Commonwealth

Biotechnologies, Inc.

2009

ANNUAL REPORT



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Commonwealth Biotechnologies, Inc.

Table of Contents



|                                                                                    |  |           
|----------------------------------------------------------------------------------- |  | ----------
|                                                                                    |  | PageNumber
|Memo to Shareholders                                                                |  | 1         
|                                                                                    | 
|Stockholder Matters                                                                 |  | 2         
|                                                                                    | 
|Selected Financial Data                                                             |  | 3         
|                                                                                    | 
|Management Discussion and Analysis of Financial Condition and Results of Operations |  | 4         
|                                                                                    | 
|Report of Independent Registered Public Accounting Firm                             |  | 17        
|                                                                                    | 
|Consolidated Financial Statements                                                   |  |           
|                                                                                    | 
|Balance Sheets                                                                      |  | 18        
|                                                                                    | 
|Statements of Operations                                                            |  | 20        
|                                                                                    | 
|Statements of Stockholders Equity                                                  |  | 21        
|                                                                                    | 
|Statements of Cash Flows                                                            |  | 22        
|                                                                                    | 
|Summary of Significant Accounting Policies                                          |  | 23        
|                                                                                    | 
|Notes to Financial Statements                                                       |  | 30        



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Commonwealth Biotechnologies, Inc.



Dear Shareholders,

As was predicted in last years report to you, 2009 was indeed a year of challenges. We believe, for the most part, those challenges have been met and CBI is now poised to move ahead with a more
focused and viable business model.

Most notable of our challenges was to divest the two business units that comprised the core government and
genetic testing capabilities of CBI. Those units, CBI Services and Fairfax Identity Laboratories, were sold to Bostwick Laboratories, Inc. in November. Bostwick also signed a 5 year lease to occupy the entire CBI facility in Richmond. This was a
very good outcome for CBI since these businesses as standalone entities were struggling and losing ground against their competitors. They were, quite frankly, a cash drain which could not be supported. The sale to Bostwick, we believe, was also a
good outcome for those businesses in that they are now a part of a more substantial entity with both compatibility and capability, especially in the sales and marketing area.

At the same time we were working towards the divestment, we were looking to position the Company to re-focus its efforts under a business model that is both growth oriented and, most importantly,
sustainable over the long term. More specifically, to take advantage of the remaining business unit, Mimotopes, Pty Ltd to build on the increasing focus of the pharmaceutical and biologicals industry on small molecular weight peptides as the basis
for new drugs, vaccines, and other biologicals. To that end, the Company looked at a number of options, including partnerships, mergers, and acquisitions. As we have documented over the last several months, to implement that plan, we are moving
towards the acquisition of GL Biochem (Shanghai) Ltd (GL). The principal driver for this choice is that GL is a company with a global presence and a complete portfolio of products and services in support of the peptide therapeutics area. This
acquisition, when consummated, will complement and extend the capabilities of Mimotopes to form a New CBI with the most complete offering in the discovery area for peptide therapeutics.

So, 2009 has been challenging and while the global economic situation has few positives, we believe that by focusing in the emerging peptide therapeutics
growth area in the drug development sector one can be more optimistic about the future of CBI.

To be clear, there will be more obstacles to
overcome. To think otherwise is unrealistic. However, the management and staff of CBI will continue to work tirelessly to see that the outcomes are positive and bring value to you as shareholders and more opportunities for CBI.

Finally, as we do every year, we thank you our shareholders for your support, patience, and, yes, for your criticisms. We value them all.

Sincerely,

LOGO

Richard J. Freer, PhD.

Chief Operating Officer



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Commonwealth Biotechnologies, Inc.



Stockholder Matters



The Companys common stock traded on the NASDAQ Capital Market (NASDAQ) under the symbol
CBTE until January 25, 2010. Effective January 25, 2010 the Companys common stock began trading on the Pink Sheets under the symbol CBTE.PK. Effective March 25, 2010, the Companys common began trading on the
OTC Bulletin Board under the symbol CBTE.OB. The following table sets forth the range of high and low sales price per share of common stock for the years ended December 31, 2009, 2008 and 2007, respectively. These market quotations reflect
inter-dealer prices, without retail mark-up, markdown, or commission and may not necessarily represent actual transactions. On March 30,
2010, the last reported sales price for a share of the Companys Common Stock on the OTC Bulletin Board was $0.25. As of March 30, 2010, there were 46 holders of record of the Companys Common stock and 9 beneficial holders. The Company has not paid any cash dividends on its Common Stock. The Company intends to


retain its earnings to finance the growth and development of its business and does not expect to declare or
pay dividends in the foreseeable future. The declaration of dividends is within the discretion of the Company.  Period

HighStockPrice

LowStockPrice1st Quarter, 2009

$
0.39

$
0.212nd Quarter, 2009

$
1.18

$
0.223rd Quarter, 2009

$
0.80

$
0.504th Quarter, 2009

$
.077

$
0.361st Quarter, 2008

$
2.87

$
1.912nd Quarter, 2008

$
3.14

$
1.233rd Quarter, 2008

$
1.51

$
0.714th Quarter, 2008

$
0.82

$
0.231st Quarter, 2007

$
2.30

$
1.862nd Quarter, 2007

$
3.79

$
1.953rd Quarter, 2007

$
3.79

$
2.394th Quarter, 2007

$
3.59

$
2.36




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Commonwealth Biotechnologies, Inc.



Selected Financial Data

Set forth below is selected financial data with respect to the years ended December 31, 2009, December 31, 2008, and December 31, 2007, which have been derived from the audited
financial statements of the Company. The selected financial data set forth below should be read in conjunction with Managements Discussion and Analysis of Financial Conditions and Results of Operation.



|                                                                                         |  |                                           |            |   |      |   |            |      |  |   |            |  
|---------------------------------------------------------------------------------------- |  | ----------------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                         |  | As of and for the year ended December 31, |           
|                                                                                         |  | 2009                                      |            |   | 2008 |   |            | 2007 | 
|Operational Data                                                                         |  |                                           |            |   |      |   |            |      |  |   |            |  
|Total revenues                                                                           |  | $                                         | 3,272,784  |   |      | $ | 3,716,181  |      |  | $ | 3,544,975  |  
|Loss from continuing operations                                                          |  |                                           | (2,768,056 | ) |      |   | (9,107,607 | )    |  |   | (3,009,107 | )
|Income (Loss) from discontinued operations                                               |  |                                           | 407,684    |   |      |   | (755,139   | )    |  |   | (531,827   | )
|Gain on acquisition of Exelgen                                                           |  |                                           |           |   |      |   |           |      |  |   | 782,833    |  
|                                                                                         |  |                                           |            |   |      |   |            |      |  |   |            |  
|Net loss                                                                                 |  | $                                         | (2,360,372 | ) |      | $ | (9,862,746 | )    |  | $ | (2,758,101 | )
|                                                                                         |  |                                           |            |   |      |   |            |      |  |   |            |  
|Basic and diluted loss per common share from continued operations                        |  | $                                         | (0.36      | ) |      | $ | (1.55      | )    |  | $ | (0.58      | )
|                                                                                         |  |                                           |            |   |      |   |            |      |  |   |            |  
|Basic and diluted income (loss) per common share from discontinued operations            |  |                                           | 0.05       |   |      |   | (0.13      | )    |  |   | (0.11      | )
|                                                                                         |  |                                           |            |   |      |   |            |      |  |   |            |  
|Basic and diluted income per common share from extraordinary gain of Exelgen acquisition |  |                                           |           |   |      |   |           |      |  |   | 0.15       |  
|                                                                                         |  |                                           |            |   |      |   |            |      |  |   |            |  
|Basic and diluted loss per common share                                                  |  | $                                         | (0.31      | ) |      | $ | (1.68      | )    |  | $ | (0.54      | )
|                                                                                         |  |                                           |            |   |      |   |            |      |  |   |            |  
|Weighted average shares outstanding                                                      |  |                                           | 7,549,845  |   |      |   | 5,864,149  |      |  |   | 5,131,951  |  
|                                                                                         |  |                                           |            |   |      |   |            |      |  |   |            |  
|Balance Sheet Data                                                                       |  |                                           |            |   |      |   |            |      |  |   |            |  
|Total Current Assets                                                                     |  | $                                         | 1,330,848  |   |      | $ | 2,685,583  |      |  | $ | 8,283,180  |  
|Total Assets                                                                             |  |                                           | 7,290,432  |   |      |   | 8,368,853  |      |  |   | 20,038,052 |  
|Total Current Liabilities                                                                |  |                                           | 3,981,604  |   |      |   | 7,101,637  |      |  |   | 6,861,578  |  
|Total Liabilities                                                                        |  |                                           | 6,581,170  |   |      |   | 7,105,574  |      |  |   | 10,105,103 |  
|Total Stockholders Equity                                                               |  | $                                         | 709,262    |   |      | $ | 1,263,279  |      |  | $ | 9,932,949  |  



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Managements Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with Selected Financial Data and the Companys Audited Financial
Statements and Notes thereto included within.

Overview

Commonwealth Biotechnologies, Inc. (the Company or CBI) is a specialized life sciences outsourcing business that offers cutting-edge expertise and a complete array of discovery
chemistry and biology products and services through Mimotopes Pty Limited (Mimotopes), a wholly-owned subsidiary of CBI. In March 2008, the Company entered into a Joint Venture with Beijing-based, Venturepharm Laboratories, Ltd. in order
to offer high throughput, low cost drug discovery services through new facilities in China. Through November 2, 2009, CBI also provided services through CBI Services and Fairfax Identity Laboratories (FIL), two divisions that were
sold to Bostwick Laboratories, Inc. (Bostwick) effective November 2, 2009. The remainder of this section discusses these divisions because they were part of CBI during the period covered by this report. The Companys current
structure and business strategies are discussed separately.

Going Concern

The accompanying financial statements have been prepared on a going concern basis which contemplates realization of assets and satisfaction of liabilities in
the normal course of business. If the Company is unable to improve operating results and meet its debt obligations, it may have to cease operations. The financial statements do not include any adjustments that might be necessary if the Company is
unable to continue as a going concern.

Total losses for the Company were $2,360,372 and $9,862,746 for the years ended December 31, 2009
and 2008, respectively. Recent operating losses may continue into future periods and there can be no assurance by management that the Companys financial outlook will improve. For the years ended December 31, 2009 and 2008, losses from
continuing operations were $2,768,056 and $9,107,607, respectively. Losses resulting from the goodwill impairment amounted to $3,152,739 in 2008. Losses resulting from the extinguishment of debt were $1,202,419 in 2008. Income (Loss) resulting from
the discontinued operations in 2009 and 2008 were $407,684 and $(755,139), respectively.

The Company generated positive cash flows of
$448,341 in 2009, compared to a decrease in cash of $2,290,159 in 2008. Net working capital as of December 31, 2009 and December 31, 2008 was ($2,650,756) and ($4,416,054), respectively. The negative working capital is primarily due to
continuing losses and debt obligations due within one year.

As of December 31, 2009, the Company had $692,092 in cash and cash
equivalents, which was a 184.0% increase over the cash balance at December 31, 2008. This increase was primarily due to net cash received on the sale of CBI Services and FIL in November 2009.



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Cash provided by operating activities was $214,553 in 2009 as compared to cash used by operating
activities of $1,366,425 in 2008. The increase resulted from the reduced loss for the year which resulted primarily from discontinuing operations of Exelgen in 2008.

Cash provided by investing activities for 2009 was $574,165 in comparison to cash provided by investing activities of $52,258 in 2008. The increase was primarily the result of cash received on the sale of
CBI Services and FIL in 2009.

Cash used by financing activities for 2009 was $371,276 as compared to cash provided of $185,865 in the 2008
Period. During 2008, the Company entered into multiple debt agreements providing $1,000,000 of proceeds to offset current losses and debt payments. No new borrowings, other than the refinancing of the mortgage loan with BB&T, occurred in 2009.

On November 10, 2009, the Company re-negotiated the terms of its outstanding mortgage debt with BB&T which now becomes due in
November 2012, including any non compliance with upcoming covenants which could cause the Company to be in default. The Company also believes that it will be able to satisfy its current debt obligations with its PIPE investors and Fornova
Pharmaworld (Fornova) through the issuance of common stock in lieu of cash payment.

The Company continued to address its
immediate need for cash and liquidity through a number of strategic initiatives in 2009. When confronted with static revenues and declining cash reserves, management reduced staffing through layoffs and attrition and reduced or eliminated
non-production related expenditures. Conservative fiscal practices have been strictly enforced. More significantly, the company completed the sale of its Richmond-based businesses, CBI Services and FIL to Bostwick. Both of these business units
represented ongoing cash drains. With proceeds from this transaction, the Company was able to reduce a significant portion of payables and clear a backlog of employee entitlements under Virginia law. In addition, the Company negotiated favorable
terms on a 5 year lease with Bostwick for its facility at 601 Biotech Dr., Richmond, VA. The sale to Bostwick was completed on November 2, 2009 resulting in net proceeds to the Company of $343,780.

A continued lack of adequate cash resulting from the Companys inability to generate cash flow from operations or to raise capital from external
sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. The Company is actively exploring a strategic transaction, which, if consummated, will address the
Companys need to improve its financial condition and/or its operations.

There can be no assurance that any funds required during the
next twelve months or thereafter can be generated from operations. Nor can there be any assurance that funds will be available from external sources, such as debt or equity financing or other potential sources, if they cannot be generated
internally. Lastly, there can be no assurance that any funds received would suffice to improve the Companys financial condition.

During
the last year, the Companys business has undergone substantial changes in relation to size, scale and scope of activities. As previously discussed, the Company has sold two major business assets and entered into a 5 year lease agreement with
Bostwick for its Richmond, VA facility, The Company continues to have significant capacity in peptide chemistry through its Melbourne, Australia based, wholly owned subsidiary, Mimotopes. In addition, some resources were invested in the
establishment of VenturePharm Asia, a joint venture of China based companies which support the pharmaceutical industry.

As a result of the
foregoing circumstances, there is substantial doubt about the Companys ability to continue as a going concern. The financial statements included herein do not include any adjustments relating to the recoverability or classification of asset
carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.



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The Companys independent auditors have included a paragraph emphasizing going concern
in their report on the 2009 financial statements. The financial statements included herein do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities
that may result should the Company be unable to continue as a going concern.

Business Units: Through November 2, 2009

Through November 2, 2009, revenues from all business units were derived principally from providing macromolecular synthetic and analytical services
to researchers in the biotechnology industry or to researchers who are engaged in life sciences research in government or academic labs throughout the world. This arrangement distinguishes CBI from many other biotechnology companies in that revenues
were derived from services rather than from the successful commercialization of a new biotechnology product. CBI believes that Mimotopes, CBI Services and FIL have all developed a strong reputation as leading providers in their respective markets.
Finally, in 2008 CBI entered into a joint venture with Beijing based VPL in anticipation of being able to provide scale and scope to its current offerings. The areas of expertise and value propositions are outlined below.

