271,445
              
              $
              453,424Service
              
              
              50,000
              
              
              125,000321,445
              
              
              578,424OPERATING
                  EXPENSESResearch
                  and Development
              
              
              3,528,600
              
              
              1,502,364General
                  and administrative
              
              
              994,319
              
              
              352,898Total
                  operating expenses
              
              
              4,522,919
              
              
              1,855,262LOSS
                  FROM OPERATIONS
              
              
              (4,201,474
              )
              
              (1,276,838
              )OTHER
                  INCOME (EXPENSE)Interest
                  Income
              
              
              96,429
              
              
              29,139Interest
                  Expense
              
              
              (1,088
              )
              
              (4,446
              )Total
                  other income (expense), net
              
              
              95,341
              
              
              24,693NET
                  LOSS
              
              $
              (4,106,133
              )
              $
              (1,252,145
              )DIVIDENDS
                  ON CONVERTIBLE PREFERRED STOCK
              
              
              -
              
              
              (59,185
              )NET
                  LOSS AVAILABLE TO COMMON SHAREHOLDERS
              
              $
              (4,106,133
              )
              $
              (1,311,330
              )NET
                  LOSS AVAILABLE TO COMMON SHAREHOLDERSPER
                  SHARE OF COMMON STOCK - BASIC ANDDILUTED
              
              $
              (0.35
              )
              $
              (0.20
              )WEIGHTED
                  AVERAGE NUMBER OF SHARES USEDIN
                  CALCULATING NET LOSS PER SHARE, BASIC ANDDILUTED
              
              
              11,854,027
              
              
              6,495,408


4


CLEVELAND
                  BIOLABS, INC.STATEMENTS
                  OF CASH FLOWSFor
                  the Three Months Ended March 31, 2007 and 2006 (unaudited)
  March
                  31
              
              March
                  312007
              
              2006(unaudited)
              
              (unaudited)CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (4,106,133
              )
              $
              (1,252,145
              )Adjustments
                  to reconcile net loss to net cashused
                  by operating activities:Depreciation
              
              
              27,666
              
              
              20,241Noncash
                  interest expense
              
              
              -
              
              
              4,446Noncash
                  salaries and consulting expense
              
              
              375,301
              
              
              233,031Changes
                  in operating assets and liabilities:Accounts
                  receivable - trade
              
              
              (54,298
              )
              
              (119,935
              )Accounts
                  receivable - interest
              
              
              (10,605
              )
              
              3,894Other
                  prepaid expenses
              
              
              (78,293
              )
              
              (3,380
              )Deposits
              
              
              -
              
              
              (2,271
              )Accounts
                  payable
              
              
              467,030
              
              
              259,485Deferred
                  revenue
              
              
              -
              
              
              (100,293
              )Accrued
                  expenses
              
              
              98,866
              
              
              16,293Milestone
                  payments
              
              
              250,000
              
              
              -Total
                  adjustments
              
              
              1,075,667
              
              
              311,511Net
                  cash (used in) provided by operatingactivities
              
              
              (3,030,466
              )
              
              (940,634
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESSale/(purchase)
                  of short-term investments
              
              
              (16,699,965
              )
              
              800,000Issuance
                  of notes receivable
              
              
              (250,000
              )
              
              -Purchase
                  of equipment
              
              
              (11,640
              )
              
              (87,243
              )Costs
                  of patents pending
              
              
              (93,193
              )
              
              (9,946
              )Net
                  cash (used in) provided by investing activities
              
              
              (17,054,798
              )
              
              702,811CASH
                  FLOWS FROM FINANCING ACTIVITIESIssuance
                  of preferred stock
              
              
              30,020,984
              
              
              -Financing
                  costs
              
              
              (1,148,106
              )
              
              (164,777
              )Dividends
              
              
              -
              
              
              (23
              )Issuance
                  of common stock
              
              
              118,410
              
              
              -Net
                  cash (used in) provided by financing activities
              
              
              28,991,288
              
              
              (164,800
              )INCREASE
                  (DECREASE) IN CASH AND EQUIVALENTS
              
              
              8,906,024
              
              
              (402,622
              )CASH
                  AND EQUIVALENTS AT BEGINNING OF
              
              
              3,061,993
              
              
              1,206,462PERIODCASH
                  AND EQUIVALENTS AT END OF PERIOD
              
              $
              11,968,017
              
              $
              803,840Supplemental
                  disclosures of cash flow information:Cash
                  paid during the period for interest
              
              $
              -
              
              $
              -Cash
                  paid during the year for income taxes
              
              $
              -
              
              $
              -Supplemental
                  schedule of noncash financing activities:Issuance
                  of stock options to employees, consultants, and independent board
                  members
              
              $
              375,301
              
              $
              233,032Issuance
                  of common stock dividend to preferred shareholders
              
              $
              -
              
              $
              183,552




5


CLEVELAND
                BIOLABS, INC.STATEMENTS
                OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSSPeriod
                From January 1, 2006 to December 31, 2006 and toMarch
                31, 2007 (unaudited)Stockholders'
                EquityCommon
                StockAdditionalPaid-in
            
            PenaltyShares
            
            Amount
            
            Capital
            
            SharesBalance
                at January 1, 2006
            
            
            6,396,801.00
            
            
            31,984
            
            
            3,338,020
            
            
            -81,125Issuance
                of shares - previously accrued penalty shares
            
            
            54,060
            
            
            270
            
            
            80,855
            
            
            (81,125
            )Issuance
                of shares - stock dividend
            
            
            184,183
            
            
            922
            
            
            367,445
            
            
            -Issuance
                of penalty shares
            
            
            15,295
            
            
            76
            
            
            (76
            )
            
            -Issuance
                of shares - initial public offering
            
            
            1,700,000
            
            
            8,500
            
            
            10,191,500
            
            
            -Fees
                associated with initital public offering
            
            
            -
            
            
            -
            
            
            (1,890,444
            )
            
            -Conversion
                of preferred stock to common stock
            
            
            3,351,219
            
            
            16,756
            
            
            5,291,385
            
            
            -Conversion
                of notes payable to common stock
            
            
            124,206
            
            
            621
            
            
            312,382
            
            
            -Issuance
                of options
            
            
            -
            
            
            -
            
            
            506,078
            
            
            -Exercise
                of options
            
            
            625
            
            
            3
            
            
            2,810
            
            
            -Issuance
                of warrants
            
            
            -
            
            
            -
            
            
            114,032
            
            
            -Proceeds
                from sales of warrants
            
            
            -
            
            
            -
            
            
            110
            
            
            -Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                comprehensive incomeUnrealized
                gains (losses) on short term investmentsChanges
                in unrealized holding gains (losses)arising
                during period
            
            
            -
            
            
            -
            
            
            -
            
            
            -Less
                reclassification adjustment for (gains) lossesincluded
                in net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -Comprehensive
                lossBalance
                at December 31, 2006
            
            
            11,826,389
            
            $
            59,132
            
            $
            18,314,097
            
            $
            -Issuance
                of options
            
            
            -
            
            
            -
            
            
            375,301
            
            
            -Issuance
                of Series B Preferred Shares
            
            
            -
            
            
            -
            
            
            -
            
            
            -Fees
                associated with Series B Preferred offering
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercise
                of options
            
            
            18,505
            
            
            93
            
            
            29,907
            
            
            -Exercise
                of warrants
            
            
            44,205
            
            
            221
            
            
            88,188
            
            
            -Net
                Loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                comprehensive incomeUnrealized
                gains (losses) on short term investmentsChanges
                in unrealized holding gains (losses)arising
                during period
            
            
            -
            
            
            -
            
            
            -
            
            
            -Less
                reclassification adjustment for (gains) lossesincluded
                in net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -Comprehensive
                lossBalance
                at March 31, 2007
            
            
            11,889,099
            
            $
            59,446
            
            $
            18,807,493
            
            $
            -


6


CLEVELAND
                BIOLABS, INC.STATEMENTS
                OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
                LOSSPeriod
                From January 1, 2006 to December 31, 2006 and
                toMarch
                31, 2007 (unaudited)Stockholders'
                EquityPreferred
                StockAdditionalPaid-in
            
            PenaltyShares
            
            Amount
            
            Capital
            
            SharesBalance
                at January 1, 2006
            
            
            3,051,219
            
            
            15,256
            
            
            4,932,885
            
            
            360,000Issuance
                of shares - previously accrued penalty shares
            
            
            240,000
            
            
            1,200
            
            
            358,800
            
            
            (360,000
            )Issuance
                of shares - stock dividend
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
                of penalty shares
            
            
            60,000
            
            
            300
            
            
            (300
            )
            
            -Issuance
                of shares - initial public offering
            
            
            -
            
            
            -
            
            
            -
            
            
            -Fees
                associated with initital public offering
            
            
            -
            
            
            -
            
            
            -
            
            
            -Conversion
                of preferred stock to common stock
            
            
            (3,351,219
            )
            
            (16,756
            )
            
            (5,291,385
            )
            
            -Conversion
                of notes payable to common stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
                of options
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercise
                of options
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
                of warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            -Proceeds
                from sales of warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                comprehensive incomeUnrealized
                gains (losses) on short term investmentsChanges
                in unrealized holding gains (losses)arising
                during period
            
            
            -
            
            
            -
            
            
            -
            
            
            -Less
                reclassification adjustment for (gains) lossesincluded
                in net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -Comprehensive
                lossBalance
                at December 31, 2006
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            -Issuance
                of options
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
                of Series B Preferred Shares
            
            
            4,288,712
            
            
            21,444
            
            
            29,999,540
            
            
            -Fees
                associated with Series B Preferred offering
            
            
            290,298
            
            
            1,451
            
            
            (1,149,557
            )
            
            -Exercise
                of options
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercise
                of warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                Loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                comprehensive incomeUnrealized
                gains (losses) on short term investmentsChanges
                in unrealized holding gains (losses)arising
                during period
            
            
            -
            
            
            -
            
            
            -
            
            
            -Less
                reclassification adjustment for (gains) lossesincluded
                in net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -Comprehensive
                lossBalance
                at March 31, 2007
            
            
            4,579,010
            
            $
            22,895
            
            $
            28,849,983
            
            $
            -





7




CLEVELAND
                  BIOLABS, INC.STATEMENTS
                  OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
                  LOSSPeriod
                  From January 1, 2006 to December 31, 2006 and
                  toMarch
                  31, 2007 (unaudited)


Stockholders'
                EquityOther
            
            
            
            
            
            ComprehensiveComprehensive
            
            Accumulated
            
            
            
            IncomeIncome/(Loss)
            
            Deficit
            
            Total
            
            (Loss)Balance
                at January 1, 2006
            
            
            (17,810
            )
            
            (5,184,856
            )
            
            3,556,604Issuance
                of shares - previously accrued penalty shares
            
            
            -
            
            
            -
            
            
            -Issuance
                of shares - stock dividend
            
            
            -
            
            
            (368,410
            )
            
