SECURITIES & EXCHANGE COMMISSION EDGAR FILING
Cellular Biomedicine Group, Inc.
Form: 10-K
Date Filed: 2015-03-31
Corporate Issuer CIK: 1378624
Symbol:
SIC Code:
CBMG
2836
© Copyright 2015, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the
terms of use.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
———————
FORM 10-K
———————
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2014
OR
❑ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-36498
———————
CELLULAR BIOMEDICINE GROUP, INC.
(Exact name of registrant as specified in its charter)
———————
Delaware
State of Incorporation
86-1032927
IRS Employer Identification No.
530 University Avenue, #17
Palo Alto, California, 94301
(Address of principal executive offices)
(650) 566-5064
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Common Stock, par value $.001 per share
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ❑ Yes ☑ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ❑ Yes ☑ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ❑
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ☑ No ❑
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ❑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
❑
❑
Accelerated filer
❑
Smaller reporting company ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ❑ Yes ☑ No
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the
registrant's most recently completed second fiscal quarter – $17,576,495 as of June 30, 2014.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of
March 18, 2015, there were 10,995,235 shares of common stock, par value $.001 per share issued and outstanding.
Documents Incorporated By Reference –None
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CELLULAR BIOMEDICINE GROUP, INC.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014
TABLE OF CONTENTS
BUSINESS
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 10.
ITEM 11.
ITEM 12.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
ITEM 13.
ITEM 14.
ITEM 15.
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Cautionary Note Regarding Forward-looking Statements and Risk Factors
This annual report on Form 10-K of the Company may contain forward-looking statements which reflect the Company's current views
with respect to future events and financial performance. The words "believe," "expect," "anticipate," "intends," "estimate," "forecast,"
"project," and similar expressions identify forward-looking statements. All statements other than statements of historical fact are
statements that could be deemed to be forward-looking statements, including plans, strategies and objectives of management for future
operations; proposed new products, services, developments or industry rankings; future economic conditions or performance; belief; and
assumptions underlying any of the foregoing. Such "forward-looking statements" are subject to risks and uncertainties set forth from time
to time in the Company's SEC reports and include, among others, the Risk Factors set forth under Item 1A below.
The risks included herein are not exhaustive. This annual report on Form 10-K filed with the SEC include additional factors which could
impact the Company's business and financial performance. Moreover, the Company operates in a rapidly changing and competitive
environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors. Further, it is
not possible to assess the impact of all risk factors on the Company's business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Readers are cautioned not to place undue reliance on such forward-looking statements as they speak only of the Company's views as of
the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
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ITEM 1. BUSINESS.
PART I
As used in this annual report, "we", "us", "our", "CBMG", "Company" or "our company" refers to Cellular Biomedicine Group, Inc. and,
unless the context otherwise requires, all of its subsidiaries.
Overview
Cellular Biomedicine Group, Inc. is a biomedicine company, principally engaged in the development of new treatments for cancerous
and degenerative diseases utilizing proprietary cell-based technologies. Our technology includes two major cell platforms: (i) Immune
Cell therapy for treatment of a broad range of cancers using Tcm, TCR clonality, Chimeric Antigen Receptor T cell (“CAR-T”) and anti-
PD-1 technologies (ii) human adipose-derived mesenchymal progenitor cells (“haMPC”) for treatment of joint and autoimmune diseases,
with primary research and manufacturing facilities in China.
We are focused on developing and marketing safe and effective cell-based therapies based on our cellular platforms, to treat serious
chronic and degenerative diseases such as cancer, orthopedic diseases (including osteoarthritis and tissue damage), various
inflammatory diseases and metabolic diseases. We have developed proprietary practical knowledge in the use of cell-based
therapeutics that we believe could be used to help a great number of people suffering from cancer and other serious chronic diseases.
We are conducting clinical studies in China for two stem cell based therapies to treat knee osteoarthritis (“KOA”) and Cartilage Defect
(“CD”). We have initiated preclinical studies in Asthma, and Chronic Obstructive Pulmonary Disease ("COPD").
Our primary target market is Greater China. We believe that the results of our research studies and the acquired knowhow and clinical
data will support expanded preclinical and clinical trials with a larger population of patients, which we expect to carry out through
authorized treatment centers throughout Greater China. With the recent acquisition of Agreen Biotech Co. Ltd. ("AG"), we now generate
technical services revenue comprised of T Cells Receptor ("TCR") clonality analysis technology and T Central Memory Cell ("Tcm") and
Dendritic Cell ("DC") preparation methodologies. AG is a biotech company with operations in China, engaged in the development of
treatments for cancerous diseases utilizing proprietary cell technologies, which include preparation of subset T Cell and clonality assay
platform technology for treatment of a broad range of cancers by AG’s primary hospital partner, Jilin Hospital. With recent build-up of our
Tcm, TCR clonality, CAR-T and anti-PD-1 technologies we plan to evaluate and prioritize our cancer clinical trial indications for
commercialization using safe and most effective therapy or combination therapies. We plan to integrate CBMG's state-of-the art
infrastructure and clinical platform with the aforementioned acquired technologies to boost the Company's Immuno-Oncology presence,
and pave the way for future partnerships. We plan to initiate certain cancer clinical trials in China upon receiving acceptance of the
clinical trial designs with the principal investigator and obtaining the requisite approvals. We have yet to derive revenue from our CAR-T
or anti-PD-1 technologies.
Corporate History
Cellular Biomedicine Group, Inc., a Delaware corporation (formerly known as EastBridge Investment Group Corporation), was originally
incorporated in the State of Arizona on June 25, 2001. The Company's principal activity through June 30, 2005 was to manufacture
mobile entertainment products.
In 2005, the Company decided to exit the mobile entertainment market and dedicate its activities to providing investment related services
in Asia, with a strong focus on high GDP growth countries, such as China. The Company concentrated its efforts in the Far East (Hong
Kong, mainland China, Australia) and in the United States and sought to provide consulting services necessary for small to medium-size
companies to obtain capital to grow their business, either to become public companies in the United States or to find joint venture
partners or raise capital to expand their businesses.
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On February 6, 2013, and as further described below, we completed a merger to acquire CBMG (BVI).
In connection with the Merger, effective on March 5, 2013, the Company (formerly named “EastBridge Investment Group Corporation”)
changed its name to “Cellular Biomedicine Group, Inc.” In addition in March 2013 we changed our corporate headquarters to 530
University Avenue, #17, Palo Alto, California 94301.
From February 6, 2013 to June 23, 2014, we operated the Company in two separate reportable segments: (i) Biomedicine Cell Therapy
(“Biomedicine”); and (ii) Financial Consulting (“Consulting”). The Consulting segment was conducted through EastBridge Sub. On June
23, 2014, the Company announced the discontinuation of the Consulting segment as it no longer fits into management’s long-term
strategy and vision. The Company is currently focusing its resources on becoming a biotechnology company bringing therapies to
improve the health of patients in China.
Merger with Cellular Biomedicine Group Ltd.
On November 13, 2012, EastBridge Investment Group Corporation (“EastBridge” or “Parent”) and CBMG Acquisition Limited, a British
Virgin Islands company and the Company’s wholly-owned subsidiary (“Merger Sub”) entered into an Agreement and Plan of Merger
(“Merger Agreement”) by and among EastBridge, Merger Sub and Cellular Biomedicine Group Ltd., a British Virgin Islands company
(“CBMG BVI”), as amended on January 15, 2013, January 31, 2013 and February 6, 2013, pursuant to which the parties agreed that
Merger Sub shall merge with and into CBMG BVI, with CBMG BVI as the surviving entity. The transactions under the Merger Agreement
as amended are referred to as the “Merger”. The Merger was subject to customary closing conditions, including, among other things, (a)
approval by the shareholders of CBMG BVI, (b) resignations of the departing directors and officers of EastBridge, Merger Sub and CBMG
BVI, and (c) execution of certain ancillary agreements, including, but not limited to, executive employment agreements with EastBridge,
compliance certificates, lock up agreement and opinions of counsel, as referenced in Article VII of the Merger Agreement.
On December 20, 2012 CBMG BVI obtained shareholder approval by holding an extraordinary general meeting of the shareholders, in
which holders of a majority of its capital stock approved the merger pursuant to British Virgin Islands law. Since the Merger was
structured as a triangular merger in which a wholly owned merger subsidiary of EastBridge merged with CBMG BVI, no stockholder
approval on the part of the EastBridge stockholders was required under Delaware law. We note that although EastBridge issued in
excess of 20% of its shares in the merger, since its shares are not listed on a national exchange, no stockholder approval requirement
applied to this transaction under any exchange rules.”
On February 5, 2013, the registrant formed a new Delaware subsidiary named EastBridge Investment Corp. (“EastBridge Sub”).
Pursuant to a Contribution Agreement by and between the registrant and EastBridge Sub dated February 5, 2013 (the “Contribution
Agreement”), the registrant contributed all assets and liabilities related to its consulting services business, to its newly formed subsidiary,
EastBridge Investment Corp., from and after which it continued to conduct the consulting services business and operations of EastBridge
at the subsidiary level.
On February 6, 2013 (the “Effective Date”), the Parties executed all documents and filed the Plan of Merger with the registrar of the
British Virgin Islands. Upon consummation of the Merger on the Effective Date, CBMG BVI shareholders were issued 3,638,932 shares
of common stock, par value $0.001 per share, of EastBridge (the “EastBridge Common Stock”) constituting approximately 70% of the
outstanding stock of EastBridge on a fully-diluted basis and the EastBridge stockholders retained 30% of the Company on a fully-diluted
basis. Specifically, each of CBMG BVI’s ordinary shares (“CBMG Ordinary Shares”) was converted into the right to receive 0.020019 of a
share of EastBridge Common Stock.
Reorganization and Share Exchange
Effective January 18, 2013, the Company completed its reincorporation from the State of Arizona to the State of Delaware (the
“Reincorporation”). In connection with the Reincorporation, the Company exchanged every 100 shares of the Arizona entity for 1 share of
the successor Delaware entity, with the same effect as a 1:100 reverse stock split, which became effective on January 31, 2013. All
share and per share information in this Annual Report (including in the above paragraph), unless otherwise specified, reflects this
reverse split.
Recent Developments
On September 26, 2014, the Company completed its acquisition of AG and the U.S. patent held by AG’s founder.
AG is a biotech company with operations in China, engaged in the development of treatments for cancerous diseases utilizing
proprietary cell technologies, which include without limitation, preparation of subset T Cell and clonality assay platform technology for
treatment of a broad range of cancers by AG’s primary hospital partner, Jilin Hospital.
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AG is focused on developing and marketing its technical service and test kits to hospitals that treat cancer patients who are undergoing
immune cell therapy classified as 3rd Medical Technology by regulatory agencies in China. We have developed proprietary practical
knowledge in the use of cell-based therapeutics that we believe could be used to help a great number of people suffering from
cancer. Specifically, we provide technical services comprised of T Cell Receptors ("TCR") clonality analysis technology and T Central
Memory Cell ("Tcm") and Dendritic Cell ("DC") preparation methodologies. The TCR clonality analysis technology is based on the use of
the multiple sets of unique primers to amplify 22 regions of the TCR and thereby detect clonal expansions related to antigen stimulation
of the immune system, which enables the assessment of tumor specific immunity with high accuracy and efficiency. Tcm cells are the
subpopulation of T lymphocytes with key characteristics including high potency and long-term memory of specific immunity; and they are
the key element of immunocellular fortification against tumors, infections and immune disorders. The Tcm cells are drawn from the
cancer patient’s own blood and the therapy using these cells is classified in China as Medical Technology, which enables such therapy
to be covered by medical insurance in more than ten provinces in China.
AG’s primary market is China. Jilin Hospital, AG’s primary hospital partner, currently uses AG’s technical services and test kits to treat
patients who are undergoing cancer immune cell therapy in China. Based on AG’s results to date, AG believes that its TCR and Tcm
services are safe and effective treatment options for cancer patients. The company believes that the results of AG’s proof-of-concept
studies will support formal clinical trials with prominent hospitals in China, which can then be carried out through a network of authorized
treatment centers throughout China.
On January 9, 2015, the Company acquired third generation CAR-T, anti-PD-1, CD19 and aAPC cancer immunotherapy technologies
from Persongen Biotechnology Ltd (“PG”).
On February 4, 2015, the Company announced its acquisition of Chinese PLA General Hospital's ("PLAGH", Beijing, also known as "301
Hospital") Chimeric Antigen Receptor T cell (“CAR-T”) therapy, its recombinant expression vector CD19, CD20, CD30 and Human
Epidermal Growth Factor Receptor's (EGFR or HER1) Immuno-Oncology patents applications, and Phase I clinical data of the
aforementioned therapies and manufacturing knowledge. The 301 Hospital team has conducted several preliminary clinical studies of
various CAR-T constructs targeting CD19-positive acute lymphoblastic leukemia, CD20-positive lymphoma, CD30-positive Hodgkin's
lymphoma and EGFR-HER1-positive advanced lung cancer. Pursuant to the terms of the Transfer Agreement, PLAGH agreed to
transfer to the Company all of its right, title and interest in and to certain technologies currently owned by PLAGH (including, without
limitation, four technologies and their pending patent applications) that relate to genetic engineering of chimeric antigen receptor (CAR)-
modified T cells and its applications (collectively, the “Technology”). In addition, PLAGH is responsible for obtaining governmental
approval for the clinical trial related to the Technology, and the Company is responsible for the costs and expenses in connection
therewith.
With the recent addition of our cancer immune cell therapy resources, we plan to evaluate and prioritize our cancer clinical trial
indications for commercialization using safe and most effective therapy or combination therapies. The Company believes that, when
integrated with CBMG's state-of-the-art infrastructure and clinical platform, the aforementioned acquired AG, PG and 301 Hospital
technologies will improve our cancer immune cell therapies clinical pathway and pave the way for collaboration with renowned
institutions. We plan to initiate certain cancer clinical trials upon receiving acceptance of the clinical trial designs with the principal
investigator and obtaining the requisite approvals.
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Corporate Structure
Our current corporate structure is illustrated in the following diagram:
Following the completion of our merger on February 6, 2013, we had the following subsidiaries (including a controlled VIE entity):
CBMG BVI, a British Virgin Islands corporation, is a holding company and a wholly-owned subsidiary of Cellular Biomedicine Group, Inc.
(NASDAQ: CBMG), a Delaware corporation. We operate our biomedicine business through CBMG BVI and its subsidiary and controlled
(VIE) company.
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Cellular Biomedicine Group HK Limited, a Hong Kong company limited by shares, is a holding company and wholly owned subsidiary of
CBMG BVI.
Cellular Biomedicine Group Ltd. (Wuxi), license number 320200400034410 (“WFOE”) is a wholly foreign-owned entity that is 100%
owned by Cellular Biomedicine Group HK Limited. This entity’s legal name in China is , which directly translates to “Xi Biman
Biological Technology (Wuxi) Co. Ltd.” WFOE controls and holds ownership rights in the business, assets and operations of Cellular
Biomedicine Group Ltd. (Shanghai) (“CBMG Shanghai”) through variable interest entity (VIE) agreements. We conduct certain
biomedicine business activities through WFOE, including lab kit production and research.
Cellular Biomedicine Group Ltd. (Shanghai) license number 310104000501869 (“CBMG Shanghai”), is a PRC domestic corporation,
which we control and hold ownership rights in, through WFOE and the above-mentioned VIE agreements. This entity’s legal name in
China is , which directly translates to “Xi Biman Biotech (Shanghai) Co., Ltd.” We conduct certain biomedicine business
activities through our controlled VIE entity, CBMG Shanghai, including clinical trials and certain other activities requiring a domestic
license in the PRC. Mr. Chen Mingzhe and Mr. Cao Wei (our President, Chief Operating Officer and director) together are the record
holders of all of the outstanding registered capital of CBMG Shanghai. Mr. Chen and Mr. Cao are also directors of CBMG Shanghai
constituting the entire management of the same. Mr. Chen and Mr. Cao receive no compensation for their roles as managers of CBMG
Shanghai.
Beijing Agreen Biotechnology Co., Ltd is a PRC domestic corporation and wholly owned subsidiary of CBMG Shanghai.
Eastbridge Investment Corporation (“Eastbridge Sub”), a Delaware corporation, is a wholly owned subsidiary of of the Company.
Variable Interest Entity (VIE) Agreements
Through our wholly foreign-owned entity and 100% subsidiary, Cellular Biomedicine Group Ltd. (Wuxi) we control and have ownership
rights by means of a series of agreements with CBMG Shanghai. The following is a description of each of these VIE agreements:
Exclusive Business Cooperation Agreement. Through the WFOE we are a party to an exclusive business cooperation agreement dated
September 17, 2012 with CBMG Shanghai, which provides that (i) the WFOE shall exclusively provide CBMG Shanghai with complete
technical support, business support and related consulting services; (ii) without prior written consent of the WFOE, CBMG Shanghai may
not accept the same or similar consultancy and/or services from any third party, nor establish any similar cooperation relationship with
any third party regarding same matters during the term of the agreement; (iii) CBMG Shanghai shall pay the WFOE service fees as
calculated based on the time of service rendered by the WFOE multiplying the corresponding rate, plus an adjusted amount decided by
the board of the WFOE; and (iv) CBMG Shanghai grants to the WFOE an irrevocable and exclusive option to purchase, at its sole
discretion, any or all of CBMG Shanghai’s assets at the lowest purchase price permissible under PRC laws. The term of the agreement
is 10 years, provided however the agreement may extended at the option of the WFOE. Since this agreement permits the WFOE to
determine the service fee at its sole discretion, the agreement in effect provides the WFOE with rights to all earnings of the VIE.
Loan Agreement. Through the WFOE we are a party to a loan agreement with CBMG Shanghai, Cao Wei and Chen Mingzhe dated
September 17, 2012, in accordance with which the WFOE agreed to provide an interest-free loan to CBMG Shanghai. The term of the
loan is 10 years, which may be extended upon written consent of the parties. The method of repayment of CBMG Shanghai shall be at
the sole discretion of the WFOE, including but not limited to an acquisition of CBMG Shanghai in satisfaction of loan obligations.
Exclusive Option Agreement with Cao Wei. Through the WFOE, we are a party to an option agreement with CBMG Shanghai and Cao
Wei dated May 28, 2012, in accordance with which: (i) Cao Wei irrevocably granted the WFOE an irrevocable and exclusive right to
purchase, or designate other person to purchase the entire equity interest in CBMG Shanghai as then held by him, at an aggregate
purchase price to be determined; and (ii) any proceeds obtained by Cao Wei through the above equity transfer in CBMG Shanghai shall
be used for the payment of the loan provided by the WFOE under the aforementioned Loan Agreement.
Exclusive Option Agreement with Chen Mingzhe. Through the WFOE, we are a party to an exclusive option agreement with CBMG
Shanghai and Chen Mingzhe dated May 28, 2012, under which: (i) Chen Mingzhe irrevocably granted the WFOE an irrevocable and
exclusive right to purchase, or designate other person to purchase the entire equity interest in CBMG Shanghai for an aggregate
purchase price to be determined; and (ii) any proceeds obtained by Chen Mingzhe through the above equity transfer in CBMG Shanghai
shall be used for the payment of the loan provided by the WFOE under the aforementioned Loan Agreement.
Power of Attorney from Cao Wei. Through the WFOE we are the recipient of a power of attorney executed by Cao Wei on October 10,
2012, in accordance with which Cao Wei authorized the WFOE to act on his behalf as his exclusive agent with respect to all matters
concerning his equity interest in CBMG Shanghai, including without limitation to attending the shareholder meetings of CBMG Shanghai,
exercising voting rights and designating and appointing senior executives of CBMG Shanghai.
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Power of Attorney from Chen Mingzhe. Through the WFOE we are the recipient of a power of attorney executed by Chen Mingzhe on
September 17, 2012, in accordance with which Chen Mingzhe authorized the WFOE to act on his behalf as his exclusive agent with
respect to all matters concerning his equity interest in CBMG Shanghai, including without limitation to attending the shareholders
meetings of CBMG Shanghai, exercising voting rights and designating and appointing senior executives of CBMG Shanghai.
Equity Interest Pledge Agreement with Cao Wei. Through the WFOE we are a party to an equity interest pledge agreement with CBMG
Shanghai and Cao Wei dated May 28, 2012, in accordance with which: (i) Cao Wei pledged to the WFOE the entire equity interest he
holds in CBMG Shanghai as security for payment of the consulting and service fees by CBMG Shanghai under the Exclusive Business
Cooperation Agreement; (ii) Cao Wei and CBMG Shanghai submitted all necessary documents to ensure the registration of the Pledge of
the Equity Interest with the State Administration for Industry and Commerce (“SAIC”), and the pledge became effective on January 24,
2013; (iii) on the occurrence of any event of default, unless it has been successfully resolved within 20 days after the delivery of a
rectification notice by the WFOE, the WFOE may exercise its pledge rights at any time by a written notice to Cao Wei.
Equity Interest Pledge Agreement with Chen Mingzhe. Through the WFOE we are a party to an equity interest pledge agreement with
CBMG Shanghai and Chen Mingzhe dated May 28, 2012, in accordance with which: (i) Chen Mingzhe pledged to the WFOE the entire
equity interest he holds in CBMG Shanghai as security for payment of the consulting and service fees by CBMG Shanghai under the
Exclusive Business Cooperation Agreement; (ii) Chen Mingzhe and CBMG Shanghai submitted all necessary documents to ensure the
registration of the Pledge of the Equity Interest with SAIC, and the pledge became effective on January 24, 2013; (iii) on the occurrence
of any event of default, unless it has been successfully resolved within 20 days after the delivery of a rectification notice by the WFOE,
the WFOE may exercise its pledge rights at any time by a written notice to Chen Mingzhe.
Our relationship to our controlled VIE entity, CBMG Shanghai, through the VIE agreements, is subject to various operational and legal
risks. Management believes the Mr. Chen and Mr. Cao as record holders of the VIE’s registered capital have no interest in acting
contrary to the VIE agreements. However, if Mr. Chen and Cao as shareholders of the VIE were to reduce or eliminate their ownership
of the registered capital of the VIE, or if Mr. Cao ceases to serve as a director and/or officer of the other CBMG entities, their interests
may diverge from that of CBMG and they may seek to act in a manner contrary to the VIE agreements (for example by controlling the
VIE in such a way that is inconsistent with the directives of CBMG management and the board; or causing non-payment by the VIE of
services fees). If such circumstances were to occur the WFOE would have to assert control rights through the powers of attorney and
other VIE agreements, which would require legal action through the PRC judicial system. While we believe the VIE agreements are
legally enforceable in the PRC, there is a risk that enforcement of these agreements may involve more extensive procedures and costs
to enforce, in comparison to direct equity ownership of the VIE entity. We believe based on the advice of local counsel that the VIE
agreements are valid and in compliance with PRC laws presently in effect. Notwithstanding the foregoing, if the applicable PRC laws
were to change or are interpreted by authorities in the future in a manner which challenges or renders the VIE agreements ineffective,
the WFOE’s ability to control and obtain all benefits (economic or otherwise) of ownership of the VIE could be impaired or eliminated. In
the event of such future changes or new interpretations of PRC law, in an effort to substantially preserve our rights we may have to
either amend our VIE agreements or enter into alternative arrangements which comply with PRC laws as interpreted and then in effect.
For further discussion of risks associated with the above, please see the section below titled “Risks Related to Our Structure.”
BIOMEDICINE BUSINESS
Our biomedicine business was founded in 2009 as a newly formed specialty biomedicine company by a team of seasoned Chinese-
American executives, scientists and doctors. In 2010 we established a GMP facility in Wuxi, and in 2012 we established a U.S. Food
and Drug Administration (“FDA”) GMP standard protocol-compliant manufacturing facility in Shanghai. Our focus has been to monetize
the rapidly growing health care market in China by marketing and commercializing stem cell and immune cell therapeutics, related tools
and products from our patent-protected homegrown and acquired cell technology, as well as by utilizing exclusively in-licensed and other
acquired intellectual properties.
Our current treatment focal points are cancer and other degenerative diseases such as KOA, Asthma, COPD and Cartilage Defects.
Cancer. In the cancer field, our in-licensed Tumor Cell Target Dendritic Cell (“TC-DC”) therapy utilizes dendritic cells that have been
taught the unique "signature" of the patient's’ cancer, in order to trigger an effective immune response against cancer stem cells, the root
cause of cancer metastasis and recurrence. Our TC-DC product candidate has successfully completed a U.S. FDA Phase II clinical trial
for the treatment of Metastatic Melanoma at the Hoag Medical Center in California. We have a process to develop human embryo-
derived motor neuronal precursor cells and human embryo-derived neuronal precursor cells with high purity levels, validated by synapse
formation, and have shown functional innervation with human muscle cells. Under applicable international reciprocity procedures we are
utilizing data generated in a U.S. Phase II clinical trial in an analogous China-based Phase I/II Clinical Trial for the treatment of
Hepatocellular Carcinoma (“HCC”), a major type of Liver Cancer. Management believes we will be able to leverage skin cancer data
produced in ongoing trials in the U.S., and apply it toward advancing our product candidate for the treatment of liver cancer and other
cancer-related indications. As of December 31, 2013, we have completed the HCC Phase I trial. And with the recent build-up of our
Tcm, TCR clonality, CAR-T and anti-PD-1 technologies we plan to evaluate and prioritize our cancer clinical trial indications for
commercialization using safe and most effective therapy or combination therapies. We announced results from our Phase I trial for
certain of CAR-T cancer immunotherapy programs on March 25, 2015. The Phase I trial data showed optimistic response rate under
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controllable toxicities.
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KOA. In 2013, we completed a Phase I/IIa clinical trial, in China, for our Knee Osteoarthritis (“KOA”) therapy named
ReJoinTM . The trial tested the safety and efficacy of intra-articular injections of autologous haMPCs in order to reduce
inflammation and repair damaged joint cartilage. The 6-month follow-up clinical data showed ReJoinTM therapy to be both
safe and effective. We announced interim 24 week results for ReJoinTM on March 25, 2015, confirmed that the primary and
secondary endpoints of ReJoinTM therapy groups have all improved significantly compared to their baseline.
In Q2 2014 we completed patient enrollment for the Phase IIb clinical trial of ReJoin™ for KOA. The multi-center study has enrolled 53
patients to participate in a randomized, single blind trial. We published 48 weeks follow-up data of Phase I/IIa on December 5,
2014. The 48 weeks data indicated that patients have reported a decrease in pain and a significant improvement in mobility and
flexibility, while the clinical data shows our ReJoinTM regenerative medicine treatment to be safe. We plan to release interim observation
of Phase IIb information in Q1 2015, and 12 month follow-up data in late 2015.
Cartilage Damage. In January 2015 we initiated patient recruitment to support a study, in China, of ReJoinTM human adipose derived
mesenchymal progenitor cell (“haMPC”) therapy for Cartilage Damage (“CD”) resulting from osteoarthritis (“OA”) or sports injury. The
study is based on the same science that has shown significant progress in the treatment of KOA. Both arthroscopy and the use of
magnetic resonance imaging (“MRI”) will be deployed to further demonstrate the regenerative efficacy of ReJoinTM on CD.
Asthma. In Q1 of 2014 we began a pre-clinical study on haMPC therapy for asthma. The pre-clinical study, conducted by Shanghai First
People’s Hospital, a leading teaching hospital affiliated with Shanghai Jiaotong University, will evaluate the safety and efficacy of
haMPCs to treat severe asthma.
COPD. Chronic Obstructive Pulmonary Disease (“COPD”) refers to a group of diseases that block airflow to the lungs and make it
difficult to breathe. The two most common conditions that make up COPD are chronic bronchitis and emphysema, which gradually
destroys the smallest air passages (bronchioles) in the lungs. Currently the common treatments for COPD, such as use of steroids,
inhalers and bronchodilator drugs, aim to control the symptoms and minimize further damage, but do not reverse the tissue damage. The
major causes of COPD in China are tobacco smoking, biomass fuel use and genetic susceptibility.
Our pre-clinical COPD study is being conducted by Shanghai First People's Hospital, a leading teaching hospital affiliated with Shanghai
Jiaotong University. Professor Zhou Xin, director of the hospital's respiratory department and chairperson of Respiratory Diseases
Division of Shanghai Medical Association, will lead the study as Principal Investigator.
The unique lines of adult adipose-derived stem cells and the immune cell therapies enable us to create multiple cell formulations in
treating specific medical conditions and diseases, as well as applying single cell types in a specific treatment protocol. Management
believes that our adult adipose-derived line will become commercially viable and market-ready in China within three to four years, and
will continue to grow the budding immune cell technical service revenue. In addition, we plan to assess and initiate cancer clinical trials
leading to commercialization using safe and most effective therapy or combination therapies. Our facilities are certified to meet the
international standards NSF/ANSI 49, ISO-14644 (or equivalent), ANSI/NCSL Z-540-1 and 10CFR21, as well as Chinese CFDA
standards CNAS L0221. In addition to standard protocols, we use proprietary processes and procedures for manufacturing our cell lines,
comprised of:
• Banking processes that ensure cell preservation and viability;
• DNA identification for stem cell ownership; and
• Bio-safety testing at independently certified laboratories.
Regenerative Medicine and Cell Therapy
Regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normal
function”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by
rejuvenating damaged tissue and by stimulating the body’s own repair mechanisms to heal previously irreparable tissues and organs.
Medical cell therapies are classified into two types: allogeneic (cells from a third-party donor) or autologous (cells from one’s own body),
with each offering its own distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or
degeneration, are not as viable as those from a healthy donor. Similarly, in cases such as cancer, where the disease is so unique to the
individual, autologous cells can offer true personalized medicine.
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Regenerative medicine can be categorized into major subfields as follows:
• Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, third party donors or
patients, from various parts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer
vaccines, cell based immune-therapy, arthritis, heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision
impairments, orthopedic diseases and brain or spinal cord injuries. This subfield also includes the development of growth
factors and serums and natural reagents that promote and guide cell development.
• Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate
partially or fully functional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural
materials, like collagen, can be used as biomaterial, but advances in materials science have resulted in a variety of synthetic
polymers with attributes that would make them uniquely attractive for certain applications. Therapeutic applications may
include heart patch, bone re-growth, wound repair, replacement neo-urinary conduits, saphenous arterial grafts, inter-vertebral
disc and spinal cord repair.
• Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the
development of drugs and treatments for diseases or genetic defects. This sector also includes companies developing devices
that are designed and optimized for regenerative medicine techniques, such as specialized catheters for the delivery of cells,
tools for the extraction of stem cells and cell-based diagnostic tools.
All living complex organisms start as a single cell that replicates, differentiates (matures) and perpetuates in an adult through its lifetime.
Cell therapy is aimed at tapping into the power of cells to prevent and treat disease, regenerate damaged or aged tissue and provide
cosmetic applications. The most common type of cell therapy has been the replacement of mature, functioning cells such as through
blood and platelet transfusions. Since the 1970s, bone marrow and then blood and umbilical cord-derived stem cells have been used to
restore bone marrow and blood and immune system cells damaged by chemotherapy and radiation used to treat many cancers. These
types of cell therapies have been approved for use world-wide and are typically reimbursed by insurance.
Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use
of autologous (self-derived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and
safe in clinical trials. Researchers around the globe are evaluating the effectiveness of cell therapy as a form of replacement or
regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies
are also being evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel
disease, joint diseases and cancerous diseases. While no assurances can be given regarding future medical developments, we believe
that the field of cell therapy is a subset of biotechnology that holds promise to improve human health, help eliminate disease and
minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.
Recent Developments in Cancer Cell Therapy
According to the U.S. National Cancer Institute ’s 2013 cancer topics research update on CAR-T-Cells, excitement is growing for
immunotherapy—therapies that harness the power of a patient’s immune system to combat their disease, or what some in the research
community are calling the “fifth pillar” of cancer treatment.
One approach to immunotherapy involves engineering patients’ own immune cells to recognize and attack their tumors. And although
this approach, called adoptive cell transfer ("ACT"), has been restricted to small clinical trials so far, treatments using these engineered
immune cells have generated some remarkable responses in patients with advanced cancer. For example, in several early-stage trials
testing ACT in patients with advanced acute lymphoblastic leukemia ("ALL") who had few if any remaining treatment options, many
patients’ cancers have disappeared entirely. Several of these patients have remained cancer free for extended periods.
Equally promising results have been reported in several small clinical trials involving patients with lymphoma. Although the lead
investigators cautioned that much more research is needed, the results from the trials performed thus far indicate that researchers can
successfully alter patients’ T cells so that they attack their cancer cells. As a proxy, we look to Spectrum Pharmaceutical’s Folotyn
approved in September 2009 for treatment of R/R peripheral T-cell lymphoma with approval supported by a single arm trial observing an
overall response rate of 27% and median duration of response of 9.4 months. In addition, CTI Therapeutics Pixuvri which received a
complete response letter in April 2010 in R/R aggressive NHL in which a 37% overall response rate and 5.5 month duration of response
was observed.
ACT’s building blocks are T cells, a type of immune cell collected from the patient’s own blood. After collection, the T cells are
genetically engineered to produce special receptors on their surface called chimeric antigen receptors ("CARs"). CARs are proteins that
allow the T cells to recognize a specific protein (antigen) on tumor cells. These engineered CAR T cells are then grown in the laboratory
until they number in the billions. The expanded population of CAR T cells is then infused into the patient. After the infusion, if all goes as
planned, the T cells multiply in the patient’s body and, with guidance from their engineered receptor, recognize and kill cancer cells that
harbor the antigen on their surfaces. This process builds on a similar form of ACT pioneered from NCI’s Surgery Branch for patients with
advanced melanoma. According to www.cancer.gov/.../research-updates/2013/CAR-T-Cells in 2013 NCI’s Pediatric Oncology Branch
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commented that the CAR T cells are much more potent than anything they can achieve with other immune-based treatments being
studied. Although investigators working in this field caution that there is still much to learn about CAR T-cell therapy, the early results
from trials like these have generated considerable optimism. Researchers opined that CAR T-cell therapy eventually may become a
standard therapy for some B-cell malignancies like ALL and chronic lymphocytic leukemia.
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Market for Cell-Based Therapies
In 2013, U.S. sales of products which contain stem cells or progenitor cells or which are used to concentrate autologous blood, bone
marrow or adipose tissues to yield concentrations of stem cells for therapeutic use were, conservatively, valued at $236 million at the
hospital level. It is estimated that the orthopedics industry used approximately 92% of the stem cell products.
The forecast is that in the United States, shipments of treatments with stem cells or instruments which concentrate stem cell preparations
for injection into painful joints will fuel an overall increase in the use of stem cell based treatments resulting in a 61% increase to $380
million in 2014, and an increase to $5.7 billion in 2020, with key growth areas being Spinal Fusion, Sports Medicine and Osteoarthritis of
the joints.
According to data published in the executive summary of the 2014 New York Stem Cell Summit Report, the U.S. specific addressable
market in KOA is $83 million, estimated to grow to $1.84 billion by 2020. It is forecast that within the Orthopedic Stem Cell Market, in
2014 23% ($77 million) will be in the field of cartilage repair, rising to 56% ($1.7 billion) by 2020. According to International Journal of
Rheumatic Diseases, 2011 there are over 57 million people with KOA in China. There are about 1,000 newborns with Spinal Muscular
Atrophy Type I (“SMA-I”) disease in China annually. The median life span of these children is less than 6 months. Adult incidence is
approximately 2 million in China.
China accounts for about 45% of cases and 40% of liver cancer deaths globally, and about 340,000 new cases of HCC (90% of liver
cancer cases are HCC) per year. Aggressive surgical resection (surgical removal) of tumors is one of the primary treatment options for
patients with HCC. However, post-surgery 2-year recurrence rate of HCC is still over 51%. There are an estimated 30,000 new cases of
metastatic melanoma each year in China. In 2009, the global market for cell-based cancer therapies reached $2.7 billion, and was
expected to reach $7.5 billion in 2013.
There over 30 million people in China suffering from asthma without effective therapies. Respiratory diseases account for 15% of deaths
in China. China has the largest asthmatic population in the world and is one of the countries with the highest asthma mortality rate
(Source: Respirology 2013, Asian Pacific Society of Respirology).
According to Respirology 2013, Asian Pacific Society of Respirology , COPD account for 15% of deaths in China and poses a high
economic and social burden on families and communities in China, due to the expense of prescription drugs and the impact on quality of
life, with many patients deteriorating to the point of being unable to work and a shortened life span. Based on estimates by World Health
Organization (WHO) of 2.5% prevalence of COPD in China. Over 32 million people in China suffer from COPD, so the need for
innovative solutions is pressing as this disease represents a significant unmet medical need.
The current data on CAR T-cell therapies, presented from various institutions including MSKCC, University of Pennsylvania, National
Cancer Institute, and Fred Hutchinson Cancer Center, has been extremely positive. Recently, T cell checkpoint manipulation has
brought hope to the struggling battle against cancer using immune cell therapy technologies. Merck has received fast approval for its
PD-1 antibody therapy for Melanoma. Novartis CAR-T technology has made breakthroughs in treating B cell lymphoma using
genetically modified T cell technology.
