CYTOCOM,STATERA BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED CONDENSED BALANCE SHEETS

See Notes to Condensed Consolidated Financial Statements

CYTOCOM,STATERA BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

See Notes to Condensed Consolidated Financial Statements

CYTOCOM,STATERA BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

See Notes to Condensed Consolidated Financial Statements

CYTOCOM,STATERA BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITYDEFICIT

(UNAUDITED)

See Notes to Condensed Consolidated Financial Statements

CYTOCOM,STATERA BIOPHARMA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See Notes to Condensed Consolidated Financial Statements

CYTOCOM,STATERA BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of Business

On July 27, 2021, Cytocom,Statera Biopharma, Inc., formerly known as Cleveland BioLabs, Inc. (the "Company" or "CytocomStatera"), High Street Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of the Company ("Merger Sub"), and Cytocom Inc., a Delaware corporation ("Old Cytocom"), completed their previously announced merger transaction. The merger transaction was completed pursuant to an Agreement and Plan of Merger (the “Merger Agreement”"Merger Agreement"), dated as of October 16, 2020, pursuant to which Merger Sub merged with and into Old Cytocom, with Old Cytocom continuing as a wholly owned subsidiary of the Company and the surviving corporation of the merger (the "Merger"). In connection with the closing of the Merger, Old Cytocom was renamed “Cytocom Subsidiary Inc.” and the Company was renamed “Cytocom, Inc.” 

Prior to the closing of the Merger and at all times during the period covered by this report, Effective September 1, 2021, the Company was an innovative biopharmaceutical company developing novel approacheschanged its corporate name to activate"Statera Biopharma, Inc.", and the immune system and address serious medical needs. Our proprietary platform of Toll-like immune receptor ("TLR") activators has applications in radiation protection and oncology. We combine our proven scientific expertise and our depth of knowledge about our products’ mechanisms of action into a passion for developing drugs to save lives. Our most advanced product candidate, as of immediately prior toCompany’s common stock began trading on The Nasdaq Capital Market with the closing of the Merger, is entolimod, an immune-stimulatory agent, which we are developing as a medical radiation countermeasure and other indications in radiation oncology.symbol “STAB.”

The Company was incorporated in Delaware in June 2003 and is headquartered in Fort Collins, Colorado. ThePrior to the Merger, the Company has conducted business in the United States ("U.S.") directly and in the Russian Federation ("Russia") through two subsidiaries: one wholly owned subsidiary, BioLab 612, LLC ("BioLab 612"), which began operations in 2012 and was dissolved in November 2020; and Panacela Labs, Inc. ("Panacela"), which was formed by us and Joint Stock Company "RUSNANO" ("RUSNANO"), our financial partner in the venture, in 2011. Unless otherwise noted, or the context otherwise requires, the terms "CytocomStatera Biopharma," the "Company," "we," "us," and "our" refer to Cytocom,Statera Biopharma, Inc., known as "ClevelandCleveland BioLabs, Inc." prior to the Merger, BioLab 612, Panacela and priorPanacela.

On June 24, 2021, Old Cytocom completed the acquisition of ImQuest Life Sciences, Inc. and its subsidiaries ("ImQuest") in accordance with the Agreement and Plan of Merger by and among Old Cytocom and ImQuest dated as of July 17, 2020, and gained control of ImQuest. The purchase consideration due under this merger to the closingex-shareholders of ImQuest consisted of 12,000,000 shares of preferred stock of Old Cytocom which were subsequently converted into 3,282,089 shares of common stock of Statera Biopharma.  ImQuest is now a wholly-owned subsidiary of the Merger, Merger Sub, and after the Merger, Cytocom Subsidiary Inc.Company.

In addition, the Company has an investment in Genome Protection, Inc. ("GPI") that is recorded under the equity method of accounting in the accompanying financial statements.accounting. The Company has not recorded its 50% share of the losses of GPI through June 30, 20212022 as the impact would have reduced the Company's equity method investment in GPI below zero, and there are no requirements to fund the Company's share of these losses or contribute additional capital as of the date of these statements.

Statera Biopharma is a clinical-stage biopharmaceutical company developing novel immunotherapies targeting autoimmune, neutropenia/anemia, emerging viruses and cancers based on a proprietary platform designed to rebalance the body’s immune system and restore homeostasis. Statera has one of the largest platforms of toll-like receptor ("TLR") agonists in the biopharmaceutical industry with TLR4 and TLR9 antagonists, and the TLR5 agonists, Entolimod and GP532. TLRs are a class of protein that play a key role in the innate immune system.

Statera Biopharma is developing therapies designed to directly elicit within patients a robust and durable response of antigen-specific killer T-cells and antibodies, thereby activating essential immune defenses against autoimmune, inflammatory, and infectious diseases and cancers. In the next 12 months, the Company expects to initiate clinical trials covering Crohn’s disease (STAT-201), hematology (Entolimod), pancreatic cancer (STAT-401) and COVID-19 (STAT-205).