            (43
            )Issuance
                of penalty shares
            
            
            -
            
            
            -
            
            
            -Issuance
                of shares - initial public offering
            
            
            -
            
            
            -
            
            
            10,200,000Fees
                associated with initital public offering
            
            
            -
            
            
            -
            
            
            (1,890,444
            )Conversion
                of preferred stock to common stock
            
            
            -
            
            
            -
            
            
            -Conversion
                of notes payable to common stock
            
            
            -
            
            
            -
            
            
            313,003Issuance
                of options
            
            
            -
            
            
            -
            
            
            506,078Exercise
                of options
            
            
            -
            
            
            -
            
            
            2,813Issuance
                of warrants
            
            
            -
            
            
            -
            
            
            114,032Proceeds
                from sales of warrants
            
            
            -
            
            
            -
            
            
            110Net
                loss
            
            
            -
            
            
            (7,222,644
            )
            
            (7,222,644
            )
            
            (7,222,644
            )Other
                comprehensive incomeUnrealized
                gains (losses) on short term investmentsChanges
                in unrealized holding gains (losses)arising
                during period
            
            
            6,678
            
            
            -
            
            
            6,678
            
            $
            6,678Less
                reclassification adjustment for (gains) lossesincluded
                in net loss
            
            
            6,967
            
            
            -
            
            
            6,967
            
            $
            6,967Comprehensive
                loss
            
            
            
            
            
            
            
            
            
            
            $
            (7,208,999
            )Balance
                at December 31, 2006
            
            $
            (4,165
            )
            $
            (12,775,910
            )
            $
            5,593,154Issuance
                of options
            
            
            -
            
            
            -
            
            
            375,301Issuance
                of Series B Preferred Shares
            
            
            -
            
            
            -
            
            
            30,020,984Fees
                associated with Series B Preferred offering
            
            
            -
            
            
            -
            
            
            (1,148,106
            )Exercise
                of options
            
            
            -
            
            
            -
            
            
            30,000Exercise
                of warrants
            
            
            -
            
            
            -
            
            
            88,409Net
                Loss
            
            
            -
            
            
            (4,106,133
            )
            
            (4,106,133
            )
            
            (4,106,133
            )Other
                comprehensive incomeUnrealized
                gains (losses) on short term investmentsChanges
                in unrealized holding gains (losses)arising
                during period
            
            
            -
            
            
            -
            
            
            -
            
            $
            -Less
                reclassification adjustment for (gains) lossesincluded
                in net loss
            
            
            4,165
            
            
            -
            
            
            4,165
            
            $
            4,165Comprehensive
                loss
            
            
            
            
            
            
            
            
            
            
            $
            (4,101,968
            )Balance
                at March 31, 2007
            
            $
            -
            
            $
            (16,882,043
            )
            $
            30,857,774


8


**CLEVELAND
      BIOLABS, INC.**




**NOTES
      TO FINANCIAL STATEMENTS**




**Note
      1. Organization**




Cleveland
      BioLabs, Inc. (“CBL” or the “Company”) is engaged in the discovery, development
      and commercialization of products for cancer treatment and protection of normal
      tissues from radiation and toxins. The Company was incorporated under the laws
      of the State of Delaware on June 5, 2003 and is headquartered in Cleveland,
      Ohio. The Company's initial technological development efforts are intended
      to be
      used as powerful antidotes with a broad spectrum of applications including
      protection from cancer treatment side effects, radiation and hypoxia. A recent
      discovery found that one of its compounds increases the number of progenitor
      (originator) stem cells in mouse bone marrow. To date, the Company has not
      developed any commercial products. The Company has developed and produced
      biological compounds under a single commercial development
      contract.




**Note
      2. Summary of Significant Accounting Policies**




A.
            Basis
                of Presentation - The information at March 31, 2007 and March 31,
                2006,
                and for the three-month periods ended March 31, 2007 and March 31,
                2006,
                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
                CBL’s audited financial statements for the year ended December 31, 2006,
                which were contained in the Company’s Annual Report on Form 10-KSB 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 maturity 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, 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 March 31, 2007 and December 31, 2006.
              .




E.
            Notes
                Receivable - On December 7, 2006 the Company entered into an agreement
                with the Orbit Brands Corporation (Borrower) and its subsidiaries
                whereby
                the Company would lend up to $150,000 each on two promissory notes
                to the
                Borrower at a rate of 5% per annum with a maturity date of one year.
                The
                proceeds of the loans shall be used by the Borrower solely to cover
                expenses associated with converting the notes into common stock and
                preparing the lending motions for the bankruptcy case involving the
                Borrower. The loans are convertible into common stock of the Borrower
                and
                its subsidiaries. As of March 31, 2007 the balance outstanding was
                $300,000 plus accrued interest of
                $2,363.





F.
            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 $27,666, and $20,241 for
                the
                quarters ended March 31, 2007 and 2006
                respectively.




9


G.
            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 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.





H.
            Intellectual
                Property - The Company capitalizes the costs associated with the
                preparation, filing, and maintenance of certain intellectual property
                rights. Capitalized intellectual property is reviewed annually for
                impairment.





A
      portion
      of this intellectual property is owned by the Cleveland Clinic Foundation
      (“CCF”) and granted to the Company through an exclusive licensing agreement. As
      part of the licensing agreement, CBL agrees to bear the costs associated with
      the preparation, filing and maintenance of patent applications relating to
      this
      intellectual property. If the patent application is approved, the costs paid
      by
      the Company are amortized on a straight-line basis over the shorter of 17 years
      or the anticipated useful life of the patent. If the patent application is
      not
      approved, the costs associated with the preparation and filing of the patent
      application by the Company on behalf of CCF will be expensed as part of selling,
      general and administrative expenses. Gross capitalized patents pending costs
      are
      $306,302 and $222,789 on behalf of CCF for 13 patent applications as of March
      31, 2007 and December 31, 2006, respectively. All of the 13 CCF patent
      applications are still pending approval.




The
      Company also has submitted three patent applications as a result of intellectual
      property exclusively developed and owned by the Company. 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 17 years or the anticipated useful
      life
      of the patent. If the patent application is not approved, the costs associated
      with the preparation and filing of the patent application will be expensed
      as
      part of selling, general and administrative expenses at that time. Gross
      capitalized patents pending costs were $39,869 and $30,189 on behalf of the
      Company for three patent applications as of March 31, 2007 and December 31,
      2006, respectively. The patent applications are still pending
      approval.




I.
            Lines
                of Credit - The Company has a working capital line of credit that
                is fully
                secured by short-term investments. This fully-secured working capital
                line
                of credit carries an interest rate of prime minus 1%, a borrowing
                limit of
                $500,000, and expires on July 1, 2007. At March 31, 2007, there were
                no
                outstanding borrowings under this credit facility.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. The carrying
                amounts of the convertible notes payable approximate their respective
                fair
                values as they bear terms that are comparable to those available
                under
                current market conditions.




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.” Revenue sources
                consist of government grants, government contracts and commercial
                development contracts.




10


Revenues
      from federal government grants and contracts are for research and development
      purposes and are recognized in accordance with the terms of the award and the
      government agency. Grant revenue is recognized in one of two different ways
      depending on the grant. Cost reimbursement grants require us to submit proof
      of
      costs incurred that are invoiced by us to the government agency, which then
      pays
      the invoice. In this case, grant revenue is recognized at the time of submitting
      the invoice to the government agency.





Fixed
      cost grants require no proof of costs and are paid as a request for payment
      is
      submitted for expenses. The grant revenue under these fixed costs grants is
      recognized using a percentage-of-completion method, which uses assumptions
      and
      estimates. These assumptions and estimates are developed in coordination with
      the principal investigator performing the work under the government fixed-cost
      grants to determine key milestones, expenses incurred, and deliverables to
      perform a percentage-of-completion analysis to ensure that revenue is
      appropriately recognized. Critical estimates involved in this process include
      total costs incurred and anticipated to be incurred during the remaining life
      of
      the grant. Government contract revenue is recognized periodically upon delivery
      of an invoice for allowable R&D expenses according to the terms of the
      contract. The Company has recognized grant revenue from the following agencies:
      the U.S. Army (DARPA), National Aeronautics and Space Administration (NASA),
      the
      National Institutes of Health (NIH) and the Department of Health and Human
      Services (HHS). Commercial development revenues are recognized when the service
      or development is delivered.





M.
            Deferred
                Revenue - Deferred Revenue results when payment is received in advance
                of
                revenue being earned. When cash is received, 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 the clinical trials of drug candidates, compensation
                and other expenses for research and development, personnel, supplies
                and
                development materials, costs for consultants and related contract
                research
                and facility costs. Expenditures relating to research and development
                are
                expensed as incurred.




O.
            2006
                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 expires
                on May
                26, 2016 and provides for up to 2,000,000 shares of stock to be awarded.
                For the year ended December 31, 2006, 45,000 options were granted
                to
                independent board members. On February 14, 2007, these 2,000,000
                shares
                were registered with the SEC by filing a Form S-8 registration statement.
                For the quarter ended March 31, 2007, there were 119,500 options
                granted
                under this Equity Incentive Plan, and as of March 31, 2007 there
                were
                164,500 stock options granted under this Equity Incentive Plan in
                total.




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.




11


The
                fair value of each stock option granted is estimated on the grant
                date
                using the Black-Scholes option valuation model. The assumptions used
                to
                calculate the fair value of options granted are evaluated and revised,
                as
                necessary, to reflect the Company's experience. The Company uses
                a
                risk-free rate based on published rates from the St. Louis Federal
                Reserve
                at the time of the option grant, assumes a forfeiture rate of zero,
                assumes an expected dividend yield rate of zero based on the Company's
                intent not to issue a dividend in the foreseeable future, uses an
                expected
                life based on safe harbor method, and computes an expected volatility
                based on similar high-growth, publicly-traded, biotechnology companies.
                The Company does not include the use of its own stock in the volatility
                calculation at this time because of the brief history of the stock
                as a
                publicly traded security on a listed exchange. Compensation expense
                is
                recognized using the straight-line amortization method for all stock-based
                awards.


During
      the quarter ended March 31, 2007, the Company granted 119,500 stock options
      pursuant to stock award agreements to certain employees and key consultants.
      The
      Company has adopted the safe harbor method for projecting the expected life
      of
      the options. The assumptions used to value these option and warrant grants
      using
      the Black-Scholes option valuation model are as follows:




**Quarter Ended
              March
              31, 2007**Risk-free
                interest rate
            
            
            4.50
                - 4.72%Expected
                dividend yield
            
            
            0%Expected
                life
            
            
            5
                -
                6 yearsExpected
                volatility
            
            
            72.07
                - 76.29%




The
      Black-Scholes option valuation model was developed for use in estimating the
      fair value of traded options that have no vesting restrictions and are fully
      transferable. In addition, the Black-Scholes valuations model requires the
      input
      of highly subjective assumptions including the expected stock price volatility.
      Because the Company's employee stock options and warrants have characteristics
      significantly different from those of traded derivative securities, and because
      changes in subjective input assumptions can materially affect the fair value
      estimate, in management's opinion, the existing models do not necessarily
      provide a reliable single measure of the fair value of the Company's options
      and
      warrants.





