**United
      States Securities and Exchange Commission**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-K**




**(Mark
      One)**


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


**For
      the fiscal year ended December 31, 2007**





**or**





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


**For
      the transition period from ___________to ___________**





**Commission
      file number 001-32954**





**CLEVELAND
      BIOLABS, INC.**


**(Exact
      name of registrant as specified in its charter)**





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




**73
                High Street, Buffalo, NY 14203**
            
            **(716)
                849-6810**(Address
                of principal executive offices)
            
            Telephone
                No.




**Securities
      Registered Pursuant to Section 12(b) of the Act:**





**Title
                of each class**
            
            **Name
                of each exchange which registered**Common
                Stock, par value $0.005 per share
            
            NASDAQ
                Global Market





**Securities
      Registered Pursuant to Section 12(g) of the Act:**


**None**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.  Yes  ̈ No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.  Yes  ̈ No x




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.  Yes x No  ̈









Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. x




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      definition of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large
                accelerated filer o
            Accelerated
                filer oNon-accelerated
                filer o
            Smaller
                reporting company x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).  Yes  ̈ No x




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates, computed by reference to the price at which the common equity
      was last sold or the average bid and asked price of such common equity, as
      of
      the last business day of the registrant’s most recently completed second fiscal
      quarter was $74,961,490. There were 13,158,477 shares of common stock
      outstanding as of March 1, 2008.





**DOCUMENTS
      INCORPORATED BY REFERENCE**




The
      definitive proxy statement relating to the registrant’s Annual Meeting of
      Stockholders, to be held on April 29, 2008, is incorporated by reference in
      Part
      III to the extent described therein.










CLEVELAND
      BIOLABS, INC.


FORM
      10-K ****


03/21/08





**Cleveland
      BioLabs, Inc.**





**Form
      10-K**





**For
      the Fiscal Year Ended December 31, 2007**




**INDEX**





**Page**PART
                IItem
                1
            Description
                of Business
            2Item
                2
            Description
                of Property
            21Item
                3
            Legal
                Proceedings
            21Item
                4
            Submission
                of Matters to a Vote of Security Holders
            21PART
                IIItem
                5
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            22Item
                6
            Selected
                Financial Data
            22Item
                7
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            22Item
                8
            Financial
                Statements and Supplementary Data
            32Item
                9
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosures
            33Item
                9A
            Controls
                and Procedures
            33Item
                9B
            Other
                Information
            33PART
                IIIItem
                10
            Directors,
                Executive Officers and Corporate Governance
            34Item
                11
            Executive
                Compensation
            34Item
                12
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            34Item
                13
            Certain
                Relationships and Related Transactions, and Director
                Independence
            34Item
                14
            Principal
                Accountant Fees and Services
            34PART
                IVItem
                15
            Exhibits
                and Financial Statement Schedules
            34SIGNATURES
            
            37




1





**FORWARD-LOOKING
      STATEMENTS**




*This
      Annual Report on Form 10-K contains forward-looking statements that involve
      risks and uncertainties. In particular, statements about our expectations,
      beliefs, plans, objectives, assumptions or future events or performance are
      contained or incorporated by reference in this report. We have based these
      forward-looking statements on our current expectations about future events.
      While we believe these expectations are reasonable, such forward-looking
      statements are inherently subject to risks and uncertainties, many of which
      are
      beyond our control. The actual future results for Cleveland BioLabs, Inc. may
      differ materially from those discussed here for various reasons. Given these
      risks and uncertainties, you are cautioned not to place undue reliance on such
      forward-looking statements. The forward-looking statements included in this
      report are made only as of the date hereof. We do not undertake and specifically
      decline any obligation to update any such statements or to publicly announce
      the
      results of any revisions to any of such statements to reflect future events
      or
      developments. When used in the report, unless otherwise indicated, “CBLI,” “we,”
“our” and “us” refers to Cleveland BioLabs, Inc.*




**PART
      I**





**Item 1.**  **Description
      of Business**





**GENERAL**  **OVERVIEW**





CBLI
      was
      incorporated in Delaware and commenced business operations in June 2003 as
      a
      development-stage, biotechnology company, with a very specific and targeted
      focus on radiation drug discovery. We have devoted substantially all of our
      resources to the identification, development and commercialization of new types
      of drugs for protection of normal tissues from exposure to radiation and other
      stresses, such as toxic chemicals and cancer treatments. CBLI’s
      pipeline includes products from two primary families of compounds: protectans
      and curaxins. We are developing protectans as drug candidates that protect
      healthy tissues from acute stresses such as radiation, chemotherapy and ischemia
      ( pathologies
      developed as a result of blocking blood flow to a part of the body ).
      Curaxins are being developed as anticancer agents that could act as mono-therapy
      drugs or in combination with other existing anticancer agents.





On
      July
      20, 2006, we sold 1,700,000 shares of common stock, par value $0.005 per share,
      in our initial public offering at a per share price of $6.00. After our initial
      public offering, our common stock was listed on the NASDAQ Capital Market under
      the symbol “CBLI” and on the Boston Stock Exchange under the symbol “CFB.” Our
      trading symbol on the Boston Stock Exchange was later changed to “CBLI.” On
      August 28, 2007, trading of our common stock transferred from the NASDAQ Capital
      Market to the NASDAQ Global Market. In September 2007, we ceased our listing
      on
      the Boston Stock Exchange.





**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.




2





If
      the
      need is to protect healthy tissues against an external event such as exposure
      to
      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.





Through
      our research and development, or R&D, and our strategic partnerships, we
      have established a technological foundation for the development of new
      pharmaceuticals and their rapid preclinical evaluation. We spent $17,429,652
      and
      $6,989,804 on R&D in the fiscal years ended December 31, 2007 and December
      31, 2006, respectively.





We
      have
      acquired rights to develop and commercialize the following prospective
      drugs:





·
            Protectans
                - modified factors of microbes and tumors that protect cells from
                apoptosis, and which therefore have a broad spectrum of potential
                applications. The potential applications include both 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.





·
            Curaxins
                - small molecules designed to kill tumor cells by simultaneously
                targeting
                two regulators of apoptosis. Initial test results indicate that curaxins
                can be effective against a number of malignancies, including renal
                cell
                carcinoma, or RCC (a highly fatal form of kidney cancer), soft-tissue
                sarcoma, and hormone-refractory prostate
                cancer.





In
      the
      area of radiation protection, we have achieved high levels of protection in
      animal models. With respect to cancer treatment, the biology of cancer is such
      that there is no single drug that can be successfully used to treat 100% or
      even
      50% of all cancer patients. This means that there likely will be a need for
      additional anticancer drugs for each type of cancer.




These
      drug candidates demonstrate the value of our scientific foundation. Based on
      the
      expedited approval process currently available for non-medical applications
      such
      as protection from exposure to radiation, our most advanced drug candidate,
      Protectan CBLB502, may be approved for such applications within 24 to 36 months.
      Another drug candidate, Curaxin CBLC102, entered Phase IIa clinical trials
      earlier this year.




**INDUSTRY**




CBLI
      is a
      biotechnology, or biotech, company focused on developing cancer treatment,
      tissue protection and biodefense drugs. Historically, biotech was defined by
      newly discovered “genetic engineering” technology, which was first developed in
      universities and new startup biotech companies in the mid-1970s. Later, other
      technologies (based on a constant flow of discoveries in the field of biology)
      started playing a leading role in biotech development. Medicine, and
      specifically drug development, is a lucrative field for use of these
      technologies. Large pharmaceutical, or Pharma, companies joined the biotech
      arena through licensing, sponsored research, and corporate agreement
      relationships. Today biotech is a $300 billion industry (based on total
      market capitalization) and includes large companies such as Amgen, Inc. and
      Genentech, Inc.




3




The
      traditional biotech business model is a derivative of the long drug development
      process. Typical biotech companies go through the following stages:





·
            During
                the first stage, biotech companies fund their development through
                equity
                or debt financings while conducting R&D, which culminates in phased
                drug trials.





·
            During
                the second stage, when their lead drug candidates enter the drug
                trials,
                biotech companies may start licensing their drug candidates to Pharma
                companies in order to (1) generate revenue, (2) gain access to additional
                expertise, and (3) establish relations with Pharma companies in the
                market
                who can eventually take a leading role in distributing successful
                drugs.





·
            At
                the most advanced stage, biotech companies generate revenues by selling
                drugs or other biotech products to consumers or through alliances
                of
                equals.




The
      Project BioShield Act, which was signed into law in July 2004, allocated
      $5.6 billion over ten years to fund the research, development and
      procurement of drugs, biological products or devices to treat or prevent injury
      from exposure to biological, chemical, radiological or nuclear agents as a
      result of a military, terrorist or nuclear attack. The legislation provides
      for
      a more expedited approval process by allowing for approval based on Phase I
      safety studies in humans and efficacy studies in two animal species (rodents
      and
      non-human primates) instead of Phase II and III human clinical trials. With
      the
      Project BioShield Act, biotech companies now have greater access to grants
      and
      contracts with the U.S. government. Several biotech companies have secured
      grants and contracts from the U.S. government to develop drugs and vaccines
      as
      medical countermeasures against potential terrorist attacks. For biotech
      companies focused on these types of drugs and vaccines, this type of funding,
      together with the scaled down Food and Drug Administration, or FDA, approval
      process, are major departures from the traditional biotech business model. The
      principal provisions of this law are to:





·
            Facilitate
                R&D efforts of biomedical countermeasures by the NIH;


·
            Provide
                for the procurement of needed countermeasures through a special reserve
                fund of $5.6 billion over ten years; and


·
            Authorize,
                under limited circumstances, the emergency use of medical products
                that
                have not been approved by the FDA.




While
      there are a number of biotech and Pharma companies that are attempting to
      develop new anti-radiation and anti-cancer drugs to treat these medical
      conditions, these areas are nevertheless considered unmet medical needs, which
      means that there are currently no existing methods to satisfactorily treat
      these
      medical conditions.




**STRATEGIES
      AND OBJECTIVES**




Our
      primary objective is to become a leading developer of drugs for the protection
      of human tissues against radiation and other stresses and for cancer treatment.
      Key elements of our strategy include:




·
            *Aggressively
                working towards the commercialization of Protectan
                CBLB502*.
                Our most advanced drug candidate, Protectan CBLB502, offers the potential
                to protect normal tissues against exposure to radiation. Because
                of the
                potential military and defense implications of such a drug, the normally
                lengthy FDA approval process for these non-medical applications is
                substantially abbreviated resulting in a large cost savings to us.
                We
                anticipate having a developed drug available for these non-medical
                applications within 18-30 months. The FDA approval process is estimated
                to
                take an additional six months.




4





·
            *Leveraging
                our relationship with leading research and clinical development
                institutions.*The Cleveland Clinic Foundation, one of the top research medical
                facilities in the world, is one of our co-founders. In addition to
                providing us with drug leads and technologies, the Cleveland Clinic
                will
                share valuable expertise with us as clinical trials are performed on
                our drug candidates. In January 2007, we entered into a strategic
                research
                partnership with Roswell Park Cancer Institute, or RPCI, in Buffalo,
                New
                York. This partnership will enhance the speed and efficiency of our
                clinical research and provide us with access to the state-of-the-art
                clinical development facilities of a globally recognized cancer research
                center.




·
            *Utilizing
                governmental initiatives to target our markets.*Our focus on drug candidates such as Protectan CBLB502, which has
                applications that have been deemed useful for military and defense
                purposes, provides us with a built-in market for our drug candidates.
                This
                enables us to invest less in costly retail and marketing resources.
                In an
                effort to improve our responsiveness to military and defense needs,
                we
                have established a collaborative relationship with the Armed Forces
                Radiobiology Research Institute.





·
            *Utilizing
                other strategic relationships.*We
                have collaborative relationships with other leading organizations
                that
                enhance our drug development and marketing efforts. For example,
                one of
                our founders, with whom we maintain a strategic partnership, is ChemBridge
                Corporation. Known for its medicinal chemistry expertise and synthetic
                capabilities, ChemBridge provides valuable resources to our drug
                development research.




**PRODUCTS
      IN DEVELOPMENT**





**Protectans**




We
      are
      exploring a new natural source of factors that suppress the programmed cell
      death (apoptosis) response in human cells, which can be rapidly developed into
      therapeutic products. These inhibitors are anti-apoptotic factors developed
      by
      microorganisms of human microflora throughout millions of years of co-evolution
      with mammalian host.  We are using the same strategy that was applied for
      the discovery of antibiotics, one of the biggest medical achievements of the
      20 th century.  We have established a technological pipeline for screening of
      such factors, named protectans, and their rapid preclinical
      evaluation . Such
      inhibitors can be used as protection from cancer treatment side effects and
      antidotes against injuries induced by radiation and other stresses associated
      with severe pathologies (i.e., heart attack or stroke).





**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
      many
      other Gram-negative bacteria, and in nature, arranges itself in a hollow
      cylinder to form the filament in bacterial flagellum **** and
      acts
      as a natural activator of NF-kB (nuclear factor-kappa B), a protein complex
      widely used by cells as a regulator of genes that control cell proliferation
      and
      cell survival. Thus,
      Protectan CBLB502 reduces
      injury from acute stresses by mobilizing several natural cell protecting
      mechanisms, including inhibition of apoptosis, reduction of oxidative damage
      and
      induction of factors (cytokines) that induce protection and regeneration of
      stem
      cells in bone marrow and intestine . Potential
      applications for Protectan CBLB502 include reduction of radiation therapy or
      chemotherapy side effects in cancer patients, protection
      from Acute Radiation Syndrome (ARS) in defense scenarios, and protection from
      acute organ failure . Protectan
      CBLB502 is administered through intramuscular injection.




5





**Biodefense
      Applications**





Our
      scientists have demonstrated that injecting Protectan CBLB502 into mice, rats
      and non-human primates 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
      National Institutes of Health, or 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 CBLB502-treated animals
      that received whole-body radiation versus the non-treated 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 ARS, including
      the lethal effects on both the GI and hematopoietic systems.




A
      study
      completed in late 2007 demonstrated the efficacy of Protectan CBLB502 as a
      mitigator of hematopoietic (bone marrow/blood production) damage up to 48 hours
      after radiation exposure. This was the first primate study pointing towards
      CBLB502's high utility in protection of civil populations, where countermeasures
      would be stockpiled and then distributed.




In
      the
      study, five groups of ten rhesus primates received 5 Gy (approximately 20%
      of
      lethal dose) of gamma radiation. The control group received a placebo, while
      the
      four experimental groups received a single intramuscular injection of Protectan
      CBLB502 at one of the following times: 1, 16, 24 or 48 hours after irradiation.
      No mortality was observed in CBLB502-treated groups after 30 days, while 20%
      mortality was observed in the control group. Thrombocytopenia has been shown
      to
      be the best predictor of primate post-irradiation mortality in recent studies.




The
      duration and occurrence of severe thrombocytopenia (a decrease of
      platelet *s* ,
      the
      blood cells that prevent bleeding) was strongly reduced by CBLB502. The average
      number of severe thrombocytopenia (< 50,000 platelets/ul) days per primate
      was drastically reduced from 4.3 in the control group to 0.6-1.5 in all four
      CBLB502-treated groups.





In
      addition, duration and occurrence of severe neutropenia (a decrease in white
      blood cells, which serve as the primary defense against infections) was also
      reduced by CBLB502. For example, an average number of days of extremely severe
      neutropenia (< 100 neutrophils/ul) per primate was reduced from 2.7 in the
      control group to 0.3-1.5 in the experimental groups.




We
      submitted Protectan CBLB502 in response to a Request for Information, or RFI,
      from the Department of Health and Human Services, or HHS, in July 2007, which
      noted the agency's intention to pursue an initial acquisition of 100,000
      treatment courses of a medical countermeasure for neutropenia arising as a
      consequence of ARS. The RFI further stated that there would be options for
      up to
      an additional 100,000 treatment courses to meet HHS’s requirement of at least
      200,000 treatment courses.




6




We
      intend
      to initiate a human safety study in the first half of 2008 for Protectan CBLB502
      in ARS, which is the only stage of human testing required for approval in this
      indication.




*Regulatory
      Status*





Extraordinary
      radioprotective properties, an excellent toxicity profile, outstanding stability
      and inexpensive production of Protectan CBLB502 make it a primary candidate
      for
      entering formal preclinical and clinical studies. Initially, Protectan CBLB502
      will be developed for non-medical purposes — as a radioprotectant antidote for
      the protection of people from severe doses of ionizing radiation. Our drug
      development strategy complies with the recently adopted FDA rules for
      investigational drugs that address situations such as radiation injury, where
      it
      would be unethical to conduct efficacy studies in humans. While Phase II and
      Phase III human clinical trials are normally required for the approval of
      marketing an investigational drug, under the FDA rules, Protectan CBLB502 would
      be considered for approval for this indication based on Phase I safety studies
      in humans and efficacy studies in two animal species (rodents and non-human
      primates). Based upon this expedited approval process, Protectan CBLB502 could
      be approved for non-medical applications within 24 to 36 months. Because Phase
      II and Phase III testing involves applying a drug candidate to a large numbers
      of participants who suffer from the targeted disease and condition and can
      last
      for a total of anywhere from three to six or additional years, bypassing these
      phases represents a significant time and cost savings in receiving FDA approval.





As
      part
      of this expedited approval process, the FDA has indicated that it intends to
      engage in a highly interactive review of Investigational New Drug, or IND,
      applications and New Drug Applications, or NDAs, and to provide for accelerated
      review or approval of certain medical products for counterterrorism
      applications, including granting eligible applications “Fast Track” approval
      status. The Fast Track designation ordinarily allows a product to be considered
      for accelerated approval through the use of surrogate endpoints to demonstrate
      effectiveness. As a result of these provisions, the FDA has broader authority
      to
      consider evidence of partial tumor shrinkage or other surrogate endpoints of
      clinical benefit in deciding on approval. This new policy is intended to
      facilitate the study of cancer therapies and shorten the total time required
      for
      marketing approvals. In cases where priority review is given to Fast Track
      applications, the applicant is permitted to submit applications on a rolling
      basis.





As
      part
      of the process to receive final FDA approval for Protectan CBLB502 for
      non-medical applications, we have completed
      Good Manufacturing Practices compliant (cGMP) manufacturing of Protectan
      CBLB502. The
      yields from the process and the purity of the final product exceeded our
      expectations. We were able to develop a complicated, high-yield manufacturing
      process for CBLB502 because of the excellent work of our in-house team and
      consultants, and our subcontractor, SynCo Bio Partners B.V, which was able
      to
      prototype the process and resolve multiple challenges during the industrial
      development. We currently have drug substance corresponding to over 100,000
      projected human doses, or potentially many more, depending on the final
      therapeutic dose to be used, which will be determined in the coming months
      through our Phase I safety trial. The process we developed gives us the ability
      to manufacture up to five million estimated doses within a year without any
      additional scale-up; and if necessary, scale-up could be implemented relatively
      easily.