Approved cell therapies have been appearing on the market in recent years. In 2011, however, the industry was dealt two setbacks
when Geron Corporation discontinued its embryonic program, and when Sanofi-Aventis acquired Genzyme Corporation and did not
acquire the product rights relating to the allogeneic cell technology of Osiris Therapeutics, Inc., a partner of Genzyme and a leader in the
field. In both cases there were difficulties navigating the U.S. regulatory requirements for product approval. Inadequate trial designs were
cited in the executive summary of the 2012 New York Stem Cell Summit Report as contributing to these failures.
The number of cell therapy companies that are currently in Phase 2 and Phase 3 trials has been gathering momentum, and we anticipate
that new cellular therapy products will appear on the market within the next several years.
Management believes the remaining risk in monetizing cancer immune cell therapies is concentrated in late stage clinical studies,
speed-to-approval, manufacturing and process optimization.
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Our Strategy
The majority of our biomedicine business is in the development stage. We intend to concentrate our business on cell therapies and in
the near-term, carrying our KOA stem cell therapy and cancer immune cell therapies to commercialization.
We are developing our business in cell therapeutics and capitalizing on the increasing importance and promise that adult stem cells have
in regenerative medicine. Our most advanced candidate involves adipose-derived mesenchymal stem cells to treat KOA. Based on
current estimates, aside from AG’s budding Tcm technical service revenue, we expect our biomedicine business to generate revenues
primarily from the development of therapies for the treatment of KOA within the next three to four years and cancer cell therapies within
the next three to five years.
Presently we have two autologous cell therapy candidates undergoing clinical trials in China, for the treatment of KOA and CD. If and
when these therapies gain regulatory approval in the PRC, we will be able to market and offer them for clinical use. Although our
biomedicine business was very recently organized, our technologies have been in development for decades, and our focus is on the
latest translational stages of product development, principally from the pre-clinical trial stage to regulatory approval and
commercialization of new therapies.
Our strategy is to develop safe and effective cellular medicine therapies for indications that represent a large unmet need in China,
based on technologies developed both in-house and obtained through acquisition, licensing and collaboration arrangements with other
companies. Our near term objective is to pursue successful clinical trials in China for our KOA application, followed by our CD and
Asthma therapies. We intend to utilize our comprehensive cell platform to support multiple cell lines to pursue multiple therapies, both
allogeneic and autologous. We intend to apply U.S. Standard Operating Procedures ("SOPs") and protocols while complying with
Chinese regulations, while owning, developing and executing our own clinical trial protocols. We plan to establish domestic and
international joint ventures or partnerships to set up cell laboratories and/or research facilities, acquire technology or in-license
technology from outside of China, and build affiliations with hospitals, to develop a commercialization path for our therapies, once
approved. We intend to use our first-mover advantage in China, against a backdrop of enhanced regulation by the central government, to
differentiate ourselves from the competition and establish a leading position in the China cell therapeutic market. We also intend to out-
license our technologies to interested parties.
CBMG initially plans to use its centralized manufacturing facility located in Shanghai to service multiple hospitals within 200 km of the
facility. We aim to complete clinical trials for our KOA and CD therapy candidates as soon as practicable. Our goal is to first obtain
regulatory permission for commercial use of the therapies for the respective hospitals in which the trials are being conducted. CBMG
plans to scale up its customer base by qualifying multiple additional hospitals for the post-trial use of therapies, once approved, by
following regulatory guidelines. Based on current regulation and estimates we expect our biomedicine business to generate revenues
primarily from the development of therapies for the treatment of KOA within the next three to four years and CD within the next three to
five years.
With the AG acquisition we intend to monetize AG’s U.S. and Chinese intellectual property for immune cell therapy preparation
methodologies and patient immunity assessment by engaging with prominent hospitals to conduct pre-clinical and clinical studies in
specific cancer indications. The T Cell clonality analysis technology patent, together with AG’s other know-how for immunity analysis, will
enable the Company to establish an immunoassay platform that is crucial for immunity evaluation of patients with immune disorders as
well as cancerous diseases that are undergoing therapy.
We believe that few competitors in China are as well-equipped as we are in the clinical trial development, diversified U.S. FDA protocol
compliant manufacturing facilities, regulatory compliance and policy making participation, as well as a long-term presence in the U.S.
with U.S.-based management and investor base.
We intend to continue our business development efforts by adding other proven domestic and international biotechnology partners to
monetize the China health care market.
In order to expedite fulfillment of patient treatment CBMG has been actively developing technologies and products with a strong
intellectual properties protection, including haMPC, derived from fat tissue, for the treatment of KOA, CD, Asthma, COPD and other
indications. CBMG’s acquisition of AG provides an enlarged opportunity to expand the application of its cancer therapy-enabling
technologies and to initiate clinical trials with leading cancer hospitals. With the AG acquisition, we will continue to seek to empower
hospitals' immune cell cancer therapy development programs that help patients improve their quality of life and improve their survival
rate
CBMG's proprietary and patent-protected production processes and clinical protocols enable us to produce raw material, manufacture
cells, and conduct cell banking and distribution. Applying our proprietary intellectual property, we will be able to customize specialize
formulations to address complex diseases and debilitating conditions.
CBMG has been developing disease-specific clinical treatment protocols. These protocols are designed for each of these proprietary cell
lines to address patient-specific medical conditions. These protocols include medical assessment to qualify each patient for treatment,
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evaluation of each patient before and after a specific therapy, cell transplantation methodologies including dosage, frequency and the
use of adjunct therapies, potential adverse effects and their proper management.
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The protocols of haMPC therapy for KOA and CD have been approved by the Institutional Review Board of qualified hospitals for clinical
trials. Once the trials are completed, the clinical data will be analyzed by a qualified third party statistician and reports will be filed by the
hospitals to regulatory agencies for approval for use in treating patients.
CBMG has two cGMP facilities in Shanghai and Wuxi, China that meet international standards and have been certified by the CFDA. In
any precision setting, it is vital that all controlled-environment equipment meet certain design standards. To achieve this goal, our
Shanghai cleanroom facility underwent an ISO-14644 cleanroom certification. Additionally, our facilities have been certified to meet the
ISO-9001 Quality Management standard by SGS Group, and accredited by the American National Bureau of Accreditation (“ANBA”).
These cGMP facilities make CBMG one of the few companies in China with facilities that have been certified by US- and European-
based, FDA authorized ISO accreditation institutions.
In total, our cGMP facilities have over 13,000 sq. ft. of cleanroom space with the capacity for eight independent cell production lines and
a manufacturing capability for over 5,000 patients for autologous cell therapies per year. In addition, CBMG has two cell banks located in
Shanghai and Wuxi facilities with a storage capacity to host more than 200,000 individual cell sources. There is also a 400 sq. ft. CFDA-
standard products quality control center and an 800 sq. ft. laboratory with state of the art equipment. Our cell banking services include
collection, processing and storage of cells from patients. This enables healthy individuals to donate and store their stem cells for future
personal therapeutic use.
Most importantly, CBMG has a manufacturing and technology team with more than 30 years of relevant experience in China, EU, and
the United States. All of these factors make CBMG a high quality cell products manufacturer in China.
Our Targeted Indications and Potential Therapies
Knee Osteoarthritis (KOA)
We have completed the Phase I/IIa clinical trial for the treatment of KOA. The trial tested the safety and efficacy of intra-articular
injections of autologous haMPCs in order to reduce inflammation and repair damaged joint cartilage. The 6-month follow-up clinical data
showed ReJoin TM therapy to be both safe and effective.
In Q2 2014 we completed patient enrollment for the Phase IIb clinical trial of ReJoinTM for KOA. The multi-center study has enrolled 53
patients to participate in a randomized, single blind trial. We published 48 weeks follow-up data of Phase I/IIa on December 5,
2014. The 48 weeks data indicated that patients have reported a decrease in pain and a significant improvement in mobility and
flexibility, while the clinical data shows our ReJoinTM regenerative medicine treatment to be safe. We plan to release interim observation
of Phase IIb information in Q1 2015, and 12 month follow-up data in late 2015.
Osteoarthritis is a degenerative disease of the joints. KOA is one of the most common types of osteoarthritis. Pathological manifestation
of osteoarthritis is primarily local inflammation caused by immune response and subsequent damage of joints. Restoration of immune
response and joint tissues are the objective of therapies.
According to International Journal of Rheumatic Diseases, 2011, 53% of KOA patients will degenerate to the point of disability.
Conventional treatment usually involves invasive surgery with painful recovery and physical therapy. As drug-based methods of
management are ineffective, the same journal estimates that some 1.5 million patients with this disability will degenerate to the point of
requiring artificial joint replacement surgery every year. However, only 40,000 patients will actually be able to undergo replacement
surgery, leaving the majority of patients to suffer from a life-long disability due to lack of effective treatment.
haMPCs are currently being considered as a new and effective treatment for osteoarthritis, with a huge potential market. Osteoarthritis
is one of the ten most disabling diseases in developed countries. Worldwide estimates are that 9.6% of men and 18.0% of women aged
over 60 years have symptomatic osteoarthritis. It is estimated that the global OA therapeutics market was worth $4.4 billion in 2010 and
is forecast to grow at a compound annual growth rate (“CAGR”) of 3.8% to reach $5.9 billion by 2018.
In order to bring haMPC-based KOA therapy to market, our market strategy is to: (a) establish regional laboratories that comply with
cGMP standards in Shanghai and Beijing that meet Chinese regulatory approval; and (b) file joint applications with Class AAA hospitals
to use haMPCs to treat KOA in a clinical trial setting.
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Our competitors are pursuing treatments for osteoarthritis with knee cartilage implants. However, unlike their approach, our KOA
therapy is not surgically invasive – it uses a small amount (30ml) of adipose tissue obtained via liposuction from the patient, which is
cultured and re-injected into the patient. The injections are designed to induce the body’s secretion of growth factors promoting immune
response and regulation, and regrowth of cartilage. The down-regulation of the patient’s immune response is aimed at reducing and
controlling inflammation which is a central cause of KOA.
We believe our proprietary method, subsequent haMPC proliferation and processing know-how will enable haMPC therapy to be a low
cost and relatively safe and effective treatment for KOA. Additionally, banked haMPCs can continue to be stored for additional use in the
future.
Hepatocellular Carcinoma (HCC)
In January 2013, we commenced a Phase I clinical trial with PLA 85 hospital in Shanghai, for HCC therapy. Treatment for all the patients
was completed in 2013 and the study revealed the TC-DC therapy to be safe. The purpose of this trial was to evaluate the safety of an
autologous immune cell therapy in primary HCC patients following resection (surgical tumor removal) and Transarterial Chemo
Embolization (“TACE”) Therapy, a type of localized chemotherapy technique. With the recent build-up of our Tcm, TCR clonality, CAR-T
and anti-PD-1 technologies we plan to evaluate and prioritize our cancer clinical trial indications for commercialization using safe and
most effective therapy or combination therapies.
One of the primary difficulties in administering effective cancer therapy is in the uniqueness of the disease – no two cancers are the
same. Importantly, CBMG sources both immune and cancer cells directly from the patient, and our completely autologous approach to
cancer therapy means that each dose is specific to each individual, an ultimate personalized therapeutic approach.
Human Adipose-Derived Mesenchymal Progenitor Cells (haMPC)
Adult mesenchymal stem cells can currently be isolated from a variety of adult human sources, such as liver, bone marrow, and adipose
(fat) tissue. The advantages in using adipose tissue (as opposed to bone marrow or blood) are that it is one of the richest sources of
pluripotent cells in the body, the easy and repeatable access to fat via liposuction, and the simple cell isolation procedures that can begin
to take place even on-site with minor equipment needs. The procedure we are testing for KOA involves extracting a very small amount of
fat using a minimally invasive extraction process which takes up to 20 minutes, and leaves no scarring. The haMPC cells are then
processed and isolated on site, and injected intra articularly into the knee joint with ultrasound guidance.
These haMPC cells are capable of differentiating into bone, cartilage, tendon, skeletal muscle, and fat under the right conditions. As
such, haMPCs are an attractive focus for medical research and clinical development. Importantly, we believe both allogeneic and
autologously sourced haMPCs may be used in the treatment of disease. Numerous studies have provided preclinical data that support
the safety and efficacy of allogeneic and autologously derived haMPC, offering a choice for those where factors such as donor age and
health are an issue.
Additionally, certain disease treatment plans call for an initial infusion of these cells in the form of SVF, an initial form of cell isolation that
can be completed and injected within ninety minutes of receiving lipoaspirate. The therapeutic potential conferred by the cocktail of
ingredients present in the SVF is also evident, as it is a rich source for preadipocytes, mesenchymal stem cells, endothelial progenitor
cells, T regulatory cells and anti-inflammatory macrophages.
Immune Cell Therapy, Adoptive T cell
Adoptive T cell therapy for cancer is a form of transfusion therapy consisting of the infusion of various mature T cell subsets with the goal
of eliminating a tumor and preventing its recurrence. In cases such as cancer, where the disease is unique to the individual, the
adoptive T cell therapy is a personalized treatment.
We believe that an increasing portion of healthcare spending both in China and worldwide will be directed to immune cell therapies,
driven by an aging population, and the potential for immune cell therapy treatments to become a safe, effective, and cost-effective
method for treating millions of cancer patients.
Cancer is a major threat to public health and the solvency of health systems worldwide. Current treatments for these diseases cannot
meet medical needs. We believe that immune cell therapy is a new technology that has the potential to alleviate much of the burden of
these chronic and degenerative diseases in a cost-effective manner.
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Tumor Cell Specific Dendritic Cells (TC-DC)
Recent scientific findings indicate the presence of special cells in tumors that are responsible for cancer metastases and relapse.
Referred to as “cancer stem cells”, these cells make up only a small portion of the tumor mass. The central concept behind TC-DC
therapy is to immunize against these cells. TC-DC therapy takes a sample of the patient’s own purified and irradiated cancer cells and
combines them with specialized immune cells, thereby ‘educating’ the immune cells to destroy the cancer stem cells from which tumors
arise. We believe the selective targeting of cells that drive tumor growth would allow for effective cancer treatment without the risks and
side effects of current therapies that also destroy healthy cells in the body.
Our strategy is for CBMG, through acquisition of AG, and PG as well as PLAGH’s technologies and pre-clinical and clinical data, to
become an immune cell business leader in the China cancer therapy market and specialty pharmaceutical market by utilizing CBMG’s
attractiveness as a NASDAQ listed company to consolidate key China immune cell technology leaders with fortified intellectual property
and ramp up revenue with first mover’s advantage in a safe and efficient manner. The Company plans to accelerate cancer trials by
using the knowledge and experience gained from the Company’s ongoing KOA trials and the recent Tcm, CAR-T and PD-1
technologies. China has a bifurcated cell regulatory pathway, which is different than the singular path in the United States. Immune cell
therapy is treated in China as a Class III medical technology and requires a smaller-scale trial and shorter trial period. By applying U.S.
SOP and protocols and following authorized treatment plans in China, we believe we are differentiated from our competition as we
believe we have first mover’s advantage and a fortified barrier to entry.
Intellectual Property
We have built our intellectual property portfolio with a view towards protecting our freedom of operation in China within our specialties in
the cellular biomedicine field. Our portfolio contains patents, trade secrets, and know-how. Our technology can be grouped based on
origin of progenitor or stem cells into adipose, umbilical cord, bone marrow and embryo.
The production of stem cells for therapeutic use requires the ability to purify and isolate these cells to an extremely high level of purity.
Accordingly, our portfolio is geared toward protecting our proprietary process of purification, cell processing and related steps in stem cell
production. The combination of our patents and trade secrets protects our process of manufacturing cell lines, including methods of
purification, extraction, freezing, preservation, processing and use in treatment.
For our haMPC therapy:
• Our intellectual property portfolio for haMPC is well-built and abundant. It covers almost every aspect of adipose stem cell
medicine production, including acquisition of human adipose tissue acquisition, preservation, transportation, and storage, tissue,
processing, stem cell purification, expansion, banking, formulation for administration, shipment, and administration methods.
• Our portfolio also includes adipose derived cellular medicine formulations and their applications in the potential treatment of
degenerative diseases and autoimmune diseases, including osteoarthritis, systemic lupus erythematosus, rheumatoid arthritis,
as well as potential applications to anti-aging.
• Our haMPC intellectual property portfolio is distinguished from those of our competitors in that it:
o provides coverage of all steps in the production process;
o enables achievement of high yields of Stromal Vascular Fraction (SVF), i.e. stem cells derived from adipose tissue
extracted by liposuction;
o makes adipose tissue acquisition convenient and useful for purposes of cell banking; and
o employs preservation techniques enabling long distance shipment of finished cell medicine products.
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For our Tcm, CAR-T and PD-1 cancer immune cell therapy:
• Our recent amalgamation of technologies from AG, PG and PLAGH in the cancer cell therapy is comprehensive and well-
rounded. It comprises of T cell clonality, Chimeric Antigen Receptor T cell (CAR-T) therapy, its recombinant expression vector
CD19, CD20, CD30 and Human Epidermal Growth Factor Receptor's (EGFR or HER1) Immuno-Oncology patents applications,
several preliminary clinical studies of various CAR-T constructs targeting CD19-positive acute lymphoblastic leukemia, CD20-
positive lymphoma, CD30-positive Hodgkin's lymphoma and EGFR-HER1-positive advanced lung cancer, and Phase I clinical
data of the aforementioned therapies and manufacturing knowledge.
In addition, our intellectual property portfolio covers various aspects of other therapeutic categories including umbilical cord-derived
huMPC therapy, bone marrow-derived hbMPC therapy, embryonic stem cell-derived MNP therapy, and tumor stem cell targeted TC-DC
therapy.
In addition, our clinical trial protocols are proprietary, and we rely upon trade secret laws for protection of these protocols.
We intend to continue to vigorously pursue patent protection of the technologies we develop, both in China and under the Patent
Cooperation Treaty (“PCT”). Additionally, we require all of our employees to sign proprietary information and invention agreements, and
compartmentalize our trade secrets in order to protect our confidential information.
Patents
The following is a brief list of our patents as of December 31 , 2014, patent applications and work in process:
Work in Process
Patents Filed, Pending
Granted
Total
China
Patents
U.S.
Patents
PCT
Patents In-
Licensed from
U.S.
7
21
15
43
—
—
1
1
—
8
—
8
—
—
6
6
Generally, our patents cover technology, methods, design and composition of and relating to medical device kits used in collecting
autologous cell specimens, cryopreservation of cells, purification, use of stem cells in a range of potential therapies, adipose tissue
extraction, cell preservation and transportation, gene detection and quality control.
Manufacturing
We manufacture stem cells for purposes of our own research, testing and clinical trials, however we are equipped to scale up and
reproduce our manufacturing capacity to meet any future needs relating to commercial production. CBMG has two cGMP clean-room
facilities in Shanghai and Wuxi, China that meet international standards and have been certified by the Chinese CFDA. Our facilities are
operated by a manufacturing and technology team with more than 30 years of relevant experience in China, EU, and the U.S.
In any precision setting, it is vital that all controlled-environment equipment meet certain design standards. To achieve this goal, our
Shanghai cleanroom facility undergoes a top-to-bottom yearly calibration and validation, and has received and maintained an equivalent
ISO-14644 cleanroom certification. Additionally, our facilities have been certified to meet the ISO-9001 Quality Management standard by
SGS Group, and accredited by the ANBA. These cGMP facilities make CBMG the only company in China with facilities that have been
certified by US- and Europe-based, FDA-authorized ISO accreditation institutions.
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In total, our cGMP facilities have over 13,000 sq. ft. of cleanroom space with the capacity for eight independent cell production lines and
a manufacturing capability for over 5,000 patients for autologous cell therapies per year. In addition, CBMG has two cell banks located in
Shanghai and Wuxi facilities with a storage capacity to host more than 200,000 individual cell sources. There is also a 400 sq. ft. CFDA-
standard products quality control center and an 800 sq. ft. laboratory with state of the art equipment. Our cell banking services include
collection, processing and storage of cells from patients. This enables healthy individuals to donate and store their stem cells for future
personal therapeutic use.
We have built cell preparation and inspection laboratories that can provide our customers with the following mode of human body
immune cell in-vitro culture service in the laboratory: make cell preparation for human body venous blood samples, after completion of
the cell preparation, deliver the immune cell agents to the customer; and provide immune function evaluation for the patients in Jilin
Hospital in China.
Research and Development
Together with the technology underlying acquired patents, patent applications and trade secret clinical protocols we have an intellectual
property platform containing what we believe to be the elements necessary to apply for and commercialize our product candidates in
China, other than with respect to HCC. We currently do not acquire additional license rights originating from CSC. We believe that to
date we have built a well-developed intellectual property platform, and going forward the work ahead involves continuing to narrowly
develop application-specific intellectual property. Although we own substantial intellectual property, our greater focus is on
commercialization. Accordingly we believe that our research and development budget will be a relatively small component of our overall
capital expenditures.
Planned Capital Expenditures
We currently have the capacity to produce up to 150,000 injections of allogeneic adipose stem cells, and to process a total of up to 5,000
autologous adipose derived stem cell specimens for use by each patient-donor. We also have eight cell manufacturing lines at our
facilities in Wuxi and Shanghai, with cryogenic storage capabilities. We believe we can expand our cryogenic storage capacity in the
near term but may require additional cell lines to handle growing demand anticipated in the next few years. We duplicate the adipose cell
storage between our Wuxi and Shanghai facilities for geographical diversification and risk mitigation. We believe that within the next
three years, should we expand into other strategically located cities, it may cost CBMG approximately USD $1.2 to $2 million to build
and equip each additional facility in a manner comparable to our Shanghai facility.
Competition
Many companies operate in the cellular biomedicine field. In 2010 the FDA approved the first cell therapy for Dendreon Corporation to
apply an autologous cellular immunotherapy for the treatment of a certain type of prostate cancer. In May 2012 the Canadian authorities
approved the first stem cell drug and granted Osiris Therapeutics’ manufactured stem cell product for use in the pediatric graft-versus-
host disease. To date there are over thirty publicly listed and several private cellular biomedicine focused companies outside of China
with varying phases of clinical trials addressing a variety of diseases. We compete with these companies in bringing cellular therapies to
the market. However, our focus is to develop a core business in the China market. This difference in focus places us in a different
competitive environment from other western companies with respect to fund raising, clinical trials, collaborative partnerships, and the
markets in which we compete.
The PRC central government has a focused strategy to enable China to compete effectively in certain designated areas of biotechnology
and the health sciences. Because of the aging population in China, China’s Ministry of Science and Technology (“MOST”) has targeted
stem cell development as high priority field, and development in this field has been intense in the agencies under MOST. For example,
the 973 Program has funded a number of stem cell research projects such as differentiation of human embryonic germ cells and the
plasticity of adult stem cells. Currently China has a highly fragmented cellular medicine landscape. Shenzhen Beike Biotechnology Co.
Ltd. (“Beike”) and Union Stem Cell & Gene Engineering Co., Ltd. (“Union Stem Cell”) are two large stem cell companies in China. To the
best of our knowledge, none of the Chinese companies are utilizing our proposed international manufacturing protocol and our unique
technologies in conducting what we believe will be full compliant CFDA-sanctioned clinical trials to commercialize cell therapies in
China. Our management believes that it is difficult for most of these Chinese companies to turn their results into translational stem cell
science or commercially successful therapeutic products using internationally acceptable standards.
We compete globally with respect to the discovery and development of new cell based therapies, and we also compete within China to
bring new therapies to market. The biotechnology industry, namely in the areas of cell processing and manufacturing, clinical
development of cellular therapies and cell collection, processing and storage, are characterized by rapidly evolving technology and
intense competition. Our competitors worldwide include pharmaceutical, biopharmaceutical and biotechnology companies, as well as
numerous academic and research institutions and government agencies engaged in drug discovery activities or funding, in the U.S.,
Europe and Asia. Many of these companies are well-established and possess technical, research and development, financial, and sales
and marketing resources significantly greater than ours. In addition, many of our smaller potential competitors have formed strategic
collaborations, partnerships and other types of joint ventures with larger, well established industry competitors that afford these
companies potential research and development and commercialization advantages in the technology and therapeutic areas currently
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being pursued by us. Academic institutions, governmental agencies and other public and private research organizations are also
conducting and financing research activities which may produce products directly competitive to those being commercialized by us.
Moreover, many of these competitors may be able to obtain patent protection, obtain government (e.g. FDA) and other regulatory
approvals and begin commercial sales of their products before us.
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The primary competitors in the field of stem cell therapy for osteoarthritis, and other indications include Beike, Cytori Therapeutics Inc.,
TiGenix NV, NeoStem, Inc. and others. Among our competitors, to our knowledge the only ones based in and operating in Greater
China are Beike, Lorem Vascular, which has partnered with Cytori to commercialize Cytori Cell Therapy for the cardiovascular, renal and
diabetes markets in China and Hong Kong, and [OLife Bio, a Medi-Post Joint Venture who plans to initiate clinical trial in China in
2016. Our primary competitors in the field of cancer immune cell therapies include pharmaceutical, biotechnology companies such as
Northwest Biotherapeutics, Inc., Juno Therapeutics, Inc., Kite Pharma, Inc., CARSgen, Sorrento Therapeutics, Inc. and others. Among
our competitors, to our knowledge the only ones based in and operating in Greater China are CARsgen and China Oncology Focus
Limited, which has licensed Sorrento’s anti-PD-L1 monoclonal antibody for Greater China.
Additionally, in the general area of cell-based therapies for osteoarthritis ailments, we potentially compete with a variety of companies,
most of whom are specialty medical products or biotechnology companies. Some of these, such as Baxter, Johnson & Johnson,
Medtronic and Miltenyi Biotec, are well-established and have substantial technical and financial resources compared to ours. However,
as cell-based products are only just emerging as viable medical therapies, many of our most direct competitors are smaller
biotechnology and specialty medical products companies. These include Vericel Corporation, Regeneus Ltd., Advanced Cell
Technology, Inc., Cytomedix, Inc., Arteriocyte Medical Systems, Inc., Athersys, Inc., Bioheart, Inc., Cytori Therapeutics, Inc., Genzyme
Corporation, Harvest Technologies Corporation, Mesoblast, Osiris Therapeutics, Inc., Pluristem, Inc. and others.
Some of our competitors also work with adipose-derived stem cells. To the best of our knowledge, none of these companies are
currently utilizing the same technologies as ours to treat KOA, nor to our knowledge are any of these companies conducting
government-approved clinical trials in China.
Some of our targeted disease applications may compete with drugs from traditional pharmaceutical or Traditional Chinese Medicine
(“TCM”) companies. We believe that our chosen targeted disease applications are not effectively in competition with the products and
therapies offered by traditional pharmaceutical or TCM companies, for the time being.
We foresee there might be more fierce market competition in China in the future. Eli Lilly and Company (NYSE:LLY) and Innovent
Biologics, Inc. (Innovent) announced one of the largest biotech drug development collaborations in China to date between a multi-
national and domestic company on March 20, 2015. Under terms of the agreement, Lilly and Innovent will collaborate to support the
development and potential commercialization of at least three cancer treatments under the next decade. The agreement creates
possible net treatment options for cancer patients, while strengthening the presence of both companies in the Chinese oncology market.
As a part of the agreement, Innovent will lead the development and manufacturing for the China market, while Lilly will be responsible for
commercialization of the three potential medicines. Innovent also has co-promotion rights.
We believe we have a strategic advantage over our competitors based on our ability meet cGMP regulatory requirements, a capability
which we believe is possessed by few to none of our competitors in China, in an industry in which meeting exacting standards and
achieving extremely high purity levels is crucial to success. In addition, in comparison to the broader range of cellar biomedicine firms,
we believe we have the advantages of cost and expediency, and a first mover advantage with respect to commercialization of cell
therapy products and treatments in the Greater China market.
Employees
As of December 31, 2014, our biomedicine business has 77 full time employees and is in the process of adding more clinical trial and
medical specialists 74% of these employees are holders of medical, technical or scientific credentials and qualifications. 82% of these
employees hold advanced degrees.
Facilities
Our corporate headquarters are located at 530 University Avenue in Palo Alto, California. We currently pay rent in the amount of $1,400
per month on a month-to-month basis. In addition we lease an aggregate of approximately 32,000 square feet of space to house our
research and manufacturing facilities in Wuxi Beijing, and Shanghai, China, and pay rent of approximately USD $37,400 per month for
these facilities. We intend to expand our GMP facility in Beijing in 2015 with an aggregate 15,000 square feet of space, annual rental
cost is expected to be raised by $1.4 million.
Certain Tax Matters
Following the completion of our merger with EastBridge Investment Group Corporation (Delaware) on February 6, 2013, CBMG and its
controlled subsidiaries (the “CBMG Entities”) became a Controlled Foreign Corporation (CFC) under U.S. Internal Revenue Code
Section 957. As a result, the CBMG Entities are subject to anti-deferral provisions within the U.S. federal income tax system that were
designed to limit deferral of taxable earnings otherwise achieved by putting profit in low taxed offshore entities. While the CBMG Entities
are subject to review under such provisions, the CBMG Entities’ earnings are from an active business and should not be deemed to be
distributions made to its U.S. parent company.
CBMG BVI’s effective tax rate ranges from approximately 12.5% to 24%.
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BIOMEDICINE REGULATION
PRC Regulation
Our cellular medicine business operates in a highly regulated environment. In China, aside from provincial and local licensing
authorities, hospitals and their internal ethics and utilization committees, and a system of institutional review boards (“IRBs”) which in
many cases have members appointed by provincial authorities, the stem cell industry is principally regulated by the MOH and the CFDA,
of the central government. “Medical technologies”, as the term is defined under PRC law, are regulated by the Chinese Medical Doctors
Association (“CMDA”), the Chinese Medical Hospitals Association, the Chinese Medical Association of Medicine, and the Chinese
Medical Association of Oral Medicine.
Generally, our industry is divided into two broad classifications – medical technologies and drugs. According to Policy published by the
MOH in Sept 2009, cell therapies based on stem cells and immune cells are classified as a Class III Medical Technology, resulting in a
regulatory process that is less vigorous than that for chemical and biological drugs which require preclinical data and three phases of
clinical trials. Instead, Class III therapies typically require only safety phase and efficacy phase clinical studies. Since that time, the MOH
had been looking to regulate cell therapies based on the source of origin of the cells: autologous cells (patient’s own cells) or allogeneic
cells (from other donors). In 2011, the MOH reiterated that therapies using somatic cells (i.e. internal organs, skin, bones, blood and
connective tissue, which includes immune cells) and autologous stem cell therapies are to be treated as a Class III Medical Technology,
which generally IRB review, plus a two phase trial to test for safety and efficacy. The MOH further stated that allogeneic stem cell
therapies are to be classified as drugs, which require more stringent clinical trials, a pre-clinical study, more stringent IRB review, and a
three-phase clinical trial.
In December 2011 the PRC central government declared a national moratorium which prevents any company from actually marketing
and implementing cell therapies, while the central government considers and constructs a new set of rules and determines lines of
authority among government agencies to regulate this new industry. We note however, that the moratorium appears to apply to cell
therapeutics, and not immunotherapy, which may not necessarily affect the development of our cancer therapy candidate. We also note
that the moratorium bars marketing and implementation of products, treatments and therapies, but does not prevent the advancement of
research, studies or development of potential products, treatments or therapies. Accordingly, we interpret the moratorium as a bar on
marketing and use, but not a prohibition on conducting clinical trials, although we believe the practical effect of the moratorium has been
to temporarily slow or halt applications for new clinical trials based on stem cell technology. Furthermore, in the first quarter of 2013 the
MOH formally accepted our clinical trial applications for KOA.
The central government has declared stem cell technology to be a part of China’s national long-term scientific and technological
development plan from 2006 to 2020. The government has also announced its intention to release new laws to regulate our industry,
which are soon anticipated to be codified into law.
In the first quarter of 2013, China’s MOH and the CFDA released proposed draft regulations governing the management of stem cell
clinical trials, and quality control for stem cell preparations and pre-clinical research. As of the date of this current report, according to
these proposed regulations (which so far have not been codified), all proposed clinical trials on stem cells would be:
• Subject to prior review by the ethics committees of participating hospitals;
• Sponsors would be required to submit informed consent forms, a safety evaluation, research protocols and information
concerning the qualifications of the principal investigators;
• Sponsors would be required to submit information concerning the production of the investigational stem cell products; and
• Only hospitals certified by the MOH and affiliates would be allowed to serve as sites for such trials.
In anticipation of the definitive enhanced regulations, and prior to the publication of the draft regulations, we have pursued and obtained
review and approval from participating hospital ethics committees in preparation for our KOA and HCC liver cancer clinical trials.
Borrowing from U.S. Clinical trial protocols and practices, CBMG has collected patient’s informed consents, documented research
protocols, and has assembled a well-qualified team of specialists and principal investigators. CBMG is prepared to submit information
concerning the production of the investigational stem cell products from our CFDA- and ISO-certified facility in Shanghai. Since the
effective date of the moratorium on the marketing and use or implementation of new stem cell products, treatments and therapies, we
believe no additional hospitals have been certified by the CFDA as trial sites. CBMG believes that upon implementation of pending
regulations, its partner hospitals would be fit to apply and be certified by the CFDA as stem cell trial sites.
We believe cell therapy technologies are likely to be regulated in China according to three categories:
Type of Cell
Classification
Regulatory Authority
Somatic/Immune Cells
Medical Technology
Chinese Medical Doctors Association (CMDA)
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Autologous Stem Cells
Allogeneic Stem Cells
Medical Technology
Drug
Ministry of Health (MOH)
State Food and Drug Administration (CFDA)
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Management believes that publication by the CFDA and the MOH of proposed regulations is a very significant event paving the way for
development of regenerative medicine in China. We believe our operations are structured and prepared to meet the highest regulatory
standards applied worldwide across our industry, and accordingly we believe CBMG is well-positioned to become a leading stem cell
clinical trial sponsor within China. We also believe that the PRC government will move toward more stringent regulatory standards, which
if implemented, would raise the barriers to entry for our industry, and provide advantages to certain firms including ours which are
capable of meeting elevated standards. It is not possible to predict the content of the final regulations that will ultimately be adopted.
From inception to the present, we have diligently complied with U.S. standards in designing our clinical trials with our independent
Clinical Research Organization. Furthermore, we have been relying on China’s proposed shortened timeline for Class III Medical
Technologies with regard to our KOA and Cartilage Defect clinical trials.
While we cannot predict whether the draft regulations will be implemented verbatim and in accordance with the proposed adoption date
of May 1, 2013, the eventual final regulation may have an adverse effect on our near term commercialization schedule. Until the
regulations are finalized and published, we cannot predict the exact impact they may have on our business. Nonetheless, we are
continuing to advance our work relating to our KOA and Cartilage Defect clinical trials.
PRC Operating Licenses
Our business operations in China are subject to customary regulation and licensing requirements under regulatory agencies including
the local Administration for Industry and Commerce, General Administration of Quality Supervision, Inspection and Quarantine, and the
State Administration of Taxation, for each of our business locations. Additionally our clean room facilities and the use of reagents is also
regulated by local branches of the Ministry of Environmental Protection. We are in good standing with respect to each of our business
operating licenses.
U.S. Government Regulation
The health care industry is one of the most highly regulated industries in the United States. The federal government, individual state and
local governments, as well as private accreditation organizations, oversee and monitor the activities of individuals and businesses
engaged in the development, manufacture and delivery of health care products and services. Federal laws and regulations seek to
protect the health, safety, and welfare of the citizens of the United States, as well as to prevent fraud and abuse associated with the
purchase of health care products and services with federal monies. The relevant state and local laws and regulations similarly seek to
protect the health, safety, and welfare of the states’ citizens and prevent fraud and abuse. Accreditation organizations help to establish
and support industry standards and monitor new developments.
HCT/P Regulations
Manufacturing facilities that produce cellular therapies are subject to extensive regulation by the U.S. FDA. In particular, U.S. FDA
regulations set forth requirements pertaining to establishments that manufacture human cells, tissues, and cellular and tissue-based
products (“HCT/Ps”). Title 21, Code of Federal Regulations, Part 1271 (21 CFR Part 1271) provides for a unified registration and listing
system, donor-eligibility, current Good Tissue Practices (“cGTP”), and other requirements that are intended to prevent the introduction,
transmission, and spread of communicable diseases by HCT/Ps. While we currently have no plans to conduct these activities within the
United States, these regulations may be relevant to us if in the future we become subject to them, or if parallel rules are imposed on our
operations in China.
We currently collect, process, store and manufacture HCT/Ps, including manufacturing cellular therapy products. We also collect,
process, and store HCT/Ps. Accordingly, we comply with cGTP and cGMP guidelines that apply to biological products. Our management
believes that certain other requirements pertaining to biological products, such as requirements pertaining to premarket approval, do not
currently apply to us because we are not currently investigating, marketing or selling cellular therapy products in the United States If we
change our business operations in the future, the FDA requirements that apply to us may also change.
Certain state and local governments within the United States also regulate cell-processing facilities by requiring them to obtain other
specific licenses. Certain states may also have enacted laws and regulations, or may be considering laws and regulations, regarding the
use and marketing of stem cells or cell therapy products, such as those derived from human embryos. While these laws and regulations
should not directly affect our business, they could affect our future business. Presently we are not subject to any of these state law
requirements, because we do not conduct these regulated activities within the United States.