Going Concern

At June 30, 2022, the Company had cash and cash equivalents of $0.6 million in the aggregate. The Company has incurred recurring losses from operations since inception, accumulating a deficit of approximately $140.7 million as of June 30, 2022. For the six months ended June 30, 2022 and 2021, the Company incurred net losses of approximately $11.25 million and $11.9 million, respectively. The Company may incur additional losses and negative operating cash flows in the future. Failure to generate sufficient revenues, reduce spending or raise additional capital could adversely affect its ability to achieve its intended business objectives. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these condensed financial statements.

Management intends to fund future operations through additional private or public debt or equity offerings and may seek additional capital through arrangements with strategic partners or from other sources. Based on the Company’s operating plan, existing working capital as of June 30, 2022 was not sufficient to meet the cash requirements to fund planned operations for a period of one year after issuance of condensed financial statements without additional sources of cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanyingThese unaudited interim condensed consolidated condensed financial statements reflect the historical results of Old Cytocom prior to the completion of the Merger, and do notinclude the accountshistorical results of the Company BioLab 612, Panacelaprior to the completion of the Merger. All share and Merger Sub. All significant intercompany balances and transactionsper share disclosures have been eliminatedadjusted to reflect the exchange of shares in consolidation.the Merger. Under U.S. generally accepted accounting principles ("GAAP"), the Merger is treated as a “reverse merger” under the purchase method of accounting. For accounting purposes, Old Cytocom is considered to have acquired Cleveland BioLabs, Inc. See Note 3, Merger with Old Cytocom, for further details on the Merger and the U.S. GAAP accounting treatment.

The consolidatedaccompanying unaudited condensed balance sheet as of December 31, 2020, which has been derived from audited financial statements, and the unaudited interim consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America pursuant to the requirements of the Securities and Exchange Commission ("GAAPSEC") for interim consolidated financial information and in accordance with the instructions to Form 10-Q and ArticleRule 8-03 of Regulation S-XX. Accordingly, they do not include all of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally includedfootnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited interim condensed consolidated financial statements prepared in accordance with GAAP have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for the fair presentation of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period. These condensed or omitted pursuant to such rules and regulations. These consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 20202021, as filed with the SEC (the "2020Form 10-K").

In the opinion of the Company’s management, any adjustments contained in the accompanying unaudited consolidated financial statements are of a normal recurring nature, and are necessary to fairly present the financial position of the Company as of June 30, 2021, along with its results of operations for the three and six month periods ended June 30, 2021 and 2020 and cash flows for the six-month periods ended June 30, 2021 and 2020. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.

At June 30, 2021, we had cash and cash equivalents of $13.8 million in the aggregate. Management believes this capital will be sufficient to support operations beyond one year from this filing. To ensure continuing operations beyond that point, management is evaluating all opportunities, including seeking additional capital through debt or equity financing, the sale or license of drug candidates, the sale of certain of our tangible and/or intangible assets, the sale of interests in our subsidiaries or joint ventures, obtaining additional government research funding, or entering into other strategic transactions. Management believes that sufficient sources of financing will be available to support operations into the future, however there can be no assurances at this time. These financial statements have been prepared under the assumption that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.SEC.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard-setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

Use of Estimates

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

Significant Customers and Accounts Receivable

The following table presents our revenue by customer, on a proportional basis, for the three and six months ended June 30, 2021 and 2020.

Other Comprehensive Income (Loss)

The Company applies the Accounting Standards Codification ("CodificationASC") on comprehensive income (loss) that requires disclosure of all components of comprehensive income (loss) on an annual and interim basis. Other comprehensive income (loss) is defined as the change in equity of a business enterprise during a period arising from transactions and other events and circumstances from non-owner sources. The following table presents the changes in accumulated other comprehensive loss for the six months ended June 30, 20212022.

Accounting for Stock-Based Compensation

The Cleveland Biolabs, Inc. Equity Incentive Plan, adopted in 2018 (the "Plan"), authorizes the Company to grant (i) options to purchase common stock, (ii) stock appreciation rights, (iii) awards of restricted or unrestricted stock, (iv) restricted stock units, and (iii) stock appreciation rights,(v) performance awards, so long as the exercise or grant price of each are at least equal to the fair market value of the stock on the date of grant. As of June 30, 20212022, an aggregate of 597,5573,597,557 shares of common stock were authorized for issuance under the Plan, of which a total of 526,6602,186,964 shares of common stock remained available for future awards. This includes the Company’s approved amendments to the Plan that increased the number of shares of common stock authorized to be issued by 3,000,000 shares, removed the limit on the maximum number of shares covered by an award that may be issued in any calendar year to any single recipient, and renamed the Plan to the "Statera Biopharma Equity Incentive Plan." In addition, a total of 64,89718,378 shares of common stock reserved for issuance are subject to currently outstanding stock options granted under The Cleveland BioLabs, Inc. Equity Incentive Plan, as in effect prior to the 2018 amendment and restatement. A single participant cannot be awarded more than 100,000 shares annually.Plan. Awards granted under the Plan have a contractual life of no more than 10 years. The terms and conditions of equity awards (such as price, vesting schedule, term, and number of shares) under the Plan are specified in an award document, and approved by the Company’s boardBoard of directorsDirectors or its management delegates.