In
      order
      for us to receive final FDA approval for Protectan CBLB502 for non-medical
      applications, we need to:





·
            Submit
                an IND application and receive approval from the
                FDA;


·
            Perform
                a Phase I dose-escalation human study on a small number of
                volunteers;


·
            Conduct
                pivotal animal efficacy studies with the GMP manufactured drug
                candidate;


·
            Perform
                a human safety study in a larger number of volunteers using the dose
                of
                CBLB502 previously shown to be safe in humans and efficacious in
                animals;
                and


·
            File
                a Biologic License Application, or
                BLA.




7





In
      our
      most optimistic business scenario, all of these steps could be accomplished
      in
      18 months. In a more conservative business scenario, it may take up to 30 months
      or more to complete the development and file the BLA for the approval of
      Protectan CBLB502 for non-medical applications.





The
      Project BioShield Act of 2004, which further expedites the approval of drug
      candidates for certain uses, is intended to bolster our nation’s ability to
      provide protections and countermeasures against biological, chemical,
      radiological or nuclear agents that may be used in a military, terrorist or
      nuclear attack.





This
      law
      also allows for the use of expedited peer review when assessing the merit of
      grants and contracts of up to $1,500,000 for countermeasure research. We have
      been awarded a $1,500,000 research grant pursuant to this law.




The
      Defense Threat Reduction Agency of the U.S. Department of Defense, or DoD,
      awarded us a $1.3 million grant in March 2007, to fund “development leading to
      the acquisition” of Protectan CBLB502 as a radiation countermeasure, in
      collaboration with the Armed Forces Radiobiology Research Institute, which
      has
      also received significant independent funding for work on Protectan CBLB502.




The
      DoD
      also recently awarded a $1 million grant to our founding partner, the Cleveland
      Clinic, to conduct pre-clinical studies on Protectan CBLB502 for use in
      tourniquet and other ligation-reperfusion battlefield injuries where blood
      flow
      is stopped and then restored after a prolonged period of time.




*Market
      Opportunities*





Protectan
      CBLB502 is a candidate for procurement by the DoD. In general, the procurement
      process is conducted on the basis of full and open competition that cannot
      be
      limited, unless the DoD determines that the public requesting policy would
      otherwise seriously jeopardize national security.





Prior
      to
      determining the best treatment, the DoD issues a Request for Information, or
      RFI, for treatments available or in development for a specific condition
      resulting from an identified threat. The RFI provides an incentive for companies
      to research and develop countermeasures that are superior to those selected
      for
      stockpiling. Through the RFI, companies may compete for future contracts that
      will revise and update stockpile content for emerging threats and to discover
      advanced technologies and new countermeasures.





Following
      its review of the responses it receives, the DoD issues a Request for Proposal,
      or RFP. The RFP solicits proposals for the manufacturing of specified treatments
      for a defined number of doses to be delivered within a specified time frame
      (a
      maximum of eight years). A contract may be awarded once the review of the RFP
      responses has been completed, though payments by the government are made only
      upon product delivery.





If
      the
      product or the use indicated in the RFP of an approved product is not approved,
      licensed, or cleared for commercial distribution at completion of the review,
      the DoD has the authority to procure the required amount if it has:





·
            Determined
                that sufficient and satisfactory clinical experience or research
                data
                (including data, if available, from pre-clinical and clinical trials)
                support a reasonable conclusion that the countermeasure will qualify
                for
                approval or licensing within eight years after the date of a
                determination, and





·
            Determined
                that the product is authorized for emergency use.






8




In
      February 2007, the DoD, through the U.S. Army Space and Missile Defense Command,
      issued a RFP for the Advanced Development of Medical Radiation Countermeasures,
      or MRC. According to the RFP, the objective of the MRC project is to develop
      a
      post-exposure MRC through a Phase I clinical trial and, pending successful
      completion of the Phase I clinical trial, develop the MRC product through
      approval/licensure with the FDA and procure quantities of the MRC sufficient
      to
      achieve Initial Operational Capability, or IOC. The RFP stated that the MRC
      must
      have the following characteristics: be safe, efficacious, quick acting, free
      from performance-decrementing side effects, relatively non-invasive, compatible
      with current military countermeasures, and usable on the battle field. The
      MRC
      also should not require refrigeration, nor have other significant logistical
      burdens, and should have a relatively long shelf life. The solicitation
      specifically requested a drug/biologic intended for use after exposure to
      ionized radiation, or IR, has occurred.




In
      January 2008, we learned that Protectan CBLB502 was not selected for award
      under
      the RFP. We
      intend
      to further develop CBLB502 and obtain FDA approval and will respond to future
      DoD solicitations as they are announced. We plan to continue our discussions
      with the DoD, HHS, and other friendly governments, who are interested in
      CBLB502’s potential to protect against terrorist threats and nuclear disaster.
      Our goal is to achieve FDA approval for CBLB502 in 2009 and market it as an
      effective and affordable radiation protector for defense use on the battlefield
      or for first responders of civilian emergencies.




**Medical
      Applications**




In
      addition to its military or other non-medical applications, we have found that
      Protectan CBLB502 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.




Another
      recent study demonstrated the ability of Protectan CBLB502 to reduce the side
      effects of a chemotherapeutic drug, Platinol (cisplatin), broadly used for
      the
      treatment of ovarian, endometrial, head and neck, lung, stomach and other types
      of cancer. Platinol
      treatment was used in the study as an example of chemotherapy-associated
      toxicity. Platinol injected at toxic doses is known to induce myelosuppression
      (suppression of bone marrow) and nephrotoxicity (kidney damage). The severity
      of
      these injuries in mice can be monitored by the degree of weight loss and, in
      the
      case of severe adverse effects, the proportion of fatalities in treated groups.




In
      the
      study, Protectan CBLB502 was injected 30 minutes before Platinol was
      administered at a dose of 1 mcg/mouse (0.04 mg/kg, which is less than 1% of
      maximal tolerable dose). Platinol was injected either at the maximal tolerable
      dose or at double maximal tolerable dose. Mice were monitored daily for weight
      and behavioral abnormalities for 30 days, or until death. Mice losing more
      than
      25% of their weight were sacrificed, per conventional ethical guidelines for
      animal treatment.




In
      mice
      that received the maximal tolerable dose of Platinol, CBLB502-treated animals
      showed neither weight loss nor behavioral signs of morbidity, both of which
      were
      seen in all of the control group mice.




In
      mice
      that received twice the maximal tolerable dose of Platinol, the majority of
      mice
      in the control group died or were sacrificed due to loss of more than 25% of
      their weight by day 10, while all of the animals that received Protectan CBLB502
      before Platinol survived, never reaching more than 20% weight loss.




Thus
      in
      both of these dose groups, a single injection of CBLB502 prior to treatment
      with
      Platinol strongly reduced the toxicity of the drug, as indicated by less severe
      weight loss and lack of behavioral changes in treated mice.




9




The
      prospect of increasing patients' tolerance to chemotherapeutic drugs and
      optimizing treatment regimens would be a significant paradigm shift in cancer
      treatment. It is estimated that approximately 40% of the roughly $50 billion
      annually spent on cancer treatment represents supportive care addressing side
      effects of various treatments, including chemotherapy.




We
      plan
      to initiate a Phase I/II study in the second half of 2008 for Protectan CBLB502
      in head and neck cancer patients. The endpoint of the study will be the
      reduction of side effects of radiation and chemotherapy, such as mucositis
      (a
      p ainful
      inflammation and ulceration of oral mucosa causing difficulties with speaking
      and eating). Mucositisweakens
      the patient by not allowing for the oral intake of nutrients and fluids and
      forces the temporary suspension of radiotherapy and chemotherapy until the
      tissues of the mouth and throat have healed. Due to the ability of head and
      neck
      cancer cells to regrow during periods of interrupted treatment, any interruption
      in radiotherapy should be avoided. Since the main cause of treatment
      interruptions in radiotherapy or combinations of chemotherapy and radiotherapy
      treatment regimens of head and neck cancer is acute mucositis, the ability
      to
      prevent mucositis, and therefore, interruptions in treatment, could actually
      result in better outcomes for patients with cancers of the head and
      neck.




Protectan
      CBLB502 has also shown efficacy as a potential adjuvant for radiation therapy
      in
      mouse models of sarcoma and our researchers, in collaboration with investigators
      from Cleveland Clinic, have demonstrated that a single injection of Protectan
      CBLB502 effectively prevents acute renal failure and subsequent death in a
      mouse
      model of ischemia-reperfusion renal injury.




In
      contrast to the non-medical applications of CBLB502, 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**




Protectan
      CBLB612 is a modified lipopeptide mycoplasma that acts as a powerful stimulator
      and mobilizer of hematopoietic (bone marrow/blood production) stem cells, or
      HSC, to peripheral blood .
      P otential
      applications for Protectan CBLB612 include accelerated hematopoietic recovery
      during chemotherapy and during donor preparation for bone marrow
      transplantation.




Our
      research indicates that Protectan CBLB612 is not only a potent stimulator of
      bone marrow stem cells, but also causes their mobilization and proliferation
      throughout the blood. A single administration of Protectan CBLB612 resulted
      in a
      three-fold increase in the number of progenitor stem cells in mouse bone marrow
      within 24 hours after administration. Furthermore, the number of these stem
      cells in peripheral blood was increased ten-fold within four days of
      administration.




Protectan
      CBLB612 was also found to be highly efficacious in stimulating proliferation
      and
      mobilization of hematopoietic stem cells into peripheral blood in primate model
      (Rhesus macaques).  A single injection of Protectan CBLB612 in Rhesus
      macaques resulted in a 20-fold increase of hematopoietic progenitor cells in
      blood.  At the peak of the effect (48-72 hours post-injection) the
      proportion of free-floating CD34+ cells in the total white blood cell count
      reached 30% (compared with 1.5% in normal blood).  CD34 is a molecule present
      on certain cells within the human body.  Cells expressing CD34, otherwise
      known as CD34+ cells, are normally found in the umbilical
      cord and bone
      marrow as
      hematopoietic cells.




This
      discovery opens a new and innovative way for us to address a broad spectrum
      of
      human diseases, some of which currently lack effective treatment. Direct
      comparisons of Protectan CBLB612 and the market leading drug used for
      stimulation of blood regeneration, G-CSF (Neupogen®, Amgen, Inc., Thousand Oaks,
      California), demonstrated a stronger efficacy of Protectan CBLB612 as a
      propagator and mobilizer of HSC in peripheral blood.




Protectan
      CBLB612's strength as a stem cell stimulator was further demonstrated by the
      outcome of its combined use with G-CSF and AMD3100 (a promising clinical-stage
      stem cell mobilizer from Genzyme Corporation (Cambridge, Massachusetts)), where
      the addition of Protectan CBLB612 resulted in eight to ten times higher yields
      of HSC in peripheral blood in comparison with the standard
      protocol.




In
      this
      study, a single injection of Protectan CBLB612 was given to mice in combination
      with the current standard methodology for stem cell donor isolation, which
      is
      four daily injections of G-CSF followed by one injection of AMD3100. The
      addition of Protectan CBLB612 to the protocol yielded eight to ten times higher
      concentrations of short-term and long-term HSC in peripheral blood compared
      to
      the standard protocol. Even a single administration of Protectan CBLB612 in
      combination with AMD3100 yielded twice as many mobilized HSC compared with
      that
      of the standard regimen. Furthermore, Protectan CBLB612 mobilized all major
      classes of HSC to peripheral blood, suggesting that no HSC classes would be
      lost
      in the enrichment process.




10




A
      report
      published by the NIH division of HHS entitled "Regenerative Medicine 2006,"
      notes that hematopoietic stem cells have been used clinically since 1959 and
      are
      used increasingly routinely for transplantations, albeit almost exclusively
      in a
      non-pure form. Currently, the main indications for bone marrow transplantation
      are either hematopoietic cancers (leukemias and lymphomas), or the use of
      high-dose chemotherapy for nonhematopoietic malignancies (cancers in other
      organs). Other indications include diseases that involve genetic or acquired
      bone marrow failure, such as aplastic anemia, thalassemia sickle cell anemia,
      and increasingly, autoimmune diseases. Producing a ready supply of hematopoietic
      stem cells for an individual, without painful procedures, risk of contamination,
      or side effects, would be tantamount to enabling the body to repair itself
      from
      any damage to its blood-forming system.




In
      addition to efficacy in stimulation and mobilization of stem cells, Protectan
      CBLB612 was found to be highly effective in
      an
      animal bone marrow stem cell transplantation model. Blood
      from healthy mice treated by Protectan CBLB612 was transplanted into mice that
      received a lethal dose of radiation that killed hematopoietic (bone marrow/blood
      production) stem cells.  A small amount of blood from the Protectan CBLB612
      treated mice successfully rescued the mice with radiation-induced bone marrow
      stem cell deficiency.  100% of the deficient mice transplanted with blood
      from CBLB612 treated
      mice survived past the 60-day mark, while 85% of the untreated deficient mice
      died within the first three weeks of the experiment.  The 60-day mark is
      considered to be the critical point in defining the presence of long-term,
      adult
      bone marrow stem cells, which are capable of completely restoring lost or
      injured bone marrow function.  The rescuing effect of the peripheral blood
      of the treated mice was equivalent to that of conventional bone marrow
      transplantation.





Adult
      hematological bone marrow stem cell transplantation is currently used for
      hematological disorders (malignant and non-malignant), as well as some
      non-hematological diseases, such as breast
      cancer, testicular cancer, neuroblastoma, ovarian cancer, Severe Combined Immune
      Deficiency (SCID), Wiskott-Aldrich syndrome, and Chediak-Higashi syndrome.





Protectan
      CBLB612 also has been shown to provide protection in a mouse model from lethal
      hematopoietic-induced ARS when administered between 48 hours prior or up to
      24
      hours after radiation exposure.





Protectan
      CBLB612 does not display
      any significant toxicity at its therapeutic doses in rodents and non-human
      primates.




With
      efficacy and non-GLP safety already studied in mice and monkeys, Protectan
      CBLB612 entered formal pre-clinical safety and manufacturing development in
      February 2008. Its first human trials are projected for 2009. The development
      of
      our Protectan CBLB612 has been supported by a grant from the Defense Advanced
      Research Projects Agency of the Department of Defense.




**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 renal cell carcinoma,
      or
      RCC, soft-tissue sarcoma, and hormone-refractory prostate cancer.




11





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.
      The work of our founders 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.





**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.




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





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 minor modifications
      to the protocol for such clinical studies.





A
      Phase
      II efficacy clinical trial using Curaxin CBLC102 in patients with advanced
      hormone-refractory (androgen-independent) prostate cancer started in January
      2007 at the University of Chicago, Cleveland Clinic, and Case Western Reserve
      University Hospitals. We are applying CBLC102 as the monotherapy to patients
      who
      have failed to respond satisfactorily after undergoing established cancer
      treatments and will use the suppression of tumor growth and prolonged patient
      survival as major endpoints.  Reducing the prostate-specific antigen, or
      PSA, level is an additional endpoint (elevated PSA levels are indicative of
      the
      progression of prostate cancer). We expect to report the results of this trial
      in mid-2008.




12





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. or, for a disease that affects more than
      200,000 individuals in the U.S., where the sponsor does not realistically
      anticipate that its drug will become profitable. We believe that Curaxin CBLC102
      may qualify as an orphan drug for purposes of treatment of RCC, soft tissue
      sarcoma ,
      and
      multiple myeloma - all diseases that affects
      fewer than 200,000 individuals in the U.S . 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.





**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. As the part of this program
      performed in the partnership with ChemBridge Corporation, more than 800
      proprietary compounds were screened for p53 activation, efficacy in animal
      tumor
      models, selective toxicity and metabolic stability in the presence of rat and
      human microsomes. The most active compounds were efficacious in preventing
      tumor
      growth in models for colon carcinoma, melanoma, ovarian cancer, RCC, and breast
      cancer.  In February 2008, three lead candidates were chosen for
      preclinical development based on their efficacy, low toxicity profiles, high
      stability and suitability for human administration.




**COLLABORATIVE
      RESEARCH AGREEMENTS**





**Cleveland
      Clinic Foundation**





We
      have a
      unique opportunity to accelerate our development by utilizing intellectual
      property, drug leads, new research technologies, technical know-how and original
      scientific concepts derived from 25 years of research achievements relevant
      to
      cancer by Dr. Gudkov and his research team while at the Cleveland Clinic.
      Pursuant to an Exclusive License Agreement we entered into with the Cleveland
      Clinic effective as of July 1, 2004, we were granted an exclusive license to
      the
      Cleveland Clinic’s research base underlying our therapeutic platform (the
      CBLC100, CBLB500 and CBLB600 series). In consideration for obtaining this
      exclusive license, we agreed to:





·
            Issue
                to the Cleveland Clinic 1,341,000 shares of common
                stock;


·
            Make
                certain milestone payments (ranging from $50,000 to $4,000,000, depending
                on the type of drug and the stage of such drug’s
                development);


·
            Make
                royalty payments (calculated as a percentage of the net sales of
                the drugs
                ranging from 1-2%); and


·
            Make
                sublicense royalty payments (calculated as a percentage of the royalties
                received from the sublicenses ranging from 5-35%).







13




The
      schedule of milestone payments is as follows:





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




Under
      this license agreement, we may exclusively license additional technologies
      discovered by Dr. Gudkov in this field by providing the Cleveland Clinic with
      notice within 60 days after receiving an invention disclosure report from the
      Cleveland Clinic relating to any such additional technologies. We believe that
      this relationship will prove valuable, not only for the purposes of developing
      the discoveries of Dr. Gudkov and his colleagues, but also as a source of
      additional new technologies. We also expect that the Cleveland Clinic will
      play
      a critical role in validating therapeutic concepts and in conducting trials.
      The
      Cleveland Clinic may terminate the license upon a material breach by us, as
      specified in the agreement. However, we may avoid such termination if we cure
      the breach within 90 days of receipt of a termination notice.





In
      August
      2004, we entered into a cooperative research and development agreement, or
      CRADA, with (i) the Uniformed Services University of the Health Sciences, which
      includes the Armed Forces Radiobiology Research Institute, or AFRRI, (ii) the
      Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc.,
      and
      (iii) the Cleveland Clinic, to evaluate one of our radioprotective drug
      candidates and its effects on intracellular and extracellular signaling
      pathways. As a collaborator under this agreement, we are able to use the
      laboratories of the Armed Forces Radiobiology Research Institute to evaluate
      Protectan CBLB502 and its effects on intracellular and extracellular signaling
      pathways in order to improve countermeasures to lethal doses of radiation.
      Under
      the terms of the agreement, all parties are financially responsible for their
      own expenses related to the agreement. The agreement has a five-year term,
      but
      may be unilaterally terminated by any party upon 30 days prior written notice
      with or without cause.





In
      February 2008, the terms of the agreement were extended by an additional two
      years expiring August 15, 2010 and an additional scope of the research to be
      performed under the CRADA has been added. As the part of the extended research
      plan AFRRI will perform additional experiments in non-human primates to evaluate
      radioprotection efficacy of Protectan CBLB502 and perform analysis of
      hematopoietic stem cell mobilization by Protectan CBLB612.