Pharmaceutical and Biological Products
In the United States, pharmaceutical and biological products, including cellular therapies, are subject to extensive pre- and post-market
regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (“FD&C Act”), and other federal and state statutes and regulations,
govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and
marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Biological
products are approved for marketing under provisions of the Public Health Service Act, or PHS Act. However, because most biological
products also meet the definition of “drugs” under the FD&C Act, they are also subject to regulation under FD&C Act provisions. The
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PHS Act requires the submission of a biologics license application (“BLA”), rather than a New Drug Application ("NDA"), for market
authorization. However, the application process and requirements for approval of BLAs are similar to those for NDAs, and biologics are
associated with similar approval risks and costs as drugs. Presently we are not subject to any of these requirements, because we do not
conduct these regulated activities within the United States. However, these regulations may be relevant to us should we engage in
these activities in the United States in the future.
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CONSULTING SERVICES BUSINESS
Cellular Biomedicine Group, Inc., a Delaware corporation (formerly known as EastBridge Investment Group Corporation), was originally
incorporated in the State of Arizona on June 25, 2001 under the name ATC Technology Corporation. ATC Technology Corporation
changed its corporate name to EastBridge Investment Group Corporation in September 2005 and shifted its business to providing
finance-related services in Asia, with a focus on China. On February 5, 2013, the Company formed a new Delaware subsidiary named
EastBridge Investment Corp. (“EastBridge Sub”). Pursuant to a Contribution Agreement by and between the Company and EastBridge
Sub dated February 5, 2013, the Company contributed all assets and liabilities related to its consulting services business, and all related
business and operations, to its newly formed subsidiary, EastBridge Investment Corp.
On June 23, 2014, the Company announced the discontinuation of the Consulting segment as it no longer fits into management’s long-
term strategy and vision. The Company is focusing its resources on becoming a biotechnology company bringing therapies to improve
the health of patients in China.
Dispositions of Client Shares
Wonder International Education and Investment Group Corporation/Wenda Education
Among the shares received by EastBridge Sub as compensation for services, as of December 31, 2014, the Company had sold 126,026
shares of Wonder on the open market.
WHERE YOU CAN FIND MORE INFORMATION
You are advised to read this Form 10-K in conjunction with other reports and documents that we file from time to time with the SEC. In
particular, please read our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we file from time to time. You may
obtain copies of these reports directly from us or from the SEC at the SEC's Public Reference Room at 100 F. Street, N.E. Washington,
D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.
ITEM 1A. Risk Factors
We have a limited operating history and expect significant operating losses for the next few years.
RISKS RELATED TO OUR COMPANY
We are a company with a limited operating history and have incurred substantial losses and negative cash flow from operations through
the year ended December 31, 2014.Our cash flow from operations may not be consistent from period to period, our biomedicine
business has not yet generated any revenue, and we may continue to incur losses and negative cash flow in future periods, particularly
within the next several years.
Our biomedicine product development programs are based on novel technologies and are inherently risky.
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We are subject to the risks of failure inherent in the development of products based on new biomedical technologies. The novel nature of
these cell-based therapies creates significant challenges in regard to product development and optimization, manufacturing, government
regulation, third party reimbursement, and market acceptance, including the challenges of:
• Educating medical personnel regarding the application protocol;
• Sourcing clinical and commercial supplies for the materials used to manufacture and process our Tcm product candidates;
• Developing a consistent and reliable process, while limiting contamination risks regarding the application protocol;
• Conditioning patients with chemotherapy in conjunction with delivering Tcm treatment, which may increase the risk of
adverse side effects;
• Obtaining regulatory approval, as the Chinese Food and Drug Administration, or CFDA, and other regulatory authorities
have limited experience with commercial development of cell-based therapies, and therefore the pathway to regulatory
approval may be more complex and require more time than we anticipate; and
• Establishing sales and marketing capabilities upon obtaining any regulatory approval to gain market acceptance of a novel
therapy.
These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.
We may be unable to obtain or maintain patent protection for our products and product candidates, which could have a
material adverse effect on our business.
Our commercial success will depend, in part, on obtaining and maintaining patent protection for new technologies, product candidates,
products and processes and successfully defending such patents against third party challenges. To that end, we file or acquire patent
applications, and have been issued patents, that are intended to cover certain methods and uses relating to stem cells and cancer
immune cell therapies.
The patent positions of biotechnology companies can be highly uncertain and involve complex legal, scientific and factual questions and
recent court decisions have introduced significant uncertainty regarding the strength of patents in the industry. Moreover, the legal
systems of some countries do not favor the aggressive enforcement of patents and may not protect our intellectual property rights to the
same extent as they would, for instance, under the laws of the United States. Any of the issued patents we own or license may be
challenged by third parties and held to be invalid, unenforceable or with a narrower or different scope of coverage that what we currently
believe, effectively reducing or eliminating protection we believed we had against competitors with similar products or technologies. If we
ultimately engage in and lose any such patent disputes, we could be subject to competition and/or significant liabilities, we could be
required to enter into third party licenses or we could be required to cease using the disputed technology or product. In addition, even if
such licenses are available, the terms of any license requested by a third party could be unacceptable to us.
The claims of any current or future patents that may issue or be licensed to us may not contain claims that are sufficiently broad to
prevent others from utilizing the covered technologies and thus may provide us with little commercial protection against competing
products. Consequently, our competitors may independently develop competing products that do not infringe our patents or other
intellectual property. To the extent a competitor can develop similar products using a different chemistry, our patents and patent
applications may not prevent others from directly competing with us. Product development and approval timelines for certain products
and therapies in our industry can require a significant amount of time (i.e. many years). As such, it is possible that any patents that may
cover an approved product or therapy may have expired at the time of commercialization or only have a short remaining period of
exclusivity, thereby reducing the commercial advantages of the patent. In such case, we would then rely solely on other forms of
exclusivity which may provide less protection to our competitive position.
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Litigation relating to intellectual property is expensive, time consuming and uncertain, and we may be unsuccessful in our
efforts to protect against infringement by third parties or defend ourselves against claims of infringement.
To protect our intellectual property, we may initiate litigation or other proceedings. In general, intellectual property litigation is costly,
time-consuming, diverts the attention of management and technical personnel and could result in substantial uncertainty regarding our
future viability, even if we ultimately prevail. Some of our competitors may be able to sustain the costs of such litigation or other
proceedings more effectively than can we because of their substantially greater financial resources. The loss or narrowing of our
intellectual property protection, the inability to secure or enforce our intellectual property rights or a finding that we have infringed the
intellectual property rights of a third party could limit our ability to develop or market our products and services in the future or adversely
affect our revenues. Furthermore, any public announcements related to such litigation or regulatory proceedings could adversely affect
the price of our common stock. Third parties may allege that the research, development and commercialization activities we conduct
infringe patents or other proprietary rights owned by such parties. This may turn out to be the case even though we have conducted a
search and analysis of third-party patent rights and have determined that certain aspects of our research and development and proposed
products activities apparently do not infringe on any third-party Chinese patent rights. If we are found to have infringed the patents of a
third party, we may be required to pay substantial damages; we also may be required to seek from such party a license, which may not
be available on acceptable terms, if at all, to continue our activities. A judicial finding or infringement or the failure to obtain necessary
licenses could prevent us from commercializing our products, which would have a material adverse effect on our business, operating
results and financial condition.
If we are unable to maintain our licenses, patents or other intellectual property we could lose important protections that are
material to continuing our operations and our future prospects.
To obtain and maintain patent protection and licensing rights that are required in order for us to conduct and pursue our business plans,
we must, among other things, ensure the timely payment of all applicable filing and maintenance fees, pay applicable license fees to our
licensor(s), renew the term of certain licenses which are not perpetual, or expand the scope of the intellectual property under our license
agreements. In order to renew the term of any license or expand its scope, we may be required to pay additional licensing fees to our
licensor(s). Any failure to take the above actions or make payments which we are obligated to make, could result in the loss of some or
all of our rights to proprietary technology or the inability to secure or enforce intellectual property protection. Additionally, our license
agreements require us to meet certain diligence obligations in the development of the licensed products. Our failure to meet these
diligence obligations could result in the loss of some or all of our rights, which could materially and adversely affect our business and
future prospects.
If we are unable to protect the confidentiality of trade secrets, our competitive position could be impaired.
A significant amount of our technology, particularly with respect to our proprietary manufacturing processes, is unpatented and is held in
the form of trade secrets. We expend significant efforts to protect these trade secrets, including the use of confidentiality and proprietary
information agreement, and knowledge segmentation among our staff. Even so, improper use or disclosure of our confidential
information could occur and in such cases adequate remedies may not exist. The inadvertent disclosure of our trade secrets could
impair our competitive position.
Our technologies are at early stages of discovery and development, and we may fail to develop any commercially acceptable or
profitable products.
We have yet to develop any therapeutic products that have been approved for marketing, and we do not expect to become profitable
within the next several years, but rather expect our biomedicine business to incur additional and increasing operating losses. Before
commercializing any therapeutic product in China, we may be required to obtain regulatory approval from the MOH CFDA, local
regulatory authorities, and/or individual hospitals, and outside China from equivalent foreign agencies after conducting extensive
preclinical studies and clinical trials that demonstrate that the product candidate is safe and effective.
We may elect to delay or discontinue studies or clinical trials based on unfavorable results. Any product developed from, or based on,
cell technologies may fail to:
• survive and persist in the desired location;
• provide the intended therapeutic benefit;
• engraft or integrate into existing tissue in the desired manner; or
• achieve therapeutic benefits equal to, or better than, the standard of treatment at the time of testing.
In addition, our therapeutic products may cause undesirable side effects. Results of preclinical research in animals may not be indicative
of future clinical results in humans.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Ultimately if regulatory authorities do not approve our products or if we fail to maintain regulatory compliance, we would be unable to
commercialize our products, and our business and results of operations would be harmed. Even if we do succeed in developing
products, we will face many potential obstacles such as the need to develop or obtain manufacturing, marketing and distribution
capabilities. Furthermore, because transplantation of cells is a new form of therapy, the marketplace may not accept any products we
may develop.
Presently, a moratorium declared by the PRC government on commercialization of cell therapies is in effect, pending release
of new regulations. No assurances can be made regarding when the moratorium will be lifted, or regarding the substance of
the new regulations. If the moratorium continues longer than expected, or if new regulations are not favorable to our
development plans, our business could be adversely affected.
While we believe the PRC government is highly supportive of stem cell research and related potential advances in medical treatment,
presently a moratorium is in effect in China (that we believe is temporary) which prevents any company from actually marketing and
implementing cell therapies, while the central government considers and constructs a new set of rules and determines lines of authority
among government agencies to regulate this new industry. We note however, that the moratorium appears to apply to cell therapeutics,
and not immunotherapy, which may not necessarily affect the development of our cancer therapy candidate. We also note that the
moratorium bars marketing and implementation of products, treatments and therapies, but does not prevent the advancement of
research, studies or development of potential products, treatments or therapies. Accordingly, we interpret the moratorium as a bar on
marketing and use, but not a prohibition on conducting clinical trials, although we believe the practical effect of the moratorium has been
to temporarily slow or halt applications for new clinical trials based on stem cell technology. The central government has declared stem
cell technology to be a part of China’s national long-term scientific and technological development plan from 2006 to 2020. The
government has also announced its intention to release new laws to regulate our industry, which are soon anticipated to be codified into
law. Although we believe there is a high probability that laws adopted and codified in the PRC will ultimately be supportive of our
development plans and consistent with the government’s prior policy pronouncements, there can be no assurance that these laws, once
released and when applied, will be favorable to our interests. If the government fails to enact laws and lift the moratorium in the expected
time frame, or if its laws when released and enacted are burdensome to our development, our plans could be delayed or thwarted, and
our business would be materially and adversely affected. In March 2013, the PRC central government released proposed regulations of
the MOH and the CFDA relating to the conduct of cell therapy pre-clinical and clinical trials in China. While management believes this is
an indication that final rules may soon be adopted, we cannot provide any assurances as to the likely content of the final rules nor when
they will become effective.
Most potential applications of our technology are pre-commercialization, which subjects us to development and marketing
risks.
We are in a relatively early stage on the path to commercialization with many of our products. Successful development and market
acceptance of our products is subject to developmental risks, including failure to achieve innovative solutions to problems during
development, ineffectiveness, lack of safety, unreliability, failure to receive necessary regulatory clearances or approvals, approval by
hospital ethics committees and other governing bodies, high commercial cost, preclusion or obsolescence resulting from third parties’
proprietary rights or superior or equivalent products, competition, and general economic conditions affecting purchasing patterns. There
is no assurance that we or our partners will successfully develop and commercialize our products, or that our competitors will not
develop competing products, treatments or technologies that are less expensive or superior. Failure to successfully develop and market
our products would have a substantial negative effect on our results of operations and financial condition.
Market acceptance of new technology such as ours can be difficult to obtain.
New and emerging cell therapy and cell banking technologies may have difficulty or encounter significant delays in obtaining market
acceptance in some or all countries around the world due to the novelty of our cell therapy and cell banking technologies. Therefore, the
market adoption of our cell therapy and cell banking technologies may be slow and lengthy with no assurances that the technology will
be successfully adopted. The lack of market adoption or reduced or minimal market adoption of cell therapy and cell banking
technologies may have a significant impact on our ability to successfully sell our future product(s) or therapies within China or in other
countries. Our strategy depends in part on the adoption of the therapies we may develop by state-owned hospital systems in China, and
the allocation of resources to new technologies and treatment methods is largely dependent upon ethics committees and governing
bodies within the hospitals. Even if our clinical trials are successful, there can be no assurance that hospitals in China will adopt our
technology and therapies as readily as we may anticipate.
Future clinical trial results may differ significantly from our expectations.
While we have proceeded incrementally with our clinical trials in an effort to gauge the risks of proceeding with larger and more
expensive trials, we cannot guarantee that we will not experience negative results with larger and much more expensive clinical trials
than we have conducted to date. Poor results in our clinical trials could result in substantial delays in commercialization, substantial
negative effects on the perception of our products, and substantial additional costs. These risks are increased by our reliance on third
parties in the performance of many of the clinical trial functions, including the clinical investigators, hospitals, and other third party
service providers.
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We face risks relating to the cell therapy industry, clinical development and commercialization.
Cell therapy is still a developing field and a significant global market for our services has yet to emerge. Our cellular therapy candidates
are based on novel cell technologies that are inherently risky and may not be understood or accepted by the marketplace. The current
market principally consists of providing manufacturing of cell and tissue-based therapeutic products for clinical trials and processing of
stem cell products for therapeutic programs.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The degree of market acceptance of any future product candidates will depend on a number of factors, including:
• the clinical safety and effectiveness of the product candidates, the availability of alternative treatments and the perceived
advantages of the particular product candidates over alternative treatments;
• the relative convenience and ease of administration of the product candidates;
• our ability to separate the product candidates from the ethical controversies and political barriers associated with stem cell
product candidates derived from human embryonic or fetal tissue;
• ethical concerns that may arise regarding our commercial use of stem cells, including adult stem cells, in the manufacture of the
product candidates;
• the frequency and severity of adverse events or other undesirable side effects involving the product candidates or the products
or product candidates of others that are cell-based; and
• the cost of the products, the reimbursement policies of government and third-party payors and our ability to obtain sufficient
third-party coverage or reimbursement.
If clinical trials of our technology fail to demonstrate safety and efficacy to the satisfaction of the relevant regulatory
authorities, including the PRC’s State Food and Drug Administration and the Ministry of Health, or do not otherwise produce
positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the
development and commercialization of such product candidates.
Currently, a regulatory structure has not been established to standardize the approval process for products or therapies based on the
technology that exists or that is being developed in our field. Therefore we must conduct, at our own expense, extensive clinical trials to
demonstrate the safety and efficacy of the product candidates in humans, and then archive our results until such time as a new
regulatory regime is put in place. If and when this new regulatory regime is adopted it may be easier or more difficult to navigate than
CBMG may anticipate, with the following potential barriers:
• regulators or institutional review boards may not authorize us or our investigators to commence clinical trials or conduct clinical
trials at a prospective trial site;
• clinical trials of product candidates may produce negative or inconclusive results, and we may decide, or regulators may require
us, to conduct additional clinical trials or abandon product development programs that we expect to be pursuing;
• the number of patients required for clinical trials of product candidates may be larger than we anticipate, enrollment in these
clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we
anticipate;
• third party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely
manner or at all;
• we might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the
participants are being exposed to unacceptable health risks;
• regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for
various reasons, including noncompliance with regulatory requirements;
• the cost of clinical trials of our product candidates may be greater than anticipated;
• we may be subject to a more complex regulatory process, since cell-based therapies are relatively new and regulatory agencies
have less experience with them as compared to traditional pharmaceutical products;
• the supply or quality of our product candidates or other materials necessary to conduct clinical trials of these product candidates
may be insufficient or inadequate; and
• our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators to
halt or terminate the trials.
We may be unable to generate interest or meaningful revenue in out-license our Intellectual Property.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The results of preclinical studies may not correlate with the results of human clinical trials. In addition, early stage clinical trial
results do not ensure success in later stage clinical trials, and interim trial results are not necessarily predictive of final trial
results.
To date, we have not completed the development of any products through regulatory approval. The results of preclinical studies in
animals may not be predictive of results in a clinical trial. Likewise, the outcomes of early clinical trials may not be predictive of the
success of later clinical trials. New information regarding the safety and efficacy of such product candidates may be less favorable than
the data observed to date. AG’s budding technical service revenue in the Jilin Hospital should not be relied upon as evidence that later
or larger-scale clinical trials will succeed. In addition, even if the trials are successfully completed, we cannot guarantee that the CFDA
will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent
that the results of the trials are not satisfactory to the CFDA or other foreign regulatory authorities for support of a marketing application,
approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which
may not be available to us, to conduct additional trials in support of potential approval of our product candidates.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or
otherwise adversely affected.
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in
accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the
study until its conclusion. The enrollment of patients depends on many factors, including:
• the patient eligibility criteria defined in the protocol;
• the size of the patient population required for analysis of the trial’s primary endpoints;
• the proximity of patients to study sites;
• the design of the trial;
• our ability to recruit clinical trial investigators with the appropriate competencies and experience;
• our ability to obtain and maintain patient consents; and
• the risk that patients enrolled in clinical trials will drop out of the trials before completion.
In addition, our clinical trials may compete with other clinical trials for product candidates that are in the same therapeutic areas as our
product candidates, and this competition may reduce the number and types of patients available to us, because some patients who
might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of
qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our
competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site. Moreover,
because our product candidates represent a departure from more commonly used methods for cancer treatment, potential patients and
their doctors may be inclined to use conventional therapies, such as chemotherapy and or traditional Chinese medicine, rather than
enroll patients in any future clinical trial.
Upon commencing clinical trials, delays in patient enrollment may result in increased costs or may affect the timing or outcome of the
planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our
product candidates.
We currently have no marketing and sales organization and have no experience in marketing such products. If we are unable
to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product
candidates, we may not be able to generate product revenue.
We currently have no sales, marketing or distribution capabilities and have no experience in marketing products. We intend to develop
an in-house marketing organization and sales force, which will require significant capital expenditures, management resources and time.
We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales
personnel.
If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative
arrangements regarding the sales and marketing of our products, however, there can be no assurance that we will be able to establish
or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we
receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the
marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our
product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of
our product candidates. There can be no assurance that we will be able to develop in-house sales and distribution capabilities or
establish or maintain relationships with third-party collaborators to commercialize any product in China or overseas.
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Laws and the regulatory infrastructure governing cellular biomedicine in China are relatively new and less established in
comparison to the U.S. and other countries; accordingly regulation may be less stable and predictable than desired, and
regulatory changes may disrupt our commercialization process .
Regulation of the medical field in China including pharmaceuticals, medical technologies, and medical practice, is relatively new and less
established compared to the U.S. and in many other countries. In addition the practice of and research relating to cell therapeutics has
emerged in China very recently, and the government has not yet decided how the industry shall be regulated. Accordingly we expect that
the regulatory environment in China will be comparatively less predictable, and if the government changes any of its policies relating to
our industry, or changes in the manner in which rules are applied or interpreted, our commercialization process may be disrupted or
delayed, which would adversely affect our results and prospects.
Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which
could make it difficult for us to sell our product candidates profitably.
Successful sales of our product candidates, if approved, depend on the availability of adequate coverage and reimbursement from third-
party payors. In addition, because our product candidates represent new approaches to the treatment of cancer, we cannot accurately
estimate the potential revenue from our product candidates.
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs
associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs and commercial payors
is critical to new product acceptance. In China, government authorities decide which drugs and treatments they will cover and the
amount of reimbursement. Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is
a time-consuming and costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness
data for the use of our products. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be
adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Patients are unlikely
to use our product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of
our product candidates. If we obtain approval in one or more jurisdictions outside of China for our product candidates, we will be subject
to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the EU, the pricing of biologics is subject to
governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining
marketing approval of a product candidate. In addition, market acceptance and sales of our product candidates will depend significantly
on the availability of adequate coverage and reimbursement from third-party payors for our product candidates and may be affected by
existing and future health care reform measures. The continuing efforts of the government, insurance companies, managed care
organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may
adversely affect:
• the demand for our product candidates, if we obtain regulatory approval;
our ability to set a price that we believe is fair for our products;
•
• our ability to generate revenue and achieve or maintain profitability;
• the level of taxes that we are required to pay; and
• the availability of capital.
Any reduction in reimbursement from any government programs may result in a similar reduction in payments from private payors, which
may adversely affect our future profitability.
Technological and medical developments or improvements in conventional therapies could render the use of cell therapy and
our services and planned products obsolete.
Advances in other treatment methods or in disease prevention techniques could significantly reduce or entirely eliminate the need for our
cell therapy services, planned products and therapeutic efforts. There is no assurance that cell therapies will achieve the degree of
success envisioned by us in the treatment of disease. Nor is there any assurance that new technological improvements or techniques
will not render obsolete the processes currently used by us, the need for our services or our planned products. Additionally, technological
or medical developments may materially alter the commercial viability of our technology or services, and require us to incur significant
costs to replace or modify equipment in which we have a substantial investment. We are focused on novel cell therapies, and if this field
is substantially unsuccessful, this could jeopardize our success or future results. The occurrence of any of these factors may have a
material adverse effect on our business, operating results and financial condition.
We face significant competition from other Chinese biotechnology and pharmaceutical companies, and our operating results
will suffer if we fail to compete effectively.
There is intense competition and rapid innovation in the Chinese cell therapy industry, and in the cancer immunotherapy space in
particular. Our competitors may be able to develop other herbal medicine, compounds or drugs that are able to achieve similar or better
results. Our potential competitors are comprised of traditional Chinese medicine companies, major multinational pharmaceutical
companies, established and new biotechnology companies, specialty pharmaceutical companies, state-owned enterprises, universities
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and other research institutions. Many of our competitors have substantially greater scientific, financial, technical and other resources,
such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales
forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements
with large, established companies or are well funded by venture capitals. Mergers and acquisitions in the biotechnology and
pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further
as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these
industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an
exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our product
candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our
technologies and products. We believe the key competitive factors that will affect the development and commercial success of our
product candidates are efficacy, safety, tolerability, reliability, and convenience of use, price and reimbursement.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Even if we obtain regulatory approval of our product candidates, the availability and price of our competitors’ products could limit the
demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the
acceptance of our product candidates is inhibited by price competition or the reluctance of doctors to switch from existing methods of
treatment to our product candidates, or if doctors switch to other new drug or biologic products or choose to reserve our product
candidates for use in limited circumstances.
There is a scarcity of experienced professionals in the field of cell therapy and we may not be able to retain key officers or
employees or hire new key officers or employees needed to implement our business strategy and develop our products. If we
are unable to retain or hire key officers or employees, we may be unable to grow our biomedicine business or implement our
business strategy, and the Company may be materially and adversely affected.
Given the specialized nature of cell therapy and the fact that it is a young field, there is an inherent scarcity of experienced personnel in
the field. The Company is substantially dependent on the skills and efforts of current senior management, as well as the newly acquired
AG management and personnel, for their management, operations and the implementation of their business strategy. As a result of the
difficulty in locating qualified new management, the loss or incapacity of existing members of management or unavailability of qualified
management or as replacements for management who resign or are terminated could adversely affect the Company’s operations. The
future success of the Company also depends upon our ability to attract and retain additional qualified personnel (including medical,
scientific, technical, commercial, business and administrative personnel) necessary to support our anticipated growth, develop our
business, perform our contractual obligations to third parties and maintain appropriate licensure, on acceptable terms. There can be no
assurance that we will be successful in attracting or retaining personnel required by us to continue to grow our operations. The loss of a
key employee, the failure of a key employee to perform in his or her current position or our inability to attract and retain skilled
employees, as needed, could result in our inability to grow our biomedicine business or implement our business strategy, or may have a
material adverse effect on our business, financial condition and operating results.
We rely heavily on third parties to conduct clinical trials on our product candidates.
We presently are party to, and expect that we will be required to enter into, agreements with hospitals and other research partners to
perform clinical trials for us and to engage in sales, marketing and distribution efforts for our products and product candidates we may
acquire in the future. We may be unable to establish or maintain third-party relationships on a commercially reasonable basis, if at all. In
addition, these third parties may have similar or more established relationships with our competitors or other larger customers.
Moreover, the loss for any reason of one or more of these key partners could have a significant and adverse impact on our business. If
we are unable to obtain or retain third party sales and marketing vendors on commercially acceptable terms, we may not be able to
commercialize our therapy products as planned and we may experience delays in or suspension of our marketing launch. Our
dependence upon third parties may adversely affect our ability to generate profits or acceptable profit margins and our ability to develop
and deliver such products on a timely and competitive basis.
We may fail to successfully integrate the acquired business and operations in the expected time frame may adversely affect the
combined company’s future results.
We believe that the acquisition of the acquired AG business will result in certain benefits, including certain manufacturing, sales and
distribution and operational efficiencies. However, to realize these anticipated benefits, our existing business and the acquired business
must be successfully combined. We may be unable to effectively integrate the acquired business into our organization, make the
acquired business profitable, and may not succeed in managing the acquired business or the larger company that results from this
acquisition. The process of integration of an acquired business may subject us to a number of risks, including:
• Failure to successfully manage relationships with clients, distributors and suppliers;
• Demands on management related to the increase in size of the company after the acquisition;
• Diversion of management attention;
• Potential difficulties integrating and harmonizing financial reporting systems;
• Difficulties in the assimilation and retention of employees;
• Inability to retain the management, key personnel and other employees of the acquired business;
• Inability to establish uniform standards, controls, systems, procedures and policies;
• Inability to retain the customers of the acquired business;
• Exposure to legal claims for activities of the acquired business prior to acquisition; and
• Incurrence of additional expenses in connection with the integration process.
If the acquired business is not successfully integrated into our company, our business, financial condition and results of operations could
be materially adversely affected, as well as our professional reputation. Furthermore, if we are unable to successfully integrate the
acquired business and operations, or if there are delays in combining the businesses, the anticipated benefits of the acquisition may not
be realized fully or at all or may take longer to realize than expected. Successful integration of the acquired business will depend on our
ability to manage these operations and to realize opportunities for technical services revenue growth.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
We added 30 employees in the recent AG acquisition. As our development and commercialization plans and strategies develop, and as
we continue to expand operation as a public company, we expect to grow our personnel needs in the managerial, operational, sales,
marketing, financial and other departments. Future growth would impose significant added responsibilities on members of management,
including:
• identifying, recruiting, integrating, maintaining and motivating additional employees;
• managing our internal development efforts effectively, including the clinical trials and CFDA review process for our product
candidates, while complying with our contractual obligations to contractors and other third parties; and
• improving our operational, financial and management controls, reporting systems and procedures.
Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively
manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day
activities in order to devote a substantial amount of time to managing these growth activities.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations such as
contract research organizations and hospitals to provide certain services comprised of regulatory approval and clinical management.
There can be no assurance that the services of independent organizations will continue to be available to us on a timely basis when
needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the
quality or accuracy of the services provided by the independent organizations is compromised for any reason, our clinical trials may be
extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance
our business. If we are not able to effectively expand our organization by hiring new employees, we may not be able to successfully
implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our
research, development and commercialization goals.
We may form or seek strategic alliances or enter into licensing arrangements in the future, and we may not realize the benefits
of such alliances or licensing arrangements.
We may form or seek strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties
that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and
any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges,
increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and
business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-
consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative
arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative
effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. If we
license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate
them with our existing operations and company culture. We cannot be certain that, following a strategic transaction or license, we will
achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new strategic partnership
agreements related to our product candidates could delay the development and commercialization of our product candidates in certain
geographies for certain indications, which would harm our business prospects, financial condition and results of operations.
We, our strategic partners and our customers conduct business in a heavily regulated industry. If we or one or more of our
strategic partners or customers fail to comply with applicable current and future laws and government regulations, our
business and financial results could be adversely affected.
The healthcare industry is one of the most highly regulated industries. Federal governments, individual state and local governments and
private accreditation organizations may oversee and monitor all the activities of individuals and businesses engaged in the delivery of
health care products and services. Therefore, current laws, rules and regulations could directly or indirectly negatively affect our ability
and the ability of our strategic partners and customers to operate each of their businesses.
In addition, as we expand into other parts of the world, we will need to comply with the applicable laws and regulations in such foreign
jurisdictions. We have not yet thoroughly explored the requirements or feasibility of such compliance. It is possible that we may not be
permitted to expand our business into one or more foreign jurisdictions.
Although we intend to conduct our business in compliance with applicable laws and regulations, the laws and regulations affecting our
business and relationships are complex, and many aspects of such relationships have not been the subject of judicial or regulatory
interpretation. Furthermore, the cell therapy industry is the topic of significant government interest, and thus the laws and regulations
applicable to us and our strategic partners and customers and to their business are subject to frequent change and/or reinterpretation
and there can be no assurance that the laws and regulations applicable to us and our strategic partners and customers will not be
amended or interpreted in a manner that adversely affects our business, financial condition, or operating results.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We anticipate that we will need substantial additional financing in the future to continue our operations; if we are unable to
raise additional capital, as and when needed, or on acceptable terms, we may be forced to delay, reduce or eliminate one or
more of our product or therapy development programs, cell therapy initiatives or commercialization efforts and our business
will harmed.
Our current operating plan will require significant levels of additional capital to fund, among other things, the continued development of
our cell therapy product or therapy candidates and the operation, and expansion of our manufacturing operations to our clinical
development activities.
In Q2 2014 we completed patient enrollment for the Phase IIb clinical trial of ReJoinTM for KOA. We plan to release interim observation of
Phase IIb information in Q1 2015, and 12 month follow-up data in late 2015. In January 2015 we initiated patient recruitment to support
a study of ReJoinTM human adipose derived mesenchymal progenitor cell (haMPC) therapy for Cartilage Damage (CD) resulting from
osteoarthritis (OA) or sports injury. We have also launched pre-clinical study on COPD and haMPC therapy for Asthma.
If these trials are successful, we will require significant additional investment capital over a multi-year period in order to conduct
subsequent phases, gain approval for these therapies by the MOH and CFDA, and to commercialize these therapies, if ever. Subsequent
phases may be larger and more expensive than the Phase I trials. In order to raise the necessary capital, we will need to raise additional
money in the capital markets, enter into collaboration agreements with third parties or undertake some combination of these strategies.
If we are unsuccessful in these efforts, we may have no choice but to delay or abandon the trials.
The amount and timing of our future capital requirements also will likely depend on many other factors, including:
• the scope, progress, results, costs, timing and outcomes of our other cell therapy product or therapy candidates;
• our ability to enter into, or continue, any collaboration agreements with third parties for our product or therapy candidates and the
timing and terms of any such agreements;
• the timing of and the costs involved in obtaining regulatory approvals for our product or therapy candidates, a process which could
be particularly lengthy or complex given the lack of precedent for cell therapy products in China; and
• the costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities.
To fund clinical studies and support our future operations, we would likely seek to raise capital through a variety of different public and/or
private financings vehicles. This could include, but not be limited to, the use of loans or issuances of debt or equity securities in public or
private financings. If we raise capital through the sale of equity, or securities convertible into equity, it would result in dilution to our then
existing stockholders. Servicing the interest and principal repayment obligations under debt facilities could divert funds that would
otherwise be available to support clinical or commercialization activities. In certain cases, we also may seek funding through
collaborative arrangements, that would likely require us to relinquish certain rights to our technology or product or therapy candidates
and share in the future revenues associated with the partnered product or therapy.
Ultimately, we may be unable to raise capital or enter into collaborative relationships on terms that are acceptable to us, if at all. Our
inability to obtain necessary capital or financing to fund our future operating needs could adversely affect our business, results of
operations and financial condition.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could
have a material adverse effect on our business and operating results.
It may be time consuming, difficult and costly for us to develop and implement the additional internal controls, processes and reporting
procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal auditing and other finance
staff in order to develop and implement appropriate additional internal controls, processes and reporting procedures.
If we fail to comply in a timely manner with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal controls over
financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in
material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a
negative effect on the trading price of our common stock.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover
“material weaknesses” in our internal controls as defined in standards established by the Public Company Accounting Oversight Board
(“PCAOB”). A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The PCAOB
defines “significant deficiency” as a deficiency that results in more than a remote likelihood that a misstatement of the financial
statements that is more than inconsequential will not be prevented or detected.
During the year ended December 31, 2014, we have made improvements in our internal control and have remediated the deficiencies
identified in 2013. In the event that future material weaknesses are identified, we will attempt to employ qualified personnel and adopt
and implement policies and procedures to address any material weaknesses we identify. However, the process of designing and
implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the
economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to
satisfy our reporting obligations as a public company.
Any failure to complete our assessment of our internal control over financial reporting, to remediate any material weaknesses that we
may identify or to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating
results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure
could also adversely affect the results of the periodic management evaluations of our internal controls and, in the case of a failure to
remediate any material weaknesses that we may identify, would adversely affect the annual management reports regarding the
effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act. Inadequate
internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on
the trading price of our common stock.
Our profitability may be adversely affected by the risks in obtaining a return on some or all of our investment in portfolio stock,
which comprise a substantial portion of our assets.
A substantial portion of our assets are comprised of securities we received as compensation for services through our legacy consulting
business, by which we acquired certain shares of stock in the companies we advised. These shares are not traded on any national
exchange or marketplace and therefore are highly illiquid, and it is uncertain if an active market for such securities will ever develop.
Additionally, some of these companies have or may in the future fail to comply with their obligations under the Securities Act or the
Exchange Act, which may affect our ability to sell such securities to satisfy our working capital needs and other liquidity
requirements. Even assuming we can sell the securities, there is no assurance that we will be able to sell such shares at a value that
will recover our investment. There is no assurance that an alternative exit strategy will be readily available to realize the fair value of
such securities. As a result, we may lose some or all of our investment. In the fiscal year ended December 31, 2014, we reviewed our
investment portfolio and determined that, due to the failure of certain portfolio companies to comply with their periodic reporting
obligations under Section 13 or Section 15(d) of the Exchange Act, such investments have been impaired. Accordingly, we have
recorded an other than temporary impairment charge of approximately $1.4 million for these investments that were deemed permanent
in impairment of invesments in 2014. Future fluctuations in the value and liquidity of these securities could result in additional realized
loss.
RISKS RELATED TO OUR STRUCTURE
The laws and regulations governing the therapeutic use of stem cells in China are evolving. New PRC laws and regulations
may impose conditions or requirements which could materially and adversely affect our business.
As the cell therapy industry is at an early stage of development in China, new laws and regulations may be adopted in the future to
address new issues that arise from time to time. As a result, substantial uncertainties exist regarding the interpretation and
implementation of current and any future PRC laws and regulations applicable to the cell therapy industry. There is no way to predict the
content or scope of future Chinese regulation. There can be no assurance that the PRC government authorities will not issue new laws
or regulations that impose conditions or requirements with which we cannot comply. Noncompliance could materially and adversely
affect our business, results of operations and financial condition. On December 16, 2011, China’s MOH announced its intention to more
tightly regulate clinical trials and cell therapeutic treatments in the PRC. The Ministry of Health ordered an immediate halt to
“unapproved stem cell clinical trials and applications,” and put applications for new stem cell trials on hold until July 1, 2012, and the
lifting of this moratorium has been delayed. For those clinical trials for stem cell products already approved by the CFDA, the Clinical
Trial Approval Instructions and the Good Clinical Practice, or GCP, shall be strictly followed, with unwarranted changes to the approved
clinical trial protocol and profit seeking activities strictly forbidden. As of the date of this current report, the foregoing moratorium has not
been lifted.
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China’s State Food and Drug Administration’s regulations may limit our ability to develop, license, manufacture and market
our products, therapies and/or services.
Some or all of our operations in China will be subject to oversight and regulation by the Government regulations, among other things,
cover the inspection of and controls over testing, manufacturing, safety and environmental considerations, efficacy, labeling, advertising,
promotion, record keeping and sale and distribution of pharmaceutical products. Such government regulations may increase our costs
and prevent or delay the licensing, manufacturing and marketing of any of our products or services. In the event we seek to license,
manufacture, sell or distribute new products or services, we likely will need approvals from certain government agencies such as the
CFDA and MOH. The future growth and profitability of any operations in China would be contingent on obtaining the requisite approvals.
