SECURITIES & EXCHANGE COMMISSION EDGAR FILING
Cellular Biomedicine Group, Inc.
Form: 10-K
Date Filed: 2017-03-13
Corporate Issuer CIK: 1378624
© Copyright 2017, 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
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FORM 10-K
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☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2016
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
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CELLULAR BIOMEDICINE GROUP, INC.
(Exact name of registrant as specified in its charter)
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Delaware
State of Incorporation
86-1032927
IRS Employer Identification No.
19925 Stevens Creek Blvd., Suite 100
Cupertino, California 95014
(Address of principal executive offices)
(408) 973-7884
(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
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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
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 – $ 117,728,971 as of June 30, 2016.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of February 28, 2017, there
were 14,281,380 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, 2016
TABLE OF CONTENTS
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
BUSINESS
RISK FACTORS
PROPERTIE
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
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
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
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Cautionary Note Regarding Forward-looking Statements and Risk Factors
This Annual Report on Form 10-K, or this Annual Report, may contain “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor”
created by those sections. Our actual results could differ materially from those anticipated in these forward-looking statements. 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. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you
that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain.
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. Forward-looking statements in this report include, but are not limited to, statements about:
● the success, cost and timing of our product development activities and clinical trials;
● our ability and the potential to successfully advance our technology platform to improve the safety and effectiveness of our existing product
candidates;
● the potential for our identified research priorities to advance our cancer and regenerative disease technologies;
● our ability to obtain drug designation or breakthrough status for our product candidates and any other product candidates, or to obtain and maintain
regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product
candidate;
● the ability to generate or license additional intellectual property relating to our product candidates;
● regulatory developments in China, United States and other foreign countries;
● the potential of the technologies we have acquired, such as the acquisitions of the technologies from AG, Blackbird, and the PLAGH (as defined
below);
● fluctuations in the exchange rate between the U.S. dollars and the Chinese Yuan;
● our plans regarding our move to the new Zhangjiang building in Shanghai;
● our plans to continue to develop our manufacturing facilities.
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 or deemed controlled companies.
Overview
Cellular Biomedicine Group, Inc. is a biopharmaceutical 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 : Chimeric Antigen Receptor T cell (CAR-T), cancer vaccine, and T Central Memory Cell (Tcm) technology, and (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 diseases such as
cancer, orthopedic diseases, 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 stem cell based therapies to treat knee osteoarthritis (“KOA”). We have completed Phase IIb autologous haMPC KOA clinical study and
published its promising results. Led by Shanghai Renji Hospital, one of the largest teaching hospitals in China, we launched Phase I clinical trial of an off-the-shelf
allogeneic haMPC (AlloJoin™) therapy for KOA. We have completed patient recruitment and treatment for Phase I clinical studies of KOA on August 5, 2016. We
also initiated multiple dose preclinical studies in a Chronic Obstructive Pulmonary Disease ("COPD") animal model, and plan to initiate manufacturing of
(AlloJoin™) product for KOA preclinical and clinical studies in the United States in 2017.
Our primary target market is Greater China. We believe that the results of our research, acquired knowhow and clinical study results will help to cure or
alleviate illness and suffering of the patient. We expect to carry out clinical studies leading to eventual CFDA approval through IND filings and authorized treatment
centers throughout Greater China.
With our acquisition of the University of South Florida’s license on the next generation GVAX vaccine (CD40LGVAX) and its related standard operational
procedures (SOPs), we have expanded our immuno-oncology portfolio significantly. We plan to use the knowledge we obtained from the previous phase l clinical
study conducted in the U.S. by Moffitt Cancer Center to support an investigator sponsored trial to evaluate the potential synergistic effect of the combination of
CD40LGVAX with an anti-PD1 checkpoint inhibitor, to treat a selected segment of late stage non-small cell lung cancer (NSCLC) adenocarcinoma patients. We
may also seek approval to conduct clinical trials with leading non-U.S. medical centers or seek partnership for CD40LGVAX sub-license opportunities.
With our recent build-up of multiple cancer therapeutic technologies, we have prioritized our clinical efforts on launching multiple trials for CAR-Ts in
several indications and are not actively pursuing the fragmented technical services opportunities. We are striving to build a highly competitive research and
development function, a translational medicine team, along with a well established cellular manufacturing capability for clinical grade materials, to support the
development of multiple assets in several cancer indications. These efforts will allow us to boost the Company's Immuno-Oncology presence, and pave the way for
future partnerships.
Corporate History
Cellular Biomedicine Group, Inc. was incorporated in the State of Delaware and its corporate headquarters located at 19925 Stevens Creek Blvd., Suite
100 in Cupertino, California. The Company is focusing its resources on becoming a biotechnology company bringing therapies to improve the health of patients in
China.
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.
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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
On February 6, 2013, we completed a merger to acquire Cellular Biomedicine Group Ltd.
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 fit into management’s long-term strategy and vision. The Company is continuing to focus its resources
on becoming a biotechnology company bringing therapies to improve the health of patients in China.
On September 26, 2014, the Company completed its acquisition of Beijing Agreen Biotechnology Co. Ltd. ("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.
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.
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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
In January 2015, we initiated patient recruitment to support a phase II clinical study, in China, of ReJoin® 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 Knee Osteoarthritis (“KOA”). Both arthroscopy and the use of magnetic resonance imaging (“MRI”) will be
deployed to further demonstrate the regenerative efficacy of ReJoin® on CD.
On February 4, 2015, the Company announced its agreement related to the 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 lymphocytic
leukemia, CD20-positive advanced B-cell Non-Hodgkin’s lymphoma, CD30-positive Hodgkin's lymphoma and EGFR-HER1-positive advanced lung cancer,
cholangiocarcinoma, pancreatic cancer, and renal cell carcinoma. 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.
We announced interim Phase IIb trial results for our ReJoin® haMPC therapy for KOA on March 25, 2015, which confirmed that the primary and
secondary endpoints of ReJoin™ therapy groups have all improved significantly compared to their baseline. We released positive 48-week follow-up data in
January 2016.
In January 2016, we launched a Phase I clinical trial of an off-the-shelf allogeneic haMPC AlloJoin™ therapy for KOA.
On March 25, 2015, the Company announced results of the Phase I clinical studies on CAR-CD19 (CBM-C19.1) and CAR-CD20 (CBM-C20.1). The
Phase I trial data showed an optimistic response rate under controllable toxicities. In comparison with leading clinical research reports on CAR-CD19 therapies by
peers, we believe that the efficacy profile of both CBM-C19.1 and CBM-C20.1 therapies are distinguished for the following reasons:
I.
The patient selection criteria of this study is highly selective. The participants enrolled in the studies were advanced, relapsed, and refractory to
other standard-of-care therapies. This selection criterion is highly distinguishable from other studies, which avoided higher risk patients. Most of
these high severity patients would not have been eligible for other entities’ studies because of extramedullary involvement or because the
presence of bulky tumors were deemed too risky for their trials.
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II.
The treatment program design of this study is very stringent.
a. Our higher risk patients did not receive conditioning chemotherapy, which is known as a beneficial facilitator of adoptive T cell therapies.
b. Moreover, our higher risk patients did not receive subsequent Hematopoietic Stem Cell transplantation (HSCT), which is also known as a
beneficial facilitator of adoptive T cell therapies.
From April 2015, the Company commenced cooperation with agents/hospitals through which it started to provide immune-cell therapy technology
consulting services to hospitals located in Beijing, Shandong, Anhui and Shanghai. The Company subsequently decided not to focus on the cell therapy
technology service section and accordingly ceased its cooperation with Jihua Hospital and several agents. For the year ended December 31, 2016, revenue of
$0.6 million was derived from this service.
On May 27, 2015, the Company announced the appointment of Richard L. Wang, Ph.D., MBA, PMP as Chief Operating Officer. Dr. Wang, a seasoned
and accomplished scientist and industry professional, brings operational, project management, and R&D governance experience from multinational
pharmaceutical companies, to support the Company’s research of osteoarthritis and oncology therapeutics. Dr. Wang oversees the Company’s research
collaborations, technology transfers, drug development clinical trials, regulatory affairs, production, and oversight of the Company’s multicenter operations.
At the 10th Annual World Stem Cells & Regenerative Medicine Congress in London, UK on May 21, 2015, the Company announced results of the Phase I
clinical studies of CD30-directed CAR-T therapy on CD30-positive Stage III and IV Hodgkin's lymphoma patients. The results of this trial demonstrated that five out
of seven patients responded to the treatment, and the therapy was demonstrated in this trial to be safe, feasible and efficacious.
On June 26, 2015, the Company completed the acquisition of Blackbird BioFinance, LLC (“Blackbird”)’s license from University of South Florida (“USF”) on
the next generation cancer immunotherapy vaccine CD40LGVAX, its related technologies and technical knowledge. Of the total consideration to be delivered to
Blackbird for the purchased assets, $2,500,000 was delivered in cash and 28,120 shares of Company common stock (the "Closing Shares"), representing
$1,050,000 of the purchase consideration (based on the 20-day volume-weighted average price of the Company’s stock on the closing date), was issued and
delivered to Blackbird. Another 18,747 shares (the “Holdback Shares”), representing $700,000 of the purchase consideration (based on the 20-day volume-
weighted average price of the Company’s stock on the closing date), was issued and delivered to Blackbird in November 2015. Based on the terms of the license,
we believe the Company will pay potentially more than $25 million in future milestones and royalty payments.
We believe this technological addition may address meaningful and sizable unmet medical needs. Based on the latest data available from NCCN Clinical
Practice Guidelines in Oncology Non-Small Cell Lung Cancer (“NSCLC”) (Version 4. 2014), an estimated 224,210 people in the United States were diagnosed
with lung cancer in 2014, with an estimated 159,260 deaths occurring because of the disease. In China, 728,552 individuals were diagnosed with lung cancer in
2012, and 592,410 individuals in China died of lung cancer in 2012 (source: Chinese Cancer Registry Annual Report 2012 & GMCD40L Study Synopsis).
Despite the advances of targeted therapies and recent breakthroughs with immune checkpoint inhibitors, such as anti-PD1 or PDL1 monoclonal antibody
treatments, there are still significant unmet medical needs in NSCLC, and the disease remains largely incurable. We believe the CD40LGVAX vaccine, in
combination with an anti-PD1 monoclonal antibody, may provide synergistic and improved clinical benefits in both PDL1 positive and negative patients. We
previously anticipated a phase I/II clinical trial for the CD40LGVAX vaccine combined with PD-1 antibody to commence in the second half of 2015. We are
currently evaluating both U.S. and non-U.S. options for furthering clinical trials for the CD40LGVAX vaccine following Moffitt Cancer Center’s notification to us that
it will not be continuing its sponsorship of the U.S. CD40LGVAX Trial. In the third quarter of 2015, we reviewed and modified the design of CD40LGVAX trial by
expanding the number of patient recruitment, changing from single site to multi-sites trial and adding stratification to the trial. We are converting the CD40LGVAX
Investigator Sponsor Research (“ISR”) to a CBMG IND trial.
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On June 26, 2015, the Russell Investments Group reconstituted its comprehensive set of U.S. indexes, the Company was selected to be included in the
broad-market Russell 3000® Index. The Russell 3000® Index encompasses the 3,000 largest U.S.-traded stocks by objective, market-capitalization rankings and
style attributes. This weighted index by market capitalization was constructed to provide a comprehensive barometer of the broad market and it now represents
approximately 98% of the investable U.S. equity market. Membership in this index, which remains in place for one year, means automatic inclusion in the small-
cap Russell 2000® Index as well as the appropriate growth and value style indexes. Russell indexes are widely used by investment managers and institutional
investors for index funds and as benchmarks for active investment strategies.
In July 2015, the Company has received two new certifications from the China Food and Drug Administration (the “CFDA”) for its proprietary cell and
tissue preservation media kits, in accordance with the CFDA’s new regulations announced on June 1, 2015. These certified kits enable long-term preservation and
long distance shipment of cells and tissue, without freezing them down, from and to the point of care for ready applications by physicians. The latest certifications
further strengthen our Vertically Integrated Cell Manufacturing System (VICMS) to centralize the processing and supplying of autologous cell therapies, and
reinforce our potential to be a world-class biotechnology company, serving large unmet medical needs.
On August 26, 2015 the Company filed new patents - “Preparation of HER1 chimeric antigen receptor and NKT cells and application” for China patent and
PCT and “Preparation of CD19 chimeric antigen receptor and NKT cells and application” for China patent.
On September 26, 2015, the Company presented at the 2015 European Cancer Congress’ (“ECCO”) annual meeting held in Vienna, Austria results from
the first 11 NSCLC patients in the trial outlined in the abstract, entitled Chimeric Antigen Receptor-Modified T-Cells for the Immunotherapy of Patients with HER-1
Expressing Advanced Relapsed/Refractory Non-Small Cell Lung Cancer.