The
      Company recognized a total of $375,301 in expense related to options for the
      quarter-ended March 31, 2007.





The
      weighted average, estimated grant date fair values of stock options granted
      during the quarter-ended March 31, 2007 was $9.09.





The
      following tables summarize the stock option activity for the quarters ended
      March 31, 2007 and March 31, 2006, respectively.




**Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                per**
              **Share**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Term**
              **(in
                Years)**Outstanding,
                December 31, 2006
            
            
            483,490
            
            $
            2.17Granted,
                February 14, 2007
            
            
            99,500
            
            
            9.14Granted,
                March 19, 2007
            
            
            20,000
            
            
            8.82Exercised
            
            
            20,000
            
            
            2.50Forfeited,
                Canceled
            
            
            0
            
            
            n/aOutstanding,
                March 31, 2007
            
            
            582,990
            
            $
            3.58
            
            
            8.81Exercisable,
                March 31, 2007
            
            
            301,120
            
            $
            3.57
            
            
            8.81








12








**Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                per**
              **Share**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Term**
              **(in
                Years)**Outstanding,
                December 31, 2005
            
            
            324,240
            
            $
            .82Granted,
                March 1, 2006
            
            
            116,750
            
            
            4.50Exercised
            
            
            0
            
            
            n/aForfeited,
                Canceled
            
            
            0
            
            
            n/aOutstanding,
                March 31, 2006
            
            
            440,990
            
            $
            1.79
            
            
            9.44Exercisable,
                March 31, 2006
            
            
            117,747
            
            $
            1.87
            
            
            9.40








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.





The
      following table presents the calculation of basic and diluted net loss per
      share
      for the quarters ended:




**March
                31, 2007**
            
            
            **March
                31, 2006**Net
                loss available to common stockholders
            
            $
            (4,106,133
            )
            $
            (1,311,330
            )Net
                loss per share, basic and diluted
            
            $
            (.35
            )
            $
            (.20
            )Weighted-average
                shares used in computing net loss per share, basic and
                diluted
            
            
            11,854,027
            
            
            6,495,408




The
      Company has excluded all outstanding warrants and options from the calculation
      of diluted net loss per share because all such securities are antidilutive
      for
      all applicable periods presented.




The
      total
      number of shares excluded from the calculations of diluted net loss per share,
      prior to application of the treasury stock method for *warrants* ,
      was
      3,402,821 and 594,424 for the quarters ended March 31, 2007 and 2006,
      respectively. Such securities, had they been dilutive, would have been included
      in the computation of diluted earnings per share.




The
      total
      number of shares excluded from the calculations of diluted net loss per share,
      prior to the application of the treasury stock method for *options* ,
      was
      582,990 and 440,990 for the quarters ended March 31, 2007 and 2006,
      respectively. Such securities, had they been dilutive, would have been included
      in the computation of diluted earnings per share.




R.
            Concentrations
                of Risk - Grant revenue was comprised wholly from grants and contracts
                issued by the federal government and accounted for 84.4% and 78.4%
                of
                total revenue for the quarters ended March 31, 2007 and 2006,
                respectively. Although the Company anticipates ongoing federal grant
                revenue, there is no guarantee that this revenue stream will continue
                in
                the future.





Financial
      instruments that potentially subject us to a significant concentration of credit
      risk consist primarily of cash and cash equivalents and securities
      available-for-sale. The Company maintains deposits in federally insured
      institutions in excess of federally insured limits. The Company does not believe
      it is exposed to significant credit risk due to the financial position of the
      depository institutions in which those deposits are held. Additionally, the
      Company has established guidelines regarding diversification of its investment
      portfolio and maturities of investments, which are designed to meet safety
      and
      liquidity.




13


S.
            Foreign
                Currency Exchange Rate Risk - The Company has entered into a manufacturing
                agreement with a foreign third party to produce one of its drug compounds
                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 Dollar. As of March 31, 2007, the Company is
                obligated to make payments under the agreement of 1,020,000 Euros.
                The
                Company has established means to purchase forward contracts to hedge
                against this risk. As of March 31, 2007, no hedging transactions
                have been
                consummated.




T.
            Comprehensive
                Income/(Loss) - The Company applies Statement of Financial Accounting
                Standards (SFAS) No. 130, “Reporting Comprehensive Income.” SFAS No. 130
                requires disclosure of all components of comprehensive income on
                an annual
                and interim basis. Comprehensive income 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.





**Note
      3. Stock Transactions**




On
      February 1, 2006, the Company paid a common stock dividend of 91,776 shares
      to
      holders of the Series A preferred stock to satisfy the dividend requirement
      of
      the preferred stock issuance.




On
      March
      1, 2006, the Company issued 116,750 stock options to various employees and
      consultants of the Company under non-qualified stock option agreements. These
      options allow for the purchase of 116,750 shares of common stock at a price
      of
      $4.50. These options have a three-year vesting schedule and expire on February
      29, 2016. See Note 8 for further details on stock option
      agreements.




On
      June
      21, 2006, after the expiration of the 115-day extension and an additional 30-day
      period, the Company incurred one additional penalty period in which 60,000
      shares of Series A preferred stock were earned at $120,000 and 15,295 shares
      of
      common stock were earned at $30,590. The Company has not incurred any further
      obligation to issue penalty shares since these issuances.




On
      July
      20, 2006, the Company sold 1,700,000 shares of common stock in its initial
      public offering at $6.00 per share. The net proceeds to the Company from this
      offering were approximately $8,300,000. Beginning July 21, 2006, the Company's
      shares were quoted on the NASDAQ Capital Market and listed on the Boston Stock
      Exchange under the symbols “CBLI” and “CFB” respectively. In connection with its
      initial public offering, the Company sold warrants to purchase 170,000 shares
      of
      common stock to the underwriters and their designees at a cost of $100.00.
      The
      warrants have an exercise price of $8.70 per share.




On
      July
      20, 2006, the effective date of the Company's initial public offering, the
      Company issued 92,407 shares of common stock as accumulated dividends to the
      Series A preferred stockholders. On the same date, all of the Company's Series
      A
      Preferred shares automatically converted on a one-for-one basis into 3,351,219
      shares of common stock and notes of the Company in the principal amount of
      $283,500 plus accrued interest of $29,503 automatically converted into 124,206
      shares of common stock. In connection with their appointment to the Board,
      the
      Company issued to each of the Company's three new independent directors, options
      to purchase 15,000 shares of common stock with an exercise price of $6.00 per
      share.




On
      September 21, 2006, the SEC declared effective a registration statement of
      the
      Company registering up to 4,453,601 shares of common stock for resale from
      time
      to time by the selling stockholders named in the prospectus contained in the
      registration statement. The Company will not receive any proceeds from the
      sale
      of the underlying shares of common stock, although to the extent the selling
      stockholders exercise warrants for the underlying shares of common stock, the
      Company will receive the exercise price of those warrants. The registration
      statement was filed to satisfy registration rights that the Company had
      previously granted.




14





On
      November 16, 2006 the Company issued 50,000 warrants to an outside consultant.
      These warrants are immediately exercisable into common shares of the Company
      and
      have an exercise price of $6.00 per share and an expiration date of November
      16,
      2011.




On
      February 14, 2007, the Company issued 99,500 stock options to various employees
      and consultants of the Company under non-qualified stock option agreements.
      These options allow for the purchase of 99,500 shares of common stock at a
      price
      of $9.14. These options have various vesting schedules from immediate vesting
      to
      three years and expire on February 14, 2017.





On
      March
      16, 2007, the Company entered into a Securities Purchase Agreement with various
      accredited investors (the “Buyers”), pursuant to which the Company agreed to
      sell to the Buyers Series B Convertible Preferred Stock (“Series B Preferred”)
      convertible, upon stockholder approval, into an aggregate of 4,288,712 shares
      of
      common stock and Series B Warrants that are exercisable, upon stockholder
      approval, for an aggregate of 2,144,356 shares of common stock. The Series
      B
      Preferred have an initial conversion price of $7.00 per share, and in the event
      of a conversion at such conversion price, one share of Series B Preferred would
      convert into one share of common stock. The Series B Warrants have an exercise
      price of $10.36 per share, the closing bid price on the day prior to the private
      placement. To the extent, however, that the conversion price of the Series
      B
      Preferred or the exercise price of the Series B Warrants is reduced as a result
      of certain anti-dilution protections, the number of shares of common stock
      into
      which the Series B Preferred are convertible and for which the Series B Warrants
      are exercisable may increase.





The
      Company also issued to the placement agents in the private placement (the
“Agents”), as compensation for their services, Series B Preferred, Series B
      Warrants, and Series C Warrants. The Agents collectively received Series B
      Preferred that are convertible, upon stockholder approval, into an aggregate
      of
      290,298 shares of common stock, Series B Warrants that are exercisable, upon
      stockholder approval, for an aggregate of 221,172 shares of the Company’s common
      stock, and Series C Warrants that are exercisable, upon stockholder approval,
      for 267,074 shares of the Company’s common stock. The Series C Warrants have an
      exercise price of $11.00 per share, and are also subject to anti-dilution
      protections that could increase the number of shares of common stock for which
      they are exercisable.





In
      total,
      upon stockholder approval, the securities issued in the private placement will
      be convertible into, or exercisable for, up to approximately 7,211,612 shares
      of
      common stock, which amount is subject to adjustment in the event of certain
      corporate events such as stock splits or issuances of securities at a price
      below the conversion price of the Series B Preferred or exercise price of the
      warrants, as the case may be.





On
      March
      19, 2007, the Company issued 20,000 stock options to members of the Scientific
      Advisory Board of the Company under non-qualified stock option agreements.
      These
      options are immediately exercisable and allow for the purchase of 20,000 shares
      of common stock at a price of $8.82. These options expire on March 19,
      2017.




**Note
      4. Commitments and Contingencies**




The
      Company has entered into various agreements with third parties and certain
      related parties in connection with the research and development activities
      of
      its existing product candidates as well as discovery efforts on potential new
      product candidates. These agreements include costs for research and development
      and license agreements that represent the Company's fixed obligations payable
      to
      sponsor research and minimum royalty payments for licensed patents. These
      amounts do not include any additional amounts that the Company may be required
      to pay under its license agreements upon the achievement of scientific,
      regulatory and commercial milestones that may become payable depending on the
      progress of scientific development and regulatory approvals, including
      milestones such as the submission of an investigational new drug application
      to
      the FDA, similar submissions to foreign regulatory authorities and the first
      commercial sale of the Company's products in various countries. These agreements
      include costs related to manufacturing, clinical trials and preclinical studies
      performed by third parties.