There can be no assurance that we will obtain such approvals. In 2004, the CFDA implemented new guidelines for the licensing of
pharmaceutical products. All existing manufacturers with licenses were required to apply for cGMP certifications. According to Good
Manufacturing Practices for Pharmaceutical Products (revised edition 2010), or the New GMP Rules promulgated by the MOH of the
PRC on January 17, 2011 which became effective on March 1, 2011, all the newly constructed manufacturing facilities of drug
manufacture enterprises in China shall comply with the requirements of the New GMP Rules, which are stricter than the original GMP
standards. In addition, delays, product recalls or failures to receive approval may be encountered based upon additional government
regulation, legislative changes, administrative action or changes in governmental policy and interpretation applicable to the Chinese
pharmaceutical industry. Our pharmaceutical activities also may subject us to government regulations with respect to product prices and
other marketing and promotional related activities. Government regulations may substantially increase our costs for developing,
licensing, manufacturing and marketing any products or services, which could have a material adverse effect on our business, operating
results and financial condition. The CFDA and other regulatory authorities in China have implemented a series of new punitive and
stringent measures regarding the pharmaceuticals industry to redress certain past misconducts in the industry and certain deficiencies in
public health reform policies. Given the nature and extent of such new enforcement measures, the aggressive manner in which such
enforcement is being conducted and the fact that newly-constituted local level branches are encouraged to issue such punishments and
fines, there is the possibility of large scale and significant penalties being levied on manufacturers. These new measures may include
fines, restriction and suspension of operations and marketing and other unspecified penalties. This new regulatory environment has
added significantly to the risks of our businesses in China and may have a material adverse effect on our business, operating results and
financial condition.
Our operations are subject to risks associated with emerging markets.
The Chinese economy is not well established and is only recently emerging and growing as a significant market for consumer goods and
services. Accordingly, there is no assurance that the market will continue to grow. Perceived risks associated with investing in China, or
a general disruption in the development of China’s markets could materially and adversely affect the business, operating results and
financial condition of the Company.
A substantial portion of our assets are currently located in the PRC, and investors may not be able to enforce federal
securities laws or their other legal rights.
A substantial portion of our assets are located in the PRC. As a result, it may be difficult for investors in the U.S. to enforce their legal
rights, to effect service of process upon certain of our directors or officers or to enforce judgments of U.S. courts predicated upon civil
liabilities and criminal penalties against any of our directors and officers located outside of the U.S.
The PRC government has the ability to exercise significant influence and control over our operations in China.
In recent years, the PRC government has implemented measures for economic reform, the reduction of state ownership of productive
assets and the establishment of corporate governance practices in business enterprises. However, many productive assets in China are
still owned by the PRC government. In addition, the government continues to play a significant role in regulating industrial development
by imposing business regulations. It also exercises significant control over the country’s economic growth through the allocation of
resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment
to particular industries or companies.
There can be no assurance that China’s economic, political or legal systems will not develop in a way that becomes detrimental to our
business, results of operations and financial condition. Our activities may be materially and adversely affected by changes in China’s
economic and social conditions and by changes in the policies of the government, such as measures to control inflation, changes in the
rates or method of taxation and the imposition of additional restrictions on currency conversion.
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Additional factors that we may experience in connection with having operations in China that may adversely affect our business and
results of operations include:
• our inability to enforce or obtain a remedy under any material agreements;
• PRC restrictions on foreign investment that could impair our ability to conduct our business or acquire or contract with other
entities in the future;
• restrictions on currency exchange that may limit our ability to use cash flow most effectively or to repatriate our investment;
• fluctuations in currency values;
• cultural, language and managerial differences that may reduce our overall performance; and
• political instability in China.
Cultural, language and managerial differences may adversely affect our overall performance.
We have experienced difficulties in assimilating cultural, language and managerial differences with our subsidiaries in China. Personnel
issues have developed in consolidating management teams from different cultural backgrounds. In addition, language translation issues
from time to time have caused miscommunications. These factors make the management of our operations in China more difficult.
Difficulties in coordinating the efforts of our U.S.-based management team with our China-based management team may cause our
business, operating results and financial condition to be materially and adversely affected.
We may not be able to enforce our rights in China.
China’s legal and judicial system may negatively impact foreign investors. The legal system in China is evolving rapidly, and
enforcement of laws is inconsistent. It may be impossible to obtain swift and equitable enforcement of laws or enforcement of the
judgment of one court by a court of another jurisdiction. China’s legal system is based on civil law or written statutes and a decision by
one judge does not set a legal precedent that must be followed by judges in other cases. In addition, the interpretation of Chinese laws
may vary to reflect domestic political changes.
Since a portion of our operations are presently based in China, service of process on our business and officers may be difficult to effect
within the United States. Also, some of our assets are located outside the United States and any judgment obtained in the United States
against us may not be enforceable outside the United States.
There are substantial uncertainties regarding the interpretation and application to our business of PRC laws and regulations, since many
of the rules and regulations that companies face in China are not made public. The effectiveness of newly enacted laws, regulations or
amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that apply to future
businesses may be applied retroactively to existing businesses. We cannot predict what effect the interpretation of existing or new PRC
laws or regulations may have on our business.
Our operations in China are subject to government regulation that limit or prohibit direct foreign investment, which may limit
our ability to control operations based in China.
The PRC government has imposed regulations in various industries, including medical research and the stem cell industry, that limit
foreign investors’ equity ownership or prohibit foreign investments altogether in companies that operate in such industries. We are
currently structured as a U.S. corporation (Delaware) with subsidiaries and controlled entities in China. As a result of these regulations
and the manner in which they may be applied or enforced, our ability to control our existing operations based in China may be limited or
restricted.
If the relevant Chinese authorities find us or any business combination to be in violation of any laws or regulations, they would have
broad discretion in dealing with such violation, including, without limitation: (i) levying fines; (ii) revoking our business and other licenses;
(iii) requiring that we restructure our ownership or operations; and (iv) requiring that we discontinue any portion or all of our business.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We may suffer losses if we cannot utilize our assets in China.
The Company’s Shanghai and Wuxi laboratory facilities were originally intended for stem cell research and development, but has been
equipped to provide comprehensive cell manufacturing, collection, processing and storage capabilities to provide cells for clinical trials.
The lease for this facility expires in 2015 and the Company is considering its options with respect to extending this lease to allow for
manufacturing for clinical trials in Asia. If the Company does not determine to renew the lease due to limitations on its utility under the
new regulatory initiatives in China or otherwise, the Company may incur certain expenses in connection with returning the premises to
the landlord. Management believes it will be able to renew all leases without difficulty.
Restrictions on currency exchange may limit our ability to utilize our cash flow effectively.
Our interests in China will be subject to China’s rules and regulations on currency conversion. In particular, the initial capitalization and
operating expenses of the VIE (CBMG Shanghai) are funded by our WFOE, Cellular Biomedicine Group Ltd. (Wuxi). In China, the State
Administration for Foreign Exchange (“SAFE”), regulates the conversion of the Chinese Renminbi into foreign currencies and the
conversion of foreign currencies into Chinese Renminbi. Currently, foreign investment enterprises are required to apply to the SAFE for
Foreign Exchange Registration Certificates, or IC Cards of Enterprises with Foreign Investment. Foreign investment enterprises holding
such registration certificates, which must be renewed annually, are allowed to open foreign currency accounts including a “basic account”
and “capital account.” Currency translation within the scope of the “basic account,” such as remittance of foreign currencies for payment
of dividends, can be effected without requiring the approval of the SAFE. However, conversion of currency in the “capital account,”
including capital items such as direct investments, loans, and securities, require approval of the SAFE. According to the Notice of the
General Affairs Department of the State Administration of Foreign Exchange on the Relevant Operating Issues Concerning the
Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-invested Enterprises promulgated
on August 29, 2008, or the SAFE Notice 142, to apply to a bank for settlement of foreign currency capital, a foreign invested enterprise
shall submit the documents certifying the uses of the RMB funds from the settlement of foreign currency capital and a detailed checklist
on use of the RMB funds from the last settlement of foreign currency capital. It is stipulated that only if the funds for the settlement of
foreign currency capital are of an amount not more than US$50,000 and are to be used for enterprise reserve, the above documents
may be exempted by the bank. This SAFE Notice 142, along with the recent practice of Chinese banks of restricting foreign currency
conversion for fear of “hot money” going into China, limits and may continue to limit our ability to channel funds to the VIE entities for
their operation. There can be no assurance that the PRC regulatory authorities will not impose further restrictions on the convertibility of
the Chinese currency. Future restrictions on currency exchanges may limit our ability to use our cash flow for the distribution of dividends
to our stockholders or to fund operations we may have outside of China, which could materially adversely affect our business and
operating results.
Fluctuations in the value of the Renminbi relative to the U.S. dollar could affect our operating results.
We prepare our financial statements in U.S. dollars, while our underlying businesses operate in two currencies, U.S. dollars and
Chinese Renminbi. It is anticipated that our Chinese operations will conduct their operations primarily in Renminbi and our U.S.
operations will conduct their operations in dollars. At the present time, we do not expect to have significant cross currency transactions
that will be at risk to foreign currency exchange rates. Nevertheless, the conversion of financial information using a functional currency of
Renminbi will be subject to risks related to foreign currency exchange rate fluctuations. The value of Renminbi against the U.S. dollar
and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions and
supply and demand in local markets. As we have significant operations in China, and will rely principally on revenues earned in China,
any significant revaluation of the Renminbi could materially and adversely affect our financial results. For example, to the extent that we
need to convert U.S. dollars we receive from an offering of our securities into Renminbi for our operations, appreciation of the Renminbi
against the U.S. dollar could have a material adverse effect on our business, financial condition and results of operations.
Beginning in July 2005, the PRC government changed its policy of pegging the value of Renminbi to the U.S. dollar. Under the new
policy, the value of the Renminbi has fluctuated within a narrow and managed band against a basket of certain foreign currencies.
However, the Chinese government has come under increasing U.S. and international pressure to revalue the Renminbi or to permit it to
trade in a wider band, which many observers believe would lead to substantial appreciation of the Renminbi against the U.S. dollar and
other major currencies. There can be no assurance that Renminbi will be stable against the U.S. dollar. On June 19, 2010 the central
bank of China announced that it will gradually modify its monetary policy and make the Renminbi’s exchange rate more flexible and
allow the Renminbi to appreciate in value in line with its economic strength.
China Food and Drug Administration’s regulations may limit our ability to develop, license, manufacture and market our
products and services.
Some or all of our operations in China will be subject to oversight and regulation by the CFDA and MOH. Government regulations,
among other things, cover the inspection of and controls over testing, manufacturing, safety and environmental considerations, efficacy,
labeling, advertising, promotion, record keeping and sale and distribution of pharmaceutical products. Such government regulations may
increase our costs and prevent or delay the licensing, manufacturing and marketing of any of our products or services. In the event we
seek to license, manufacture, sell or distribute new products or services, we likely will need approvals from certain government agencies
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
such as the future growth and profitability of any operations in China would be contingent on obtaining the requisite approvals. There
can be no assurance that we will obtain such approvals.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In 2004, the CFDA implemented new guidelines for the licensing of pharmaceutical products. All existing manufacturers with licenses
were required to apply for the Good Manufacturing Practices (“cGMP”) certifications.
According to Good Manufacturing Practices for Pharmaceutical Products (revised edition 2010) , or the New GMP Rules promulgated by
the Ministry of Health of the PRC on January 17, 2011 which became effective on March 1, 2011, all the newly constructed
manufacturing facilities of drug manufacture enterprises in China shall comply with the requirements of the New GMP Rules, which are
stricter than the original GMP standards.
In addition, delays, product recalls or failures to receive approval may be encountered based upon additional government regulation,
legislative changes, administrative action or changes in governmental policy and interpretation applicable to the Chinese pharmaceutical
industry. Our pharmaceutical activities also may subject us to government regulations with respect to product prices and other marketing
and promotional related activities. Government regulations may substantially increase our costs for developing, licensing, manufacturing
and marketing any products or services, which could have a material adverse effect on our business, operating results and financial
condition.
The CFDA and other regulatory authorities in China have implemented a series of new punitive and stringent measures regarding the
pharmaceuticals industry to redress certain past misconducts in the industry and certain deficiencies in public health reform policies.
Given the nature and extent of such new enforcement measures, the aggressive manner in which such enforcement is being conducted
and the fact that newly-constituted local level branches are encouraged to issue such punishments and fines, there is the possibility of
large scale and significant penalties being levied on manufacturers. These new measures may include fines, restriction and suspension
of operations and marketing and other unspecified penalties. This new regulatory environment has added significantly to the risks of our
businesses in China and may have a material adverse effect on our business, operating results and financial condition.
Some of the laws and regulations governing our business in China are vague and subject to risks of interpretation.
Some of the PRC laws and regulations governing our business operations in China are vague and their official interpretation and
enforcement may involve substantial uncertainty. These include, but are not limited to, laws and regulations governing our business and
the enforcement and performance of our contractual arrangements in the event of the imposition of statutory liens, death, bankruptcy and
criminal proceedings. Despite their uncertainty, we will be required to comply.
New laws and regulations that affect existing and proposed businesses may be applied retroactively. Accordingly, the effectiveness of
newly enacted laws, regulations or amendments may not be clear. We cannot predict what effect the interpretation of existing or new
PRC laws or regulations may have on our business.
In addition, pursuant to China’s Administrative Measures on the Foreign Investment in Commercial Sector, foreign enterprises are
permitted to establish or invest in wholly foreign-owned enterprises or joint ventures that engage in wholesale or retail sales of
pharmaceuticals in China subject to the implementation of relevant regulations. However, no specific regulations in this regard have
been promulgated to date, which creates uncertainty. If specific regulations are not promulgated, or if any promulgated regulations
contain clauses that cause an adverse impact to our operations in China, then our business, operating results and financial condition
could be materially and adversely affected.
The laws and regulations governing the therapeutic use of stem cells in China are evolving. New PRC laws and regulations
may impose conditions or requirements which could materially and adversely affect our business.
As the cell therapy industry is at an early stage of development in China, new laws and regulations may be adopted in the future to
address new issues that arise from time to time. As a result, substantial uncertainties exist regarding the interpretation and
implementation of current and any future PRC laws and regulations applicable to the cell therapy industry. There is no way to predict the
content or scope of future Chinese regulation. There can be no assurance that the PRC government authorities will not issue new laws
or regulations that impose conditions or requirements with which we cannot comply. Noncompliance could materially and adversely
affect our business, results of operations and financial condition.
On December 16, 2011, China’s MOH ordered an immediate halt to “unapproved stem cell clinical trials and applications,” and put
applications for new clinical trials on hold until July 1, 2012, which moratorium has been extended. For those clinical trials for stem cell
products already approved by the CFDA, the Clinical Trial Approval Instructions and the Good Clinical Practice, or GCP, shall be strictly
followed, with unwarranted changes to the approved clinical trial protocol and profit-seeking activities strictly forbidden. As of the date of
this annual report, the foregoing moratorium has not been lifted.
The PRC government does not permit direct foreign investment in stem cell research and development businesses.
Accordingly, we operate these businesses through local companies with which we have contractual relationships but in which
we do not have direct equity ownership.
PRC regulations prevent foreign companies from directly engaging in stem cell-related research, development and commercial
applications in China. Therefore, to perform these activities, we conduct much of our biomedicine business operations in China through
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
a domestic variable interest entity, or VIE, a Chinese domestic company controlled by the Chinese employees of the Company. Our
contractual arrangements may not be as effective in providing control over these entities as direct ownership. For example, the VIE
could fail to take actions required for our business or fail to conduct business in the manner we desire despite their contractual obligation
to do so. These companies are able to transact business with parties not affiliated with us. If these companies fail to perform under their
agreements with us, we may have to rely on legal remedies under PRC law, which may not be effective. In addition, we cannot be
certain that the individual equity owners of the VIE would always act in our best interests, especially if they have no other relationship
with us.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Although other foreign companies have used VIE structures similar to ours and such arrangements are not uncommon in connection
with business operations of foreign companies in China in industry sectors in which foreign direct investments are limited or prohibited,
recently there has been greater scrutiny by the business community of the VIE structure and, additionally, the application of a VIE
structure to control companies in a sector in which foreign direct investment is specifically prohibited carries increased risks.
In addition, the Ministry of Commerce (“MOFCOM”), promulgated the Rules of Ministry of Commerce on Implementation of Security
Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors in August 2011, or the MOFCOM Security
Review Rules, to implement the Notice of the General Office of the State Council on Establishing the Security Review System for
Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, or Circular No. 6. The
MOFCOM Security Review Rules came into effect on September 1, 2011 and replaced the Interim Provisions of the Ministry of
Commerce on Matters Relating to the Implementation of the Security Review System for Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors promulgated by MOFCOM in March 2011. According to these circulars and rules, a security review is
required for mergers and acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions
by which foreign investors may acquire the “de facto control” of domestic enterprises having “national security” concerns. In addition,
when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review, the
MOFCOM will look into the substance and actual impact of the transaction. The MOFCOM Security Review Rules further prohibit foreign
investors from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases,
loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating
that our business falls into the scope subject to the security review, and there is no requirement for foreign investors in those mergers
and acquisitions transactions already completed prior to the promulgation of Circular No. 6 to submit such transactions to MOFCOM for
security review. The enactment of the MOFCOM National Security Review Rules specifically prohibits circumvention of the rules through
VIE arrangement in the area of foreign investment in business of national security concern. Although we believe that our business,
judging from its scale, should not cause any concern for national security review at its current state, there is no assurance that
MOFCOM would not apply the same concept of anti-circumvention in the future to foreign investment in prohibited areas through VIE
structure, the same way that our investment in China was structured.
Failure to comply with the U.S. Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.
We are subject to the U.S. Foreign Corrupt Practices Act, which generally prohibits U.S. companies from engaging in bribery or other
prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may
compete with us, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur
from time-to-time in the PRC. There can be no assurance, however, that our employees or other agents will not engage in such conduct
for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer
severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of
operations.
If we make equity compensation grants to persons who are PRC citizens, they may be required to register with SAFE. We may
also face regulatory uncertainties that could restrict our ability to adopt equity compensation plans for our directors and
employees and other parties under PRC laws.
On April 6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock
Ownership Plan or Stock Option Plan of An Overseas Listed Company, also known as “Circular 78.” It is not clear whether Circular 78
covers all forms of equity compensation plans or only those which provide for the granting of stock options. For any plans which are so
covered and are adopted by a non-PRC listed company, such as our company, after April 6, 2007, Circular 78 requires all participants
who are PRC citizens to register with and obtain approvals from SAFE prior to their participation in the plan. In addition, Circular 78 also
requires PRC citizens to register with SAFE and make the necessary applications and filings if they participated in an overseas listed
company’s covered equity compensation plan prior to April 6, 2007. We believe that the registration and approval requirements
contemplated in Circular 78 will be burdensome and time consuming.
If it is determined that any of our equity compensation plans are subject to Circular 78, failure to comply with such provisions may subject
us and participants of our equity incentive plan who are PRC citizens to fines and legal sanctions and may possibly prevent us from
being able to grant equity compensation to our PRC employees. In that case, our ability to compensate our employees and directors
through equity compensation would be hindered and our business operations may be adversely affected.
The labor contract law and its implementation regulations may increase our operating expenses and may materially and
adversely affect our business, financial condition and results of operations.
As the PRC Labor Contract Law, or Labor Contract Law, and the Implementation Regulation for the PRC Labor Contract Law, or
Implementation Regulation, have been enforced for only a relatively short period of time, substantial uncertainty remains as to its
potential impact on our business, financial condition and results of operations. The implementation of the Labor Contract Law and the
Implementation Regulation may increase our operating expenses, in particular our human resources costs and our administrative
expenses. In addition, as the interpretation and implementation of these regulations are still evolving, we cannot assure you that our
employment practices will at all times be deemed to be in full compliance with the law. In the event that we decide to significantly modify
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
our employment or labor policy or practice, or reduce the number of our sales professionals, the labor contract law may limit our ability to
effectuate the modifications or changes in the manner that we believe to be most cost-efficient or otherwise desirable, which could
materially and adversely affect our business, financial condition and results of operations. If we are subject to severe penalties or incur
significant liabilities in connection with labor disputes or investigations, our business and results of operations may be adversely
affected. In the event that we decide to significantly modify our employment or labor policy or practice, or reduce our professional staff,
the labor contract law may limit our ability to effectuate the modifications or changes in the manner that we believe to be most cost-
efficient or otherwise desirable, which could materially and adversely affect our business, financial condition and results of operations.
If relations between the United States and China worsen, our stock price may decrease and we may have difficulty accessing
the U.S. capital markets.
At various times during recent years, the United States and China have had disagreements over trade, economic and other policy
issues. Controversies may arise in the future between these two countries. Any political or trade controversies between the United
States and China could adversely affect the market price of our common stock and our and our clients' ability to access U.S. capital
markets.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
RISKS RELATED TO OUR COMMON STOCK
If we fail to meet all applicable Nasdaq Capital Market requirements and Nasdaq determines to delist our common stock, the
delisting could adversely affect the market liquidity of our common stock, impair the value of your investment, adversely affect
our ability to raise needed funds and subject us to additional trading restrictions and regulations.
On June 18, 2014, our common stock began trading on the Nasdaq Capital Market. If we fail to satisfy the continued listing requirements
of The NASDAQ Capital Market, such as the corporate governance requirements or the minimum closing bid price requirement, the
NASDAQ Stock Market (or NASDAQ) may take steps to de-list our common stock. Such a de-listing would likely have a negative effect
on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the
event of a de-listing, we would take actions to restore our compliance with NASDAQ's listing requirements, but we can provide no
assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve
the liquidity of our common stock, prevent our common stock from dropping below the NASDAQ minimum bid price requirement or
prevent future non-compliance with NASDAQ's listing requirements.
If we fail to meet all applicable Nasdaq requirements and Nasdaq delists our securities from trading on its exchange, we expect our
securities could be quoted on the Over-The-Counter Bulletin Board ("OTCBB") or the "pink sheets." If this were to occur, we could face
significant material adverse consequences, including:
• a limited availability of market quotations for our securities;
• reduced liquidity for our securities;
• a determination that our common stock is "penny stock" which will require brokers trading in our common stock to adhere to more
stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
• a limited amount of news and analyst coverage; and
• a decreased ability to issue additional securities or obtain additional financing in the future.
Furthermore, The National Securities Markets Improvement Act of 1996 ("NSMIA"), which is a federal statute, prevents or preempts the
states from regulating the sale of certain securities, which are referred to as "covered securities." Because our common stock is listed on
Nasdaq, they are covered securities for the purpose of NSMIA. If our securities were no longer listed on Nasdaq and therefore not
"covered securities", we would be subject to regulation in each state in which we offer our securities.
We do not intend to pay cash dividends.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally
pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay
dividends. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will
depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements,
and other factors our board of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if
dividends are declared, there is no assurance with respect to the amount of any such dividend.
Our operating history and lack of profits could lead to wide fluctuations in our share price. The market price for our common
shares is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float.
The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect
that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is
attributable to a number of factors. First, as noted above, our common shares are sporadically and thinly traded. As a consequence of
this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of
those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our
common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb
those sales without adverse impact on its share price. Secondly, we are a speculative or "risky" investment due to our limited operating
history and lack of profits to date. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all
or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more
quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our
control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our
common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares
for sale at any time will have on the prevailing market price.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
38
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Stockholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years
from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and
misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the
wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along
with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that
have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market
or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the
described patterns from being established with respect to our securities. However, the occurrence of these patterns or practices could
increase the volatility of our share price.
ITEM 2. PROPERTIES.
Our corporate headquarters are located at 530 University Avenue in Palo Alto, California. We currently pay rent in the amount of $1,400
per month on a month-to-month basis.
In addition we lease an aggregate of approximately 32,000 square feet of space to house our research and manufacturing facilities in
Wuxi, Beijing and Shanghai, China, and pay rent of approximately $37,400 per month for these facilities. We intend to establish our
GMP facility in Beijing in 2015 with up to 15,000 square feet of space, annual rental cost is expected to be raised by $1.4 million. We
expect to sign the Beijing lease in the second quarter of 2015.
ITEM 3. LEGAL PROCEEDINGS
We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results
of operations.
ITEM 3. MINE SAFETY DISCLOSURES
Not applicable.
39
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Our common stock is traded in the over-the-counter market, and quoted on the Nasdaq Capital Market under the symbol "CBMG." Our
stock was formerly quoted under the symbol “EBIG.”
As of March 18, 2015, there were 10,995,235 shares of common stock of the Company outstanding and there were approximately 1,700
stockholders of record of the Company's common stock.
The following table sets forth for the periods indicated the high and low bid quotations for the Company's common stock. These
quotations represent inter-dealer quotations, without adjustment for retail markup, markdown or commission and may not represent
actual transactions.
Fiscal Year 2014
First Quarter (January – March 2014)
Second Quarter (April – June 2014)
Third Quarter (July – September 2014)
Fourth Quarter (October – December 2014)
Fiscal Year 2013
First Quarter (January – March 2013)
Second Quarter (April – June 2013)
Third Quarter (July – September 2013)
Fourth Quarter (October – December 2013)
High
Low
$
$
$
$
$
$
$
$
5.59
15.25
35.45
19.20
7.23
7.40
7.25
6.60
$
$
$
$
$
$
$
$
5.00
4.51
14.27
11.52
2.90
3.10
5.00
4.85
Effective January 18, 2013, the Company completed its reincorporation from the State of Arizona to the State of Delaware (the
“Reincorporation”). In connection with the Reincorporation, shares of the former Arizona entity were exchanged into shares of the
Delaware entity at a ratio of 100 Arizona shares for each 1 Delaware share, resulting in the same effect as a 1:100 reverse stock split.
The Reincorporation became effective on January 31, 2013. Please refer to the Current Report on Form 8-K, filed by the Company on
January 25, 2013. All values have been retroactively adjusted.
Dividends
We did not declare any cash dividends for the years ended December 31, 2013 and 2012. Our Board of Directors does not intend to
declare any dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of
the Board of Directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition,
operating and capital requirements, and other factors as the Board of Directors considers relevant. There is no assurance that future
dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.
Equity Compensation Plans
2009 Stock Option Plan
During the first quarter of 2009, the Company's Board of Directors approved and adopted the 2009 Stock Option Plan (the "Plan") and
designated 100,000 of its common stock for issuance under the Plan to employees, directors or consultants for the Company through
either the issuance of shares or stock option grants. Under the terms of the Plan, stock option grants shall be made with exercise prices
not less than 100% of the fair market value of the shares of common stock on the grant date. There are 4,593 shares available for
issuance under this plan as of December 31, 2014.
2011 Incentive Stock Option Plan (as amended)
During the last quarter of 2011, the Company's Board of Directors approved and adopted the 2011 Incentive Plan (the "2011 Plan") and
designated 300,000 of its no par common stock for issuance under the 2011 Plan to employees, directors or consultants for the
Company through either the issuance of shares or stock option grants. Under the terms of the 2011 Plan, stock option grants were
authorized to be made with exercise prices not less than 100% of the fair market value of the shares of common stock on the grant date.
On November 30, 2012, the Company’s Board of Directors approved the Amended and Restated 2011 Incentive Stock Option Plan (the
“Restated Plan”), which amended and restated the 2011 Plan to provide for the issuance of up to 780,000 (increasing up to 1% per year)
shares of common stock. The Restated Plan was approved by our stockholders on January 17, 2013. There are 4,784 shares available
for issuance under this plan as of December 31, 2014.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
40
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2013 Stock Incentive Plan
On August 29, 2013, the Company’s Board of Directors adopted the Cellular Biomedicine Group, Inc. 2013 Stock Incentive Plan (the
“2013 Plan”) to attract and retain the best available personnel, to provide additional incentive to Employees, Directors and Consultants
and to promote the success of the Company’s business. The 2013 Plan was approved by our stockholders on December 9, 2013.
The following summary describes the material features of the 2013 Plan. The summary, however, does not purport to be a complete
description of all the provisions of the 2013 Plan. The following description is qualified in its entirety by reference to the Plan.
Description of the 2013 Plan
The purpose of the 2013 Plan is to attract and retain the best available personnel, to provide additional incentive to employees, directors
and consultants and to promote the success of the Company’s business. The Company has reserved up to one million (1,000,000) of
the authorized but unissued or reacquired shares of common stock of the Company. The Board or its appointed administrator has the
power and authority to grant awards and act as administrator thereunder to establish the grant terms, including the grant price, vesting
period and exercise date.
Each sale or award of shares under the 2013 Plan is made pursuant to the terms and conditions provided for in an award agreement (an
“Award Agreement”) entered into by the Company and the individual recipient. The number of shares covered by each outstanding
Award Agreement shall be proportionately adjusted for (a) any increase or decrease in the number of issued shares of common stock
resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the common stock, or similar transaction
affecting the common stock or (b) any other increase or decrease in the number of issued shares of common stock effected without
receipt of consideration by the Company.
Under the 2013 Plan, the Board or its administrator have the authority to: (i) to select the employees, directors and consultants to whom
awards may be granted from time to time hereunder; (ii) to determine whether and to what extent awards are granted; (iii) to determine
the number of shares or the amount of other consideration to be covered by each award granted; (iv) to approve forms of Award
Agreements for use under the 2013 Plan; (v) to determine the terms and conditions of any award granted; (vi) to establish additional
terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford grantees
favorable treatment under such rules or laws; provided, however, that no award shall be granted under any such additional terms,
conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the 2013 Plan; (vii) to amend the
terms of any outstanding award granted under the 2013 Plan, provided that any amendment that would adversely affect the grantee’s
rights under an outstanding award shall not be made without the grantee’s written consent; (viii) to construe and interpret the terms of the
2013 Plan and awards, including without limitation, any notice of award or Award Agreement, granted pursuant to the 2013 Plan; (ix) to
take such other action, not inconsistent with the terms of the 2013 Plan, as the administrator deems appropriate.
The awards under the 2013 Plan other than Incentive Stock Options (“ISOs”) may be granted to employees, directors and
consultants. ISOs may be granted only to Employees of the Company, a parent or a subsidiary. An employee, director or consultant
who has been granted an award may, if otherwise eligible, be granted additional awards. Awards may be granted to such employees,
directors or consultants who are residing in foreign jurisdictions as the administrator may determine from time to time. Options granted
under the 2013 Plan will be subject to the terms and conditions established by the administrator. Under the terms of the 2013 Plan, the
exercise price of the options will not be less than the fair market value (as determined under the 2013 Plan) of our common stock at the
time of grant. Options granted under the 2013 Plan will be subject to such terms, including the exercise price and the conditions and
timing of exercise, as may be determined by the administrator and specified in the applicable award agreement. The maximum term of
an option granted under the 2013 Plan will be ten years from the date of grant. Payment in respect of the exercise of an option may be
made in cash, by certified or official bank check, by money order or with shares, pursuant to a “cashless” or “net issue” exercise, by a
combination thereof, or by such other method as the administrator may determine to be appropriate and has been included in the terms
of the option.
The 2013 Plan may be amended, suspended or terminated by the Board, or an administrator appointed by the Board, at any time and
for any reason.
2014 Stock Incentive Plan
On September 22, 2014, the Company’s Board of Directors adopted the Cellular Biomedicine Group, Inc. 2014 Stock Incentive Plan (the
“2014 Plan”) to attract and retain the best available personnel, to provide additional incentive to Employees, Directors and Consultants
and to promote the success of the Company’s business. The 2014 Plan was approved by our stockholders on November 7, 2014.
The following summary describes the material features of the 2014 Plan. The summary, however, does not purport to be a complete
description of all the provisions of the 2014 Plan. The following description is qualified in its entirety by reference to the Plan.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
41
Description of the 2014 Plan
The purpose of the 2014 Plan is to attract and retain the best available personnel, to provide additional incentive to employees, directors
and consultants and to promote the success of the Company’s business. The Company has reserved up to 1.2 million (1,200,000) of the
authorized but unissued or reacquired shares of common stock of the Company. The Board or its appointed administrator has the
power and authority to grant awards and act as administrator thereunder to establish the grant terms, including the grant price, vesting
period and exercise date.
Each sale or award of shares under the 2014 Plan is made pursuant to the terms and conditions provided for in an award agreement (an
“Award Agreement”) entered into by the Company and the individual recipient. The number of shares covered by each outstanding
Award Agreement shall be proportionately adjusted for (a) any increase or decrease in the number of issued shares of common stock
resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the common stock, or similar transaction
affecting the common stock or (b) any other increase or decrease in the number of issued shares of common stock effected without
receipt of consideration by the Company.
Under the 2014 Plan, the Board or its administrator have the authority to: (i) to select the employees, directors and consultants to whom
awards may be granted from time to time hereunder; (ii) to determine whether and to what extent awards are granted; (iii) to determine
the number of shares or the amount of other consideration to be covered by each award granted; (iv) to approve forms of Award
Agreements for use under the 2014 Plan; (v) to determine the terms and conditions of any award granted; (vi) to establish additional
terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford grantees
favorable treatment under such rules or laws; provided, however, that no award shall be granted under any such additional terms,
conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the 2014 Plan; (vii) to amend the
terms of any outstanding award granted under the 2014 Plan, provided that any amendment that would adversely affect the grantee’s
rights under an outstanding award shall not be made without the grantee’s written consent; (viii) to construe and interpret the terms of the
2014 Plan and awards, including without limitation, any notice of award or Award Agreement, granted pursuant to the 2014 Plan; (ix) to
take such other action, not inconsistent with the terms of the 2014 Plan, as the administrator deems appropriate.
The awards under the 2014 Plan other than Incentive Stock Options (“ISOs”) may be granted to employees, directors and
consultants. ISOs may be granted only to Employees of the Company, a parent or a subsidiary. An employee, director or consultant
who has been granted an award may, if otherwise eligible, be granted additional awards. Awards may be granted to such employees,
directors or consultants who are residing in foreign jurisdictions as the administrator may determine from time to time. Options granted
under the 2014 Plan will be subject to the terms and conditions established by the administrator. Under the terms of the 2014 Plan, the
exercise price of the options will not be less than the fair market value (as determined under the 2013 Plan) of our common stock at the
time of grant. Options granted under the 2014 Plan will be subject to such terms, including the exercise price and the conditions and
timing of exercise, as may be determined by the administrator and specified in the applicable award agreement. The maximum term of
an option granted under the 2014 Plan will be ten years from the date of grant. Payment in respect of the exercise of an option may be
made in cash, by certified or official bank check, by money order or with shares, pursuant to a “cashless” or “net issue” exercise, by a
combination thereof, or by such other method as the administrator may determine to be appropriate and has been included in the terms
of the option.
The 2014 Plan may be amended, suspended or terminated by the Board, or an administrator appointed by the Board, at any time and
for any reason.
All Equity Compensation Plans
The following table presents securities authorized for issuance under the Company’s equity compensation plans, as of December 31,
2014:
Number of
securities
to be issued
upon exercise
of
outstanding
options,
warrants and
rights (#)
1,425,173
Weighted-
average
exercise price
of
outstanding
options,
warrants and
rights ($)
Number of
securities
remaining
available
for future
issuance
under
equity
compensation
plans
1,238,737
-
1,238,737
$7.37
-
7.37
-
1,425,173
$
42
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Transfer Agent
The Company’s transfer agent and Registrar for the common stock is Corporate Stock Transfer, Inc. located in Denver, Colorado.
Recent Sales of Unregistered Securities
All unregistered sales and issuances of equity securities that were required for the year ended December 31, 2014 were previously
disclosed in a Form 8-K or Form 10-Q filed with the SEC.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide Item 6 disclosure.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
As of February 6, 2013, in connection with the Merger, Cellular Biomedicine Group, Ltd. became the accounting acquirer thus resulting
in a reverse merger for accounting purposes. Therefore, the accompanying financial statements are on a consolidated basis subsequent
to February 6, 2013, but only reflect the operations of Cellular Biomedicine Group, Ltd. prior to the date of acquisition.
The following is management's discussion and analysis of certain significant factors that have affected our financial position and
operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to
the plans of our current management. This report includes forward-looking statements. Generally, the words "believes," "anticipates,"
"may," "will," "should," "expect," "intend," "estimate," "continue," and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including
the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time,
which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these
forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking
statements.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes
thereto and other financial information included in Item 8 of this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments
made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be
reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.
The following summarizes critical estimates made by management in the preparation of the consolidated financial statements.
Stock-Based Compensation
We periodically use stock-based awards, consisting of shares of common stock, to compensate certain officers and consultants. Shares
are expensed on a straight line basis over the requisite service period based on the grant date fair value, net of estimated forfeitures, if
any. Typically, our awards are fully vested at the date of grant, so forfeitures are not applicable.
43
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Revenue Recognition
The Company utilizes the guidance set forth in the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 104,
regarding the recognition, presentation and disclosure of revenue in its financial statements.