At its Richmond, Virginia location, CBI Services core competencies are in the area of genomics and proteomics, principally serving the early stage
research and development needs of its clients. These support true drug discovery at the most fundamental stage but also support many of the pre-clinical needs of our clients and, most recently, several clinical trials are being supported. Through
CBI Services, the Company provided these services under the FDAs Good Laboratory Practices (GLP) Guidelines (21CFR Part 58). CBI Services is also able to provide clinical trial support under Good Clinical Practices (GCP) Guidelines by virtue
of its Clinical Laboratory Improvement Act (CLIA) certification. A unique feature of the Richmond location is its Bio-Safety Level 3 (BSL-3) laboratory and its CDC Registration for Select Agents. The Company had capabilities in the area of bacterial
and viral organisms and a very strong program in bio-threat toxin analysis. This capability had been at the core of the Companys government-based contracts.

Also at the Richmond location is FIL. FIL has been at the forefront of DNA technology of profiling for identity since it opened its doors in 1990. FILs rigorous standards are designed to provide
credible evidence that affects decisions regarding criminal trials, paternity, immigration, estate settlement, adoption, and other issues of identity. FIL provides Forensics, Paternity and Convicted Offender DNA Index System (CODIS)
services to government and private concerns. FIL is accredited by the American Association of Blood Banks, the National Forensic Science Technology Center, and the Department of Health, State of New York. All testing is done under CLIA guidelines.
Its employees have extensive laboratory and courtroom experience.

The sale of assets relating to CBI Services and FIL was approved at the
2009 Annual Meeting of Shareholders. This transaction was completed effective November 2, 2009 resulting in net proceeds to the Company of $343,780.

Melbourne-based Mimotopes was acquired by CBI in 2007. It provides world class research grade peptide synthesis and analysis. Mimotopes also has several proprietary technologies for the preparation of
peptide and small molecule libraries for drug discovery and for epitope analysis in support of its clients vaccine development programs. Mimotopes also has a formal peptide alliance with Genzyme Pharmaceuticals, a world class provider of GMP
pharmaceutical grade peptides and also enjoys a strong relationship with GL Biochem, a Shanghai-based peptide synthesis and reagent company.

CBIs China based joint venture (JV) with VPL was signed in March, 2008. As of December 31, 2009, no revenues have been generated.



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Commonwealth Biotechnologies, Inc.



All business units cater to the outsourcing requirements of pharmaceutical and biotechnology companies
for reagents (such as peptides, proteins and small molecules), as well as drug research and development. The adoption of outsourcing by the pharmaceutical and biotechnology industries is driven by three major deliverables:

(1) Speed. Faster discovery results accelerate the time to fail or advance a drug through the development pipeline. Eliminating bad leads early or shaving
weeks or months from the time it takes to get a drug to market can mean millions of dollars in cost savings.

(2) Quality. All the advantages
of an accelerated drug discovery program can be jeopardized if the results do not meet the strict quality standards of the pharmaceutical industry. High quality results depend on quality control, quality equipment and quality people.

(3) Cost. Speed and quality are necessary but insufficient conditions for success. The economic scarcity problem of unlimited wants and needs and limited
resources applies to drug discovery outsourcing as well. The more suppliers can offer for less, the more successful they will be.



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Target Markets

Each of CBIs business units has its own distinct capabilities and market focus, although significant overlap exists between the customer bases. The markets served by each of the business units are
shown below:



|                   |  |                                                                          |  |                                                                          
|------------------ |  | ------------------------------------------------------------------------ |  | -------------------------------------------------------------------------
|Business Unit      |  | Market Segments Served                                                   |  | Applications                                                             
|Mimotopes          |  | Government Universities Biotechnology companies Pharmaceutical companies |  | Immunology and vaccine development Drug target screening Drug development
|VenturePharm Asia* |  | Biotechnology companies Pharmaceutical companies                         |  | Drug Development Pre-Clinical Support                                    



|* | As noted above, the VPL joint venture has not yet generated any revenues from these, or any other, types of clients.
|- | --------------------------------------------------------------------------------------------------------------------

Growth Strategy

Business Units: Current
and Strategy Going Forward

Subsequent to the divestment of CBI Services and FIL, CBI is comprised of CBI corporate located in Richmond, VA
and a small business development function at the same location and Mimotopes, its peptide based discovery company in Melbourne, Australia. With that focus in mind, CBI has been moving towards a more strategic business model to improve the
Companys competitive position in the biotech industry. Specifically, the Company has focused its energies and limited resources on the growing peptide therapeutics sector.

Concurrently with the divestment of CBI Services and FIL, the Company had been in discussion with GL Biochem (Shanghai) (GL) regarding an acquisition of GL and its wholly owned subsidiaries
(the GL Group). The GL Group is privately held and based in Shanghai, China. It is well established in the industry as a global supplier of high quality, affordable, research-grade peptides and reagents. They have a long standing
business relationship with CBIs subsidiary, Mimotopes, having supplied Mimotopes and its customers with products and reagents since 2005.

On December 28, 2009, the Company signed a binding Share Purchase Agreement (SPA) to acquire all the outstanding shares of the GL Group. This transaction has been approved by the Board of Directors of CBI and is expected to
be submitted to shareholders for ratification in early Q2. If approved the transaction is expected to close in second quarter of 2010. This acquisition will take advantage of CBIs and Mimotopes presence and brands in the western markets
and GLs already extensive penetration into the research peptide and reagents market and its low cost center in China. The synergies are significant.

Operations

CBI operates on a fee-for-service basis and has integrated a number of
foundation technologies to provide a broad range of capabilities to customers who otherwise must go to several different sources for their needs. The remaining business units have a strong reputation for:



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| |  |  | World-leading expertise in peptide drug development and discovery;
| | - |  | ------------------------------------------------------------------



| |  |  | An innovative and collaborative culture;
| | - |  | ----------------------------------------



| |  |  | Providing seamless information flow at all stages of the process;
| | - |  | -----------------------------------------------------------------



| |  |  | Providing customers with a shorter time to market; and
| | - |  | ------------------------------------------------------



| |  |  | Total intellectual property security.
| | - |  | -------------------------------------

Mimotopes in particular has technical capabilities and proprietary technology platforms that differentiate them from other providers. For example, its patented SynPhase Technology provides CBI with a
competitive advantage to rapidly, efficiently and cost-effectively produce large libraries of research grade peptides.

Results of
Operations

Year Ended December 31, 2009 Compared with Year Ended December 31, 2008

All financial comparisons are for continuing operations unless otherwise noted for discontinued operations or extraordinary item.

Revenues

During the course of
the year, the Company had experienced fluctuations in all revenue categories. Continuation of existing projects or engagement for future projects is usually dependent upon the customers satisfaction with the scientific results provided in
initial phases of the scientific program. Continuation of existing projects or engagement of future projects also often depends upon factors beyond the Companys control, such as the timing of product development and commercialization programs
of the Companys customers. The combined impact of commencement and termination of research contracts from several large customers and unpredictable fluctuations in revenue for laboratory services can result in very large fluctuations in
financial performance.

Total revenues decreased by $443,397 or 11.9% from $3,716,181 during 2008 to $3,272,784 during 2009.

Revenues realized from commercial contracts decreased by $856,136 or 24.1%, from $3,550,245 during 2008 to $2,694,109 during 2009. This decrease was
primarily the result of decreases in Protein Chemistry revenues of $300,796, Petide Revenues of $330,678 and Anti Sera revenues of $263,480 for Mimotopes.

Cost of Services

Cost of services consists primarily of costs associated with
direct materials, direct labor and overhead. Cost of services decreased $597,236 or 20.9%, from $2,859,091 in 2008 to $2,261,855 in 2009. Cost of services as a percentage of revenue decreased from 76.9% in 2008 to 69.1% in 2009. This decrease is
reflective of managements continued effort to reduce expenses, monitor costs and capitalize on cost synergies that exist across the Company.



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Direct labor decreased by $79,621 from $797,147 in 2008 to $717,526 in 2009. In addition, the cost of
direct labor as a percentage of revenue decreased from 21.5% in 2008 to 21.9% in 2009. The decrease as a percentage of revenue primarily relates to the shift in revenues that are less labor intensive in nature.

Direct materials decreased $430,764, or 38.7%, from $1,114,481 in 2008 to $683,717 in 2009. Costs of materials as a percentage of revenue decreased from
30.0% in 2008 to 20.9% in 2009. This decrease is primarily the result of managements continued efforts to improve operating efficiencies.

Overhead represents costs such as indirect labor, depreciation, freight charges, repairs, facility maintenance and utilities. Overhead decreased by $86,851, or 9.2%, from $947,463 in 2008 to $860,612 in 2009. The cost of overhead as a
percentage of revenue was 26.3% in 2009 compared to 25.5% in 2008.

Sales, General and Administrative

Sales, general and administrative expenses (SGA) consist primarily of compensation and related costs for administrative, marketing and sales
personnel, facility expenditures, professional fees, consulting, taxes, and depreciation. Total SGA costs decreased $1,211,613, or 28.2%, from $4,290,479 in 2008 to $3,078,866 in 2009. As a percentage of revenue, these costs decreased from 115.5% in
2008 to 94.1% in 2009.

Total general and administrative expenses decreased by $465,681, or 14.2%, from $3,277,693 in 2008 to $2,812,012 in
the 2009. As a percentage of revenue, these costs decreased from 88.2% in 2008 to 85.9% in 2009. Of significance, compensation and benefits decreased $303,280, or 18.8%, from $1,616,414 in 2008 to $1,313,134 in 2009.

Total sales and marketing costs decreased by $745,932, or 73.7 %, from $1,012,786 in 2008 to $266,854 in 2009. This decrease was primarily due to the
elimination of sales and marketing staff.

Other Income (Expenses)

Realized losses increased $146,656, or 178.3%, from $82,257 in 2008 to $228,913 in 2009. This increase was primarily the result of losses on the sale of investment securities for liquidity purposes in
2009.

Interest expense decreased $774,869, or 62.0%, from $1,250,527 in 2008 to $475,658 in 2009. This decrease was primarily the result of
decreased discount amortization relating to convertible debt in 2009.

Rental Income increased $221,009, or 169.9%, from $130,336 during 2008
to $351,345 during 2009. This increase is primarily the result of the lease of the Richmond, VA building and laboratory space to Bostwick Laboratories for $48,291 per month beginning in November 2009. In addition, Mimotopes began leasing excess
laboratory space in January 2009 for $17,000 per month.

Discontinued Operations

On September 23, 2008, the Companys wholly owned subsidiary, Exelgen Limited (Exelgen) entered into administration under the
jurisdiction of the High Court of Justice, Bristol District Registry, Chancery Division, in the United Kingdom (the High Court). Exelgen filed a Notice of appointment of an administrator effective September 23, 2008.

Administration is the United Kingdoms insolvency process, which is governed by the Enterprise Act of 2002. A company must be insolvent as defined in
the Insolvency Act of 1986 in order to qualify for administration. Administration is designed to enable a business to be held together while plans are formed either to put in place a financial restructuring to rescue the company, or to sell the
business and assets to



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Commonwealth Biotechnologies, Inc.



produce a better result for creditors than would be achieved at liquidation. Exelgen is subject to the protection of the High Court and creditors enforcement actions and will be
automatically stayed while the administrators formulate plans to the sell the business and assets.

The Companys decision and approval
by the Board of Directors to enter Administration for the Exelgen operation was based upon various profitability analyses and projections. The subsidiarys inability to support existing operational costs despite restructuring, combined with the
lack of securing new contracts, were key factors supporting this action. In the coming period, the appointed administrator will actively pursue the sale of these assets on an individual basis.

At the 2009 Annual Meeting of Shareholders, approval was made to sell the assets of CBIs FIL and CBI Services Divisions. The sale of these assets to
Bostwick was completed in November 2009. As of November 2, 2009, the Company has deconsolidated the operations of these divisions and recorded a loss related to the remaining net investment as a discontinued operation.

Income (loss) from discontinued operations was $407,684 in 2009 and $(755,139) in 2008. The amount for 2009 consists of the operations of CBI Services and
FIL and the gain on disposal of the assets. The 2008 amount is comprised of CBI Services and FILs income from discontinued operations of $536,884 and Exelgens loss from discontinued operations of $(1,292,023).

Liquidity and Capital Resources

Total losses for the Company were $2,360,372 and $9,862,746 for the years ended December 31, 2009 and 2008, respectively. Recent operating losses may continue into future periods and there can be no assurance by management that the
Companys financial outlook will improve. For the years ended December 31, 2009 and 2008, losses from continuing operations were $2,768,056 and $9,107,607, respectively. Losses resulting from the goodwill impairment amounted to $3,152,739
in 2008. Losses resulting from the extinguishment of debt were $1,202,419 in 2008. Income (Loss) resulting from the discontinued operation in 2009 and 2008 were $407,684 and $(755,139), respectively.

The Company generated positive cash flows of $448,341 in 2009, compared to a decrease in cash of $2,290,159 in 2008. Net working capital (deficit) as of
December 31, 2009 and December 31, 2008 was ($2,650,756) and ($4,416,054), respectively. The negative working capital is primarily due to continuing losses and debt obligations due within one year.

As of December 31, 2009, the Company had $692,092 in cash and cash equivalents, which was a 183.9% increase over the cash balance at December 31,
2008. This increase was primarily due to net cash received on the sale of CBI Services and Fairfax Identity Labs in November 2009.

Cash
provided by operating activities was $214,553 in 2009 as compared to cash used by operating activities of $1,366,425 in 2008. The increase resulted from the reduced loss for the year which resulted primarily from discontinuing operations of Exelgen
in 2008.

Cash used by investing activities for 2009 was $574,165 in comparison to cash provided by investing activities of $52,258 in 2008.
The increase was primarily the result of cash received on the sale of CBI Services and FIL in 2009.

Cash used by financing activities for
2009 was $371,276 as compared to cash provided of $185,865 in the 2008 Period. During 2008, the Company entered into multiple debt agreements providing $1,000,000 of proceeds to offset current losses and debt payments. No new borrowings, other than
the refinancing of the mortgage loan with BB&T, occurred in 2009.



11



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Commonwealth Biotechnologies, Inc.



On November 10, 2009, the Company re-negotiated the terms of its outstanding mortgage debt which
now becomes due in November 2012, including any non compliance with upcoming covenants which could cause the Company to be in default. The Company also believes that it will be able to satisfy its current debt obligations with its PIPE investors and
Fornova Pharmaworld (Fornova) through the issuance of common stock in lieu of cash payment.