The
      Company is also party to three agreements that require it to make milestone
      payments, royalties on net sales of the Company's products and payments on
      sublicense income received by the Company. As of March 31, 2007, no milestone
      payments have been made, although $300,000 has been accrued under one of these
      agreements.




From
      time
      to time, the Company may have certain contingent liabilities that arise in
      the
      ordinary course of business. The Company accrues for liabilities when it is
      probable that future expenditures will be made and such expenditures can be
      reasonably estimated. For all periods presented, the Company is not a party
      to
      any pending material litigation or other material legal
      proceedings.




15


The
      Company currently has operating lease commitments in place for facilities in
      Cleveland, Ohio and Chicago, Illinois as well as office equipment. The Company
      recognizes rent expense on a straight-line basis over the term of the related
      operating leases. The operating lease expenses recognized were $43,598, and
      $42,941 for the quarters ended March 31, 2007 and 2006,
      respectively.




Annual
      future minimum lease payments under present lease commitments are as follows.
      These future minimum payments have not been adjusted to reflect an inflation
      adjustment included in the lease for the Cleveland facilities based on the
      Gross
      Domestic Product Price Deflator.




**Operating**
              **Leases**2007
                (from April 1, 2007 through December 31, 2007)
            
            $
            22,3602008
            
            
            4,9492009
            
            
            1,935$
            29,244




The
      Company has entered into stock option agreements with key employees, board
      members and consultants with exercise prices ranging from $0.00 to $9.14. These
      awards were approved by our Board of Directors. Option grants beginning in
      2005
      vest ratably over periods ranging from zero to three years. The options expire
      ten years from the date of grant, subject to the terms applicable in the
      agreement.





The
      following tables summarize the stock option activity for the three months ended
      March 31, 2007 and 2006:




**Number of**
              **Options**
            
            **Weighted Average**
              **Exercise
                Price**Outstanding
                at December 31, 2006
            
            
            483,490
            
            $
            2.17Granted
            
            
            119,500
            
            $
            9.09Exercised
            
            
            20,000
            
            $
            2.50Forfeited
            
            
            0
            
            
            n/aOutstanding
                at March 31, 2007
            
            
            582,990
            
            $
            3.58






**Number of**
              **Options**
            
            **Weighted Average**
              **Exercise
                Price**Outstanding
                at December 31, 2005
            
            
            324,240
            
            $
            .82Granted
            
            
            116,750
            
            $
            4.50Exercised
            
            
            0
            
            
            n/aForfeited
            
            
            0
            
            
            n/aOutstanding
                at March 31, 2006
            
            
            440,990
            
            $
            1.87







The
      Company has entered into warrant agreements with strategic partners, consultants
      and investors with exercise prices ranging from $1.13 to $11.00. These awards
      were approved by the Board of Directors. The warrants expire between five and
      six years from the date of grant, subject to the terms applicable in the
      agreement. A list of the total warrants awarded and exercised appears
      below.








16








**Number of**
              **Warrants**
            
            **Weighted Average**
              **Exercise
                Price**Outstanding
                at December 31, 2006
            
            
            814,424
            
            $
            3.36Granted
            
            
            2,632,602
            
            $
            10.42Exercised
            
            
            44,205
            
            $
            2.00Forfeited
            
            
            --
            
            
            N/AOutstanding
                at March 31, 2007
            
            
            3,402,821
            
            $
            8.84








**Number of**
              **Warrants**
            
            **Weighted Average**
              **Exercise
                Price**Outstanding
                at December 31, 2005
            
            
            594,424
            
            
            1.61Granted
            
            
            --
            
            $
            N/AExercised
            
            
            --
            
            
            N/AForfeited
            
            
            --
            
            
            N/AOutstanding
                at March 31, 2006
            
            
            594,424
            
            $
            1.61




The
      Company has entered into employment agreements with three key executives who,
      if
      terminated by the Company without cause as described in these agreements, would
      be entitled to severance pay.




While
      no
      legal actions are currently pending, the Company may be party to certain claims
      brought against it arising from certain contractual matters. It is not possible
      to state the ultimate liability, if any, in these matters. In management's
      opinion, the ultimate resolution of any such claim will not have a material
      adverse effect on the financial position of the Company.





**Note
      5. Subsequent Events**




No
      material subsequent events have occurred since the balance sheet date of March
      31, 2007.


17


**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 filing contain forward-looking information
      that involves risks and uncertainties. Our actual results could differ
      materially from those anticipated by the forward-looking information. Factors
      that may cause such differences include, but are not limited to, availability
      and cost of financial resources, results of our R&D efforts and clinical
      trials, product demand, market acceptance and other factors discussed in the
      Company's other SEC filings under the heading “Risk Factors”. 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 in our* *Annual Report on Form 10-KSB for the year ended December 31,
      2006.*




**Overview**





***General
      Overview***





We
      commenced business operations in June 2003.  We are a drug discovery and
      development company leveraging our proprietary scientific research and
      discoveries relating to programmed cell death to treat cancer and protect normal
      tissues from exposure to radiation and other stresses.





***Technology***





Our
      development efforts are based on discoveries made in connection with the
      investigation of the cell-level process known as apoptosis. Apoptosis is a
      highly specific and tightly regulated form of cell death that can occur in
      response to external events such as exposure to radiation, toxic chemicals
      or
      internal stresses. Apoptosis is a major determinant of tissue damage caused
      by a
      variety of medical conditions including cerebral stroke, heart attack and acute
      renal failure. Conversely, apoptosis is also an important protective mechanism
      that allows the body to shed itself of defective cells, which otherwise can
      cause cancerous growth.





Research
      has demonstrated that apoptosis is sometimes suppressed naturally. For example,
      most cancer cells develop resistance to apoptotic death caused by drugs or
      natural defenses of the human body. Our research is geared towards identifying
      the means by which apoptosis can be affected and manipulated depending on the
      need.





If
      the
      need is to protect healthy tissues against an external event such as exposure
      to
      nuclear radiation, we focus our research efforts on attempting to temporarily
      and reversibly suppress apoptosis in those healthy tissues, thereby imitating
      the apoptotic-resistant tendencies displayed by cancer cells. A drug with this
      effect would also be useful in ameliorating the often severe side effects of
      anticancer drugs and radiation that cause collateral damage to healthy tissues
      during cancer treatment. Because the severe side effects of anticancer drugs
      and
      radiation often limit their dosage in cancer patients, an apoptosis suppressant
      drug may enable a more aggressive treatment regimen using anticancer drugs
      and
      radiation and thereby increase their effectiveness.





On
      the
      other hand, if the need is to destroy cancerous cells, we focus our research
      efforts on restoring apoptotic mechanisms that are suppressed in tumors, so
      that
      those cancerous cells will once again become vulnerable to apoptotic death.
      In
      this regard, we believe that our drug candidates could have significant
      potential for improving, and becoming vital to, the treatment of cancer
      patients.




***Products
      In Development***




**Protectans**





Protectans
      are modified proteins of microbes that protect cells from apoptosis, and have
      a
      broad spectrum of potential applications. These potential applications include
      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
      side
      effects.




18




*Protectan
      CBLB502*





Protectan
      CBLB502 is our leading radioprotectant molecule in the protectans series.
      Protectan CBLB502 represents a rationally designed derivative of the microbial
      protein, flagellin. Flagellin is secreted by *Salmonella typhimurium* and acts
      as a natural activator of NF-kB. Protectan CBLB502 is administered through
      intramuscular injection.





Biodefense
      Applications





In
      collaboration with the Cleveland Clinic, our scientists have demonstrated that
      injecting Protectan CBLB502 into mice protects them from lethal doses of total
      body gamma radiation. An important advantage of Protectan CBLB502, above any
      other radioprotectant known to us, is the ability to effectively protect not
      only the hematopoietic system, but also the gastrointestinal, or GI, tract,
      which are among the most sensitive areas of the human body to radiation. High
      levels of radiation, among other effects, induce moderate to severe bone marrow
      damage. The immune and blood stem cells are also depleted and death is caused
      by
      anemia, infection, bleeding and poor wound healing. Protectan CBLB502's ability
      to effectively protect the hematopoietic system and GI tract may make Protectan
      CBLB502 uniquely useful as a radioprotective antidote. Protectan CBLB502 was
      shown to be safe at its therapeutic doses in rodents and non-human primates.
      In
      addition, Protectan CBLB502 has proved to be a stable compound for storage
      purposes. It can be stored at temperatures close to freezing, room temperature
      or extreme heat. Manufacture of Protectan CBLB502 is relatively inexpensive,
      due
      to its high yield bacterial producing strain and simple purification
      process.




Our
      research has also demonstrated that a single injection of less than 1% of the
      maximum tolerable dose of Protectan CBLB502 protected greater than 80% of NIH
      Swiss mice from exposure to as high as 13 Gy of total body irradiation. No
      other
      known compounds in development show this degree of protective effect from this
      level of radiation exposure.





Protectan
      CBLB502 also showed strong radioprotective efficacy as a single therapy in
      non-human primates, enabling the survival of 70% of the animals that received
      whole-body radiation, versus the control group, in which 75% of the animals
      died. Of the non-human primates in the control group that survived, none were
      without significant abnormalities. In contrast, the surviving non-human primates
      treated with CBLB502 possessed no significant structural abnormalities in their
      bone marrow, immune system organs, or small intestines after 40 days. This
      is
      consistent with data previously obtained from trials on mice. Irradiated mice
      treated with CBLB502 survived to their normal life span without developing
      any
      significant abnormalities and while preserving the normal formation of blood
      cells (hematopoiesis). This data suggests that CBLB502 may offer true protection
      from gamma-irradiation induced Acute Radiation Syndrome, including the lethal
      effects on both the GI and hematopoietic systems.





We
      have
      responded to the Request for Proposal (RFP) issued in March 2007, by The
      Department of Defense (DoD) for the Advanced Development of Medical Radiation
      Countermeasures (MRC) to treat gastrointestinal effects of acute radiation
      syndrome (ARS) using CBLB502. The
      objective of the RFP is to develop a post-exposure Medical Radiation
      Countermeasure through approval/licensure with the U.S. Food and Drug
      Administration (FDA) and procure quantities sufficient to achieve Initial
      Operational Capability (IOC). A range of 50,000 to 500,000 doses was specified.
      The RFP award would provide funding for development of the countermeasure
      through FDA approval, as well as a commitment to purchase, thereafter. It
      is
      expected that the RFP may be awarded later in the year.




Also
      in
      March 2007, we received a $1.3 million contract from the Defense Threat
      Reduction Agency (DTRA) of the Department of Defense (DoD) to fund "development
      leading to the acquisition" of Protectan CBLB502, in collaboration with the
      Armed Forces Radiobiology Research Institute (AFRRI), which has also received
      significant independent funding for work on Protectan CBLB502.