For its Consulting segment, the Company engaged in listing contracts with its clients which provide for the payment of fees, either in
cash or equity, upon the achievement of certain milestones by the client, including the successful completion of a financial statement
audit, the successful listing on a national stock exchange or over-the-counter market and the maintenance of ongoing 1934 Act reporting
requirements with the Securities and Exchange Commission. In some instances, payment may be made in advance of performance;
however, such payment was often refundable in the event that milestones were not reached. The Company recognized revenue as
milestones are reached in accordance with FASB's Accounting Standards Codification (ASC) No. 605-28-25. Such guidance stipulates
that revenue be recognized for individual elements in a multiple deliverable arrangement using the relative selling price method. The
Company relied on internal estimates of the relative selling price of each element as objective third-party evidence is unattainable. This
segment was discontinued in 2014 and will not have further revenue.
For its Biomedicine segment, the Company recognizes revenue when pervasive evidence of an arrangement exists, the price is fixed
and determinable, collection is reasonably assured and delivery of products or services has been rendered. The Biomedicine segment
has started to generate revenues with the acquisition of AG and expects to expand revenue generating activities significantly over the
next two to five years as additional therapies are developed.
Income Taxes
Income taxes are accounted for using the asset and liability method as prescribed by ASC 740 “Income Taxes”. Under this method,
deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. A valuation allowance would be provided for those deferred tax assets for which if it is
more likely than not that the related benefit will not be realized.
While we have optimistic plans for our business strategy, we determined that a full valuation allowance was necessary against all net
deferred tax assets as of December 31, 2014 and 2013, given the current and expected near term losses and the uncertainty with
respect to our ability to generate sufficient profits from our business model.
Below is a discussion of the results of our operations for the years ended December 31, 2014 and 2013. These results are not
necessarily indicative of result that may be expected in any future period. Our prospects should be considered in light of the risks,
expenses and difficulties that we may encounter. We may not be successful in addressing these risk and difficulties.
As of February 6, 2013, the Company (formerly "EastBridge Investment Group Corporation") merged with Cellular Biomedicine Group,
Ltd., with Cellular Biomedicine Group, Ltd. being the accounting acquirer thus resulting in a reverse merger for accounting purposes.
Accordingly, our accompanying financial statements are reported on a consolidated basis subsequent to February 6, 2013, but reflect
solely the operations of Cellular Biomedicine Group, Ltd. (a British Virgin Islands corporation) prior to the date of acquisition. Except
where indicated, the following analysis compares the results of operations of the consolidated company for the years ending December
31, 2014, with the results of operations of Cellular Biomedicine Group, Ltd. for the years ending December 31, 2013. Please refer to
Note 2 of our financial statements for further details regarding the basis of presentation.
44
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Comparison of Year Ended December 31, 2014 to Year Ended December 31, 2013
On September 26, 2014, the Company acquired all of the outstanding equity of Beijing Agreen Biotechnology Co. Ltd., as such, we are
presenting consolidated pro forma information below to reflect the impacts of the business combination as if the transaction had
occurred at the beginning of the earliest period presented. The descriptions in the results of operations below reflect our operating
results as set forth in our Consolidated Statement of Operations filed herewith.
Net sales and revenue
$
564,377
CBMG
As stated
Year Ended December 31, 2014
Agreen
Pro forma
Adjustment
$ 1,198,414
Pro forma
CBMG
Consolidated
$ 1,762,791
$
As stated
204,914
Year Ended December 31, 2013
Agreen
Pro forma
Adjustment
$ 1,075,692
Consolidated
$ 1,280,606
Pro forma
Operating expenses:
Cost of sales
General and administrative
Selling and marketing
Research and development
Impairment of investments
Total operating expenses
Operating loss
Other income (expense)
Interest income
Other expense
Total other income (expense)
Loss from continuing operations
before taxes
Income tax provision
Loss from Continuing operations
Loss on discontinued operations, net
of tax
Net loss
Other comprehensive income (loss):
Cumulative translation adjustment
Unrecognized loss on investments
Total other comprehensive income
(loss):
Comprehensive loss
1,626,299
$ (13,848,312)
Earnings (loss) per share for continuing operations:
Basic
$
(1.43)
Diluted
$
(1.43)
Earnings (loss) per share discontinued operations:
Basic
$
(0.36)
(0.36)
Diluted
Earnings (loss) per share net loss:
Basic
Diluted
$
$
$
213,243
8,413,251
280,595
2,671,932
1,427,840
13,006,861
(12,442,484)
880,797
245,911
6,351
113,635
-
1,246,694
1,094,040
8,659,162
286,946
2,785,567
1,427,840
14,253,555
296,212
9,314,143
57,670
1,890,506
-
11,558,531
(48,280) (12,490,764) (11,353,617)
872,937
304,027
9,709
214,752
-
1,401,425
1,169,149
9,618,170
67,379
2,105,258
-
12,959,956
(325,733) (11,679,350)
15,043
71,982
87,025
318
(147)
171
15,361
71,835
87,196
1,294
(6,196)
(4,902)
310
(13,381)
(13,071)
1,604
(19,577)
(17,973)
(12,355,459)
(48,109) (12,403,568) (11,358,519)
(338,804) (11,697,323)
-
(12,355,459)
-
-
-
(48,109) (12,403,568) (11,358,519)
-
-
(338,804) (11,697,323)
(3,119,152)
$ (15,474,611)
$
-
(2,438,514)
(48,109) $ (15,522,720) $ (13,797,033) $
(3,119,152)
-
(2,438,514)
(338,804) $ (14,135,837)
15,254
1,611,045
963
-
16,217
1,611,045
$
78,650
(198,200)
(9,627)
-
69,023
(198,200)
963
(119,550)
(47,146) $ (13,895,458) $ (13,916,583) $
1,627,262
(9,627)
(129,177)
(348,431) $ (14,265,014)
(0.09) $
(0.09) $
(1.35) $
(1.35) $
(1.96) $
(1.96) $
(0.45) $
(0.45) $
(1.79)
(1.79)
-
-
$
$
(0.34) $
(0.34) $
(0.42) $
(0.42) $
-
-
$
$
(0.37)
(0.37)
$
$
$
$
$
(1.79)
(1.79)
$
$
(0.09) $
(0.09) $
(1.69) $
(1.69) $
(2.38) $
(2.38) $
(0.45) $
(0.45) $
(2.16)
(2.16)
Weighted average common shares outstanding:
Basic
8,627,094
Diluted
8,627,094
555,335
555,335
9,182,429
5,792,888
9,182,429
5,792,888
753,522
753,522
6,546,410
6,546,410
45
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Segments
The Company operated two reporting segments until June 23, 2014 when the Company decided to discontinue the Consulting segment.
The majority of all assets are contained in Biomedicine segment with the majority of the operations located in the People’s Republic of
China. The accounting principles applied at the operating segment level in determining gross profit are the same as those applied at the
consolidated financial statement level. Management and the Board evaluates performance and allocates resources based on net sales,
gross profit and working capital in each of the reporting segments
Fiscal Year Ended December 31, 2014, Compared to Fiscal Year Ended December 31, 2013
Results of Operations:
Revenues
Year ended December 31,
$
564,377
$
204,914
$
359,463
175%
In 2014, with the acquisition of Agreen we have started generating revenue from cell therapy treatments, of approximately $378,000, in
addition to the sales of the A-StromalTM kits, while 2013 revenues were solely from sales of A-StromalTM kits.
2014
2013
Change
Percent
Cost of Sales
2014
2013
Change
Percent
Year ended December 31,
$
213,243
$
296,212
$
(82,969)
(28)%
The decrease in cost of sales was attributable to the A-StromalTM kits sold. These kits were developed in late 2012 and early 2013 and
over time producing these kits we discovered improved effiencies in the cost of each kit. We have also started selling cell therapy
treatments, as more treatments become approved we will expect costs to be reflective of the treatments rather than the cost of the A-
StromalTM kits.
General and Administrative Expenses
Year ended December 31,
$ 8,413,251
$ 9,314,143
$
(900,892)
(10)%
In 2013, the Company experienced increased expenses associated with increased corporate activities related to the effects of our
Merger, integration and compliance costs, and the development of our biomedicine business. In 2014, general and administrative
expenses decreased as compared to 2013 due to the following:
2014
2013
Change
Percent
• Expenses associated with increased corporate activities related to the effects of our Merger in 2013:
❑ A decrease in legal, professional and accounting services of $1,022,000;
❑ A decrease in investor relations expense of $1,503,000; partially offset by
• An increase in stock-based compensation expense of $374,000;
• An increase in payroll expenses of $330,000;
• An increase in depreciation expense of $264,000;
• An increase in loss on disposal of asset of $222,000
• An increase in other expenses of $139,000;
• An increase in travel expense of $179,000; and
• An increase in rent expense of $116,000.
46
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Sales and Marketing Expenses
Year ended December 31,
$
280,595
$
57,670
$
222,925
387%
Sales and marketing expenses increased in 2014 due to an increase of $145,000 in promotional and sponsorship fees for the China
BioTherapy conference, $39,000 in Salaries & Benefits, $31,000 in Travel & Entertainment expense, and $8,000 in Other expenses.
2014
2013
Change
Percent
Research and Development
Year ended December 31,
$ 2,671,932
$ 1,890,506
$
781,426
41%
Research and development expenses increased in 2014. The primary reason for the increase is we have undertaken significant
activities surrounding the development of our biomedicine intellectual property, including the implementation of Phase IIb clinical trials for
KOA in the first quarter of 2014 and kick-off the clinical trial for CD in the middle of 2014.
2014
2013
Change
Percent
Impairment of Investments
Year ended December 31,
$ 1,427,840
$
-
$ 1,427,840
0%
The other general expense in 2014 is attributed to the recognition of other than temporary impairment on the value of shares in a specific
client; no such expense existed in 2013.
2014
2013
Change
Percent
Operating Income/( Loss)
Year ended December 31,
$ (12,442,484) $ (11,353,617) $ (1,088,867)
10%
The decrease in the operating loss for 2014 as compared to 2013 is primarily due to changes in revenues, general and administrative
expenses, sales and marketing expense, research and development expenses and impairment of investment expense, each of which is
described above.
2014
2013
Change
Percent
Other Income (Expense)
Year ended December 31,
$
87,025
$
(4,902) $
91,927
(1875)%
Other income (expense) was primarily the receipt of a retro-active lease subsidy in 2014 of approximately $60,000 combined with
foreign currency gain and interest income. While in 2013, the expense was primarily due to foreign currency loss of approximately
$6,000, offset partially by interest income of approximately $1,000.
2014
2013
Change
Percent
47
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Income Tax Provision/(Benefit)
Year ended December 31,
$
-
$
-
$
-
0%
While we have optimistic plans for our business strategy, we determined that a valuation allowance was necessary given the current and
expected near term losses and the uncertainty with respect to our ability to generate sufficient profits from our business model.
Therefore, we established a valuation allowance for all deferred tax assets.
2014
2013
Change
Percent
Loss from Continuing Operations
Year ended December 31,
$ (12,355,459) $ (11,358,519) $
(996,940)
9%
Changes in loss from continuing operations are primarily attributable to changes in operating loss as described above.
2014
2013
Change
Percent
Income (Loss) from Discontinued Operations
2014
2013
Change
Percent
Year ended December 31,
$ (3,119,152) $ (2,438,514) $
(680,638)
28%
Change in loss from discontinued operations is primarily attributable to our decision to terminate this Consulting business segment, as
no meaningful revenues were generated in 2014 as compared to 2013. The largest change was the reduction of revenues generated
decreased by approximately $2,200,000. The impairment of Goodwill associated with the 2013 merger decreased by approximately
$959,000. Other income and expense decreased by approximately $320,000 related to interest paid from the 2013 merger
agreement. The income tax provision decreased by approximately $294,000.
Net Income/(Loss)
Year ended December 31,
$ (15,474,611) $ (13,797,033) $ (1,677,578)
12%
Changes in net loss are primarily attributable to changes in operating income and other income (expense), each of which is described
above.
2014
2013
Change
Percent
Comprehensive Net Income/(Loss)
Year ended December 31,
$ (13,848,312) $ (13,916,583) $
68,271
0%
Comprehensive net loss for 2014 was primarily attributable to unrecognized gain on shares of clients of approximately $1,611,000,
partially offset by currency translation of approximately $15,000 combined with the changes in net income.
2014
2013
Change
Percent
48
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LIQUIDITY AND CAPITAL RESOURCES
We had working capital of $12,019,143 as of December 31, 2014 compared to $5,373,355 as of December 31, 2013. Our cash position
increased to $14,770,584 at December 31, 2014 compared to $7,175,215 at December 31, 2013, as we had an increase in cash
generated from financing activities due to a private placement financing in 2014 for aggregate proceeds of approximately $19,701,000,
partially offset by an increase in cash used in operating activities.
Net cash provided by or used in operating, investing and financing activities from continuing operations were as follows (in thousands):
Net cash used in operating activities was approximately $10,300,000 and $8,455,000 for the years ended December 31, 2014 and 2013,
respectively. The following table reconciles net loss to net cash used in operating activities:
For the year ended December 31,
Net Loss
Non Cash Transactions
Changes in operating assets, net
Net Cash used in operating activities
2014
Change
2013
$ (15,474,611) $ (13,797,033) $ (1,677,578)
394,427
(561,353)
$ (10,299,869) $ (8,455,364) $ (1,844,505)
6,521,405
(1,346,662)
(785,309)
6,126,978
The 2014 change in operating assets and liabilities was primarily due to an increase in prepaid expenses and long-term prepaid
expenses combined with decreased other current liabilities partially offset by increase in accrued expenses while the change in 2013
was primarily due to a decrease in accrued expenses.
Net cash used in investing activities was approximately $1,806,000 and $153,000 in 2014 and 2013, respectively. These amounts were
the result of purchases of fixed assets, acquisition of business, and intangible assets.
Cash provided by financing activities was approximately $19,689,000 and $11,597,000 in the years ended December 31, 2014 and
2013, respectively. These amounts were directly attributable to the proceeds received from the issuance of common stock.
Liquidity and Capital Requirements Outlook
Capital Requirements
We anticipate that following termination of the Consulting segment in June, 2014, the company will require approximately $15 million in
cash to operate as planned during the 2015 calendar year. Of this amount, approximately $9 million will be used to operate our facilities
and offices, including but not limited to payroll expenses, rent and other operating costs, and to fund our research and development as
we continue to develop our products through the clinical study process. As another component of the $9 million amount noted above, we
anticipate approximately $5 million will be needed during 2015 to fund our currently planned clinical trials for KOA, CD and Cancer
therapy. In addition, we anticipated approximately $2 million will be used to acquire the advanced cancer therapy technology, such as
CAR-T and anti-PD-1 technology, approximately $1.6 million will be used to settle the remaining cash consideration of AG acquisition
and $2.6 million will be used to expand our physical plant and facilities and inject the working capital in our immune cell therapy
business, although we may revise these plans depending on the changing circumstances of our biomedicine business.
We expect to rely on current cash balances that we hold to provide for these capital requirements. We do not intend to use, and will not
rely on our holdings in securities to fund our operations. One of our held stock,Wonder International Education & Investment Group
Corporation, is delinquent in its SEC filings for multiple periods. We do not know whether we can liquidate our 2,131,105 shares of
Wonder International Education & Investment Group Corporation stock or any of our other portfolio securities or if liquidated, whether the
realized amount will be meaningful at all.
As of March 27, 2015, we had received approximate $20,000,000 from the private placement sale of equity. As we continue to incur
losses, achieving profitability is dependent upon the successful development of our immune therapy business and commercialization of
our technology in research and development phase, which is a number of years in the future. Once that occurs, we will have to achieve a
level of revenues adequate to support our cost structure. We may never achieve profitability, and unless and until we do, we will continue
to need to raise additional capital. Over the next 12 months ending December 31, 2015, we estimate negative operating cash flow of
approximately $10.5 million. 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.
Our medium to long term capital needs involve the further development of our biomedicine business, and may include, at management’s
discretion, new clinical trials for other indications, strategic partnerships, joint ventures, acquisition of licensing rights from new partners,
expansion of our license rights with our current joint venture partner or changes in the structure of such joint venture, and/or expansion
of our research and development programs. Furthermore, as our therapies pass through the clinical trial process and if they gain
regulatory approval, we expect to expend significant resources on sales and marketing of our future products, services and therapies.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
49
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In order to finance our medium to long term plans, we intend to rely upon external financing. This financing may be in the form of equity
and or debt, in private placements and/or public offerings, or arrangements with private lenders. Due to our short operating history and
our early stage of development, particularly in our biomedicine business, we may find it challenging to raise capital on terms that are
acceptable to us, or at all. Furthermore our negotiating position in the capital raising process may worsen as we consume our existing
resources. Investor interest in a company such as ours is dependent on a wide array of factors, including the state of regulation of our
industry in China (e.g. the policies of MOH and the CFDA), the U.S. and other countries, political headwinds affecting our industry, the
investment climate for issuers involved in businesses located or conducted within China, the risks associated with our corporate
structure, risks relating to our joint venture partners, licensed intellectual property, as well as the condition of the global economy and
financial markets in general. Additional equity financing may be dilutive to our stockholders; debt financing, if available, may involve
significant cash payment obligations and covenants that restrict our ability to operate as a business; our stock price may not reach levels
necessary to induce option or warrant exercises; and asset sales may not be possible on terms we consider acceptable. If we are unable
to raise the capital necessary to meet our medium- and long-term liquidity needs, we may have to delay or discontinue certain clinical
trials, the licensing, acquisition and/or development of cell therapy technologies, and/or the expansion of our biomedicine business; or we
may have to raise funds on terms that we consider unfavorable. For a more complete discussion of risks that our business is subject to,
refer to the “Risk Factors” section above.
Liquidity
To support our liquidity needs for 2014, we utilized our then-current cash reserves and raised additional capital through (i) the completion
of our 2014 Q2 initiated private placement of common stock with proceeds of $10 million and (ii) the associate option deed conversion
completed in the December of 2014 with proceeds of $8 million.
In the near term, we continue to rely on our current cash reserves and the budding AG technical services revenue to fund our operating
activities. We do not have a plan of liquidation of the portfolio securities that are held by Eastbridge Sub, but we may decide to sell
marketable securities from our portfolio from time to time subject to securities regulatory constraints, if and when market conditions are
considered to be favorable. Wonder Education is delinquent in their SEC filings for multiple periods. We do not know whether we can
liquidate our shares of Wonder Education stock. And if liquidated, whether the realized amount will be meaningful at all.
Off-Balance Sheet Transactions
We do not have any off-balance sheet transactions.
50
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide Item 7A disclosure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and filed as a part of this Annual Report on Form 10-K are our Consolidated Financial Statements, beginning on page F-
1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Effective August 26, 2013, the Company dismissed its independent registered public accounting firm, Tarvaran Askelon & Company
(“TAC”) effective immediately. The dismissal was approved by the Company’s Board of Directors (following the merger of Cellular
Biomedicine Group, Ltd. with EastBridge Investment Group Corporation and the concurrent engagement of BDO USA, LLP (“BDO”) as
the Company’s independent registered public accountant.
TAC’s report on the financial statements of the Company for the fiscal years ended December 31, 2011 and December 31, 2012, did
not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting
principles. During the fiscal years ended December 31, 2011 and 2012 through August 26, 2013, there were (i) no disagreements with
TAC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of TAC would have caused them to make reference to the subject matter of the
disagreement(s) in connection with their report; (2) no "reportable events" as such term is defined in Item 304(a)(1)(v) of Regulation S-K
except certain material weaknesses in the internal controls over financial reporting as disclosed in the Form 10-K for the fiscal years
ended December 31, 2014, and December 31, 2013. For additional discussion of our internal controls over financial reporting, see Item
9A below.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the
period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in
reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time
periods and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
As discussed further below, in the quarter ended December 31, 2014 the Company remediated of the internal control weaknesses identified
in prior years, which cover the process of payment, share base compensation management and monitoring of subsidiaries outside China.
51
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Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this
assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal
Control — Integrated Framework (1992). Based on our assessment using those criteria, our management concluded that our internal control
over financial reporting was effective as of December 31, 2014 following the remediation of the below-mentioned weaknesses.
REMEDIATED CONTROLS OVER STOCK-BASED COMPENSATION
We hare restated our financial statements contained within our Quarterly Reports for the quarterly periods ended March 31, 2013 and June
30, 2013 to correct the accounting for stock based compensation related to awards issued by CBMG BVI prior to the merger. Such awards
were previously accounted for as an expense at the time awards were vested, whereas they should have been recognized as stock based
compensation over the requisite service period based on the grant date fair value of each award. Further, we did not have sufficient controls
surrounding the completeness of our accounting for stock-based compensation awards for year ended December 31, 2013.
We have since implemented new procedures to ensure that all stock awards are identified and properly accounted for on a timely basis and
believe that we have remediated this deficiency as of December 31, 2014.
REMEDIATED SEGREGATION OF DUTIES AND EFFECTIVE OVERSIGHT OF ACCOUNTING FUNCTION
Management is aware that during 2013, following our merger with CBMG, we had only a small number of employees dealing with general
administrative and financial matters. We relied on outside consultants to perform key accounting activities, and our staffing levels did not
permit us to properly segregate duties and perform effective oversight and review functions.
During 2014 and 2013, we have been improving our internal controls by adding additional staff, employing technology to improve our
accounting for certain activities and adding oversight and review procedures. Monthly budget review and approval of bank account activities
and financial statements of the subsidiaries has been carried out since June 2014. Accordingly, we had remediated this deficiency as of
December 31, 2014.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute
assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions
about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
ITEM 9B. OTHER INFORMATION
None.
52
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
PART III
Set forth below is information regarding the Company's current directors and executive officers as of the date of this report. The
executive officers serve at the pleasure of the Board of Directors.
The directors are divided into three classes and serve three year terms, as follows:
Class
Class I
Term
Class I directors serve for a term of three years, and are elected by the stockholders at the beginning of each term.
The next full 3-year term for Class I directors extends from the date of this year’s Annual Meeting of stockholders in
2013 to the date of the 2016 annual meeting.
Class II
Initial term ends on the date of the Annual Meeting of Stockholders in 2014. Class II directors serve for a term of
three years, and are elected by the stockholders at the beginning of each term. The next full 3-year term for Class II
directors extends from the date of the 2014 annual meeting to the date of the 2017 annual meeting.
Class III
Initial term ends on the date of the Annual Meeting of Stockholders in 2015. Class III directors serve for a term of
three years, and are elected by the stockholders at the beginning of each term. The next full 3-year term for Class III
directors extends from the date of the 2015 annual meeting to the date of the 2018 annual meeting.
There are no family relationships between any of our directors or executive officers. There is no arrangement or understanding between
any of the directors or officers of the Company and any other person pursuant to which any director or officer was or is to be selected as
a director or officer, and there is no arrangement, plan or understanding as to whether non-management stockholders will exercise their
voting rights to continue to elect the current directors to the Company’s Board. There are also no arrangements, agreements or
understandings between non-management stockholders that may directly or indirectly participate in or influence the management of the
Company’s affairs. There are no agreements or understandings for any officer or director to resign at the request of another person, and
none of the officers or directors are acting on behalf of, or will act at the direction of, any other person.
Name
Age
Position
Wen Tao (Steve) Liu
Wei (William) Cao
Tony (Bizuo) Liu
Chun Kwok Alan Au (2)(3)
Guotong Xu(3)
Gerardus A. Hoogland
David Bolocan (1)(2)
Terry A. Belmont (1)(3)
Nadir Patel (1)(3)
Chairman of the Board and President –
North America
58
56 Chief Executive Officer and Director
50 Chief Financial Officer and Secretary
42 Independent Director
57 Non-independent Director
59 Non-independent Director
51 Independent Director
69 Independent Director
45 Independent Director
Term
Class III
Class III
Class II
Class II
Class I
Class I
Class I
Class III
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Nominating and Corporate Governance Committee
53
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The following is a brief description of the business experience during the past five years of each of the above-named persons:
Wei (William) Cao, Chief Executive Officer and Director
Mr. Cao has served as our President and Chief Operating Officer from February 2013 until September 29, 2013, when he was appointed
as our Chief Executive Officer. Mr. Cao has served as a director on our Board since February 2013. Prior to this, from August 2010 to
February 2013, Dr. Cao served as President, COO and director of Cellular Biomedicine Group Ltd. (our predecessor corporation). From
August 2006 until July 2010, Dr. Cao served as general manager and chairman of Affymetrix China, a Company in the genetic analysis
industry. Dr. Cao has over 30 years of professional experience in scientific research, product development and startups. He served as
Technical Manager for Bayer Diagnostics Asia Pacific region (now Siemens), General Manager of GenoMultix Ltd. and President of Wuxi
New District Hospital. Dr. Cao has extensive research experience in the immune-pharmacology field at Harvard Medical School and
Stanford University Medical Center. Dr. Cao holds a Bachelor’s degree in Medicine from Fudan University Medical College, Shanghai
China, and a Ph.D. in Pharmacology from Medical College of Virginia, Richmond Virginia. He is the inventor named in 26 patents in the
field of genetic analysis and stem cell technology, especially adipose derived stem cell preparation and its disease treatment
applications. In considering Dr. Cao’s eligibility to serve on the Board, the Board considered Dr. Cao’s scientific background and
experience in the biotech industry.
Wen Tao (Steve) Liu, President – North America and Executive Chairman of The Board
Dr. Liu acted as our Chief Executive Officer from February 2013 to September 29, 2013, when he then took the role of President – North
America, focusing on the Company’s business strategy in Canada and the United States. He has served, and continues to serve, as
Chairman of our Board, from February 2013 to the present. Prior to this Dr. Liu served as CEO of Cellular Biomedicine Group Ltd. (our
predecessor corporation) since March 2012. Dr. Liu has 29 years of professional career experience in bringing new products from
inception to mass market, encompassing the biomedical, clean energy and semiconductors industries. Dr. Liu has led large
organizations as well as entrepreneurial companies with a proven track record of delivering shareholder value. He is experienced in
multi-cultural business environments and has gained respect and trust from customers, colleagues and industry leaders. Dr. Liu served
as President and CEO of Seeo Inc. from July 2010 to February 2012, where he led a team of scientists and entrepreneurs for the
commercialization of solid state lithium ion battery for electric vehicles and smart grid applications. From 2003 to 2009, he was President
and CEO of Shanghai Huahong NEC Electronics Company. From 1989 to 2002, he was Vice President and GM of Peregrine
Semiconductor, Vice President and GM of Integrated Device Technology, and Managing Director of Quality Semiconductor
Australia. Mr. Liu served at Cypress Semiconductor in various engineering roles from 1984 to 1989. Mr. Liu earned a Bachelor’s degree
in Chemistry from Nanjing University, Nanjing China. He holds a Master and Doctorate in Chemistry from Rensselaer Polytechnic
Institute, Troy New York. In considering Dr. Liu’s eligibility to serve on the Board, the Board considered Dr. Liu’s prior experience as a
leader and executive officer and his educational background.
Bizuo (Tony) Liu, Chief Financial Officer and Secretary
Tony Liu has served as the Company’s Chief Financial Officer and Secretary since January 2014 and as Director of the Company from
February 2013 to January 2014. Since January 2013, Mr. Liu has served as the Corporate Vice President at Alibaba Group, handling
Alibaba’s overseas investments. Since joining Alibaba in 2009, Mr. Liu has severed in various positions including Corporate Vice
President at B2B corporate investment, corporate finance, and General Manager for a global ecommerce platform. From July 2011 to
December 2012, he served as CFO for HiChina, a subsidiary of Alibaba, an internet infrastructure service provider. Prior to joining
Alibaba, Mr. Liu spent 19 years at Microsoft Corporation where he served a variety of finance leadership roles. He was the General
Manager at Corporate Strategy looking after Microsoft China investment strategy and Microsoft corporate strategic planning
process. Mr. Liu was a leader in Microsoft corporate finance organization during the 1990s as Corporate Accounting Director. Mr. Liu
earned a B.S. degree in Physics from Suzhou University, Suzhou, PRC and has completed MBA/MIS course work at Seattle Pacific
University. Mr. Liu obtained his Washington State CPA certificate in 1992.
Chun Kwok Alan Au - Director
Alan serves as a member of our Board since November, 2014. He also sits on the Board's Compensation Committee and Nomination
Committee.
Alan has over 15 years of experience across healthcare investment banking, private equity and venture capital investments in
Asia/China, and started his advisory roles with healthcare players since early 2013. He is now Adviser to Simcere Pharmaceutical Group,
a leading pharma company in China, and Venture Partner of Ally Bridge Group, a cross border biotech investment fund focusing on
bringing cutting edge technologies from the US into China. Alan is also a member of the Board, Audit Committee and Compensation
Committee of China Nepstar Chain Drugstore Ltd. (NYSE: NPD), and serves as a panel member for the Small Entrepreneur Research
Assistance Program (SERAP) of the Innovation and Technology Fund of the Hong Kong SAR Government.
Between 2011 and 2012, Alan was Head of Asia Healthcare Investment Banking of Deutsche Bank Group, advising healthcare IPOs and
M&A in the region. Prior to that, he was Executive Director at JAFCO Asia Investment Group, responsible for healthcare investments in
China from 2008 to 2010, and Investment Director at Morningside Group, responsible for healthcare investments in Asia from 2000 to
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2005. From 1995 to 1999, Mr. Au worked at KPMG and KPMG Corporate Finance Ltd., responsible for regional M&A transactions and
financial advisory services.
Alan is a Certified Public Accountant in the U.S. and holds the Chartered Financial Analyst (CFA) designation. He is an associate
member of the Hong Kong Institute of Financial Analysts and member of the American Institute of Certified Public Accountants. Alan
received his Bachelor's degree in Psychology from the Chinese University of Hong Kong, and a Master's degree in Management from
Columbia Business School in New York.
54
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Guotong Xu, M.D., Ph.D., - Director
Dr. Xu is currently a Professor of Ophthalmology and Regenerative Medicine since 2008, Dean of Tongji University School of Medicine
and a Director of Stem Cell Bank of TUSM, an important base or a center for stem cell research and clinical application in China.
Mr. Xu was the Deputy Dean of Tongji University School of Medicine from 2008 to 2010. After he trained as post-doctor in Alcon Lab and
NEI/NIH, he was appointed as a Research Assistant Professor in the Department of Anatomy and Cell Biology at University of North
Texas Health Science Center. Dr. Xu organized the first large scale International Stem Cell Symposium in collaboration with ISSCR in
2007. Following that, he and his colleagues initiated the establishment of Chinese Society for Stem Cell Biology, and severed as the first
president. He is also an active member in the establishment of the State Stem Cell & Regenerative Medicine Strategic Alliance, and
severs as a council member. Dr. Xu is also an Associate Editor for Chinese Journal of Cell and Stem Cell. More important, he is one of
the few scientists in China who serves as the PI for two China National Major Projects (973 programs).
Dr. Xu had a PhD in pharmacology from University of North Texas Health Science Center, MD degree from Peking Union Medical
College, a MD degree from Chinese Academy of Medical Sciences and a bachelor degree from Harbin Medical University in 1982.
David Bolocan – Director
Mr. Bolocan has over 20 years of experience in retail banking and payments, with extensive expertise in deposit product development,
pricing, marketing, advertising, distribution, customer segmentation, lifecycle management, and portfolio management. Mr. Bolocan is
currently a managing director for Argus Information and Advisory Services, LLC and leads the Retail Banking Solutions group which
includes the Deposit Accounts Payment Study and retail banking client delivery groups. Prior to joining Argus Mr. Bolocan held senior
executive roles at SunTrust (Head of Consumer Deposit Products), JPM Chase (Head of Small Business Credit Products, Pricing and
Analytics), MBNA/Bank of America (CMO of Small Business Lending), and consulting positions at Mercer Management Consulting,
Mitchell Madison Group, and AlixPartners. Mr. Bolocan received an MS/MBA from the MIT Sloan School of Management and a BA from
Harvard University in Computer Science and Economics. In considering Mr. Bolocan’s eligibility to serve on the Board, the Board
considered Mr. Bolocan’s extensive experience in the management of large complex businesses, as well as his financial expertise.
Terry A. Belmont - Director
Mr. Belmont has over 20 years of experience in leading major academic and non-academic medical centers and healthcare entities with
multi-campus responsibility. Since 2009, Mr. Belmont has overseen UC Irvine Medical Center, the main campus of UC Irvine Health, in
Orange, Calif., and its licensed ambulatory facilities in Orange, Irvine, Costa Mesa, Anaheim and Santa Ana. Since his arrival in 2009,
Belmont has led several expansion and renovation projects. He helped open the state-of the-art UC Irvine Douglas Hospital and led the
development of a patient-centered healing garden and a 7-story clinical laboratory building. Mr. Belmont recently launched a 10-year
facility master planning project for facility development at UC Irvine Medical Center and clinics throughout Orange County. Prior to
joining UC Irvine Medical Center, Mr. Belmont served as CEO of Long Beach Memorial Medical Center and Miller Children’s Hospital
from 2006-2009. He has also served as president and chief executive officer in several entities, including St. Joseph Hospital of Orange,
Pacific Health Resources, California Hospital Medical Center and HealthForward.
Mr. Belmont’s substantial community involvement includes board positions with the Orange County World Affairs Council, Southern
California College of Optometry, American Heart Association and Children’s Fund. He serves on the Board of Trustees of the University
of Redlands. Mr. Belmont received his master’s in public health with a major in hospital administration from UC Berkeley, and a
bachelor’s in business from the University of Redlands. In considering Mr. Belmont’s eligibility to serve on the Board, the Board
considered Mr. Belmont’s business acument in the healthcare industry.
Gerardus A. Hoogland - Director
Mr. Hoogland has over 20 years of experience in managing international pharmaceutical companies and providing consulting services to
companies in the pharmaceutical and healthcare industries. Since October 2013, Mr. Hoogland has served as a director of Cytespace
Pvt, Ltd, a clinical research site solution organization located in India. Since July 2013, he has served as Chief Executive Officer of
HealthCrest AG, an investment and consulting company based in Zug, Switzerland. Prior to joining HealthCrest, Mr. Hoogland was the
Executive Director and board member of Litha Healthcare Ltd., a healthcare company listed on Johannesburg Stock Exchange from July
2012 to July 2013. In 1997, Mr. Hoogland founded Pharmaplan Pty Ltd., a premier specialty pharmaceutical company located in South
Africa, and was the company’s Chief Executive Officer from 1997 to July 2012.
Mr. Hoogland received his Medical Doctor degree from University of Amsterdam, his Propeduse Law degree from Eramus Universiteit,
and his Mater of Business Administration degree from Institute d’Administration des Affaries (INSEAD). In considering Mr. Hoogland’s
eligibility to serve on the Board, the Board considered Mr. Hoogland’s medical expertise as well as business acumen in the
pharmaceutical and healthcare segments.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
55
Nadir Patel -- Director
Since July 2011 Mr. Patel has been serving as Assistant Deputy Minister, Corporate Planning, Finance and Information Technology, and
Chief Financial Officer for Canada’s Department of Foreign Affairs, Trade and Development, which includes the responsibilities of
strategic planning, finance, information management and technology, risk management and performance. Previously, from April 2009 to
July 2011, Mr. Patel served as Canada’s Consul General in Shanghai, promoting trade and investment between Canada and China.
From summer 2007 to April 2009, he served as Chief Air Negotiator for Canada's Department of Foreign Affairs, Trade and
Development, negotiating trade agreements and treaties on behalf of the Canadian government. Mr. Patel also serves on the Board of
Governors of the International Development Research Centre (and on its Audit and Finance Committee), as well as the Ottawa Advisory
Board of Wilfrid Laurier University’s School of Business and Economics. He has a Master of Business Administration (MBA) from New
York University’s Stern School of Business, the London School of Economics and Political Science, and the HEC Paris School of
Management. In considering Mr. Patel’s eligibility to serve on the Board, the Board considered Mr. Patel’s financial expertise and
international experience.
Board Committees
On February 20, 2013, the Board authorized formation of an audit committee, compensation committee and nominating committee and
on March 12, 2013 adopted charters. Our independent directors have been appointed to these committees as follows:
Name
Nadir Patel
Terry A. Belmont
David Bolocan
Chun Kwok Alan Au
Guotong Xu
Audit
Compensation
Committee
Committee
Chair
X
X
Chair
X
X
Nominating &
Corporate
Governance
Committee
X
Chair
X
Members of our management are associated with other firms involved in a range of business activities. Consequently, there are
potential inherent conflicts of interest in their acting as officers and directors of our company. Although the officers and directors are
engaged in other business activities, we anticipate they will devote an important amount of time to our affairs.
Our officers and directors are now and may in the future become shareholders, officers or directors of other companies, which may be
formed for the purpose of engaging in business activities similar to ours. Accordingly, additional direct conflicts of interest may arise in
the future with respect to such individuals acting on behalf of us or other entities. Moreover, additional conflicts of interest may arise with
respect to opportunities which come to the attention of such individuals in the performance of their duties or otherwise. Currently, we do
not have a right of first refusal pertaining to opportunities that come to their attention and may relate to our business operations.
Our officers and directors are, so long as they are our officers or directors, subject to the restriction that all opportunities contemplated by
our plan of operation which come to their attention, either in the performance of their duties or in any other manner, will be considered
opportunities of, and be made available to us and the companies that they are affiliated with on an equal basis. A breach of this
requirement will be a breach of the fiduciary duties of the officer or director. If we or the companies with which the officers and directors
are affiliated both desire to take advantage of an opportunity, then said officers and directors would abstain from negotiating and voting
upon the opportunity. However, all directors may still individually take advantage of opportunities if we should decline to do so. Except
as set forth above, we have not adopted any other conflict of interest policy with respect to such transactions.