**Roswell
      Park Cancer Institute**




In
      January 2007, we entered into a strategic research partnership with Roswell
      Park
      Cancer Institute, or RPCI, to develop our anticancer 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.




14




RPCI
      and
      various agencies of the state of New York will provide us with up to $5 million
      of grant and other funding. We established a major research/clinical facility
      at
      the RPCI campus in Buffalo, New York, which has become the foundation for
      several of our advanced research and clinical trials.




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.




**ChemBridge
      Corporation**





Another
      vital component of our drug development capabilities is our strategic
      partnership with ChemBridge Corporation, an established leader in combinatorial
      chemistry and in the manufacture of diverse chemical libraries.





On
      April
      27, 2004, we entered into a library access agreement with ChemBridge that,
      in
      exchange for shares of our common stock and warrants, provides us with continual
      access to a chemical library of 214,000 compounds. Under the library access
      agreement, we have also agreed to collaborate with ChemBridge in the future
      on
      two optimization projects, wherein ChemBridge will have the responsibility
      of
      providing the chemistry compounds for the project and we will have the
      responsibility of providing the pharmacological/biological compounds. Upon
      providing ChemBridge with our data after at least two positive repeat screening
      assays, which have been confirmed in at least one additional functional assay,
      ChemBridge will have the option to select such compound as one of the two
      optimization projects. ChemBridge will retain a 50% ownership interest in two
      lead compounds selected by ChemBridge and all derivative compounds thereof.
      The
      parties will jointly manage the development and commercialization of any
      compounds arising from an optimization project. The parties are discussing
      the
      possibility of entering into an additional project arising from the optimization
      project. There can be no assurance the parties will agree to proceed with such
      project on favorable terms, or at all. The library access agreement does not
      have a specified term or any termination provisions.





We
      have a
      strong working relationship with ChemBridge. This relationship has already
      resulted in the isolation of bioactive small molecules with clinical potential
      that helped to establish either new therapeutic concepts (p53 inhibitors) or
      identify molecules for important indications acting through previously unknown
      mechanisms (novel class of inhibitors of multidrug transporters). Both lines
      of
      study have resulted in high visibility publications and are slated for further
      exploration by us.




**PATENTS**





As
      a
      result of the license agreement with the Cleveland Clinic, we have filed, on
      the
      Cleveland Clinic’s behalf, thirteen patent applications covering new classes of
      anticancer and radiation-protecting compounds, their utility and mode of action.





Our
      intellectual property platform is based primarily on these thirteen patent
      applications exclusively licensed to us by the Cleveland Clinic and three patent
      applications, which we have filed and own exclusively.





The
      aforementioned thirteen patent
      applications licensed from the Cleveland Clinic are as follows:




·
            Methods
                of Inhibiting Apoptosis Using Latent
                TFGß;




·
            Methods
                of Identifying Modulators of Apoptosis From Parasites and Uses
                Thereof;






15




·
            Methods
                of Inhibiting Apoptosis Using Inducers of
                NF-kB;




·
            Methods
                of Protecting Against Radiation Using Inducers of
                NF-kB;




·
            Methods
                of Protecting Against Radiation Using
                Flagellin;




·
            Small
                Molecules Inhibitors of MRP1 and Other Multidrug
                Transporters;




·
            Flagellin
                Related Polypeptides and Uses
                Thereof;




·
            Modulation
                of Apoptosis Using Aminoacridines;




·
            Modulation
                of Immune Responses;




·
            Activation
                of p53 and Inhibition of NF-kB for Cancer
                Treatment;




·
            Methods
                of Protecting Against Apoptosis Using
                Lipopeptides;




·
            Modulation
                of Cell Growth; and




·
            Mitochondrial
                Cytochrome B.




The
      aforementioned three patent applications, which we filed, are as
      follows:




·
            Quinacrine
                Isomers;




·
            Modulation
                of Androgen Receptor for Treatment of Prostate Cancer;
                and




·
            Method
                of Increasing Hematopoietic Stem
                Cells.




**MANUFACTURING**




We
      do not
      intend to establish or operate facilities to manufacture our drug candidates,
      and therefore will be dependent upon third parties to do so. As we develop
      new
      products or increase sales of any existing product, we must establish and
      maintain relationships with manufacturers to produce and package sufficient
      supplies of our finished pharmaceutical products. We have
      established a relationship with SynCo Bio Partners B.V., a leading
      biopharmaceutical manufacturer, to produce Protectan CBLB502 under cGMP
      specifications, and have completed an agreement to produce sufficient amounts
      for clinical trials and a commercial launch. For CBLC102, we have contracted
      with Regis Technologies, Inc. to manufacture sufficient amounts for clinical
      trials.




Reliance
      on third party manufacturing presents several risks, including the
      following:





·
            Delays
                in the delivery of quantities needed for multiple clinical trials
                or
                failure to manufacture such quantities to our specifications, either
                of
                which could cause delays in clinical trials, regulatory submissions
                or
                commercialization of our drug
                candidates;





·
            Inability
                to fulfill our needs in the event market demand for our drug candidates
                suddenly increases, which may require us to seek new manufacturing
                arrangements, which, in turn, could be expensive and time consuming;
                and





·
            Ongoing
                inspections by the FDA or other regulators and other regulatory
                authorities for compliance with rules, regulations and standards,
                the
                failure to comply with which may subject us to, among other things,
                product seizures, recalls, fines, injunctions, suspensions or revocations
                of marketing licenses, operating restrictions and criminal
                prosecution.




16




**COMPETITION**





**Non-Medical
      Applications**





In
      the
      area of radiation-protective antidotes, various companies, such as RxBio, Inc.,
      Exponential Biotherapies Inc., Osiris Therapeutics, Inc., ImmuneRegen
      BioSciences, Inc. and Humanetics Corporation are developing biopharmaceutical
      products that potentially directly compete with our non-medical application
      drug
      candidates even though their approaches to such treatment are different.





We
      believe that due to the global political environment, the level of development
      advancement is the critical factor in the marketing of an effective medical
      radiation countermeasure to federal agencies, such as DoD and HHS.  New
      developments in this area are expected to continue at a rapid pace in both
      industry and academia. For these reasons, we believe that competition will
      be
      driven by the level of development advancement of MRC.





**Anticancer
      Applications**





The
      arsenal of medical radiation-protectors is limited to ETHYOLTM (amifostine), sold
      by MedImmune, and recently acquired by AstraZeneca International. This
      radiation-protector is limited because of the serious side effects of the drug.
      Other radiation-protectors may enter the market.





Biomedical
      research for anticancer therapies is a large industry, with many companies,
      universities, research institutions and foreign government-sponsored companies
      competing for market share. The top ten public U.S.-based companies involved
      in
      cancer therapy have a combined market capitalization exceeding $1 trillion.
      In
      addition, there are several hundred biotech companies who have as their mission
      anticancer drug development. These companies account for the approximately
      150
      anticancer compounds currently in drug trials. However, despite the numerous
      companies in this field, there is still a clear, unmet need in the anticancer
      drug development market.





Each
      of
      the approximately 200 types of cancer recognized by the National Cancer
      Institute, or NCI, has dozens of subtypes, both etiological and on a treatment
      basis. Due to this market segmentation, the paradigm of a one-size-fits-all,
      super-blockbuster approach to drug treatments does not work well in cancer
      therapy. Currently, even the most advanced therapeutics on the market do not
      provide substantial health benefits.





This
      suggests that innovative anticancer therapies are driven by the modest success
      of current therapeutics, the need for an improved understanding of the
      underlying science, and a shift in the treatment paradigm towards more
      personalized medicine. Our technology addresses this need for an improved
      understanding of the underlying science and implements a fundamental shift
      in
      the approach to developing anticancer therapies.





**Stem
      Cell Mobilization**





G-CSF
      (Neupogen® and Neulast@, Amgen, Inc., Thousand Oaks, California) is the current
      standard against which all other mobilization agents for stem cells are
      measured. This is because it has been shown to both mobilize more CD34+ stem
      cells and have less toxicity than any other single agent against which it has
      been tested to date. Use of G-SCF caused deaths attributed to thrombosis (acute
      myocardial infarction and stroke) in sibling donors. Other side effects include
      pain, nausea, vomiting, diarrhea, insomnia, chills, fevers, and night
      sweats.





Sargramostim
      (Bayer HealthCare Pharmaceuticals Inc., Wayne, New Jersey) as a single agent
      is
      used less often today for mobilization than G-CSF, because it mobilizes somewhat
      less well than G-CSF and because of a relatively higher incidence of both mild
      and severe side effects. Erythropoietin (Amgen, Inc.), now commonly used among
      cancer patients undergoing chemotherapy to maintain hemoglobin in the near
      normal range, also has some ability to mobilize CD34+ cells.




17





**Other
      Sources of Competition**





In
      addition to the direct competition outlined above, there is potential for
      adverse market effects from other outside developments. For example, producing
      a
      new drug with fewer side effects reduces the need for anti-side effects
      therapies. Because of this, we must monitor a broad area of anticancer R&D
      and be ready to fine-tune our development as needed.





The
      biotechnology and biopharmaceutical industries are characterized by rapid
      technological developments and intense competition. This competition comes
      both
      from biotech firms and from major pharmaceutical and chemical companies. Many
      of
      these companies have substantially greater financial, marketing and human
      resources than we do (including, in some cases, substantially greater experience
      in clinical testing, manufacturing and marketing of pharmaceutical products).
      Our drug candidates’ competitive position among other biotech and
      biopharmaceutical companies may be based on, among other things, patent
      position, product efficacy, safety, reliability, availability, patient
      convenience, delivery devices, and price, as well as the development and
      marketing of new competitive products.





We
      also
      experience competition in the development of our drug candidates from
      universities and other research institutions and compete with others in
      acquiring technology from such universities and institutions. In addition,
      certain of our drug candidates may be subject to competition from products
      developed using other technologies, some of which have completed numerous
      clinical trials. As a result, our actual or proposed drug candidates could
      become obsolete before we recoup any portion of our related R&D and
      commercialization expenses. However, we believe our competitive position is
      enhanced by our commitment to research leading to the discovery and development
      of new products and manufacturing methods.





Some
      of
      our competitors are actively engaged in R&D in areas where we also are
      developing drug candidates. The competitive marketplace for our drug candidates
      is significantly dependent upon the timing of entry into the market. Early
      entrants may have important advantages in gaining product acceptance and market
      share contributing to the product’s eventual success and profitability.
      Accordingly, in some cases, the relative speed with which we can develop
      products, complete the testing, receive approval, and supply commercial
      quantities of the product to the market is vital towards establishing a strong
      competitive position.





Our
      ability to sell to the government also can be influenced by indirect competition
      from other providers of products and services. For instance, a major
      breakthrough in an unrelated area of biodefense could cause a major reallocation
      of government funds from radiation protection. Likewise, an outbreak or
      threatened outbreak of some other form of disease or condition may also cause
      a
      reallocation of funds away from the condition that Protectan CBLB502 is intended
      to address.





**GOVERNMENT
      REGULATION**





The
      R&D, manufacturing and marketing of drug candidates are subject to
      regulation, primarily by the FDA in the U.S. and by comparable authorities
      in
      other countries. These national agencies and other federal, state, local and
      foreign entities regulate, among other things, R&D activities (including
      testing in primates and in humans) and the testing, manufacturing, handling,
      labeling, storage, record keeping, approval, advertising and promotion of the
      products that we are developing. Noncompliance with applicable requirements
      can
      result in various adverse consequences, including approval delays or refusals
      to
      approve drug licenses or other applications, suspension or termination of
      clinical investigations, revocation of approvals previously granted, fines,
      criminal prosecution, recalls or seizures of products, injunctions against
      shipping drugs, and total or partial suspension of production and/or refusal
      to
      allow a company to enter into governmental supply contracts.





The
      process of obtaining FDA approval for a new drug may take many years and
      generally involves the expenditure of substantial resources. The steps required
      before a new drug can be produced and marketed for human use include clinical
      trials and the approval of an NDA.




18





**Preclinical
      Testing**





In
      the
      preclinical phase of development, the promising compound is subjected to
      extensive laboratory and animal testing to determine if the compound is
      biologically active and safe.





**Investigational
      New Drug (IND)**





Before
      human tests can start, the drug sponsor must file an IND application with the
      FDA, showing how the drug is made and the results of animal testing. IND status
      allows initiation of clinical investigation within 30 days of filing if the
      FDA
      does not respond with questions during the 30-day period.





**Human
      Clinical Testing**





The
      human
      clinical testing program usually involves three phases that generally are
      conducted sequentially, but which, particularly in the case of anti-cancer
      and
      other life-saving drugs, may overlap or be combined. Clinical trials are
      conducted in accordance with protocols that detail the objectives of the study,
      the parameters to be used to monitor safety and the efficacy criteria to be
      evaluated. Each protocol is submitted to the FDA as part of the IND filing.
      Each
      clinical study is conducted under the direction of an independent Institutional
      Review Board, or IRB, for each institution at which the study will be conducted.
      The IRB will consider, among other things, all existing pharmacology and
      toxicology information on the product, ethical factors, the risk to human
      subjects and the potential benefits of therapy relative to risk.





In
      Phase
      I clinical trials, studies usually are conducted on healthy volunteers or,
      in
      the case of certain terminal illnesses such as advanced prostate cancer,
      patients with the disease who have failed to respond to other treatment, to
      determine the maximum tolerated dose, side effects and pharmacokinetics of
      a
      product. Phase II studies are conducted on a small number of patients having
      a
      specific disease to determine initial efficacy in humans for that specific
      disease, the most effective doses and schedules of administration, and possible
      adverse effects and safety risks. Phase II/III differs from Phase II in that
      the
      trials involved may include more patients and, at the sole discretion of the
      FDA, be considered the “pivotal” trials, or trials that will form the basis for
      FDA approval. Phase III normally involves the pivotal trials of a drug,
      consisting of wide-scale studies on patients with the same disease, in order
      to
      evaluate the overall benefits and risks of the drug for the treated disease
      compared with other available therapies. The FDA continually reviews the
      clinical trial plans and results, and may suggest design changes or may
      discontinue the trials at any time if significant safety or other issues
      arise.





As
      described above, for several of the product opportunities we are pursuing,
      we
      may apply for approval based upon a rule adopted by the FDA in 2002, titled
      “Approval of New Drugs When Human Efficacy Studies Are Not Ethical or Feasible”
(Part 314, Subpart I), which is also referred to as the two animal rule.
      Pursuant to this new rule, in situations where it would be unethical to conduct
      traditional Phase II and Phase III efficacy studies in humans, as is the case
      with countermeasures to a number of weapons of mass destruction, the FDA will
      review new drugs for approval on the basis of safety in humans and efficacy
      in
      relevant animal models.





**New
      Drug Application (NDA)**





Upon
      successful completion of Phase III clinical trials, the drug sponsor files
      an
      NDA with the FDA for approval, containing all information that has been
      gathered. The NDA must include the chemical composition of the drug, scientific
      rationale, purpose, animal and laboratory studies, results of human tests,
      formation and production details, and proposed labeling.





Following
      any initial regulatory approval of any drugs we may develop, we will also be
      subject to continuing regulatory review, including the review of adverse
      experiences and clinical results that are reported after our drug candidates
      are
      made commercially available. This will include results from any post-marketing
      tests or vigilance required as a condition of approval. The manufacturer and
      manufacturing facilities we use to make any of our drug candidates will also
      be
      subject to periodic review and inspection by the FDA. The discovery of any
      previously unknown problems with the drug, manufacturer or facility may result
      in restrictions on the drug, manufacturer or facility, including withdrawal
      of
      the drug from the market. We do not have, and currently do not intend to
      develop, the ability to manufacture material for our clinical trials or on
      a
      commercial scale. Reliance on third-party manufacturers entails risks to which
      we would not be subject if we manufactured drugs ourselves, including reliance
      on the third-party manufacturer for regulatory compliance. Our drug promotion
      and advertising is also subject to regulatory requirements and continuing FDA
      review.




19





The
      testing and approval process is likely to require substantial time and effort,
      and there can be no assurance that any FDA approval will be granted on a timely
      basis, if at all. The approval process is affected by a number of factors,
      primarily the side effects of the drug (safety) and its therapeutic benefits
      (efficacy). Additional preclinical or clinical trials may be required during
      the
      FDA review period and may delay marketing approval. The FDA may also deny an
      NDA
      if applicable regulatory criteria are not met.





The
      FDA
      reviews the results of the clinical trials and may order the temporary or
      permanent discontinuation of clinical trials at any time if it believes the
      drug
      candidate exposes clinical subjects to an unacceptable health risk.
      Investigational drugs used in clinical studies must be produced in compliance
      with current GMP rules pursuant to FDA regulations.





Sales
      outside the U.S. of products that we develop will also be subject to regulatory
      requirements governing human clinical trials and marketing for drugs and
      biological products and devices. The requirements vary widely from country
      to
      country, but typically the registration and approval process takes several
      years
      and requires significant resources. In most cases, even if the FDA has not
      approved a product for sale in the U.S., the product may be exported to any
      country if it complies with the laws of that country and has valid marketing
      authorization by the appropriate authority. There are specific FDA regulations
      that govern this process.





We
      also
      are subject to the following risks and obligations, among others:





·
            The
                FDA or foreign regulators may interpret data from pre-clinical testing
                and
                clinical trials differently than we interpret
                them;





·
            If
                regulatory approval of a product is granted, the approval may be
                limited
                to specific indications or limited with respect to its distribution.
                In
                addition, many foreign countries control pricing and coverage under
                their
                respective national social security
                systems;





·
            The
                FDA or foreign regulators may not approve our manufacturing processes
                or
                manufacturing facilities;





·
            The
                FDA or foreign regulators may change their approval policies or adopt
                new
                regulations;





·
            Even
                if regulatory approval for any product is obtained, the marketing
                license
                will be subject to continual review, and newly discovered or developed
                safety or effectiveness data may result in suspension or revocation
                of the
                marketing license;





·
            If
                regulatory approval of the product candidate is granted, the marketing
                of
                that product would be subject to adverse event reporting requirements
                and
                a general prohibition against promoting products for unapproved or
                “off-label” uses;





·
            In
                some foreign countries, we may be subject to official release requirements
                that require each batch of the product we produce to be officially
                released by regulatory authorities prior to its distribution by us;
                and





·
            We
                will be subject to continual regulatory review and periodic inspection
                and
                approval of manufacturing modifications, including compliance with
                current
                GMP regulations.




20




The
      manufacturing and marketing of our proposed products and our R&D activities
      are and will continue to be subject to regulation by federal, state and local
      governmental authorities in the U.S. and other countries. In the U.S.,
      pharmaceuticals are subject to rigorous regulation by the FDA, which reviews
      and
      approves the marketing of drugs. The Federal Food, Drug and Cosmetic Act, the
      regulations promulgated thereunder, and other federal and state statutes and
      regulations govern, among other things, the testing, manufacturing, labeling,
      storage, record keeping, advertising and promotion of our potential
      products.





**EMPLOYEES**





As
      of
      March 1, 2008, we had 48 employees, 46 of whom were full-time
      employees.