The Company continued to address the
immediate needs for cash and liquidity on a number of fronts. As indicated previously, when confronted with static revenues and declining cash reserves, management reduced staffing through layoffs and attrition and reduced or eliminated
non-production related expenditures. Fiscal practices have been strictly enforced. More significantly, the Company completed the divestment of its Richmond-based businesses, CBI Services and FIL to Bostwick. Both of these business units represented
ongoing cash drains. With proceeds from this transaction, the Company was able to reduce a significant portion of payables and clear a backlog of employee entitlements under Virginia law. In addition, the Company negotiated, on terms favorable to
CBI, a 5 year lease with Bostwick for its facility at 601 Biotech Dr., Richmond, VA. The sale to Bostwick was completed on November 2, 2009 resulting in net proceeds to the Company of $343,780.

The lack of adequate cash resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the
Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. The Company is actively exploring a strategic transaction, which, if consummated, would address the Companys need to
improve its financial condition and/or its operations.

There can be no assurance that any funds required during the next twelve months or
thereafter can be generated from operations, that if such required funds are not internally generated that funds will be available from external sources, such as debt or equity financing or other potential sources or that any funds received would
suffice to improve the Companys financial condition.

Recent Accounting Pronouncements

On July 1, 2009, the Accounting Standards Codification became FASBs officially recognized source of authoritative U.S. generally accepted
accounting principles applicable to all public and non-public non-governmental entities, superseding existing FASB, AICPA, EITF and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies.

In June 2009, the FASB issued a standard regarding the FASB Accounting Standards Codification and the hierarchy of generally accepted accounting
principles, which replaces the standard previously issued by the FASB regarding the hierarchy of generally accepted accounting principles. This standard identifies the source of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted



12



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Commonwealth Biotechnologies, Inc.



accounting principles (GAAP) in the United States (the GAAP hierarchy). In addition, this standard establishes the FASB Accounting Standard Codification (the
Codification) as the source of authoritative GAAP recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP. All guidance contained in the Codification carries an
equal level of authority. The initial date of the adoption of this standard was effective for financial statements issued for interim and annual periods ending after June 15, 2009. On June 3, 2009, FASB decided that this standard is
effective for interim and annual periods ending after September 15, 2009. The Company adopted this standard during the third quarter of 2009. Its adoption did not have a significant impact on the Companys results of operations or
consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), which was primarily codified into FASB ASC Topic 810, Consolidation. This standard establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parents ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated.
This standard also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. This guidance will be effective January 1, 2010. The Company does
not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.

In May 2009, the
Financial Accounting Standards Board issued ASC 855-10, formerly SFAS No. 165, Subsequent Events (SFAS 165). ASC 855-10 establishes principles and requirements for the reporting of events or transactions that
occur after the balance sheet date, but before financial statements are issued or are available to be issued. ASC 855-10 is effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009. As such, the
Company adopted these provisions at the beginning of the interim period ended June 30, 2009. Adoption of ASC 855-10 did not have a material effect on the Companys consolidated financial statements.

In June 2009, the FASB issued revisions to ASC 860-10, ASC 860-40, ASC 860-50 which enhances information reported to users of financial statements by
providing greater transparency about transfers of financial assets and the companys continuing involvement in transferred assets. This statement removes the concept of qualifying special purpose entity, changes the requirements for
derecognizing financial assets, and requires enhanced disclosures to provide financial statement users with greater transparency about transfers of financial assets and a transferors continuing involvement with transfers of financial assets
accounted for as sales. This update is effective for annual reporting periods beginning after November 15, 2009, for interim periods within the first annual reporting period and for interim and annual reporting periods thereafter (effective
January 1, 2010 for the Company). Management does not anticipate it will have a material impact on the Companys consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments(ASC Topic 320-10-65-1). ASC
Topic 320-10-65-1 establishes a new method of recognizing and reporting other-than-temporary impairments of debt securities. It also contains additional disclosure requirements related to debt and equity securities and changes existing impairment
guidance under Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (ASC Topic 320-10). For debt securities, the ability and intent to hold
provision is eliminated, and impairment is considered to be other-than-temporary if an entity (i) intends to sell the security, (ii) more likely than not will be required to sell the security before recovering its cost, or (iii) does
not expect to recover the securitys entire amortized cost basis (even if the entity does not intend to sell). This new framework does not apply to equity securities (i.e., impaired equity securities will continue to be evaluated under
previously existing guidance).The probability standard relating to the collectability of cash flows is eliminated, and



13



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Commonwealth Biotechnologies, Inc.



impairment is now considered to be other-than-temporary if the present value of cash flows expected to be collected from the debt security is less than the amortized cost basis of the security.
ASC Topic 320-10-65-1 also provides that for debt securities which (i) an entity does not intend to sell and (ii) it is not more likely than not that the entity will be required to sell before the anticipated recovery of its remaining
amortized cost basis, the impairment is separated into the amount related to estimated credit losses and the amount related to all other factors. The amount of the total impairment related to all other factors is recorded in other comprehensive loss
and the amount related to estimated credit loss is recognized as a charge against current period earnings. ASC Topic 320-10-65-1 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted. The adoption
of this guidance did not have a material impact on the Companys consolidated financial statements.

In April 2009, the FASB issued FASB
Staff Position FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (ASC Topic 825-10-65-1). This FSP relates to fair value disclosures in public entity financial statements for
financial instruments that are within the scope of Statement of Financial Accounting Standards No. 107 (ASC Topic 825-10), Disclosures about Fair Value of Financial Instruments. This guidance increases the frequency of those
disclosures, requiring public entities to provide the disclosures on a quarterly basis, rather than annually. FSP 107-1 is effective for interim and annual periods ending after June 15, 2009. The adoption of this guidance did not have a
material impact on the Companys consolidated financial statements.

Corporate Guidance

As a consequence of the Sarbanes-Oxley Act, the NASDAQ imposed certain changes in the rules of corporate governance which are aimed at strengthening its
listing standards. The Securities and Exchange Commission (SEC) approved the rules imposed by NASDAQ. Thus:



| |  |  | CBIs Board is composed of four independent and three Insider directors.
| | - |  | ------------------------------------------------------------------------



| |  |  | Only independent directors serve on the three principal committees: Audit, Compensation and Nominating.
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | The independent directors meet in executive session at each regularly scheduled Board meeting.
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | All the independent directors, Mr. Samuel P. Sears, Mr. James Causey, and Mr. Eric V. Tao who serve on the Audit Committee,
meet all of the requirements as defined by the SEC for being a financial expert.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Audit Committee reviews and approves all related-party transactions. CBI has adopted a formal Corporate Code of Conduct. Copies are available on
request from the Company or on the Companys website at www.cbi-biotech.com.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

A summary of the Companys critical accounting policies follows:

Estimates

The preparation of financial statements 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 period.
Actual results could differ from those estimates.



14



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Commonwealth Biotechnologies, Inc.



Revenue Recognition

The Company recognizes revenue upon the completion of laboratory service projects, or upon the delivery of biologically relevant materials that have been synthesized in accordance with project terms.
Laboratory service projects are generally administered under fee-for-service contracts or purchase orders. Any revenues from research and development arrangements, including corporate contracts and research grants, are recognized pursuant to the
terms of the related agreements as work is performed, or as scientific milestones, if any, are achieved. Product sales are recognized when shipped. Amounts received in advance of the performance of services or acceptance of a milestone, are recorded
as deferred revenue and recognized when completed.

Goodwill

Goodwill is recognized for the excess of purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. Under current accounting standards, goodwill that has
an indefinite useful life is not amortized, but instead is tested for impairment at least annually or whenever circumstances indicate potential impairment by comparing the carrying value of the reporting unit to its estimated fair value. The Company
bases its estimates of fair value on projected cash flows. At December 31, 2008, the Company had $3,152,739 in goodwill related to the acquisitions of Fairfax Identity Labs in 2004 and Mimotopes in 2007. The Company has evaluated goodwill and
has determined that impairment exists as of December 31, 2008.

Impairment of Long-Lived Assets

Under current accounting standards, long-lived assets besides goodwill are reviewed for impairment when events or changes in circumstances indicate the
carrying value of an asset may not be recoverable. For long-lived assets other than goodwill that are to be held and used in operations, an impairment is indicated when the estimated total undiscounted cash flow associated with the asset or group of
assets is less than carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.

Forward Looking Statements

Management has
included herein certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used, statements that are not
historical in nature, including the words anticipated, estimate, should, expect, believe, intend, and similar expressions are intended to identify forward-looking statements.
Such statements are, by their nature, subject to certain risks and uncertainties.

Among the factors that could cause the actual results to
differ materially from those projected are the following:



| |  |  | business conditions and the general economy,
| | - |  | --------------------------------------------



| |  |  | the development and implementation of the Companys long-term business goals,
| | - |  | -----------------------------------------------------------------------------



| |  |  | federal, state, and local regulatory environment,
| | - |  | -------------------------------------------------



| |  |  | lack of demand for the Companys services,
| | - |  | ------------------------------------------



15



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Commonwealth Biotechnologies, Inc.



| |  |  | the ability of the Companys customers to perform services similar to those offered by the Company in-house,
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | potential cost containment by the Companys customers resulting in fewer research and development projects,
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the Companys ability to receive accreditation to provide various services, including, but not limited to paternity testing
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | the Companys ability to hire and retain highly skilled employees,
| | - |  | ------------------------------------------------------------------



| |  |  | the Companys ability to raise additional equity financing,
| | - |  | -----------------------------------------------------------



| |  |  | the Companys inability to pay debt obligations.
| | - |  | ------------------------------------------------

Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are detailed from time to time in reports filed by the company with the Securities and
Exchange Commission, including Forms 8-K, 10-QSB, and 10-KSB.



16



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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Commonwealth Biotechnologies, Inc.

Richmond, Virginia

We have audited the accompanying consolidated balance sheets of Commonwealth Biotechnologies, Inc. and Subsidiaries as of December 31, 2009 and 2008
and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended. The Companys management is responsible for these consolidated financial statements. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Commonwealth Biotechnologies, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Companys recurring losses from operations and inability to generate sufficient cash flow to meet its
obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern. Managements plans concerning these matters are also discussed in Note 1 to the consolidated financial statements. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.

LOGO

Witt Mares, PLC

Richmond, Virginia

March 29, 2010



---

Commonwealth Biotechnologies, Inc.



Financial Statements

Consolidated Balance Sheets



|                                                                                                |  |              |           |      |   |          
|----------------------------------------------------------------------------------------------- |  | ------------ | --------- | ---- | - | ---------
|                                                                                                |  | December 31,
|                                                                                                |  | 2009         |           | 2008
|Assets                                                                                          |  |              |           |      |   |          
|Current assets                                                                                  |  |              |           |      |   |          
|Cash and cash equivalents                                                                       |  | $            | 692,092   |      | $ | 243,751  
|Investments (Note 8)                                                                            |  |              | 589       |      |   | 64,790   
|Accounts receivable, net of allowance fordoubtful accounts of approximately $87,000 and $64,000 |  |              | 634,604   |      |   | 1,447,615
|Prepaid assets and other assets                                                                 |  |              | 3,563     |      |   | 89,426   
|Assets of discontinued operations                                                               |  |              |          |      |   | 840,001  
|                                                                                                |  |              |           |      |   |          
|Total current assets                                                                            |  |              | 1,330,848 |      |   | 2,685,583
|                                                                                                |  |              |           |      |   |          
|Property and equipment, net (Note 2)                                                            |  |              |           |      |   |          
|Total                                                                                           |  |              | 5,661,225 |      |   | 5,517,751
|                                                                                                |  |              |           |      |   |          
|Other assets                                                                                    |  |              |           |      |   |          
|Restricted cash (Note 6)                                                                        |  |              | 298,359   |      |   | 72,469   
|Deferred financing fees                                                                         |  |              |          |      |   | 93,050   
|                                                                                                |  |              |           |      |   |          
|Total other assets                                                                              |  |              | 298,359   |      |   | 165,519  
|                                                                                                |  |              |           |      |   |          
|Total                                                                                           |  | $            | 7,290,432 |      | $ | 8,368,853
|                                                                                                |  |              |           |      |   |          

See accompanying summary of accounting policies and notes to
financial statements



18



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Commonwealth Biotechnologies, Inc.



Consolidated Balance Sheets (continued)



|                                                                                                                     |  |              |             |   |      |   |             |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | -
|                                                                                                                     |  | December 31, |            
|                                                                                                                     |  | 2009         |             |   | 2008 |  
|Liabilities and Stockholders Equity                                                                                 |  |              |             |   |      |   |             |  
|Current liabilities                                                                                                  |  |              |             |   |      |   |             |  
|Current maturities of long term debt (Note 3)                                                                        |  | $            | 1,983,478   |   |      | $ | 5,212,498   |  
|Accounts payable                                                                                                     |  |              | 1,107,819   |   |      |   | 1,119,409   |  
|Other current liabilities                                                                                            |  |              | 219,111     |   |      |   | 246,896     |  
|Accrued payroll liabilities                                                                                          |  |              | 493,681     |   |      |   | 417,827     |  
|Interest payable                                                                                                     |  |              | 177,515     |   |      |   | 102,676     |  
|Deferred revenue                                                                                                     |  |              |            |   |      |   | 2,331       |  
|                                                                                                                     |  |              |             |   |      |   |             |  
|Total current liabilities                                                                                            |  |              | 3,981,604   |   |      |   | 7,101,637   |  
|                                                                                                                     |  |              |             |   |      |   |             |  
|Long term deposit                                                                                                    |  |              | 144,873     |   |      |   |            |  
|Long-term debt, less current maturities (Note 3)                                                                     |  |              | 2,454,693   |   |      |   | 3,937       |  
|                                                                                                                     |  |              |             |   |      |   |             |  
|Total liabilities                                                                                                    |  |              | 6,581,170   |   |      |   | 7,105,574   |  
|                                                                                                                     |  |              |             |   |      |   |             |  
|Commitments and contingencies (Notes 3 and 4)                                                                        |  |              |             |   |      |   |             |  
|                                                                                                                     |  |             
|Stockholders equity                                                                                                 |  |              |             |   |      |   |             |  
|Preferred stock, no par value 1,000,000 sharesauthorized-none outstanding                                            |  |              |            |   |      |   |            |  
|Common stock, no par value, 100,000,000 sharesauthorized, 2009 - 8,791,712 - 2008 - 6,465,734 issued and outstanding |  |              |            |   |      |   |            |  
|Additional paid-in capital                                                                                           |  |              | 25,555,878  |   |      |   | 24,453,298  |  
|Restricted stock                                                                                                     |  |              |            |   |      |   | (100,333    | )
|Accumulated other comprehensive income (loss) (Note 7)                                                               |  |              | 520,191     |   |      |   | (83,251     | )
|Accumulated deficit                                                                                                  |  |              | (25,366,807 | ) |      |   | (23,006,435 | )
|                                                                                                                     |  |              |             |   |      |   |             |  
|Total stockholders equity                                                                                           |  |              | 709,262     |   |      |   | 1,263,279   |  
|                                                                                                                     |  |              |             |   |      |   |             |  
|Total                                                                                                                |  | $            | 7,290,432   |   |      | $ | 8,368,853   |  
|                                                                                                                     |  |              |             |   |      |   |             |  

See accompanying summary of accounting policies and notes to financial statements



19



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Commonwealth Biotechnologies, Inc.