On September 28, 2015, the Company announced results of the Phase I clinical studies of CAR-T EGFR-HER1 (“CBM-EGFR.1”) for the treatment of
patients with EGFR expressing advanced relapsed/refractory solid tumors. Based on the results from 24 patients treated with CBM-EGFR.1 (17 patients with non-
small cell lung cancer, 5 patients with cholangiocarcinoma, 1 patient with pancreatic cancer and 1 patient with renal cell carcinoma (“RCC”)), the early results
showed that CBM-EGFR.1 immunotherapy was safe, well tolerated, and had positive signal of clinical activity in several indications. The data was selected for a
late-breaking oral presentation entitled EGFR-Targeted Chimeric Antigen Receptor-Modified T Cells Immunotherapy for Patients With EGFR-Expressing Advanced
or Relapsed/Refractory Solid Tumors at the 5th World Congress on Cancer Therapy in Atlanta, Georgia. Highlight of Phase I/II clinical trial for CBMG CAR-T
products in multiple advanced, refractory/relapsing solid tumors is as follow:
●
●
●
●
First known report of positive safety and signal of clinical activity of EGFR CAR-T in multiple solid tumor indications,
Most NSCLC patients treated with CBM-EGFR.1 failed EGFR-TKI therapy prior to CBM-EGFR.1 treatment,
Overall disease control rate (DCR) is 79% (19 of 24). 100% DCR in cholangiocarcinoma (5/5), 71% DCR in NSCLC (12/17),
Objective response rate (ORR) of 25% in combined indications: 2 complete response (CR) and 1 partial response (PR) in cholangiocarcinoma, 2
PR in NSCLC and 1 PR in pancreatic cancer.
The September 2015 reports on CBM-EGFR.1 therapy for late stage solid tumors have demonstrated our ability to innovate, advance boundaries between
basic research and translational medicine and streamline the production of CAR-T and clinical treatment. With the talent addition of our COO and CSO, and the
maturing of working relationship with PLAGH 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, 301 Hospital and USF 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 principal investigators and obtaining the requisite approvals.
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On November 9, 2015, the Company announced the opening of its new state-of-the-art facility in the PKUCare Industrial Park, Changping District, Beijing,
China. Eight hundred square meters of the 1,400 square meter site has been equipped with four independent production lines to support clinical batch production
and commercial scale manufacturing. Designed and built to GMP standards, the facility has been certified by the Beijing Institute for Drug Control, accredited
bodies of the China National Accreditation Service (CNAS) and China Metrology Accreditation (CMA). With this expansion into Beijing, the Company now operates
three GMP facilities in China that currently houses twelve independent production lines with the capacity to host more than 200,000 individual cell sources. With
our integrated Plasmid, Viral Vectors, and CAR-T cells Chemistry, Manufacturing, and Controls process as well as planned capacity expansion, we are highly
distinguishable with other companies in the cellular medicine space.
In January 2016, we launched a Phase I clinical trial of an off-the-shelf allogeneic haMPC AlloJoin™ therapy for KOA (the “Allogenic KOA Phase I Trial”)
to evaluate the safety and efficacy of AlloJoin™, an off-the-shelf allogeneic adipose derived progenitor cell (haMPC) therapy for the treatment of KOA.
On March 23, 2016, the Company filed a Form S-3 Registration Statement (the “S-3 Registration Statement”) with the SEC, which was declared effective
on June 17, 2016. The S-3 Registration Statement contains three prospectuses:
● Offering Prospectus. A base prospectus which covers the offering, issuance and sale by us of up to $150,000,000 of our common stock, preferred stock,
debt securities, warrants, rights and/or units;
● Resale Prospectus. A prospectus to be used for the resale by the selling stockholders of up to 3,824,395 shares of the Common Stock; and
● Sales Agreement Prospectus. A sales agreement prospectus covering the offering, issuance and sale by the registrant of up to a maximum aggregate
offering price of $50,000,000 of the Common Stock that may be issued and sold under a sales agreement with Cantor Fitzgerald & Co.
On August 5, 2016 we completed patient treatment for the Allogenic KOA Phase I Trial. And on December 9, 2016 we announced interim 3-month safety data
from the Allogenic KOA Phase I Trial in China. The interim analysis of the trial has preliminarily demonstrated a safety and tolerability profile of AlloJoinTM in the
three doses tested, and no serious adverse events (SAE) have been observed. The trial is on schedule to be completed by the third quarter of 2017.
On November 29, 2016 we announced the approval and commencement of patient enrollment in China for our CARD-1 (“CAR-T Against DLBCL”) Phase I
clinical trial utilizing its optimized proprietary C-CAR011 construct of CD19 chimeric antigen receptor T-cell (CAR-T) therapy for the treatment of patients with
refractory Diffuse Large B-cell Lymphoma (DLBCL). The CARD-1 trial has begun enrollment with final data expected to be available in the second half of 2017.
On December 9, 2016 we announced interim 3-month safety data from our Phase I clinical trial in China for AlloJoin TM off-the-shelf allogeneic stem cell
therapy for KOA. The preliminary data was presented on December 8th at the World Stem Cell Summit in West Palm Beach, Florida. The interim analysis of the
trial has preliminarily demonstrated a safety and tolerability profile of AlloJoinTM in the three doses tested, and adverse events (AE) are similar to that of our prior
autologous trials. No serious adverse events (SAE) have been observed. The trial is on schedule to be completed by the third quarter of 2017.
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In the next 12 months, we aim to accomplish the following, though there can be no assurances that we will be able to accomplish any of these goals:
● Confirm the safety and tolerability profile in an investigator sponsored phase I trial of C-CAR011 in refractory (r/r) CD19 + B-cell Acute Lymphoblastic
Leukemia (ALL), and to prepare for a follow up multi-center phase IIb trial;
● Initiate a phase I-IIb trial to evaluate the safety and efficacy of CBM-CD19 in CD19+ refractory/relapsing adult B-ALL patients;
● Submit to the CFDA of IND package for CBM-CD19 in CD19+ B-cell malignancies;
● Initiate an investigator sponsored phase I trial of CBM-CD20 in CLL patients;
● Seek opportunities to file new CAR-T and other patents in China and potentially the rest of the world;
● Continue to seek advanced technologies and partnerships to bolster our CAR-T China market position;
● Bolster R&D resources to fortify our intellectual properties portfolio and scientific development. Continue to develop a competitive Immuno-oncology
pipeline for CBMG;
● Complete the Allogeneic KOA Phase I Trial in China;
● Complete CMC and other required preclinical study data package to prepare for Allogeneic KOA IND filing in the United States;
● Evaluate feasibility of initiating clinical study to support the New Drug Application (NDA) for an allogeneic haMPC Knee Osteoarthritis therapy (“Allo KOA”)
study in the United States;
● Complete preclinical efficacy evaluation to decide development path for COPD indication;
● Continue to seek advanced technologies to bolster our CAR-T China market position;
● Bolster R&D resources to fortify our intellectual properties portfolio and scientific development;
● Improve liquidity and fortify our balance sheet by courting institutional investors;
● Evaluate new regenerative medicine technology platform for other indications;
● Explore new CAR-T international collaboration and /or partnership; and
● Expand our cell manufacturing capacity and capabilities.
For the years ended December 31, 2016, 2015 and 2014, we generated $0.6 million, $2.5 million and $0.6 million in revenue, respectively. The revenue since July
2014 is all from our technology consulting service. Before July 2014, our revenue was mainly from sales of A-Stromal™ enzyme reagent kits. We expect our
biopharmaceutical business to generate revenues primarily from immune therapy and the development of therapies for the treatment of KOA in the next three to
four years.
Our operating expenses for year ended December 31, 2016 were in line with management’s plans and expectations. We incurred an increase in total operating
expenses of approximately $6 million for the year ended December 31, 2016, as compared to the year ended December 31, 2015, which is primarily attributable to
an increase in professional service costs and increased input into expenditures for R&D projects.
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Corporate Structure
Our current corporate structure is illustrated in the following diagram:
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Following the completion of our merger on February 6, 2013, we had the following subsidiaries (including a controlled VIE entity):
Cellular Biomedicine Group HK Limited, a Hong Kong company limited by shares, is a holding company and wholly owned subsidiary of the Company.
Cellular Biomedicine Group Ltd. (Wuxi), license number 320200400034410 (the “WFOE”) is a wholly foreign-owned entity that is 100% owned by Cellular
Biomedicine Group HK Limited. This entity’s legal name in China 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 biopharmaceutical 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 translates to “Xi Biman Biotech (Shanghai)
Co., Ltd.” We conduct certain biopharmaceutical 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. Lu Junfeng together are the record holders of all of the outstanding registered
capital of CBMG Shanghai. Mr. Chen and Mr. Lu are also directors of CBMG Shanghai constituting the entire management of the same. Mr. Chen and Mr. Lu
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.
Wuxi Cellular Biopharmaceutical Group Ltd. was established on January 17, 2017 and it is a PRC domestic corporation and wholly owned subsidiary of
CBMG Shanghai.
Shanghai Cellular Biopharmaceutical Group Ltd. was established on January 18, 2017 and it 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 the Company.
Cellular Biomedicine Group VAX, Inc. (“CBMG VAX”), a California corporation, is a wholly owned subsidiary 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 VIE agreements with CBMG Shanghai. The shareholders of record for CBMG Shanghai were Cao Wei and Chen Mingzhe, who together owned 100% of the
equity interests in CBMG Shanghai before October 26, 2016. On October 26, 2016, Cao Wei, Chen Mingzhe and Lu Junfeng entered into an equity transfer
agreement and a supplementary agreement (“Equity Transfer Agreement”), pursuant to which Cao Wei transferred his equity interests in CBMG Shanghai to Chen
Mingzhe and Lu Junfeng. As a result of the transfer, each of Mr. Chen and Mr. Lu now owns a 50% equity interest in CBMG Shanghai. On the same day, WFOE,
CBMG Shanghai, Cao Wei and Chen Mingzhe entered into a termination agreement, pursuant to which, the series of VIE agreements executed among the WFOE,
CBMG Shanghai, Chen Mingzhe and Cao Wei were terminated and a new set of VIE agreements were executed. 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 October 26, 2016 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.
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Loan Agreement. Through the WFOE, we are a party to a loan agreement with CBMG Shanghai, Lu Junfeng and Chen Mingzhe dated October 26, 2016, 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 its loan obligations.
Exclusive Option Agreement with Lu Junfeng. Through the WFOE, we are a party to an option agreement with CBMG Shanghai and Lu Junfeng dated October
26, 2016, in accordance with which: (i) Lu Junfeng irrevocably granted the WFOE an irrevocable and exclusive right to purchase, or designate another 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 Lu
Junfeng 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 October 26, 2016, under which: (i) Chen Mingzhe irrevocably granted the WFOE an irrevocable and exclusive right to purchase, or designate another
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 Lu Junfeng. Through the WFOE we are the recipient of a power of attorney executed by Lu Junfeng on October 26, 2016, in accordance
with which Lu Junfeng 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.
Power of Attorney from Chen Mingzhe. Through the WFOE we are the recipient of a power of attorney executed by Chen Mingzhe on October 26, 2016, 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 Lu Junfeng. Through the WFOE, we are a party to an equity interest pledge agreement with CBMG Shanghai and Lu
Junfeng dated October 26, 2016, in accordance with which: (i) Lu Junfeng 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) Lu Junfeng 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 November 22, 2016; (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 Lu
Junfeng.
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 October 26, 2016, 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 November 22, 2016; (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 with 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. Lu as record holders of the VIE’s registered capital have no interest in acting contrary to the VIE
agreements. However, if Mr. Chen and Lu as shareholders of the VIE entity were to reduce or eliminate their ownership of the registered capital of the VIE entity,
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 entity in
such a way that is inconsistent with the directives of CBMG management and the board; or causing non-payment by the VIE entity 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 entity 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.
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For further discussion of risks associated with the above, please see the section below titled “Risks Related to Our Structure.”
BIOPHARMACEUTICAL BUSINESS
Our biopharmaceutical 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 facility designed and built to GMP standards in Wuxi, and in 2012 we established a U.S. Food and
Drug Administration (“FDA”) GMP standard protocol-compliant manufacturing facility in Shanghai. In October 2015, we opened a facility designed and built to
GMP standards in Beijing. Our focus has been to serve 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.
