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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB

(Mark One)

For the quarterly period ended June 30, 2005

For the transition period from              to             

Commission file number: 001-13467

COMMONWEALTH BIOTECHNOLOGIES, INC.

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

601 Biotech Drive, Richmond, Virginia 23235

(Address of principal executive offices)

(804) 648-3820

(Issuer’s telephone number)

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

As of August 15, 2005, 3,203,556 shares of common stock, no par value, of the registrant were outstanding.

Transitional Small Business Disclosure Format (Check one)    Yes:  ¨    No:  x

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Commonwealth Biotechnologies, Inc.

INDEX

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PART I

FINANCIAL INFORMATION

Commonwealth Biotechnologies, Inc.

Balance Sheets

See Notes To Financial Statements

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Commonwealth Biotechnologies, Inc.

Statements of Operations

See Notes to Financial Statements

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Commonwealth Biotechnologies, Inc.

Statements of Cash Flows

See Notes to Financial Statements.

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Commonwealth Biotechnologies, Inc.

Notes To Financial Statements

Note 1. Basis of Presentation

The accompanying unaudited financial statements (except for the balance sheet at December 31, 2004, which is derived from audited financial statements) have been prepared in accordance with generally accepted accounting principles for interim financial statements and Regulation S-B of the Securities and Exchange Commission. Accordingly, they do not include all of the information required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position and the results of operations for the periods presented have been included. The results of operations for the three and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

NOTE 2. Stock Options

The Company accounts for its employee stock plan and management warrants under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Accordingly, no stock based compensation cost has been recognized as all options and warrants granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on the net income (loss) and income and (loss) per share had compensation cost for all the stock-based compensation been determined based on the grant date of fair values on awards consistent with the method described in FASB Statement No. 123, Accounting for Stock-Based Compensation:

The following tables summarizes options outstanding:

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Under FASB No. 123, the fair value of each stock option and warrant is estimates on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used for grants in 2005. No dividend yield, expected volatility of 27%, risk free interest rate of 3.94% and expected lives of 10 years.

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The Company follows the guidance provided in the Statement of Financial Accounting Standards (“SFAS”) No. 128, 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 is 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.

The following table indicates the weighted average shares outstanding for the period.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following should be read in conjunction with the Company’s Financial Statements and Notes included herein.

Overview

The Company is vigorously pursuing revenue opportunities in four principal focus areas: bio-defense; laboratory support services for on-going clinical trials; comprehensive contract projects in the private sector; and through it’s Fairfax Identity Labs (FIL) division, paternity testing, forensic case-work analysis and CODIS (Combined DNA Index System) work. In each of these areas, the Company provides sophisticated services, integrating individual platform technologies so as to provide a comprehensive approach to solving complex problems in life science research. The Company is particularly well recognized for its expertise in Program Management, which represents additional value for its customer base.

While the majority of the Company’s customers are in the private sector, the bulk of the Company’s revenues (about 55% in the second quarter, 2005 and 53% for the year) were derived from government contracts, and in particular, from government contracts dealing with bio-defense related matters. Results derived by the Company are used by others to support their own compliance filings, to further their own in-house research efforts and to implement new assay technologies.

In all its core focus areas, the Company expects to continue to increase its contract base, but the most significant growth areas continue to be in bio-defense, in laboratory support for clinical trial work, and in its FIL division. The Company is working diligently at improving its contract position in the private sector. With regard to government contracts, the Company acts as both prime and subcontractor to numerous federal agencies.

The Company’s FIL division continues to increase its market share in private and state paternity test analyses. Lately, FIL has become a principal source of paternity testing for immigration purposes, and has become a

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primary service provider for immigration testing in the Caribbean and for several countries in the lower Asia Peninsula. FIL was recently re-accredited after its move by the NFSTC for CODIS and forensic work, and is currently competing for new contracts in these service areas. For the second quarter, 2005, the revenue increase experienced by FIL is primarily attributable to work on one of our existing CODIS accessioning contracts, and this contract is expected to be renewed shortly for CODIS accessioning work at least through the third quarter, 2007.