The 2013 Employee Stock Purchase Plan (the "ESPP") provides a means by which eligible employees of the Company and certain designated related corporations may be given an opportunity to purchase shares of common stock. As of June 30, 20212022, there are 825,0001,025,000 shares of common stock reserved for purchase under the ESPP. The number of shares reserved for purchase under the ESPP increases on January 1 of each calendar year by the lesser of: (i) 10% of the total number of shares of common stock outstanding on December 31st of the preceding year, or (ii) 100,000 shares of common stock. The ESPP allows employees to use up to 15% of their compensation to purchase shares of common stock at an amount equal to 85% of the fair market value of the Company’s common stock on the offering date or the purchase date, whichever is less.

The Company utilizes the Black-Scholes valuation model for estimating the fair value of all stock options granted where the vesting period is based on length of service or performance, while a Monte Carlo simulation model is used for estimating the fair value of stock options with market-based vesting conditions. NaNA total of 1,216,149 options were granted during the six months ended June 30, 20212022 andno options were granted for the six months ended June 30, 20202021.  In addition, 60,066 restricted stock units were granted for the six months ended June 30, 2022.

Income Taxes

NaNNo income tax expense was recorded for the three and six months ended June 30, 20212022 and 20202021 as the Company does not expect to have taxable income for 20212022 and did not have taxable income in 20202021. A full valuation allowance has been recorded against the Company’s net deferred tax asset.

At June 30, 20212022, the Company had U.S. federal net operating loss carryforwards of approximately $148.0$197.8 million, of which $139.7$140.6 million begins to expire if not utilized by 2023, and $8.3$57.2 million which has no expiration, and approximately $4.3 million of tax credit carryforwards, which begin to expire if not utilized by 2024. The Company also has state net operating loss carryforwards of approximately $93.8$112.2 million, which begin to expire if not utilized by 2027, and state tax credit carryforwards of approximately $0.3 million, which begin to expire if not utilized by 2022. The purchase of 6,459,948 shares of common stock by David Davidovich on July 9, 2015 resulted in Mr. Davidovich owning 60.2% of the Company at that time. We therefore believe it highly likely that this transaction will be viewed by the U.S. Internal Revenue Service as a change of ownership as defined by Section 382 of the Internal Revenue Code. Consequently, our ability to utilize approximately $124.8 million of U.S. federal net operating loss carryforwards, $3.65 million of U.S. tax credit carryforwards, approximately $73.4 million of state net operating loss carryforwards, and $0.3 million of state tax credit carryforwards, all of which occurred prior to July 9, 2015, are limited. As such, a significant portion of these carryforwards will likely expire before they can be utilized, even if the Company is able to generate taxable income that, except for the foregoing transaction, would have been sufficient to fully utilize these carryforwards.

Earnings (Loss) per Share

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

The Company has excluded the following securities from the calculation of diluted net loss per share because all such securities were antidilutive for the periods presented. Additionally, there were no dilutive securities outstanding as of June 30, 20212022.

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company accrues for liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. 

3. Fair Value of Financial InstrumentsRevenue Recognition

The Company has measured and recorded short-term investments and certain warrants as liabilities at fair valueimplemented the five steps to recognize revenue from contracts with customers under ASC 606, Revenue from Contracts with Customers ("ASC 606"), which are:

• Step 1: Identify the contract(s) with a customer

      • Step 2: Identify the performance obligations in the accompanying financial statements. Fair valuecontract

      • Step 3: Determine the transaction price

      • Step 4: Allocate the transaction price to the performance obligations in the contract

      • Step 5: Recognize revenue when (or as) a performance obligation is definedsatisfied

In the six months ended June 30, 2022, the Company generated revenue from its Clinical Research Organization services ("CRO services") provided by ImQuest.

The Company provides preclinical CRO services to evaluate the potential of new and novel pharmaceutical products for the treatment and prevention of viruses, bacteria, cancer and inflammatory diseases. These preclinical research services include compound screening, efficacy analysis, drug target validations, mechanism of action research, and toxicity studies in multiple pharmaceutical areas.

The Company has concluded that each provision of its CRO services is a distinct and single performance obligation as the exchangecustomer benefits from the services once they have the opportunity to question the findings and receive the final report which summarizes the research results. Management determined each promised good and service in the contract related to its CRO services should be bundled into a single performance obligation because even though the contract explicitly states individual promises such as consultation services combined with a range of tests that are carried out in order to conduct the preclinical research, the culmination of the individual promises is the CRO services which is a single performance obligation.