Cancer. In the cancer field, with the recent build-up of multiple cancer therapeutic technologies, we have prioritized our clinical efforts on CAR-T, technologies,
Vaccine, Tcm and TCR clonality technologies, and are not actively pursuing the fragmented Tcm technical services opportunities. We are integrating CBMG's
state-of-the art infrastructure and clinical platform with the technologies platform 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 regulatory approval. On November 29, 2016,we announced the approval and commencement of patient enrollment in China for its CARD-1
(“CAR-T Against DLBCL”) Phase I clinical trial utilizing its optimized proprietary C-CAR011 construct of CD19 chimeric antigen receptor T-cell (CAR-T) therapy for
the treatment of patients with refractory Diffuse Large B-cell Lymphoma (DLBCL). The CARD-1 trial has begun enrollment with final data expected to be available
in the second half of 2017. On January 9, 2017 we announced the approval and commencement of patient enrollment in China for its CALL-1 (“CAR-T against
Acute Lymphoblastic Leukemia”) Phase I clinical trial utilizing its optimized proprietary C-CAR011 construct of CD19 chimeric antigen receptor T-cell (“CAR-T”)
therapy for the treatment of patients with relapsed or refractory (r/r) CD19+ B-cell Acute Lymphoblastic Leukemia (“ALL”). The CALL-1 trial has begun enrollment
with final data expected to be available at the end of 2017. Depending on the Phase I CARD-1 and CALL-1 results, we expect to initiate larger Phase II clinical
trials as soon as practicable.
KOA. In 2013, we completed a Phase I/IIa clinical study, in China, for our Knee Osteoarthritis (“KOA”) therapy named ReJoin®. 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® therapy to be both safe and effective.
In Q2 of 2014, we completed patient enrollment for the Phase IIb clinical trial of ReJoin® for KOA. The multi-center study 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 ReJoin® regenerative medicine treatment to be
safe. We announced interim 24 week results for ReJoin® on March 25, 2015 and released positive Phase IIb 48 week follow-up data in January 2016, which
shows the primary and secondary endpoints of ReJoin® therapy group having all improved significantly compared to their baseline, which has confirmed some of
the Company’s Phase I/IIa results. Our ReJoin® human adipose-derived mesenchymal progenitor cell (haMPC) therapy for KOA is an interventional therapy using
proprietary device, process, culture and medium:
● Obtain adipose (fat) tissue from the patient using our CFDA approved medical device, the A-Stromal™ Kit;
● Expand haMPCs using our proprietary culture medium (serum-free and antibiotics-free); and
● Formulated for ReJoin therapy using our proprietary formulation.
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Our process is distinguishable from sole Stromal Vascular Fraction (SVF) therapy. The immunophenotype of our haMPCs exhibited multiple biomarkers such as
CD29+, CD73+, CD90+, CD49d+, HLA-I+, HLA-DR-, Actin-, CD14-, CD34-, and CD45-. In contrast, SVF is merely a heterogeneous fraction including
preadipocytes, endothelial cells, smooth muscle cells, pericytes, macrophages, fibroblasts, and adipose-derived stem cells (ASCs).
In January 2016, we launched the Allogeneic KOA Phase I Trial in China to evaluate the safety and efficacy of AlloJoin™, an off-the shelf allogeneic adipose
derived progenitor cell (haMPC) therapy for the treatment of KOA. On August 5, 2016 we completed patient treatment for the Allogeneic KOA Phase I trial, and on
December 9, 2016 we announced interim 3-month safety data from the Allogenic KOA Phase I Trial in China. The interim analysis of the trial has preliminarily
demonstrated a safety and tolerability profile of AlloJoin™ in the three doses tested, and no serious adverse events (SAE) have been observed. The trial is on
schedule to be completed by the third quarter of 2017.
In January 2015, we initiated patient recruitment in a phase II clinical study, in China, of ReJoin (human adipose derived mesenchymal progenitor cell or “haMPC”)
in Cartilage Damaged (“CD”) patients resulting from osteoarthritis (“OA”) or sports injury, in further support of KOA indication. The study is based on the same
technology that has shown significant efficacy in the treatment of Knee Osteoarthritis (“KOA”), but requires two arthroscopic examinations and the use of magnetic
resonance imaging (“MRI”) to further demonstrate the regenerative efficacy of ReJoin. Upon further review of the protocol and the difficulty of getting patients back
for a second arthroscopic examination , we determined to terminate the study.
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. In addition, we plan to assess and initiate cancer clinical trials leading to
commercialization using safe and most effective therapy or combination therapies. The quality management systems of CBMG Shanghai and CBMG Wuxi were
issued a Certificate of ISO-9001:2008 by SGS /ANAB (ANSI-ASQ National Accreditation Board). Our facility in Shanghai was issued a Certificate of Compliance by
ENV Services, Inc., and ISO Inspection Service Provider that (i) its rooms 1-7, 10 are certified to ISO Class 7 per ISO-14644 in accordance with cGMP; (ii) its
biological safety cabinets are certified per NSF/ANSI 49 and to ISO Class 5;and (iii) its instrumentation calibration has been certified to perform in accordance with
ANS/NCSL Z-540-1 and document in accordance with 10CFR21.Our facility in Shanghai was issued a Testing Report by Shanghai Food and Drug Packaging
Material Control Center concluding that some testing items of the cleanrooms are in compliance with the Good Manufacturing Practice for Drugs (2010 Revision) of
China. The cleanrooms in Beijing are certified to meet the standard of CNAS L1669; and Wuxi has been certified to meet the CNAS L0221 standard.
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, 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.
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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 an example, 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 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 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.
The traditional cancer treatment includes surgery, chemotherapy, and radiation therapy. In the last decade, we witnessed a boom in targeted therapies
including monoclonal antibody and small molecule therapies, such as Iressa and Tarciva that targets EGFR activating mutations in the NSCLC, Herceptin that
treats breast cancer patients with HER2 overexpression, Crizotinib that targets NSCLC patients with positive ALK fusion gene.
So far, chimeric antigen receptor T cell therapy (“CAR-T”) such as CD19 CAR-T, have been tested in several hematological indications on patients that are
refractory/relapsing to chemotherapy, and many of them have relapsed after stem cell transplantation. All of these patients had very limited treatment option prior
to CAR-T therapy. CAR-T has shown positive clinical efficacy in many of these patients. Some of have them lived for years post CAR-T treatment.
On July 2016, Juno Therapeutics, Inc. reported the death of patients enrolled in the U.S. Phase II clinical trial of JCAR015 for the treatment of relapsed or
refractory B cell acute lymphoblastic leukemia (B-ALL). The US FDA put the trial on hold and lifted the hold within a week after Juno provided satisfactory
explanation and solution. Juno believes that the patient deaths were caused by the use of Fludarabine preconditioning and they will use only cyclophosphamide
pre-conditioning in the future enrollment. The trial was halted in November of 2016 after two more deaths occurred after the trial resumed. The Company believes
that its product and study are distinguishable from Juno Therapeutics and plans to continue to monitor any toxicities associated with the study.
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 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 Centers for Disease Control and Prevention. Prevalence of doctor-diagnosed arthritis and
arthritis-attributable activity limitation United States. 2010-2012, Osteoarthritis (OA) is a chronic disease that is characterized by degeneration of the articular
cartilage, hyperosteogeny, and ultimately, joint destruction that can affect all of the joints. According to Dillon CF, Rasch EK, Gu Q et al. Prevalence of knee
osteoarthritis in the United States: Arthritis Data from the Third National Health and Nutrition Examination Survey 1991-94. J Rheumatol. 2006, the incidence of
OA is 50% among people over age 60 and 90% among people over age 65. KOA accounts for the majority of total OA conditions and in adults, OA is the second
leading cause of work disability and the disability incidence is high (53%). The costs of OA management have grown exponentially over recent decades,
accounting for up to 1% to 2.5% of the gross national product of countries with aging populations, including the U.S., Canada, the UK, France, and Australia.
According to the American Academy of Orthopedic Surgeons (AAOS), the only pharmacologic therapies recommended for OA symptom management are non-
steroidal anti-inflammatory drugs (NSAIDs) and tramadol (for patients with symptomatic osteoarthritis). Moreover, there is no approved disease modification
therapy for OA in the world. Disease progression is a leading cause of hospitalization and ultimately requires joint replacement surgery. In 2009, the U.S. spent
over $42 billion on replacement surgery for hip and knee joints alone. International regulatory guidelines on clinical investigation of medicinal products used in the
treatment of OA were updated in 2015, and clinical benefits (or trial outcomes) of a disease modification therapy for KOA has been well defined and recommended.
Medicinal products used in the treatment of osteoarthritis need to provide both a symptom relief effect for at least 6 months and a structure modification effect to
slow cartilage degradation by at least 12 months. Symptom relief is generally measured by a composite questionnaire Western Ontario and McMaster Universities
Osteoarthritis Index (WOMAC) score, and structure modification is measured by MRI, or radiographic image as accepted by international communities. The
Company uses the WOMAC as primary end point to demonstrate symptom relief, and MRI to assess structure and regeneration benefits as a secondary endpoint.
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According to the Foundation for the National Institutes of Health, there are 27 million Americans with Osteoarthritis (OA), and symptomatic Knee
Osteoarthritis (KOA) occurs in 13% of persons aged 60 and older. The International Journal of Rheumatic Diseases, 2011 reports that approximately 57 million
people in China suffer from KOA. Currently no treatment exists that can effectively preserve knee joint cartilage or slow the progression of KOA. Current common
drug-based methods of management, including anti-inflammatory medications (NSAIDs), only relieve symptoms and carry the risk of side effects. Patients with
KOA suffer from compromised mobility, leading to sedentary lifestyles; doubling the risk of cardiovascular diseases, diabetes, and obesity; and increasing the risk
of all causes of mortality, colon cancer, high blood pressure, osteoporosis, lipid disorders, depression and anxiety. According to the Epidemiology of Rheumatic
Disease (Silman AJ, Hochberg MC. Oxford Univ. Press, 1993:257), 53% of patients with KOA will eventually become disabled.
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, Novartis and Kite Pharma, Inc have been very positive. Novartis CAR-T technology has made breakthroughs in treating B cell
lymphoma using genetically modified T cell technology. Both Kite and Novartis are on track to submit their respective CAR-T registration trial data to the US FDA
for BLA in the near future.
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 biopharmaceutical 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, we expect our
biopharmaceutical business to generate revenues primarily through the development of therapies for the treatment of KOA within the next three to four years.
Presently we have two KOA cell therapy clinical studies in China, a completed Phase IIb autologous study and an on-going Phase I allogeneic study. If
and when either therapy obtains regulatory approval in the PRC, we will be able to market and offer the therapy for clinical use. Our focus is on the latest
translational stages of product development, principally from the pre-clinical 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 and are exploring the feasibility of a U.S. allogeneic KOA clinical study
with the FDA.
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 therapy candidate 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 biopharmaceutical
business to generate revenues primarily from the development of therapies for the treatment of KOA within the next four to six 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 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.
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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, 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.
The protocol of allogeneic haMPC therapy for KOA has been approved by Shanghai Renji Hospital’s Institutional Review Board for clinical studies. Once
the studies are completed, the clinical data will be analyzed by qualified third party statisticians and reports will be published.
We operate our manufacturing facilities under good manufacturing practice ("GMP") conditions in the ISO accredited laboratories standard. We employ an
institutionalized and proprietary process and quality management system to optimize reproducibility and to hone our efficiency. Three facilities designed and built to
GMP in Beijing, Shanghai and Wuxi, China meet international standards. 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 rigorous cleanroom certification. Our facility in Shanghai was issued a
Certificate of Compliance by ENV Services, Inc., and ISO Inspection Service Provider that (i) its rooms 1-7, 10 are certified to ISO Class 7 per ISO-14644 in
accordance with cGMP; (ii) its biological safety cabinets are certified per NSF/ANSI 49 and to ISO Class 5; and (iii) its instrumentation calibration has been certified
to perform in accordance with ANS/NCSL Z-540-1 and document in accordance with 10CFR21. The cleanrooms in Beijing are certified to meet the standard of
CNAS L1669; and Wuxi has been certified to meet the CNAS L0221 standard. With our integrated Plasmid, Viral Vectors, and CAR-T cells
Chemistry, Manufacturing, and Controls process as well as planned capacity expansion, we are highly distinguishable with other companies in the cellular
medicine space.
In total, our cGMP facilities have over 47,300 sq. ft. of space with the capacity for 19 independent cell production lines. We are expanding our GMP
facilities to approximately 70,000 sq. ft. of space and aim to be able to treat approximately 10,000 cancer patients and 10,000 patients per year by the end of 2017.
Most importantly, our most experienced team members have more than 20 years of relevant experience in China, European Union, 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 are currently pursuing two primary therapies for the treatment of KOA: our ReJoin ® therapy and our AlloJoin TM therapy.
We 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 ReJoinTM therapy to be both safe and
effective.
In the second quarter of 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 ReJoin® regenerative
medicine treatment to be safe. We announced positive Phase IIb 48-week follow-up data in January 2016, with statistical significant evidence that ReJoin®
enhanced cartilage regeneration, which concluded the planned phase IIb trial.
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In January 2016, we launched the Allogeneic KOA Phase I Trial in China to evaluate the safety and efficacy of AlloJoin™, an off-the shelf allogeneic
adipose derived progenitor cell (haMPC) therapy for the treatment of KOA. On August 5, 2016 we completed patient treatment for the Allogeneic KOA Phase I
trial. On August 5, 2016 we completed patient treatment for the Allogenic KOA Phase I Trial, and on December 9, 2016, we announced interim 3-month safety
data from the Allogenic KOA Phase I Trial in China. The interim analysis of the trial has preliminarily demonstrated a safety and tolerability profile of AlloJoin™ in
the three doses tested, and no serious adverse events (SAE) have been observed. The trial is on schedule to be completed by the third quarter of 2017.