Consolidated Statements of Operations



|                                                                            |  |              |            |   |      |   |            |  
|--------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                                            |  | December 31, |           
|                                                                            |  | 2009         |            |   | 2008 |  
|Revenues                                                                    |  |              |            |   |      |   |            |  
|Commerical contracts                                                        |  | $            | 2,694,109  |   |      | $ | 3,550,245  |  
|Rental income                                                               |  |              | 351,345    |   |      |   | 130,336    |  
|Other revenue                                                               |  |              | 227,330    |   |      |   | 35,600     |  
|                                                                            |  |              |            |   |      |   |            |  
|Total revenues                                                              |  |              | 3,272,784  |   |      |   | 3,716,181  |  
|                                                                            |  |              |            |   |      |   |            |  
|Cost of services                                                            |  |              |            |   |      |   |            |  
|Direct materials                                                            |  |              | 683,717    |   |      |   | 1,114,481  |  
|Direct labor                                                                |  |              | 717,526    |   |      |   | 797,147    |  
|Overhead                                                                    |  |              | 860,612    |   |      |   | 947,463    |  
|                                                                            |  |              |            |   |      |   |            |  
|Total cost of services                                                      |  |              | 2,261,855  |   |      |   | 2,859,091  |  
|                                                                            |  |              |            |   |      |   |            |  
|Gross profit                                                                |  |              | 1,010,929  |   |      |   | 857,090    |  
|                                                                            |  |              |            |   |      |   |            |  
|Selling, general and administrative                                         |  |              |            |   |      |   |            |  
|Total SG&A                                                                  |  |              | 3,078,866  |   |      |   | 4,290,479  |  
|                                                                            |  |              |            |   |      |   |            |  
|Operating loss                                                              |  |              | (2,067,937 | ) |      |   | (3,433,389 | )
|                                                                            |  |              |            |   |      |   |            |  
|Other income/(expense)                                                      |  |              |            |   |      |   |            |  
|Realized losses from sale of investments                                    |  |              | (228,913   | ) |      |   | (82,257    | )
|Interest expense                                                            |  |              | (475,658   | ) |      |   | (1,250,527 | )
|Goodwill impairment                                                         |  |              |           |   |      |   | (3,152,739 | )
|Loss on debt extinguishment (Note 14)                                       |  |              |           |   |      |   | (1,202,419 | )
|Other income                                                                |  |              | 4,452      |   |      |   | 13,724     |  
|                                                                            |  |              |            |   |      |   |            |  
|Total other income/(expense)                                                |  |              | (700,119   | ) |      |   | (5,674,218 | )
|                                                                            |  |              |            |   |      |   |            |  
|Loss from continuing operations                                             |  |              | (2,768,056 | ) |      |   | (9,107,607 | )
|                                                                            |  |              |            |   |      |   |            |  
|Income (loss) from discontinued operations                                  |  |              |            |   |      |   |            |  
|Gain on sale of discontinued operations (Note 12)                           |  |              | 383,782    |   |      |   |           |  
|Income (loss) from operating discontinuedoperations                         |  |              | 23,902     |   |      |   | (755,139   | )
|                                                                            |  |              |            |   |      |   |            |  
|Total income (loss) from discontinuedoperations (Note 13)                   |  |              | 407,684    |   |      |   | (755,139   | )
|                                                                            |  |              |            |   |      |   |            |  
|Net loss                                                                    |  | $            | (2,360,372 | ) |      | $ | (9,862,746 | )
|                                                                            |  |              |            |   |      |   |            |  
|Earnings per share (Note 15)                                                |  |              |            |   |      |   |            |  
|Basic and diluted loss per common sharefrom continued operations            |  | $            | (0.36      | ) |      | $ | (1.55      | )
|Basic and diluted income (loss) per common sharefrom discontinued operation |  |              | 0.05       |   |      |   | (0.13      | )
|                                                                            |  |              |            |   |      |   |            |  
|Basic and diluted loss per common share                                     |  | $            | (0.31      | ) |      | $ | (1.68      | )
|                                                                            |  |              |            |   |      |   |            |  

See accompanying summary of accounting policies and notes to financial statements



20



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Commonwealth Biotechnologies, Inc.



|                                                                                         |  |                                  |  |                           |            |                 |   |          |                                            |  |   |                    |   |  |       |             |   |  |   |             |  
|---------------------------------------------------------------------------------------- |  | -------------------------------- |  | ------------------------- | ---------- | --------------- | - | -------- | ------------------------------------------ |  | - | ------------------ | - |  | ----- | ----------- | - |  | - | ----------- | -
|Consolidated Statements of Stockholders Equity                                          | 
|                                                                                         |  | Number ofCommonSharesOutstanding |  | AdditionalPaid -inCapital |            | RestrictedStock |   |          | OtherComprehensiveAccumulated(Income)/Loss |  |   | AccumulatedDeficit |   |  | Total |            
|Balance January 1, 2008                                                                  |  | 5,520,545                        |  | $                         | 22,595,023 |                 | $ | (200,667 | )                                          |  | $ | 682,282            |   |  | $     | (13,143,689 | ) |  | $ | 9,932,949   |  
|Isuance of common stock                                                                  |  | 125,000                          |  |                           | 35,000     |                 |   |         |                                            |  |   |                   |   |  |       |            |   |  |   | 35,000      |  
|Stock options exercised                                                                  |  | 3,817                            |  |                           | 18,321     |                 |   |         |                                            |  |   |                   |   |  |       |            |   |  |   | 18,321      |  
|Issuance of VentrePharm Stock                                                            |  | 463,426                          |  |                           | 1,000,000  |                 |   |         |                                            |  |   |                   |   |  |       |            |   |  |   | 1,000,000   |  
|Relative fair value of warrantsand beneficial conversion impacton convertible securities |  | 352,946                          |  |                           | 714,954    |                 |   |         |                                            |  |   |                   |   |  |       |            |   |  |   | 714,954     |  
|Restricted stock                                                                         |  |                                 |  |                           |           |                 |   | 100,334  |                                            |  |   |                   |   |  |       |            |   |  |   | 100,334     |  
|Stock option expense                                                                     |  |                                 |  |                           | 90,000     |                 |   |         |                                            |  |   |                   |   |  |       |            |   |  |   | 90,000      |  
|Net loss                                                                                 |  |                                 |  |                           |           |                 |   |         |                                            |  |   |                   |   |  |       | (9,862,746  | ) |  |   | (9,862,746  | )
|Change in unrealized gain (loss)on investments                                           |  |                                 |  |                           |           |                 |   |         |                                            |  |   | (253,699           | ) |  |       |            |   |  |   | (253,699    | )
|Foreign currency gain                                                                    |  |                                 |  |                           |           |                 |   |         |                                            |  |   | (511,834           | ) |  |       |            |   |  |   | (511,834    | )
|Total comprehensive loss                                                                 |  |                                 |  |                           |           |                 |   |         |                                            |  |   |                   |   |  |       |            |   |  |   | (10,628,279 | )
|                                                                                         |  |                                  |  |                           |            |                 |   |          |                                            |  |   |                    |   |  |       |             |   |  |   |             |  
|Balance December 31, 2008                                                                |  | 6,465,734                        |  | $                         | 24,453,298 |                 | $ | (100,333 | )                                          |  | $ | (83,251            | ) |  | $     | (23,006,435 | ) |  | $ | 1,263,279   |  
|Isuance of common stock                                                                  |  | 2,325,978                        |  |                           | 1,064,180  |                 |   |         |                                            |  |   |                   |   |  |       |            |   |  |   | 1,064,180   |  
|Restricted stock                                                                         |  |                                 |  |                           |           |                 |   | 100,333  |                                            |  |   |                   |   |  |       |            |   |  |   | 100,333     |  
|Stock option expense                                                                     |  |                                 |  |                           | 38,400     |                 |   |         |                                            |  |   |                   |   |  |       |            |   |  |   | 38,400      |  
|Net Loss                                                                                 |  |                                 |  |                           |           |                 |   |         |                                            |  |   |                   |   |  |       | (2,360,372  | ) |  |   | (2,360,372  | )
|Change in unrealized gain (loss)on investments                                           |  |                                 |  |                           |           |                 |   |         |                                            |  |   | 253,699            |   |  |       |            |   |  |   | 253,699     |  
|Foreign currency gain                                                                    |  |                                 |  |                           |           |                 |   |         |                                            |  |   | 349,743            |   |  |       |            |   |  |   | 349,743     |  
|Total comprehensive loss                                                                 |  |                                 |  |                           |           |                 |   |         |                                            |  |   |                   |   |  |       |            |   |  |   | (1,756,930  | )
|                                                                                         |  |                                  |  |                           |            |                 |   |          |                                            |  |   |                    |   |  |       |             |   |  |   |             |  
|Balance December 31, 2009                                                                |  | 8,791,712                        |  | $                         | 25,555,878 |                 |   |         |                                            |  | $ | 520,191            |   |  | $     | (25,366,807 | ) |  | $ | 709,262     |  
|                                                                                         |  |                                  |  |                           |            |                 |   |          |                                            |  |   |                    |   |  |       |             |   |  |   |             |  

See accompanying summary of accounting policies and notes to financial statements



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Commonwealth Biotechnologies, Inc.



Consolidated Statements of Cash Flows



|                                                                                         |  |                  |            |   |                  |   |            |  
|---------------------------------------------------------------------------------------- |  | ---------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                                                         |  | Year Ended       |           
|                                                                                         |  | December 31,2009 |            |   | December 31,2008 |  
|Cash flows from operating activities:                                                    |  |                  |            |   |                  |   |            |  
|Net loss                                                                                 |  | $                | (2,360,372 | ) |                  | $ | (9,862,746 | )
|Adjustments to reconcile net loss to net cash providedby (used in) operating activities: |  |                  |            |   |                  |   |            |  
|Loss on debt exstinguishment                                                             |  |                  |           |   |                  |   | 1,202,419  |  
|Gain on sale of CBI Services and FIL                                                     |  |                  | (383,782   | ) |                  |   |           |  
|Loss on disposal of subsidiary                                                           |  |                  |           |   |                  |   | 293,298    |  
|Impairment of goodwill                                                                   |  |                  |           |   |                  |   | 3,152,739  |  
|Depreciation and amortization                                                            |  |                  | 1,037,711  |   |                  |   | 2,739,949  |  
|Unrealized gain (loss)                                                                   |  |                  | (66,131    | ) |                  |   | 50,195     |  
|Stock-based compensation                                                                 |  |                  | 138,733    |   |                  |   | 208,655    |  
|Realized loss on investments                                                             |  |                  | 41,133     |   |                  |   | 123,246    |  
|Expenses satisfied with the issuance of stock                                            |  |                  | 327,800    |   |                  |   | 106,831    |  
|Changes in:                                                                              |  |                  |            |   |                  |   |            |  
|Accounts receivable                                                                      |  |                  | 934,884    |   |                  |   | 1,043,822  |  
|Prepaid expenses and inventory                                                           |  |                  | 65,814     |   |                  |   | 186,271    |  
|Accounts payable and other current liabilities                                           |  |                  | 333,890    |   |                  |   | (318,239   | )
|Deposits                                                                                 |  |                  |           |   |                  |   | 4,500      |  
|Long-term deposit                                                                        |  |                  | 144,873    |   |                  |   |           |  
|Deferred revenue                                                                         |  |                  |           |   |                  |   | (297,365   | )
|                                                                                         |  |                  |            |   |                  |   |            |  
|Net cash provided by (used in) operating activities                                      |  |                  | 214,553    |   |                  |   | (1,366,425 | )
|                                                                                         |  |                  |            |   |                  |   |            |  
|Cash flows from investing activities:                                                    |  |                  |            |   |                  |   |            |  
|Proceeds from the sale of CBI Services and FIL                                           |  |                  | 610,000    |   |                  |   |           |  
|Proceeds from the sale of investments                                                    |  |                  | 128,079    |   |                  |   | 58,265     |  
|Purchases of property, plant and equipment                                               |  |                  | (163,914   | ) |                  |   | (6,007     | )
|                                                                                         |  |                  |            |   |                  |   |            |  
|Net cash provided by investing activities                                                |  |                  | 574,165    |   |                  |   | 52,258     |  
|                                                                                         |  |                  |            |   |                  |   |            |  
|Cash flows from financing activities:                                                    |  |                  |            |   |                  |   |            |  
|Issuance of common stock                                                                 |  |                  |           |   |                  |   | 500,000    |  
|Principal payments on long term debt                                                     |  |                  | (166,907   | ) |                  |   | (1,071,578 | )
|Deferred financing fees paid                                                             |  |                  |           |   |                  |   | (23,153    | )
|Change in restricted cash                                                                |  |                  | (204,369   | ) |                  |   | 280,596    |  
|Proceeds from long term debt                                                             |  |                  |           |   |                  |   | 500,000    |  
|                                                                                         |  |                  |            |   |                  |   |            |  
|Net cash provided by (used in) financing activities                                      |  |                  | (371,276   | ) |                  |   | 185,865    |  
|                                                                                         |  |                  |            |   |                  |   |            |  
|Effects of exchange rates                                                                |  |                  | 30,899     |   |                  |   | (1,161,857 | )
|Net increase (decrease) in cash and cash equivalents                                     |  |                  | 448,341    |   |                  |   | (2,290,159 | )
|Cash and cash equivalents, beginning of year                                             |  |                  | 243,751    |   |                  |   | 2,533,910  |  
|                                                                                         |  |                  |            |   |                  |   |            |  
|Cash and cash equivalents, end of year                                                   |  | $                | 692,092    |   |                  | $ | 243,751    |  
|                                                                                         |  |                  |            |   |                  |   |            |  
|Supplemental Disclosure of Cash Flow Information                                         |  |                  |            |   |                  |   |            |  
|Cash payments for interest                                                               |  | $                | 126,097    |   |                  | $ | 321,166    |  
|Non-cash investing and financing activities                                              |  |                  |            |   |                  |   |            |  
|Purchase of equipment through capital lease                                              |  | $                |           |   |                  | $ | 142,964    |  
|Expenses satisfied with the issuance of stock                                            |  | $                | 327,800    |   |                  | $ |           |  
|Principal reduction on mortgage                                                          |  | $                | 250,000    |   |                  | $ |           |  
|Reduction of convertible debt through issuanceof common stock                            |  | $                | 611,381    |   |                  | $ | 145,000    |  
|Receipt of available-for-sale securities throughissuance of common stock                 |  | $                |           |   |                  | $ | 500,000    |  

See accompanying summary of
accounting policies and notes to financial statements



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Commonwealth Biotechnologies, Inc.