**Item 2.**  **Description of Property**





Our
      corporate headquarters is located at 73 High Street, Buffalo, New York 14203.
      We
      have approximately 28,000 square feet of laboratory and office space under
      a
      five year lease through June of 2012. This space serves as the corporate
      headquarters and primary research facilities. In addition, we have leased
      approximately 2,500 square feet of office space located at 9450 W. Bryn Mawr
      Rd., Rosemont, Illinois, 60018 through July 2011. We do not own any real
      property.





**Item 3.** **Legal
      Proceedings**




As
      of
      March 1, 2008, we were not a party to any litigation or other legal proceeding.




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





Not
      applicable.




21





**PART
      II**




**Item 5.
      Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities**





From
      July
      21, 2006 (our first day of trading) until August 28, 2007, our common stock
      was
      traded on the NASDAQ Capital Market under the symbol “CBLI.” Our common stock
      also traded on the Boston Stock Exchange, first under the symbol “CFB” and then
      under the symbol “CBLI” until September 2007. On August 28, 2007, trading of our
      stock moved from the NASDAQ Capital Market to the NASDAQ Global
      Market.





The
      following table sets forth the quarterly high and low selling prices for our
      common stock on the NASDAQ Capital Market or NASDAQ Global Market, as
      applicable, for the full quarterly periods within the fiscal years ended
      December 31, 2007 and December 31, 2006.





Common
                Stock2007High
            
            Low4th
                Quarter
            
            $
            13.07
            
            $
            6.643rd
                Quarter
            
            $
            13.89
            
            $
            9.102ndQuarter
            
            $
            11.98
            
            $
            8.001stQuarter
            
            $
            13.99
            
            $
            4.492006High
            
            
            Low4th
                Quarter
            
            $
            5.87
            
            $
            4.253rd
                Quarter
            
            $
            5.58
            
            $
            4.17





As
      of
      March 1, 2008, there were approximately 44 stockholders of record of our common stock. We have not paid cash dividends
      on
      our common stock and do not intend to do so in the foreseeable
      future.





We
      made
      no repurchases of our securities during the year ended December 31,
      2007.




**Item 6.
      Selected Financial Data**




Not
      applicable.




**Item 7.
      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.*




22




**Overview**




We
      incorporated in Delaware and commenced business operations in June 2003. 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.
      In
      connection with the initial public offering, we issued warrants to purchase
      170,000 shares of common stock to the underwriters and their designees. Those
      warrants have an exercise price of $8.70 per share. 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. On August 28, 2007,
      trading of our stock moved from the NASDAQ Capital Market to the NASDAQ Global
      Market. In September 2007, we ceased our listing on the Boston Stock Exchange.




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. 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. 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, we consummated a transaction with various accredited investors
      pursuant to which we agreed to sell to the investors, in a
      private placement, an aggregate of approximately 4,288,712 shares of
      Series B Convertible Preferred Stock, par value $0.005 per share, and Series
      B
      Warrants to purchase approximately 2,144,356 shares of our common
      stock pursuant to a Securities Purchase Agreement of the same date. The
      aggregate purchase price paid by the investors for the Series B Preferred
      and Series B Warrants was approximately $30,000,000. After **** related
      fees and expenses, we received net proceeds of approximately
      $29,000,000. We intend 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. Based on the closing
      price of our stock on March 16, 2007 of $10.19, the Series B Preferred sold
      to
      investors and issued to certain of the Agents had a market value of $46,660,112.
      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.





We
      also
      issued to the placement 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 into
      an
      aggregate of 290,298 shares of common stock, Series B Warrants that are
      exercisable for an aggregate of 221,172 shares of our common stock, and Series
      C
      Warrants that are exercisable for 267,074 shares of our common stock. The Series
      C Warrants have an exercise price of $11.00 per share, and are also subject
      to
      antidilution protections that could increase the number of shares of common
      stock for which they are exercisable.




In
      total,
      the securities issued in the private placement were convertible into, or
      exercisable for, up to approximately 7,211,612 shares of common stock (subject
      to adjustments for stock splits, anti-dilution, etc.). As of March 1, 2008
      the
      securities issued in the transaction, in the aggregate, were convertible into
      or
      exercisable for approximately **** 6,249,469
      shares of common stock (subject to adjustments for stock splits,
      anti-dilution, etc.).





Proceeds
      from these transactions, together with grants we have received, have supported
      our R&D activities to date. We are actively seeking new grants and
      co-development contacts with premier pharmaceutical partners to support further
      development of other promising leads resulting from our R&D
      program.




23





On
      December 11, 2007, the SEC declared effective a registration statement of the
      Company registering up to 5,514,999 shares of common stock for resale from
      time
      to time by the selling stockholders named in the prospectus contained in the
      registration statement. This number represents 5,514,999 shares of common stock
      issuable upon the conversion or exercise of the securities issued the Company’s
      March 2007 private placement at the current conversion and exercise prices.
      Of
      these 5,514,999 shares of common stock, 3,717,515 shares are issuable upon
      conversion of Series B Preferred and 1,797,484 shares are issuable upon
      exercise of the Series B Warrants. 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. The registration
      statement was filed to satisfy registration rights that we had previously
      granted.  Subsequent to the effectiveness of the registration statement,
      708,743 Series B Preferred were converted and $60,789 in dividends earned were
      paid as of December 31, 2007.




**Critical
      Accounting Policies**




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 include 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 commercial development contracts.





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.





For
      the
      grant from Roswell Park Cancer Institute through the State of New York for
      collaborative research with the RPCI, we use SFAS 116 to guide the revenue
      recognition. In accordance with SFAS 116, contributions received are recorded
      as
      revenue upon receipt, unless they contain donor-imposed conditions which must
      be
      met by the recipient, in which case the contributions are deferred until the
      conditions are met. Although we currently project the anticipated use of the
      funds received, and currently do not expect an event to occur that would result
      in repayment of the funds, technically we have not earned the funds until the
      qualifying expenses are incurred. The deferred revenue should be recognized
      as
      the approved direct and indirect costs are incurred, inclusive of our general
      overhead allocation.




24




***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
      December 31, 2007, we had made $300,000 in milestone payments. 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.




***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 general and administrative
      expenses at that time.





Through
      December 31, 2006, we had capitalized $252,978 in expenditures associated with
      the preparation, filing and maintenance of certain of our patents. For the
      year
      ending December 31, 2007, we capitalized an additional $206,124 relating to
      these costs, totaling $459,102.




***Stock-based
      Compensation***




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.
      Accordingly, effective January 1, 2005, we value 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 or the Monte Carlo Simulation depending
      on
      the terms and conditions present within the specific option being valued. 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 our best judgment; 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.





On
      March
      1, 2006, we granted 116,750 options pursuant to stock award agreements to
      certain employees and key consultants. On July 20, 2006, we granted a total
      of
      45,000 fully-vested, stock options to our new independent board members (Messrs.
      Antal, Kasten, and Perez) pursuant to stock award agreements.





In
      the
      fiscal year ended December 31, 2007, we granted 520,000 options pursuant to
      stock award agreements to certain employees and key consultants. On June 12,
      2007 we granted 140,000 fully- vested stock options to the independent board
      members (Messrs. Antal, DiCorleto, Kasten, and Perez) pursuant to stock award
      agreements.




25




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 our 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. For those stock options where market
      conditions are present within the stock options, we utilize Monte Carlo
      simulation to value the stock options. There was one issuance throughout the
      year for a total of 90,000 options to an outside consultant where Monte Carlo
      simulation was used to value the issuance.




We
      recognized a total of $3,401,499, $506,078, and $318,111 in expense for options
      for the years ended December 31, 2007, 2006, and 2005 respectively.





The
      weighted average, estimated grant date fair values of stock options granted
      during the years ended December 31, 2007 and 2006 were $6.08 and $3.14,
      respectively.





**Impact
      of Recently Issued Accounting Pronouncements**




On
      January 1, 2007, the Financial Accounting Standards Board, or FASB,
      issued FIN 48, Accounting for Uncertainty in Income Taxes, an
      interpretation of FASB Statement No. 109. FIN 48 prescribes a minimum
      recognition threshold and measurement methodology that a tax position taken
      or
      expected to be taken in a tax return is required to meet before being recognized
      in the financial statements. The minimum recognition threshold is defined in
      FIN
      48 as a tax position that is more likely than not to be sustained upon
      examination by the applicable taxing authority, including resolution of any
      related appeals or litigation processes, based on the technical merits of the
      position. If a tax benefit meets this threshold, it is measured and recognized
      based on an analysis of the cumulative probability of the tax benefit being
      ultimately sustained. There was no impact on our financial statements upon
      adoption of FIN 48.




In
        December 2007, the FASB issued Statement No. 160, Noncontrolling Interests
        in Consolidated Financial Statements — An Amendment of ARB No. 51, or
        SFAS 160. SFAS 160 establishes new accounting and reporting standards for
        the
        noncontrolling interest in a subsidiary and for the deconsolidation of a
        subsidiary. Specifically, SFAS 160 requires the recognition of a noncontrolling
        interest (minority interest) as equity in the consolidated financial statements
        and separate from the parent's equity. The amount of net income attributable
        to
        the noncontrolling interest will be included in consolidated net income on
        the
        face of the income statement. In addition, SFAS 160 requires that a parent
        recognize a gain or loss in net income when a subsidiary is deconsolidated.
        Such
        gain or loss will be measured using the fair value of the noncontrolling
        equity
        investment on the deconsolidation date. SFAS 160 also includes expanded
        disclosure requirements regarding the interests of the parent and its
        noncontrolling interest. SFAS 160 is effective for fiscal years, and interim
        periods within those fiscal years, beginning on or after December 15, 2008.
        We do not expect a material impact from the adoption of SFAS 160.
  In
        December 2007, the FASB issued Statement No. 141 (revised 2007), *Business
        Combinations* ("SFAS
        141(R)"), which replaces SFAS 141. SFAS 141(R) requires an acquiring entity
        to
        recognize all the assets acquired and liabilities assumed in a transaction
        at
        the acquisition-date fair value with limited exceptions. In addition, SFAS
        141(R) will require acquisition costs to be expensed as incurred, acquired
        contingent liabilities will be recorded at fair value at the acquisition
        date
        and subsequently measured at either the higher of such amount or the amount
        determined under existing guidance for non-acquired contingencies, in-process
        research and development will be recorded at fair value as an indefinite-lived
        intangible asset at the acquisition date, restructuring costs associated
        with a
        business combination will be generally expensed subsequent to the acquisition
        date and changes in deferred tax asset valuation allowances and income tax
        uncertainties after the acquisition date generally will affect income tax
        expense. SFAS 141(R) also includes a substantial number of new disclosure
        requirements. SFAS 141(R) is effective prospectively to business combinations
        for which the acquisition date is on or after the beginning of the first
        annual
        reporting period beginning on or after December 15, 2008. We anticipate
        that the prospective application of the provisions of SFAS 141(R) could have
        a
        material impact on the fair values assigned to assets and liabilities of
        future
        acquisitions.
  26
  In
        February 2007, the FASB issued Statement No. 159, The Fair Value Option for
        Financial Assets and Financial Liabilities, Including an amendment of FASB
        Statement No. 115. The Statement permits entities to choose to measure many
        financial instruments and certain other items at fair value. The objective
        of
        the Statement is to improve financial reporting by providing entities with
        the
        opportunity to mitigate volatility in reporting earnings caused by measuring
        related assets and liabilities differently without having to apply complex
        hedge
        accounting provisions. The Statement is effective as of the beginning of
        an
        entity’s first fiscal year that begins after November 15, 2007. We are
        currently evaluating the Statement to determine what impact, if any, it will
        have upon adoption on January 1, 2008.
  In
        September 2006, the FASB issued Statement No. 157, Fair Value Measurements
        (“SFAS 157). SFAS 157 clarifies the principle that fair value should be based
        on
        the assumptions market participants would use when pricing an asset or liability
        and establishes a fair value hierarchy that prioritizes the information used
        to
        develop those assumptions. Under the Statement, fair value measurements would
        be
        separately disclosed by level within the fair value hierarchy. SFAS 157 is
        effective for financial statements issued for fiscal years beginning after
        November 15, 2007 and interim periods within those fiscal years, with early
        adoption permitted. We are currently evaluating the Statement to determine
        what
        impact, if any, it will have on the Company’s consolidated financial statements
        upon adoption on January 1, 2008.




**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 years ended
      December 31, 2007, 2006 and 2005, and should be read in conjunction with our
      financial statements and the related notes appearing elsewhere in this annual
      report on Form 10-K.





**Year
                Ended**
              **December
                31,**
              **2007**
            
            **Year
                Ended**
              **December 31,**
              **2006**
            
            **Year
                Ended**
              **December 31,**
              **2005**Revenues
            
            $
            2,018,558
            
            $
            1,708,214
            
            $
            1,138,831Operating
                expenses
            
            
            27,960,590
            
            
            9,126,315
            
            
            3,626,664Net
                interest expense (income)
            
            
            (1,003,766
            )
            
            (195,457
            )
            
            (101,378
            )Other
                expense
            
            
            2,058,236
            
            
            -
            
            
            -Net
                income (loss)
            
            $
            (26,996,502
            )
            $
            (7,222,644
            )
            $
            (2,386,455
            )




**Year
      Ended December 31, 2007 Compared to Year Ended December 31,
      2006**




***Revenue***





Revenue
      increased from $1,708,214 for the year ended December 31, 2006 to $2,018,558
      for
      the year ended December 31, 2007, representing an increase of $310,344 or 18.2%, resulting
      primarily from an increase in revenue from various grants including the
      sponsored research agreement with RPCI, the DTRA contract, and the NCI contract. As
      the
      term of the BioShield grant ended, the proceeds from the BioShield grant were
      $0
      for the year ended December 31, 2007 as compared to $1,100,293 for the year
      ended December 31, 2006.




27




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**
            
            
            **Revenue
                2006****NIH**
            
            
            BioShield
                program
            
            $
            1,500,000
            
            
            07/2005-01/2007
            
            $
            -
            
            $
            1,100,293**NIH**
            
            
            Phase
                I SBIR program
            
            $
            100,000
            
            
            08/2005-01/2006
            
            $
            -
            
            $
            33,334**NASA**
            
            
            Phase
                I NASA STTR program
            
            $
            100,000
            
            
            01/2006-01/2007
            
            $
            33,197
            
            $
            66,393**NIH**
            
            
            Phase
                II SBIR program
            
            $
            750,000
            
            
            07/2006-06/2008
            
            $
            459,621
            
            $
            212,713**NIH**
            
            
            NCI
                Contract
            
            $
            750,000
            
            
            09/2006-08/2008
            
            $
            440,028
            
            $
            90,481**NY
                State / RPCI**
            
            
            Sponsored
                Research Agreement
            
            $
            3,000,000
            
            
            01/2007-01/2012
            
            $
            329,390
            
            $
            -**DTRA**
            
            
            DTRA
                Contract
            
            $
            1,263,836
            
            
            03/2007-03/2010
            
            $
            466,322
            
            $
            -$
            1,728,558
            
            $
            1,503,214




We
      anticipate our revenue over the next year to be derived mainly from government
      grants and contracts. 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. R&D expenses have consisted mainly of
      supporting our R&D teams, process development, sponsored research at the
      Roswell Park Cancer Institute and 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
      also to support the expansion of our business.





Operating
      expenses increased from $9,126,315 for the year ended December 31, 2006 to
      $27,960,590 for the year ended December 31, 2007. This represents an increase
      of
      $18,834,275 or 206.4%. We
      recognized a total of $7,789,305 of non-cash compensation for stock based
      compensation for the year December 31, 2007 compared to $506,078 for the year
      ended December 31, 2006. If these non-cash stock based compensation expenses
      were excluded, operating expenses would have increased from $8,620,237 for
      the
      year ended December 31, 2006 to $20,171,285 for the year ended December 31,
      2007. This represents an increase in operating expenses of $11,551,048 or
      134.0%.





This
      increase resulted primarily from an increase in R&D expenses from $6,989,804
      for the year ended December 31, 2006 to $17,429,652 for the year ended December
      31, 2007, an increase of $10,439,848 or 149.4%. The
      higher R&D expenses were incurred as a result of increasing the number of
      research and development personnel, commencing clinical trials for CBLC102
      and
      completing the cGMP manufacturing of CBLB502. We recognized a total of $250,682
      of non-cash compensation for R&D stock based compensation for the year ended
      December 31, 2006 compared to $1,836,787 for the year ended December 31, 2007.
      Without the non-cash stock based compensation, the R&D expenses increased
      from $6,739,122 for the year ended December 31, 2006 to $15,592,865 for the
      year
      ended December 31, 2007; an increase of $8,853,743 or 131.4%.




In
      addition, general and administrative expenses increased from $2,136,511 for
      the
      year ended December 31, 2006 to $10,530,938, for the year ended December 31,
      2007. This represents an increase of $8,394,427 or 392.9%. 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. We
      recognized a total of $255,396 of non-cash stock-based compensation for general
      and administrative compensation for the year ended December 31, 2006 compared
      to
      $5,952,517 for the year ended December 31, 2007. Without the non-cash stock
      based compensation, the general and administrative expenses increased from
      $1,881,115 for the year ended December 31, 2006 to $4,578,421 for the year
      ended
      December 31, 2007; an increase of $2,697,306 or 143.4%.




28




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





**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 151.6%. 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 $4,349,564
      or
      164.7%, 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 116.6%. 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 December 31,
      2007, we had an accumulated deficit of $40,641,743. Our
      principal sources of liquidity have been cash provided by sales of our
      securities, and government grants, contracts and agreements. Our
      principal uses of cash have been R&D and working capital. We
      expect
      our future sources of liquidity to be primarily government grants, equity
      financing, 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 $16,607,922 for the year ended December
      31,
      2007, compared to $6,653,602 used in operating activities for the same period
      in
      2006. Net cash used in operating activities totaled $1,730,513 for the same
      period in 2005. 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 $442,523 for the year ended December 31, 2007
      and $14,281 used for the same period in 2006. The increase in cash used for
      investing activities resulted primarily from the maturing of short-term
      investments that converted to cash. Net cash used in investing activities was
      $2,805,113 for the same period in 2005. The decrease from 2005 to 2006 resulted
      from maturity of investments in long-term certificates of deposit.




Net
      cash
      provided by financing activities totaled $28,200,591 for the year ended December
      31, 2007, compared to $8,523,414 provided by financing activities for the same
      period in 2006. The increase in cash provided by financing activities was
      attributed to the proceeds from the issuance of Series B Preferred in connection
      with our private placement offering. Net cash provided by financing activities
      totaled $5,647,347 for the same period in 2005. The funds provided for the
      year
      ended December 31, 2005 were attributable primarily to the net proceeds from
      our
      initial public offering in July 2006.




29




Under
      our
      exclusive license agreement with the Cleveland Clinic, we may be responsible
      for
      making milestone payments to the Cleveland Clinic 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
      December 31, 2007, we had accrued and paid $50,000
      for the milestone payment relating to the filing of the IND application for
      Curaxin CBLC102 and $250,000 for the milestone payment relating to starting
      a
      Phase II hormone-refractory prostate cancer clinical trial for Curaxin
      CBLC102.