The amount the Company earns for its CRO services is typically a fixed fee per project. Revenue from the project is recognized at the point in time when the final report is delivered to the customer and thus the performance obligation is satisfied. At the time the final report is delivered: (a) the Company has the right to payment for the report, (b) the customer has legal title to the report, (c) physical transfer of the report has occurred and the customer has taken possession of the report, (d) the customer now has benefit and the risk of ownership of the report, and (e) the customer has accepted the report. Revenue collected in advance of delivery of the final report is classified as a contract liability in the consolidated balance sheet

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that would be received for an asset or paidis allocated to transfer a liability, an exit price, in the principal or most advantageous market forrespective performance obligation when (or as) the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, includes:performance obligation is satisfied.

Short-termThe Company considers all highly liquid investments primarilywith original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include certificates of deposit at commercial banking institutions,bank demand deposits, marketable securities with maturities of three months or moreless at timepurchase, and money market funds that invest primarily in certificates of purchase. Certificatesdeposits, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value. As of depositJune 30, 2022 and December 31, 2021, there were no cash equivalents.  Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are carried at amortized cost,insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At June 30, 2022 and December 31, 2021, the Company had $0 and $331,385 in excess of the FDIC insured limit, respectively.

Restricted Cash

The Company considers all cash held for specific reasons and not available for immediate, normal business use as restricted cash. As of June 30, 2022 and December 31, 2021 the Company had $0 and $5,000,000, respectively, classified as restricted cash. In February 2022, the restricted cash was used to repay a portion of the debt to Avenue.

Accounts Receivable

Accounts receivable are recorded net of an allowance for credit losses, which approximates fair valueis recorded as an offset to accounts receivable and changes in such are includedclassified as a Level 2 measurementgeneral and administrative expense in the table below.

consolidated statements of operations. The Company assesses collectability by reviewing accounts receivable on an individual basis when the Company identifies specific customers with known disputes or collectability issues.  The Company assesses past due amounts by reviewing the payment terms of the contracts with the Company’s customers. In determining the amount of the allowance for credit losses, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company writes off uncollectable accounts receivable against the allowance based on facts and circumstances for specific customers when management determines that collectability is remote.  There were 0 assets and liabilities measured at fair valueis no allowance for doubtful account as of June 30, 2021.2022 As of December 31, 2020, the following items were measured at fair value: 

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 fair value measurements for the periods indicated:

As of June 30, 2021and December 31, 2020, the Company had 0 assets or liabilities that were measured at fair value on a nonrecurring basis.

The carrying amounts of the Company’s short-term financial instruments, which include cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values due to their short maturities.

4. Stockholders’ Equity

On February 19, 2021, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") for the sale of 2,000,000 shares (the "Shares") of common stock at a purchase price of $7.00 per share, in a registered direct offering. The closing of the sale of the Shares under the Purchase Agreement occurred on February 23, 2021. The gross proceeds to the Company from the transaction were $14 million, before deducting the placement agent’s fees and other estimated offering expenses. Under the Company’s engagement letter with H.C. Wainwright & Co., LLC ("Wainwright"), pursuant to which Wainwright agreed to serve as exclusive placement agent for the issuance and sale of the Shares, the Company also issued to designees of Wainwright warrants to purchase up to 150,000 shares of Common Stock (the "Placement Agent Warrants"). Subject to certain ownership limitations, the Placement Agent Warrants are immediately exercisable at a price of $8.75 per share of Common Stock, subject to customary adjustments as provided under the terms of the Placement Agent Warrants. The Warrants are exercisable for five years from the commencement of sales of the shares being offered.

The Company has granted options to purchase shares of common stock. The following is a summary of option award activity duringDuring the six months ended June 30, 2022 and 2021,: the company wrote off $0.02 million and $0.0 million of accounts receivable.

Goodwill

The followingCompany tests goodwill for impairment in the fourth quarter each year, or more frequently if indicators of an impairment exist, to determine whether it is a summarymore likely than not that the fair value of outstanding stock options asthe reporting unit with goodwill is less than its carrying value. For reporting units for which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is considered not impaired. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the fair value of the reporting unit. For reporting units for which this assessment concludes that it is more likely than June 30, 2021not: that the fair value is below the carrying value, goodwill is tested for impairment by determining the fair value of each reporting unit and comparing it to the carrying value of the net assets assigned to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired. If the carrying value of the reporting unit exceeds its fair value, we would record an impairment loss up to the difference between the carrying value and implied fair value.

Intangible Assets

ForThe Company has two identified finite-lived intangible assets, its customer base and tradenames and trademarks. The customer base and tradenames have a useful life of 20 years and 3 years, respectively. The intangible assets are amortized on a straight-line basis over their useful lives.