Summary of Significant Accounting Policies

The Company was formed on September 30, 1992, for the purpose of providing specialized analytical laboratory services for the life scientist. The
Company matured, it re-focused its core business activities and now provides integrated contract research support in four principal areas; bio-defense; laboratory support services for on-going clinical trials; comprehensive contract projects in the
private sector; and through its FIL division, for paternity testing, forensic case-work analysis and Convicted Offender Data Base Index System work. During 2007, the Company acquired Mimotopes which has developed a number of proprietary and
patented technologies and is an industry leader in the synthesis of research grade peptides.

Exelgen, formally known as Tripos Discovery
Research Ltd was acquired June 2007 and was a leading drug discovery services business that provided pharmaceutical and biotechnology companies with novel approaches to drug discovery. In September 2008, the decision was made to discontinue the
operation. (See Note 13)

The sale of the assets of CBIs FIL and CBI Services divisions were approved at the 2009 Annual Meeting of
Shareholders. These operations were discontinued in November 2009. (See Note 13)

Consolidation Policy

The consolidated financial statements include the accounts of CBI and its wholly owned subsidiaries Mimotopes and Exelgen, until Exelgen was
deconsolidated on September 23, 2008 (see Note 13). All inter-company accounts and transactions have been eliminated in consolidation.

Estimates

The preparation of financial statements 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 period. Actual results could differ from those
estimates.

Revenue Recognition

The Company recognizes revenue upon the completion of laboratory service projects, or upon the delivery of biologically relevant materials that have been synthesized in accordance with project terms. Laboratory service projects are
generally administered under fee-for-service contracts or purchase orders. Any revenues from research and development arrangements, including corporate contracts and research grants, are recognized pursuant to the terms of the related agreements as
work is performed, or as scientific milestones, if any, are achieved. Product sales are recognized when shipped. Amounts received in advance of the performance of services or acceptance of a milestone, are recorded as deferred revenue and recognized
when completed.



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Commonwealth Biotechnologies, Inc.



Foreign Currency Translation

The Companys consolidated financial statements are reported in U.S. dollars. Assets and liabilities of foreign subsidiaries are translated using rates of exchange as of the balance sheet dates, and
related revenues and expenses are translated at average rates of exchange in effect during the periods. Cumulative translation adjustments have been recorded as a separate component within accumulated other comprehensive income (loss) of
stockholders equity. Realized gains and losses from foreign currency translations are included in other income (expense).

Fair Value
Measurements

On January 1, 2008, the Company adopted the provisions of ASC 820 Fair Value Measurements and Disclosures
(ASC 820). Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liabilitys fair value is defined as the amount that would be paid to transfer the
liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable
prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the
instruments complexity.

In February 2008, the FASB issued FSP No. FAS No. 157-2, Partial Deferral of the Effective Date of
Statement 157, (FSP No. 157-2). FSP No. 157-2 delays the effective date of ASC 820 for all non financial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The Company is currently evaluating the impact of ASC 820 on nonfinancial liabilities, but does not expect the adoption to have a material
impact on its consolidated financial position, results of operations or cash flows.

Assets and liabilities recorded at fair value in the
Consolidated Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure the fair value. Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the
inputs to fair valuation of these assets and liabilities, are as follows:

Level 1- Inputs are unadjusted, quoted prices in
active markets for identical assets or liabilities at the measurement date. The types of assets and liabilities carried at Level 1 fair value generally are listed in active markets.

Level 2  Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability
through correlation with market data at the measurement date and for the duration of the instruments anticipated life. Fair value assets and liabilities that are generally included in this category are certain corporate debt securities, and certain
financial instruments classified as derivatives where fair value is based on observable market inputs.

Level 3- Unobservable
Inputs reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the inputs to the model.



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Commonwealth Biotechnologies, Inc.



Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. At times, the Company maintains cash balances in excess of FDIC
insured amounts.

Restricted Cash

Restricted cash in CBI represents amounts held in escrow as required under the terms of the Convertible Note due to the PIPE Investors. This money will be used to pay down the debt or, if the note is converted to Common Stock, returned to
the Company. The total amount held in escrow at December 31, 2009 was $200,000. Interest income earned on restricted cash is recorded in other interest income.

Restricted cash in Mimotopes represents the amount that is held by a third party in escrow as required under the terms of the Companys land lease agreement. The total amount held in escrow as of
December 31, 2009 is $98,359. Interest income earned on restricted cash is recorded in other interest income.

Investments

The Company classifies its investments in securities as available-for-sale. These investments are carried at the estimated fair value,
with unrealized gains and losses reported in other comprehensive income (loss). Upon the sale of a security, the realized net gain or loss is reported in results of operations.

Accounts Receivable

The majority of our accounts receivable are due from trade customers.
Credit is extended based on evaluation of our customers financial condition and collateral is not required. Accounts receivable payment terms vary and are stated in the financial statements at amounts due from customers net of an allowance for
doubtful accounts. Accounts that are outstanding longer than the payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous
loss history, customers current ability to pay their obligations to us, the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently
received on such receivables are credited to the allowance for doubtful accounts.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed principally by the straight-line method over their estimated useful lives providing
depreciation and amortization for financial reporting purposes. The cost of repairs and maintenance is expensed as incurred. The estimated useful lives of the assets are as follows:



|                                         |  |       
|---------------------------------------- |  | ------
|                                         |  | Years 
|Buildings                                |  | 39.5  
|Laboratory and computer equipment        |  | 3 - 10
|Furniture, fixtures and office equipment |  | 7     



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Commonwealth Biotechnologies, Inc.



Assets under capital lease obligations are recorded at the lesser of the present value of the minimum
lease payments or the fair market value of the leased asset, at inception of the lease.

Deferred Financing Fees

Loan costs are amortized on a straight-line basis, which approximates the interest method, over the expected term of the related obligations.

Goodwill

Goodwill is recognized for the
excess of purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired, in accordance with ASC 350, Goodwill and Other Intangible Assets. The Company reviews and accounts for the impairment
of goodwill in accordance with ASC 350. Goodwill that has an indefinite useful life is not amortized, but instead is tested for impairment at least annually or whenever circumstances indicate potential impairment by comparing the carrying value of
the reporting unit to its estimated fair value. The Company bases its estimates of fair value on projected cash flows. At December 31, 2008, the Company had $3,152,739 in goodwill related to the acquisitions of FIL in 2004 and Mimotopes in
2007. An analysis was performed, due to the current conditions of the Company and it was determined goodwill was fully impaired as of December 31, 2008.

Impairment of Long-Lived Assets

The Company reviews and accounts for the impairment of
long-lived assets other than goodwill, including property and equipment and certain other noncurrent assets in accordance with ASC 360-35, Accounting for the Impairment or Disposal of Long-Lived Assets. Long-lived assets besides goodwill
are reviewed for impairment when events or changes in circumstances indicate the carrying value of an asset may not be recoverable. For long-lived assets other than goodwill that are to be held and used in operations, an impairment is indicated when
the estimated total undiscounted cash flow associated with the asset or group of assets is less than carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference
between the carrying value and fair value.

Income Taxes

Deferred taxes are provided on the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Income (Loss) Per Common Share

Basic
income (loss) per share has been computed on the basis of the weighted-average number of common shares outstanding. Common shares which can be issued upon exercise of stock options and warrants have not been included in the computation because their
inclusion would have been anti-dilutive. Weighted average shares outstanding for basic and diluted loss per common share were 7,549,845 and 5,864,149 for the twelve months ended December 31, 2009 and 2008, respectively (see Note 15).



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Commonwealth Biotechnologies, Inc.



Employee Stock Plans

The Company adopted a Stock Incentive Plan on June 24, 1997. The Plan provides for granting to employees, officers, directors, consultants and certain other non-employees of the Company options to
purchase shares of common stock. A maximum of 410,000 shares of common stock may be issued pursuant to the Plan. Of the maximum number of shares to be issued under the Plan, 270,000 have been reserved for incentive awards to be granted to the
founders of the Company, and 140,000 are reserved for incentive awards to be granted to others.

A 2000 Stock Incentive Plan was adopted by
the Board of Directors and approved by the shareholders. The Plan makes up to 300,000 shares of common stock available for grants of restricted stock awards and stock options in the form of incentive stock options and non-qualified options to
employees, directors and consultants of the Company.

A 2002 Stock Incentive Plan was adopted by the Board of Directors and approved by the
shareholders. The Plan makes up to 600,000 shares of common stock available for grants of restricted stock awards and stock options in the form of incentive stock options and non-qualified options to employees, directors and consultants of the
Company.

A 2007 Stock Incentive Plan was adopted by the Board of Directors and approved by the shareholders. The Plan makes up to 1,000,000
shares of common stock available for grants of restricted stock awards and stock options in the form of incentive stock options and non-qualified options to employees, directors and consultants of the Company.

A 2009 Stock Incentive Plan was adopted by the Board of Directors and approved by the shareholders. The Plan makes up to 1,000,000 shares of common stock
available for grants of restricted stock awards and stock options in the form of incentive stock options and non-qualified options to employees, directors and consultants of the Company.

Incentive awards may be in the form of stock options, restricted stock, incentive stock or tax offset rights. In the case of incentive stock options (within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended), the exercise price will not be less than 100% of the fair market value of shares covered at the time of the grant, or 110% for incentive stock options granted to persons who own more than 10% of the Companys
voting stock. Options granted under the Plans generally vest over a five-year period from the date of grant and are exercisable for ten years, except that the term may not exceed five years for incentive stock options granted to persons who own more
than 10% of the Companys outstanding common stock.

New Accounting Pronouncements

On July 1, 2009, the Accounting Standards Codification became FASBs officially recognized source of authoritative U.S. generally accepted
accounting principles applicable to all public and non-public non-governmental entities, superseding existing FASB, AICPA, EITF and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies.



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Commonwealth Biotechnologies, Inc.



The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and
accounting policies.

In June 2009, the FASB issued a standard regarding the FASB Accounting Standards Codification and the hierarchy of
generally accepted accounting principles, which replaces the standard previously issued by the FASB regarding the hierarchy of generally accepted accounting principles. This standard identifies the source of accounting principles and the framework
for selecting the principles used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP
hierarchy). In addition, this standard establishes the FASB Accounting Standard Codification (the Codification) as the source of authoritative GAAP recognized by the FASB to be applied by non-governmental entities in the
preparation of financial statements in conformity with GAAP. All guidance contained in the Codification carries an equal level of authority. The initial date of the adoption of this standard was effective for financial statements issued for interim
and annual periods ending after June 15, 2009. On June 3, 2009, FASB decided that this standard is effective for interim and annual periods ending after September 15, 2009. The Company adopted this standard during the third quarter of
2009. Its adoption did not have a significant impact on the Companys results of operations or consolidated financial statements.

In
June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which was primarily codified into FASB ASC Topic 810, Consolidation. This standard establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parents ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. This standard also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the
non-controlling owners. This guidance will be effective January 1, 2010. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.

In May 2009, the Financial Accounting Standards Board issued ASC 855-10, formerly SFAS No. 165, Subsequent Events (SFAS
165). ASC 855-10 establishes principles and requirements for the reporting of events or transactions that occur after the balance sheet date, but before financial statements are issued or are available to be issued. ASC 855-10 is effective for
financial statements issued for fiscal years and interim periods ending after June 15, 2009. As such, the Company adopted these provisions at the beginning of the interim period ended June 30, 2009. Adoption of ASC 855-10 did not have a
material effect on the Companys consolidated financial statements.

In June 2009, the FASB issued revisions to ASC 860-10, ASC 860-40,
ASC 860-50 which enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and the companys continuing involvement in transferred assets. This statement removes the
concept of qualifying special purpose entity, changes the requirements for derecognizing financial assets, and requires enhanced disclosures to provide financial statement users with greater transparency about transfers of financial assets and a
transferors continuing involvement with transfers of financial assets accounted for as sales. This update is effective for annual reporting periods beginning after November 15, 2009, for interim periods within the first annual reporting
period and for interim and annual reporting periods thereafter (effective January 1, 2010 for the Company). Management does not anticipate it will have a material impact on the Companys consolidated financial statements.



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Commonwealth Biotechnologies, Inc.



In April 2009, the FASB issued FASB Staff Position FSP FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments(ASC Topic 320-10-65-1). ASC Topic 320-10-65-1 establishes a new method of recognizing and reporting other-than-temporary impairments of debt securities. It also contains
additional disclosure requirements related to debt and equity securities and changes existing impairment guidance under Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (ASC Topic 320-10). For debt securities, the ability and intent to hold provision is eliminated, and impairment is considered to be other-than-temporary if an entity (i) intends to sell the security,
(ii) more likely than not will be required to sell the security before recovering its cost, or (iii) does not expect to recover the securitys entire amortized cost basis (even if the entity does not intend to sell). This new
framework does not apply to equity securities (i.e., impaired equity securities will continue to be evaluated under previously existing guidance).The probability standard relating to the collectability of cash flows is eliminated, and
impairment is now considered to be other-than-temporary if the present value of cash flows expected to be collected from the debt security is less than the amortized cost basis of the security. ASC Topic 320-10-65-1 also provides that for debt
securities which (i) an entity does not intend to sell and (ii) it is not more likely than not that the entity will be required to sell before the anticipated recovery of its remaining amortized cost basis, the impairment is separated into
the amount related to estimated credit losses and the amount related to all other factors. The amount of the total impairment related to all other factors is recorded in other comprehensive loss and the amount related to estimated credit loss is
recognized as a charge against current period earnings. ASC Topic 320-10-65-1 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted. The adoption of this guidance did not have a material impact on
the Companys consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments (ASC Topic 825-10-65-1). This FSP relates to fair value disclosures in public entity financial statements for financial instruments that are within the
scope of Statement of Financial Accounting Standards No. 107 (ASC Topic 825-10), Disclosures about Fair Value of Financial Instruments. This guidance increases the frequency of those disclosures, requiring public entities to provide
the disclosures on a quarterly basis, rather than annually. FSP 107-1 is effective for interim and annual periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on the Companys consolidated
financial statements.