Our
      agreement with CCF also provides for payment by us to the 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. Accrued milestone payments, royalty
      payments and sublicense royalty payments are payable upon achievement of the
      milestone.





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 line of credit has an interest rate of prime,
      a
      borrowing limit of $1,000,000 and expires on September 20, 2008. At December
      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 (approximately 12 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.




30





***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 changes
      in
      foreign currency exchange rates. We have entered into agreements with foreign
      third parties to produce one of our drug compounds and are required to make
      payments in the foreign currency. As a result, our financial results could
      be
      affected by changes in foreign currency exchange rates. As of
      December 31, 2007, we are obligated to make payments under these agreements
      of
      9,715 Euros and 86,412 Australian dollars. We have established means to purchase
      forward contracts to hedge against this risk. As of December 31, 2007, we had
      9,715 Euros and 86,412 Australian dollars in contracts outstanding.




***Off-Balance
      Sheet Arrangements***




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




31




**Item 8.
      Financial Statements and Supplementary Data**




**TABLE
      OF CONTENTS**




PageReport
                of Independent Registered Public Accounting Firm
            F-1Financial
                Statements:Balance
                Sheets
            F-2Statements
                of Operations
            F-4Statements
                of Stockholders' Equity and Comprehensive Loss
            F-5Statement
                of Cash Flows
            F-8Notes
                to Financial Statements
            F-9




32









**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





Board
      of
      Directors and Stockholders of


Cleveland
      BioLabs, Inc.





We
      have
      audited the accompanying balance sheets of CLEVELAND BIOLABS, INC. as of
      December 31, 2007 and 2006, and the related statements of operations,
      stockholders' equity and comprehensive income, and cash flows for each of the
      years in the three-year period ended December 31, 2007. Cleveland BioLabs,
      Inc.'s management is responsible for these financial statements. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company's internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Cleveland BioLabs Inc. as of
      December 31, 2007 and 2006, and the results of its operations and its cash
      flows
      for each of the years in the three-year period ended December 31 , 2007 in
      conformity with accounting principles generally accepted in the United States
      of
      America.





MEADEN
      & MOORE, LTD.


Certified
      Public Accountants





Cleveland,
      Ohio


March
      13,
      2008









F-1





CLEVELAND
      BIOLABS, INC.





BALANCE
      SHEETS





December
      31, 2007 and December 31, 2006








December
                31
              2007
            
            December
                31
              2006ASSETSCURRENT
                ASSETSCash
                and equivalents
            
            $
            14,212,189
            
            $
            3,061,993Short-term
                investments
            
            
            1,000,000
            
            
            1,995,836Accounts
                receivable:Trade
            
            
            163,402
            
            
            159,750Interest
            
            
            50,042
            
            
            42,479Notes
                receivable - Orbit Brands
            
            
            -
            
            
            50,171Prepaid
                expenses
            
            
            325,626
            
            
            434,675Total
                current assets
            
            
            15,751,259
            
            
            5,744,904EQUIPMENTComputer
                equipment
            
            
            258,089
            
            
            132,572Lab
                equipment
            
            
            966,517
            
            
            347,944Furniture
            
            
            274,903
            
            
            65,0871,499,509
            
            
            545,603Less
                accumulated depreciation
            
            
            313,489
            
            
            142,0111,186,020
            
            
            403,592OTHER
                ASSETSIntellectual
                property
            
            
            459,102
            
            
            252,978Deposits
            
            
            25,445
            
            
            15,055484,547
            
            
            268,033TOTAL
                ASSETS
            
            $
            17,421,826
            
            $
            6,416,529




F-2




CLEVELAND
      BIOLABS, INC.





BALANCE
      SHEETS





December
      31, 2007 and December 31, 2006








December
                31
              2007
            
            December
                31
              2006LIABILITIES
                AND STOCKHOLDERS' EQUITYCURRENT
                LIABILITIESAccounts
                payable
            
            $
            710,729
            
            $
            644,806Deferred
                revenue
            
            
            1,670,610
            
            
            -Dividends
                payable
            
            
            396,469
            
            
            -Accrued
                expenses
            
            
            449,774
            
            
            128,569Total
                current liabilities
            
            
            3,227,582
            
            
            773,375LONG-TERM
                LIABILITIESMilestone
                payable (long-term)
            
            
            -
            
            
            50,000STOCKHOLDERS'
                EQUITYSeries
                B convertible preferred stock, $.005 par valueAuthorized
                - 10,000,000 shares at December 31, 2007 and December 31,
                2006Issued
                and outstanding 3,870,267 and 0 shares at December 31, 2007 and December
                31, 2006, respectively
            
            
            19,351
            
            
            -Additional
                paid-in capital
            
            
            24,383,695
            
            
            -Common
                stock, $.005 par valueAuthorized
                - 40,000,000 shares at December 31, 2007 and December 31,
                2006Issued
                and outstanding 12,899,241 and 11,826,389 shares at December 31,
                2007 and
                December 31, 2006, respectively
            
            
            64,496
            
            
            59,132Additional
                paid-in capital
            
            
            30,764,914
            
            
            18,314,097Accumulated
                other comprehensive income (loss)
            
            
            -
            
            
            (4,165
            )Accumulated
                deficit
            
            
            (41,038,212
            )
            
            (12,775,910
            )Total
                stockholders' equity
            
            
            14,194,244
            
            
            5,593,154TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            17,421,826
            
            $
            6,416,529





F-3




CLEVELAND
      BIOLABS, INC.




STATEMENT
      OF OPERATIONS





Years
      Ended December 31, 2007, 2006, and 2005








December
                31
              2007
            
            December
                31
              2006
            
            December
                31
              2005REVENUESGrant
            
            $
            1,728,558
            
            $
            1,503,214
            
            $
            999,556Service
            
            
            290,000
            
            
            205,000
            
            
            139,2752,018,558
            
            
            1,708,214
            
            
            1,138,831OPERATING
                EXPENSESResearch
                and development
            
            
            17,429,652
            
            
            6,989,804
            
            
            2,640,240Selling,
                general and administrative
            
            
            10,530,938
            
            
            2,136,511
            
            
            986,424Total
                operating expenses
            
            
            27,960,590
            
            
            9,126,315
            
            
            3,626,664LOSS
                FROM OPERATIONS
            
            
            (25,942,032
            )
            
            (7,418,101
            )
            
            (2,487,833
            )OTHER
                INCOMEInterest
                income
            
            
            1,004,853
            
            
            206,655
            
            
            119,371Sublease
                revenue
            
            
            4,427
            
            
            -
            
            
            -OTHER
                EXPENSEInterest
                expense
            
            
            1,087
            
            
            11,198
            
            
            17,993Corporate
                relocation
            
            
            1,741,609
            
            
            -
            
            
            -Loss
                on disposal of fixed assets
            
            
            15,575
            
            
            -
            
            
            -Loss
                on investment
            
            
            305,479
            
            
            -
            
            
            -NET
                LOSS
            
            
            (26,996,502
            )
            
            (7,222,644
            )
            
            (2,386,455
            )DIVIDENDS
                ON CONVERTIBLE PREFERRED STOCK
            
            
            (1,265,800
            )
            
            (214,928
            )
            
            (291,914
            )NET
                LOSS AVAILABLE TO COMMON STOCKHOLDERS
            
            $
            (28,262,302
            )
            $
            (7,437,572
            )
            $
            (2,678,369
            )NET
                LOSS AVAILABLE TO COMMON STOCKHOLDERS PER SHARE OF COMMON STOCK -
                BASIC
                AND DILUTED
            
            $
            (2.34
            )
            $
            (0.84
            )
            $
            (0.43
            )WEIGHTED
                AVERAGE NUMBER OF SHARES USED IN CALCULATING NET LOSS PER SHARE,
                BASIC AND
                DILUTED
            
            
            12,090,430
            
            
            8,906,266
            
            
            6,250,447





F-4





CLEVELAND
      BIOLABS, INC.




STATEMENTS
      OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS




Period
      From January 1, 2005 to December 31, 2007


Stockholders'
                  EquityCommon
                  StockAdditionalPaid-in
              
              PenaltyShares
              
              Amount
              
              Capital
              
              SharesBalance
                  at January 1, 2005
              
              
              5,960,000
              
              
              29,800
              
              
              2,255,954
              
              
              -Issuance
                  of shares - Series A financing
              
              
              308,000
              
              
              1,540
              
              
              588,122
              
              
              -Issuance
                  of shares - stock dividend
              
              
              69,201
              
              
              346
              
              
              138,056
              
              
              -Issuance
                  of options (383,840 options issued, 324,240 outstanding)
              
              
              -
              
              
              -
              
              
              318,111
              
              
              -Exercise
                  of options (59,600 options exercised)
              
              
              59,600
              
              
              298
              
              
              118,902
              
              
              -Accrue
                  unissued shares
              
              
              -
              
              
              -
              
              
              (81,125
              )
              
              81,125Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -Other
                  comprehensive incomeUnrealized
                  gains (losses) on short term investmentsUnrealized
                  holding gains (losses) arising during period
              
              
              -
              
              
              -
              
              
              -
              
              
              -Comprehensive
                  lossBalance
                  at December 31, 2005
              
              
              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) losses included in net loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -Comprehensive
                  lossBalance
                  at December 31, 2006
              
              
              11,826,389
              
              $
              59,132
              
              $
              18,314,097
              
              $
              -Issuance
                  of options
              
              
              -
              
              
              -
              
              
              3,401,499
              
              
              -Options
                  to be issued in 2008
              
              
              -
              
              
              -
              
              
              2,687,355
              
              
              -Issuance
                  of shares - Series B financing
              
              
              -
              
              
              -
              
              
              -
              
              
              -Fees
                  associated with Series B Preferred offering
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of restricted shares
              
              
              190,000
              
              
              950
              
              
              1,699,500
              
              
              -Exercise
                  of options
              
              
              126,046
              
              
              630
              
              
              110,650
              
              
              -Exercise
                  of warrants
              
              
              48,063
              
              
              240
              
              
              90,275
              
              
              -Conversion
                  of Series B Preferred Shares to Common
              
              
              708,743
              
              
              3,544
              
              
              4,461,537
              
              
              -Dividends
                  on Series B Preferred shares
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -Other
                  comprehensive incomeUnrealized
                  gains (losses) on short term investmentsChanges
                      in unrealized holding gains (losses) arising during period
              
              
              -
              
              
              -
              
              
              -
              
              
              -Less
                      reclassification adjustment for (gains) losses included in
                      net loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -Comprehensive
                  lossBalance
                  at December 31, 2007
              
              
              12,899,241
              
              $
              64,496
              
              $
              30,764,914
              
              $
              -




F-5




CLEVELAND
      BIOLABS, INC.




STATEMENTS
      OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS




Period
      From January 1, 2005 to December 31, 2007


Stockholders'
                  EquityPreferred
                  StockAdditionalPaid-in
              
              PenaltyShares
              
              Amount
              
              Capital
              
              SharesBalance
                  at January 1, 2005
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of shares -Series A financing
              
              
              3,051,219
              
              
              15,256
              
              
              5,292,885
              
              
              -Issuance
                  of shares - stock dividend
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of options (383,840 options issued, 324,240 outstanding)
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercise
                  of options (59,600 options exercised)
              
              
              -
              
              
              -
              
              
              -
              
              
              -Accrue
                  unissued shares
              
              
              
              
              
              
              
              
              (360,000
              )
              
              360,000Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -Other
                  comprehensive incomeUnrealized
                  gains (losses) on short term investmentsUnrealized
                  holding gains (losses) arising during period
              
              
              -
              
              
              -
              
              
              -
              
              
              -Comprehensive
                  lossBalance
                  at December 31, 2005
              
              
              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) losses included in net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -Comprehensive
                  lossBalance
                  at December 31, 2006
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -Issuance
                  of options
              
              
              -
              
              
              -
              
              
              -
              
              
              -Options
                  to be issued in 2008
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of shares -Series B financing
              
              
              4,579,010
              
              
              22,895
              
              
              32,030,175
              
              
              -Fees
                  associated with Series B Preferred offering
              
              
              -
              
              
              -
              
              
              (3,184,943
              )
              
              -Issuance
                  of restricted shares
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercise
                  of options
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercise
                  of warrants
              
              
              -
              
              
              -
              
              
              -
              
              
              -Conversion
                  of Series B Preferred Shares to Common
              
              
              (708,743
              )
              
              (3,544
              )
              
              (4,461,537
              )
              
              -Dividends
                  on Series B Preferred shares
              
              
              -
              
              
              -
              
              
              -
              
              
              -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, 2007
              
              
              3,870,267
              
              $
              19,351
              
              $
              24,383,695
              
              $
              -




F-6




CLEVELAND
      BIOLABS, INC.





STATEMENTS
      OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS





Period
      From January 1, 2005 to December 31, 2007





Stockholders'
                EquityOther
              Comprehensive
              Income/(Loss)
            
            Accumulated
              Deficit
            
            Total
            
            Comprehensive
              Income
              (Loss)Balance
                at January 1, 2005
            
            -
            
            (2,659,968)
            
            (374,214)Issuance
                of shares - Series A financing
            
            
            -
            
            
            -
            
            
            5,897,803Issuance
                of shares - stock dividend
            
            
            -
            
            
            (138,433
            )
            
            (31
            )Issuance
                of options (383,840 options issued, 324,240 outstanding)
            
            
            -
            
            
            -
            
            
            318,111Exercise
                of options (59,600 options exercised)
            
            
            -
            
            
            -
            
            
            119,200Accrue
                unissued shares
            
            
            -
            
            
            -
            
            
            -Net
                loss
            
            
            -
            
            
            (2,386,455
            )
            
            (2,386,455
            )
            
            (2,386,455
            )Other
                comprehensive incomeUnrealized
                gains (losses) on short term investmentsUnrealized
                holding gains (losses) arising during period
            
            
            (17,810
            )
            
            -
            
            
            (17,810
            )
            $
            (17,810
            )Comprehensive
                loss
            
            
            
            
            
            
            
            
            
            
            $
            (2,404,265
            )Balance
                at December 31, 2005
            
            
            (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) losses included 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
            
            
            -
            
            
            -
            
            
            3,401,499Options
                to be issued in 2008
            
            
            -
            
            
            -
            
            
            2,687,355Issuance
                of shares - Series B financing
            
            
            -
            
            
            -
            
            
            32,053,070Fees
                associated with Series B Preferred offering
            
            
            -
            
            
            -
            
            
            (3,184,943
            )Issuance
                of restricted shares
            
            
            -
            
            
            -
            
            
            1,700,450Exercise
                of options
            
            
            -
            
            
            -
            
            
            111,280Exercise
                of warrants
            
            
            -
            
            
            -
            
            
            90,515Conversion
                of Series B Preferred Shares to Common
            
            
            -
            
            
            -
            
            
            -Dividends
                on Series B Preferred shares
            
            
            -
            
            
            (1,265,800
            )
            
            (1,265,800
            )Net
                Loss
            
            
            -
            
            
            (26,996,502
            )
            
            (26,996,502
            )
            
            (26,996,502
            )Other
                comprehensive incomeUnrealized
                gains (losses) on short term investmentsChanges
                in unrealized holding gains (losses) arising during period
            
            
            -
            
            
            -
            
            
            -
            
            $
            -Less
                reclassification adjustment for (gains) losses included in net
                loss
            
            
            4,165
            
            
            -
            
            
            4,165
            
            $
            4,165Comprehensive
                loss
            
            
            
            
            
            
            
            
            
            
            $
            (26,992,337
            )Balance
                at December 31, 2007
            
            $
            -
            
            $
            (41,038,212
            )
            $
            14,194,244





F-7


CLEVELAND
      BIOLABS, INC.





STATEMENTS
      OF CASH FLOWS





For
      the
      Years Ended December 31, 2007, 2006 and 2005







2007
            
            2006
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                loss
            
            $
            (26,996,502
            )
            $
            (7,222,644
            )
            $
            (2,386,455
            )Adjustments
                to reconcile net loss to net cash used by operating
                activities:Depreciation
            
            
            188,395
            
            
            94,931
            
            
            44,762Noncash
                interest expense
            
            
            -
            
            
            9,929
            
            
            17,993Noncash
                salaries and consulting expense
            
            
            7,789,305
            
            
            620,119
            
            
            437,311Deferred
                compensation
            
            
            -
            
            
            5,886
            
            
            9,141Loss
                on disposal of fixed assets
            
            
            15,575
            
            
            -
            
            
            -Loss
                on investments
            
            
            305,479
            
            
            -
            
            
            -Changes
                in operating assets and liabilities:Accounts
                receivable - trade
            
            
            (3,652
            )
            
            (159,750
            )
            
            225,013Accounts
                receivable - interest
            
            
            (12,870
            )
            
            (5,616
            )
            
            (37,035
            )Prepaid
                expenses
            
            
            109,049
            
            
            (422,427
            )
            
            (12,249
            )Deposits
            
            
            (10,390
            )
            
            (3,750
            )
            
            (3,734
            )Accounts
                payable
            
            
            65,923
            
            
            380,023
            
            
            10,869Deferred
                revenue
            
            
            1,670,610
            
            
            (100,293
            )
            
            100,293Accrued
                expenses
            
            
            321,206
            
            
            99,990
            
            
            (136,421
            )Milestone
                payments
            
            
            (50,000
            )
            
            50,000
            
            
            -Total
                adjustments
            
            
            10,388,630
            
            
            569,042
            
            
            655,942Net
                cash (used by) provided by operating activities
            
            
            (16,607,872
            )
            
            (6,653,602
            )
            
            (1,730,513
            )CASH
                FLOWS FROM INVESTING ACTIVITIESPurchase
                of short-term investments
            
            
            (1,000,000
            )
            
            (4,800,000
            )
            
            (2,400,000
            )Sale
                of short-term investments
            
            
            2,000,000
            
            
            5,200,000
            
            
            -Issuance
                of notes receivable
            
            
            (250,000
            )
            
            (50,000
            )
            
            -Purchase
                of equipment
            
            
            (987,649
            )
            
            (187,660
            )
            
            (328,756
            )Sale
                of equipment
            
            
            1,250
            
            
            -
            
            
            -Costs
                of patents pending
            
            
            (206,124
            )
            
            (176,621
            )
            
            (76,357
            )Net
                cash (used in) provided by investing activities
            
            
            (442,523
            )
            
            (14,281
            )
            
            (2,805,113
            )CASH
                FLOWS FROM FINANCING ACTIVITIESIssuance
                of preferred stock
            
            
            30,020,984
            
            
            -
            
            
            6,000,000Financing
                costs
            
            
            (1,152,857
            )
            
            (1,679,456
            )
            
            (402,622
            )Dividends
            
            
            (869,331
            )
            
            (43
            )
            