Anticancer
      Applications




In
      addition to its military or other non-medical applications, we have found that
      Protectan CBLB502, on a preliminary research basis, has been observed to
      dramatically increase the efficacy of radiotherapy of experimental tumors in
      mice. Protectan CBLB502 appears to increase the tolerance of mice to radiation
      while having no effect on the radiosensitivity of tumors, thus opening the
      possibility of combining radiotherapy with Protectan CBLB502 treatment to
      improve the overall anticancer efficacy of radiotherapy. Our animal efficacy
      studies have demonstrated that up to 100% of mice treated with Protectan CBLB502
      prior to being exposed to radiation survived, without any associated signs
      of
      toxicity. This compares to a 100% mortality rate in the animal group that
      received a placebo drug.





19


The
      use
      of Protectan CBLB502 to ameliorate the side effects of radiation treatment
      and
      anticancer drugs will be subject to the full FDA approval process.





*Protectan
      CBLB612*





Our
      Protectans 600 series are modified factors of Mycoplasmas. Much of our initial
      research in this area has been focused on radiation protection. Our lead
      candidate in this series, Protectan CBLB612, has been shown to provide
      protection in a mouse model from lethal hematopoietic-induced radiation sickness
      when administered between 48 hours prior or up to eight hours after radiation
      exposure. Protectan CBLB612 does not display any significant toxicity at its
      therapeutic doses in rodents and non-human primates.





Moreover,
      through our research in the area of radiation protection, we have discovered
      a
      unique property of the Protectans 600 series, which has led to a potential
      breakthrough in the rapidly emerging arena of stem cell research.




A
      single
      administration of CBLB612 resulted in a three-fold increase in the number of
      progenitor stem cells in mouse bone marrow within 24 hours after administration.
      We also found that the number of these stem cells in peripheral blood was
      increased ten-fold within four days of administration. A study of
      the effects of Protectan CBLB612 on nonhuman primates regarding the
      proliferation and mobilization to peripheral blood of pluripotent hematopoietic
      stem cells in a primate model (Rhesus macaques) was recently completed. CBLB612
      was found to be highly efficacious in stimulating proliferation and mobilization
      of hematopoietic stem cells into peripheral blood in these primates. A single
      injection of CBLB612 in Rhesus macaques resulted in a 20- fold increase of
      hematopoietic progenitor cells in blood. Our
      research indicates that CBLB612 and the other compounds in the 600 series are
      not only potent stimulators of bone marrow stem cells, but also cause their
      mobilization and proliferation throughout the blood. This important discovery
      creates a new and innovative business opportunity for us to address a broad
      spectrum of human diseases, some of which currently lack effective
      treatment.




**Curaxins**




Curaxins
      are small molecules that destroy tumor cells by simultaneously targeting two
      regulators of apoptosis. Our 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
      original focus of our drug development program was to develop drugs to treat
      one
      of the most treatment-resistant types of cancer, RCC. Unlike many cancer types
      that frequently mutate or delete p53, one of the major tumor suppressor genes,
      RCC belongs to a rare category of cancers that typically maintain a wild type
      form of this protein. Nevertheless, RCC cells are resistant to apoptosis,
      suggesting that in spite of its normal structure, p53 is functionally disabled.
      Our research has shown that p53 function is indeed inhibited in RCC by an
      unknown dominant factor. We have established a drug discovery program to
      identify small molecules that selectively destroy tumor cells by restoring
      the
      normal function to functionally impaired p53 in RCC. This program yielded a
      series of chemicals with the desirable properties named curaxins (CBLC100
      series). We have isolated three chemical classes of curaxins. One of them
      includes relatives of 9-aminoacridine, the compound that is the core structure
      of many existing drugs. Pre-existing information about this compound has allowed
      us to bypass the preclinical development and Phase I studies and bring one
      of
      our drug candidates into Phase IIa clinical trials, saving years of R&D
      efforts and improving the probability of success.





One
      of
      the most important outcomes of this drug discovery program was the
      identification of the mechanism by which curaxins deactivate NF-kB. This
      mechanism of action makes curaxins potent inhibitors of the production and
      the
      activity of NF-kB not only in its stimulated form, but also in its basal form.
      The level of active NF-kB is usually also increased in cancer cells. Moreover,
      due to curaxin-dependent functional conversion of NF-kB DNA complexes, the
      cells
      with the highest basal or induced NF-kB activity are supposed to be the most
      significantly affected by curaxins. Clearly, this paradoxical activity makes
      deactivation of NF-kB by curaxins more advantageous compared to conventional
      strategies targeting NF-kB activators.





The
      discovery of the mechanism of action of curaxins allowed us to predict and
      later
      experimentally verify that curaxins could be used for treatment of multiple
      forms of cancers, including hormone refractory prostate cancer, hepatocellular
      carcinoma, multiple myeloma, acute lymphocytic leukemia, acute myeloid leukemia,
      soft-tissue sarcomas and several others.




20





*Curaxin
      CBLC102*





One
      of
      the curaxins from the 9-aminoacridine group is a long-known anti-infective
      compound known as quinacrine, which we refer to as Curaxin CBLC102. It has
      been
      used for over 40 years to treat malaria, osteoarthritis and autoimmune
      disorders. However, we have discovered new mechanisms of action for quinacrine
      in the area of apoptosis. Through assay testing performed at Dr. Andrei Gudkov's
      laboratories at the Cleveland Clinic beginning in 2002, which included testing
      in a variety of human tumor-derived cell lines representing cancers of different
      tissue origin (including RCC sarcomas, prostate, breast and colon carcinomas),
      we have observed that Curaxin CBLC102 behaves as a potent NF-kB suppressor
      and
      activator of p53 in these types of cancer cells. It has favorable
      pharmacological and toxicological profiles and demonstrates the anticancer
      effect in transplants of human cancer cells into primates. These features make
      Curaxin CBLC102 our prime IND drug candidate among other curaxins. The drug
      candidate is currently in Phase II clinical trials for treatment of hormone
      refractory prostate cancer.  We also intend to conduct additional Phase II
      clinical trials with Curaxin CBLC102 for RCC and multiple myeloma.





We
      intend
      to seek orphan drug status with respect to Curaxin CBLC102. The orphan drug
      provisions of the Federal Food, Drug, and Cosmetic Act provide incentives to
      drug and biologic manufacturers to develop and manufacture drugs for the
      treatment of rare diseases, currently defined as diseases that exist in fewer
      than 200,000 individuals in the U.S. We believe that Curaxin CBLC102 may qualify
      as an orphan drug for purposes of treatment of hormone refractory prostate
      cancer, RCC, and multiple myeloma. Under these provisions, a manufacturer of
      a
      designated orphan drug can seek tax benefits, and the holder of the first
      designated orphan drug approved by the FDA will be granted a seven-year period
      of marketing exclusivity for that drug. There is no assurance that we will
      receive orphan drug status for Curaxin CBLC102. Even if we do receive orphan
      drug status, while the marketing exclusivity of an orphan drug would prevent
      other sponsors from obtaining approval of the same compound for the same
      indication, it would not prevent other types of drugs from being approved for
      the same indication and therefore may not provide sufficient protection against
      competitive products.





We
      have
      an agreement with Regis Technologies, Inc., a GMP manufacturer, to produce
      sufficient quantities of Curaxin CBLC102 according to the process previously
      used for the production of this drug when it was in common use. On May 26,
      2006,
      we filed our IND application with the FDA to begin clinical trials in patients
      with androgen-independent prostate cancer. On June 26, 2006, the FDA advised
      us
      that we may initiate clinical Phase II studies after making additional minor
      modifications to the protocol.




Our
      Phase
      II efficacy study for Curaxin CBLC102 in advanced, hormone-refractory (androgen
      independent) prostate cancer has progressed to the next phase The Phase II
      study
      will involve a total of 31 patients with advanced, refractory prostate cancer.
      Primary endpoints for the study are reduction in PSA levels, reduction in tumor
      size, and disease-free survival. The duration of the study is two years, however
      certain preliminary data may be available earlier. The study is being conducted
      at the University of Chicago, the Cleveland Clinic, the University Hospitals
      of
      Cleveland, and the University of Pittsburgh.




We
      have
      applied for a patent covering the use of Curaxin CBLC102 as an anticancer agent
      based on a newly-discovered mechanism of action.





*Other
      Curaxins*





As
      mentioned above, screening of the chemical library for compounds capable of
      restoring normal function to wild type p53 in the context of RCC yielded three
      chemical classes of compounds. Generation of focused chemical libraries around
      the hits from one of these classes and their structure-activity optimization
      brought about a new generation of curaxins. These molecules have a chemical
      structure different from 9-aminoacridine (Curaxin CBLC102) and are more active
      and appear to be more selective of tumor cells than the representatives of
      the
      first generation of curaxins (e.g., Curaxin CBLC102).





Following
      additional optimization, we are planning to embark upon the formal development
      of two to three additional second generation curaxins.





***Roswell
      Park Cancer Institute***




In
      January 2007, we entered into a strategic research partnership with Roswell
      Park
      Cancer Institute (RPCI) to develop our cancer and radioprotectant drug
      candidates.




RPCI,
      founded in 1898, is a world-renowned cancer research hospital and the nation's
      first cancer research, treatment and education center. RPCI is a member of
      the
      prestigious National Comprehensive Cancer Network, an alliance of the nation's
      leading cancer centers, and is one of only ten free-standing cancer centers
      in
      the nation.




21


RPCI
      and
      various agencies of the state of New York will provide us with up to $5 million
      of grant and other funding. We will establish a major research/clinical facility
      at the RPCI campus in Buffalo, New York, which will become the foundation for
      several of our advanced research and clinical trials. Dr. Andrei Gudkov, our
      Chief Scientific Officer, has agreed to become Senior Vice President of Research
      Programming and Development for RPCI effective May 2007.




Our
      partnership with RPCI will enhance the speed and efficiency of our clinical
      research, and will provide us with access to state-of-the-art clinical
      development facilities in partnership with a globally recognized cancer research
      center. We believe that our proprietary technology, combined with the assistance
      of RPCI, and our continuing strong relationship with the Cleveland Clinic,
      will
      position us to become a leading oncology company. A key element of our long-term
      business strategy is to partner with world-class institutions to aid us in
      accelerating our drug development timeline. We believe that our firm alliances
      with both RPCI and the Cleveland Clinic provide us with a significant
      competitive advantage.




***Financial
      Overview***





We
      secured a $6,000,000 investment via a private placement of Series A Preferred
      Stock in March 2005.  On July 20, 2006, we sold 1,700,000 shares of common
      stock in our initial public offering at $6.00 per share. The net proceeds from
      this offering were approximately $8,300,000. Beginning July 21, 2006, our common
      stock was listed on the NASDAQ Capital Market and on the Boston Stock Exchange
      under the symbols “CBLI” and “CFB” respectively. In connection with the initial
      public offering, we issued warrants to purchase 170,000 shares of common stock
      to the underwriters and their designees. The warrants have an exercise price
      of
      $8.70 per share.