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Notes to Consolidated Financial Statements

1. Going Concern

The accompanying
financial statements have been prepared on a going concern basis which contemplates realization of assets and satisfaction of liabilities in the normal course of business. If the Company is unable to improve operating results and meet its debt
obligations, it may have to cease operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Total losses for the Company were $2,360,372 and $9,862,746 for the years ended December 31, 2009 and 2008, respectively. Recent operating losses may continue into future periods and there can be no
assurance by management that the Companys financial outlook will improve. For the years ended December 31, 2009 and 2008, losses from continuing operations were $2,768,056 and $9,107,607, respectively. Losses resulting from the goodwill
impairment amounted to $3,152,739 in 2008. Losses resulting from the extinguishment of debt were $1,202,419 in 2008. Income (Loss) resulting from the discontinued operation in 2009 and 2008 were $407,684 and $(755,139), respectively.

The Company generated positive cash flows of $448,341 in 2009, compared to a decrease in cash of $2,290,159 in 2008. Net working capital (deficit) as of
December 31, 2009 and December 31, 2008 was ($2,650,756) and ($4,416,054), respectively. The negative working capital is primarily due to continuing losses and debt obligations due within one year.

As of December 31, 2009, the Company had $692,092 in cash and cash equivalents, which was a 184.0% increase over the cash balance at December 31,
2008. This increase was primarily due to net cash received on the sale of CBI Services and Fairfax Identity Labs in November 2009.

Cash
provided by operating activities was $214,553 in 2009 as compared to cash used by operating activities of $1,366,425 in 2008. The increase resulted from the reduced loss for the year which resulted primarily from discontinuing operations of Exelgen
in 2008.

Cash provided by investing activities for 2009 was $574,165 in comparison to cash provided by investing activities of $52,258 in
2008. The increase was primarily the result of cash received on the sale of CBI Services and FIL in 2009.

Cash used by financing activities
for 2009 was $371,276 as compared to cash provided of $185,865 in 2008. During 2008, the Company entered into multiple debt agreements providing $1,000,000 of proceeds to offset current losses and debt payments. No new borrowings, other than the
refinancing of the mortgage loan with BB&T, occurred in 2009.

On November 10, 2009, the Company re-negotiated the terms of its
outstanding mortgage debt which now becomes due in November 2012, including any non compliance with upcoming covenants which could cause the Company to be in default. The Company also believes that it will be able to satisfy its current debt
obligations with its PIPE investors and Fornova through the issuance of common stock in lieu of cash payment.



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The Company continued to address the immediate needs for cash and liquidity on a number of fronts. As
indicated previously, when confronted with static revenues and declining cash reserves, management reduced staffing through layoffs and attrition and reduced or eliminated non-production related expenditures. Fiscal practices have been strictly
enforced. More significantly, the Company completed the divestment of its Richmond-based businesses, CBI Services and FIL to Bostwick. Both of these business units represented ongoing cash drains. With proceeds from this transaction, the Company was
able to reduce a significant portion of payables and clear a backlog of employee entitlements under Virginia law. In addition, the Company negotiated, on terms favorable to CBI, a 5 year lease with Bostwick for its facility at 601 Biotech Dr.,
Richmond, VA. The sale to Bostwick was completed on November 2, 2009 resulting in net proceeds to the Company of $343,780.

The lack of
adequate cash resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on
its business. The Company is actively exploring the availability of varying financial and strategic transactions, which, if consummated, would address the Companys need to improve its financial condition and/or its operations.

There can be no assurance that any funds required during the next twelve months or thereafter can be generated from operations, that if such required funds
are not internally generated that funds will be available from external sources, such as debt or equity financing or other potential sources or that any funds received would suffice to improve the Companys financial condition.

During the last year, the Companys business has undergone substantial change in relation to size, scale and scope of activities. Specifically, the
Company has sold two major business assets and entered into a 5 year lease agreement to Bostwick for its Richmond, VA facility, The Company continues to have significant capacity in peptide chemistry through its wholly owned subsidiary, Mimotopes.
In addition, some resources were invested in the establishment of VenturePharm Asia, a joint venture of China based companies which support the pharmaceutical industry.

As a result of the above, there is substantial doubt about the Companys ability to continue as a going concern. These financial statements do not include any adjustments relating to the
recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

The Companys independent auditors have included a paragraph emphasizing going concern in their report on the 2009 financial statements. These financial statements do not include any
adjustments relating to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.



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|                                                      |  |              |           |      |   |          
|----------------------------------------------------- |  | ------------ | --------- | ---- | - | ---------
|2. Property and Equipment                             |  |              |           |     
|Property and Equipment consisted of the following:    |  |              |           |      |   |          
|                                                      |  | December 31,
|                                                      |  | 2009         |           | 2008
|Land                                                  |  | $            | 403,919   |      | $ | 403,919  
|Building                                              |  |              | 6,930,975 |      |   | 6,547,882
|Laboratory equipment                                  |  |              | 806,491   |      |   | 626,561  
|Furniture, fixtures and office and computer equipment |  |              | 557,309   |      |   | 457,868  
|                                                      |  |              |           |      |   |          
|                                                      |  |              | 8,698,694 |      |   | 8,036,230
|Less Accumulated Depreciation                         |  |              | 3,037,469 |      |   | 2,518,479
|                                                      |  |              |           |      |   |          
|                                                      |  | $            | 5,661,225 |      | $ | 5,517,751
|                                                      |  |              |           |      |   |          

Depreciation expense was $689,218 and $695,730 for the years ended
December 31, 2009 and 2008, respectively. The Mimotopes facility is subject to a land lease. Lease payments associated with this land lease amounted to $117,900 in 2009.



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Commonwealth Biotechnologies, Inc.



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |              |           |      |   |          
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ---- | - | ---------
|3. Long Term Debt:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |              |           |      |   |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | December 31,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | 2009         |           | 2008
|Long term Debt consists of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |              |           |      |   |          
|Mortgage payable to BB&T due in monthly installments of approximately $35,000 with a fixed interest rate of 5.25%. The loan
matures in October 2012 and is collateralized by the corporate offices and laboratory facilities located in Ricmond, Virginia, as well as all assets of the Company.                                                                                                                                                                                                                                                                                         |  | $            | 2,737,713 |      | $ | 3,128,745
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |             
|In January 2005, the Company entered into a capitalized leasing agreement with Technology Leasing Concepts for several pieces of
laboratory equipment. The monthly principal and interest payments were $11,378 with an interest rate of 7.5%. These leases were assigned to Bostwick Laboratories in December 2009.                                                                                                                                                                                                                                                                     |  |              |          |      |   | 13,626   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |             
|In February 2007, the Company entered into a thirty-six month capitalized leasing agreement with Technology Leasing Concepts for
several pieces of computer equipment. The monthly principal and interest payments are $898.                                                                                                                                                                                                                                                                                                                                                             |  |              | 2,641     |      |   | 11,588   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |             
|Secured convertible promissory note with LH Financial (PIPE Investors) which matures June 30, 2010 . The note is
collateraliized by a security interest in substantially all the assets of the Company. Interest compounds monthly at an annual rate of 10%. Interest is payable in cash, or at the discretion of note holder, with registered shares of common stock. The
amount payable at December 31, 2008 represents the gross amount of the note which is reflected net of a discount of $248,689 in the consolidated balance sheet. The discount was fully amortized during 2009. |  |              | 1,193,619 |      |   | 1,805,000
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |             
|Convertible promissory note with Fornova Pharmaworld Inc. which matured on December 31, 2009. Interest compounds monthly at
a rate of 10%. The Holder may convert the Note into shares of the Companys common stock at any time prior to maturity.                                                                                                                                                                                                                                                                                                                                      |  |              | 500,000   |      |   | 500,000  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |             
|Miscellaneous capital leases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |              | 4,198     |      |   | 6,165    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |              |           |      |   |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |              | 4,438,171 |      |   | 5,465,124
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |              |           |      |   |          
|Less current maturities and unamortized discounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |              | 1,983,478 |      |   | 5,212,498
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |             
|Less discount on convertible promissory notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |              |          |      |   | 248,689  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |              |           |      |   |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | $            | 2,454,693 |      | $ | 3,937    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |              |           |      |   |          



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Commonwealth Biotechnologies, Inc.



The mortgage includes certain restrictive covenants, which require the Company to maintain minimum
levels of the current ratio, debt to net worth and debt service ratios. At December 31, 2009, the Company was in violation of covenants, however, the Company was granted a six-month waiver of the covenants by the bank.

Future payments due under the terms of the mortgage are as follows:



|                        |  |   |          
|----------------------- |  | - | ---------
|Year Ended December 31, |  |  
|2010                    |  | $ | 283,020  
|2011                    |  |   | 296,410  
|2012                    |  |   | 2,158,283
|                        |  |   |          
|Total                   |  | $ | 2,737,713
|                        |  |   |          

4. Leasing Commitments

The Company leases equipment and facilities under non-cancelable operating leases. Total expense for the years ended December 31, 2009, and 2008 was
$75,088 and $110,889 respectively. Leases are secured by the equipment. Future minimum lease payments and the present value thereof under capitalized leases and future minimum rentals under all non-cancelable operating leases with remaining terms in
excess of one year as of December 31, 2008 are as follows:



|                        |  |   |        
|----------------------- |  | - | -------
|Year Ended December 31, |  |  
|2010                    |  | $ | 35,000 
|2011                    |  | $ | 33,000 
|2012                    |  | $ | 30,000 
|2013                    |  | $ | 5,000  
|                        |  |   |        
|Total                   |  | $ | 103,000
|                        |  |   |        

5. Retirement Plan

CBI maintains a 401(k) Plan (the Plan) which covers substantially all employees. Under the Plan, employees may elect to defer a portion of their
salary, up to the maximum allowed by law, and the Company can elect to match the contribution up to 3% of the employees contribution. Company contributions were $13,489 and $23,997 for the years ended December 31, 2009 and 2008,
respectively.

Mimotopes is required by law to make contributions to a retirement plan covering all of its eligible employees at a rate of 9%
of their base earnings. Company contributions were $103,446 and $76,949 for the years ended December 31, 2009 and 2008, respectively.



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Commonwealth Biotechnologies, Inc.



6. Restricted Cash

Under the terms of the Companys Convertible Note due to the PIPE Investors, $200,000 was held in escrow at December 31, 2009. These funds will be used to pay down the note at maturity or, if
the note is converted into Common Stock, be returned to the Company.

Under the terms of the Companys land lease in Australia, $98,359
is being held in escrow at December 31, 2009. This amount is equivalent to one year of lease payments.

7. Comprehensive Income (Loss)

The components of comprehensive loss, net of tax, for the years ended December 31, 2009 and 2008 were as follows:



|                               |  |                         |            |   |      |   |             |  
|------------------------------ |  | ----------------------- | ---------- | - | ---- | - | ----------- | -
|                               |  | Year Ended December 31, |           
|                               |  | 2009                    |            |   | 2008 |  
|Net Loss                       |  | $                       | (2,360,372 | ) |      | $ | (9,862,746  | )
|Unrealized Loss on Investments |  |                         | 253,699    |   |      |   | (253,699    | )
|FX Adjustments                 |  |                         | 349,743    |   |      |   | (511,834    | )
|                               |  |                         |            |   |      |   |             |  
|Total Comphrehensive Loss      |  | $                       | (1,756,930 | ) |      | $ | (10,628,279 | )
|                               |  |                         |            |   |      |   |             |  

8. Investments Available for Sale

The following table summarizes the Companys investment in VPL stock which was obtained in July 2008 and is classified as securities available-for-sale as of December 31, 2009 and 2008. These
investments are carried at estimated fair value and are summarized as follows:



|                        |  |              |     |      |   |          |  
|----------------------- |  | ------------ | --- | ---- | - | -------- | -
|                        |  | December 31, |    
|                        |  | 2009         |     | 2008 |  
|Cost                    |  | $            | 589 |      | $ | 318,489  |  
|Gross Unrealized Losses |  |              |    |      |   | (253,699 | )
|                        |  |              |     |      |   |          |  
|Estimated Fair Value    |  | $            | 589 |      | $ | 64,790   |  
|                        |  |              |     |      |   |          |  



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Commonwealth Biotechnologies, Inc.



9. Fair Value Disclosure

The following table presents information about the Companys assets and liabilities which are measured at fair value, on a recurring basis as of December 31, 2009 and 2008, and indicates the
fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.



|                                         |      |                                                           |      |                                             |      |                                             |      |   |      |  |      |         |  |   |   |  |   |  
|---------------------------------------- | ---- | --------------------------------------------------------- | ---- | ------------------------------------------- | ---- | ------------------------------------------- | ---- | - | ---- |  | ---- | ------- |  | - | - |  | - | -
|                                         |      | Significant In ActiveMarkets forIdentical Assets(Level 1) |      | Significant OtherObservable Inputs(Level 2) |      | Significant OtherObservable Inputs(Level 3)
|                                         |      | December 31,                                              |      | December 31,                                |      | December 31,                               
|                                         | 2009 |                                                           | 2008 |                                             | 2009 |                                             | 2008 |   | 2009 |  | 2008
|Assets:                                  |      |                                                           |      |                                             |      |                                             |      |   |      |  |      |         |  |   |   |  |   |  
|Investment securities,available for sale |      | $                                                         | 589  |                                             | $    | 64,790                                      |      | $ |     |  | $    |        |  | $ |  |  | $ | 
|                                         |      |                                                           |      |                                             |      |                                            
|Liabilities:                             |      |                                                           |      |                                             |      |                                             |      |   |      |  |      |         |  |   |   |  |   |  
|Interest rate swap                       |      | $                                                         |     |                                             | $    |                                            |      | $ |     |  | $    | 148,688 |  | $ |  |  | $ | 

Level 1  Inputs
are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets and liabilities carried at Level 1 fair value generally are listed in active markets.

Level 2  Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through
correlation with market data at the measurement date and for the duration of the instruments anticipated life. Fair value assets and liabilities that are generally included in this category are certain corporate debt securities, and certain
financial instruments classified as derivatives where fair value is based on observable market inputs.

Level 3  Inputs reflect
managements best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the inputs to the model.