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.
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.
Immuno-oncology (I/o)
We continue to fortify our cancer breakthrough technology platform with I/o, programmed cell death and vaccine technology.
Our CAR-T platform is built on well-studied lenti-virial vector and second-generation CAR design, which is used by most of the current trials and studies. We
rigorously select the patient population for each asset and indication to allow the optimal path forward for regulatory approval. We also fully integrate the state of
art translational medicine effort into each clinical study to aid in dose selection, to confirm the mechanism of action and proof of concept, and to identify the optimal
targeting patient population whenever appropriate. We plan to continue to grow our translational medicine team and engage key opinion leaders to meet the
demand.
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Because there are many differences between hematological and solid tumors, drug penetration or infiltration into solid tumors sites is more challenging than
hematological cancer. Antibody dependent cell-mediated (“ADCC”) toxicity works much better in hematological cancers. Hematological cancers usually carry
fewest mutations among all cancers and are usually less molecularly heterogeneous than that of solid tumors. As such, routinely hematological cancers respond
better to therapeutic interventions, there are more complete, as well as partial responses. And the duration of response is usually longer.
Solid tumors pose more challenges than hematological cancers. The patients are more heterogeneous, making it difficult to have one drug to work effectively in
the majority of the patients in any cancer indication. The duration of response is most likely shorter and patients are likely to relapse even after initial positive
clinical response. We believe that CAR-T therapy can successfully treat hematopoietic cancers because the therapy can deplete all B cells or T cells including
normal and cancer cells in leukemia and lymphoma. When the stem cells are not targeted these stem cells can regenerate normal B and T cells. In contrast,
effective tumor specific antigens found to be less to target in solid tumors. When the drugs kill tumor cells, they also kill the normal cells to a certain degree,
leading to different degrees of toxicity. We will continue to make an effort to develop CAR-T or other cell based therapies to target solid tumors.
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. We
believe 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, through the acquisition of AG and the technologies and pre-clinical and clinical data of University of the South Florida and PLAGH, 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, CAR-T and Tcm technologies. Immune cell therapies have not been codified by any of the Chinese regulatory agencies. On
December 16, 2016, the CFDA issued solicited feedback on its draft "Technical Guidelines for Research and Evaluation of Cellular Products”, signaling near term
clarification and codification/of the cell therapy regulation. We believe this will create substantial barrier-to-entry for newcomers in China. However, it remains
unclear if any of our clinical trials will qualify for U.S.FDA-liked Fast Track designation as maintenance therapy in subjects with advanced cancer who have limited
options following surgery and front-line platinum/taxane chemotherapy to improve their progression-free survival. 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. In addition, encouraged by the recent CIRM grant of $2.29 million for our preclinical trial to replicate and validate the manufacturing process and control
system at the cGMP facility located at Children’s Hospital Los Angeles to support the filing of an IND with the FDA, we have begun to review the feasibility of
performing synergistic U.S. KOA clinical trial.
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
biopharmaceutical field. Our portfolio contains patents, trade secrets, and know-how.
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 various aspects of our cell line production methods and methods of use, including methods of purification, extraction, freezing,
preservation, processing and use in treatment.
For our haMPC therapy:
● We believe our intellectual property portfolio for haMPC is well-built and abundant. It covers aspects of adipose stem cell medicine production, including
acquisition of human adipose tissue, preservation, and storage, tissue, processing, stem cell purification, expansion, and banking, formulation for administration,
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, rheumatoid arthritis, as well as potential applications to anti-aging.
● Our haMPC intellectual property portfolio:
°
°
°
°
provides coverage of all steps in the production process;
enables achievement of high yields of Stromal Vascular Fraction (SVF), i.e. stem cells derived from adipose tissue extracted by liposuction;
makes adipose tissue acquisition convenient and useful for purposes of cell banking; and
employs preservation techniques enabling long distance shipment of finished cell medicine products.
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For our CAR-T and Tcm cancer immune cell therapy:
● Our recent amalgamation of technologies from AG 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/II 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.
Moreover, 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, 2016, patent applications and work in process:
Work in Process
Patents Filed, Pending
Granted
Total
China Patents
U.S. Patents
EU Patents
Other
International
Patents
PCT
6
21
23
50
-
1
2
3
-
1
1
2
-
2
-
2
-
5
-
5
Generally, our patents cover technology, methods, design and composition of and relating to medical device kits used in collecting cell specimens,
cryopreservation of cells, purification, use of stem cells in a range of potential therapies, adipose tissue extraction, cell preservation and transportation, preparation
of chimeric antigen receptor, gene detection and quality control.
Manufacturing
We manufacture cells for our own research, testing and clinical trials. We are planning to scale up and expand our manufacturing capacity to treat 10,000
CAR-T and 10,000 KOA patients per year at the end of 2017. 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. We operate our manufacturing facilities under
good manufacturing practice ("GMP") conditions in the ISO accredited laboratories standard. We employ an institutionalized and proprietary process and quality
management system to optimize reproducibility and to hone our efficiency. Three of our facilities designed and built to GMP in Beijing, Shanghai and Wuxi, China
meet international standards. Specifically, our Shanghai cleanroom facility underwent rigorous cleanroom certification since 2013. Our facility in Shanghai was
issued a Certificate of Compliance by ENV Services, Inc., an ISO Inspection Service Provider, that (i) its rooms 17, 10 are certified to ISO Class 7 per ISO14644 in
accordance with cGMP. (ii) its biological safety cabinets are certified per NSF/ANSI 49 and to ISO Class 5. and (iii) its instrumentation calibration has been certified
to perform in accordance with ANS/NCSL Z5401 and document in accordance with 10CFR21. The cleanrooms in Beijing are certified to meet the standard of
CNAS L1669 and our Wuxi facility has been certified to meet the CNAS L0221 standard. With our integrated Plasmid, Viral Vectors, and CAR-T cells Chemistry,
Manufacturing, and Controls process as well as planned capacity expansion, we believe that are highly distinguishable with other companies in the cellular
medicine space.
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In January 2017, we leased a 10,501.6 square meter building located in the “Pharma Valley” of Shanghai, the People’s Republic of China. We plan to
establish 4,000 square meters GMP facilities there with 25 clean-rooms and equipped with 12 independent production lines to support clinical batch production and
commercial scale manufacturing. With above expansion, the Company could support around 10,000 patients with CAR-T therapy and 10,000 KOA patients with
the stem cell therapy per annum.
We have built cell preparation and inspection laboratories that enable the following mode of human body immune cell in-vitro culture service to be
provided: 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 and several other hospitals in China.
Planned Capital Expenditures
We are expanding our Wuxi facility and are planning to move to a new Shanghai facility. We plan to continue to implement closed systems and may equip
additional facilities according to future demands. By the end of 2017, the Company anticipates that the new Zhangjiang facility in Shanghai, an expanded Wuxi
facility, and Beijing GMP facilities combined will have 70,000 square feet, and the Company expects that it will be capable of supporting simultaneous clinical
trials for five different CAR-T and stem cell products, or the ability to treat approximately 10,000 cancer patients and 10,000 stem cell patients per year.
Competition
Many companies operate in the cellular biopharmaceutical 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 biopharmaceutical 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. China has had 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 fully 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 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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Our primary competitors in the field of stem cell therapy for osteoarthritis, and other indications include Beike, Cytori Therapeutics Inc., Caladrius
Biosciences, 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 with JingYuan Bio in Taian, Shandong Province, 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, the ones based in and operating in Greater China are BeiGene, Limited,
CARsgen and China Oncology Focus Limited, which has licensed Sorrento’s anti-PD-L1 monoclonal antibody for Greater China. Other western big pharma and
biotech companies in the cancer immune cell therapies space are starting to make inroads into China by partnering or seeking to partner with local companies. For
example, in April, 2016, Seattle- based Juno Therapeutics, Inc. started a new company with WuXi AppTec in China named JW Biotechnology (Shanghai) Co., Ltd.
Its mission is to build China's leading cell therapy company by leveraging Juno's chimeric antigen receptor (CAR) and T cell receptor (TCR) technologies together
with WuXi AppTec's R&D and manufacturing platform and local expertise to develop novel cell-based immunotherapies for patients with hematologic and
solidorgan cancers. Similarly, in January 2017, Shanghai Fosun Pharmaceutical announced its plan to create a joint venture with Santa Monica-based Kite
Pharma Inc. to develop, manufacture and commercialize axicabtagene ciloleucel in China with the option to include additional products, including two T cell
receptor (TCR) product candidates from Kite. Axicabtagene ciloleucel is Kite's lead product candidate and is an investigational chimeric antigen receptor (CAR) T-
cell therapy under development for the treatment of B-cell lymphomas and leukemias.
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 companies. We
believe that our chosen targeted disease applications are not effectively in competition with the products and therapies offered by traditional pharmaceutical or
Traditional Chinese Medicine companies.
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We believe we have a strategic advantage over our competitors based on our ability to 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 biopharmaceutical 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, 2016, the total enrollment of full time employees of CBMG is 109. Among these 109 professionals, 18 have PhD degrees, 45
have postgraduate degrees and 37 have undergraduate degrees. In other words, 92% of our employees are well qualified professionals. As a biotech company,
79 out of our 109 employees have medical or biological scientific credentials and qualifications.
Facilities
Our corporate headquarters are located at 19925 Stevens Creek Blvd., Suite 100 in Cupertino, California. We currently pay rent for a total of $77,000 per
month for an aggregate of approximately 80,000 square feet of space to house our administration, research and manufacturing facilities in Maryland and in the
cities of, Wuxi, Beijing and Shanghai in China. On January 1, 2017, CBMG Shanghai entered into a 10-year lease agreement with Shanghai Chuangtong Industrial
Development Co., Ltd., pursuant to which the Company leased a 10,501.6 square meter building located in the “Pharma Valley” of Shanghai, the People’s
Republic of China for research and development, manufacturing and office space purposes. Subject to a 5-month rent-free renovation period, the monthly rent for
the first two years is determined by floor and ranges from 3.7 yuan to 4.3 yuan per square meter per day, for an aggregate monthly rent for the entire Property of
approximately 1.3 million yuan ($187,064). The term of the Lease is 10 years, starting from January 1, 2017 and ending on December 31, 2026 (the “Original
Term”). During the Original Term, the monthly rent will increase by 6% every two years. As previously disclosed in the Company’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2016 on November 8, 2016, the Company paid the landlord a non-refundable deposit of 1.2 million yuan ($179,700).
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.
Pursuant to the Corporate Income Tax Law of the PRC, all of the Company’s PRC subsidiaries are liable to PRC CIT at a rate of 25% except for Cellular
Biomedicine Group Ltd. (Shanghai) (“CBMG Shanghai”). According to Guoshuihan 2009 No. 203, if an entity is certified as an “advanced and new technology
enterprise”, it is entitled to a preferential income tax rate of 15%. CBMG Shanghai obtained the certificate of “advanced and new technology enterprise” dated
October 30, 2015 with an effective period of three years and the provision for PRC corporate income tax for CBMG Shanghai is calculated by applying the income
tax rate of 15% in 2016 (2015: 15%; 2014: 25%).
BIOPHARMACEUTICAL REGULATION
PRC Regulations
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, Cell therapy regulations have not been codified by any of the Chinese regulatory agencies. On December 16, 2016, the CFDA solicited feedback on its
draft "Technical Guidelines for Research and Evaluation of Cellular Products”, signaling near term codification / clarification of the cell therapy regulation. We
believe this will create substantial barrier-to-entry for newcomers in China. However, it remains unclear if any of our clinical trials will be offered U.S.FDA-liked
Fast Track designation as maintenance therapy in subjects with advanced cancer who have limited options following surgery and front-line platinum/taxane
chemotherapy to improve their progression-free survival. 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. In addition, we began to review the feasibility of
performing synergistic U.S. clinical studies.
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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 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
Among the shares received by EastBridge Sub as compensation for services, as of December 31, 2015, the Company had sold 200,000 shares of
Wonder International Education and Investment Group Corporation/Wenda Education on the open market. No shares were sold during the year ended December
31, 2016.
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, 2016.1 Our cash flow from operations may not be consistent from period to period, our biopharmaceutical business has not yet generated
substantial revenue, and we may continue to incur losses and negative cash flow in future periods, particularly within the next several years.
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Our biopharmaceutical product development programs are based on novel technologies and are inherently risky.
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:
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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 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.
The degree of market acceptance of any future product candidates will depend on a number of factors, including:
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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.
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Laws and the regulatory infrastructure governing cellular biopharmaceutical 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.