            (31
            )Issuance
                of common stock
            
            
            -
            
            
            10,200,000
            
            
            -Exercise
                of stock options
            
            
            111,280
            
            
            2,813
            
            
            -Exercise
                of warrants
            
            
            90,515
            
            
            -
            
            
            -Issuance
                of warrants
            
            
            -
            
            
            100
            
            
            -Proceeds
                from convertible notes payable
            
            
            -
            
            
            -
            
            
            50,000Net
                cash (used in) provided by financing activities
            
            
            28,200,591
            
            
            8,523,414
            
            
            5,647,347INCREASE
                (DECREASE) IN CASH AND EQUIVALENTS
            
            
            11,150,196
            
            
            1,855,531
            
            
            1,111,721CASH
                AND EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            3,061,993
            
            
            1,206,462
            
            
            94,741CASH
                AND EQUIVALENTS AT END OF PERIOD
            
            $
            14,212,189
            
            $
            3,061,993
            
            $
            1,206,462Supplemental
                disclosures of cash flow information:Cash
                paid during the period for interest
            
            $
            1,087
            
            $
            1,269
            
            $
            -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
            
            $
            3,401,499
            
            $
            506,078
            
            $
            318,511Stock
                options due to employees and a consultant
            
            $
            2,687,355
            
            $
            -
            
            $
            -Issuance
                of shares to consultants
            
            $
            1,700,450
            
            $
            368,367
            
            $
            -Issuance
                of non-cash financing fees
            
            $
            2,032,086
            
            $
            -
            
            $
            -Conversion
                of preferred stock to common stock
            
            $
            4,465,081
            
            $
            5,308,141
            
            $
            -Accrual
                of preferred stock dividends
            
            $
            396,469
            
            $
            -
            
            $
            -Common
                stock issued as financing fees on issuance of preferred
                shares
            
            $
            -
            
            $
            -
            
            $
            589,662Conversion
                of notes payable and accrued interest to preferred stock
            
            $
            -
            
            $
            -
            
            $
            102,438Issuance
                of warrants to consultant
            
            $
            -
            
            $
            114,042
            
            $
            -Exercise
                of stock options into 59,600 common shares by consultant
            
            $
            -
            
            $
            -
            
            $
            119,200Issuance
                of common stock dividend to preferred shareholders
            
            $
            -
            
            $
            -
            
            $
            138,402Unissued
                shares to preferred shareholders for penalty per agreement
            
            $
            -
            
            $
            -
            
            $
            441,125Conversion
                of notes payable and accrued interest to common stock
            
            $
            -
            
            $
            313,003
            
            $
            -




F-8




**CLEVELAND
      BIOLABS, INC.**


**NOTES
      TO FINANCIAL STATEMENTS**




**Note
      1. Organization**




Cleveland
      BioLabs, Inc. (“CBLI” 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 Buffalo, New
      York. CBLI is a drug discovery and development company leveraging its
      proprietary discoveries about programmed cell death to treat cancer and protect
      normal tissues from exposure to radiation and other stresses. To date, the
      Company has not developed any commercial products, but the Company has developed
      and produced biological compounds under a single commercial development
      contract.




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




A.
            Cash
                and Equivalents – The Company considers highly liquid debt
                instruments with original maturities 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.




B.
            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.




C.
            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 December 31, 2007, and
                2006.




D.
            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 were to 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
                Company is under no obligation to fund or loan any additional amount
                to
                the Borrower.As
                of December 31, 2006 the balance outstanding was $50,000 plus accrued
                interest of $171.At
                September 30, 2007, the Company wrote off the balance outstanding
                of
                $300,000 plus accrued interest of $5,479 due to the fact that the
                Securities and Exchange Commission has initiated proceedings to
                permanently suspend trading in the shares of Borrower and to revoke
                its
                registration under the Securities Exchange Act of 1934. On December
                11,
                2007, the SEC revoked the registrations of all classes of securities
                of
                Orbit Brands Corp. pursuant to Section 12(j) of the Securities Exchange
                Act of 1934. In addition, the Borrower does not appear to have sufficient
                funds to emerge from its bankruptcy
                proceedings.




F-9




E.
            Deferred
                Compensation – The Company realized deferred compensation upon the
                valuation of restricted stock granted to the founding stockholders.
                This
                deferred compensation was expensed over the three-year vesting period
                from
                the grant of the stock. The Company expensed $0, $5,887, and $9,140
                in
                compensation expense in 2007, 2006 and 2005,
                respectively.




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 $188,395, $94,931, and
                $44,762
                for the years ended December 31, 2007, 2006, and 2005
                respectively.




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 , or CCF , and
      granted to the Company through an exclusive licensing agreement. As part of
      the
      licensing agreement, CBLI 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, filing and maintenance
      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 were $407,425 and $222,789 on behalf of CCF for 13 patent
      applications as of December 31, 2007 and December 31, 2006, respectively. All
      of
      the CCF patent applications are still pending approval.




F-10




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, filing and maintenance of the patent application will
      be
      expensed as part of selling, general and administrative expenses at that time.
      Gross capitalized patents pending costs were $51,677 and $30,189 on behalf
      of
      the Company for three patent applications as of December 31, 2007 and December
      31, 2006, respectively. The patent applications are still pending
      approval.




I.
            Line
                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, a borrowing limit
                of
                $1,000,000, and expires on September 20, 2008. At December 31, 2007
                and
                December 31, 2006, there were no outstanding
                borrowings.




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.




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.




Revenues
      from 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.




The
      Company recognizes revenue related to the funds received in 2007 from the State
      of New York under the sponsored research agreement with the Roswell Park Cancer
      Institute (RPCI) in accordance with SFAS 116. The principles of SFAS 116 result
      in the recognition of revenue as allowable costs are incurred. The Company
      recognizes revenue on research laboratory services and the purchase and
      subsequent use of related equipment. The amount paid as a payment toward future
      services related to the equipment is recognized as a prepaid asset and will
      be
      recognized as revenue as the services are performed and the prepaid asset is
      recognized as expense.




F-11




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 Defense Threat
      Reduction Agency (DTRA), 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. 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.




The
      Company received $2,000,000 in funds from the State of New York through the
      Roswell Park Cancer Institute during the second quarter of 2007 and is
      recognizing this revenue over the terms and conditions of the sponsored research
      agreement. The Company recognizes revenue on research laboratory services and
      the purchase and subsequent use of related equipment. The amount paid as a
      payment toward future services related to the equipment is recognized as a
      prepaid asset and will be recognized as revenue as the services are performed
      and the prepaid asset is recognized as expense. For the year ended December
      31,
      2007, the Company recognized $329,390 as revenue resulting in a balance of
      deferred revenue of $1,670,610 at December 31, 2007. At December 31, 2006 and
      December 31, 2005, the Company had $0 and $100,293 deferred revenue. The balance
      of $100,293 at December 31, 2005 was related to a federal grant and recognized
      as revenue in the first quarter of 2006.




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.
            Other
                Expense – Other expense consists primarily of costs associated with the
                relocation of the Company facilities and employees from Cleveland,
                Ohio to
                Buffalo, New York. For the years ended December 31, 2007, 2006, and
                2005,
                relocation costs were $1,741,609, $0 and $0, respectively. Other
                expense
                also includes the loss on the Orbit Brands investment (see Note 1.D
                for
                more information), loss on disposal of assets and interest expense.
                The
                loss on disposal of fixed assets was $15,575, $0 and $0 for the years
                ended December 31, 2007, 2006 and 2005, respectively. Interest expense
                was
                $1,087, $11,198 and $17,993 for the years ended December 31, 2007,
                2006
                and 2005, respectively.




P.
            Employee
                Benefit Plan – The Company maintains a 401(k) retirement savings plan that
                is available to all full-time employees who have reached age 21.
                The plan
                is intended to qualify under Section 401(k) of the Internal Revenue
                Code
                of 1986, as amended. The plan provides that each participant may
                contribute up to a statutory limit of their pre-tax compensation,
                which
                was $15,500 for employees under age 50 and $20,500 for employees
                50 and
                older in calendar year 2007. Employee contributions are held in the
                employees’ name and invested by the plan trustee. The plan currently
                provides for the Company to make matching contributions, subject
                to
                established limits. The Company made matching contributions of $99,530,
                $48,858, and $0 for 2007, 2006, and 2005,
                respectively.




F-12




Q.
            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 allows 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, the2,000,000
                shares were registered with the SEC by filing a Form S-8 registration
                statement. For the year ended December 31, 2007, 190,000 stock awards
                and
                660,000 options were granted to executives, independent board members,
                employees and key consultants. At December 31, 2007, stock awards
                of
                190,000 and option awards of 705,000 have been awarded under the
                Plan
                leaving 1,015,000 shares of stock to be
                awarded.




R.
            2007
                Executive Compensation Plan - On May 11, 2007, theCompensation
                Committee (the “Compensation
                Committee”)
                of the Board of Directors approved an executive compensation program
                designed to reward each of the Company’s Chief Executive Officer,Chief
                Operating Officer,
                Chief Financial Officerand 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 milestones 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 Officers ’ compensation packages - 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.




As
      of
      December 31, 2007, the Company has accrued $185,288 in cash bonuses and
      $2,687,355 in non-cash, stock-based compensation for the stock options to be
      awarded by the Compensation Committee under the 2007 Executive Compensation
      Plan.




S.
            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 non-cash, 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. The Black
      Scholes model is used for standard stock options, but if market conditions
      are
      present within the stock options, the Company utilizes Monte Carlo simulation
      to
      value the stock options. 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 published by 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 the 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. The Company recognizes the fair value of share-based
      compensation in net income on a straight-line basis over the requisite service
      period. A summary of the values for these assumptions appears
      below:




F-13




2007
            
            2006
            
            2005Risk-free
                interest rate
            
            
            3.38-5.11
            %
            
            4.66-5.04
            %
            
            3.95-4.46
            %Expected
                dividend yield
            
            
            0
            %
            
            0
            %
            
            0
            %Expected
                life
            
            
            2.74-6
                years
            
            
            5
                years
            
            
            5
                YearsExpected
                volatility
            
            
            71.86-76.29
            %
            
            71.43-75.11
            %
            
            78.0-81.75
            %




The
      fair
      value of warrants issued in 2006 to a key consultant in exchange for services
      was also estimated using the Black-Scholes option valuation model with the
      same
      assumptions.




The
      Company issued 660,000, 161,750 and 383,840 stock options during the years
      ended
      December 31, 2007, 2006, and 2005, respectivel y,
      pursuant to various stock award agreements. The Company recognized a total
      of
      $3,401,499, $506,078, and $318,111 in expense related to options for the years
      ended December 31, 2007, 2006, and 2005, respectively. The weighted average,
      estimated grant date fair values of stock options granted was $6.08, $3.14,
      and
      $1.65 during the years ended December 31, 2007, 2006, and 2005,
      respectively. The
      following tables summarize the stock option activity for the years ended
      December 31, 2007 and December 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
            
            
            660,000
            
            $
            9.85Exercised
            
            
            131,750
            
            $
            1.34Forfeited,
                Canceled
            
            
            0
            
            
            n/aOutstanding,
                December 31, 2007
            
            
            1,011,740
            
            $
            7.29
            
            
            8.80Exercisable,
                December 31, 2007
            
            
            646,930
            
            $
            6.89
            
            
            8.75





F-14




Shares
            
            Weighted
              Average
              Exercise
              Price per
              Share
            
            Weighted
              Average
              Remaining
              Contractual
              Term (in Years)Outstanding,
                December 31, 2005
            
            
            324,240
            
            $
            0.82Granted
            
            
            161,750
            
            $
            4.92Exercised
            
            
            625
            
            $
            4.50Forfeited,
                Canceled
            
            
            1,875
            
            $
            4.50Outstanding,
                December 31, 2006
            
            
            483,490
            
            $
            2.17
            
            
            8.77Exercisable,
                December 31, 2006
            
            
            243,183
            
            $
            2.27
            
            
            8.78




In
      addition, the Company recognized $1,700,450 in expense for shares issued under
      the Plan to various consultants during the year ended December 31, 2007. For
      the
      years ended December 31, 2006 and 2005, there was no compensation expense
      recognized due to no share issuance.




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 valuation 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.




T.
            Income
                Taxes – The Company utilizes Statement of Financial Accounting Standards
                No. 109, “Accounting for Income Taxes,” which requires an asset and
                liability approach to financial accounting and reporting for income
                taxes.
                Deferred tax assets and liabilities are recognized for the estimated
                future tax consequences attributable to operating loss and tax credit
                carryforwards, and temporary differences between the financial statement
                carrying amounts of existing assets and liabilities and their respective
                tax bases. Deferred tax assets and liabilities are measured using
                enacted
                tax rates expected to apply to taxable income in the years in which
                those
                operating loss carryforward and temporary differences are expected
                to be
                recovered or settled. The effect on deferred income tax assets and
                liabilities of a change in tax rates is recognized in income in the
                period
                that includes the enactment date. A valuation allowance is established,
                if
                necessary, to reduce the deferred tax asset to the amount that will,
                more
                likely than not, be realized. The Company accounts for interest and
                penalties related to uncertain tax positions as part of its provision
                for
                income taxes.




F-15




U.
            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 basic and diluted earnings per share:




2007
            
            2006
            
            2005Net
                loss available to common stockholders
            
            $
            (28,262,302
            )
            $
            (7,437,572
            )
            $
            (2,678,369
            )Net
                loss per share, basic and diluted
            
            $
            (2.34
            )
            $
            (0.84
            )
            $
            (0.43
            )Weighted-average
                shares used in computing net loss per share, basic and
                diluted
            
            
            12,090,430
            
            
            8,906,266
            
            
            6,250,447




The
      Company has included $1,265,800, $214,928 and $291,914 in the numerator to
      account for cumulative dividends for Series A and B preferred stock that were
      recognized for 2007, 2006 and 2005, respectively. 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
      3,453,268, 814,424, and 594,424 for the years ended December 31, 2007, 2006
      and
      2005, 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
      1,011,740, 483,490, and 324,240 for the years ended December 31, 2007, 2006
      and
      2005, respectively. Such securities, had they been dilutive, would have been
      included in the computation of diluted earnings per share.




V.
            Concentrations
                of Risk – Grant revenue was comprised wholly from grants issued by the
                federal and state governments and accounted for 85.6%, 88.0%, and
                88.9% of
                total revenue for the years ended December 31, 2007, 2006 and 2005,
                respectively. Although the Company anticipates ongoing 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.




F-16




W.
            Foreign
                Currency Exchange Rate Risk – The Company has entered into agreements with
                foreign third parties to advance the Company’s research and development
                efforts 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. As of December 31, 2007, the Company
                is
                obligated to make payments under the agreement of 9,715 Euros and
                86,412
                Australian dollars. The Company has established means to purchase
                forward
                contracts to hedge against this risk. As of December 31, 2007, the
                Company
                has 9,715 Euros and 86,412 Australian dollars in contracts outstanding.The
                estimated fair values of forward contracts are based on quoted market
                prices.




X.
            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.




Y.
            Segment
                Reporting – As of December 31, 2007, the Company has determined that it
                operates in only one segment. Accordingly, no segment disclosures
                have
                been included in the notes to the consolidated financial
                statements.




Z.
            Effect
                of New Accounting Standards – Effective January 1, 2007, the Company
                adopted Financial Accounting Standards Board FIN 48, Accounting for
                Uncertainty in Income Taxes, an interpretation of FASB Statement
                No. 109.
                FIN 48 prescribes a minimum recognition threshold and measurement
                methodology that a tax position taken or expected to be taken in
                a tax
                return is required to meet before being recognized in the financial
                statements. The minimum recognition threshold is defined in FIN 48
                as a
                tax position that is more likely than not to be sustained upon examination
                by the applicable taxing authority, including resolution of any related
                appeals or litigation processes, based on the technical merits of
                the
                position. If a tax benefit meets this threshold, it is measured and
                recognized based on an analysis of the cumulative probability of
                the tax
                benefit being ultimately sustained. There was no impact to the financial
                statements upon adoption of FIN 48.




**Note
      3. Significant Alliances and Related Parties**




***The
      Cleveland Clinic Foundation***




Effective
      July 2004, the Company entered into a strategic alliance with CCF. Under the
      agreement, the Company received an exclusive license to use CCF licensed patents
      and CCF technology for the benefit of the Company for research and drug
      development. The Company has primary responsibility to fund all newly developed
      patents; however, CCF retains patent ownership on those contained in the
      agreement. The Company also has the responsibility to secure applicable
      regulatory approvals. In partial consideration of this agreement, in December
      2004, the Company issued 1,341,000 shares of its common stock to CCF and
      recognized $2,250,000 as non-cash research and development expense in exchange
      for the stock. The calculation of this expense was based in part on an estimate
      of the Company’s value based on discussions in 2004 with potential investors, in
      which the Company was estimated to have a value of approximately $12,500,000.
      This valuation was reflected in an agreement between the Company and an
      investment bank dated September 30, 2004. This agreement set forth the terms
      on
      which the investment bank was to raise equity capital for the Company. In light
      of the preliminary and subjective nature of that estimate, the Company
      discounted that estimate to arrive at a valuation of $10,000,000.




F-17




CCF
      will
      receive milestone payments for each product developed with CCF technology as
      development passes through major developmental stages. In addition, the Company
      will pay CCF royalties and sublicense royalties as a percentage of net sales
      of
      all commercial products developed with CCF technology. Milestone payments,
      royalties or sublicense royalties have been paid amount to $300,000, $0, and
      $0
      for the years ended December 31, 2007, 2006, and 2005,
      respectively.




The
      Company also incurred $927,347, $1,142,290, and $475,934 in subcontract expense
      to CCF related to research grants and agreements for the years ended December
      31, 2007, 2006 and 2005, respectively. The balance remaining is $70,539 in
      accrued payables at December 31, 2007. Finally, the Company recognizes a balance
      of $10,227 in accounts receivable at December 31, 2007 related to a prepayment
      of a research agreement.




The
      Company also rented office and laboratory space from an entity related to CCF
      on
      a month to month basis through May of 2005. Rent to this entity related to
      CCF
      was $0, $0, and $11,121 in 2007, 2006 and 2005, respectively.




***Roswell
      Park Cancer Institute***




In
      January 2007, the Company entered into a sponsored research agreement with
      RPCI to
      develop the Company’s cancer and radio-protectant drug candidates .
      The
      Company received $2,000,000 in funds from RPCI during the second quarter of
      2007
      and is scheduled to receive an additional $1,000,000 in the second quarter
      of
      2008. This money was funded by the State of New York as part of an incentive
      package for the Company to relocate and e stablish
      a major research/clinical facility in Buffalo,
      New York. The Company will have an open-ended license to any basic research
      conducted within, or in collaboration with RPCI.




***ChemBridge
      Corporation***




In
      April
      2004, ChemBridge Corporation acquired 357,600 shares of the Company’s common
      stock valued at $6,081 (subject to antidilution provisions for future equity
      issues) and holds warrants to purchase an additional 264,624 shares of the
      Company’s common stock for $1.13 per share. The warrants expire in April 2010.
      Under the agreement, ChemBridge has agreed to provide chemical technology and
      expertise for the benefit of the Company for research and drug
      development.