On
      July
      20, 2006, the effective date of our initial public offering, we issued 92,407
      shares of common stock as accumulated dividends to the Series A preferred
      stockholders. On the same date, all of our Series A Preferred shares
      automatically converted on a one-for-one basis into 3,351,219 shares of common
      stock, and notes of ours in the principal amount of $283,500 plus accrued
      interest of $29,503 automatically converted into 124,206 shares of common stock.
      In connection with their appointment to the Board, we issued to each of our
      three new independent directors options to purchase 15,000 shares of common
      stock with an exercise price of $6.00 per share.




On
      September 21, 2006, the SEC declared effective a registration statement of
      ours
      registering up to 4,453,601 shares of common stock for resale from time to
      time
      by the selling stockholders named in the prospectus contained in the
      registration statement. We will not receive any proceeds from the sale of the
      underlying shares of common stock, although to the extent the selling
      stockholders exercise warrants for the underlying shares of common stock, we
      will receive the exercise price of those warrants, unless exercised pursuant
      to
      the cashless exercise provisions. The registration statement was filed to
      satisfy registration rights that we had previously granted in connection
      with our Series A Preferred transaction.








On
      March
      16, 2007, the Company entered into a Securities Purchase Agreement with various
      Buyers, pursuant to which the Company agreed to sell to the Buyers Series B
      Preferred convertible, upon stockholder approval, into an aggregate of 4,288,712
      shares of common stock and Series B Warrants that are exercisable, upon
      stockholder approval, for an aggregate of 2,144,356 shares of common stock.
      The
      aggregate purchase price paid by the Buyers for the Series B Preferred and
      Series B Warrants was approximately $30,000,000. After related fees and
      expenses, the Company received net proceeds of approximately $29,000,000. The
      Company intends to use the proceeds for general corporate and working capital
      purposes.





The
      Series B Preferred have an initial conversion price of $7.00 per share, and
      in
      the event of a conversion at such conversion price, one share of Series B
      Preferred would convert into one share of common stock. The Series B Warrants
      have an exercise price of $10.36 per share, the closing bid price on the day
      prior to the private placement. To the extent, however, that the conversion
      price of the Series B Preferred or the exercise price of the Series B Warrants
      is reduced as a result of certain anti-dilution protections, the number of
      shares of common stock into which the Series B Preferred are convertible and
      for
      which the Series B Warrants are exercisable may increase.





The
      Company also issued to the Agents in the private placement, as compensation
      for
      their services, Series B Preferred, Series B Warrants, and Series C Warrants.
      The Agents collectively received Series B Preferred that are convertible, upon
      stockholder approval, into an aggregate of 290,298 shares of common stock,
      Series B Warrants that are exercisable, upon stockholder approval, for an
      aggregate of 221,172 shares of the Company’s common stock, and Series C Warrants
      that are exercisable, upon stockholder approval, for 267,074 shares of the
      Company’s common stock. The Series C Warrants have an exercise price of $11.00
      per share, and are also subject to anti-dilution protections that could increase
      the number of shares of common stock for which they are
      exercisable.





22


In
      total,
      upon stockholder approval, the securities issued in the private placement will
      be convertible into, or exercisable for, up to approximately 7,211,612 shares
      of
      common stock, which amount is subject to adjustment in the event of certain
      corporate events such as stock splits or issuances of securities at a price
      below the conversion price of the Series B Preferred or exercise price of the
      warrants, as the case may be.




**Critical
      Accounting Policies and the Use of Estimates**




Our
      management's discussion and analysis of our financial condition and results
      of
      operations is based upon our financial statements, which have been prepared
      in
      accordance with generally accepted accounting principles in the U.S., or GAAP.
      The preparation of these financial statements requires us to make estimates
      and
      judgments that affect the reported amounts of our assets, liabilities, revenues,
      expenses and other reported disclosures. We base our estimates on historical
      experience and on various other assumptions that we believe are reasonable
      under
      the circumstances.




Note
      2 to
      our financial statements includes disclosure of our significant accounting
      policies. While all decisions regarding accounting policies are important,
      we
      believe that our policies regarding revenue recognition, R&D expenses,
      intellectual property related costs and stock-based compensation expense could
      be considered critical.




***Revenue
      Recognition***





We
      recognize revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue
      Recognition.” Our revenue sources consist of government grants, government
      contracts and a commercial development contract.





Grant
      revenue is recognized using two different methods depending on the type of
      grant. Cost reimbursement grants require us to submit proof of costs incurred
      that are invoiced by us to the government agency, which then pays the invoice.
      In this case, grant revenue is recognized at the time of submitting the invoice
      to the government agency.





Fixed-cost
      grants require no proof of costs and are paid as a request for payment is
      submitted for expenses. The grant revenue under these fixed cost grants is
      recognized using a percentage-of-completion method, which uses assumptions
      and
      estimates. These assumptions and estimates are developed in coordination with
      the principal investigator performing the work under the government fixed-cost
      grants to determine key milestones, expenses incurred, and deliverables to
      perform a percentage-of-completion analysis to ensure that revenue is
      appropriately recognized. Critical estimates involved in this process include
      total costs incurred and anticipated to be incurred during the remaining life
      of
      the grant.





Government
      contract revenue is recognized periodically upon delivery of an invoice for
      allowable R&D expenses according to the terms of the contract. Commercial
      development revenues are recognized when the service or development is
      delivered.




***R&D
      Expenses***





R&D
      costs are expensed as incurred. These expenses consist primarily of our
      proprietary R&D efforts, including salaries and related expenses for
      personnel, costs of materials used in our R&D, costs of facilities and costs
      incurred in connection with our third-party collaboration efforts. Pre-approved
      milestone payments made by us to third parties under contracted R&D
      arrangements are expensed when the specific milestone has been achieved. As
      of
      March 31, 2007, $300,000 has been accrued for milestone payments relating to
      the
      filing of an IND with the FDA for Curaxin CBLC102 ($50,000) and commencing
      Phase
      II clinical trials for Curaxin CBLC102 ($250,000). The $50,000 milestone payment
      was made on May 3, 2007 and the $250,000 is scheduled to be paid in August
      2007
      per the licensing agreement with CCF. Once a drug receives regulatory approval,
      we will record any subsequent milestone payments in identifiable intangible
      assets, less accumulated amortization, and amortize them evenly over the
      remaining agreement term or the expected drug life cycle, whichever is shorter.
      We expect our R&D expenses to increase as we continue to develop our drug
      candidates.





23




***Intellectual
      Property Related Costs***




We
      capitalize costs associated with the preparation, filing and maintenance of
      our
      intellectual property rights. Capitalized intellectual property is reviewed
      annually for impairment. If a patent application is approved, costs paid by
      us
      associated with the preparation, filing and maintenance of the patent will
      be
      amortized on a straight line basis over the shorter of 17 years or the
      anticipated useful life of the patent. If the patent application is not
      approved, costs paid by us associated with the preparation, filing and
      maintenance of the patent will be expensed as part of selling, general and
      administrative expenses at that time.




Through
      March 31, 2007, we have capitalized $252,978 in expenditures associated with
      the
      preparation, filing and maintenance of certain of our patents, which were
      incurred through the year ended December 31, 2006. We capitalized an
      additional $93,193 relating to these costs incurred for the three months ended
      March 31, 2007, totaling $346,171.





***Stock-based
      Compensation***




We
      value
      stock-based compensation pursuant to the provisions of SFAS 123(R). Accordingly,
      effective January 1, 2005, all stock-based compensation, including grants
      of employee stock options, are recognized in the statement of operations based
      on their fair values. We used the Black-Scholes valuation model to estimate
      the
      fair value of all options on the grant date.





The
      Financial Accounting Standards Board (FASB) issued SFAS No. 123(R) requiring
      all
      share-based payments to employees, including grants of employee stock options,
      be recognized in the statement of operations based at their fair values. The
      Company values employee stock based compensation under the provisions of SFAS
      123(R) and related interpretations.




The
      fair
      value of each stock option granted is estimated on the grant date using the
      Black-Scholes option valuation model. The assumptions used to calculate the
      fair
      value of options granted are evaluated and revised, as necessary, to reflect
      our
      experience. We use a risk-free rate based on published rates from the St. Louis
      Federal Reserve at the time of the option grant; assume a forfeiture rate of
      zero; assume an expected dividend yield rate of zero based on our intent not
      to
      issue a dividend in the foreseeable future; use an expected life based on the
      safe harbor method; and compute an expected volatility based on similar
      high-growth, publicly-traded, biotechnology companies. Compensation expense
      is
      recognized using the straight-line amortization method for all stock-based
      awards.





During
      the quarter ended March 31, 2007, the Company granted 119,500 options pursuant
      to stock award agreements to certain employees and key consultants.





The
      Black-Scholes option valuation model was developed for use in estimating the
      fair value of traded options that have no vesting restrictions and are fully
      transferable. In addition, the Black-Scholes valuations model requires the
      input
      of highly subjective assumptions including the expected stock price volatility.
      Because the Company's employee stock options have characteristics significantly
      different from those of traded options, and because changes in subjective input
      assumptions can materially affect the fair value estimate, in management's
      opinion, the existing models do not necessarily provide a reliable single
      measure of the fair value of our options.





We
      recognized a total of $375,301 and $233,032 in expense for options for the
      quarter ended March 31, 2007, and 2006 respectively.





The
      weighted average, estimated fair values of stock options granted during the
      quarters ended March 31, 2007 and 2006 were $9.09 and $4.50,
      respectively.





**Impact
      of Recently Issued Accounting Pronouncements**





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Correction - a
      Replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS
      154 changes the requirements for the accounting for, and the reporting of,
      a
      change in accounting principle. SFAS 154 requires that a voluntary change in
      accounting principle be applied retroactively with all prior period financial
      statements presented under the new accounting principle. SFAS 154 is effective
      for accounting changes and corrections of errors in fiscal years beginning
      after
      December 15, 2005. We have determined that the adoption of the requirements
      required under SFAS 154 will not have a material impact on the financial
      statements of the company.





24


On
      July
      15, 2006 the FASB issued FIN48, *Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement
      No. 109.* We do
      not expect that the adoption of the recognition and measurement requirements
      required under FIN48 to have a material impact on the financial statements
      of
      the company.





In
      December 2004, SFAS No. 123(R), “Share-Based Payment,” which addresses
      the accounting for employee stock options, was issued. SFAS 123(R) revises
      the
      disclosure provisions of SFAS 123 and supersedes APB Opinion No. 25. SFAS
      123(R) requires that the cost of all employee stock options, as well as other
      equity-based compensation arrangements, be reflected in the financial statements
      based on the estimated fair value of the awards. This statement is effective
      for
      all public entities as of the beginning of the first interim or annual reporting
      period that begins after December 15, 2005. We expect the adoption of SFAS
      123R to increase our reported net loss per share.