Cell therapies regulation have not been codified by any of the Chinese regulatory agencies. On December 16, 2016, CFDA issued solicitation on feedback
to its draft "Technical Guidelines for Research and Evaluation of Cellular Products”, signaling near term codification / clarification of the cell therapy regulation. It
remains unclear if any of our clinical trials will be offered U.S.FDA-liked Fast Track designation as maintenance therapy in subjects with advanced cancer who
have limited options following surgery and front-line platinum/taxane chemotherapy to improve their progression-free survival. We do not know if our animal studies
documentation will be approved to support trials in humans. We also do not know if our cell lines will be accepted by the health authorities. These factors could
adversely affect the timing of the clinical trials, the timing of receipt and reporting of clinical data, the timing of Company-sponsored IND filings, and our ability to
conduct future planned clinical trials, and any of the above could have a material adverse effect on our business.
CFDA’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 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.
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.
Our technology platforms, including our CAR-T, Tcm, whether preclinical or clinical, and the cancer vaccine technologies are new approaches to
cancer treatment that present significant challenges.
We have concentrated our research and development efforts on T cell immunotherapy technology, and our future success in cancer treatment is
dependent on the successful development of T cell immunotherapies in general and our CAR and vaccine technologies and product candidates in particular. Our
approach to cancer treatment aims to alter T cells ex vivo through genetic modification using viruses designed to reengineer the T cells to recognize specific
proteins on the surface or inside cancer cells. Because this is a new approach to cancer immunotherapy and cancer treatment generally, developing and
commercializing our product candidates subjects us to many challenges.
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We cannot be sure that our T cell immunotherapy and vaccine technologies will yield satisfactory products that are safe and effective, scalable, or
profitable. Additionally, because our technology involves the genetic modification of patient cells ex vivo using a virus, we are subject to many of the challenges
and risks that gene therapies face, including regulatory requirements governing gene and cell therapy products have changed frequently.
Moreover, public perception of therapy safety issues, including adoption of new therapeutics or novel approaches to treatment, may adversely influence
the willingness of subjects to participate in clinical trials, or if approved, of physicians to subscribe to the novel treatment mechanics. Physicians, hospitals and
third-party payers often are slow to adopt new products, technologies and treatment practices that require additional upfront costs and training. Physicians may not
be willing to undergo training to adopt this novel and personalized therapy, may decide the therapy is too complex to adopt without appropriate training and may
choose not to administer the therapy. Based on these and other factors, hospitals and payers may decide that the benefits of this new therapy do not or will not
outweigh its costs.
Our near term ability to generate significant product revenue is dependent on the success of one or more of our CD19, CD22, CD30 and HER1, as well
as CD40GVAX product candidates, each of which are at an early-stage of development and will require significant additional clinical testing before we
can seek regulatory approval and begin commercial sales.
Our near term ability to generate significant product revenue is highly dependent on our ability to obtain regulatory approval of and successfully
commercialize one or more of our CD19, CD20, CD30 and HER1, as well as CD40GVAX product candidates. All of these products are in the early stages of
development, have been tested in a relatively small number of patients, and will require additional clinical and nonclinical development, regulatory review and
approval in each jurisdiction in which we intend to market the products, substantial investment, access to sufficient commercial manufacturing capacity, and
significant marketing efforts before we can generate any revenue from product sales. Before obtaining marketing approval from regulatory authorities for the sale
of our product candidates, we must conduct extensive clinical studies to demonstrate the safety, purity, and potency of the product candidates in humans. We
cannot be certain that any of our product candidates will be successful in clinical studies and they may not receive regulatory approval even if they are successful
in clinical studies.
If our products, once developed, encounter safety or efficacy problems, developmental delays, regulatory issues, or other problems, our development
plans and business could be significantly harmed. Further, competitors who are developing products with similar technology may experience problems with their
products that could identify problems that would potentially harm our business.
Third parties have sponsored and conducted all clinical trials of our CD19, CD20, CD30 and HER1, as well as the CD40GVAX vaccine product
candidates so far, and our ability to influence the design and conduct of such trials has been limited. We plan to assume control over future clinical
and regulatory development of the CD20, CD30 and HER1, and may do so for other product candidates, which will entail additional expenses and may
be subject to delay. Any failure by a third party to meet its obligations with respect to the clinical and regulatory development of our product
candidates may delay or impair our ability to obtain regulatory approval for our products and result in liability for our company.
On November 29, 2016 we announced the approval and commencement of patient enrollment in China for our CARD-1 (“CAR-T Against DLBCL”) Phase I
clinical trial utilizing our optimized proprietary C-CAR011 construct of CD19 CAR-T therapy for the treatment of patients with refractory DLBCL. On January 9, 2017
we announced the approval and commencement of patient enrollment in China for our CALL-1 (“CAR-T against Acute Lymphoblastic Leukemia”) Phase I clinical
trial utilizing our optimized proprietary C-CAR011 construct of CD19 CAR-T therapy for the treatment of patients with relapsed or refractory (r/r) CD19+ B-cell ALL.
We do not know if our Phase I CARD-1 or CALL-1 results will justify initiation of larger Phase II clinical trials.
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To date, we have yet to sponsor any clinical trials relating to our CD20, CD30, HER1 and CD40GVAX product candidates or other product candidates.
Instead, faculty members at our third-party research institution collaborators, or those institutions themselves, have sponsored all clinical trials relating to these
product candidates, in each case under their own IRB with the respective regulatory agency. We plan to assume control of the overall clinical and regulatory
development of CD19, CD20, CD30 and HER1 for future clinical trials and obtain sponsorship of the INDs or file new Company-sponsored INDs in China and/or
the United States. We will evaluate options to conducting the U.S. CD40LGVAX Trial and to continuing the related IND with the Federal Drug Administration
(“FDA”). Failure to obtain, or delays in obtaining, sponsorship of INDs or in filing new Company-sponsored INDs for these or any other product candidates we
determine to advance could negatively affect the timing of our potential future clinical trials. Such an impact on timing could increase research and development
costs and could delay or prevent obtaining regulatory approval for our most advanced product candidates, either of which could have a material adverse effect on
our business.
Further, even in the event that the IND sponsorship is obtained for existing and new INDs, it is possible that the CFDA or other regulatory agencies will not
accept any of the trials as providing adequate support for future clinical trials, whether controlled by us or third parties, for any of one or more reasons, including the
safety, purity, and potency of the product candidate, the degree of product characterization, elements of the design or execution of the previous trials or safety
concerns, or other trial results. We may also be subject to liabilities arising from any treatment-related injuries or adverse effects in patients enrolled in these
previous trials. As a result, we may be subject to unforeseen third-party claims and delays in our potential future clinical trials. We may also be required to repeat
in whole or in part clinical trials previously conducted by our third-party research institution collaborators, which will be expensive and delay the submission and
licensure or other regulatory approvals with respect to any of our product candidates. Any such delay or liability could have a material adverse effect on our
business.
Moreover, although we plan to assume control of the overall clinical and regulatory development of CD19, CD20, CD30 and HER1 going forward, we have
so far been dependent on contractual arrangements with our third-party research institution collaborators and will continue to be until we assume control. To the
extent that we do not use our own scientific team to conduct trials, we are and will be dependent contractual arrangements with third-party research institution
collaborators for ongoing and planned trials for our product candidates.. Such arrangements provide us certain information rights with respect to the previous,
planned, or ongoing trials, including access to and the ability to use and reference the data, including for our own regulatory filings, resulting from such trials. If our
third-party research institution collaborators breach these obligations, or if the data prove to be inadequate compared to the first-hand knowledge we might have
gained had the completed trials been Company-sponsored trials, then our ability to design and conduct our planned corporate-sponsored clinical trials may be
adversely affected. Additionally, the regulatory agencies may disagree with the sufficiency of our right to reference the preclinical, manufacturing, or clinical data
generated by these prior investigator-sponsored trials, or our interpretation of preclinical, manufacturing, or clinical data from these clinical trials. If so, the
regulatory agencies may require us to obtain and submit additional preclinical, manufacturing, or clinical data before we may begin our planned trials and/or may
not accept such additional data as adequate to begin our planned trials.
Our CD19, CD20, CD30 and HER1, as well as the CD40GVAX product candidates are biologics and the manufacture of our product candidates is
complex and we may encounter difficulties in production, particularly with respect to process development or scaling-out of our manufacturing
capabilities. If we or any of our third-party manufacturers encounter such difficulties, our ability to provide supply of our product candidates for clinical
trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.
Our immune cell CAR-T and vaccine product candidates are biologics and the process of manufacturing our products is complex, highly- regulated and
subject to multiple risks. The manufacture of our product candidates involves complex processes, including harvesting T cells from patients, genetically modifying
the T cells ex vivo, multiplying the T cells to obtain the desired dose, and ultimately infusing the T cells back into a patient’s body. As a result of the complexities,
the cost to manufacture these biologics in general, and our genetically modified cell product candidates in particular, is generally higher than the adipose stem cell,
and the manufacturing process is less reliable and is more difficult to reproduce. Our manufacturing process will be susceptible to product loss or failure due to
logistical issues associated with the collection of white blood cells, or starting material, from the patient, shipping such material to the manufacturing site, shipping
the final product back to the patient, and infusing the patient with the product, manufacturing issues associated with the differences in patient starting materials,
interruptions in the manufacturing process, contamination, equipment or reagent failure, improper installation or operation of equipment, vendor or operator error,
inconsistency in cell growth, and variability in product characteristics. Even minor deviations from normal manufacturing processes could result in reduced
production yields, product defects, and other supply disruptions. If for any reason we lose a patient’s starting material or later-developed product at any point in the
process, the manufacturing process for that patient will need to be restarted and the resulting delay may adversely affect that patient’s outcome. If microbial, viral,
or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing
facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Because our product candidates are manufactured for
each particular patient, we will be required to maintain a chain of identity with respect to materials as they move from the patient to the manufacturing facility,
through the manufacturing process, and back to the patient. Maintaining such a chain of identity is difficult and complex, and failure to do so could result in adverse
patient outcomes, loss of product, or regulatory action including withdrawal of our products from the market. Further, as product candidates are developed through
preclinical to late stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as
manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these
intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other
future clinical trials.
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Although we do intend to develop our own manufacturing facility, and we have leased a facility in Beijing that we intend to build out to support our clinical
and commercial manufacturing activities, we may, in any event, never be successful in developing our own manufacturing facility. Currently, our CAR-T product
candidates are manufactured using non-scalable processes by our third-party research institution collaborators that we do not intend to use for more advanced
clinical trials or commercialization. Additionally, we currently rely on outside vendors to manufacture the CD40GVAX supplies and process our Vaccine-related
product candidates. We have not yet caused our product candidates to be manufactured or processed on a commercial scale and may not be able to do so for
any of our product candidates. Although our manufacturing and processing approach is based upon the current approach undertaken by our third-party research
institution collaborators, we do not have experience in managing the vaccine manufacturing process, and our process may be more difficult or expensive than the
approaches currently in use. We will make changes as we work to optimize the manufacturing process, and we cannot be sure that even minor changes in the
process will not result in significantly different CAR-T or vaccine that may not be as safe and effective as the current products deployed by our third-party research
institution collaborators. As a result of these challenges, we may experience delays in our clinical development and/or commercialization plans. The manufacturing
risks could delay or prevent the completion of our clinical trials or the approval of any of our product candidates by the FDA, CFDA or other regulatory authorities,
result in higher costs or adversely impact commercialization of our product candidates. In addition, we will rely on third parties to perform certain specification tests
on our product candidates prior to delivery to patients. If these tests are not appropriately done and test data are not reliable, patients could be put at risk of serious
harm and the FDA, CFDA or other regulatory authorities could require additional clinical trials or place significant restrictions on our company until deficiencies are
remedied. We may ultimately be unable to reduce the cost of goods for our product candidates to levels that will allow for an attractive return on investment if and
when those product candidates are commercialized.
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.
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Outside scientists and their third-party research institutions on whom we rely for research and development and early clinical testing of our product
candidates may have other commitments or conflicts of interest, which could limit our access to their expertise and harm our ability to leverage our
technology platform.
We currently have limited internal research and development capabilities and are currently conducting no independent clinical trials with our, CD20, CD30,
HER1 and CD40GVAX product candidates or our other product candidates. We therefore rely at present on our third-party research institution collaborators for
both capabilities.
The outside scientists who conduct the clinical testing of our current product candidates, and who conduct the research and development upon which our
product candidate pipeline depends, are not our employees; rather they serve as either independent contractors or the primary investigators under collaboration
that we have with their sponsoring academic or research institution. Such scientists and collaborators may have other commitments that would limit their
availability to us. Although our scientific advisors generally agree not to do competing work, if an actual or potential conflict of interest between their work for us and
their work for another entity arises, we may lose their services. We are currently evaluating the feasibility of conducting these trials ourselves or commencing the
trial in the United States or elsewhere. These factors could adversely affect the timing of the clinical trials, the timing of receipt and reporting of clinical data, the
timing of Company-sponsored IND filings, and our ability to conduct future planned clinical trials. It is also possible that some of our valuable proprietary knowledge
may become publicly known through these scientific advisors if they breach their confidentiality agreements with us, which would cause competitive harm to, and
have a material adverse effect on our business.