The Company reviews all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, the Company recognizes an impairment loss for the excess carrying value over the fair value in its consolidated statements of operations. No impairment losses have been recorded in the six months ended June 30, 2021 2022and 20202021., the Company granted 0 stock options.

As of June 30, 2021, there was 0 total compensation cost not yet recognized related to unvested stock options.

5. Warrants

In connection with previous sales of the Company’s common stock and the issuance of debt instruments, warrants were issued which presently have exercise prices ranging from $2.03 to $8.75. The warrants expire between one and seven years from the date of grant, and are subject to the terms applicable in each agreement.  These terms include for certain warrants the right to receive cash settlement upon the occurrence of a fundamental transaction.  The Merger meets the definition of a fundamental transaction per the terms of these warrant agreements.  

The following table summarizes the outstanding warrant activity during the six months ended June 30, 2021:

6.3. Significant Alliances and Related PartiesMerger with Old Cytocom

Roswell Park Cancer Institute

The Company has entered into several agreements with Roswell Park Cancer Institute ("RPCI"), including: various sponsored research agreements, an exclusive license agreement and clinical trial agreements for the conduct of the Phase 1 entolimod oncology study and the Phase 1 Curaxin CBL0137 ("Curaxin") intravenous administration study. Additionally, the Company’s Chief Scientific Officer, or CSO, Dr. Andrei Gudkov, is the Senior Vice President of Research Technology and Innovation at RPCI. The Company incurred $0 and $0 and $0 and $1,197 in research and development expense to RPCI for the three and six months ended June 30, 2021 and 2020, respectively. 

The Cleveland Clinic

The Company has entered into an exclusive license agreement with The Cleveland Clinic pursuant to which the Company was granted an exclusive license to The Cleveland Clinic’s research base underlying entolimod's therapeutic platform and certain product candidates licensed to Panacela. The Company has the primary responsibility to fund all newly developed patents. However, The Cleveland Clinic retains ownership of those patents covered by the agreement. The Company also agreed to use commercially diligent efforts to bring one or more products to market as soon as practical, consistent with sound and reasonable business practices and judgments. On August 6, 2018, the Company sublicensed the intellectual property underlying entolimod's composition that the Company licenses from The Cleveland Clinic to GPI. There were no milestone or royalty payments paid to The Cleveland Clinic during the six months ended June 30, 2021 and 2020.  The Company incurred 0 research and development expense to The Cleveland Clinic during the six months ended June 30, 2021 and 2020.

Buffalo BioLabs and Incuron

Our Global Head of Research and Development, Dr. Andrei Gudkov, has business relationships with Buffalo BioLabs, LLC ("BBL"), where Dr. Gudkov was a founder and currently serves as its uncompensated Principal Scientific Advisor. The Company recognized 0 research and development expense to BBL for the three and six months ended June 30, 2021 and 2020. The Company also recognized 0 sublease and other income from BBL for the three and six months ended June 30, 2021 and June 30, 2020. Pursuant to our real estate sublease and equipment lease with BBL, the Company had gross accounts receivables of $0 and $6,285, and net accounts receivables of $0 and $6,285 from BBL at June 30, 2021 and 2020, respectively.

Dr. Gudkov is also an uncompensated member of the board of directors for Incuron. Pursuant to master service and development agreements we have with Incuron, the Company performs various research, business development, clinical advisory, and management services for Incuron. The Company recognized revenue of $0 and $0 and $8,347 and $49,357 for the three and six months ended June 30, 2021 and 2020, respectively. In addition, the Company recognized 0 sublease and other income from Incuron for the three and six months ended June 30, 2021 and 2020, respectively. Pursuant to these agreements, the Company had gross accounts receivables of $130,000 and $139,357, and net accounts receivables of $0 and $139,357 from Incuron at June 30, 2021 and 2020, respectively.

Genome Protection

GPI incurred $13,440 and $26,880 and $13,440 and $26,880 in consultant expenses with members of the Company's Board of Directors and management team during the three and six months ended June 30, 2021 and 2020, respectively. 

7. Subsequent Events

Closing of the Merger with Cytocom Inc. 

On July 27, 2021, the Company, formerly known as Cleveland BioLabs, Inc., Merger Sub, and Old Cytocom completed the Merger.their previously announced merger transaction. The Mergermerger transaction was completed pursuant to the Merger Agreement, pursuant to which Merger Sub merged with and into Old Cytocom, with Old Cytocom continuing as a wholly owned subsidiary of the Company and the surviving corporation of the Merger. In connection with the closing of the Merger, Old Cytocom was renamed “Cytocom Subsidiary Inc.” and the Company was renamed “Cytocom, Inc.”

Merger Consideration. UponImmediately upon completion of the Merger, the former stockholders of Old Cytocom stockholders held a majority of the voting interest of the combined company.