In the third and fourth quarters, 2005, in addition to the anticipated award for additional CODIS work ($875,000), CBI will also begin work on other new contracts received, which are now being announced. Much of the new contract work is again focused in bio-defense related activities, ranging from investigations into bio-agent characterization (about $550,000) to analysis of real world samples for the presence of particular select agents (about $100,000). Other new contract activities include purification of cellular antigens, cloning and sequence analysis of recombinant plasmids, and development of real-time PCR assays for selected gene targets (total $200,000). For the most part, work on these new contracts will extend into 2006. Also, a major clinical trial study being directed by one of CBI’s contract clients was begun in August. Yet another clinical trial program will begin in September. As a result, Management expects revenues from clinical trial lab support to increase through the remainder of the year and to increase throughout 2006. These latter contracts have been previously announced by the Company.

The Company’s customers consistently provide repeat business to the Company. The Company has moved away from concept of “piece work” for individual investigators. With all its contracts, revenues are generally recognized as services are rendered or as products are delivered. In some instances, revenue is also recognized with performance-based installments payable over the contract.

Results of Operations

Three Months Ended June 30, 2005 Compared with Three Months Ended June 30, 2004.

Revenues

The Company 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 increased by $725,674 or 51.6% from $1,404,410 during the second quarter of 2004 (the “2004 Quarter”) to $2,130,084 during second quarter of 2005 (the “2005 Quarter”).

Revenues realized from lab services increased by $51,448 or 45.8% from $112,220 during the 2004 Quarter to $163,668 during the 2005 Quarter. This increase is primarily due to additional work flow for customers that required research on one time projects.

Revenues realized from commercial contracts decreased by $27,916 or 12.6%, from $215,235 during the 2004 Quarter to $188,039 during the 2005 Quarter. This decrease is primarily due to the completion of six projects that the Company was working in 2004 that were not operational in 2005.

Revenues realized from various government contracts increased by $181,441 or 18.1%, from $998,460 during the 2004 Quarter to $1,179,901 during the 2005 Quarter. This increase was primarily due to the startup of additional contracts with the DynPort Company during the quarter.

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Revenues realized from genetic testing increased by $522,909 or 3,160.9%, from $16,543 during the 2004 Quarter to $539,452 during the 2005 Quarter. This increase is a direct result of the purchase of the assets of FIL in December 2004.

Clinical testing decreased by $14,378 or 26.6%, from $53,927 during the 2004 Quarter to $39,549 during the 2005 Quarter. This decrease is a direct result of the continuing delays of a particular phase I clinical trial analysis contract which is expected to begin in August of this year.

Cost of Services

Cost of services consists primarily of materials, labor, subcontractor costs and overhead. The cost of services increased by $571,769 or 61.8%, from $923,870 during the 2004 Quarter to $1,495,639 during the 2005 Quarter. The cost of services as a percentage of revenue was 70.2% and 65.7% during the 2005 and 2004 quarters, respectively.

The costs for direct labor increased by $249,051, or 87.7%, from $283,781 during the 2004 Quarter, to $532,832 during the 2005 Quarter. This increase is attributable to the hiring of six new lab support personnel and the additional employees (eleven) retained from the acquisition of FIL.

The costs for direct materials increased by $144,647, or 61.3%, from $235,698 during the 2004 Quarter, to $380,345 during the 2005 Quarter. As a percentage of revenue, the cost of direct materials was 17.8% and 16.7% during the 2005 and 2004 Quarters respectively. This increase is a direct result of projects during the 2005 Quarter being more material intensive than in the 2004 Quarter.

Overhead cost consists of indirect labor, depreciation, freight charges, amortization costs from the FIL acquisition, repairs and miscellaneous supplies not directly related to a particular project. Total overhead costs increased by $178,071, or 44.0%, from $404,391 during the 2004 Quarter to $582,462 during the 2005 Quarter. This increase is primarily due to additional benefits of the new employees hired in 2005 ($18,184), amortization costs charged from the acquisition of FIL ($73,944), whereas in 2004 there were no expenses charged to this account. Other increases include depreciation ($46,526), insurance ($11,275) and postage ($24,209).

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 increased by $43,778, or 11.0%, from $397,090 during the 2004 Quarter to $440,868 during 2005 Quarter. As a percentage of revenue, these costs were 20.6% and 28.2% during 2005 and 2004.

Total compensation and benefits decreased by $15,909 or 13.9% from $114,386 during the 2004 Quarter to $98,477 during the 2005 Quarter. This decrease is attributable to salaries being allocated to marketing costs. Professional Fees decreased by $25,806 or 34.5% from $74,786 during the 2004 Quarter to $48,980 during the 2005 Quarter. This decrease is due to the allocation of insurance costs charged against overhead . Taxes increased by $6,490 or 33.2% from $19,491 during the 2004 Quarter to $25,981 during the 2005 Quarter. This increase is due to additional sales tax paid for materials purchased. Office expense increased by $14,603, or 41.8% from $34,927 during the 2004 Quarter to $49,530 during the 2005 Quarter. This increase is primarily due to one time consulting fees paid by the Company for additional staffing.