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.
We operate in the highly technical field of development of regenerative and immune cellular therapies. In addition to patents, we rely in part on trademark,
trade secret and protection to protect our intellectual properties comprised of proprietary know how, technology and processes. However, trade secrets are difficult
to protect. We have entered and expect to continue to enter into confidentiality and intellectual property assignment agreements with our most employees,
consultants, outside scientific collaborators, sponsored researchers, affiliates and other advisors. These agreements generally require that the other party keep
confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us. These agreements may also
provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may be difficult
to enforce, or can be breached and may not effectively protect our intellectual property rights.
In addition to contractual measures, we try to protect the confidential nature of our proprietary information by compartmentalize our intellectual properties
as well as using other security measures. Such physical and technology measures may not provide adequate protection for our proprietary information. For
example, our security measures may not prevent an employee or consultant with authorized access from misappropriating our trade secrets and providing them to
a competitor, and the recourse we have available against such misconduct may be inadequate to adequately protect our interests. Enforcing a claim that a party
illegally disclosed or misappropriated a trade secret can be difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside
the United States may be less willing to protect trade secrets. Furthermore, others may independently develop our proprietary information in a manner that could
prevent legal recourse by us. If any of our confidential or proprietary information, including our trade secrets and know how, were to be disclosed or
misappropriated, or if a competitor independently developed any such information, our competitive position could be harmed.
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.
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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.
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.
We will not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately enforce our
intellectual property rights even in the jurisdictions where we seek protection.
Filing, prosecuting and defending patents on our product candidates in all countries and jurisdictions throughout the world would be impracticable and cost
prohibitive, and our intellectual property rights in some countries could be less extensive than those in the People’s Republic of China or the United States,
assuming that rights are obtained in these jurisdiction. In addition, the laws of some foreign countries may not protect all of our intellectual properties.
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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.
PRC intellectual property law requires us to compensate our employees for the intellectual property that they may help to develop.
We have entered and expect to continue to enter into confidentiality and intellectual property assignment agreements with most of our employees,
consultants, outside scientific collaborators, sponsored researchers, affiliates and other advisors. These agreements generally require that the other party keep
confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us. These agreements may also
provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may be difficult
to enforce, or can be breached and may not effectively protect our intellectual property rights.
The PRC laws codify a “reward/award” policy which entitles employees to certain levels of compensation and bonus from their service invention-creations
for which their employers filed for patent protection. In the absence of any contractual understanding, the Implementing Rules of the Patent Law require a minimum
compensation and bonus to such employees as below: bonus: (i) for each invention patent, a one-time reward of no less than 3,000 RMB, or (ii) for each utility
model or design patent, a one-time reward of no less than 1,000 RMB, and compensation: (i) for each invention patent and utility model, at least 2% of annual
operating profits derived from the use of the patent, (ii) for each design patent, at least 0.2% of annual operating profits derived from the use of the design patent,
and (iii) at least 10% of royalties received from the licensing the patent to a third party.
Although our bylaws allow for us to issue bonuses to our employees, we have not contractually limited the amount of compensation that we may pay them
for filing patents for their ideas, developments, discoveries or inventions. As such, should any of our employees and consultants who have not contractually agreed
otherwise seek to enforce these rights, we may be required to pay the statutorily mandated minimum to our employees as required by this law. Our product
candidates are still in the clinical trial stage and as of the date of this annual report, we have not derived any revenue from our product-related patents. However, if
and when we commercialize our product candidates or therapies, or if we are required to pay our employees any compensation for patents relating to our technical
services, such compensation could be substantial and may harm our business prospects, financial condition and results of operations.
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 biopharmaceutical 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.
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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.
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.
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.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
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.
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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:
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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 are exposed to general liability, non-clinical and clinical liability risks which could place a substantial financial burden upon us, should lawsuits be
filed against us.
Our business exposes us to potential liability risks that are inherent in the testing, manufacturing and marketing of our therapies and product candidates.
We expect that such claims are likely to be asserted against us at some point. In addition, the use in our clinical trials of our therapies and products and the
subsequent sale of these therapies or product candidates by us or our potential collaborators may cause us to bear a portion of or all product liability risks. We
currently have $3.4 million in insurance coverage relating to inventory, property plant and equipment and office premises. The Company also purchased in
insurance covering personal injury, medical expenses and several clinical trials. However, any claim under such insurance policies may be subject to certain
exceptions, and may not be honored fully, in part, in a timely manner, or at all, and may not cover the full extent of liability we may actually face. Therefore, a
successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.
We currently have no product marketing and sales organization and have no experience in marketing such products. If we are unable to establish
product marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may generate less
product revenue than expected.
We currently have no product sales, marketing or distribution capabilities and have no experience in marketing products. We intend to develop an in-
house product 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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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 payers. 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 payers to reimburse all or part of the costs associated with
their treatment. Adequate coverage and reimbursement from governmental healthcare programs and commercial payers 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 payer is a time-consuming and costly process that could require us to provide to the payer 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 payers 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 payers of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:
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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 payers, which may adversely
affect our future profitability.
Our product candidates may cause undesirable side effects or have other properties that could interrupt our clinical development, prevent or delay
regulatory approval, and limit our commercial value or result in significant negative consequences.
Undesirable or unacceptable side effects caused by our product candidates could cause us or regulatory authorities to delay, suspend or stop clinical trials
and could result in the delay or denial of regulatory approval by the regulatory authorities. Results of our trials could reveal unacceptable severe adverse effects or
unexpected characteristics.
There have been reported patient deaths in Immune Cell therapies as a result of factors comprised of cytokine release syndrome and neurotoxicity.
Immune Cell therapy treatment-related adverse side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial or result in
potential liability claims. In addition, these side effects may not be recognized or properly managed by the treating medical staff, as medical personnel do not
normally encounter in the general patient population toxicities resulting from personalized immune cell therapy. We plan to conduct training for the medical
personnel using immune cell therapy to understand the adverse side effect profile for our clinical trials and upon any commercialization of any immune cell product
candidates. Inability of the medical personnel in recognizing or managing immune cell therapy’s potential adverse side effects could result in patient deaths. Any of
these occurrences may harm our business, financial condition and prospects significantly.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Our manufacturing facilities are subject to extensive government regulation, and existing or future regulations may adversely affect our current or
future operations, increase our costs of operations, or require us to make additional capital expenditures.
Environmental advocacy groups and regulatory agencies in China have been focusing considerable attention on the industries’ potential role in climate
change. Stringent government safety, environmental and bio-hazardous materials disposal regulations at the city, provincial, and local level may have substantial
impact on our business and our third-party service providers. A number of complex laws, rules, orders, and interpretations govern environmental protection, health,
safety, land use, zoning, transportation, and related matters. The adoption of laws and regulations to implement controls of bio-hazardous material disposal and
environmental compliance, including the imposition of fees or taxes, could adversely affect the operations with which we do business. Among other things,
timeliness in navigating the compliance of these regulations may restrict our operations, our third-party service providers’ operations and adversely affect our
financial condition, results of operations, and cash flows by imposing conditions including, but not limited to new permits requirement, limitations or bans on
disposal or transportation of certain bio-hazardous materials or certain categories of materials. The Company is in the process of applying for (i) environmental
protection compliance for its new facility in Beijing and (ii) update of the environmental protection permits for its Shanghai facility.
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 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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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.
We may be unable to attract or retain key employees for our business if our share-based or other compensation programs cease to be viewed as
competitive and valuable benefits.
To be competitive, we must attract, retain, and motivate executives and other key employees. Hiring and retaining qualified executives, scientists, technical
staff, and professional staff are critical to our business, and competition for experienced employees can be intense. To help attract, retain, and motivate key
employees, we use share-based and other performance-based incentive awards such as stock options, restricted stock units (RSUs) and cash bonuses. If our
share-based or other compensation programs cease to be viewed as competitive and valuable benefits, our ability to attract, retain, and motivate key employees
could be weakened, which could harm our results of operations.
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 biopharmaceutical 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 recently 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 biopharmaceutical business or implement our
business strategy, or may have a material adverse effect on our business, financial condition and operating results.
We may fail to successfully integrate our acquired businesses, operations and assets in the expected time frame, which may adversely affect the
combined company’s future results.
We believe that our acquisitions, including our CAR-T, Tcm and GVAX technologies, 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 technologies must be
successfully combined. We may be unable to effectively integrate the acquired technologies into our organization, make the acquired technologies profitable, and
may not succeed in managing the acquired technologies. The process of integration of an acquired technologies may subject us to a number of risks, including:
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Failure to successfully manage relationships with hospitals, patients and suppliers;
Demands on management related to the increase in complexity of the company after the acquisition;
Diversion of management and scientists’ attention;
Potential difficulties integrating and harmonizing large scale multi-site clinical trials;
Difficulties in the assimilation and retention of employees;
Exposure to legal claims for activities of the acquired technologies; and
Incurrence of additional expenses in connection with the integration process.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
If the acquired technologies 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 technologies, or if there are delays
in implementing clinical trials using the acquired technologies, 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 technologies will depend on our ability to manage large scale cancer clinical trials and to realize
opportunities in monetizing these technologies.
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
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:
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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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
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 the second quarter of 2014, we completed patient enrollment for the Phase IIb clinical trial of ReJoin® for KOA. We published the Phase IIb 48 week
data in January 2016. In January 2015, we initiated patient recruitment to support a study of ReJoin® 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 in October
2014.
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.
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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.
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, 2015, we believe we have made improvements in our internal control and have remediated the deficiencies identified
in 2014. 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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 1% 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, 2016, 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 $4.6 million for these investments that were deemed
permanent in impairment of investments in 2016. Future fluctuations in the value and liquidity of these securities could result in additional realized loss.
The Company’s technical services revenue may become subject to tightened regulation that may affect the Company’s financial condition.
Currently we are not generating any meaningful technical services revenue comprised of preparation of subset T Cell and clonality assay platform
technology for treatment of cancers. Nonetheless our revenue is subject to the risk of progressive regulatory actions by the PRC government in the area of
immunotherapy. As China has not yet codified any specific regulations to govern the development and application of immune cell therapies, the outcome of any
potential Chinese regulatory action is difficult to assess or quantify. From time to time there may also be adverse publicity relating to the practice of immunotherapy
treatments in China, which due to the sensitive and experimental nature of the treatment, may trigger further governmental scrutiny. Any progressive regulatory
action in China arising out of such scrutiny may adversely affect the Company’s financial condition or cash flows.
Our operations are subject to risks associated with emerging markets.
RISKS RELATED TO OUR STRUCTURE
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
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 given certain features of its legal and judicial system.
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 significant 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 interpretations of existing or new PRC laws or regulations may have on our business.
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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.
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. 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 (the
“SAFE”), regulates the conversion of the Chinese Renminbi into foreign currencies and the conversion of foreign currencies into Chinese Renminbi. Foreign
investment enterprises are allowed to open foreign currency accounts including a “basic account” and “capital account.” However, conversion of currency in the
“capital account,” including capital items such as direct investments, loans, and securities, require approval of the SAFE even though according to the Notice of the
State Administration of Foreign Exchange on Reforming the Administration of the Settlement of Foreign Exchange Capital of Foreign-invested Enterprise
promulgated on April 8, 2015, or the SAFE Notice 19, foreign-invested enterprises are able to settle foreign exchange capital at their discretion, Chinese banks
restricts foreign currency conversion for fear of “hot money” going into China 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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
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 biopharmaceutical business operations in China through 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.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Our relationship with our controlled VIE entity, CBMG Shanghai, through the VIE agreements, is subject to various operational and legal risks.
Management believes the holders of the VIE’s registered capital, Messrs. Chen Mingzhe and Lu Junfeng, have no interest in acting contrary to the VIE
agreements. However, if Messrs. Chen or Lu as shareholders of the VIE entity were to reduce or eliminate their ownership of the registered capital of the VIE
entity, 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
entity in such a way that is inconsistent with the directives of CBMG management and the board; or causing non-payment by the VIE entity of services fees). If
such circumstances were to occur the WFOE would have to assert control rights through the powers of attorney, pledges and other VIE agreements, which would
require legal action through the PRC judicial system. We believe based on the advice of local counsel that the VIE agreements are valid and in compliance with
PRC laws presently in effect. However, there is a risk that the enforcement of these agreements may involve more extensive procedures and costs to enforce, in
comparison to direct equity ownership of the VIE entity. 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 entity 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.