56
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Audit Committee
The Audit Committee consists of Messrs. David Bolocan, Terry A. Belmont and Nadir Patel (serving as Chairman), each of whom are
“independent” as defined under section 5605 (a)(2) of the NASDAQ Listing Rules. In addition, the Board has determined that each
member of the Audit Committee qualifies as an “audit committee financial expert” as defined in the rules of the Securities and Exchange
Commission
to a charter, which can be viewed on our website
at www.cellbiomedgroup.com (under “Investors”). The Audit Committee is expected to convene regular meetings following the Annual
Meeting. The role of the Audit Committee is to:
The Audit Committee operates pursuant
(SEC).
• oversee management’s preparation of our financial statements and management’s conduct of the accounting and financial reporting
processes;
• oversee management’s maintenance of internal controls and procedures for financial reporting;
• oversee our compliance with applicable legal and regulatory requirements, including without limitation, those requirements relating
to financial controls and reporting;
• oversee the independent auditor’s qualifications and independence;
• oversee the performance of the independent auditors, including the annual independent audit of our financial statements;
• discharge such duties and responsibilities as may be required of the Audit Committee by the provisions of applicable law, rule or
regulation.
A copy of the charter of the Audit Committee is available on our website at www.cellbiomedgroup.com (under “Investors”).
Compensation Committee
The Compensation Committee consists of Chun Kwok Alan Au and Guotong Xu and David Bolocan acting as Chairman, each of whom
are “independent” as defined in section 5605(a)(2) of the NASDAQ Listing Rules. The Compensation Committee is expected to convene
regular meetings after the Annual Meeting. The role of the Compensation Committee is to:
• develop and recommend to the Board the annual compensation (base salary, bonus, stock options and other benefits) for our
President/Chief Executive Officer;
• review, approve and recommend to the Board the annual compensation (base salary, bonus and other benefits) for all of our
executives;
• review, approve and recommend to the Board the aggregate number of equity awards to be granted to employees below the
executive level;
• ensure that a significant portion of executive compensation is reasonably related to the long-term interest of our stockholders; and
• prepare certain portions of our annual Proxy Statement, including an annual report on executive compensation.
A copy of the charter of the Compensation Committee is available on our website at www.cellbiomedgroup.com (under “Investors”).
The Compensation Committee may form and delegate a subcommittee consisting of one or more members to perform the functions of
the Compensation Committee. The Compensation Committee may engage outside advisers, including outside auditors, attorneys and
consultants, as it deems necessary to discharge its responsibilities. The Compensation Committee has sole authority to retain and
terminate any compensation expert or consultant to be used to provide advice on compensation levels or assist in the evaluation of
director, President/Chief Executive Officer or senior executive compensation, including sole authority to approve the fees of any expert or
consultant and other retention terms. In addition, the Compensation Committee considers, but is not bound by, the recommendations of
our Chief Executive Officer or President with respect to the compensation packages of our other executive officers.
57
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee, or the “Governance Committee”, shall consist of Messrs. Chun Kwok Alan Au,
Nadir Patel and Terry Belmont serving as Chairman, each of whom are “independent” as defined in section 5605(a)(2) of the NASDAQ
Listing Rules. The Governance Committee is expected to convene regular meetings following the Annual Meeting. The role of the
Governance Committee is to:
• evaluate from time to time the appropriate size (number of members) of the Board and recommend any increase or decrease;
• determine the desired skills and attributes of members of the Board and its committees, taking into account the needs of the
business and listing standards;
• establish criteria for prospective members, conduct candidate searches, interview prospective candidates, and oversee programs to
introduce the candidate to us, our management, and operations;
• review planning for succession to the position of Chairman of the Board and Chief Executive Officer and other senior management
positions;
• annually recommend to the Board persons to be nominated for election as directors and appointment as members of committees;
• adopt or develop for Board consideration corporate governance principles and policies; and
• periodically review and report to the Board on the effectiveness of corporate governance procedures and the Board as a governing
body, including conducting an annual self-assessment of the Board and its standing committees.
A copy of the charter of the Governance Committee is available on our website at www.cellbiomedgroup.com (under “Investors”).
Director Qualifications and Diversity
The Board seeks independent directors who represent a diversity of backgrounds and experiences that will enhance the quality of the
Board’s deliberations and decisions. Candidates should have substantial experience with one or more publicly traded companies or
should have achieved a high level of distinction in their chosen fields. The Board is particularly interested in maintaining a mix that
includes individuals who are active or retired executive officers and senior executives, particularly those with experience in biomedicine,
medical and drug regulation in China, intellectual property, early-stage companies, research and development, strategic planning,
business development, compensation, finance, accounting and banking.
In evaluating nominations to the Board of Directors, the Governance Committee also looks for certain personal attributes, such as
integrity, ability and willingness to apply sound and independent business judgment, comprehensive understanding of a director’s role in
corporate governance, availability for meetings and consultation on Company matters, and the willingness to assume and carry out
fiduciary responsibilities. The Governance Committee took these specifications into account in formulating and re-nominating its present
Board members.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who beneficially own more than
ten percent of a registered class of our equity securities, to file with the SEC initial reports of beneficial ownership and reports of changes
in beneficial ownership of our common stock. The rules promulgated by the SEC under Section 16(a) of the Exchange Act require those
persons to furnish us with copies of all reports filed with the Commission pursuant to Section 16(a). The information in this section is
based solely upon a review of Forms 3, Forms 4, and Forms 5 received by us.
We believe that all of the Company's executive officers, directors and 10% stockholders have timely complied with their filing
requirements during the year ended December 31, 2014, except that each of Au Chun Kwok Alan, Guo-Tong Xu and Jeffery H.
Auerbach inadvertently did not timely file one SEC Form 3; Wen Tao Liu inadvertently reported late 2 acquisitions of common stock that
transpired in 2014; Cao (William) Wei inadvertently reported late 3 acquisitions of common stock that transpired in 2014; David Bolocan ;
Andrew Chan inadvertently reported late 4 acquisitions of common stock and 2 acquisitions of stock option that transpired in 2014; Tony
Liu inadvertently reported late one acquisition of common stock and 2 acquisitions of stock option that transpired in 2014; David Bolocan
inadvertently reported late one acquisition of common stock that transpired in 2014.
58
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Code of Business Conduct and Ethics
We have adopted a code of ethics which applies to all our directors, officers and employees and comprises written standards that are
reasonably designed to deter wrongdoing and to promote the behavior described in Item 406 of Regulation S-K promulgated by the
SEC. A copy of our “Code of Business Conduct and Ethics for Officers, Directors and Employees” is available on our website
at www.cellbiomedgroup.com (under “About Us: Company Overview”). In the event that we make any amendments to, or grant any
waivers of, a provision of our Code of Business Conduct and Ethics for Officers, Directors and Employees that applies to the principal
executive officer, principal financial officer or principal accounting officer that requires disclosure under applicable SEC rules, we intend
to disclose such amendment or waiver and the reasons therefor in a Form 8-K or in our next periodic report.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth for the years ended December 31, 2014 and 2013 compensation awarded to, paid to, or earned by,
Steve Liu (our former CEO), William Cao (our current CEO), Bizuo (Tony) Liu (our current CFO), and Andy Chan (our former CFO).
Non-Equity
Nonqualified
Deferred
Salary
Bonus Awards
Stock
Option
Awards
Incentive Plan Compensation
Compensation
Earnings
All Other
Compensation
Total
Year
($)
($)
2014 200,004
($)
- 37,727
($)
($)
($)
($)
-
-
-
($)
- 237,731
2013 168,750 33,750
-
2014 225,000
- 472,770
-
-
2013 172,917 34,583
-
2014 155,491
- 664,335
- 1,141,712
-
2013
2014 220,006
-
-
-
- 46,200 209,625
-
-
-
-
-
-
-
-
-
-
-
-
- 675,270
- 225,000
- 871,835
- 1,297,203
-
-
- 475,831
Name and
Principal Position
Wen Tao
(Steve) Liu,
President and
Chairman of the
Board
Wei (William)
Cao, Chief
Executive
Officer and
Director
Bizuo (Tony)
Liu, Chief
Financial
Officer and
Director
Andrew Chan,
Senior Vice
President,
Corporate
Business
Development
2013 166,667 33,333
- 210,120
-
-
- 410,120
Executive Employment Agreements
At the closing of the merger with CBMG BVI, the Company entered into executive employment agreements with each of Wen Tao
(Steve) Liu, Wei (William) Cao and Andrew Chan (the “New Officers”) dated February 6, 2013 (each an “Employment Agreement,”
collectively, the “Employment Agreements”). As of August 30, 2013, the Employment Agreements were amended to revise the salaries of
the New Officers to: Wen Tao (Steve) Liu: $225,000; Wei (William) Cao: $200,000; and Andrew Chan: $200,000. On September 29,
2013, in connection with their change in positions, the Board further adjusted the salaries of Mr. Liu and Mr. Cao to $200,000 and
$225,000, respectively. The New Officers are also eligible to participate in the Company’s Amended and Restated 2011 Incentive Stock
Option Plan (the “Plan”) and receive an option grant thereunder for the purchase of common stock of the Company at the discretion of
the board of directors of the Company (the “Board”). The term of the New Officers’ employment agreements are effective as of February
6, 2013 and continue for three years thereafter. After the three year term, if the New Officers continue to be employed, they will be
employed on an at-will basis and their agreements shall automatically renew for successive one year terms, until and unless their
employment is terminated.
If during the initial three year period following February 6, 2013, the New Officers are terminated for any reason other than death,
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
disability, Cause (as defined in their Employment Agreements) or for no good reason, the Company shall be obligated to: (i) pay a
severance amount equal to one times the New Officer’s base salary; (ii) accelerate and vest in full the New Officer’s stock options; (iii)
subject to the New Officer’s election to receive COBRA, pay for the executive’s COBRA premiums during the twelve month period
commencing with continuation coverage for the month in which the date of termination occurs.
59
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
If any New Officer’s employment is terminated by the Company, upon or within two years following the date of a Change in Control (as
defined in the Employment Agreement), the Company will (i) pay the New Officer a severance amount equal to two times the New
Officer’s base salary; (ii) accelerate and vest the New Officer’s stock options effective immediately upon the date of termination within the
two year period following the occurrence of a Change in Control; and (iii) subject to the New Officer’s election to receive COBRA, pay for
the New Officer’s COBRA premiums during the twelve month period commencing with continuation coverage for the month in which the
date of termination occurs.
In connection with Tony Liu’s appointment as Chief Financial Officer in January 2014, the Company entered into an employment
agreement with Mr. Liu on substantially the same terms as the New Officer Employment Agreements, except that, Mr. Liu will receive an
annual base salary of $210,000.
EastBridge Sub Employment Agreements with Norman Klein and Keith Wong
In connection with their termination of the prior employment agreements with the Company, on February 5, 2013, Messrs. Klein and
Wong entered into a Deferred Compensation Agreement with the Company, pursuant to which the Company agreed to: (i) pay Messrs.
Klein and Wong certain accrued unpaid cash compensation of $459,300 and $676,839, respectively; and (ii) pay on August 31, 2013,
pay to Messrs. Klein and Wong cash bonus payments of $152,577 and $204,723, respectively.
Effective as of February 6, 2013, Norman Klein and Keith Wong’s employment agreements with the Company were terminated. On
February 6, 2013, EastBridge Sub entered into employment agreements with Norman Klein and Keith Wong (each a “Subsidiary
Employment Agreement,” collectively, the “Subsidiary Employment Agreements”).
Pursuant to Mr. Wong’s Subsidiary Employment Agreement with EastBridge Sub, Mr. Wong is entitled to an annual base salary of
$240,000.
Pursuant to Mr. Klein’s Subsidiary Employment Agreement with EastBridge Sub, Mr. Klein is entitled to an annual base salary of
$180,000. Messrs. Wong and Klein were also eligible to participate in and receive awards under the Company’s incentive stock plan.
The Subsidiary Employment Agreements were effective as of February 6, 2013 and were to continue for three years thereafter unless
earlier terminated.
In connection with the discontinuation of the Company’s consulting business, effective July 31, 2014, the Company terminated its
employment agreements with Messrs. Klein and Wong and terminated their services as officers of Eastbridge Sub. On the same date,
the Company entered into severance agreements with Messrs. Klein and Wong. Pursuant to the terms of the agreements, the Company
agreed to pay severance of $360,000 and $480,000 to Messrs. Klein and Wong, respectively, as well as an additional lump sum of
$4,200 and $12,480, respectively, to cover the equivalent costs of retaining two years of medical coverage under the Company’s current
medical plan for Messrs. Klein and Wong.
Compensation of Directors
Prior to the Merger, the Company compensated directors through options to purchase common stock as consideration for their joining
our Board and/or providing continued services as a director. Directors were not provided with cash compensation, although the Company
would reimburse their expenses.
After the Merger, the Company determined that the annual cash compensation (prorated daily) to be paid to each director shall consist of
$30,000 for each independent director and $20,000 for each non-independent director. In addition, each independent director of the
Board is eligible to receive a non-qualified option grant under the Plan, under which such director’s initial option grant shall be for a
number of shares of common stock as set forth in the Independent Director Agreement for each such director and shall include such
other terms to be determined by the Board and or its Compensation Committee.
Non-Executive Director Agreement
The Company has and will continue to enter into agreements with independent non-executive directors, under which these directors will
be paid $30,000 per year (prorated daily based on a 360 day year for any portion of the year if he serves for less than a full term) for
services as a director. Independent directors shall also be eligible to receive a non-qualified option grant under the Plan to purchase
2,000 shares for each, committee on which the director serves, except that the director is entitled to an additional 3,000 shares, if such
director serves as a chairperson of a committee. Such options shall vest on the anniversary date of the director’s appointment to the
committee or to his position as committee chair, as the case may be.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
60
Outstanding Equity Awards At Fiscal Year-End December 31, 2014
Outstanding Equity Awards at Fiscal Year-End
Option awards
Stock awards
Number of
securities
underlying
unexercised
options(#)
exercisable
Number of
securities
underlying
unexercised
options (#)
unexercisable
Equityincentive
plan awards:
Number of
securities
underlying
unexercised
unearned
options (#)
Option
exercise
price ($)
Option
expiration
date
Market
value of
shares of
units of
stock that
have not
vested($)
Equityincentive
plan awards:
Number of
unearned
shares, units
or other rights
that have not
vested (#)
Equityincentive
plan awards:
Market or
payout value of
unearned
shares, units
or other rights
that have not
vested ($)
Number of
shares or
units of
stock that
have not
vested(#)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Name
(a)
Wen Tao
(Steve) Liu,
President and
Chairman of
the Board (1)
Wei (William)
Cao, Chief
Executive
Officer and
Director (2)
Wei (William)
Cao, Chief
Executive
Officer and
Director (3)
Andrew Chan,
Senior Vice
President,
Corporate
Business
Development
(4)
Andrew Chan,
Senior Vice
President,
Corporate
Business
Development
(5)
Bizuo (Tony)
Liu, Chief
Financial
Officer and
Director (6)
Bizuo (Tony)
Liu, Chief
Financial
Officer and
Director (7)
89,631
90,369
- $
3.00 2/20/2023
-
-
-
34,630
55,370
- $
3.00 2/20/2023
-
-
-
37,500
52,500
- $
5.40 9/30/2023
-
-
-
28,519
51,481
- $
3.00 2/20/2023
-
-
-
10,613
36,387
- $
5.61 5/16/2024
-
-
-
77,917
177,083
- $
5.00 1/3/2024
-
-
-
3,092
2,208
- $
7.23 3/5/2023
-
-
-
Jeffery Auerbach (8)
Terry A. Belmont (9)
David Bolocan (10)
Leo Dembinski (11)
Jianping Dai (12)
Jianping Dai (12)
Gerardus
A. Hoogland (13)
4,000
4,000
-
-
7,000
-
940
883
7,000
-
-
4,000
3,000
-
7,000
-
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
$
$
$
5.41 10/7/2023
5.50 12/9/2023
5.50 12/9/2024
5.50 11/7/2024
5.41 10/4/2023
5.41 10/4/2024
5.41 10/4/2023
4.95 3/29/2023
5.40 9/26/2023
1,590
3,710
-
$
5.50 12/9/2023
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Nadir Patel (14)
Chun Kwok Alan Au
(15)
Guotong Xu (16)
-
-
-
-
5,000
2,000
4,000
2,000
-
-
$
$
- $
- $
5.00 1/3/2024
5.00 11/7/2024
15.62 11/7/2024
15.62 11/7/2024
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
61
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(1) Represents an option to purchase up to 146,667 shares that were issued on 2/20/2013 with a monthly vesting schedule over a
36 month period, an exercise price of $3.00 and an expiration date of 2/20/2023 and an additional option to purchase up to
33,333 shares issued on 2/20/2013 with full vesting on the second year anniversary of the award, an exercise price of $3.00 and
an expiration date of 2/20/2023.
(2) Represents an option to purchase up to 56,667 shares that were issued on 2/20/2013 with a monthly vesting schedule over a 36
month period, an exercise price of $3.00 and an expiration date of 2/20/2023 and an additional option to purchase up to 33,333
shares issued on 2/20/2013 with full vesting on the second year anniversary of the award, an exercise price of $3.00 and an
expiration date of 2/20/2023.
(3) Represents an option to purchase up to 90,000 shares that were issued on 9/30/2013 with a monthly vesting schedule over a 36
month period, an exercise price of $5.40 and an expiration date of 3/05/2023.
(4) Represents an option to purchase up to 46,667 shares that were issued on 2/20/2013 with a monthly vesting schedule over a 36
month period, an exercise price of $3.00 and an expiration date of 2/20/2023 and an additional option to purchase up to 33,333
shares issued on 2/20/2013 with full vesting on the second year anniversary of the award, an exercise price of $3.00 and an
expiration date of 2/20/2023.
(5) Represents an option to purchase up to 47,000 shares that were issued on 5/16/2014 with a monthly vesting schedule over a 31
month period, an exercise price of $5.61 and an expiration date of 5/16/2024.
(6) Represents an option to purchase up to 255,000 shares that were issued on 1/3/2014 with a monthly vesting schedule over a 36
month period, an exercise price of $5.61 and an expiration date of 1/3/2024.
(7) Represents an option to purchase up to 5,300 shares that were issued on 3/5/2013 with a monthly vesting schedule over a 36
month period, an exercise price of $7.23 and an expiration date of 3/5/2023.
(8) Represents an option to purchase up to 4,000 shares that were issued on 10/7/2013, with full vesting at the one year anniversary
of the grant date, an exercise price of $5.41 and an expiration date of 10/7/2023.
(9) Represents an option to purchase up to 4,000 shares that were issued on 12/9/2013, with full vesting at the one year anniversary
of the grant date, an exercise price of $5.50 and an expiration date of 12/9/2023 and an additional option to purchase up to
4,000 shares issued on 12/9/2014 with full vesting at the one year anniversary of the grant date, an exercise price of $5.5 and an
expiration date of 12/9/2024 as well as an additional option to purchase up to 3,000 shares issued on 11/7/2014 with full vesting
at the one year anniversary of the grant date, an exercise price of $5.5 and an expiration date of 11/7/2024.
(10) Represents an option to purchase up to 7,000 shares that were issued on 10/4/2013, with full vesting at the one year anniversary
of the grant date, an exercise price of $5.41 and an expiration date of 10/4/2023 and an additional option to purchase up to
7,000 shares that were issued on 10/4/2014, with full vesting at the one year anniversary of the grant date, an exercise price of
$5.41 and an expiration date of 10/4/2024.
(11) Represents an option to purchase up to 1,590 shares that were issued on 10/04/2013, fully vested immediately, an exercise
price of $5.41 and an expiration date of 10/04/2023. As of December 2014, 650 shares of options had been exercised.
(12) Represents an option to purchase up to 5,300 shares that were issued on 3/29/2013, with a monthly vesting schedule over a 36
month period, an exercise price of $4.95 and an expiration date of 3/29/2023. The award was amended on 9/26/2013 to 7,000
shares and 883 already vested shares on that date, with the amended shares fully vested at the one year anniversary of the
grant date, an exercise price of $5.40 and an expiration date of 9/26/2023.
(13) Represents an option to purchase up to 5,300 shares that were issued on 12/09/2013, with full vesting of 30%, 30% and 40% at
each year anniversary of the grant date for 3 years, an exercise price of $5.50 and an expiration date of 12/09/2023.
(14) Represents an option to purchase up to 5,000 shares that were issued on 1/3/2014, with full vesting at the one year anniversary
of the grant date, an exercise price of $5 and an expiration date of 1/3/2024 and an additional option to purchase up to 2,000
shares that were issued on 11/7/2014, with full vesting at the one year anniversary of the grant date, an exercise price of $5 and
an expiration date of 11/7/2024.
(15) Represents an option to purchase up to 4,000 shares that were issued on 11/7/2014, with full vesting at the one year anniversary
of the grant date, an exercise price of $15.62 and an expiration date of 11/7/2024.
(16) Represents an option to purchase up to 2,000 shares that were issued on 11/7/2014, with full vesting at the one year anniversary
of the grant date, an exercise price of $15.62 and an expiration date of 11/7/2024.
62
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Non-Equity
Nonqualified
Deferred
Option
Awards Compensation
Incentive Plan Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
2014 DIRECTOR COMPENSATION TABLE
Name
Year
($)
($)
Salary
Bonus
Stock
Awards
($)
Jeffery
Auerbach
Terry A.
Belmont
David
Bolocan
Wei (William)
Cao*
Jianping Dai
Leo
Dembinski
Gerardus A.
Hoogland*
Norm Klein*
Bizuo (Tony)
Liu*
Wen Tao
(Steve) Liu*
Nadir Patel
Keith Wong*
Chun Kwok
Alan Au
Guotong Xu
2014
2013
30,000
7,500
2014
2013
30,000
2,500
2014
2013
30,000
7,500
2014
2013
2014
2013
20,004
18,333
22,500
25,000
2014
2013
27,500
30,000
2014
2013
2014
2013
20,004
1,667
16,667
16,667
2014
2013
3,334
25,000
2014
2013
2014
2013
2014
2013
20,004
18,333
30,000
-
28,336
18,334
2014
2014
5,000
5,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
($)
($)
-
-
-
-
-
19,353
90,998
19,742
- 121,640
33,869
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37,633
-
7,693
-
26,158
-
-
-
33,569
-
-
60,140
-
-
-
53,304
26,652
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30,000
26,853
- 120,998
22,242
-
- 151,640
41,369
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,004
18,333
22,500
62,633
27,500
37,693
20,004
27,825
16,667
16,667
3,334
58,569
20,004
18,333
90,140
-
28,336
18,334
58,304
31,652
*Non-independent directors are paid $20,000 per year
Risk Management in Compensation Policies and Procedures
Due to the Company's lack of cash flows, it has historically compensated its officers in stock rather than paying a cash salary. By
compensating these officers in stock, we believe they have a greater incentive to take steps to increase the value of the Company's
stock than they would if compensated in cash. As the Company's value is largely based on the value of the equity it receives from its
clients, paying the officers using Company stock may incentivize them to take additional risks in an attempt to increase the value of the
Company's stock.
63
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The following table lists ownership of Common Stock as of February 28, 2015. The information includes beneficial ownership by (i)
holders of more than 5% of parent Common Stock, (ii) each of our directors and executive officers and (iii) all of our directors and
executive officers as a group. Except as noted below, to our knowledge, each person named in the table has sole voting and investment
power with respect to all shares of the Company’s Common Stock beneficially owned by them. Except as otherwise indicated below, the
address for each listed beneficial owner is c/o Cellular Biomedicine Group, Inc., 530 University Avenue, #17, Palo Alto, California 94301.
Name and Address of Beneficial Owner
Named Executive Officers and Directors
Wen Tao (Steve) Liu (5)
President and Chairman of the Board
Wei (William) Cao (1)
Chief Executive Officer and Director
Bizuo (Tony) Liu (6)
Chief Financial Officer, Director and Secretary
Andrew Chan (7)
Senior Vice President, Corporate Business Development
Gerardus A. Hoogland (8)
Director
David Bolocan (9)
Director
Terry A. Belmont (10)
Director
Nadir Patel (11)
Director
Chun Kwok Alan Au
Director
Guotong Xu
Director
Shares of
Common
Stock
Beneficially
Owned
Percent
of Class
330,002
2.88%
369,422
3.22%
209,931
1.83%
237,692
2.07%
*
*
*
*
1,590
17,000
6,224
5,000
0
0
All Officers and Directors as a Group (11 persons)
1,176,861
10.27%
5% or more Stockholders
Mission Right Limited (2)
Leung Pak To (3)
Cellular Immunity Tech Ltd. (4)
* Less than 1%
64
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
983,410
8.58%
781,920
6.82%
753,522
6.57%
(1) Wei (William) Cao shares voting and dispositive power over the shares held by W & J Development Ltd. with his spouse. Total
shares owned by Mr. Cao includes (i) 222,518 shares directly by him, (ii) 25,145 shares held by W & J Development Ltd., (iii) 74,259
options issued under the 2011 Plan vested/to be vested within 60 days as of February 28, 2015, (iv) 47,500 options vested/to be
vested within 60 days as of February 28, 2015.
(2)
Mission Right Limited is 50% owned by Yusen Holdings Limited and 50% by Zeacome Investment Limited. Chan Boon Ho Peter
controls Yusen Holdings. Zeacome Investment Limited is owned by Perfect Touch Technology Inc., which is owned by CST Mining
Group Limited. CST Mining Group Limited is a public company listed on the Hong Kong Stock Exchange under the ticker code
“985.” Accordingly, Chan Boon Ho Peter and CST Mining Group Limited beneficially own the shares held by Mission Right Limited.
(3)
Of the 781,920 shares beneficially owned by Mr. Leung, 544,777 are held by Full Moon Resources Limited and 237,143 are held by
Venture Garden Limited.
(4) Cellular Immunity Tech Ltd. is held by 7 companies. Agreen – Tech Ltd. accounts for 45% of its interest and was owned by Dr. Kou
Zhongxun, who is the employee of the company. Pureland Evergreen Ltd. accounts for 26% of the interest and was owned by Xu
Chengbin, who is the employee of the company. Agreen Cellular Immunotherapy Ltd. accounts for 10% of the interest and was
owned by Zhang Wei. Cellular Immunotherapy Ltd. was owned by Li Yaohua, who is the employee of the company. Biotechnology
– Tech Ltd. accounts for 5% of the interest and was owned by Wu Pengfei, who is the employee of the company. Heaven Mind Ltd.
accounts for 5% of the interest and was owned by Wu Shanshan, who is the employee of the company. Index Hong Kong Limited
accounts for 4% of the interest and was owned by Zhang Dong.
(5) Total shares owned by Wen Tao (Steve) Liu includes (i) 190,743 shares of common stock; (ii)139,259 options issued under 2011
Plan vested/to be vested within 60 days as of February 28, 2015.
(6) Total shares owned by Bizuo (Tony) Liu includes (i) 100,000 shares of common stock; (ii)3,681 options issued under 2011 Plan
vested/to be vested within 60 days as of February 28, 2015; (iii)106,250 options issued under 2013 Plan vested/to be vested within
60 days as of February 28, 2015.
(7) Total shares owned by Andrew Chan includes (i) 153,978 shares of common stock; (ii)67,037 options issued under 2011 Plan
vested/to be vested within 60 days as of February 28, 2015; (iii)16,677 options issued under 2013 Plan vested/to be vested within
60 days as of February 28, 2015.
(8) Total shares owned by Gerardus Hoogland includes 1,590 options issued under 2013 Plan vested as of February 28, 2015. Mr.
Hoogland was nominated to the Board pursuant to the terms of an advisory agreement with Healthcrest AG dated August 23, 2013.
Mr. Hoogland is chief executive officer of Healthcrest. Healthcrest is 100% owned by Jacesa Investments Ltd, which is 100%
owned by Rosetrust Nominees Ltd. In addition to the 1,590 vested options held directly by Mr. Hoogland, Healthcrest and its
affiliates beneficially own an aggregate of 422,936 shares of CBMG common stock, of which 119,000 shares are held in
Healthcrest’s name. Except for the options issued as compensation for services as a director of CBMG, Mr. Hoogland disclaims
beneficial ownership of all of the CBMG shares attributed to Healthcrest and its affiliates.
(9) Total shares owned by David Bolocan includes (i) 10,000 shares of common stock; (ii) 7,000 options issued under 2013 Plan vested
as of February 28, 2015.
(10) Total shares owned by Terry A. Belmont includes (i) 2,224 shares of common stock; (ii) 4,000 options issued under 2013 Plan
vested as of February 28, 2015.
(11) Total shares owned by Nadir Patel includes 5,000 options issued under 2013 Plan vested as of February 28, 2015.
65
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
At the closing of the merger, the Company entered into executive employment agreements with each of Wen Tao (Steve) Liu, Wei
(William) Cao and Andrew Chan dated February 6, 2013, as amended (each an “Employment Agreement,” collectively, the “Employment
Agreements”). For further information about such Employment Agreements, see the discussion under the heading “Executive
Employment Agreements” on page 21, which is hereby incorporated by reference.
On August 23, 2013, the Company entered into an Advisory Agreement with HealthCrest AG, a Switzerland company (“HealthCrest”),
pursuant to which the Company engaged HealthCrest as a non-exclusive corporate and business development advisor. Mr. Geradrdus
A. Hoogland, a director of the Company, is the Chief Executive Officer of HealthCrest. In consideration of the services provided by
HealthCrest, the Company will issue to HealthCrest 119,000 shares of the Company’s common stock, which will vest over 28 months.
The Company may repurchase the unvested shares at a price of $6.70 per share upon material breach of the terms of the Advisory
Agreement on the part of HealthCrest. HealthCrest will also be entitled to certain transaction-based compensation under the Advisory
Agreement. The term of the Agreement is between September 1, 2013 and December 31, 2015, provided either party may terminate the
agreement upon 30 days written notice after November 29, 2013.
Pursuant to Mr. Wong’s Subsidiary Employment Agreement with EastBridge Sub, Mr. Wong is entitled to an annual base salary of
$240,000.
Pursuant to Mr. Klein’s Subsidiary Employment Agreement with EastBridge Sub, Mr. Klein is entitled to an annual base salary of
$180,000. Messrs. Wong and Klein were also eligible to participate in and receive awards under the Company’s incentive stock plan.
The Subsidiary Employment Agreements were effective as of February 6, 2013 and were to continue for three years thereafter unless
earlier terminated.
In connection with the discontinuation of the Company’s consulting business, effective July 31, 2014, the Company terminated its
employment agreements with Messrs. Klein and Wong and terminated their services as officers of Eastbridge Sub. On the same date,
the Company entered into severance agreements with Messrs. Klein and Wong. Pursuant to the terms of the agreements, the Company
agreed to pay severance of $360,000 and $480,000 to Messrs. Klein and Wong, respectively, as well as an additional lump sum of
$4,200 and $12,480, respectively, to cover the equivalent costs of retaining two years of medical coverage under the Company’s current
medical plan for Messrs. Klein and Wong.
As of December 31, 2014 and 2013 the accrued compensation liability to the officers was $-0- and $105,000, respectively.
The Company received advances from Mr. Cao, Mr. Wong and Mr. Klein, its current CEO and former CEO and CFO, respectively,
during the course of business at a rate of 4.5% interest which is the federal long term interest rate. As of December 31, 2014 and 2013,
advances payable to Mr. Cao were $6,037 and $7,194, respectively. As of December 31, 2013, advances payable to Mr. Wong were
$8,500. As of December 31, 2013 advances payable to Mr. Klein were $22,090. As of December 31, 2014 no amounts remained
payable to Mr. Wong or Mr. Klein.
The Company received income from the Subsidiaries of Global Health for cell kits with cell processing and storage for the year ended
December 31, 2014 and 2013, of approximately $179,000 and $204,900, respectively. This accounts for the entire fiscal year revenue of
the Biomedicine segment.
Except as disclosed herein, there have been no transactions or proposed transactions in which the amount involved exceeds $120,000
for the last two completed fiscal years in which any of our directors, executive officers or beneficial holders of more than 5% of the
outstanding shares of common stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct
or material indirect interest.
Review, Approval or Ratification of Transactions with Related Persons
The Company’s Board of Directors reviews issues involving potential conflicts of interest, and reviews and approves all related party
transactions, including those required to be disclosed as a “related party” transaction under applicable federal securities laws. The
Board has not adopted any specific procedures for conducting reviews of potential conflicts of interest and considers each transaction in
light of the specific facts and circumstances presented. However, to the extent a potential related party transaction is presented to the
Board, the Company expects that the Board would become fully informed regarding the potential transaction and the interests of the
related party, and would have the opportunity to deliberate outside of the presence of the related party. The Company expects that the
Board would only approve a related party transaction that was in the best interests of, and fair to, the Company, and further would seek
to ensure that any completed related party transaction was on terms no less favorable to the Company than could be obtained in a
transaction with an unaffiliated third party.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
66
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Director Independence
In determining the independence of our directors, the Board applied the definition of “independent director” provided under the listing
rules of The NASDAQ Stock Market LLC (“NASDAQ”). Pursuant to these rules, and after considering all relevant facts and
circumstances, the Board affirmatively determined that Dr. Jianping Dai and Messrs. Jeffrey Auerbach, David Bolocan, Terry A. Belmont
and Nadir Patel, each of whom are now serving on the Board and are continuing to serve their terms, are each independent within the
definition of independence under the NASDAQ rules. Wen Tao (Steve) Liu, Wei (William) Cao, Keith Wong and Gerardus A. Hoogland
are not independent directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company paid or accrued the following fees in each of the prior two fiscal years to its principal accountants, BDO China Shu Lun
Pan Certified Public Accountant, LLP, Dahua CPA Co., Ltd., Taravan, Askelson & Company, LLP and BDO USA, LLP:
Audit fees
BDO USA, LLP
BDO China Shu Lun Pan Certified Public Accountant, LLP
Dahua CPA Co., Ltd.
Taravan, Askelson & Company
Total of audit fees
Year ended
December 31,
2014
Year ended
December 31,
2013
217,256
118,049
3,257
-
338,562
200,000
43,578
23,726
107,293
374,597
Audit fees include the aggregate fees incurred for services rendered for the audit of the annual financial statements and for the review of
the financial statements included in Reports on Form 10-Q.
Audit related fees include the aggregate fees billed for assurance services that are reasonably related to the performance of the audit or
review of the financial statements that are not included in the audit fees reported above. For the years ended December 31, 2014 and
2013 the Company did not have any audit related fees.
As part of its responsibility for oversight of the independent registered public accountants, the Board has established a pre-approval
policy for engaging audit and permitted non-audit services provided by our independent registered public accountants. In accordance
with this policy, each type of audit, audit-related, tax and other permitted service to be provided by the independent auditors is specifically
described and each such service, together with a fee level or budgeted amount for such service, is pre-approved by the Board. All of the
services provided by our independent registered public accountants described above were approved by our Board.
Our principal accountants did not engage any other persons or firms other than the principal accountant’s full-time, permanent
employees.
The Board has received and reviewed the written disclosures and the letter from the independent registered public accounting firm
required by Audit Standard No. 16 (Communications with Audit Committees) has discussed with its auditors its independence from the
Company. The Board has considered whether the provision of services other than audit services is compatible with maintaining auditor
independence.
67
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
PART IV
Exhibit
Number
2.1
2.2
2.3
2.4
2.5
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
Description
Plan of reorganization and exchange agreement (1)
Agreement and Plan of Merger, dated November 13, 2012 (17)
Amendment No. 1 to Agreement and Plan of Merger, dated January 15, 2013 (18)
Amendment No. 2 to Agreement and Plan of Merger, dated January 31, 2013 (19)
Amendment No. 3 to Agreement and Plan of Merger, dated February 5, 2013 (20)
Articles of Incorporation of Cellular Biomedicine Group, Inc., filed herewith.
Corporate bylaws for Cellular Biomedicine Group, Inc., filed herewith.