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Marketing costs increased by $102,188 or 120.6%, from $84,679 during the 2004 Quarter to $186,868 during the 2005 Quarter. This increase was primarily due to additional FIL staff brought on by the acquisition. Additional expenditures in public relations and advertising also contributed to the increase in costs.

Other Income (Expenses)

Interest income during the 2004 Quarter compared to the 2005 Quarter increased by $11,386 or 320.9% from $3,547 during the 2004 Quarter to $14,933 during the 2005 Quarter. This increase represents interest earned from the Company’s investments. Interest expense incurred by the Company during the 2005 and 2004 Quarter’s includes interest paid for the Company’s mortgage from the refinancing of the Company’s facility. Interest expense decreased by $7,512 or 11.6% from $64,911 during the 2004 Quarter to $57,399 during the 2005 Quarter.

Results of Operations

Six Months Ended June 30, 2005 Compared with Six Months Ended June 30, 2004.

Revenues

As mentioned in the quarterly comparisons, the Company 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 increased by $847,737 or 30.0% from $2,817,859 during the 2004 Period (“the 2004 Period”) to $3,665,596 during the 2005 Period (“the 2005 Period”).

Revenues realized from lab services increased by $209,183 or 119.8% from $174,549 during the 2004 Period to $383,732 during the 2005 Period. As mentioned in the quarterly comparisons, this increase is primarily due to the continuation of additional one time requests of single projects.

Revenues realized from various commercial contracts decreased by $176,267 or 37.4%, from $470,207 during the 2004 Period to $293,940 during the 2005 Period. This decrease is primarily to the completion of multiple contracts in 2004.

Government contracts decreased by $70,683 or 3.4%, from $2,031,119 during the 2004 Period to $1,960,436 during the 2005 Period. This decrease was attributable to the complete shut-down of its BSL3 laboratory suite for nearly a month during the first quarter, while internal quality assurance audits and inspections were completed.

Revenues realized from genetic testing increased by $900,804 or 2,838.0%, from $31,740 during the 2004 Period to $932,544 during the 2005 Period. This increase is a direct result of the purchase of the assets of FIL in December 2004.

Clinical testing decreased by $29,710 or 29.3%, from $101,449 during the 2004 Period to $71,739 during the 2005 Period. This decrease is a direct result of the continuing delays of a particular phase I clinical trial analysis contract which is expected to begin in August of this year.

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Cost of Services

Cost of services consists primarily of materials, labor, subcontractor costs and overhead. The cost of services increased by $941,630 or 51.4%, from $1,830,350 during the 2004 Period to $2,771,980 during 2005 Period. The cost of services as a percentage of revenue was 75.6% and 64.9% during the 2005 and 2004 periods, respectively.

The costs for direct labor increased by $359,815, or 61.8%, from $581,531 during the 2004 Period, to $941,346 during the 2005 Period. This increase is attributable to the hiring of six new lab support personnel and the additional employees (eleven) retained from the acquisition of FIL.

The costs for direct materials increased by $219,030, or 46.8%, from $467,387 during the 2004 Period, to $686,417 during the 2005 Period. This increase is directly attributable to additional projects in 2004 compared to 2003. As a percentage of revenue, the cost of direct materials was 18.7% and 16.5% during the 2005 and 2004 Periods respectively. This increase is a direct result of projects during the 2005 Period being more material intensive than in the 2004 Period.

Overhead cost consists of indirect labor, depreciation, freight charges, amortization costs from the FIL acquisition, repairs and miscellaneous supplies not directly related to a particular project. Total overhead costs increased by $362,785, or 46.4%, from $781,432 during the 2004 Period to $1,144,217 during the 2005 Period. This increase is primarily due to additional benefits of the new employees hired in 2005 ($46,449), amortization costs charged from the acquisition of FIL ($147,889), whereas in 2004 there were no expenses charged to this account. Other increases include maintenance and repairs ($12,919), waste removal ($17,899) and postage ($49,572).

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 increased by $184,971, or 23.6%, from $782,066 during the 2004 Period to $967,037 during 2005 Period. As a percentage of revenue, these costs were 26.3% and 27.7% during 2005 and 2004, respectively.