In
      December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets,
      an amendment of APB Opinion No. 29 (SFAS 153). The guidance in APB
      Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the
      principle that exchanges of nonmonetary assets should be measured based on
      the
      fair value of the assets exchanged. The guidance in APB Opinion
      No. 29, however, included certain exceptions to that principle. SFAS 153
      amends APB Opinion No. 29 to eliminate the exception for nonmonetary
      exchanges of similar productive assets and replaces it with a general exception
      for exchanges of nonmonetary assets that do not have commercial substance.
      A
      nonmonetary exchange has commercial substance if the future cash flows of the
      entity are expected to change significantly as a result of the
      exchange. SFAS 153 is effective for nonmonetary asset exchanges in fiscal
      periods beginning after June 15, 2005. We do not believe that the
      adoption of SFAS 153 will have a material impact on our results of operations
      or
      financial position.





**Results
      of Operations**




Our
      operating results for the past three fiscal years have been nominal. The
      following table sets forth our statement of operations data for the quarter
      ended March 31, 2007 and March 31, 2006, and the year ended December 31, 2006,
      and should be read in conjunction with our financial statements and the related
      notes appearing elsewhere in this filing.




**Quarter
                Ended March 31,**
              **2007**
            
            **Quarter
                Ended March 31,**
              **2006**
            
            **Year
                Ended December 31,**
              **2006**
            
            **Year
                Ended**
              **December 31,**
              **2005******
            
            **(unaudited)**
            
            **(unaudited)**Revenues
            
            $
            321,445
            
            $
            578,424
            
            $
            1,708,214
            
            $
            1,138,831Operating
                expenses
            
            
            4,522,919
            
            
            1,855,262
            
            
            9,126,315
            
            
            3,626,664Net
                interest expense (income)
            
            
            (95,341
            )
            
            (24,693
            )
            
            (195,457
            )
            
            (101,378
            )Net
                income (loss)
            
            $
            (4,106,133
            )
            $
            (1,252,145
            )
            $
            (7,222,644
            )
            $
            (2,386,455
            )




**Quarter
      Ended March 31, 2007 Compared to Quarter Ended March 31,
      2006**




***Revenue***




Revenue
      decreased from $578,424 for the quarter ended March 31, 2006 to $321,445 for
      the
      quarter ended March 31, 2007 representing a decrease of $256,979 or 44.4%
      resulting primarily from a decrease in proceeds from the $1,500,000 BioShield
      grant. As the term of the BioShield grant ended, the proceeds from the BioShield
      grant were $0 for the quarter ended March 31, 2007 as compared to $386,894
      for
      the quarter ended March 31, 2006. Also, we realized $50,000 for the quarter
      ended March 31, 2007 through a commercial contract with Peprotech Inc. to
      develop chemical compounds compared to $125,000 for the same commercial contract
      for the quarter ended March 31, 2006, a decrease of $75,000 or 60%.




25







See
      the
      table below for further details regarding the sources of our grant and
      government contract revenue:




**Agency**
            
            **Program**
            
            **Amount**
            
            **Period
                of**
              **Performance**
            
            **Revenue**
              **2007**
              **(thru**
              **March
                31)**
            
            **Revenue**
              **2006**
              **(thru**
              **March
                31)**
            
            **Revenue**
              **2006****(unaudited)**
            
            **(unaudited)****NIH**
            
            
            Phase
                I NIH SBIR program
            
            $
            100,000
            
            
            08/2004-04/2005**NIH**
            
            
            NIH
                SBIR Contract, Topic 186
            
            $
            100,000
            
            
            09/2004-03/2005**NIH**
            
            
            Phase
                I NIH STTR program
            
            $
            100,000
            
            
            08/2004-04/2005**DARPA**
            
            
            DARPA,
                program BAA04-12
            
            $
            475,000
            
            
            11/2004-08/2005**NIH**
            
            
            Phase
                I NIH SBIR program
            
            $
            100,000
            
            
            06/2005-01/2006**NIH**
            
            
            BioShield
                program (NIAID)
            
            $
            1,500,000
            
            
            07/2005-01/2007
            
            
            
            
            $
            386,894
            
            $
            1,100,293**NIH**
            
            
            Phase
                I NIH SBIR program
            
            $
            100,000
            
            
            08/2005-01/2006
            
            
            
            
            $
            33,334
            
            $
            33,334**NIH**
            
            
            Phase
                I NIH SBIR program
            
            $
            100,000
            
            
            09/2005-02/2006**NASA**
            
            
            Phase
                I NASA STTR program
            
            $
            100,000
            
            
            01/2006-01/2007
            
            
            
            
            $
            33,196
            
            $
            66,393**NIH**
            
            
            Phase
                II NIH SBIR program
            
            $
            750,000
            
            
            07/2006-06/2008
            
            $
            140,593
            
            
            
            
            $
            212,713**NIH**
            
            
            NCI
                Contract
            
            $
            750,000
            
            
            09/2006-08/2008
            
            $
            130,852
            
            
            
            
            $
            90,481Totals
            
            
            
            
            
            
            
            
            
            
            $
            271,445
            
            $
            453,424
            
            $
            1,503,214






We
      anticipate our revenue over the next year to be derived mainly from federal
      government grants and contracts and grants from Roswell Park Cancer Institute
      and agencies of the State of New York as we move our corporate headquarters
      to
      Buffalo, NY in the summer of 2007. In addition, it is common in our industry
      for
      companies to enter into licensing agreements with large pharmaceutical
      companies. To the extent we enter into such licensing arrangements, we will
      receive additional revenue from licensing fees.




***Operating
      Expenses***




Operating
      expenses have historically consisted of costs relating to R&D and general
      and administrative expenses, which include fees and expenses associated with
      patent applications. R&D expenses have consisted mainly of supporting our
      R&D teams, process development, sponsored research at the Cleveland Clinic,
      clinical trials and consulting fees. General and administrative expenses include
      all corporate and administrative functions that serve to support our current
      and
      future operations while also providing an infrastructure to support future
      growth. Major items in this category include management and staff salaries,
      rent/leases, professional services and travel-related expenses. We expect these
      expenses to increase as a result of increased legal and accounting fees
      anticipated in connection with our compliance with ongoing reporting and
      accounting requirements of the SEC and the expansion of our
      business.




Operating
      expenses increased from $1,855,262 for the quarter ended March 31, 2006 to
      $4,522,919 for the quarter ended March 31, 2007, an increase of $2,667,657
      or
      143.8%. This increase resulted primarily from an increase in R&D expenses
      from $1,502,365 for the quarter ended March 31, 2006 to $3,528,600 for the
      quarter ended March 31, 2007. This represents an increase of $2,026,236 or
      134.9%. This increase was due to an increase in research activities and
      development activities such as the number and size of clinical trials and the
      manufacture of CBLB502. General and administrative costs increased from $352,898
      for the quarter ended March 31, 2006 to $994,319 for the quarter ended March
      31,
      2007. This represents an increase of $641,421 or 181.8%. The higher general
      and
      administrative expenses were incurred as a result of operating as a public
      company and creating and improving the infrastructure of the
      Company.




Until
      we
      introduce a product to the market, we expect these expenses in the categories
      mentioned above will be the largest categories in our income
      statement.




26




**Year
      Ended December 31, 2006 Compared to Year Ended December 31,
      2005**




***Revenue***





Revenue
      increased from $1,138,831 for the year ended December 31, 2005 to $1,708,214
      for
      the year ended December 31, 2006, representing an increase of $569,383 or 50%,
      resulting primarily from an increase in proceeds from the $1,500,000 BioShield
      grant. The proceeds from the BioShield grant were $1,100,293 for the year ended
      December 31, 2006 as compared to $999,556 for all grant proceeds for the year
      ended December 31, 2005. Also, we realized $205,000 for the year ended December
      31, 2006 through a commercial contract with Peprotech Inc. to develop chemical
      compounds compared to $139,275 for the year ended December 31,
      2005.




***Operating
      Expenses***





Operating
      expenses increased from $3,626,664 for the year ended December 31, 2005 to
      $9,126,315 for the year ended December 31, 2006. This represents an increase
      of
      $5,499,651 or 152%. This increase resulted primarily from an increase in R&D
      expenses from $2,640,240 for the year ended December 31, 2005 to $6,989,804
      for
      the year ended December 31, 2006, an increase of $4,346,564 or 165%, as we
      increased the number of research scientists and related projects and started
      a
      number of clinical trials. In addition, general and administrative expenses
      increased from $986,424 for the year ended December 31, 2005 to $2,136,511,
      for
      the year ended December 31, 2006. This represents an increase of $1,150,087
      or
      117%. These higher general and administrative expenses were incurred as a result
      of creating and improving the infrastructure of the company and the costs
      associated with being a publicly traded company.





**Liquidity
      and Capital Resources**




We
      have
      incurred annual operating losses since our inception, and, as of March 31,
      2007,
      we had an accumulated deficit of $16,882,043. Our principal sources of liquidity
      have been cash provided by government grants and sales of our securities. Our
      principal uses of cash have been R&D and working capital. We expect our
      future sources of liquidity to be primarily government grants, licensing fees
      and milestone payments in the event we enter into licensing agreements with
      third parties, and research collaboration fees in the event we enter into
      research collaborations with third parties.




Net
      cash
      used in operating activities totaled $3,405,767 for the quarter ended March
      31,
      2007, compared to $940,634 used in operating activities for the same period
      in
      2006. Net cash used in operating activities totaled $6,653,602 for the year
      ended December 31, 2006, compared to $1,730,513 used in operating activities
      for
      the same period in. For all periods, the increase in cash used was primarily
      attributable to increased R&D activities and creating and maintaining the
      infrastructure necessary to support these R&D activities.




Net
      cash
      used in investing activities was $17,054,798 for the quarter ended March 31,
      2007 and net cash provided by investing activities was $702,811 for the same
      period in 2006. The increase in cash used for investing activities resulted
      primarily from the investment of $17,999,965 in short-term commercial paper
      of
      the cash proceeds generated in the private offering. Net cash used in investing
      activities was $14,281 for the year ended December 31, 2006 and $2,805,113
      used
      for the same period in 2005. The decrease in cash used for investing activities
      resulted primarily from the maturing of short-term investments that converted
      to
      cash.




Net
      cash
      provided by financing activities totaled $29,366,589 for the quarter ended
      March
      31, 2007, compared to net cash used in financing activities of $164,800 for
      the
      same period in 2006. The increase in cash provided by financing activities
      was
      attributed to the proceeds from the issuance of preferred stock and warrants
      in
      the private placement. Net cash provided by financing activities totaled
      $8,523,414 for the year ended December 31, 2006, compared to $5,647,347 provided
      by financing activities for the same period in 2005. The increase in cash
      provided by financing activities was attributed to the proceeds from the
      issuance of common stock as a consequence of the initial public
      offering.