Form of lock-up agreement (1)
2007 Stock Incentive Plan, dated June 14, 2007 (3)
2008 Employees and Consultants Stock Option Plan, dated August 20, 2008 (8)
2009 Stock Option Plan (10)
2011 Incentive Stock Option Plan (22)
Amended and Restated 2011 Incentive Stock Option Plan (23)
2013 Incentive Plan (26)
Consulting Employment Agreement between EastBridge Investment Group Corporation and Keith Wong dated June 1,
2005 (1)
Consulting Employment Agreement between EastBridge Investment Group Corporation and Norm Klein dated June 1,
2005 (1)
Listing Agreement signed with Amonics Limited, dated November 23, 2006 (English translation) (2)
Listing Agreement signed with Tianjin Hui Hong Heavy Steel Construction Co., Ltd, dated December 3, 2006 (English
translation) (2)
Listing Agreement signed with NingGuo Shunchang Machinery Co., Ltd., dated January 6, 2007 (English translation) (2)
Listing Agreement with Hefe Ginko Real Estate Company, Ltd., dated July 24, 2007 (English translation) (4)
Share Exchange Agreement with AREM Wine Pty, Ltd., dated September 21, 2007 (5)
Listing and Consultant Agreement with AREM Wine Pty, Ltd., dated September 27, 2007 (6)
Listing Agreement with Beijing Zhong Zhe Huang Holding Company, Ltd., dated October 4, 2007 (English translation) (7)
Listing Agreement with Qinhuangdao Huangwei Pharmaceutical Company Limited, dated December 29, 2007 (English
translation) (12)
10.11
US Listing Agreement with Anhui Wenda Educational & Investment Management Corporation, dated April 12, 2008
10.12
10.13
10.14
10.15
10.16
10.17
(English translation) (12)
Stock Purchase Agreement with Ji-Bo Pipes & Valves Company, dated September 21, 2008 (9)
Stock Purchase Agreement with Aoxing Corporation, dated September 21, 2008 (9)
US Listing Agreement with Foshan Jinkuizi Technology Limited Company, dated September 22, 2008 (English translation)
(12)
Letter Agreement with Alpha Green Energy Limited, dated February 18, 2009 (12)
Listing Agreement with AREM Pacific Corporation, dated April 30, 2009 (12)
Change in Terms Agreement between EastBridge Investment Group Corporation and Goldwater Bank, N.A. dated May 6,
2009 (12)
68
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit
Number
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.8
10.29
10.30
10.31
10.32
10.33
10.34
Description
Listing Agreement with SuZhou KaiDa Road Pavement Construction Company Limited, dated November 3, 2009 (English
translation) (12)
Listing Agreement with Long Whole Enterprises, Ltd., dated November 28, 2009 (English translation) (12)
Listing Agreement with Beijing Tsingda Century Education Investment and Consultancy Limited, dated December 24, 2009
(English translation) (12)
Listing Agreement with StrayArrow International Limited, dated April 11, 2010 (English translation) (13)
Listing Agreement with Hangzhou Dwarf Technology Ltd., dated September 26, 2010 (English translation) (14)
Bridge Capital Raise Agreement with FIZZA, LLC, dated December 1, 2010 (confidential treatment requested for redacted
portions) (15)
Stock Purchase Agreement with An Lingyan, dated December 14, 2012 (1)
Form of Listing Agreement (16)
Tsingda Stock Purchase Agreement dated as of December 17, 2012 (16)
Employment Agreement with Wen Tao (Steve) Liu, dated February 6, 2013 (26)
Employment Agreement with Wei (William) Cao, dated February 6, 2013 (26)
Employment Agreement with Andrew Chan, February 6, 2013 (26)
Form of Director Agreement*
Amendment to Employment Agreement with Wen Tao (Steve) Liu, dated August 20, 2013 (26)
Amendment to Employment Agreement with Wei (William) Cao, dated August 20, 2013 (26)
Amendment to Employment Agreement with Andrew Chan, dated August 20, 2013 (26)(
Advisory Services Agreement, dated August 23, 2013, by and between Cellular Biomedicine Group Inc. and HealthCrest
AG (26)
10.35
Purchase Agreement, dated September 10, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and Fisher
Scientific Worldwide (Shanghai) Co., Ltd.(26)
10.36
Technical Service Contract, dated September 22, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and
National Engineering Research Center of Tissue Engineering. (26)
10.37
Clinical Trial Agreement, dated November 6, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and Renji
Hospital (26)
10.38
Clinical Trial Agreement, dated December 20, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and
China Armed Police General Hospital (26)
10.40
10.41
14.1
21.1
23.1
31.1
31.2
32
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
Form of Subscription Agreement (24)
Employment Agreement with Bizuo (Tony) Liu, dated January 3, 2014 (25)
Code of Ethics for EastBridge Investment Group Corporation (1)
Subsidiaries of the Company (12)
Consent of BDO USA LLP*
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer, *
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer, *
Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith.
———————
1.
Incorporated by reference to the Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on
October 30, 2006 (File No. 000-52282)
2.
Incorporated by reference to the Registration Statement on Form 10-SB/A filed with the Securities and Exchange Commission on
February 27, 2007 (File No. 000-52282)
69
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3.
4.
5.
6.
7.
8.
9.
Incorporated by reference to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June
19, 2007 (File No. 333-143878)
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on July 20, 2007 (File No. 000-
52282)
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on September 25, 2007 (File No.
000-52282)
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on October 1, 2007 (File No. 000-
52282)
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on October 9, 2007 (File No. 000-
52282)
Incorporated by reference filed with the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on
August 22, 2008 (File No. 333-153129)
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on October 22, 2008 (File No. 000-
52282)
10.
Incorporated by reference to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on April
15, 2009 (File No. 333-158583)
11.
Incorporated by reference to the Form 8-K/A filed with the Securities and Exchange Commission on December 12, 2013 (File No.
000-52282)
12.
Incorporated by reference to the Form 10-K filed with the Securities and Exchange Commission on April 15, 2010 (File No. 000-
52282)
13.
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on July 14, 2010 (File No. 000-
52282)
14.
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on November 12, 2010 (File No. 000-
52282
15.
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on December 7, 2010 (File No. 000-
52282)
16.
Incorporated by reference to the Form 10-K filed with the Securities and Exchange Commission on June 18, 2013 (File No. 000-
52282)
17.
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on November 20, 2012 (File No. 000-
52282)
18.
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on January 22, 2013 (File No. 000-
52282)
19.
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on February 4, 2013 (File No. 000-
52282)
20.
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on February 12, 2013 (File No. 000-
52282)
21.
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on January 3, 2012 (File No. 000-
52282)
22.
Incorporated by reference to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on March
7, 2012 (File No. 333-179974)
23.
Incorporated by reference to the Form 10-K filed with the Securities and Exchange Commission on April 4, 2013 (File No. 000-
52282)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
24.
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on December 16, 2013 (File No. 000-
52282)
25.
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on January 3, 2014 (File No. 000-
52282)
26.
Incorporated by reference to the Form 10-K filed with the Securities and Exchange Commission on April 15, 2014 (File No. 000-
52282)
70
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, there unto duly authorized.
SIGNATURES
Registrant
Date: March 31, 2015
Date: March 31, 2015
Cellular Biomedicine Group, Inc.
/s/ Wei (William) Cao
By:
Wei (William) Cao
Chief Executive Officer
(Principal Executive Officer)
By:
/s/Bizuo (Tony) Liu
Bizuo (Tony) Liu
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Wen Tao (Steve) Liu
Wen Tao (Steve) Liu
/s/ Wei (William) Cao
Wei (William) Cao
/s/ Bizuo (Tony) Liu
Bizuo (Tony) Liu
/s/ Andrew Chan
Andrew Chan
/s/ Terry A. Belmont
Terry A. Belmont
/s/ David Bolocan
David Bolocan
/s/ Gerardus A. Hoogland
Gerardus A. Hoogland
/s/ Nadir Patel
Nadir Patel
/s/ Chun Kwok Alan Au
Chun Kwok Alan Au
/s/Guotong Xu
Guotong Xu
Chairman of the Board of Directors and President – North America
March 31, 2015
Chief Executive Officer and Director
(principal executive officer)
Chief Financial Officer and Secretary
(principal financial and accounting officer)
March 31, 2015
March 31, 2015
Senior Vice President, Corporate Business Development
March 31, 2015
Director
Director
Director
Director
Director
Director
71
March 31, 2015
March 31, 2015
March 31, 2015
March 31, 2015
March 31, 2015
March 31, 2015
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 2014 and 2013
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2014 and 2013
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Cellular Biomedicine Group, Inc.
Palo Alto, California
We have audited the accompanying consolidated balance sheet of Cellular Biomedicine Group, Inc. (the “Company”) as of December
31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for
the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audit.
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 the
Company at December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
Phoenix, Arizona
March 31, 2015
F-2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
(FORMERLY EASTBRIDGE INVESTMENT GROUP CORPORATION)
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2014
2013
$ 14,770,584
141,029
135,957
372,249
565,299
110,347
16,095,465
$ 7,175,215
10,581
78,521
119,119
56,911
134,661
7,575,008
6,886,033
1,280,410
7,678,789
11,156,676
587,729
$ 43,685,102
5,105,891
1,014,805
3,299,566
601,456
-
$ 17,596,726
$
$
426,917
2,074,384
814,288
36,254
724,479
4,076,322
213,891
503,717
1,164,747
67,999
251,299
2,201,653
452,689
4,529,011
-
2,201,653
-
-
7,383
10,990
75,467,316
37,861,593
(37,890,590) (22,415,979)
(57,924)
15,395,073
1,568,375
39,156,091
$ 43,685,102
$ 17,596,726
Assets
Cash and cash equivalents
Accounts receivable
Other receivable
Inventory
Prepaid expenses
Other current assets
Total current assets
Investments
Property, plant and equipment, net
Goodwill
Intangibles, net
Long-term prepaid expenses and other assets
Total assets (1)
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable
Accrued expenses
Tax payable
Advances payable to related party
Other current liabilities
Total current liabilities
Other non-current liabilities
Total liabilities (1)
Commitments and Contingencies
Stockholders' equity:
Preferred stock, par value $.001, 50,000,000 shares
authorized; none issued and outstanding as of
December 31, 2014 and 2013, respectively
Common stock, par value $.001, 300,000,000 shares authorized;
10,990,335 and 7,382,797 issued and outstanding
as of December 31, 2014 and 2013, respectively
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total stockholders' equity
Total liabilities and stockholders' equity
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(1)
The Company’s consolidated assets as of December 31, 2014 and 2013 included $5,508,459 and $1,031,350, respectively, of
assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. Each of the following amounts
represent the balances as of December 31, 2014 and 2013, respectively. These assets include cash and cash equivalents of
$3,496,678 and $9,100; accounts receivable of $141,029 and $0; other receivables of $127,280 and $50,383; inventory of
$215,152 and $26,526; prepaid expenses of $193,613 and $33,015; other current assets of $109,777 and $84,661; property, plant
and equipment, net, of $1,055,648 and $772,872; and intangibles of $42,779 and $54,793; long-term prepaid expenses and other
assets of $126,503 and $0. The Company’s consolidated liabilities as of December 31, 2014 and 2013 included $1,434,826 and
$387,703, respectively, of liabilities of the VIEs whose creditors have no recourse to the Company. These liabilities include
accounts payable of $10,572 and $24,868; other payables of $714,309 and $268,301; payroll accrual of $273,599 and $74,384;
and tax payable of $0 and $20,150 and other non-current liabilities of $436,346 and $0. See further description in Note 6, Variable
Interest Entity.
The accompanying notes are an integral part of these consolidated financial statements.
F-3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
(FORMERLY EASTBRIDGE INVESTMENT GROUP CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Net sales and revenue
Operating expenses:
Cost of sales
General and administrative
Selling and marketing
Research and development
Impairment of investments
Total operating expenses
Operating loss
Other income (expense):
Interest income
Other income (expense)
Total other income (expense)
Loss from continuing operations before taxes
Income tax provision
Loss from continuing operations
Loss on discontinued operations, net of tax
Net loss
Other comprehensive income (loss):
Cumulative translation adjustment
Unrecognized gain (loss) on investments
Total other comprehensive income (loss):
Comprehensive loss
Earnings (loss) per share for continuing operations:
Basic
Diluted
Earnings (loss) per share discontinued operations:
Basic
Diluted
Earnings (loss) per share net loss:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
For the Year Ended
December 31,
2014
2013
$
564,377
$
204,914
296,212
213,243
9,314,143
8,413,251
57,670
280,595
1,890,506
2,671,932
-
1,427,840
13,006,861
11,558,531
(12,442,484) (11,353,617)
15,043
71,982
87,025
1,294
(6,196)
(4,902)
(12,355,459) (11,358,519)
-
-
(12,355,459) (11,358,519)
(2,438,514)
$ (15,474,611) $ (13,797,033)
(3,119,152)
15,254
1,611,045
1,626,299
78,650
(198,200)
(119,550)
$ (13,848,312) $ (13,916,583)
$
$
$
$
$
$
(1.43) $
(1.43) $
(1.96)
(1.96)
(0.36) $
(0.36) $
(0.42)
(0.42)
(1.79) $
(1.79) $
(2.38)
(2.38)
8,627,094
5,792,888
8,627,094
5,792,888
The accompanying notes are an integral part of these consolidated financial statements.
F-4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
(FORMERLY EASTBRIDGE INVESTMENT GROUP CORP.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock
Preferred Stock
Additional
Accumulated
Accumulated Other
Comprehensive
Shares
Amount
Shares
Amount
Paid in
Capital
Deficit
Income(Loss)
Total
3,710,560 $
3,711
- $
- $14,710,002 $ (8,618,946) $
61,626
$ 6,156,393
231,384
231
-
- 1,156,868
1,434,778
1,435
-
- 8,990,956
93,416
93
-
-
736,559
1,570,299
1,571
-
- 9,780,223
342,360
342
-
- 1,694,340
-
-
-
-
255,993
-
-
-
-
536,652
-
-
-
-
-
-
-
-
-
-
7,382,797
7,383
-
-
-
-
-
- (13,797,033)
-
(13,797,033)
- 37,861,593 (22,415,979)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,157,099
8,992,391
736,652
9,781,794
1,694,682
255,993
536,652
(198,200)
(198,200)
78,650
78,650
(57,924) 15,395,073
.
-
11,121,956
-
-
-
-
-
-
578,981
207,201
106,392
1,636,311
19,387
7,999,996
1,686,566
1,686
-
- 11,120,270
43,760
44
-
-
578,937
13,413
13
-
-
207,188
13,862
14
-
-
106,378
-
-
-
- 1,636,311
3,650
4
-
-
19,383
1,017,765
1,018
-
- 7,998,978
-
-
-
-
-
-
-
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Balance at December
31, 2012
Common stock
issued for services
Common stock
issued with PPM
Stock based
compensation
Reverse merger with
EastBridge
Contingent stock
issuance
Accrual of restricted
stock grants
Accrual of stock
options
Unrecognized loss on
investments
Foreign currency
translation
Net loss
Balance at December
31, 2013
Common stock
issued with PPM
Common stock
issued for services
Stock based
compensation
Accrual of restricted
stock grants
Accrual of stock
options
Exercise of stock
options
Exercise of warrant
issued in PPM
Common stock
issued for acquisition
Unrecognized gain on
investments
Foreign currency
translation
Net loss
Balance at December
31, 2014
828,522
828
-
- 15,938,278
-
-
15,939,106
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,611,045
1,611,045
-
15,254
15,254
- (15,474,611)
-
(15,474,611)
10,990,335 $ 10,990
- $
- $75,467,316 $(37,890,590) $ 1,568,375
$ 39,156,091
The accompanying notes are an integral part of these consolidated financial statements.
F-5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
(FORMERLY EASTBRIDGE INVESTMENT GROUP CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization
Loss on disposal of assets
Stock based compensation expense
Other than temporary impairment
Impairment of goodwill
Third party services received in exchange for disposition of investment stock
Loss recognized in excess of cash received on disposition of investment stock
Value of stock received for services
Deferred tax
Changes in operating assets and liabilities:
Accounts receivable
Other receivable
Inventory
Prepaid expenses
Other current assets
Investments
Long-term prepaid expenses and other assets
Accounts payable
Accrued expenses
Other current liabilities
Taxes payable
Deferred revenue
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired
Purchases of intangibles
Purchases of assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock
Proceeds from exercise of stock options
Repayment of advances from affiliate
Advances from affiliate
Net cash provided by financing activities
For the Year Ended
December 31,
2014
2013
$ (15,474,611) $ (13,797,033)
1,190,505
257,672
1,949,908
1,427,840
3,299,566
-
5,913
(1,610,000)
-
20,645
(25,638)
(78,310)
(494,057)
24,314
7,150
(504,678)
165,517
409,109
(694,131)
(176,583)
-
(10,299,869)
841,235
-
4,381,077
-
4,258,967
83,334
138,909
(3,500,000)
(76,544)
10,102
50,160
(81,878)
(38,793)
(84,661)
-
134,229
40,862
(739,839)
186,464
(10,121)
(251,834)
(8,455,364)
(1,485,548)
(8,989)
(311,625)
(1,806,162)
-
(5,828)
(147,211)
(153,039)
19,700,933
19,383
(31,745)
-
19,688,571
11,561,386
-
(1,250)
36,614
11,596,750
EFFECT OF EXCHANGE RATE CHANGES ON CASH
12,829
41,972
INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes
Non cash financing and investing activities:
Issuance of company stock for accrued liabilities and advances
Issuance of company stock for acquisition of patent
Issuance of company stock for acquisition of business
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
7,595,369
7,175,215
$ 14,770,584
3,030,319
4,144,896
$ 7,175,215
$
$
460,924
$
-
$ 1,442,850
$ 14,496,256
-
$
$
$
149,475
-
-
The accompanying notes are an integral part of these consolidated financial statements.
F-6
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 1 – DESCRIPTION OF BUSINESS
As used in this report, "we", "us", "our", "CBMG", "Company" or "our company" refers to Cellular Biomedicine Group, Inc. and,
unless the context otherwise requires, all of its subsidiaries.
Overview
Cellular Biomedicine Group, Inc. is a biomedicine company, principally engaged in the development of new treatments for
cancerous and degenerative diseases utilizing proprietary cell-based technologies. Our technology includes two major cell platforms: (i)
Immune Cell therapy for treatment of a broad range of cancers, (ii) haMPC (human adipose-derived mesenchymal progenitor cells) for
treatment of joint and autoimmune diseases.
We are focused on developing and marketing safe and effective cell-based therapies based on our cellular platforms, to treat
serious chronic and degenerative diseases including cancers, orthopedic diseases including osteoarthritis and tissue damage, various
inflammatory diseases and metabolic diseases. We have developed proprietary practical knowledge in the use of cell-based
therapeutics that we believe could be used to help a great number of people suffering from cancer and serious chronic diseases. We
have one major therapy undergoing clinical studies in China: stem cell based therapies to treat knee osteoarthritis (“KOA”). We have
initiated preclinical studies in Asthma, and Chronic Obstructive Pulmonary Disease ("COPD") and clinical research studies in cartilage
defect stem cell therapy.
Our primary target market is Greater China. Our first two therapy candidates are currently used to treat patients in research
studies conducted in China. We are also engaged in a number of pre-clinical studies for other product or therapy candidates, which we
believe have the potential to become safe and effective treatment options for a variety of degenerative and debilitating conditions. We
believe that the results of our research studies will support expanded preclinical and clinical trials with a larger population of patients,
which we expect to carry out through authorized treatment centers throughout Greater China. With the recent acquisition of Agreen
Biotech Co. Ltd. ("AG") we added budding technical services revenue comprised of T Cells Receptor ("TCR") clonality analysis
technology and T Central Memory Cell ("Tcm") and Dendritic Cell ("DC") preparation methodologies.
Corporate History
Cellular Biomedicine Group, Inc., (formerly known as EastBridge Investment Group Corporation) was originally incorporated in
the State of Arizona on June 25, 2001 under the name ATC Technology Corporation. ATC Technology Corporation changed its corporate
name to EastBridge Investment Group Corporation in September 2005 and changed its business focus to providing investment related
services in Asia, with a strong focus on high GDP growth countries, such as China. The Company provides consulting services
necessary for small to medium-sized companies to obtain capital to grow their businesses. The Company assists its clients in locating
investment banking, financial advisory and other financial services necessary to become public companies in the United States or find
joint venture partners or raise capital to expand their businesses.
On November 13, 2012, EastBridge Investment Group Corporation, an Arizona corporation (“EastBridge”), CBMG Acquisition
Limited, a British Virgin Islands company and the Company’s wholly-owned subsidiary (“Merger Sub”) and Cellular Biomedicine Group
Ltd. (“CBMG BVI”), a British Virgin Islands company, entered into a Merger Agreement, pursuant to which CBMG BVI was the surviving
entity in a merger with Merger Sub whereby CBMG BVI became a wholly-owned subsidiary of the Company (the “Merger”). The Merger
was consummated on February 6, 2013 (the “Closing Date”). Upon consummation of the Merger, CBMG BVI shareholders were issued
3,638,941 shares of common stock, par value $0.001 per share, of the Company (the “Company Common Stock”) constituting
approximately 70% of the outstanding stock of the Company on a fully-diluted basis and the then current Company shareholders
retained approximately 30% of the Company on a fully-diluted basis. Specifically, each of CBMG BVI’s ordinary shares (“CBMG BVI
Ordinary Shares”) were converted into the right to receive 0.020019 shares of Company Common Stock.
Also in connection with the Merger, the Company created a new Delaware subsidiary named EastBridge Investment Corp.
(“EastBridge Sub”). Pursuant to a Contribution Agreement by and between the Company and EastBridge Sub dated February 5, 2013,
the Company contributed all of its then current assets and liabilities to EastBridge Sub which continued the business and operations of
the Company at the subsidiary level. A copy of the Contribution Agreement is attached as Exhibit 10.1 to the Current Report on Form 8-K
filed by the Company on February 12, 2013.
As a result of the Merger, CBMG BVI and EastBridge Sub became the two direct subsidiaries of the Company.
In connection with the Merger, effective March 5, 2013, the Company (formerly named “EastBridge Investment Group
Corporation”) changed its name to “Cellular Biomedicine Group, Inc.” In addition in March 2013, the Company changed its corporate
headquarters to 530 University Avenue in Palo Alto, California.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
From February 6, 2013 to June 23, 2014, we operated the Company in two separate reportable segments: (i) Biomedicine Cell
Therapy (“Biomedicine”); and (ii) Financial Consulting (“Consulting”). The Consulting segment is conducted through EastBridge
Sub. On June 23, 2014, the Company announced the discontinuation of the Consulting segment as it no longer fits into management’s
long-term strategy and vision. The Company will focus resources on becoming a pure-play biotechnology company bringing therapies to
improve the health of patients in China.
On September 26, 2014, the Company completed its acquisition of AG and the U.S. patent held by AG’s founder.
AG is a biotech company with operations in China, engaged in the development of treatments for cancerous diseases utilizing
proprietary cell technologies, which include without limitation, preparation of subset T Cell and clonality assay platform technology for
treatment of a broad range of cancers by AG’s served hospital, Jilin Hospital.
AG is focused on developing and marketing its technical service and test kits to hospitals that treat cancer patients who are
undergoing immune cell therapy classified as 3rd Medical Technology by regulatory agencies in China. We have developed proprietary
practical knowledge in the use of cell-based therapeutics that we believe could be used to help a great number of people suffering from
cancer. Specifically, we provide technical services comprised of T Cell Receptors ("TCR") clonality analysis technology and T Central
Memory Cell ("Tcm") and Dendritic Cell ("DC") preparation methodologies. The TCR clonality analysis technology is based on the use of
the multiple sets of unique primers to amplify 22 regions of the TCR and thereby detect clonal expansions related to antigen stimulation
of the immune system, which enables the assessment of tumor specific immunity with high accuracy and efficiency. Tcm cells are the
subpopulation of T lymphocytes with key characteristics including high potency and long-term memory of specific immunity; and they are
the key element of immunocellular fortification against tumors, infections and immune disorders. The Tcm cells are drawn from the
cancer patient’s own blood and the therapy using these cells is classified in China as Medical Technology, which enables such therapy
to be covered by medical insurance in more than ten provinces in China.
AG’s primary market is China. Jilin Hospital, AG’s primary hospital partner, currently uses AG’s technical services and test kits
to treat patients who are undergoing cancer immune cell therapy in China. Based on AG’s results to date, AG believes that its TCR and
Tcm services are safe and effective treatment options for cancer patients.
NOTE 2 – BASIS OF PRESENTATION
As of February 6, 2013, in connection with the Merger, Cellular Biomedicine Group, Ltd. was determined to be the accounting
acquirer thus resulting in a reverse merger for accounting purposes. Therefore, the accompanying financial statements are on a
consolidated basis subsequent to February 6, 2013, but only reflect the operations of CBMG BVI. prior to the date of acquisition.
The Company acquired AG on September 26, 2014 and the accompanying financial statements only reflect operations subsequent to
such date.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States
of America. Significant accounting policies are as follows:
Principles of Consolidation
The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or
GAAP, and reflect the accounts and operations of the Company and its majority or wholly-owned subsidiaries, beginning with the date of
their respective acquisition. In accordance with the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards
Codification (“ASC”) Section 810, or ASC 810, Consolidation, the Company consolidates any variable interest entity, or VIE, of which it is
the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of
an entity; however, a controlling financial interest may also exist in entities, such as variable interest entities, through arrangements that
do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to
direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses of the VIE
that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company does not consolidate a VIE in which it has a majority ownership interest when the Company is not considered the primary
beneficiary. The Company has determined that it is the primary beneficiary in a VIE—refer to Note 6, Variable Interest Entity. The
Company evaluates its relationships with the VIE on an ongoing basis to ensure that it continues to be the primary beneficiary. All
intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America 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.
These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting
period. Management evaluates these estimates and assumptions on a regular basis. Actual results could materially differ from those
estimates.
F-8
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Revenue Recognition
The Company utilizes the guidance set forth in the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No.
104, regarding the recognition, presentation and disclosure of revenue in its financial statements.
For its Consulting segment, the Company engaged in listing contracts with its clients which provide for the payment of fees,
either in cash or equity, upon the achievement of certain milestones by the client, including the successful completion of a financial
statement audit, the successful listing on a national stock exchange or over-the-counter market and the maintenance of ongoing 1934
Act reporting requirements with the Securities and Exchange Commission. In some instances, payment may be made in advance of
performance; however, such payment was often refundable in the event that milestones were not reached. The Company recognized
revenue as milestones are reached in accordance with FASB’s Accounting Standards Codification (ASC) No. 605-28-25. Such guidance
stipulates that revenue be recognized for individual elements in a multiple deliverable arrangement using the relative selling price
method. The Company relied on internal estimates of the relative selling price of each element as objective third-party evidence is
unattainable. This segment was discontinued in 2014 and will not have further revenue.
For its Biomedicine segment, the Company recognizes revenue when pervasive evidence of an arrangement exists, the price is
fixed and determinable, collection is reasonably assured and delivery of products or services has been rendered. The Biomedicine
segment has started to generate revenues with the acquisition of AG and expects to expand revenue generating activities significantly
over the next two to five years as additional therapies are developed.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At
December 31, 2014 and 2013, respectively, cash and cash equivalents include cash on hand and cash in the bank. At times, cash
deposits may exceed government-insured limits.
Accounts Receivable
Accounts receivable represent amounts earned but not collected in connection with the Company’s sales as of December 31,
2014 and 2013. Accounts receivable are carried at their estimated collectible amounts.
The Company follows the allowance method of recognizing uncollectible accounts receivable. The Company recognizes bad
debt expense based on specifically identified customers and invoices that are anticipated to be uncollectable. At December 31, 2014 and
December 31, 2013, an allowance was determined to not be needed as the Company has recently started generating revenues from its
cell therapy treatments in the Biomedicine segment in 2014. Correspondingly the Company has not recorded any bad debt expense for
the periods ended December 31, 2014 and 2013, respectively.
Inventory
Inventories consist of finished goods, raw materials, work-in-process, and low value consumable materials. Inventories are
initially recognized at cost and subsequently at the lower of cost and net realizable value under first-in first-out method. Finished goods
are comprised of direct materials, direct labor, depreciation and manufacturing overhead. Net realizable value is the estimated selling
price, in the ordinary course of business, less estimated costs to complete and dispose. The Company regularly inspects the shelf life of
prepared finished goods and, if necessary, writes down their carrying value based on their salability and expiration dates into cost of
goods sold.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated
useful lives of the assets ranging from three to ten years and begins when the related assets are placed in service. Maintenance and
repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred.
Betterments or renewals are capitalized when incurred. Plant, property and equipment are reviewed each year to determine whether any
events or circumstances indicate that the carrying amount of the assets may not be recoverable. We assess the recoverability of the
asset by comparing the projected undiscounted net cash flows associated with the related assets over the estimated remaining life
against the respective carrying value.
For the years ended December 31, 2014 and 2013, depreciation expense was $586,679 and $495,029, respectively.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-9
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Goodwill and Other Intangibles
Goodwill represents the excess of the cost of assets acquired over the fair value of the net assets at the date of acquisition.
Intangible assets represent the fair value of separately recognizable intangible assets acquired in connection with the Company’s
business combinations. The Company evaluates its goodwill and other intangibles for impairment on an annual basis or whenever
events or circumstances indicate that an impairment may have occurred. As part of the determination to discontinue the Consulting
segment, in the second quarter of 2014, the Company expensed approximately $3,300,000 which represented the remaining goodwill
from the 2013 merger. In December, 2013 the Company determined that the goodwill was impaired and therefore recorded impairment
expense of $4,258,967.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance would be provided for those deferred tax assets if it is more likely than not that the related benefit
will not be realized.
A full valuation allowance has been established against all net deferred tax assets as of December 31, 2014 and 2013 based on
estimates of recoverability. While the Company has optimistic plans for its business strategy, we determined that such a valuation
allowance was necessary given the current and expected near term losses and the uncertainty with respect to the Company’s ability to
generate sufficient profits from its business model.
Share-Based Compensation
The Company periodically uses stock-based awards, consisting of shares of common stock and stock options, to compensate
certain officers and consultants. Shares are expensed on a straight line basis over the requisite service period based on the grant date
fair value, net of estimated forfeitures, if any. We currently use the Black-Scholes option-pricing model to estimate the fair value of our
stock-based payment awards. This model requires the input of highly subjective assumptions, including the fair value of the underlying
common stock, the expected volatility of the price of our common stock, risk-free interest rates, the expected term of the option and the
expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s
judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in
the future. These assumptions are estimated as follows:
• Fair Value of Our Common Stock — Our common stock is valued by reference to the publicly-traded price of our common stock.
• Expected Volatility — Prior to the Eastbridge merger, we did not have a history of market prices for our common stock and since the
merger, we do not have what we consider a sufficiently active and readily traded market for our common stock to use historical
market prices for our common stock to estimate volatility. Accordingly, we estimate the expected stock price volatility for our
common stock by taking the median historical stock price volatility for industry peers based on daily price observations over a period
equivalent to the expected term of the stock option grants. Industry peers consist of other public companies in the stem cell industry
similar in size, stage of life cycle and financial leverage. We intend to continue to consistently apply this process using the same or
similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share
price becomes available.
• Risk-Free Interest Rate — The risk-free interest rate assumption is based on observed interest rates appropriate for the expected
terms of our awards. The risk-free interest rate assumption is based on the yields of U.S. Treasury securities with maturities similar
to the expected term of the options for each option group.
• Expected Term — The expected term represents the period that our stock-based awards are expected to be outstanding. The
expected terms of the awards are based on a simplified method which defines the life as the average of the contractual term of the
options and the weighted-average vesting period for all open tranches.
• Expected Dividend Yield — We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in
the foreseeable future. Consequently, we used an expected dividend yield of zero.
In addition to the assumptions used in the Black-Scholes option-pricing model, the amount of stock option expense we recognize
in our consolidated statements of operations includes an estimate of stock option forfeitures. We estimate our forfeiture rate based on an
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture
experience, analysis of employee turnover and other factors. Changes in the estimated forfeiture rate can have a significant impact on
our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate
is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a
decrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is
lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation
expense recognized in our consolidated financial statements.
F-10
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Fair Value of Financial Instruments
Under the FASB’s authoritative guidance on fair value measurements, fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair
value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company
often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and
the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally
unobservable inputs. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs. Based on observability of the inputs used in the valuation techniques, the Company is required to provide the
following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used
to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three
categories:
Level 1: Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or liabilities.
Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party
pricing services for identical or similar assets or liabilities.
Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models,
discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. Level 3
valuations incorporate certain unobservable assumptions and projections in determining the fair value assigned to such assets.
All transfers between fair value hierarchy levels are recognized by the Company at the end of each reporting period. In certain
cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level
within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement in its entirety requires
judgment, and considers factors specific to the investment. The inputs or methodology used for valuing financial instruments are not
necessarily an indication of the risks associated with investment in those instruments.
The carrying amounts of other financial instruments, including cash, accounts payable and accrued liabilities, income tax payable
and related party payable approximate fair value due to their short maturities.
Investments
The fair value of “investments” is dependent on the type of investment, whether it is marketable or non-marketable.
Marketable securities held by the Company are held for an indefinite period of time and thus are classified as available-for-sale
securities. The fair value is based on quoted market prices for the investment as of the balance sheet date. Realized investment gains
and losses are included in the statement of operations, as are provisions for other than temporary declines in the market value of
available for-sale securities. Unrealized gains and unrealized losses deemed to be temporary are excluded from earnings (losses), net of
applicable taxes, as a component of other comprehensive income (loss). Factors considered in judging whether an impairment is other
than temporary include the financial condition, business prospects and creditworthiness of the issuer, the length of time that fair value
has been less than cost, the relative amount of decline, and the Company’s ability and intent to hold the investment until the fair value
recovers.
The carrying amounts of other financial instruments, including cash, accounts payable and accrued liabilities, income tax payable
and related party payable approximate fair value due to their short maturities.
Basic and Diluted Net Loss Per Share
Diluted income (loss) per share reflects potential dilution from the exercise or conversion of securities into common stock. The
dilutive effect of the Company's share-based awards is computed using the treasury stock method, which assumes that all share-based
awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price
during the period. Share-based awards whose effects are anti-dilutive are excluded from computing diluted income (loss) per share. Due
to the net loss, all common stock equivalents are anti-dilutive for the years ended December 31, 2014 and 2013.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-11
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Foreign Currency Translation
The Company's financial statements are presented in U.S. dollars ($), which is the Company’s reporting currency, while some of
the Company’s subsidiaries’ functional currency is Chinese Renminbi (RMB). Transactions in foreign currencies are initially recorded at
the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement
amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. Monetary assets
and liabilities denominated in foreign currency are translated at the functional currency rate of exchange ruling at the balance sheet date.
Any differences are recorded as an unrealized gain or loss on foreign currency translation in the statements of operations and
comprehensive loss. In accordance with ASC 830, Foreign Currency Matters, the Company translates the assets and liabilities into USD
from RMB using the rate of exchange prevailing at the applicable balance sheet date and the statements of income and cash flows are
translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded in shareholders' equity
as part of accumulated other comprehensive income. The PRC government imposes significant exchange restrictions on fund transfers
out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Company because it
has not engaged in any significant transactions that are subject to the restrictions.
Comprehensive Loss
We apply ASC No. 220, Comprehensive Income (ASC 220). ASC 220 establishes standards for the reporting and display of
comprehensive income or loss, requiring its components to be reported in a financial statement that is displayed with the same
prominence as other financial statements. Our comprehensive loss was $13,848,312 and $13,916,583 for the years ended December
31, 2014 and 2013, respectively.
Reclassification
Certain prior period amounts have been reclassified to conform to current year presentations. There was no change to
previously reported stockholders’ deficit or net loss.
Segment Information
FASB ASC No. 280, “Segment Reporting” establishes standards for reporting information about reportable segments. Operating
segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly
by the chief operating decision maker, or decision-making group in deciding how to allocate resources and in assessing performance.
Following the discontinuance of our consulting business, we operate in a single reportable segment.
Recent Accounting Pronouncements
Recent accounting pronouncements that the Company has adopted or may be required to adopt in the future are summarized
below.
In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-
02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”). The amendments in this update affect
reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to
reevaluation under the revised consolidation model. ASU 2015-02 is effective for public business entities for fiscal years, and for interim
periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period.
If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year
that includes that interim period. We are currently in the process of evaluating the impact of the adoption of ASU 2015-02 on our
consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). The amendments in this update
require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles
that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2)
require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of
management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s
plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for
a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014-15 is effective for the
annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We
are currently in the process of evaluating the impact of the adoption of ASU 2014-15 on our consolidated financial statements.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-12
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU
2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize
revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after
December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. We are currently in the
process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.
In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic205)” and “Property Plant
and Equipment (Topic 360)”. The amendments in this ASU modify the requirements for the reporting of discontinued
operations. In order to qualify as a discontinued operation, the disposal of a component of an entity, a group of components, or
a business of an entity must represent a strategic shift that has (or will have) a major effect on an entity's operations and
financial results. The ASU further indicates that the timing for recording a discontinued operation is when one of the following
occurs: the component, group of components, or business meets the criteria to be classified as held-for-sale; the component,
group of components, or business is disposed of by sale; or the component, group of components, or business is disposed of
other than by sale (for example abandonment or spinoff). In addition, the ASU also requires additional disclosure items about
an entity's discontinued operations. The amendments are effective for us beginning on January 1, 2015. The amendments are
to be applied prospectively solely to newly identified disposals that qualify as discontinued operations after the effective date.
Items previously reported as discontinued operations will maintain their classification based on the prior guidance. Early
adoption is permitted, but only for disposals that have not been previously reported as discontinued operations in previously
issued financial statements. We are currently in the process of evaluating the impact of the adoption of ASU 2014-08 on our
consolidated financial statements.