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10. Income Taxes

The difference between expected income tax benefits and income tax benefits recorded in the financial statements is explained below:



|                                                  |  |              |          |   |      |   |            |  
|------------------------------------------------- |  | ------------ | -------- | - | ---- | - | ---------- | -
|                                                  |  | December 31, |         
|                                                  |  | 2009         |          |   | 2008 |  
|Income taxes (benefit) computed at statutory rate |  | $            | (810,138 | ) |      | $ | (2,808,000 | )
|State income tax benefit, net                     |  |              | (107,859 | ) |      |   | (262,500   | )
|Change in valuation allowance                     |  |              | 692,088  |   |      |   | 1,724,700  |  
|Impairment of goodwill-Mimotopes                  |  |              |         |   |      |   | 799,000    |  
|Goodwill amortization-CBI                         |  |              |         |   |      |   | 225,300    |  
|Other                                             |  |              | 225,902  |   |      |   | 321,500    |  
|                                                  |  |              |          |   |      |   |            |  
|                                                  |  | $            |         |   |      | $ |           |  
|                                                  |  |              |          |   |      |   |            |  

The significant components of deferred income tax assets and liabilities consist of the following:



|                                                  |  |              |           |      |   |          
|------------------------------------------------- |  | ------------ | --------- | ---- | - | ---------
|                                                  |  | December 31,
|                                                  |  | 2009         |           | 2008
|Deferred tax assets                               |  |              |           |      |   |          
|Net operating loss carryforward                   |  | $            | 7,518,738 |      | $ | 6,708,600
|Research and development credit carryforward      |  |              | 52,600    |      |   | 52,600   
|Intangibles                                       |  |              |          |      |   | 122,200  
|Allowance for doubtful accounts                   |  |              | 27,050    |      |   | 21,200   
|Stock based compensation                          |  |              | 5,200     |      |   | 85,000   
|Other                                             |  |              | 20,500    |      |   | 33,200   
|                                                  |  |              |           |      |   |          
|                                                  |  |              | 7,624,088 |      |   | 7,022,800
|                                                  |  |              |           |      |   |          
|Deferred tax liabilities                          |  |              |           |      |   |          
|Tax depreciation in excess of book depreciation   |  |              |          |      |   | 90,800   
|Other                                             |  |              | 34,000    |      |   | 34,000   
|                                                  |  |              |           |      |   |          
|                                                  |  |              | 34,000    |      |   | 124,800  
|                                                  |  |              |           |      |   |          
|Net deferred tax asset before valuation allowance |  |              | 7,590,088 |      |   | 6,898,000
|Less valuation allowance                          |  |              | 7,590,088 |      |   | 6,898,000
|                                                  |  |              |           |      |   |          
|Net deferred tax asset                            |  | $            |          |      | $ |         
|                                                  |  |              |           |      |   |          



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10. Income Taxes (continued)

Operating loss carryforwards at December 31, 2009 relating to US operations of approximately $20,000,000 may be used to offset future taxable income and expire through 2027. The Company also has
research and development credit carryforwards at December 31, 2009 of approximately $53,000 that expire through 2022. A valuation allowance has been established for deferred tax assets at December 31, 2009 as realization is dependent upon
generating future taxable income.

11. Stock Compensation

Stock-Based Compensation Plans - Stock-based compensation expense recognized during a period is based on the value of the portion of stock-based awards that is ultimately expected to vest during the
period. Stock-based compensation expense recognized for the year ended December 31, 2009 included compensation expense for stock-based awards granted prior to, but not yet vested as of December 31, 2009, based on the fair value on the
grant date.

Stock-based compensation expense related to employee stock options recognized under ASC 718 for the years ended December 31,
2009 and 2008 was approximately $38,400 and $184,290, respectfully, and is included in selling, general and administrative. As of December 31, 2009, total unamortized stock-based compensation cost related to non-vested stock awards was $90,000,
net of expected forfeitures.

The total intrinsic value of stock awards (which is the amount by which the stock price exceeded the exercise
price of the options on the date of exercise) exercised during the year ended December 31, 2009 was $ 0. During the year ended December 31, 2009, the Company did not receive cash from the exercise of stock awards.

The following table sets forth fair value per share information, including related weighted-average assumptions, used to determine compensation cost for
stock options consistent with the requirements of ASC 718.



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Commonwealth Biotechnologies, Inc.



11. Stock Compensation (continued)



|                                                                             |  |         |   |  |                               |      |      |         |   |                               |   |     
|---------------------------------------------------------------------------- |  | ------- | - |  | ----------------------------- | ---- | ---- | ------- | - | ----------------------------- | - | ----
|                                                                             |  | 2009    |   |  | WeightedAverageExercise Price |      | 2008 |         |   | WeightedAverageExercise Price
|Options and warrants outstanding, beginning of year                          |  | 828,936 |   |  | $                             | 5.27 |      | 785,877 |   |                               | $ | 5.52
|Granted                                                                      |  | 20,000  |   |  |                               | 0.36 |      | 90,863  |   |                               |   | 4.00
|Exercised                                                                    |  |        |   |  |                               |     |      |        |   |                               |   |    
|Expired                                                                      |  | (91,847 | ) |  |                               | 9.90 |      | (47,804 | ) |                               |   | 9.11
|                                                                             |  |         |   |  |                               |      |      |         |   |                               |   |     
|Options and warrants outstanding, end of year                                |  | 757,089 |   |  | $                             | 4.43 |      | 828,936 |   |                               | $ | 5.27
|                                                                             |  |         |   |  |                               |      |      |         |   |                               |   |     
|Options and warrants exercisable, end of year                                |  | 737,089 |   |  | $                             | 4.48 |      | 783,936 |   |                               | $ | 5.13
|                                                                             |  |         |   |  |                               |      |      |         |   |                               |   |     
|Weighted - average fair value peroption and warrants granted during the year |  |         |   |  | $                             | 0.36 |      |         |   |                               | $ | 0.94

The following table sets forth fair
value per share information, including related weighted-average assumptions, used to determine compensation cost for our stock awards consistent with the requirements of ASC 718.

The assumption used to determine the fair value per option are as follows:



|                               |  |        |   |  |        |  
|------------------------------ |  | ------ | - |  | ------ | -
|Assumptions:                   |  | 2009   |   |  | 2008   |  
|Expected volatility            |  | 310.69 | % |  | 123.40 | %
|Expected annual dividend yield |  | 0.00   | % |  | 0.00   | %
|Risk free rate of return       |  | 3.31   | % |  | 2.25   | %
|Expected option term (years)   |  | 10     |   |  | 10     |  



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Commonwealth Biotechnologies, Inc.



11. Stock Compensation (continued)

The following table summarizes information about stock options and warrants outstanding at December 31, 2009:



|                         |  |                   |  |                                                 |  |                                       |  |                   |  |                                      
|------------------------ |  | ----------------- |  | ----------------------------------------------- |  | ------------------------------------- |  | ----------------- |  | -------------------------------------
|Exercise Price Per Share |  | NumberOutstanding |  | WeightedAverageRemainingContractualLife (Years) |  | WeightedAverageExercisePrice PerShare |  | NumberExercisable |  | WeightedAverageExercisePrice PerShare
|$0.36 - 2.00             |  | 42,058            |  | 6                                               |  | 0.88                                  |  | 42,058            |  | 0.88                                 
|$2.01 - 5.49             |  | 506,681           |  | 5                                               |  | 3.70                                  |  | 486,681           |  | 3.75                                 
|$5.50 - 7.00             |  | 84,350            |  | 1                                               |  | 5.98                                  |  | 84,350            |  | 5.98                                 
|$7.01 - 9.49             |  | 124,000           |  | 4                                               |  | 7.57                                  |  | 124,000           |  | 7.57                                 
|$9.50 - 12.50            |  |                  |  | 0                                               |  |                                      |  |                  |  |                                     
|                         |  |                   |  |                                                 |  |                                       |  |                   |  |                                      
|$0.36 - 12.50            |  | 757,089           |  |                                                 |  | 4.43                                  |  | 737,089           |  | 4.48                                 

At December 31, 2009, there was
no unrecognized compensation cost related to non-vested Restricted Stock Units (RSUs) granted under the CBI stock plan which is expected to be recognized over a weighted-average period of 1.8 years. Compensation expense related to RSUs for the years
ended December 31, 2009 and 2008 was $100,000 for each period, and is included in selling, general and administrative expenses.

The
following table summarizes information about Restricted Stock Unit (RSU) activity for the year ended December 31, 2009:



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Commonwealth Biotechnologies, Inc.



11. Stock Compensation (continued)



|                                |  |                                |  |                                 |     
|------------------------------- |  | ------------------------------ |  | ------------------------------- | ----
|                                |  | Number ofRestrictedStock Units |  | WeightedAverage GrantDate Value
|Non-vested at Deceber 31, 2008  |  | 22,251                         |  | $                               | 4.52
|Granted                         |  |                               |  |                                 |     
|Vested                          |  | 22,251                         |  | $                               | 4.52
|Expired                         |  |                               |  |                                 |     
|                                |  |                                |  |                                 |     
|Non-vested at December 31, 2009 |  |                               |  | $                               |    
|                                |  |                                |  |                                 |     

Employees who transferred to Bostwick upon the sale of CBI Services
and FIL had 90 days to exercise any outstanding options. None of these options were exercised. In February 2010, 202,109 options relating to former employees expired.

12. Sale of CBI Services and Fairfax Identity Labs

On July 16, 2009 the Company
announced that an agreement had been signed with Bostwick for the sale of the assets of CBIs FIL and CBI Services divisions. Bostwick agreed to purchase such assets for a purchase price of $1,110,000, in cash and certain royalty payments to
CBI over a five-year period. In addition, CBI will lease to Bostwick the building located at 601 Biotech Drive, Richmond, Virginia, housing the CBI Services and FIL. The lease is for a term of five years at $48,000 per month.

The sale to Bostwick was completed on November 2, 2009 resulting in net proceeds to the Company of $343,780. A reconciliation of the gross purchase
price to net proceeds received by the Company is as follows:



|                                     |  |   |           |  
|------------------------------------ |  | - | --------- | -
|Purchase Price                       |  | $ | 1,110,000 |  
|Professional Fees                    |  |   | (282,235  | )
|Payment to Mortgage Holder           |  |   | (255,000  | )
|Convertible Noteholders Escrow Funds |  |   | (200,000  | )
|Real Estate Taxes                    |  |   | (26,426   | )
|Filing Fees                          |  |   | (2,559    | )
|                                     |  |   |           |  
|                                     |  | $ | 343,780   |  
|                                     |  |   |           |  

The funds held in escrow may be paid to the Company if the note is satisfied through the issuance of common stock instead of
cash.

In connection with this sale, the Company issued 250,000 share of restricted stock to the Convertible Note Holders.



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Commonwealth Biotechnologies, Inc.



13. Discontinued Operations

On September 23, 2008, the Companys wholly owned subsidiary, Exelgen entered into administration under the jurisdiction of the High Court of Justice, Bristol District Registry, Chancery
Division, in the United Kingdom (the High Court). Exelgen filed a Notice of appointment of an administrator, appointing PricewaterhouseCoopers LLP effective September 23, 2008.

Administration is the United Kingdoms insolvency process, which is governed by the Enterprise Act of 2002. A company must be insolvent as defined in
the Insolvency Act of 1986 in order to qualify for administration. Administration is designed to enable a business to be held together while plans are formed either to put in place a financial restructuring to rescue the company, or to sell the
business and assets to produce a better result for creditors than would be achieved at liquidation. Exelgen is subject to the protection of the High Court and creditors enforcement actions and will be automatically stayed while the
administrators formulate plans to the sell the business and assets.

The Companys decision and approval by the Board of Directors to
enter administration for the Exelgen operation was based upon various profitability analyses and projections. The subsidiarys inability to support existing operational costs despite restructuring, combined with the lack of securing new
contracts, were key factors supporting this action. In the coming period, the appointed administrator will actively pursue the sale of these assets on an individual basis. Due to the lack of control of Exelgen by the Company, the Company has no
further commitment to Exelgen.

As of September 23, 2008, the Company has deconsolidated the operations of Exelgen and recorded a loss
related to the remaining net investment as a discontinued operation for the subsidiary.

At the 2009 Annual Meeting of Shareholders, approval
was made to sell the assets of CBIs FIL and CBI

Services Divisions. The sale of these assets to Bostwick was completed in November
2009. As of November 2, 2009, the Company has deconsolidated the operations of these divisions and recorded a loss related to the remaining net investment as a discontinued operation.

At December 31, 2008, assets of these divisions consisted solely of fixed assets with a net book value of $840,001.



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Commonwealth Biotechnologies, Inc.



13. Discontinued Operations (continued)

The components of the income (loss) from the discontinued operations:



|                                                     |  |                                                 |            |   |                               |   |            |       |  |   |            |   |  |   |            |  
|---------------------------------------------------- |  | ----------------------------------------------- | ---------- | - | ----------------------------- | - | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | -
|                                                     |  | Year EndedDecember 31,2009(FIL and CBIServices) |            |   | Year Ending December 31, 2008 |  
|                                                     |  | Exelgen                                         |            |   | FIL and CBIServices           |   |            | Total | 
|Revenues                                             |  | $                                               | 4,241,576  |   |                               | $ | 1,731,169  |       |  | $ | 5,719,313  |   |  | $ | 7,450,482  |  
|Cost of services                                     |  |                                                 | (3,567,653 | ) |                               |   | (2,325,441 | )     |  |   | (4,364,697 | ) |  |   | (6,690,138 | )
|                                                     |  |                                                 |            |   |                               |   |            |       |  |   |            |   |  |   |            |  
|Gross profit (loss)                                  |  |                                                 | 673,923    |   |                               |   | (594,272   | )     |  |   | 1,354,616  |   |  |   | 760,344    |  
|Sales, general and administrative                    |  |                                                 | 392,996    |   |                               |   | 316,176    |       |  |   | 438,239    |   |  |   | 754,415    |  
|                                                     |  |                                                 |            |   |                               |   |            |       |  |   |            |   |  |   |            |  
|Operating income (loss)                              |  |                                                 | 280,927    |   |                               |   | (910,448   | )     |  |   | 916,377    |   |  |   | 5,929      |  
|Other income/(expense)                               |  |                                                 | 89         |   |                               |   | 32,871     |       |  |   |           |   |  |   | 32,871     |  
|Interest expense                                     |  |                                                 | (257,114   | ) |                               |   | (121,148   | )     |  |   | (379,493   | ) |  |   | (500,641   | )
|Gain on sale                                         |  |                                                 | 383,782    |   |                               |   |           |       |  |   |           |   |  |   |           |  
|Loss on disposal of subsidiary                       |  |                                                 |           |   |                               |   | (293,298   | )     |  |   |           |   |  |   | (293,298   | )
|                                                     |  |                                                 |            |   |                               |   |            |       |  |   |            |   |  |   |            |  
|Income (loss) from operating discontinued operations |  | $                                               | 407,684    |   |                               | $ | (1,292,023 | )     |  | $ | 536,884    |   |  | $ | (755,139   | )
|                                                     |  |                                                 |            |   |                               |   |            |       |  |   |            |   |  |   |            |  

14. Short Term Notes with Conversion Features

PIPE Investors Agreement

On December 31, 2007 the Company issued $1,950,000 of
convertible debt in a subscription agreement between the Company and the PIPE Investors. The debt carries an interest rate of 10% annually and matured in July 31, 2009. Quarterly interest payments may be made in the form of either cash or
common stock. The debt may be converted into shares of common stock at a conversion price of $2.00 per share. In conjunction with the debt, the Company also issued Class A warrants to purchase 975,000 shares of common stock at an exercise price
of $2.85 per share that expire in May 2013.