Under the terms of the Merger, at the effective time of the Merger, the Company issued shares of its common stock to Old Cytocom stockholders (but excluding those Old Cytocom stockholders who had been holders of stock of ImQuest prior to the merger between Old Cytocom and ImQuest in June 2021), at an exchange ratio of 0.3384 shares of common stock (the “Exchange Ratio”) for each outstanding share of Old Cytocom common stock each outstanding immediately prior to the Merger. The Company also set aside a number of shares of its common stock for issuance to the Old Cytocom stockholders who had been holders of stock of ImQuest prior to merger between Old Cytocom and ImQuest in June 2021, which 3,282,089 shares were issued after the passage of 30 trading days following the Merger. Immediately following the closing of the Merger on July 27, 2021, the former Cleveland BioLabs, Inc. stockholders owned approximately 46% of the aggregate number of shares of common stock of the Company and the former Old Cytocom and former ImQuest stockholders owned approximately 54% of the shares of common stock of the Company.

At the effective time of the Merger, the Company also became party to a number of warrants that had been issued by Old Cytocom. At the time of the Company’s first draw under the Loan and Security Agreement, dated as of April 26, 2021, between Avenue Venture Opportunities Fund, L.P. (“Avenue”) and Old Cytocom, as supplemented by the Supplement to the Loan and Security Agreement, dated as of April 26, 2021, between Avenue and Old Cytocom (the “Avenue Facility”), which occurred July 30, 2021, the Company issued a warrant (the “Avenue Warrant”) to purchase an aggregate of 154,004 shares of the Company’s common stock at an exercise price of $0.01 per share. Avenue may exercise the Avenue Warrant at any time and from time to time until April 30, 2026. The terms of the Avenue Warrant provide that the exercise price of the Avenue Warrant, and the number of shares of common stock for which the Avenue Warrant may be exercised, are subject to adjustment to account for increases or decreases in the number of outstanding shares of common stock resulting from stock splits, reverse stock splits, consolidations, combinations and reclassifications.

In connection with the Company’s entry into the Amended and Restated Share Purchase Agreement, dated as of July 27, 2021, by and among GEM Global Yield LLC SCS, GEM Yield Bahamas Limited (such entities together, “GEM”) and the Company, as successor to Old Cytocom (the “GEM Agreement”), Old Cytocom issued a warrant (the “GEM Warrant”) to GEM. At the closing of the Merger, the GEM Warrant automatically became an obligation of the Company. The GEM Warrant is exercisable for an aggregate of 1,720,083 shares of Company common stock, or 4.99% of the Company’s outstanding stock as of immediately after the effective time of the Merger, at an exercise price of $5.01 per share. The exercise price will increase to $5.51 if on the one-year anniversary date of the effective time of the Merger, the warrant has not been exercised in full and the average closing price per share of the Company’s common stock for the 10 days preceding the anniversary date is less than 90% of the initial exercise price. GEM may exercise the GEM Warrant at any time and from time to time until July 28, 2024. The terms of the GEM Warrant provide that the exercise price of the GEM Warrant, and the number of shares of common stock for which the GEM Warrant may be exercised, are subject to adjustment to account for increases or decreases in the number of outstanding shares of common stock resulting from stock splits, reverse stock splits, consolidations, combinations and reclassifications. Additionally, the GEM Warrant contains weighted average anti-dilution provisions that provide that if the Company issues shares of common stock, or securities convertible into or exercisable or exchange for, shares of common stock at a price per share that is less than the volume-weighted average price of the common stock prior to that issuance, then the exercise price of the GEM Warrant will be proportionally reduced by application of a formula provided for in the GEM Warrant that takes into account such new issuance price in light of the number of shares issued and to be issued.  The exercise price has been adjusted to $4.86 due to the Company's equity raises in March 2022.

Immediately after the closing of the Merger, the Company issued warrants (the “2021 Warrants”) to the purchasers of Old Cytocom’s Series A-3 Preferred Stock and Series A-4 Preferred Stock, each of which were converted immediately prior to the closing of the Merger, exercisable for up to an aggregate of 952,000 shares of Company common stock. The 2021 Warrants were exercisable for an aggregate of 952,000 shares of Company common stock at an exercise price of $5.00 per share. The holders of the 2021 Warrants were able to exercise the 2021 Warrants at any time and from time to time until December 10, 2021. Upon exercise and payment of the applicable exercise price to the Company by a holder, the Company would issue to such holder (i) the underlying shares of common stock for which the exercise price is paid and (ii) a new warrant, in substantially the same form as the 2021 Warrants, that expires on December 10, 2022. The terms of the 2021 Warrants provide that the exercise price of the 2021 Warrants, and the number of shares of Common Stock for which the 2021 Warrants may be exercised, are subject to adjustment to account for increases or decreases in the number of outstanding shares of common stock resulting from stock splits, reverse stock splits, consolidations, combinations and reclassifications. As of June 30, 2021, an aggregate of 425,000 of the 2021 Warrants remain exercisable.