NOTE 4 – BUSINESS COMBINATION
On September 26, 2014, the Company acquired all of the outstanding equity of Agreen Biotech Co. Ltd. ("AG") in exchange for
cash of $3,240,000 and the issuance of 753,522 shares of its common stock. Based on the closing price of the common stock on
September 26, 2014, the aggregate purchase price was $17,747,415. Of the cash consideration, $1,620,000 was unpaid as of
December 31, 2014 and is reflected in accrued expenses in the accompanying consolidated balance sheet. As a result of the
acquisition, AG became a wholly-owned subsidiary of CBMG Shanghai.
The acquisition was accounted for as a business purchase pursuant to ASC Topic 805, Business Combinations. Under this
ASC, acquisition and integration costs are not included as components of consideration transferred, but are accounted for as expenses
in the period in which the costs are incurred. The Company incurred acquisition expense of approximately $480,000 directly related to
this specific business combination. This expense is included in the 2014 general and administrative expenses presented on the
statement of operations.
AG is a cancer-therapy-focused company whose intellectual property (including the intellectual property of AG’s founder, which
the Company also acquired) is comprised of T Cells Receptor ("TCR") clonality analysis technology and T Central Memory Cell ("Tcm")
and Dendritic Cell ("DC") preparation methodologies.
The following table provides the preliminary allocation of purchase price based on the estimated fair values of the assets
acquired (including intangible assets) and liabilities assumed in connection with the acquisition:
Cash
Accounts receivable
Other receivable
Inventory
Prepaid expenses
Property, plant and equipment, net
Intangible assets
Goodwill
Long-term prepaid expenses
Total assets acquired
Accounts payables
Accrued expenses
Other current liabilities
Other non current liabilities
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
$
145,611
151,093
31,798
174,820
14,331
561,113
9,942,000
7,678,786
83,054
18,782,606
(47,509)
(42,013)
(523,077)
(422,592)
Total liabilities assumed
Purchase price
F-13
(1,035,191)
$
17,747,415
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
The intangible assets acquired consist of developed technology in connection with AG’s core business, which are being
amortized over an estimated life of ten years. Goodwill was the excess of the consideration transferred over the net assets recognized
and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately
recognized. Goodwill is not amortized and is not deductible for tax purposes.
In connection with the AG acquisition, the Company acquired existing patents and intellectual property that were owned by AG’s
primary shareholder in exchange for 75,000 shares with a fair value of approximately $1,442,850. These assets are also reflected as
intangible assets in the accompanying consolidated balance sheet at September 30, 2014 and are being amortized over an estimated
life of 10 years.
The following unaudited pro forma consolidated results of operations has been prepared as if the acquisition of AG and related
patents and intellectual property described above had occurred on January 1, 2013 and includes adjustments for the amortization of
intangibles and the earnings-per-share impacts of the issuance of shares as part of the acquisition of AG and related patents and
intellectual property:
Year Ended December 31, 2014
Year Ended December 31, 2013
Net sales and revenue
Net loss
Weighted average common shares
outstanding:
Basic
Diluted
Earnings (loss) per share net loss:
Basic
Diluted
CBMG
As stated
$
564,377
(15,474,611)
Agreen
Pro forma
Adjustment
$ 1,198,414
Consolidated
$ 1,762,791
As stated
$
204,914
(48,109) (15,522,720) (13,797,033)
Pro forma
CBMG
Pro forma
Agreen
Pro forma
Adjustment
$ 1,075,692
Consolidated
$ 1,280,606
(338,804) (14,135,837)
8,627,094
8,627,094
555,335
555,335
9,182,429
9,182,429
5,792,888
5,792,888
753,522
753,522
6,546,410
6,546,410
$
$
(1.79)
(1.79)
$
$
(0.09) $
(0.09) $
(1.69) $
(1.69) $
(2.38) $
(2.38) $
(0.45) $
(0.45) $
(2.16)
(2.16)
All expenditures incurred in connection with this acquisition were expensed and are included in general and administrative
expenses. Transaction costs incurred in connection with the acquisition were $611,511 during the year ended December 31, 2014. The
Company recorded revenue of $378,329 and net loss of $125,025 from Agreen for the year ended December 31, 2014.
NOTE 5 – DISCONTINUED OPERATIONS
On June 23, 2014, at a Board of Directors meeting, the Company approved the discontinuation of all activities of the Consulting segment.
Accordingly, based on management’s intent at June 30, 2014, the Company discontinued the Consulting segment.
As a result the Company’s activities for the Consulting segment at December 31, 2014 are now limited to winding down our
consulting business activities, realizing the value of the Consulting segment’s remaining assets and making tax and regulatory filings
related to the Consulting segment. Management’s goal is to liquidate all of the Consulting segment’s remaining assets as soon as
practical while seeking to maximize stockholder value. All of the operations of the Consulting segment and all significant obligations to
pay or make provisions to satisfy all of its expenses and liabilities will be concluded as soon as practicable. The Company intends to
retain a sufficient amount of assets to ensure it is able to pay or satisfy all of the Consulting segment’s remaining expenses and
liabilities. All costs associated with the discontinuation have been recorded as of December 31, 2014
In conjunction with the discontinuance of operations, the Company recognized that all assets carrying amounts are recorded at
their fair values less estimated cost to sell. The assets and liabilities of the discontinued operations are presented below under the
captions ‘‘Assets of discontinued segment’’ and ‘‘Liabilities of discontinued segment,’’ respectively, in the accompanying Balance Sheets
at December 31, 2014 and 2013, respectively, and consist of the following:
Assets of discontinued segment:
Cash and cash equivalents
Accounts receivable
Other receivable
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
December
December 31,
2014
2013
$
$
-
-
-
409,882
10,581
50,000
Total current assets
Goodwill
Total assets
Liabilities of discontinued segment:
Accounts payable
Accrued expenses
Advances payable to related party
Total liabilities
-
-
-
-
-
-
-
470,463
3,299,566
$ 3,770,029
$
$
110,373
125,130
30,590
266,093
$
$
$
F-14
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Amounts presented for the years ended December 31, 2014 and 2013, have been reclassified to conform to the current presentation.
The following table provides the amounts reclassified for the years ended December 31, 2014 and 2013:
For the Year Ended
December 31,
2014
2013
Amounts reclassified:
Consulting revenue
Consulting operating expenses
Selling and marketing
Impairment expense
Other income (expense)
Income tax provision
Total amount reclassified as discontinued operations
NOTE 6 – VARIABLE INTEREST ENTITY
$ 1,612,746
$ 3,864,586
(1,308,488)
(70,069)
(4,258,967)
(321,130)
(344,446)
$ (3,119,152) $ (2,438,514)
(1,352,189)
(27,673)
(3,299,566)
(1,725)
(50,745)
VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards
normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity. Cellular Biomedicine
Group Ltd (Shanghai) (“CBMG Shanghai”) is a variable interest entity (VIE), through which the Company conducts stem cell research
and clinical trials in China. The shareholders of record for CBMG Shanghai are Cao Wei and Chen Mingzhe, who together own 100% of
the equity interests in CBMG Shanghai. The initial capitalization and operating expenses of CBMG Shanghai are funded by our wholly
foreign-owned enterprise (“WFOE”), Cellular Biomedicine Group Ltd. (Wuxi) (“CBMG Wuxi”). The registered capital of CBMG Shanghai
is ten million RMB and was incorporated on October 19, 2011.
In February 2012, CBMG Wuxi provided financing to CBMG Shanghai in the amount of $1,587,075 for working capital purposes.
In conjunction with the provided financing, exclusive option agreements were executed granting CBMG Wuxi the irrevocable and
exclusive right to convert the unpaid portion of the provided financing into equity interest of CBMG Shanghai at CBMG Wuxi’s sole and
absolute discretion. CBMG Wuxi and CBMG Shanghai additionally executed a business cooperation agreement whereby CBMG Wuxi is
to provide CBMG Shanghai with technical and business support, consulting services, and other commercial services. The shareholders
of CBMG Shanghai pledged their equity interest in CBMG Shanghai as collateral in the event CBMG Shanghai does not perform its
obligations under the business cooperation agreement.
The Company has determined it is the primary beneficiary of CBMG Shanghai by reference to the power and benefits criterion
under ASC 810, Consolidation. This determination was reached after considering the financing provided by CBMG Wuxi to CBMG
Shanghai is convertible into equity interest of CBMG Shanghai and the business cooperation agreement grants the Company and its
officers the power to manage and make decisions that affect the operation of CBMG Shanghai.
There are substantial uncertainties regarding the interpretation, application and enforcement of PRC laws and regulations,
including but not limited to the laws and regulations governing our business or the enforcement and performance of our contractual
arrangements. See Risk Factors below regarding “Risks Related to Our Structure”. The Company has not provided any guarantees
related to CBMG Shanghai and no creditors of CBMG Shanghai have recourse to the general credit of the Company.
As the primary beneficiary of CBMG Shanghai, the Company consolidates in its financial statements the financial position,
results of operations, and cash flows of CBMG Shanghai, and all intercompany balances and transactions between the Company and
CBMG Shanghai are eliminated in the consolidated financial statements.
F-15
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
The Company has aggregated the financial information of CBMG Shanghai in the table below. The aggregate carrying value of
CBMG Shanghai’s assets and liabilities (after elimination of intercompany transactions and balances) in the Company’s consolidated
balance sheets as of December 31, 2014 and 2013 are as follows:
Assets
Liabilities
Cash
Accounts receivable
Other receivable
Inventory
Prepaid expenses
Other current assets
Total current assets
Property, plant and equipment, net
Intangibles
Long-term prepaid expenses and other assets
Total assets
Liabilities:
Accounts payable
Other payable
Payroll accrual
Tax payable
Total current liabilities
Other non-current liabilities
Total liabilities
NOTE 7 – OTHER CURRENT ASSETS
Other Receivables
December 31, December 31,
2014
2013
$
$ 3,496,678
141,029
127,280
215,152
193,613
109,777
4,283,529
9,100
-
50,383
26,526
33,015
84,661
203,685
1,055,648
42,779
126,503
$ 5,508,459
772,872
54,793
-
$ 1,031,350
$
$
10,572
714,309
273,599
-
998,480
436,346
$ 1,434,826
$
$
$
24,868
268,301
74,384
20,150
387,703
-
387,703
The Company pays deposits on various items relating to office expenses. Management has classified these deposits as
receivables as the intention is to recover these deposits in less than 12 months. As of December 31, 2014 and 2013 the amounts of
other receivables was $135,957 and $78,521, respectively.
F-16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 8 – INVENTORY
At December 31, 2014 and 2013, inventory consisted of the following:
Raw materials
Work in progress
Finished goods
December 31,
2014
128,665
89,164
154,420
372,249
$
$
December 31,
2013
$
$
27,979
-
91,140
119,119
NOTE 9 – PROPERTY, PLANT AND EQUIPMENT
As of December 31, 2014 and 2013, property, plant and equipment, carried at cost, consisted of the following:
December 31,
2014
December 31,
2013
Office equipment
Manufacturing equipment
Computer equipment
Leasehold improvements
Construction work in process
Less: accumulated depreciation
$
16,842
1,518,718
73,888
1,414,475
-
3,023,923
(1,743,513)
$
17,100
775,449
38,147
1,049,889
18,645
1,899,230
(884,425)
$ 1,014,805
$ 1,280,410
Depreciation expense for the years ended December 31, 2014, and 2013 was $586,679 and $495,029 respectively.
F-17
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 10 – INVESTMENTS
Assets measured at fair value on a recurring basis as of December 31, 2014 and 2013 are summarized as follows:
December 31, 2014
Equity position in Alpha Lujo, Inc.
Equity position in Arem Pacific Corporation
Equity position in Wonder International Education &
Investment Group Corporation
Total
$
Cost
251,388 $
5,030,000
Gross
Unrealized
Gains
Gross Unrealized
Losses more than
12 months
42,846 $
1,370,000
191,799
$ 5,473,187
-
$ 1,412,846
$
December 31, 2013
Equity position in Alpha Lujo, Inc.
Equity position in Arem Pacific Corporation
Equity position in Wonder International Education &
Investment Group Corporation
Total
$
Cost
171,388 $
3,500,000
1,627,239
$ 5,298,627
$
Gross
Unrealized
Gains
Gross Unrealized
Losses more than
12 months
- $
-
-
-
$
Gross
Unrealized
Losses less
than 12
months
Market or Fair
Value
- $
-
294,234
6,400,000
-
-
191,799
$ 6,886,033
Gross
Unrealized
Losses less
than 12
months
Market or Fair
Value
(64,270) $
-
107,118
3,500,000
1,498,773
(128,466)
(192,736) $ 5,105,891
- $
-
-
-
$
- $
-
-
-
$
The Company tracks each investment with an unrealized loss and evaluate them on an individual basis for other-than-temporary
impairments, including obtaining corroborating opinions from third party sources, performing trend analysis and reviewing management’s
future plans. When investments have declines determined by management to be other-than-temporary the Company recognizes write
downs through earnings. Impairment of investments expense for the year ended December 31, 2014 was $1,427,840. No such
expense existed for the year ended December 31, 2013.
F-18
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 11– FAIR VALUE ACCOUNTING
Assets measured at fair value on a recurring basis as of December 31, 2014 and 2013 are summarized as follows:
As of December 31, 2014
Fair Value Measurements at Reporting Date Using:
Significant
Other
Quoted Prices in
Active Markets
for
Identical Assets
Observable
Inputs
Significant
Unobservable
Inputs
Assets:
Equity position in Alpha Lujo, Inc.
Equity position in Arem Pacific Corporation
Equity position in Wonder International Education & Investment
Group Corporation
$
294,234
6,400,000
$
191,799
$ 6,886,033
$
-
-
-
-
$
294,234
6,400,000
$
191,799
$ 6,886,033
$
Total
(Level 1)
(Level 2)
(Level 3)
As of December 31, 2013
Fair Vaue Measurements at Reporting Date Using:
Significant
Other
Quoted Prices in
Active Markets
for
Identical Assets
Observable
Inputs
Significant
Unobservable
Inputs
Assets:
Equity position in Alpha Lujo, Inc.
Equity position in Arem Pacific Corporation
Equity position in Wonder International Education & Investment
Group Corporation
$
107,118
3,500,000
$
1,498,773
$ 5,105,891
$
-
-
-
-
$
107,118
3,500,000
$
1,498,773
$ 5,105,891
$
Total
(Level 1)
(Level 2)
(Level 3)
-
-
-
-
-
-
-
-
During the years ended December 31, 2014 and 2013, the Company received and continues to hold 3,000,000 and 5,000,000
respectively, shares of Arem Pacific Corporation as compensation for services performed by the Company's Consulting Segment. As of
December 31, 2014 and 2013, the Company holds 2,942,350 and 2,142,350 respectively, shares in Alpha Lujo, Inc. and 2,131,105 and
2,141,105 shares in Wonder International Education and Investment Group Corporation, respectively. All available-for-sale investments
held by the Company at December 31, 2014 and 2013 have been valued based on level 2 inputs. Available-for-sale securities classified
within level 2 of the fair value hierarchy are valued utilizing pricing reports from independent third party pricing service.
Due to the limited trading and non-reporting of all three of these companies, we have reclassified these assets to be a level 2 fair value
valuation as of December 31, 2014 and 2013.
NOTE 12– INTANGIBLE ASSETS
Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances
indicate that carrying amounts may not be recoverable. Assets not subject to amortization are tested for impairment at least annually.
The Company evaluates the continuing value of the intangibles at each balance sheet date and records write-downs if the continuing
value has become impaired. An impairment is determined to exist if the anticipated undiscounted future cash flow attributable to the
asset is less than its carrying value. The asset is then reduced to the net present value of the anticipated future cash flow.
F-19
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
As of December 31, 2014 and 2013, intangible assets, consisted of the following:
Patents
Cost basis
Less: accumulated amortization
Software
Cost basis
Less: accumulated amortization
Trademark
Cost basis
Less: accumulated amortization
Total intangibles, net
December 31,
2014
$ 11,404,730
(289,758)
$
$ 11,114,972
December 31,
2013
$ 1,020,577
(475,381)
545,196
December 31,
2014
December 31,
2013
$
$
65,848
$
(24,144)
$
41,704
57,031
(12,479)
44,552
December 31,
2014
December 31,
2013
$
$
-
-
-
$
$
11,708
-
11,708
$ 11,156,676
$
601,456
All software is provided by a third party vendor, is not internally developed, and has an estimated useful life of 5 years. Patents
are amortized using an estimated useful life of 5 to 10 years. Amortization expense for the years ended December 31, 2014 and 2013
was $603,826 and $346,206, respectively. Estimated amortization expense for each of the ensuing years are as follows for the years
ending December 31:
Years ending December 31,
2015
2016
2017
2018
2019 and thereafter
F-20
Amount
$ 1,156,133
1,156,133
1,156,133
1,150,437
6,537,840
$ 11,156,676
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 13– LEASES
The Company leases facilities under non-cancellable operating lease agreements. These facilities are located in the United
States, Hong Kong and China. The Company recognizes rent expense on a straight-line basis over the life of the lease period. Rent
expense under operating leases for the years ended December 31, 2014 and 2013 was approximately $576,000 and $454,000,
respectively.
As of December 31, 2014, the Company has the following future minimum lease payments due under the foregoing lease
agreements:
Years ending December 31,
2015
2016
NOTE 14– RELATED PARTY TRANSACTIONS
Amount
$
711,153
515,654
$ 1,226,807
The net balance due to related parties is $36,254 as of December 31, 2014, representing $6,037 for combined advances from
the Company’s executives and $30,217 to a subsidiary of Global Health Investment Holdings Ltd. (“Global Health”). Prior to August 26,
2014, Global Health was the Company’s largest shareholder. On August 26, 2014 Global Health Investment Holdings Ltd. disseminated
its CBMG shareholdings, on a pro rata basis, to its shareholders. The net balance due to related parties was $67,999 as of December
31, 2013, representing $37,784 for combined advances from the Company’s executives and $30,215 to a subsidiary of Global Health,
CBMG’s largest shareholder.
The Company received income from the Subsidiaries of Global Health for cell kits with cell processing and storage for the year
ended December 31, 2014 and 2013, of approximately $179,000 and $204,900, respectively.
During the year ended December 31, 2013, the Company paid $1,493,439 to the executives of its consulting segment
subsidiary, Eastbridge Sub, to settle all outstanding accrued compensation liabilities, no such settlement of accrued compensation
existed for the year ended December 31, 2014.
NOTE 15– EQUITY
ASC Topic 505 Equity paragraph 505-50-30-6 establishes that share-based payment transactions with nonemployees shall be
measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably
measurable.
In March 2014, the Company entered into several Subscription Agreements with selected investors (the “Purchasers”) that met
the criteria as “Accredited Investors” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933 (the “Act”), and other
investors who met the criteria as “non-U.S. persons” who agreed to comply with the applicable requirements of Regulation S under the
Act. As a result of these transactions, the Company issued to the purchasers an aggregate of 194,029 shares of common stock, at a
price per share of $6.70 for an aggregate purchase price of approximately $1,220,000.
In June 2014, the Company entered into several Subscription Agreements with selected investors that met the criteria as “non-
U.S. persons” who agreed to comply with the applicable requirements of Regulation S under the Act. As a result of these transactions,
the Company issued to the purchasers an aggregate of 1,492,537 shares of common stock, at a price per share of $6.70 for an
aggregate purchase price of approximately $10,000,000. Certain warrants were issued to the placement agent in this offering. These
warrants were all exercised in the year ended December 31, 2014 and 17,765 shares of common stock were issued.
The Company issued to the lead investor in the June 2014 financing, a three-year option to purchase up to 1,000,000 shares of
common stock at $8.00 per share. Pursuant to the terms of the option, if at any time after 18 months following the date of issuance, the
daily volume-weighted average price of the Company’s common stock exceeds $12.00 for a consecutive 20 trading days, the Company
shall have the right to require the holder to exercise the option in full. In December 2014, the Company received approximately
$8,000,000 as this agreement was exercised fully.
F-21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
In September 2014, the Company entered into several agreements with selected parties for the purchase of Agreen and patents
as described in Note 4. As a result of these transactions, the Company issued an aggregate of 828,522 shares of common stock, at a
price per share of $19.238 for an aggregate price of approximately $15,939,000.
In December 2014, the Company issued 39,260 shares as a finder fee to the Agreen acquisition. In connection with this
issuance the Company recorded expense of approximately $480,000. The share price on the date of this signed agreement was $12.22
and was used to calculate number of shares to issue.
During the year ended December 31, 2014, the Company issued 13,413 shares of common stock, to officers of the Company for
services rendered. The Company expensed $207,201 in connection with these issuances based on the quoted market prices on the
dates of issuance.
During the years ended December 31, 2014 and 2013, the Company expensed $1,742,703 and $792,645, respectively,
associate with unvested restricted and option awards that generally vest over a three year period.
Immediately prior to the reverse merger the Company had 1,570,299 shares outstanding. The Company issued 3,638,941
shares in connection with the merger. See Note 1 for a discussion of the accounting for the merger.
During the year ended December 31, 2013, the Company issued 231,384 shares of common stock to third parties for services
rendered. The Company expensed $1,157,099 in connection with these issuances based on the quoted market prices on the dates of
issuance.
During the year ended December 31, 2013, the Company issued 65,000 shares of common stock, to the former officers and
employee of the Company. The Company expensed $386,250 in connection with these issuances based on the quoted market prices on
the dates of issuance
During the year ended December 31, 2013, the Company issued 71,814 shares of common stock to employees that had earned
these shares as compensation as of the date of merger. The Company expensed $350,402 in connection with these issuances based on
the quoted market prices on the dates of issuance.
During year ended December 31, 2013, the Company issued 342,360 shares of common stock to specific stockholders as the
Company did not achieve ten Phase II clinical trials by March 31, 2013 in accordance with the terms and conditions of certain private
placement agreements entered into by private investors in CBMG BVI and assumed by the Company. The Company expensed
$1,694,682 in connection with these issuances based on the quoted market prices on the dates of issuance. There are no further
milestones that would require additional stock issuances.
On July 24, 2013, the Company entered into a Subscription Agreement with selected investors that met the criteria as
“Accredited Investors” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933, and other investors who met the
criteria as “non-U.S. persons” who agreed to comply with the applicable requirements of Regulation S under the Act. The Company
offered to sell up to an aggregate of 1,194,030 shares of the Company’s common stock. During the three months ended September 30,
2013, the Company issued to the Purchasers an aggregate of 597,763 shares of common stock at a price per share of $6.70 for an
aggregate purchase price of $4,005,072.
On December 13, 2013, the Company entered into several Subscription Agreements with selected investors that met the criteria
as “Accredited Investors” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933, and other investors who met the
criteria as “non-U.S. persons” who agreed to comply with the applicable requirements of Regulation S under the Act. As a result of these
transactions, the Company issued to the Purchasers an aggregate of 837,105 shares of common stock, at a price per share of $6.70 for
an aggregate purchase price of $5,608,024.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Executive Employment Agreements
At the close of the merger with CBMG BVI, the Company entered into executive employment agreements with each of Wen Tao
(Steve) Liu, Wei (William) Cao and Andrew Chan (the “New Officers”) dated February 6, 2013 (each an “Employment Agreement,”
collectively, the “Employment Agreements”). Pursuant to Amendment 1 to the Employment Agreement, Andrew Chan will receive an
annual base salary of $200,000. Pursuant to Board of Directors (“BOD”) Minutes dated September 29, 2013, Steve Liu and William Cao
will receive an annual base salary of $200,000 and $225,000, respectively. The New Officers are also eligible to participate in the
Company’s Amended and Restated 2011 Incentive Stock Option Plan (the “2011 Plan”) and receive an option grant thereunder for the
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
purchase of common stock of the Company at the discretion of the board of directors of the Company (the “Board”). The term of the New
Officers’ employment agreements are effective as of February 6, 2013 and continue for three years thereafter. After the three year term,
if the New Officers continue to be employed, they will be employed on an at-will basis and their agreements shall automatically renew for
successive one year terms, until and unless their employment is terminated.
F-22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Each of the above Executive Employment Agreements contain termination provisions that dependent on the reason an executive
is terminated, severance payments and the payment of COBRA premiums may be triggered.
On January 3, 2014 the Company entered into an executive employment agreement with Bizuo (Tony) Liu (the "Liu Employment
Agreement"). Pursuant to the Liu Employment Agreement, Tony Liu will receive an annual base salary of $210,000 with substantially
similar terms and conditions as the New Officers.
On May 1, 2014 the Company revised Wen Tao (Steve) Liu’s agreement (the “Wen Tao Employment Agreement”). Pursuant to
the Wen Tao Employment Agreement, Steve Liu will receive an annual base salary of $150,000 as part-time Executive Chairman.
Discontinued Operations Plan
Effective July 31, 2014, in connection with the Company’s discontinuation of its consulting business, the Company terminated
the Subsidiary Employment Agreements with Messrs. Klein and Wong. On the same date, the Company entered into severance
agreements with Messrs. Klein and Wong. Pursuant to the terms of the severance agreements, the Company agreed to pay severance
of $360,000 and $480,000 to Messrs. Klein and Wong, respectively, as well as an additional lump sum of $4,200 and $12,480,
respectively, to cover the equivalent costs of retaining two years of medical coverage under the Company’s current medical plan for such
individuals.
Deferred Compensation Arrangement with Former Officers
On February 5, 2013, the Company entered into a Deferred Compensation Agreement with Keith Wong and Norman Klein (the
“Former Executives”), in which the Company agreed to: (i) pay its Former Executives certain accrued unpaid cash compensation
consisting of $676,839 payable to Keith Wong and $459,300 payable to Norman Klein, plus aggregate accrued interest calculated at the
simple rate of 12% per annum; and (ii) pay on August 31, 2013, a cash bonus payment of $204,723 to Mr. Wong and $152,577 to Mr.
Klein. As of September 30, 2013, all such amounts were paid. A copy of the Deferred Compensation Agreement was attached as Exhibit
10.9 to our current report on Form 8-K filed February 12, 2013.
Collaboration Agreement
Part of AG’s business (see Note 4) includes a collaboration agreement to establish and operate a biologic treatment center in the Jilin
province of China. Under the terms of the agreement, AG’s collaborative partner funded the development of the center and provides
certain ongoing services. In exchange, the partner receives preferred repayment of all funds that were invested in the development, 60%
of the net profits until all of the invested funds are repaid, and 40% of the net profits thereafter, and the rights to the physical assets at the
conclusion of the agreement. We are accounting for this transaction in accordance with ASC 808 Collaborative Arrangements and have
reflected all assets and liabilities of the treatment center. While a liability exists for the amounts to be repaid to the partner for the initial
funding, no liability has been recognized for the partner’s rights to the assets upon the conclusion of the agreement as there is no
specified termination date to the agreement.
NOTE 17 – STOCK BASED COMPENSATION
Our stock-based compensation arrangements include grants of stock options and restricted stock awards under the Stock Option
Plan (the “2009 Plan”,“2011 Plan”, and the “2013 Plan”), and certain awards granted outside of these plans. The compensation cost that
has been charged against income related to stock-based compensation (including shares issued for services and expense true-ups and
reversals described in Note 15) for the years ended December 31, 2014 and 2013 was $1,949,904 and $1,529,297, respectively, and is
included in general and administrative expense in our Consolidated Statements of Operations. As of December 31, 2014, there was
$7,642,709 all unrecognized compensation cost related to an aggregate of 1,048,961 of non-vested stock option awards and $97,748
related to an aggregate of 7,115 of non-vested restricted stock awards. These costs are expected to be recognized over a weighted-
average period of 1.84 years for the stock options awards and 0.8 years for the restricted stock awards.
During the year ended December 31, 2014, the Company issued options under the 2011 and 2013 Plans to purchase an
aggregate of 795,500 shares of the Company’s common stock to officers, directors and employees. The grant date fair value of these
options was $6,884,822 using Black-Scholes option valuation models with the following assumptions: exercise price equal to the grant
date stock price of $5.00 to $28.49, volatility 112% to 130%, expected life 6.0 years, and risk-free rate of 1.77% to 2.08%. The Company
is expensing these options on a straight-line basis over the requisite service period.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-23
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
The following table summarizes stock option activity as of December 31, 2014 and 2013:
Number of
Options
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
Outstanding at December 31, 2013
Grants
Forfeitures
Exercises
Outstanding at December 31, 2014
$
705,073
795,500
(71,750)
(3,650)
$
1,425,173
4.19
10.53
5.06
5.31
7.37
9.2
$
735,132
8.9
$ 11,065,770
Vested and exercisable at December 31, 2014
376,212
$
4.18
8.5
$ 3,730,238
Exercise
Price
Number of Options
Outstanding Exercisable
$3.00 - $4.95
$5.00 - $9.19
$14.50+
350,883
810,990
263,300
1,425,173
153,662
222,550
-
376,212
The aggregate intrinsic value for stock options outstanding and exercisable is defined as the positive difference between the fair
market value of our common stock and the exercise price of the stock options. As of December 31, 2014, we expect to recognize
approximately $7,640,000 of stock-based compensation for our outstanding options over a weighted-average period of 1.7 years.
Cash received from option exercises under all share-based payment arrangements for the year ended December 31, 2014 was
$19,387. No options were exercised in 2013.
NOTE 18 – NET INCOME (LOSS) PER SHARE
Basic and diluted net loss per common share is computed on the basis of our weighted average number of common shares
outstanding, as determined by using the calculations outlined below:
Loss from continuing operations
Loss on discontinued operations
Net loss
Weighted average shares of common stock
Dilutive effect of stock options
Restricted stock vested not issued
Common stock and common stock equivalents
Loss from continuing operations per basic share
Loss from continuing operations per diluted share
Loss on discontinued operations per basic share
Loss on discontinued operations per diluted share
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
For the Year Ended
December 31,
2014
2013
$ (12,355,459) $ (11,358,519)
$ (3,119,152) $ (2,438,514)
$ (15,474,611) $ (13,797,033)
8,627,094
-
-
8,627,094
5,792,888
-
-
5,792,888
$
$
$
$
(1.43) $
(1.43) $
(0.36) $
(0.36) $
(1.96)
(1.96)
(0.42)
(0.42)
Net loss per basic share
Net loss per diluted share
$
$
(1.79) $
(1.79) $
(2.38)
(2.38)
F-24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
The calculation of diluted net income per common share excludes the effects of 590,545 outstanding stock options for the year
ended December 31, 2014 as the impact of these options was anti-dilutive. There were 2,310 anti-dilutive share equivalents for the year
ended December 31, 2013.
NOTE 19 – INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period during which such
rates are enacted.
The Company considers all available evidence to determine whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of
deferred tax liabilities (including the impact of available carryback and carry-forward periods), and projected taxable income in assessing
the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified.
Based on all available evidence, in particular our three-year historical cumulative losses, recent operating losses and U.S. pre-tax loss
for the fiscal year ending December 31, 2014, we recorded a valuation allowance against our U.S. net deferred tax assets. In order to
fully realize the U.S. deferred tax assets, we will need to generate sufficient taxable income in future periods before the expiration of the
deferred tax assets governed by the tax code.
The following represent components of the current tax expense for the year ended December 31, 2014 and 2013.
Current tax expense:
US federal
US state
December 31, December 31,
2014
2013
$
$
41,798
8,947
50,745
$
$
339,856
4,590
344,446
The following represent components of net deferred tax assets at December 31, 2014 and 2013:
December 31, December 31,
2014
2013
$ 4,343,930
1,823,432
581,129
1,217,927
599,332
$ 2,811,207
-
294,127
1,909,635
-
-
-
8,565,750
(8,565,750)
$
-
5,014,969
(5,014,969)
-
$
Deferred tax assets:
Net operating loss carry forwards (offshore)
Net operating loss carry forwards (US)
Accrued compensation (US)
Stock options (US)
Investments (US)
Deferred tax liabilities
Subtotal
Less: valuation allowance
Net deferred tax asset
F-25
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CELLULAR BIOMEDICINE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
In each period since inception, the Company has recorded a valuation allowance for the full amount of net deferred tax assets,
as the realization of deferred tax assets is uncertain. As a result, the Company has not recorded any federal or state income tax benefit
in the consolidated statements of operations and comprehensive income (loss).
As of December 31, 2014, the Company had net operating loss carryforwards of $4.3 million for U.S federal purposes, $4.3
million for U.S. state purposes, and $17.4 million for Chinese income tax purposes such losses are set to expire in 2034, 2034, and 2019
for U.S. federal, U.S. state and Chinese income tax purposes, respectively. All deferred income tax expense is offset by changes in the
valuation allowance pertaining to the Company's existing net operating loss carryforwards. The Company's effective tax rate differs from
statutory rates of 35% for U.S. federal income tax purposes and 25% for Chinese income tax purposes due to the effects of the valuation
allowance and certain permanent differences as it pertains to book-tax differences in the value of client shares received for services.
The following table summarizes a reconciliation of Income tax expense (benefit) for the year ended December 31, 2014
compared with the amounts at the U.S. federal statutory rate:
Effective Tax Rate Reconciliation
Federal tax
State tax
Goodwill impairment
Foreign tax rate difference
Other permanent difference
Change in valuation allowance
Provisional rate
(35.00)%
0.04%
7.49%
13.91%
0.29%
13.59%
0.32%
Under Section 382 of the Code, substantial changes in ownership may limit the amount of NOLs that can be utilized annually in
the future to offset taxable income, if any. Specifically, this limitation may arise in the event of a cumulative change in ownership of more
than 50% within a three-year period as determined under the Code. Any such annual limitation may significantly reduce the utilization of
these NOLs before they expire. The Company’s ability to utilize federal NOLs created prior to the merger is significantly limited. Prior to
the merger, CBMG Ltd. had completed a partial analysis of ownership changes under Section 382 of the Code to determine if a change
in control had occurred. Based on this partial analysis, no change in control was identified. A complete formal analysis of ownership
change would have to be performed in order to obtain certainty that a change in control had not occurred prior to the merger, which could
further limit the utilization of pre-merger NOLs.
NOTE 20 – SUBSEQUENT EVENTS
On February 4, 2015, Cellular Biomedicine Group Ltd. (Shanghai) (“CBMG”), an operating subsidiary of Cellular Biomedicine
Group Inc. (the “Company”), entered into a technology transfer agreement (the “Transfer Agreement”) with the Chinese PLA General
Hospital PLAGH (also known as “301 Hospital”).
Pursuant to the terms of the Transfer Agreement, PLAGH agreed to transfer to CBMG all of its right, title and interest in and to
certain technologies currently owned by PLAGH (including, without limitation, four technologies and their pending patent applications)
that relate to genetic engineering of chimeric antigen receptor (CAR)-modified T cells and its applications (collectively, the
“Technology”). In addition, PLAGH is responsible for obtaining governmental approval for the clinical trial related to the Technology, and
CBMG (Shanghai) is responsible for the costs and expenses in connection therewith.
In consideration for the Technology, CBMG agreed to pay to PLAGH the following: (i) RMB 3.2 million (approximately $512,000)
within 5 business days following the date of the Transfer Agreement, (ii) RMB 6.8 million (approximately $1,109,000) within 5 business
days following delivery by PLAGH to CBMG all the materials and documents related to the Technology, and (iii) RMB 2 million
(approximately $320,000) within 5 business days following execution of clinical cooperation agreement between CBMG and PLAGH.
The Transfer Agreement contains customary confidentiality and event of default provisions.
In March 2015, the Company initiated a financing transaction pursuant to which it would sell up to 526,316 shares of the
Company’s common stock, to selected investors at $38 per share, for total gross proceeds of approximately $20,000,000. The Shares
were sold pursuant to separate subscription agreements between the Company and each Investor. Up to the issuance of the financial
statements, $20,000,000 (unaudited) were received from investors.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-26
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
Cellular Biomedicine Group, Inc.
Palo Alto, California
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-198692, 333-158583, 333-
187799 and 333-179974) of Cellular Biomedicine Group, Inc. (formerly EastBridge Investment Group Corporation) (the “Company”) of
our report dated March XX, 2015, relating to the consolidated financial statements which appears in this From 10-K.
BDO USA, LLP
Phoenix, Arizona
March 31, 2015
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CERTIFICATION
Pursuant to 18 U.S.C. Section 1350
As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Wei (William Cao), certify that:
1. I have reviewed this annual report on Form 10-K of Cellular Biomedicine Group Inc. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Dated: March 31, 2015
Signature: /s/ Wei (William) Cao
Wei (William) Cao
Chief Executive Officer
(principal executive officer)
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CERTIFICATION
Pursuant to 18 U.S.C. Section 1350
As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, Bizuo (Tony) Liu, certify that:
1. I have reviewed this annual report on Form 10-K of Cellular Biomedicine Group Inc. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Dated: March 31, 2015
Signature: /s/ Bizuo (Tony) Liu
Bizuo (Tony) Liu
Chief Financial Officer
(principal financial and accounting officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Exhibit 32.1
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United
States Code), the undersigned officer of Cellular Biomedicine Group Inc., a Delaware corporation (the "Company"), does hereby certify,
to such officer's knowledge, that:
The Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the "Form 10-K") of the Company fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly
presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 31, 2015
By: /s/ Wei (William) Cao
Wei (William) Cao
Chief Executive Officer
(principal executive officer)
By: /s/ Bizuo (Tony) Liu
Bizuo (Tony) Liu
Chief Financial Officer
(principal financial and accounting officer)
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b)
of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of Form 10-K or as a separate disclosure
document.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.