In
      April
      2004, the Company entered into a chemical libraries license agreement with
      ChemBridge. Under the terms of the agreement, the Company has a non-exclusive
      worldwide license to use certain chemical compound libraries for drug research
      conducted on its own or in collaboration with others. In return, ChemBridge
      will
      receive royalty payments on any revenue received by the Company for all
      contracts, excluding CCF, in which the libraries are used. No revenues or
      royalties have been paid through the year ended December 31, 2007.




The
      Company has also agreed to collaborate with ChemBridge on two optimization
      projects, wherein ChemBridge will have the responsibility of providing the
      chemistry compounds of the project and the Company will have the responsibility
      of providing the biological expertise. ChemBridge will retain a 50% ownership
      interest in two selected “confirmed hits” that make up the optimization
      projects.




The
      parties will jointly manage the development and commercialization of any
      compounds arising from an optimization project. No “confirmed hits” have been
      selected during the year ended December 31, 2007.




In
      addition, the Company paid ChemBridge $41,780, $29,910, and $3,913 for the
      purchase of chemical compounds in the normal course of business in 2007, 2006
      and 2005, respectively.




F-18




***Cooperative
      Research and Development Agreement***




In
      August
      2004, the Company entered into a five-year cooperative research and development
      agreement (CRADA) with the Uniformed Service University of the Health Sciences,
      which includes the Armed Forces Radiobiology Research Institute, the Henry
      M.
      Jackson Foundation for the Advancement of Military Medicine, Inc., and CCF,
      to
      evaluate the Company’s radioprotective drug candidates and their effects on
      intracellular and extracellular signaling pathways. Under the terms of the
      agreement, all parties are financially responsible for their own expenses
      related to the agreement. The agreement may be unilaterally terminated by any
      party upon 30 days prior written notice.




In
      August
      2007, the Company entered into an additional one-year CRADA with the Uniformed
      Service University of the Health Sciences to evaluate the Company’s
      radioprotective drug candidate Protectan CBLB502 in non-human primates. Under
      the terms of the agreement, the Company paid $222,769 to Henry M. Jackson
      Foundation for the Advancement of Military Medicine, Inc to purchase, house
      and
      irradiate animals and perform blood and cytokine analysis. The agreement may
      be
      unilaterally terminated by any party upon 30 days prior written
      notice.




***Sunrise
      Securities Corp.***




The
      Company engaged Sunrise
      Securities Corporation ,
      or SSC , to act
      as the investment banker for the private placement that took place in March 2005, as a
      lead underwriter for the initial public offering in 2006,
      and
      as placement agent for its private placement of Series B Convertible Preferred
      Stock, or Series B Preferred. SSC and its related parties
      are owners of both common stock and warrants of the Company as a result of
      the
      private placement and the initial public offering. The Company paid SSC $75,000
      as an initial retainer for underwriting work associated with the initial public
      offering and SSC
      received $945,000 in
      underwriting commissions from the
      initial public offering. In addition, the Company paid SSC $95,000 related
      to
      legal fees incurred in the March 2007 Series B Preferred offering .




***Consultants***




In
      addition, one Company stockholder, who serves as our Chief Scientific Officer, received payments
      for
      consulting services performed on certain grant awards and internal research
      and
      development. Total cash subcontract expense made to this person amounted to
      $120,580, $104,168, and $100,250 for the years ended December 31, 2007, 2006
      and
      2005, respectively. In addition, the Company incurred $198,375 in non-cash,
      stock-based compensation expense in 2007 to this consultant and also accrued
      an
      additional $732,915 in non-cash, stock-based compensation and an additional
      $19,215 in subcontractor expense related to the 2007 Executive Compensation
      Plan.




One
      Company stockholder, who serves as our Vice President of Research -
      Radioprotectant Group, received payment for consulting services performed
      related to the Company’s research efforts. Total consultant expense made to this
      person amounted to $95,520, $84,330, and $49,135 for the years ended December
      31, 2007, 2006, and 2005, respectfully.




**Note
      4. Stock Transactions**




In
      March
      2005, the Company issued 3,000,000 shares of Series A Participating Convertible
      Preferred Stock (Series A) for $6 million in gross proceeds. These shares were
      convertible into common stock on a one-for-one basis and earn a dividend of
      6%
      payable biannually on February 1 and August 1 in cash or common stock. In
      conjunction with the issuance of the Series A shares, $50,000 of convertible
      notes held at December 31, 2004 and a $50,000 note issued February 3, 2005,
      including accrued interest, were converted into 51,219 shares of Series A
      preferred stock. The Company also issued 308,000 shares of common stock and
      300,000 warrants to purchase 300,000 shares of common stock with an exercise
      price of $2.00 per share to Sunrise Securities Corp., the private placement
      agent, and its designees as partial consideration for their services rendered.
      295,850 of these warrants expire on March 15, 2010 and 4,150 expire on March
      28,
      2010 resulting from two closing dates.




F-19




In
      March
      2005, the Company issued 10,000 stock options under a non-qualified stock option
      agreement to a consultant who works for the company on an ongoing basis. These
      options allow for the purchase of common stock at a price of $3.00 per share.
      These options have a thirteen month vesting schedule and expire on March 1,
      2015. The value of the options is being recognized as consulting expense over
      the vesting period based on the Black-Scholes option pricing model.




In
      July
      2005, the Company issued 294,240 stock options to various employees of the
      Company under non-qualified stock option agreements. These options allow for
      the
      purchase of 190,000 shares of common stock at a price of $.66 and 104,240 shares
      of common stock at a price of $0.67 per share, respectively. These options
      have
      a three-year vesting schedule and expire on June 30, 2015. The value of the
      options is being recognized as compensation expense over the vesting period
      based on the Black-Scholes option pricing model.




In
      July
      2005, the company issued fully vested options to purchase 59,600 shares of
      common stock under a non-qualified stock option agreement to an outside
      consultant who works for the company on an ongoing basis. These stock options
      were exercised at a price of $2.00 per share and the company recorded $119,200
      in consulting fees as a result of the issuance of these stock
      options.




On
      August
      1, 2005, the Company paid a stock dividend of 69,201 shares of common stock
      to
      holders of record of the outstanding Series A preferred stock.





In
      December 2005, the Company issued 20,000 stock options under a non-qualified
      stock option agreement to a consultant who works for the company on an ongoing
      basis. These options allow for the purchase of common stock at a price of $2.00
      per share with a two-year vesting schedule and expire on November 30,
      2015.




As
      a
      condition of the issuance of the Series A preferred stock in March 2005, all
      holders of Series A preferred stock received an additional 2% of all preferred
      stock, common stock and warrants that each Series A preferred stockholder owns
      for each 30 day period that a delay occurs in a required transaction. These
      penalty shares are not subject to compounding or prorating based on the number
      of days of delay. They are earned at the end of each 30-day penalty period.
      For
      the first quarter of 2006, one penalty period occurred in which 60,000 shares
      of
      Series A preferred stock were earned at $120,000. In addition, 13,515 shares
      of
      common stock were earned at $27,030. The penalty shares were issued in January
      2006.




Pursuant
      to an Amendment to the Series A Rights Agreement, dated as of February 17,
      2006,
      the Company’s obligation to issue penalty shares was suspended for a period of
      70 days, subject to a one-time 45-day extension, while the Company’s
      registration statement was being reviewed by the SEC.





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.





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.




F-20




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. On August 28, 2007,
      trading of the Company’s common stock moved from the NASDAQ Capital
      Market to the NASDAQ Global
      Market. In September 2007, we ceased our listing on the Boston Stock Exchange.
      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.




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
      February 26, 2007, the Company issued 55,000 warrants at an exercise price
      of
      $9.19 per share, to a placement agent as incentive for work on the private
      placement offering.




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 into an aggregate of 4,288,712 shares of common stock and Series
      B
      Warrants that are exercisable 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 into an aggregate of 290,298 shares of common stock, Series B
      Warrants that are exercisable for an aggregate of 221,172 shares of the
      Company’s common stock, and Series C Warrants that are exercisable 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.




F-21




In
      total,
      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
      September 13, 2007, the Company paid $807,913 to the Series B Preferred stockholders for the
      semiannual dividend.




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 18 , 2017.




On
      April
      6, 2007, the Company issued 152,500 stock options to officers and consultants
      under non-qualified stock option agreements. These options are immediately
      exercisable and allow for the purchase of 152,500 shares of common stock at
      a
      price of $8.36. These options expire on April 5, 2017.
      The Company also issued 115,000 shares of common stock to consultants under
      the
      Plan.




On
      June
      12, 2007, the Company issued 140,000 stock options to four independent members
      of the Board of Directors of the Company under non-qualified stock option
      agreements. These options are immediately exercisable and allow for the purchase
      of 140,000 shares of common stock at a price of $9.40. These options expire
      on
      June 1 1,
      2 017.




On
      June
      15, 2007, the Company issued 110,000 stock options to various key employees
      and
      consultants under non-qualified stock option agreements. These options have
      various vesting schedules including immediate vesting, up to three year vesting,
      and vesting upon the company stock price obtaining certain levels. These options
      allow for the purchase of 110,000 shares of common stock at a price ranging
      from
      $9.93 to $17.00. These options expire on June 14, 2017.
      The Company also issued 30,000 shares of common stock to the same consultants
      under the Plan.




On
      June
      21, 2007, the Company issued 3,000 stock options to a consultant under a
      non-qualified stock option agreement. These options vest over a six month period
      and allow for the purchase of 3,000 shares of common stock at a price of $10.84.
      These options expire on June 2 0,
      2 017.




On
      June
      27, 2007, the Company issued 30,000 shares of common stock to various outside
      consultants under the Plan.




On
      July
      18, 2007, the Company issued 15,000 shares of common stock to an outside
      consultant under the Plan. On that date, the Company also issued 18,000 stock
      options to another consultant under a non-qualified stock option agreement.
      These options are immediately exercisable and allow for the purchase of 18,000
      shares of common stock at a price of $10.61. These options expire on December
      31, 2012.




On
      December 4, 2007, the Company issued 117,000 stock options to various key
      employees and consultants under non-qualified stock option agreements. These
      options have up to three year vesting. These options allow for the purchase
      of
      117,000 shares of common stock at an exercise price of $10.00 per share. These
      options expire on or before December 3, 2017.




On
      December 11, 2007, the SEC declared effective a registration statement of the
      Company registering up to 5,514,999 shares of common stock for resale from
      time
      to time by the selling stockholders named in the prospectus contained in the
      registration statement. This number represents 5,514,999 shares of common stock
      issuable upon the conversion or exercise of the securities issued the Company’s
      March 2007 private placement at the current conversion and exercise prices.
      Of
      these 5,514,999 shares of common stock, 3,717,515 shares are issuable upon
      conversion of Series B Preferred and
      1,797,484 shares are issuable upon exercise of the Series B Warrants. 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. Subsequent to
      the
      effectiveness of the registration statement, 708,743 Series B Preferred were
      converted and $61,418 in dividends earned were paid as of December 31, 2007.
      At
      December 31, 2007, $396,469 in dividends were accrued on the outstanding Series
      B Preferred.




F-22




**Note
      5. Income Taxes**




The
      provisions for income taxes charged to continuing operations is $0 for the
      years
      ended December 31, 2007, 2006, and 2005, respectively.




Deferred
      tax assets (liabilities) are comprised of the following at December
      31:




2007
            
            2006
            
            2005Deferred
                tax assets:Operating
                loss carryforwards
            
            $
            13,289,000
            
            $
            4,586,000
            
            $
            1,897,000Tax
                credit carryforwards
            
            
            737,000
            
            
            -
            
            
            -Deferred
                compensation
            
            
            2,765,000
            
            
            345,000
            
            
            135,000Other
            
            
            -
            
            
            2,000
            
            
            7,000Total
                deferred income tax assets
            
            
            16,791,000
            
            
            4,933,000
            
            
            2,039,000Deferred
                tax liabilitiesEquipment
            
            
            (61,000
            )
            
            (35,000
            )
            
            (17,000
            )Net
                deferred income tax asset
            
            
            16,730,000
            
            
            4,898,000
            
            
            2,022,000Valuation
                allowance
            
            
            (16,730,000
            )
            
            (4,898,000
            )
            
            (2,022,000
            )$
            -
            
            $
            -
            
            $
            -





F-23




The
      provision for income taxes differs from the amount of income tax determined
      by
      applying the applicable U.S. statutory federal income tax rate to the pretax
      loss from continuing operations as a result of the following
      differences:




2007
            
            2006
            
            2005Tax
                at the U.S. statutory rate
            
            $
            (9,474,000
            )
            $
            (2,456,000
            )
            $
            (811,000
            )Stock
                option exercises
            
            
            (363,000
            )
            
            -
            
            
            -Tax
                credits
            
            
            (477,000
            )
            
            -
            
            
            -Valuation
                allowance
            
            
            10,308,000
            
            
            2,456,000
            
            
            811,000Other
            
            
            6,000
            
            
            -
            
            
            -$
            -
            
            $
            -
            
            $
            -




At
      December 31, 2007, the Company has federal net operating loss carryforwards
      of
      approximately $34,262,000, which begin to expire if not utilized by 2023, and
      approximately $584,000 of tax credit carryforwards that begin to expire if
      not
      utilized by 2024. The utilization of approximately $2,768,000 of the net
      operating loss carryforwards and approximately $203,000 of the tax credits
      carryforwards is limited through 2011 as a result of ownership changes. The
      Company also has state net operating loss carryforwards of approximately
      $22,176,000, which will expire if not utilized by 2027, and state tax credit
      carryforwards of approximately $153,000, which begin to expire if not utilized
      by 2010.




The
      Company files a United States federal tax return, along with various state
      and
      local income tax returns. The federal, state and local tax returns for the
      years
      ended December 31, 2006, 2005 and 2004 are still open for
      examination.




Effective
      January 1, 2008, the Company adopted Financial Accounting Standards Board FIN
      48, “Accounting for Uncertainty in Income Taxes”, which prescribes a minimum
      recognition threshold and measurement methodology that a tax position taken
      or
      expected to be taken in a tax return is required to meet before being recognized
      in the financial statements. There was no impact to the financial statements
      upon the adoption of FIN 48.




F-24




The
      following presents a rollforward of the unrecognized tax benefits and associated
      interest and penalties:




Unrecognized
              Tax Benefits
            
            Interest
              and PenaltiesBalance
                at January 1, 2007
            
            $
            -
            
            $
            -Prior
                year tax positions
            
            
            -
            
            
            -Current
                year tax positions
            
            
            -
            
            
            -Deferred
                tax positions
            
            
            230,000
            
            
            -Settlements
                with tax authorities
            
            
            -
            
            
            -Expiration
                of the statute of limitations
            
            
            -
            
            
            -Balance
                at December 31, 2007
            
            $
            230,000
            
            $
            -




**Note
      6. Other Balance Sheet Details**




***Available-For-Sale
      Cash Equivalents and Marketable Securities***




Available-for-sale
      Marketable Securities consist of the following:




Cost
            
            Accrued
              Interest
            
            Gross
              Unrealized
              Gains
            
            Gross
              Unrealized
              Losses
            
            Fair
              ValueDecember
                31, 2007 - Current Marketable Securities
            
            $
            1,000,000
            
            $
            17,881
            
            $
            -
            
            $
            -
            
            $
            1,017,881




The
      Company considers investments with a maturity date of more than three months
      from the date of purchase 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. As
      a
      result of changes in market interest rates on investment, the Company recognized
      unrealized gains/(losses) of $4,165 $13,645, and ($17,810) for the years ending
      December 31, 2007, 2006, and 2005, respectively. In 2007, the Company recaptured
      $4,165 of the previously recorded other comprehensive loss due to the maturity
      of the short term investments.




F-25




***Equipment***




Equipment
      consists of the following:




2007
            
            2006Laboratory
                Equipment
            
            $
            966,517
            
            $
            347,944Computer
                Equipment
            
            
            258,089
            
            
            132,572Furniture
            
            
            274,903
            
            
            65,0871,499,509
            
            
            545,603Less
                accumulated depreciation
            
            
            (313,489
            )
            
            (142,011
            )$
            1,186,020
            
            $
            403,592




**Note
      7. Commitments and Contingencies**




The
      Company has entered into various agreements with third 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 December 31, 2007, $300,000
      of
      milestone payments have been recognized and paid.




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.





The
      Company currently has operating lease commitments in place for facilities in
      Buffalo, New York and Rosemont ,
      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 $218,635, $160,742, and $112,967 in 2007, 2006
      and 2005, respectively.





F-26




Annual
      future minimum lease payments under present lease commitments are as
      follows:




Operating
              Leases2008
            
            $
            333,5662009
            
            
            349,8782010
            
            
            389,9402011
            
            
            360,3002012
            
            
            174,726$
            1,608,410




The
      Company has entered into stock option agreements with key employees, board
      members and consultants with exercise prices ranging from $0.66 to $17.00.
      These
      awards were approved by the Company’s Board of Directors. The options expire ten
      years from the date of grant, subject to the terms applicable in the
      agreement .




The
      following table summarizes the stock option activity for the years ended
      December 31, 2007 and 2006:





Number of
              Options
            
            Weighted Average
              Exercise PriceOutstanding
                at December 31, 2005
            
            
            324,240
            
            $
            0.82Granted
            
            
            161,750
            
            $
            4.92Exercised
            
            
            625
            
            $
            4.50Forfeited
            
            
            1,875
            
            $
            4.50Outstanding
                at December 31, 2006
            
            
            483,490
            
            $
            2.17Granted
            
            
            660,000
            
            $
            9.85Exercised
            
            
            131,750
            
            $
            1.34Forfeited
            
            
            -
            
            
            n/aOutstanding
                at December 31, 2007
            
            
            1,011,740
            
            $
            7.29





F-27




The
      number of options and weighted average exercise price of options fully vested
      and exercisable for the years ending December 31, 2007, 2006 and 2005 were
      646,930, 243,183, and 83,560 options at $6.89, $2.27, and $0.88 respectively.
      A
      table showing the number of options outstanding and exercisable (fully vested)
      at December 31, 2007 appears below:




Outstanding
            
            ExercisableExercise Price
            
            Number of
              Options
            
            Weighted
              Average
              Years to
              Expiration
            
            Number of
              Options$
            0.66
            
            
            112,500
            
            
            7.50
            
            
            65,000$
            0.67
            
            
            77,740
            
            
            7.50
            
            
            51,680$
            2.00
            
            
            10,000
            
            
            7.92
            
            
            10,000$
            4.50
            
            
            111,500
            
            
            8.17
            
            
            54,375$
            6.00
            
            
            45,000
            
            
            8.55
            
            
            45,000$
            8.36
            
            
            152,500
            
            
            9.26
            
            
            152,500$
            8.82
            
            
            20,000
            
            
            9.22
            
            
            20,000$
            9.14
            
            
            94,500
            
            
            9.12
            
            
            24,375$
            9.40
            
            
            140,000
            
            
            9.45
            
            
            140,000$
            9.93
            
            
            30,000
            
            
            9.46
            
            
            15,000$
            10.00
            
            
            117,000
            
            
            9.93
            
            
            48,000$
            10.61
            
            
            18,000
            
            
            5.00
            
            
            18,000$
            10.84
            
            
            3,000
            
            
            9.47
            
            
            3,000$
            11.00
            
            
            25,000
            
            
            9.46
            
            
            -$
            14.00
            
            
            25,000
            
            
            9.46
            
            
            -$
            17.00
            
            
            30,000
            
            
            9.46
            
            
            -Total
            
            
            1,011,740
            
            
            8.80
            
            
            646,930





F-28




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 Company’s 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:




Number of
              Warrants
            
            Weighted Average
              Exercise PriceOutstanding
                at December 31, 2005
            
            
            594,424
            
            $
            1.61Granted
            
            
            220,000
            
            $
            8.09Exercised
            
            
            -
            
            
            N/AForfeited
            
            
            -
            
            
            N/AOutstanding
                at December 31, 2006
            
            
            814,424
            
            $
            3.36Granted
            
            
            2,687,602
            
            $
            10.40Exercised
            
            
            48,758
            
            $
            2.00Forfeited
            
            
            -
            
            
            N/AOutstanding
                at December 31, 2007
            
            
            3,453,268
            
            $
            8.86




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.