The Company’s management has evaluated all the terms of the warrant agreements and determined that the warrants shall be accounted for as equity instruments as no conditions exist under ASC 480 to account for these as liabilities.

All Old Cytocom preferredvested restricted stock that was not, by its terms, converted into shares of Old Cytocom common stock immediatelyunits outstanding prior to the effective time of the Merger (the "Effective Time"), and each vested restricted stock unit of Old Cytocom (excluding, in each case, dissenting shares and shares held in treasury) automatically converted into the right to receive a number ofwere exchanged for shares of Companythe Company’s common stock determined byin accordance with the application of an exchange ratio formula set forth in the Merger Agreement. 

Exchange Ratio. The exchange ratio was calculated based on the total number of outstanding shares of Company common stock and Old Cytocom common stock, each on a fully diluted basis, and the respective valuations of the Company and Old Cytocom, as of immediately prior to the Effective Time. As of the effective date of the Merger Agreement, the valuation of the Company was assumed to be $39 million and the valuation of Old Cytocom was assumed to be $61 million. For purposes of calculating the exchange ratio, the respective valuations of Old Cytocom and the Company at the Effective Time were increased or decreased, as applicable, based on the amount of each company’s net cash at closing, inclusive of certain short- and long-term liabilities. From these imputed valuation amounts, the number of shares to be issued as merger consideration to Old Cytocom security holders will be equal to a percentage of the fully diluted common stock of the combined company determined by dividing the adjusted Old Cytocom valuation by the adjusted combined company valuation.

Accordingly, based on the foregoing exchange ratio, the parties determined that 18,492,452 shares of Company common stock will be issued in the Merger, resulting in the former Old Cytocom securityholders owning, or holding rights to acquire, approximately 54% of the common stock of the combined company, on a fully diluted basis, and legacy, pre-Merger Company securityholders owning, or holding rights to acquire, approximately 46% of the common stock of the combined company, on a fully diluted basis, in each case as of immediately following the Effective Time. In addition, at the Effective Time, eachRatio. Each unvested Old Cytocom restricted stock unit was converted into a number of restricted stock units of the Company, as determined in accordance with the exchange ratio formula described above. The terms (including, without limitation, the vesting terms) of each such substitute restricted stock unit are substantially equivalent to those of the Old Cytocom restricted stock unit being replaced.

Financing Arrangements

As a resultCleveland BioLabs, Inc. equity awards issued and outstanding at the time of the Merger remained issued and outstanding and were not impacted by the Company became partyMerger. As of July 27, 2021, Cleveland BioLabs, Inc. had outstanding stock options to the following material definitive agreements:purchase 45,706 shares of common stock, of which stock options to purchase 45,706 shares were vested and exercisable at a weighted average exercise price of $14.46 per share. As of June 30, 2021, an aggregate of 18,378 of these stock options remain exercisable.

Allocation of Purchase Consideration

Pursuant to business combination accounting, the Company applied the acquisition method, which requires the assets acquired and liabilities assumed be recorded at fair value with limited exceptions.

The purchase price for Cleveland BioLabs, Inc. on July 27, 2021, the closing date of the Merger, was as follows:

Under the acquisition method of accounting, the total purchase price was allocated to tangible and identifiable intangible assets acquired and liabilities assumed of Cleveland BioLabs, Inc. on the basis of their estimated fair values as of the transaction closing date on July 27, 2021.

The following table summarizes the allocation of the purchase consideration to the assets acquired and liabilities assumed based on their fair values as of July 27, 2021:

Goodwill

The excess of the purchase price over the assets acquired and liabilities assumed represents goodwill. The goodwill is primarily attributable to the synergies expected to arise after the acquisition and is not expected to be deductible for tax purposes.

Pro Forma Results in connection with the Merger

The unaudited financial information in the following table summarizes the combined results of operations of the Company and Cleveland BioLabs, Inc., on a pro forma basis, as if the Merger occurred at the beginning of the periods presented.

The above unaudited pro forma information was determined based on historical GAAP results of Old Cytocom, ImQuest and Cleveland BioLabs, Inc. The unaudited pro forma combined results do not necessarily reflect what the Company’s combined results of operations would have been, if the acquisition was completed on January 1, 2021. The unaudited pro forma combined net loss includes pro forma adjustments primarily related to the non-recurring items directly attributable to the business combinations.