27





Under
      our
      exclusive license agreement with CCF, we may be responsible for making milestone
      payments to CCF in amounts ranging from $50,000 to $4,000,000. The milestones
      and corresponding payments for Protectan CBLB502 and Curaxin CBLC102 are set
      forth below:




File
                IND application for Protectan CBLB502
            
            $
            50,000Complete
                Phase I studies for Protectan CBLB502
            
            $
            100,000File
                NDA application for Protectan CBLB502
            
            $
            350,000Receive
                regulatory approval to sell Protectan CBLB502
            
            $
            1,000,000File
                IND application for Curaxin CBLC102 (completed May 2006)
            
            $
            50,000Commence
                Phase II clinical trials for Curaxin CBLC102 (completed January
                2007)
            
            $
            250,000Commence
                Phase III clinical trials for Curaxin CBLC102
            
            $
            700,000File
                NDA application for Curaxin CBLC102
            
            $
            1,500,000Receive
                regulatory approval to sell Curaxin CBLC102
            
            $
            4,000,000




As
      of
      March 31, 2007, we have accrued $50,000 for the milestone payment relating
      to
      the filing of the IND application for Curaxin CBLC102 and $250,000 for
      commencing Phase II clinical trials for Curaxin CBLC102. The $50,000 milestone
      payment was made on May 3, 2007 and the $250,000 milestone is scheduled to
      be
      paid in August, 2007 as per the terms of the agreement.




Our
      agreement with the CCF also provides for payment by us to CCF of royalty
      payments calculated as a percentage of the net sales of the drug candidates
      ranging from 1-2%, and sublicense royalty payments calculated as a percentage
      of
      the royalties received from the sublicenses ranging from 5-35%. However, any
      royalty payments and sublicense royalty payments assume that we will be able
      to
      commercialize our drug candidates, which are subject to numerous risks and
      uncertainties, including those associated with the regulatory approval process,
      our R&D process and other factors. Each of the above milestone payments,
      royalty payments and sublicense royalty payments was accrued until CCF owns
      less
      than five percent of our common stock on a fully-diluted basis or we receive
      more than $30,000,000 in funding and/or revenues from sources other than CCF,
      which have recently occurred with the completion of the private offering.





To
      more
      effectively match short-term investment maturities with cash flow requirements,
      we have obtained a working capital line of credit, which is fully secured by
      our
      short-term investments. This fully-secured, working capital line of credit
      has
      an interest rate of prime minus 1%, a borrowing limit of $500,000 and expires
      on
      July 1, 2007. At March 31, 2007, there were no outstanding borrowings under
      this
      credit facility.





Although
      we believe that existing cash resources will be sufficient to finance our
      currently planned operations for the near-term (12-24 months), such amounts
      will
      not be sufficient to meet our longer-term cash requirements, including our
      cash
      requirements for the commercialization of certain of our drug candidates
      currently in development. We may be required to issue equity or debt securities
      or enter into other financial arrangements, including relationships with
      corporate and other partners, in order to raise additional capital. Depending
      upon market conditions, we may not be successful in raising sufficient
      additional capital for our long-term requirements. In such event, our business,
      prospects, financial condition and results of operations could be materially
      adversely affected.





The
      following factors, among others, could cause actual results to differ from
      those
      indicated in the above forward-looking statements: the results of our R&D
      efforts, the timing and success of preclinical testing, the timing and success
      of any clinical trials we may commence in the future, the timing of and
      responses to regulatory submissions, the amount of cash generated by our
      operations, the amount of competition we face and how successful we are in
      obtaining any required licenses and entering into collaboration
      arrangements.




***Impact
      of Inflation***




We
      believe that our results of operations are not dependent upon moderate changes
      in inflation rates.




***Impact
      of Exchange Rate Fluctuations***




We
      believe that our results of operations are somewhat dependent upon moderate
      changes in foreign currency exchange rates. We have entered into a manufacturing
      agreement with a foreign third party to produce one of its drug compounds and
      are required to make payments in the foreign currency. We also expect to enter
      into additional agreements with foreign third parties, increasing the risk.
      As a
      result, the Company's financial results could be affected by changes in foreign
      currency exchange rates. Currently, our exposure primarily exists with the
      Euro.
      As of March 31, 2007, we are obligated to make payments under the agreement
      of
      1,020,000 Euros. We have established means to purchase forward contracts to
      hedge against this risk. As of March 31, 2007, no hedging transactions have
      been
      consummated




28


***Off-Balance
      Sheet Arrangements***




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




**Item
      3: Controls and Procedures**





**Effectiveness
      of Disclosure**





Our
      management, with the participation of our chief executive officer and chief
      financial officer, evaluated the effectiveness of our disclosure controls and
      procedures as of March 31, 2007 as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Our
      management recognizes that any controls and procedures, no matter how well
      designed and operated, can provide only reasonable assurance of achieving their
      objectives and management necessarily applies its judgment in evaluating the
      cost-benefit relationship of possible controls and procedures. Based on the
      evaluation of our disclosure controls and procedures as of March 31, 2007,
      our
      chief executive officer and chief financial officer concluded that, as of such
      date, our disclosure controls and procedures were effective to assure that
      information required to be declared by us in reports that we file or submit
      under the Exchange Act is (1) recorded, processed, summarized, and reported
      within the periods specified in the SEC's rules and forms and (2) accumulated
      and communicated to our management, including our chief executive officer and
      chief financial officer, as appropriate, to allow timely decisions regarding
      required disclosure.





**Changes
      in Internal Control over Financial Reporting**





No
      change
      in our internal control over financial reporting (as defined in
      Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
      fiscal quarter ended March 31, 2007 that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting.





29


**PART
      II Other Information**





**Item 1.
                Legal Proceedings**





As
      of March 31, 2007, we are not a party to any litigation or other legal
      proceeding.





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




On
      March
      16, 2007, the Company entered into a Securities Purchase Agreement with various
      Buyers, pursuant to which the Company agreed to sell to the Buyers Series B
      Preferred convertible, upon stockholder approval, into an aggregate of 4,288,712
      shares of common stock and Series B Warrants that are exercisable, upon
      stockholder approval, for an aggregate of 2,144,356 shares of common stock.
      The
      aggregate purchase price paid by the Buyers for the Series B Preferred and
      Series B Warrants was approximately $30,000,000. After related fees and
      expenses, the Company received net proceeds of approximately $29,000,000. The
      Company intends to use the proceeds for general corporate and working capital
      purposes.





The
      Series B Preferred have an initial conversion price of $7.00 per share, and
      in
      the event of a conversion at such conversion price, one share of Series B
      Preferred would convert into one share of common stock. The Series B Warrants
      have an exercise price of $10.36 per share, the closing bid price on the day
      prior to the private placement. To the extent, however, that the conversion
      price of the Series B Preferred or the exercise price of the Series B Warrants
      is reduced as a result of certain anti-dilution protections, the number of
      shares of common stock into which the Series B Preferred are convertible and
      for
      which the Series B Warrants are exercisable may increase.





The
      Company also issued to the Agents in the private placement, as compensation
      for
      their services, Series B Preferred, Series B Warrants, and Series C Warrants.
      The Agents collectively received Series B Preferred that are convertible, upon
      stockholder approval, into an aggregate of 290,298 shares of common stock,
      Series B Warrants that are exercisable, upon stockholder approval, for an
      aggregate of 221,172 shares of the Company’s common stock, and Series C Warrants
      that are exercisable, upon stockholder approval, for 267,074 shares of the
      Company’s common stock. The Series C Warrants have an exercise price of $11.00
      per share, and are also subject to anti-dilution protections that could increase
      the number of shares of common stock for which they are
      exercisable.





In
      total,
      upon stockholder approval, the securities issued in the private placement will
      be convertible into, or exercisable for, up to approximately 7,211,612 shares
      of
      common stock, which amount is subject to adjustment in the event of certain
      corporate events such as stock splits or issuances of securities at a price
      below the conversion price of the Series B Preferred or exercise price of the
      warrants, as the case may be.








**Item 3.
                Defaults Upon Senior
                Securities**




None





**Item 4.
                Submission of Matters to a Vote of Securities
                Holders**





None




**Item
      5. Other Information**





On
      May
      11, 2007, the Compensation Committee of the Board of Directors approved an
      executive compensation program designed to reward each of our Chief Executive
      Officer, Executive Vice President -- Business Development, Chief Financial
      Officer and Chief Scientific Officer (the "Executive Officers") for the
      achievement of certain pre-determined milestones. The purpose of the program
      is
      to link each Executive Officer's compensation to the achievement of Key Company
      Initiatives that the Compensation Committee believes have a strong potential
      to
      create long-term stockholder value.




Under
      the
      terms of this program, after each fiscal year beginning with the fiscal year
      ended December 31, 2007, each component of our Executive Officer's compensation
      package --- base salary, cash bonus and stock option awards --- will be measured
      against the Company's achievement of (1) stock performance milestones, (2)
      scientific milestones, (3) business milestones and (4) financial milestones,
      each of which will be weighted equally. The milestones will be set at the
      beginning of each fiscal year. Each set of milestones has a threshold level,
      a
      target level and a high performance level. For base salary, increases will
      range
      between 2% for threshold performance to 6% for high performance. For cash
      bonuses, increases will range between 15% for threshold performance and 60%
      for
      high performance. For stock option awards, awards will range between 50,000
      stock options for threshold performance and 300,000 for high
      performance.




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The
      Committee also approved a director compensation program for its independent
      directors. The new program, which will take effect upon election of the
      directors at the 2007 Annual Meeting of Stockholders, was based on a review
      of
      director compensation policies and programs of comparable companies and replaces
      the previous program, which compensated directors based on the number of
      meetings attended. The new program provides for an annual retainer per
      independent director of $50,000 and an award of 35,000 options to purchase
      shares of common stock. In addition, the chairperson of the Audit Committee
      will
      receive an annual fee of $15,000 and the other members of the Audit Committee
      will each receive an annual fee of $10,000. The chairperson of the Compensation
      Committee will receive an annual fee of $7,500 and the other members of the
      Compensation Committee will each receive $5,000. Each member of the Nominating
      and Corporate Governance Committee, including its chairperson, will receive
      an
      annual fee of $2,500.








**Item
      6. Exhibits**








(a)
      The
      following exhibits are included as part of this report:




**Exhibit**
              **Number**
            
            **Description
                of Document**31.1
            
            Certification
                of Michael Fonstein, Chief Executive Officer, pursuant to Section
                302 of
                the Sarbanes Oxley Act of 2002.31.2
            
            Certification
                of John A. Marhofer, Jr., Chief Financial Officer, pursuant to Section
                302
                of the Sarbanes Oxley Act of 2002.32.1
            
            Certification
                Pursuant To 18 U.S.C. Section 1350







31


**Signatures**




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




CLEVELAND
                BIOLABS, INC.Dated:
                May 15, 2007
            By:
            /s/ JOHN
                A. MARHOFER, JR.John
                A. Marhofer, Jr.
              Chief
                Financial Officer
              (Principal
                Financial Officer)




CLEVELAND
                BIOLABS, INC.Dated:
                May 15, 2007
            By:
            /s/ MICHAEL
                FONSTEIN.Michael
                Fonstein
              Chief
                Executive Officer
              (Principal
                Executive Officer)





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