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Commonwealth Biotechnologies, Inc.



The fair value of the Class A warrants is $1.79 per share. The fair value of the Class A
warrants is calculated using the Black-Scholes method. Assumptions for Class A warrants include the stock asset price at $2.55 and a stock option price of $2.85 with a maturity date of 5 years and effective interest rate of 3.40%. The Company
also issued Class B warrants to purchase 243,750 shares of common stock at an exercise price of $5.00 per share. The fair value of the Class B warrants is $0.36 per share. The fair value of the Class B warrants is calculated using the Black- Scholes
method. The debt carries a beneficial conversion feature, which along with the relative fair value of the warrants, resulted in a debt discount of $1,950,000 which was recorded against the convertible debt and offset in additional paid in capital.
This discount will be amortized as interest expense over the life of the debt which resulted in amortization of approximately $748,000 for the nine months ended September 30, 2009. The Company registered the required minimum number of shares
based upon the agreement on April 30, 2008 and will register the remaining shares by as soon as possible as required under the agreement

Modification, Waiver and Acknowledgement Agreement

On September 18, 2008, the Company entered into a modification,
waiver and acknowledgement agreement with LH Financial for the convertible debt listed above. Under the modified Agreement, the restructured terms of the Agreement is that the exercise price of the Class A Warrants was reduced from $2.85 to
$0.71 per common share, and the exercise price of the Class B Warrants was reduced from $5.00 to $1.01 per common share, subject to further reduction as described in the Transaction Documents. The restructured terms of the Agreement are as follows:



| | (1) | the conversion price for every 33% of remaining principal amount of each Investors pro rata portion of the Notes was reduced from $2.00 to $0.50 per common share,
subject to further reduction as described in the transaction documents:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | all interest accrued through March 31, 2008 on the debt shall be paid at a rate of 10% in shares of the Companys common stock and all interest further
accrued between April 1, 2008 and September 30, 2008 on the debt shall be paid at the rate of 12% in shares of the Companys common stock: and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | the exercise price of the Class A Warrants was reduced from $2.85 to $0.71 per common share, and the exercise price of the Class B Warrants was reduced from $5.00
to $1.01 per common share, subject to further reduction as described in the Transaction Documents.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of the above
modification, the Company reported a loss of $1,202,419 for the extinguishment of debt relative to the original beneficial conversion feature and debt discount.

On June 22, 2009, the registrant completed the issuance of an aggregate principal amount of $369,950 of subordinated notes (the Notes) convertible into shares of the registrants
common stock, without par value per share (Common Stock), to 6 institutional investors (the  PIPE Investors). The Notes mature on December 31, 2009, and have an interest rate of 8% per annum. The registrant will pay
any interest and principal on the maturity date. Prior to maturity, a holder of a Note may convert such Note into shares of the registrants Common Stock at a conversion price of $0.50 per share. The purchase price for the Notes was paid by the
partial surrender of certain outstanding promissory notes and deemed payment of interest in connection therewith. According to the registrants transfer agent, on June 22, 2009, the registrant had issued and outstanding 7,416,896 shares of
common stock. The amount of common stock underlying the Notes represents less than 9.99% of the registrants issued and outstanding common stock on June 22, 2009. All shares were exercised and no additional interest will be accrued for the
rest of the year.



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Commonwealth Biotechnologies, Inc.



On July 22, 2009, the Company reached an agreement with its PIPE investors to extend for 6 months
its convertible note facilities of approximately $1.3M that matured on June 30 and has also received consent to suspend the financial covenants under such note facilities through the 4th Quarter. During this period, obligations under the note
will continue to accrue.

In December 2009, the Company received an extension of the maturity date until June 30, 2010.

Second Modification, Waiver and Acknowledgement Agreement

On October 9, 2009, the second Modification Agreement relating to the above mentioned debt was approved at the 2009 Annual Meeting of Shareholders. The restructured agreement calls for the conversion
price for the remaining balance of PIPE notes to be lowered from $2.00 per share to $0.50 per share.

Sale of CBI Services and FIL

On November 2, 2009, the Company entered into an Agreement with its PIPE investors in connection with the sale of CBI Services
and FIL. As a condition of the Agreement, the Lenders received 250,000 shares of restricted common stock and CBI placed into escrow $200,000 to be released back to the Borrower upon satisfaction of the note.

Principal and Interest Conversions

During the year ended December 31, 2008, the Company received notices of conversion for $145,000 in principal and $106,831 in interest resulting in the issuance of 352,946 shares of common stock.

During the year ended December 31, 2009, the Company received notices of conversion for $611,381 in principal and $165,593 in interest resulting in the
issuance of 1,696,224 shares of common stock.

During January 2010, the Company received notices of conversion for $462,361in principal and
$34,452 in interest resulting in the issuance of 993,626 shares of common stock.

Fornova Agreement

On September 4, 2008, the Company completed the issuance of a $500,000 convertible promissory note (the Note) payable to Fornova Pharmaworld
Inc. (the Holder). The Note has an interest rate of 10% per annum compounded monthly. The Company will pay interest on a monthly basis beginning on September 28, 2008. At any time between October 27, 2008 and
August 21, 2009, the Holder may convert the Notes into shares of the Companys common stock at a conversion price of $1.01 per share. Additionally, the Note features a call date beginning January 29, 2009, if exercised the holder can
call the note in the amount of the outstanding principal balance plus accrued interest. If the holders call feature is exercised, the Company would most likely satisfy the debt and accrued interest with common stock.

As of December 31, 2009, this note has matured.



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Commonwealth Biotechnologies, Inc.



15. Earnings per Share

The Company follows the guidance provided in ASC 260, Earnings Per Share, which establishes standards for computing and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. Basic earnings (loss) per common share are computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted per share amounts assume the
conversion, exercise or issuance of all potential common stock instruments such as warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share.



|                                                                              |  |                         |            |   |      |   |            |  
|----------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                              |  | Year Ended December 31, |           
|                                                                              |  | 2009                    |            |   | 2008 |  
|Basic and diluted loss per share:                                             |  |                         |            |   |      |   |            |  
|Loss from continuing operations                                               |  | $                       | (2,768,056 | ) |      | $ | (9,107,607 | )
|Incom (Loss) from discontinued operations                                     |  |                         | 407,684    |   |      |   | (755,139   | )
|                                                                              |  |                         |            |   |      |   |            |  
|Net loss                                                                      |  | $                       | (2,360,372 | ) |      | $ | (9,862,746 | )
|                                                                              |  |                         |            |   |      |   |            |  
|Basic and diluted loss per common share from continued operations             |  | $                       | (0.36      | ) |      | $ | (1.55      | )
|                                                                              |  |                         |            |   |      |   |            |  
|Basic and diluted income (loss) per common share from discontinued operations |  | $                       | 0.05       |   |      | $ | (0.13      | )
|                                                                              |  |                         |            |   |      |   |            |  
|Basic and diluted loss per common share after discontinued operations         |  | $                       | (0.31      | ) |      | $ | (1.68      | )
|                                                                              |  |                         |            |   |      |   |            |  
|Weighted average share outstanding                                            |  |                         | 7,549,845  |   |      |   | 5,864,149  |  

16. Joint Venture

On March 28, 2008 the Company entered into a strategic relationship with VenturePharm Laboratories Limited, a Cayman Islands limited company (VPL)
with its principal offices in Beijing, Peoples Republic of China. This relationship is multi-faceted and was entered into following a private transaction between VPL and PharmAust Limited (PAA), an Australian company, whereupon VPL acquired all of
the 2.15 million shares of CBI held by PAA as of October 2008.

Coincident with the transaction, CBI entered into a) an Ancillary
Agreement with VPL to provide a $1 million put option from CBI to VPL and a $3 million call option from VPL to CBI both at a 10% discount to market with a three year expiration date, b) a Voting Lock Up Agreement to require VPL to vote in favor of
all matters brought before the shareholders for a period of six months and to escrow its acquired shares for a eighteen months, c) a Registration Rights Agreement to be effective after twenty-four months, and d) a Joint Venture (JV) agreement to
establish an unincorporated JV which provides CBI access on a preferred basis to the extensive, low cost capabilities of VPL in China. Total expenses for the twelve months ended December 31, 2008 were $85,823 which represents sales and
marketing costs. No expenses were incurred during the twelve months ended December 31, 2009. No revenues have been generated relating to this joint venture.



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Commonwealth Biotechnologies, Inc.



Exercise of the Put Option

On July, 7, 2008, the Company completed a sale of stock subject to the $1 million put right with VPL. Under the terms of the put agreement, the Company sold 463,426 shares of common stock to VPL at a
price of $2.15 per share. In consideration of the sale of shares, the Company received $500,000 in cash and 2,229,664 of VPLs ordinary shares.

17. Suspension of Agreement with Biosignal LTD.

On July 22, 2009, the Company reached an agreement with Biosignal Ltd.,
an Australian biotechnology company, pursuant to which Biosignal was to complete a $1,600,000 investment in the Company and would agree to assign its biofilm technology to the Company. The biofilm technology is based around a family of natural
products which disrupt bacterial colonization and thereby inhibit growth. Such biofilm disrupters are expected to be commercialized to support a variety of medical and industrial application.

Pursuant to the terms of a Share Subscription Agreement, Biosignal was to purchase 1,600,000 shares of the Companys common stock, without par value,
for the purchase price of $1,600,000, paid in the form of a 12 month unsecured convertible note bearing interest at 10% per annum. To the extent Biosignal obtained shareholder approval, Biosignal could, at its option, convert the note and all
accrued interest into the aggregate of 65,339,458 shares of Biosignal.

In addition, the Company and Biosignal were to enter into a Deed of
Assignment to which Biosignal would convey certain intellectual property and contracts related to the development and possible exploitation of Biosignals biofilm technology to the Company subject to the satisfactory completion of due diligence
and other conditions. Biosignal would retain licensed rights to use this intellectual property to service some contracts that were not assigned to the company.

This transaction was suspended by the Company and Biosignal in August 2009. On March 19, 2010 the Biosignal shareholders voted not to pursue this transaction.

18. Delisting and Reinstatement from NASDAQ

On July 24, 2009, The NASDAQ Stock Market notified CBI that CBI was to be delisted from the NASDAQ Capital Market as a result of (i) a failure to comply with NASDAQ Listing Rule 5550(b) due to a failure to maintain minimum
stockholders equity of $2.5 million and a failure to file a Form 8-K affirming compliance with Rule 5550(b), (ii) a failure to comply with NASDAQ Listing Rule 5635(a) due to a failure to obtain shareholder approval of an issuance of stock
in excess of 20% of the pre-transaction shares outstanding in connection with the structure of a prior agreement with Biosignal, Ltd, an Australian company, and (iii) a failure to comply with NASDAQ Listing Rule 5250(e)(2)(D) due to a failure
to timely file a Form LAS for that Biosignal issuance.

After receiving the July 24, 2009 notice, CBI and Biosignal agreed to terminate
the earlier agreement and, subsequently, CBI filed a Form LAS in connection with a proposed amended and re-stated Biosignal Transaction thus bringing the company back into compliance with NASDAQ Rules 5635(a) and 5250(e)(2)(D). However, NASDAQ has
determined that the Company has not met the requirements of Rule 5550(b). The Company appealed this decision under NASDAQ Rule 5800. The hearing was convened on September 3, 2009. On October 20, 2009, CBI was notified that the Hearing
Panel granted the request of CBI to remain listed on The NASDAQ Stock Market through January 20, 2010, subject to the condition that, on or before January 20, 2010, CBI evidence shareholders equity of at least $2.5 million or
demonstrate compliance with one of the alternative listing criteria of NASDAQ Listing Rule 5550(b). Failure to meet the Listing Rule 5550(b) may result in CBIs delisting after such date.



47



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Commonwealth Biotechnologies, Inc.



Effective January 25, 2010, the Companys stock began trading on the Pink Sheets under the
symbol CBTE.PK.

Effective March 25, 2010, the Companys stock began trading on the OTC Bulletin Board under the symbol CBTE.OB.



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Commonwealth Biotechnologies, Inc.



19. Subsequent Events

Employees who transferred to Bostwick upon the sale of CBI Services and FIL had 90 days to exercise any outstanding options. None of these options were exercised. In February 2010, 202,109 options
relating to former employees expired.

Effective January 25, 2010, the Companys stock began trading on the Pink Sheets under the
symbol CBTE.PK.

Effective March 25, 2010, the Companys stock began trading on the OTC Bulletin Board under the symbol CBTE.OB.

During January 2010, the Company received notices of conversion, relating to the convertible note due the PIPE Investors, for $462,361in
principal and $34,452 in interest resulting in the issuance of 993,626 shares of common stock.

The Company has evaluated subsequent events
for potential recognition and/or disclosure and determined that there were none, other than those described above, that required accrual or disclosure.



49



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Commonwealth Biotechnologies, Inc.



Corporate Information

Commonwealth Biotechnologies, Inc.

601 Biotech Drive

Richmond, VA 23235

Telephone: 800-735-9224;

Telephone: 804-648-3820

Fax:
804-648-2641

E-mail: info@cbi-biotech.com

Web site: www.cbi-biotech.com

Mimotopes Pty, Ltd.

11 Duerdin St

Clayton, Victoria 3168 Australia

General Counsel

Kaufman and Canoles, PC

1051 E. Cary St

3 James Center

Richmond, VA 23219

Transfer
Agent and Registrar

Computershare Trust Co.

350 Indiana St.

Golden, CO 80401

Independent Auditors

Witt Mares, PLC

3951 Westerre Parkway

Suite 200

Richmond, VA 23233



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Commonwealth Biotechnologies, Inc.



Executive Officers

Richard J. Freer, Ph.D.

COO

Directors of the Company

Richard J. Freer, Ph.D.

COO

Paul DSylva, Ph.D.

Director

Dr. William Guo

Chairman of the Board

VenturePharm Lab

Samuel P. Sears, Jr., Esq.

Attorney at Law

James Causey.

VP, Dominion Media

Dominion Enterprises

Eric V. Tao

Chief
Investment Officer and Director

AGI Capital Group, Inc.

Maria Song, MD, Ph.D.

VP, Venturepharm



51



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Notes



---

Commonwealth Biotechnologies, Inc.

601 Biotech Dr.

Richmond, Virginia 23235

phone: 800-735-9224

phone: 804-648-3820

fax: 804-648-2641

email: info@cbi-biotech.com

url: www.cbi-biotech.com