Total compensation and benefits decreased by $65,725 or 25.5% from $257,486 during the 2004 Period to $191,761 during the 2005 Period. This decrease is attributable to salaries being allocated to marketing. Taxes increased by $11,030, or 29.3%, from $37,548 during the 2004 Period to $48,579 during the 2005 Period. This increase is due to additional sales tax paid for materials purchased. Office expenses increased by $15,063 or 22.2% from $67,591 during the 2004 Period to $82,654 during the 2005 Period. This increase is primarily additional travel for the management to attend the Fisher Scientific sales meeting to begin the process of using the Fisher sales force to promote CBI’s platform technologies with private sector companies.

Management believes that marketing is the life-blood of the Company and has identified a portion of the cash reserves to be used for marketing related activities. Thus, as expected, marketing costs increased by $228,689 or 160.3%, from $142,654 during the 2004 Period to $371,343 during the 2005 Period. Salary support for new marketing personnel brought in with the acquisition of FIL, and payments to outside professional companies which are working on improving and enhancing the Company’s web page and e-market exposure, and at branding the Company’s and focusing the Company’s client base contributed to this cost increase. The Company has also increased its exposure at selected trade shows and has recently re-vamped its printed marketing materials and its trade-show booth. Marketing expenditures will continue at these higher levels throughout the remainder of 2005 and into the early quarters of 2006.

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Other Income (Expenses)

Interest income during the 2004 Period compared to the 2005 Period increased by $30,205 or 7,031.0% from $4,296 during the 2004 Period to $34,501 during the 2005 Period. This increase represents interest earned from the Company’s investments. Interest expense incurred by the Company during the 2005 and 2004 Period’s includes interest paid for the Company’s mortgage from the refinancing of the Company’s facility. Interest expense decreased by $5,180 or .04% from $114,046 during the 2004 Period to $108,866 during the 2005 Period.

Liquidity and Capital Resources

The 2005 Period reflected cash provided by in operating activities of $17,461, as compared to cash used in operating activities of $25,655 during the 2004 Period. This increase was the result of the Company’s positive cash flow changes in the working capital accounts, primarily in accounts receivable and accounts payable. The 2005 Period reflected a use of cash from investing activities of $212,415, as compared to $339,889 during the 2004 Period. The decrease reflects the purchase of equipment needed to maintain and begin servicing new contract work. The 2005 Period reflected net cash used in financing activities of $82,979, as compared to net cash provided by financing activities of $2,930,951 during the 2004 Period, primarily due to issuance of common stock for proceeds of $2,979,905, net.

Net working capital as of March 31, 2005 and December 31, 2004 was $3,102,682 and $3,179,448 respectively. This decrease is a direct result of additional short term notes for the financing of equipment needed to maintain and begin servicing new projects and the payment for the acquisition of FIL due in December 2005.

Critical Accounting Policies

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

Estimates: The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of asset and liabilities and disclosure of contingent asset 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 and acceptance of biologically relevant materials that have been synthesized in accordance with project terms. Laboratory service projects are generally administered under fee for service contracts. 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 scientific milestones, if any are achieved. Amounts received in advance of the performance of services or acceptance of a milestone, are recorded as deferred revenue.

Accounts receivable: Accounts receivable are carried at original invoice amount less an estimate for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.

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CBI has met the SEC and NASDAQ Corporate Governance Rules.

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 which include:

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:

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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.

ITEM 3. CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Controller (principal executive officer and principal financial officer, respectively) have concluded based on their evaluation as of June 30, 2005 that the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15c) under the Securities Act of 1934, as amended (“Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by the Company under the Exchange Act is accumulated, recorded, processed, summarized and reported to management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding whether or not disclosure is required.

During the period ended June 30, 2005, there were no changes in our “internal controls over financial reporting” (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 2. Changes in Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

On May 20, 2005, the Company held its Annual Meeting of Shareholders. The following were the results of the meeting.

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The following individuals’ terms as directors of the Company continued after the meeting:

Item 5. Other Information

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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On April 21, 2005, the Company filed a Current Report on Form 8-K relating to the receipt of new contracts.

On May 9, 2005, the Company announced the release of its financial results for the first quarter ended March 31, 2005.

On June 28, 2005, the Company filed a Current Report on Form 8-K relating to the adoption of an amended and restated employment agreement with Dr. Richard J. Freer.

SIGNATURES

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

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EXHIBIT INDEX

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