4.Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

5.Notes Payable

Notes payable consist of the following:

6.Long-term Debt

Long-term debt consists of the following:

In February 2022, Avenue withdrew $5.0 million of the Company's restricted cash to repay a portion of the debt to Avenue. On March 31, 2022, the Company received a letter (the "Letter") from Avenue regarding alleged events of default with respect to the Loan and Security Agreement, dated as of April 26, 2021, between the Company and Avenue (the "Loan Agreement"). In the Letter, Avenue alleges that certain events of default under the Loan Agreement have occurred and continue to exist. Specifically, Avenue alleged that the Company was in violation of certain provisions of the Loan Agreement as a result of which, Avenue purported to exercise its rights to suspend further loans or advances to the Company under the Loan Agreement and to accelerate the amount due under the Loan Agreement. Avenue further states in the Letter that interest will continue to accrue on the outstanding amounts at the default rate of 5.0%. In furtherance of the allegations set forth in the Letter, Avenue foreclosed on approximately $4.8 million of the Company’s cash. In April, Avenue returned $0.5 million of the amount foreclosed on. Approximately $3.8 million was applied to principal after application of prepayment fees, accrued interest, and miscellaneous expenses. Due to the accelerated payment schedule, the entire amount due on the Avenue note payable has been reclassed to short term notes payable.

7.Leases

The Company’s leases do not provide an implicit rate that can be readily determined. Therefore, the Company uses discount rates based on the incremental borrowing rate of its current external debt of 3%, 10%, and 17%, depending on the entity and timing of the lease implementation.

The Company’s weighted-average remaining lease term relating to its operating leases is 4 years, with a weighted-average discount rate of 15.21%.

The Company incurred lease expense for its operating leases of $142,411 and $29,225, which was included in general and administrative expenses, and $134,056 and $0, which was included in research and development expenses in the condensed consolidated statements of operations for the periods ended June 30, 2022 and 2021, respectively. 

The following table presents information about the future maturity of the lease liability under the Company’s operating leases as of June 30, 2022:

8.Intangible assets

Intangible assets consist of the following:

During the six months ended June 30, 2022 and 2021, the Company recorded total amortization expense of $227,418 and $0, respectively.

9. Stockholders’ Deficit

The Company has granted options to employees and Board members to purchase shares of common stock. The following is a summary of option award activity during the six months ended June 30, 2022:

The following is a summary of outstanding stock options as of June 30, 2022:

As of June 30, 2022, there was no total compensation cost not yet recognized related to unvested stock options.

As of June 30, 2022, there are 561,602 restricted stock units outstanding to employees from the old Cytocom plan.

10. Warrants

In connection with previous sales of the Company’s common stock and the issuance of debt instruments, warrants were issued which presently have exercise prices ranging from $0.01 to $5.00. The warrants expire between one and five years from the date of grant, and are subject to the terms applicable in each agreement.  These terms include for certain warrants the right to receive cash settlement upon the occurrence of a fundamental transaction.  The Merger meets the definition of a fundamental transaction per the terms of these warrant agreements. The Company’s management has evaluated all the terms of the warrant agreements and determined that the warrants shall be accounted for as equity instruments as no conditions exist under ASC 480 to account for the warrants as liabilities.

The following table summarizes the outstanding warrant activity during the six months ended June 30, 2022:

11.Commitments and Contingencies

On March 24, 2021, a complaint, captioned Bednar v. Cleveland BioLabs, Inc. et al., Case 1:21-cv-02546, was filed in the U.S. District Court for the Southern District of New York in connection with the Merger (the "Bednar Action").  The Bednar Action names as defendants Cleveland BioLabs and each director on the Cleveland BioLabs board of directors.  The complaint in the Bednar Action alleges that Cleveland BioLabs and the Cleveland BioLabs board of directors omitted and/or provided misleading information in the registration statement on Form S-4 filed with the SEC in connection with the Merger in violation of their fiduciary duties and the Exchange Act and related SEC regulations. The Bednar Action seeks, among other things, an injunction preventing the closing of the Merger, rescission of the Merger if it is consummated, the dissemination by the Company of a revised registration statement on Form S-4 and an award of plaintiffs’ attorneys’ and experts’ fees. On October 13, 2021, Plaintiff Bednar filed a notice of dismissal.  On October 20, 2021, the Southern District entered an order dismissing the case.  On December 23, 2021, Plaintiff Bednar filed a new action in the Delaware Court of Chancery, asserting a cause of action for an equitable assessment of attorneys’ fees and expenses incurred in connection with the first lawsuit.  The new Delaware action names the same defendants as the first Bednar Action.  The Defendants in the new Delaware action have filed an answer to Plaintiff’s Delaware complaint.

On August 16, 2022, certain former employees of the Company and certain third party vendors of the Company (collectively, "Petitioning Creditors") filed an involuntary petition in the United States Bankruptcy Court for the District of Colorado (No.22-13051-JGR) against the Company seeking relief under Chapter 11 of the United States Bankruptcy Code. The Company believes the involuntary petition is improper and wrongfully filed and is seeking dismissal of the petition. The outcome of this lawsuit is uncertain. The Company believes that the claims asserted are without merit.

12.Subsequent Events