The
      Company is not currently a party to any pending legal actions. From time to
      time
      in the ordinary course of business, the Company may be subject to claims brought
      against it. It is not possible to state the ultimate liability, if any, in
      these
      matters.




**Note
      8. Subsequent Events**




In
      December 2007, the Company accrued $2,687,355 of non-cash, stock-based
      compensation related to the stock options awarded under the 2007 Executive
      Compensation Plan. This accrual was based on the closing price of $8.80 of
      the
      Company’s stock as listed on the NASDAQ Global Market at December 31, 2007. The
      stock options were awarded by the Compensation Committee on February 4, 2008.
      At
      the time the options were awarded, the grant date fair value of the options
      was
      $1,137,345 based on the exercise price of $4.00 as determined by the 2006 Equity
      Incentive Plan at the time of the award. This results in a recapture of
      $1,550,010 of non-cash, stock-based compensation expense in the first quarter
      of
      2008.




F-29


**Item 9.
      Changes In and Disagreements with Accountants on Accounting and Financial
      Disclosure**





There
      were no disagreements with accountants on accounting and financial disclosures
      for the years ended, December 31, 2007 and 2006.





**Item 9A.
      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 December 31, 2007 as defined in Rules 13a-15(e) and
      15d-15(e) under the Securities Exchange Act of 1934, as amended, or 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 December 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**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Exchange Act Rules
      13a-15(f). Under the supervision and with the participation of management,
      including our principal executive officer and principle financial officer,
      we
      conducted an evaluation of the effectiveness of our internal control over
      financial reporting based on the framework in *Internal
      Control – Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on our evaluation under the framework in *Internal
      Control – Integrated Framework* ,
      our
      management concluded that our internal control over financial reporting was
      effective as of December 31, 2007.





This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission that permit the Company to provide only management’s report
      in this annual report on Form 10-K.





There
      was
      no change in our internal control over financial reporting during our fourth
      fiscal quarter ended December 31, 2007 that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting.




**Item 9B.
      Other Information**





Not
      applicable.




33




**PART
      III**





Pursuant
      to General Instruction G(3) of Form 10-K, Items 10 through 14, inclusive, have
      not been restated or answered in this annual report on Form 10-K because the
      Company intends to file within 120 days after the close of its fiscal year
      with
      the Securities and Exchange Commission a definitive proxy statement pursuant
      to
      Regulation 14A under the Securities Exchange Act of 1934, which proxy statement
      involves the election of directors. The information required in these Items
      10
      through 14, inclusive, is incorporated by reference to that proxy statement.





**PART
      IV**





**Item 15.
      Exhibits and Financial Statement Schedules**





(a)
      The
      following financial statements and supplementary data are filed as a part of
      this annual report on Form 10-K under Item 8.





Report
      of
      Independent Registered Public Accounting Firm


Balance
      Sheets at December 31, 2007 and 2006


Statements
      of Operations for years ended December 31, 2007, 2006, and 2005


Statements
      of Stockholders’ Equity for period from January 1, 2005 to December 31,
      2007


Statements
      of Cash Flows for years ended December 31, 2007, 2006, and 2005


Notes
      to
      Financial Statements





(b)
      The
      following exhibits are incorporated herein by reference.




**Exhibit**
              **No.**
            
            **Description**3.1
            
            Certificate
                of Incorporation filed with the Secretary of State of Delaware on
                June 5,
                2003***3.2
            
            Certificate
                of Amendment of Certificate of Incorporation filed with the Secretary
                of
                State of Delaware on February 25, 2005***3.3
            
            Certificate
                of Designation of Series A Participating Convertible Preferred Stock
                filed
                with the Secretary of State of Delaware on March 8,
                2005***3.4
            
            Second
                Certificate of Amendment of Certificate of Incorporation filed with
                Secretary of State of Delaware on June 30, 2006***3.5
            
            Certificate
                of Designations, Preferences and Rights of Series B Convertible Preferred
                Stock, dated March 16, 2007******3.6
            
            Second
                Amended and Restated By-Laws*******4.1
            
            Form
                of Specimen Common Stock
                Certificate*


4.2
            
            Form
                of Warrants issues to designees of Sunrise Securities Corp., dated
                March
                2005*




34




4.3
            
            Form
                of Warrants issued to underwriters***4.4
            
            Warrant
                to Purchase Common Stock issued to ChemBridge Corporation, dated
                April 27,
                2004*4.5
            
            Form
                of Series B Warrant ******4.6
            
            Form
                of Series C Warrant ******10.1
            ****
            Restricted
                Stock Agreement between Cleveland BioLabs, Inc. and Michael Fonstein,
                dated as of July 5, 2003*10.2
            ****
            Restricted
                Stock Agreement between Cleveland BioLabs, Inc. and Yakov Kogan,
                dated as
                of July 5, 2003*10.3
            ****
            Restricted
                Stock Agreement between Cleveland BioLabs, Inc. and Andrei Gudkov,
                dated
                as of July 5, 2003*10.4
            ****
            Library
                Access Agreement by and between ChemBridge Corporation and Cleveland
                BioLabs, Inc., effective as of April 27, 2004*10.5
            ****
            Restricted
                Stock and Investor Rights Agreement between Cleveland BioLabs, Inc.
                and
                ChemBridge Corporation, dated as of April 27, 2004*10.6
            ****
            Common
                Stockholders Agreement by and among Cleveland BioLabs, Inc. and the
                stockholders named therein, dated as of July 1, 2004*10.7
            ****
            Exclusive
                License Agreement by and between The Cleveland Clinic Foundation
                and
                Cleveland BioLabs, Inc., effective as of July 1, 2004*10.8
            ****
            Employment
                Agreement by and between Cleveland BioLabs, Inc. and Dr. Michael
                Fonstein,
                dated August 1, 2004*10.9
            ****
            Employment
                Agreement by and between Cleveland BioLabs, Inc. and Dr. Yakov Kogan,
                dated August 1, 2004*10.10
            ****
            Consulting
                Agreement between Cleveland BioLabs, Inc. and Dr. Andrei Gudkov,
                dated
                August 1, 2004*10.11
            ****
            Cooperative
                Research and Development Agreement by and between the Uniformed Services
                University of the Health Sciences, the Henry M. Jackson Foundation
                for the
                Advancement of Military Medicine, Inc., the Cleveland Clinic Foundation,
                and Cleveland BioLabs, Inc., dated as of August 1,
                2004**10.12
            
            Form
                of Stock Purchase Agreement between Cleveland BioLabs, Inc. and the
                Purchasers party thereto, dated as of March 15,
                2005*




35




10.13
            
            Form
                of Series A Rights Agreement by and among Cleveland BioLabs, Inc.
                and the
                parties thereto, dated as of March 15, 2005*10.14
            
            Employment
                Agreement by and between Cleveland BioLabs, Inc. and Dr. Farrel Fort,
                dated June 1, 2005*10.15
            
            Amendment
                to Employment Agreement by and between Cleveland BioLabs, Inc. and
                Dr.
                Farrel Fort, dated September 30, 2005*10.16
            
            Amendment
                to Consulting Agreement between Cleveland BioLabs, Inc. and Dr. Andrei
                Gudkov, dated as of January 23, 2006*10.17
            
            Amendment
                to Restricted Stock Agreement between Cleveland BioLabs, Inc. and
                Michael
                Fonstein, dated as of January 23, 2006*10.18
            
            Amendment
                to Restricted Stock Agreement between Cleveland BioLabs, Inc. and
                Yakov
                Kogan, dated as of January 23, 2006*10.19
            
            Amendment
                to Restricted Stock Agreement between Cleveland BioLabs, Inc. and
                Andrei
                Gudkov, dated as of January 23, 2006*10.20
            
            Amendment
                to Common Stockholders Agreement by and among Cleveland BioLabs,
                Inc. and
                the parties thereto, dated as of January 26, 2006*10.21
            
            Form
                of Amendment to Series A Rights Agreement by and among Cleveland
                BioLabs,
                Inc. and the parties thereto, dated as of February 17,
                2006*10.22
            
            Cleveland
                BioLabs, Inc. 2006 Equity Incentive Plan***10.23
            
            Process
                Development and Manufacturing Agreement between Cleveland BioLabs,
                Inc.
                and SynCo Bio Partners B.V., effective as of August 31,
                2006****10.24
            
            Sponsored
                Research Agreement between Cleveland BioLabs, Inc. and Roswell Park
                Cancer
                Institute Corporation, effective as of January 12,
                2007*****10.25
            
            Securities
                Purchase Agreement, dated March 16, 2007******10.26
            
            Registration
                Rights Agreement, dated March 16, 2007******23.1
            
            Consent
                of Meaden & Moore, Ltd.31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification of Michael
                Fonstein




36




31.2
            
            Rule
                13a-14(a)/15d-14(a) Certification of John A. Marhofer,
                Jr.32.1
            
            Section
                1350 Certification.





*
            Incorporated
                by reference to Amendment No. 1 to Registration Statement on Form
                SB-2 as
                filed on April 25, 2006 (File No. 333-131918).**
            Incorporated
                by reference to Amendment No. 2 to Registration Statement on Form
                SB-2 as
                filed on May 31, 2006 (File No. 333-131918).***
            Incorporated
                by reference to Amendment No. 3 to Registration Statement on Form
                SB-2 as
                filed on July 10, 2006 (File No. 333-131918).****
            Incorporated
                by reference to Form 8-K as filed on October 25, 2006.*****
            Incorporated
                by reference to Form 8-K as filed on January 12, 2007.******
            Incorporated
                by reference to Form 8-K as filed on March 19, 2007.*******
            Incorporated
                by reference to Form 8-K as filed on December 5,
                2007.





(c)
      Not
      applicable.





**SIGNATURES**




Pursuant
      to the
      requirements of Section 13 or 15(d) 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:
                March 21, 2008
            By:
            /s/
                MICHAEL FONSTEINMichael
                FonsteinChief
                Executive Officer(Principal
                Executive Officer)CLEVELAND
                BIOLABS, INC.Dated:
                March 21, 2008
            By:
            /s/
                JOHN A. MARHOFER, JR.John
                A. Marhofer, Jr.Chief
                Financial Officer(Principal
                Financial and Accounting Officer)




37




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed by the following persons in the capacities and on the dates
      indicated.





**Signature**
            
            **Title**
            
            **Date**/
                S
                /    Michael Fonstein
              Michael
                Fonstein
            
            Chief
                Executive Officer, President, and
              Director (Principal Executive
              Officer)
            
            March
                21, 2008/
                S
                /    John A. Marhofer, Jr.
              John
                A. Marhofer, Jr.
            
            Chief
                Financial Officer (Principal
              Financial and Accounting Officer)
            
            March
                21, 2008/
                S
                /    James Antal
              James
                Antal
            
            Director
            
            March
                21, 2008/
                S
                /    Paul DiCorleto
              Paul
                DiCorleto
            
            Director
            
            March
                21, 2008/
                S
                /    Andrei Gudkov
              Andrei
                Gudkov
            
            Chief
                Scientific Officer, and Director
            
            March
                21, 2008/
                S
                /    Bernard L. Kasten
              Bernard
                L. Kasten
            
            Director
            
            March
                21, 2008/
                S
                /    Yakov Kogan
              Yakov
                Kogan
            
            Chief
                Operating Officer, Secretary, and
              Director
            
            March
                21, 2008/
                S
                /    H. Daniel Perez
              H.
                Daniel Perez
            
            Director
            
            March
                21, 2008





38




**EXHIBIT
      INDEX**





**Exhibit**
              **No.**
            
            **Description**3.1
            
            Certificate
                of Incorporation filed with the Secretary of State of Delaware on
                June 5,
                2003***3.2
            
            Certificate
                of Amendment of Certificate of Incorporation filed with the Secretary
                of
                State of Delaware on February 25, 2005***3.3
            
            Certificate
                of Designation of Series A Participating Convertible Preferred Stock
                filed
                with the Secretary of State of Delaware on March 8,
                2005***3.4
            
            Second
                Certificate of Amendment of Certificate of Incorporation filed with
                Secretary of State of Delaware on June 30, 2006***3.5
            
            Certificate
                of Designations, Preferences and Rights of Series B Convertible Preferred
                Stock, dated March 16, 2007******3.6
            
            Second
                Amended and Restated By-Laws*******4.1
            
            Form
                of Specimen Common Stock Certificate*4.2
            
            Form
                of Warrants issues to designees of Sunrise Securities Corp., dated
                March
                2005*4.3
            
            Form
                of Warrants issued to underwriters***4.4
            
            Warrant
                to Purchase Common Stock issued to ChemBridge Corporation, dated
                April 27,
                2004*4.5
            
            Form
                of Series B Warrant ******4.6
            
            Form
                of Series C Warrant ******10.1
            ****
            Restricted
                Stock Agreement between Cleveland BioLabs, Inc. and Michael Fonstein,
                dated as of July 5, 2003*10.2
            ****
            Restricted
                Stock Agreement between Cleveland BioLabs, Inc. and Yakov Kogan,
                dated as
                of July 5, 2003*10.3
            ****
            Restricted
                Stock Agreement between Cleveland BioLabs, Inc. and Andrei Gudkov,
                dated
                as of July 5, 2003*10.4
            ****
            Library
                Access Agreement by and between ChemBridge Corporation and Cleveland
                BioLabs, Inc., effective as of April 27,
                2004*




39




10.5
            ****
            Restricted
                Stock and Investor Rights Agreement between Cleveland BioLabs, Inc.
                and
                ChemBridge Corporation, dated as of April 27, 2004*10.6
            ****
            Common
                Stockholders Agreement by and among Cleveland BioLabs, Inc. and the
                stockholders named therein, dated as of July 1, 2004*10.7
            ****
            Exclusive
                License Agreement by and between The Cleveland Clinic Foundation
                and
                Cleveland BioLabs, Inc., effective as of July 1, 2004*10.8
            ****
            Employment
                Agreement by and between Cleveland BioLabs, Inc. and Dr. Michael
                Fonstein,
                dated August 1, 2004*10.9
            ****
            Employment
                Agreement by and between Cleveland BioLabs, Inc. and Dr. Yakov Kogan,
                dated August 1, 2004*10.10
            ****
            Consulting
                Agreement between Cleveland BioLabs, Inc. and Dr. Andrei Gudkov,
                dated
                August 1, 2004*10.11
            ****
            Cooperative
                Research and Development Agreement by and between the Uniformed Services
                University of the Health Sciences, the Henry M. Jackson Foundation
                for the
                Advancement of Military Medicine, Inc., the Cleveland Clinic Foundation,
                and Cleveland BioLabs, Inc., dated as of August 1,
                2004**10.12
            
            Form
                of Stock Purchase Agreement between Cleveland BioLabs, Inc. and the
                Purchasers party thereto, dated as of March 15, 2005*10.13
            
            Form
                of Series A Rights Agreement by and among Cleveland BioLabs, Inc.
                and the
                parties thereto, dated as of March 15, 2005*10.14
            
            Employment
                Agreement by and between Cleveland BioLabs, Inc. and Dr. Farrel Fort,
                dated June 1, 2005*10.15
            
            Amendment
                to Employment Agreement by and between Cleveland BioLabs, Inc. and Dr.
                Farrel Fort, dated September 30, 2005*10.16
            
            Amendment
                to Consulting Agreement between Cleveland BioLabs, Inc. and Dr. Andrei
                Gudkov, dated as of January 23, 2006*10.17
            
            Amendment
                to Restricted Stock Agreement between Cleveland BioLabs, Inc. and
                Michael
                Fonstein, dated as of January 23, 2006*10.18
            
            Amendment
                to Restricted Stock Agreement between Cleveland BioLabs, Inc. and
                Yakov
                Kogan, dated as of January 23,
                2006*




40




10.19
            
            Amendment
                to Restricted Stock Agreement between Cleveland BioLabs, Inc. and
                Andrei
                Gudkov, dated as of January 23, 2006*10.20
            
            Amendment
                to Common Stockholders Agreement by and among Cleveland BioLabs,
                Inc. and
                the parties thereto, dated as of January 26, 2006*10.21
            
            Form
                of Amendment to Series A Rights Agreement by and among Cleveland
                BioLabs,
                Inc. and the parties thereto, dated as of February 17,
                2006*10.22
            
            Cleveland
                BioLabs, Inc. 2006 Equity Incentive Plan***10.23
            
            Process
                Development and Manufacturing Agreement between Cleveland BioLabs,
                Inc.
                and SynCo Bio Partners B.V., effective as of August 31,
                2006****10.24
            
            Sponsored
                Research Agreement between Cleveland BioLabs, Inc. and Roswell Park
                Cancer
                Institute Corporation, effective as of January 12,
                2007*****10.25
            
            Securities
                Purchase Agreement, dated March 16, 2007******10.26
            
            Registration
                Rights Agreement, dated March 16, 2007******23.1
            
            Consent
                of Meaden & Moore, Ltd.31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification of Michael Fonstein31.2
            
            Rule
                13a-14(a)/15d-14(a) Certification of John A. Marhofer,
                Jr.32.1
            
            Section
                1350 Certification.





*
            Incorporated
                by reference to Amendment No. 1 to Registration Statement on Form
                SB-2 as
                filed on April 25, 2006 (File No. 333-131918).**
            Incorporated
                by reference to Amendment No. 2 to Registration Statement on Form
                SB-2 as
                filed on May 31, 2006 (File No. 333-131918).***
            Incorporated
                by reference to Amendment No. 3 to Registration Statement on Form
                SB-2 as
                filed on July 10, 2006 (File No. 333-131918).****
            Incorporated
                by reference to Form 8-K as filed on October 25, 2006.*****
            Incorporated
                by reference to Form 8-K as filed on January 12, 2007.******
            Incorporated
                by reference to Form 8-K as filed on March 19, 2007.*******
            Incorporated
                by reference to Form 8-K as filed on December 5,
                2007.





41