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 share 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 share 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. On February 15, 2012, SAFE promulgated the Circular on Relevant Issues
Concerning Foreign Exchange Administration for Domestic Individuals Participating in an Employees Share Incentive Plan of an Overseas-Listed Company, often
known as Circular 7. Circular 7 has superseded Circular 78. Under Circular 7, PRC resident individuals who participate in a share incentive plan of an overseas
listed company are required to register with SAFE and complete certain other procedures. All such participants need to retain a PRC agent through PRC
subsidiary to handle issues like foreign exchange registration, account opening, funds transfer and remittance. Circular 7 further requires that an offshore agent
should also be designated to handle matters in connection with the exercise or sale of share awards and proceeds transferring for the share incentive plan
participants. We believe that the registration and approval requirements contemplated in Circular 7 will be burdensome and time consuming. If we or our PRC
employees who have been granted stock options fail to comply with these regulations, we or our PRC employees who have been granted stock options may be
subject to fines and legal sanctions and will be unable to grant share compensation to our PRC employees. In that case, our ability to compensate our employees
and directors through share compensation would be hindered and our business operations may be adversely affected.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
Substantial uncertainty of the PRC Labor Contract Law, or Labor Contract Law, and the Implementation Regulation for the PRC Labor Contract Law, or
Implementation Regulation, remains as to their 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 our employment or labor policy or practice, or reduce the number
of our sales professionals, the Labor Contract Law and the Implementation Regulation 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.
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.
PRC regulations of loans to PRC entities and direct investment in PRC entities by offshore holding companies may delay or prevent us from using the
proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary.
We may transfer funds to our PRC subsidiary or finance our PRC subsidiary by means of shareholder loans or capital contributions. Any loans from us to
our PRC subsidiary, which is a foreign-invested enterprise, cannot exceed statutory limits based on the difference between the registered capital and the
investment amount of such subsidiary, and shall be registered with the State Administration of Foreign Exchange, or SAFE, or its local counterparts. Any capital
contributions we make to our PRC subsidiary shall be approved by or registered with (as the case may be) the Ministry of Commerce or its local counterparts. We
may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to receive such registrations or approvals, our ability to
provide loans or capital contributions to our PRC subsidiary in a timely manner may be negatively affected, which could materially and adversely affect our liquidity
and our ability to fund and expand our business.
In addition, registered capital of a foreign-invested company settled in RMB converted from foreign currencies may only be used within the business scope
approved by the applicable governmental authority. Foreign-invested companies may not change how they use such capital without SAFE’s approval, and may
not in any case use such capital to repay RMB loans if proceeds of such loans have not been utilized. Violations of these regulations may result in severe
penalties. Also, the Circular on Issues concerning Strengthening the Administration of Foreign Exchange Business, which was promulgated by SAFE in 2010,
requires banks and local counterparts of SAFE to examine closely the authenticity of the settlement of net proceeds from offshore offerings and whether the net
proceeds are settled in the manner described in offering documents. These regulations may significantly limit our ability to transfer the net proceeds from offshore
offering and subsequent offerings or financings to our PRC subsidiary, which may adversely affect our liquidity and our ability to fund and expand our business in
China.
We may be subject to penalties, including restriction on our ability to inject capital into our PRC subsidiary and our PRC subsidiary’s ability to
distribute profits to us, if our PRC resident shareholders beneficial owners fail to comply with relevant PRC foreign exchange rules.
The Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via
Offshore Special Purpose Vehicles, often known as Circular 75, was issued by SAFE in 2005. Circular 75 requires PRC residents to register with the local SAFE
branch in connection with their establishment or control of any offshore special purpose vehicle for the purpose of overseas equity financing involving a roundtrip
investment whereby the offshore special purpose vehicle acquires or controls onshore assets or equity interests held by the PRC residents. On July 4, 2014,
SAFE issued the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Outbound Investment and Financing
and Inbound Investment via Special Purpose Vehicles, or Circular 37, which has superseded Circular 75. Under Circular 37 and other relevant foreign exchange
regulations, PRC residents who make, or have made, prior to the implementation of these foreign exchange regulations, direct or indirect investments in offshore
companies are required to register those investments with SAFE. In addition, any PRC resident who is a direct or indirect shareholder of an offshore company is
also required to file or update the registration with SAFE, with respect to that offshore company for any material change involving its round-trip investment, capital
variation, such as an increase or decrease in capital, transfer or swap of shares, merger, division, long-term equity or debt investment or the creation of any
security interest. If any PRC shareholder fails to make the required registration or update the registration, the PRC subsidiary of that offshore company may be
prohibited from distributing its profits and the proceeds from any reduction in capital, share transfer or liquidation to that offshore company, and that offshore
company may also be prohibited from injecting additional capital into its PRC subsidiary. Moreover, failure to comply with the foreign exchange registration
requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We cannot provide any assurance that all of our shareholders and beneficial owners who are PRC residents have fully complied or will obtain or update
any applicable registrations or have fully complied or will fully comply with other requirements required by Circular 37 or other related rules in a timely manner. The
failure or inability of our shareholders resident in China to comply with the registration requirements set forth therein may subject them to fines and legal sanctions
and may also limit our ability to contribute additional capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits and other proceeds to
our company or otherwise adversely affect our business.
We and/or our Hong Kong subsidiary may be classified as a “PRC resident enterprise” for PRC enterprise income tax purposes. Such classification
would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of
operations and the value of your investment.
The Enterprise Income Tax Law provides that an enterprise established outside China whose “de facto management body” is located in China is
considered a “PRC resident enterprise” and will generally be subject to the uniform 25% enterprise income tax on its global income. Under the implementation rules
of the Enterprise Income Tax Law, “de facto management body” is defined as the organizational body which effectively manages and controls the production and
business operation, personnel, accounting, properties and other aspects of operations of an enterprise.”
Pursuant to the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the
Basis of De Facto Management Bodies, issued by the State Administration of Taxation in 2009, a foreign enterprise controlled by PRC enterprises or PRC
enterprise groups is considered a PRC resident enterprise if all of the following conditions are met: (i) the senior management and core management departments
in charge of daily operations are located mainly within the PRC; (ii) financial and human resources decisions are subject to determination or approval by persons or
bodies in the PRC; (iii) major assets, accounting books, company seals and minutes and files of board and shareholders’ meetings are located or kept within the
PRC; and (iv) at least half of the enterprise’s directors with voting rights or senior management reside within the PRC. Although the notice states that these
standards only apply to offshore enterprises that are controlled by PRC enterprises or PRC enterprise groups, such standards may reflect the general view of the
State Administration of Taxation in determining the tax residence of foreign enterprises.
We believe that neither our company nor our Hong Kong subsidiary is a PRC resident enterprise because neither our company nor our Hong Kong
subsidiary meets all of the conditions enumerated. For example, board and shareholders’ resolutions of our company and our Hong Kong subsidiary are adopted
in Hong Kong and the minutes and related files are kept in Hong Kong. However, if the PRC tax authorities were to disagree with our position, our company and/or
our Hong Kong subsidiary may be subject to PRC enterprise income tax reporting obligations and to a 25% enterprise income tax on our global taxable income,
except for our income from dividends received from our PRC subsidiary, which may be exempt from PRC tax. If we and/or our Hong Kong subsidiary are treated
as a PRC resident enterprise, the 25% enterprise income tax may adversely affect our ability to satisfy any of our cash needs.
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In addition, if we were to be classified as a PRC “resident enterprise” for PRC enterprise income tax purpose, dividends we pay to our non-PRC enterprise
shareholders and gains derived by our non-PRC shareholders from the sale of our shares and ADSs may be become subject to a 10% PRC withholding tax. In
addition, future guidance may extend the withholding tax to dividends we pay to our non-PRC individual shareholders and gains derived by such shareholders from
transferring our shares and ADSs. In addition to the uncertainty in how the new “resident enterprise” classification could apply, it is also possible that the rules may
change in the future, possibly with retroactive effect. If PRC income tax were imposed on gains realized through the transfer of our ADSs or ordinary shares or on
dividends paid to our non-resident shareholders, the value of your investment in our ADSs or ordinary shares may be materially and adversely affected.
Any limitation on the ability of our PRC subsidiary to make payments to us, or the tax implications of making payments to us, could have a material
adverse effect on our ability to conduct our business or our financial condition.
We are a holding company, and we rely principally on dividends and other distributions from our PRC subsidiary for our cash needs, including the funds
necessary to pay dividends to our shareholders or service any debt we may incur. Current PRC regulations permit our PRC subsidiary to pay dividends only out of
its accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiary is required to set aside
at least 10% of its after tax profits each year, if any, to fund certain statutory reserve funds until the aggregate amount of such reserve funds reaches 50% of its
registered capital. Apart from these reserves, our PRC subsidiary may allocate a discretionary portion of its after-tax profits to staff welfare and bonus funds at its
discretion. These reserves and funds are not distributable as cash dividends. Furthermore, if our PRC subsidiary incurs debt, the debt instruments may restrict its
ability to pay dividends or make other payments to us. We cannot assure you that our PRC subsidiary will generate sufficient earnings and cash flows in the near
future to pay dividends or otherwise distribute sufficient funds to enable us to meet our obligations, pay interest and expenses or declare dividends.
Distributions made by PRC companies to their offshore parents are generally subject to a 10% withholding tax under the Enterprise Income Tax Law.
Pursuant to the Enterprise Income Tax Law and the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, the withholding tax rate on dividends paid by our PRC
subsidiary to our Hong Kong subsidiary would generally be reduced to 5%, provided that our Hong Kong subsidiary is the beneficial owner of the PRC sourced
income. Our PRC subsidiary has not obtained approval for a withholding tax rate of 5% from the local tax authority and does not plan to obtain such approval in the
near future as we have not achieved profitability. However, the Notice on How to Understand and Determine the Beneficial Owners in a Tax Agreement, also
known as Circular 601, promulgated by the State Administration of Taxation in 2009, provides guidance for determining whether a resident of a contracting state is
the “beneficial owner” of an item of income under China’s tax treaties and similar arrangements. According to Circular 601, a beneficial owner generally must be
engaged in substantive business activities. An agent or conduit company will not be regarded as a beneficial owner and, therefore, will not qualify for treaty
benefits. For this purpose, a conduit company is a company that is set up for the purpose of avoiding or reducing taxes or transferring or accumulating profits.
Although our PRC subsidiary is wholly owned by our Hong Kong subsidiary, we will not be able to enjoy the 5% withholding tax rate with respect to any dividends
or distributions made by our PRC subsidiary to its parent company in Hong Kong if our Hong Kong subsidiary is regarded as a “conduit company.”
In addition, if CBMG HK were deemed to be a PRC resident enterprise, then any dividends payable by CBMG HK to CBMG Delaware Corporation may
become subject to PRC dividend withholding tax.
Restrictions on the remittance of RMB into and out of China and governmental control of currency conversion may limit our ability to pay dividends
and other obligations, and affect the value of your investment.
The PRC government imposes controls on the convertibility of the RMB into foreign currencies and the remittance of currency out of China. We receive
substantially all of our revenues in RMB and substantially all of our cash inflows and outflows are denominated in RMB. Under our current corporate structure, our
revenues are primarily derived from dividend payments from our subsidiary in China after it receives payments from the VIE under various service and other
contractual arrangements. We may convert a portion of our revenues into other currencies to meet our foreign currency obligations, such as payments of dividends
declared in respect of our ordinary shares, if any. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiary to remit sufficient
foreign currency to pay dividends or other payments to us, or otherwise satisfy its foreign currency denominated obligations.
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Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and
service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements
are fulfilled. Therefore, our PRC subsidiary is allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine
procedural requirements. However, approval from or registration with competent government authorities is required where the RMB is to be converted into foreign
currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its
discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining
sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including the
U.S. shareholders.
Our financial condition and results of operations could be materially and adversely affected if recent value added tax reforms in the PRC become
unfavorable to our PRC subsidiary or VIE.
In 2012, China introduced a value added tax, or VAT, to replace the previous 5% business tax. Our PRC subsidiary and the VIE have been subject to VAT
at a base rate of 6% since September 1, 2012. The VIE’s subsidiary has been subject to VAT at a base rate of 6% since July 1, 2013. The rules related to VAT are
still evolving and the timing of the promulgation of the final tax rules or related interpretation is uncertain. Our financial condition and results of operations could be
materially and adversely affected if the interpretation and enforcement of these tax rules become materially unfavorable to our PRC subsidiary and VIE.
Failure to comply with PRC regulations regarding the registration requirements for stock ownership plans or stock option plans may subject PRC plan
participants or us to fines and other legal or administrative sanctions.
Under SAFE regulations, PRC residents who participate in an employee stock ownership plan or stock option plan in an overseas publicly listed company
are required to register with SAFE or its local branch and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must
retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly listed company, to conduct the SAFE registration and other procedures
with respect to the stock incentive plan on behalf of these participants. Such participants must also retain an overseas entrusted institution to handle matters in
connection with their exercise or sale of stock options. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive
plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes.
We and our PRC resident employees who participate in our share incentive plans are subject to these regulations as our company is publicly listed in the
United States. The Company and our PRC resident option grantees have yet to complete compliance with these regulations. We or our PRC resident option
grantees may be subject to fines and other legal or administrative sanctions.
Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment.
The value of the RMB against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and China’s foreign
exchange policies, among other things. On July 21, 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar,
and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and
the exchange rate between the RMB and the U.S. dollar remained within a narrow band. The PRC government has allowed the RMB to appreciate slowly against
the U.S. dollar again, and it has appreciated more than 10% since June 2010. It is difficult to predict how market forces or PRC or U.S. government policy may
impact the exchange rate between the RMB and the U.S. dollar in the future. In addition, there remains significant international pressure on the PRC government
to adopt a substantial liberalization of its currency policy, which could result in further appreciation in the value of the RMB against the U.S. dollar. In 2015, due to
the slow-down of China economic growth rate and environment, RMB depreciated against the U.S. dollar from third quarter. Recently, the RMB depreciated over
6% in the past 12 months.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Our revenues and costs are mostly denominated in RMB, and a significant portion of our financial assets are also denominated in RMB, whereas our
reporting currency is the U.S. dollar. Any significant depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position as
reported in U.S. dollars. To the extent that we need to convert U.S. dollars we received from this offering into RMB for our operations, appreciation of the RMB
against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into
U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the
RMB would have a negative effect on the U.S. dollar amount available to us.
PRC laws and regulations establish more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it
more difficult for us to pursue growth through acquisitions in China.
A number of PRC laws and regulations, including the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors adopted by
six PRC regulatory agencies in 2006, or the M&A Rules, the Anti-monopoly Law, and the Rules of Ministry of Commerce on Implementation of Security Review
System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by the Ministry of Commerce in August 2011, or the Security
Review Rules, have established procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time
consuming and complex. These include requirements in some instances that the Ministry of Commerce be notified in advance of any change of control transaction
in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from the Ministry of Commerce be obtained in circumstances where
overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. PRC laws and regulations also require
certain merger and acquisition transactions to be subject to merger control review or security review.
The Security Review Rules were formulated 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, also known as Circular 6, which was promulgated in 2011. Under these 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 have “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 Ministry of Commerce will look into the substance and actual impact
of the transaction. The Security Review Rules further prohibits 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 requirement for foreign investors in those mergers and acquisitions transactions already completed prior to the promulgation of Circular 6 to
submit such transactions to the Ministry of Commerce for security review. As we have already obtained the “de facto control” over our affiliated PRC entities prior to
the effectiveness of these rules, we do not believe we are required to submit our existing contractual arrangements to the Ministry of Commerce for security
review.
However, as these rules are relatively new and there is a lack of clear statutory interpretation on the implementation of the same, there is no assurance
that the Ministry of Commerce will not apply these national security review-related rules to the acquisition of equity interest in our PRC subsidiary. If we are found
to be in violation of the Security Review Rules and other PRC laws and regulations with respect to the merger and acquisition activities in China, or fail to obtain
any of the required approvals, the relevant regulatory authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our
income, revoking our PRC subsidiary’s business or operating licenses, requiring us to restructure or unwind the relevant ownership structure or operations. Any of
these actions could cause significant disruption to our business operations and may materially and adversely affect our business, financial condition and results of
operations. Further, if the business of any target company that we plan to acquire falls into the ambit of security review, we may not be able to successfully
acquire such company either by equity or asset acquisition, capital contribution or through any contractual arrangement. We may grow our business in part by
acquiring other companies operating in our industry. Complying with the requirements of the relevant regulations to complete such transactions could be time
consuming, and any required approval processes, including approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions,
which could affect our ability to expand our business or maintain our market share.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The heightened scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on our business operations, our
acquisition or restructuring strategy or the value of your investment in us.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or Circular 698,
issued by the State Administration of Taxation in December 2009 with retroactive effect from January 1, 2008, where a non-PRC resident enterprise transfers the
equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas non-public holding company, or an Indirect Transfer, and
such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate of less than 12.5% or (ii) does not impose income tax on
foreign income of its residents, the non-PRC resident enterprise, being the transferor, must report to the competent tax authority of the PRC resident enterprise this
Indirect Transfer and may be subject to PRC enterprise income tax of up to 10% of the gains derived from the Indirect Transfer in certain circumstances.
To clarify the issues related to Circular 698, the State Administration of Taxation released the Announcement of the State Administration of Taxation on
Several Issues Relating to the Administration of Income Tax on Non-resident Enterprises in 2011, known as Notice 24, and the Announcement on Issues Related
to Applications of Special Tax Treatment for Equity Transfer by Non-resident Enterprises in 2013.
On February 3, 2015, the State Administration of Taxation issued the Announcement on Several Issues Concerning the Enterprise Income Tax on Indirect
Property Transfers by Non-PRC Resident Enterprises, or Notice 7. Notice 7 introduces a new tax regime that is significantly different from that under Circular 698. It
superseded the previous tax rules in relation to the offshore indirect equity transfer, including those under Circular 698 as described above. It extends the tax
jurisdiction of State Administration of Taxation to capture not only the Indirect Transfer but also the transactions involving indirect transfer of (i) real properties in
China and (ii) assets of an “establishment or place” situated in China, by a non-PRC resident enterprise through a disposition of equity interests in an overseas
holding company.
However, Notice 7 also brings uncertainties to the parties of the offshore indirect transfers as the transferee and the transferor have to make self-
assessment on whether the transactions should be subject to the corporate income tax and file or withhold the corporate income tax accordingly. In addition, the
PRC tax authorities have discretion under Notice 7 to adjust the taxable capital gains based on the difference between the fair value of the transferred equity
interests and the investment cost. We may pursue acquisitions in the future that may involve complex corporate structures. If we are considered as a non-PRC
resident enterprise under the EIT Law and if the PRC tax authorities make adjustments to the taxable income of the transactions under Notice 7, our income tax
expenses associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.
We face certain risks relating to the real properties that we lease.
We primarily lease office and manufacturing space from third parties for our operations in China. Any defects in lessors’ title to the leased properties may
disrupt our use of our offices, which may in turn adversely affect our business operations. For example, certain buildings and the underlying land are not allowed to
be used for industrial or commercial purposes without relevant authorities’ approval, and the lease of such buildings to companies like us may subject the lessor to
pay premium fees to the PRC government. We cannot assure you that the lessor has obtained all or any of approvals from the relevant governmental authorities.
In addition, some of our lessors have not provided us with documentation evidencing their title to the relevant leased properties. We cannot assure you that title to
these properties we currently lease will not be challenged. In addition, we have not registered any of our lease agreements with relevant PRC governmental
authorities as required by PRC law, and although failure to do so does not in itself invalidate the leases, we may not be able to defend these leases against bona
fide third parties.
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As of the date of this filing, we are not aware of any actions, claims or investigations being contemplated by government authorities with respect to the
defects in our leased real properties or any challenges by third parties to our use of these properties. However, if third parties who purport to be property owners or
beneficiaries of the mortgaged properties challenge our right to use the leased properties, we may not be able to protect our leasehold interest and may be ordered
to vacate the affected premises, which could in turn materially and adversely affect our business and operating results.
Our significant deposits in certain banks in China may be at risk if these banks go bankrupt or otherwise do not have the liquidity to pay us during our
deposit period.
As of December 31, 2016, we had approximately $39 million in cash and bank deposits, such as time deposits, with large domestic banks in China. Our
remaining cash, cash equivalents and short-term investments were held by financial institutions in the United States and Hong Kong. The terms of these deposits
are, in general, up to twelve months. Historically, deposits in Chinese banks were viewed as secure due to the state policy on protecting depositors’ interests.
However, the new Bankruptcy Law that came into effect in 2007 contains an article expressly stating that the State Council may promulgate implementation
measures for the bankruptcy of Chinese banks based on the Bankruptcy Law, so the law contemplates the possibility that a Chinese bank may go bankrupt. In
addition, foreign banks have been gradually permitted to operate in China since China’s accession to the World Trade Organization and have become strong
competitors of Chinese banks in many respects, which may have increased the risk of bankruptcy or illiquidity for Chinese banks, including those in which we have
deposits. In the event of bankruptcy or illiquidity of any one of the banks which holds our deposits, we are unlikely to claim our deposits back in full since we are
unlikely to be classified as a secured creditor based on PRC laws.
Our auditor, like other independent registered public accounting firms operating in China, is not permitted to be subject to inspection by Public
Company Accounting Oversight Board, and consequently investors may be deprived of the benefits of such inspection.
Our auditor, the independent registered public accounting firm that issued the audit reports included elsewhere in this report, as an auditor of companies
that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is required by
the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and applicable
professional standards. Our auditor is located in China and the PCAOB is currently unable to conduct inspections on auditors in China without the approval of the
PRC authorities. Therefore, our auditor, like other independent registered public accounting firms operating in China, is currently not inspected by the PCAOB.
In May 2013, the PCAOB announced that it has entered into a Memorandum of Understanding (“MOU”) on Enforcement Cooperation with the China
Securities Regulatory Commission (the “CSRC”) and the Ministry of Finance (the “MOF”). The MOU establishes a cooperative framework between the parties for
the production and exchange of audit documents relevant to investigations in both countries’ respective jurisdictions. More specifically, it provides a mechanism for
the parties to request and receive from each other assistance in obtaining documents and information in furtherance of their investigative duties. In addition to
developing enforcement MOU, the PCAOB has been engaged in continuing discussions with the CSRC and MOF to permit joint inspections in China of audit firms
that are registered with the PCAOB and audit Chinese companies that trade on U.S. exchanges.
Inspections of other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control
procedures, and such deficiencies may be addressed as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct
inspections of independent registered public accounting firms operating in China makes it more difficult to evaluate the effectiveness of our auditor’s audit
procedures or quality control procedures, and to the extent that such inspections might have facilitated improvements in our auditor’s audit procedures and quality
control procedures, investors may be deprived of such benefits.
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RISKS RELATED TO OUR COMMON STOCK
If we fail to meet all applicable Nasdaq Global 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.
Our common stock trades on the Nasdaq Global Market. If we fail to satisfy the continued listing requirements of The NASDAQ Global 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:
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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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 2. PROPERTIES
Our corporate headquarters are located at 19925 Stevens Creek Blvd., Suite 100 in Cupertino, California. We currently pay rent for a total of $77,000 per
month for an aggregate of approximately 80,000 square feet of space to house our administration, research and manufacturing facilities in Maryland and in the
cities of, Wuxi, Beijing and Shanghai in China. On January 1, 2017, CBMG Shanghai entered into a 10-year lease agreement with Shanghai Chuangtong
Industrial Development Co., Ltd., pursuant to which the Company leased a 10,501.6 square meter building located in the “Pharma Valley” of Shanghai, the
People’s Republic of China for research and development, manufacturing and office space purposes. Subject to a 5-month rent-free renovation period, the monthly
rent for the first two years is determined by floor and ranges from 3.7 yuan to 4.3 yuan per square meter per day, for an aggregate monthly rent for the entire
Property of approximately 1.3 million yuan ($187,064). The term of the Lease is 10 years, starting from January 1, 2017 and ending on December 31, 2026 (the
“Original Term”). During the Original Term, the monthly rent will increase by 6% every two years.
ITEM 3. LEGAL PROCEEDINGS
On April 21, 2015, a putative class action complaint was filed against the Company in the U.S. District Court for the Northern District of California
captioned Bonnano v. Cellular Biomedicine Group, Inc., 3:15-cv-01795-WHO (N.D. Ca.). The complaint also named Wei Cao, the Company’s Chief Executive
Officer, and Tony Liu, the Company’s Chief Financial Officer, as defendants. The complaint alleged that during the class period, June 18, 2014, through April 7,
2015, the Company made material misrepresentations in its periodic reports filed with the SEC. The complaint alleged a cause of action under Section 10(b) of the
Securities Exchange Act of 1934 (the “1934 Act”) against all defendants and under Section 20(a) of the 1934 Act against the individual defendants. The complaint
did not state the amount of the damages sought.
On June 3, 2015, defendants were served. On June 29, 2015, the Court ordered, as stipulated by the parties, that defendants are not required to respond
to the initial complaint in this action until such time as a lead plaintiff and lead counsel have been appointed and a consolidated complaint has been filed. The
deadline for filing motions for the appointment of lead plaintiff and selection of lead counsel was June 22, 2015. On that date, one motion was filed by the Rosen
Law Firm on behalf of putative plaintiff Michelle Jackson. On August 3, 2015, having received no opposition, the Court appointed Jackson as lead plaintiff and the
Rosen Law Firm as class counsel. As stipulated among the parties, Jackson filed an amended class action complaint on September 17, 2015.
The amended complaint names ten additional individuals and entities as defendants (“additional defendants”), none of whom are affiliated with the
Company, and asserts an additional claim under Section 10(b) and Rule 10b-5(a) and (c) thereunder that the Company purportedly engaged in a scheme with the
additional defendants to promote its securities. The amended complaint does not assert any claims against Mr. Liu.
On January 19, 2016, the Company filed a motion to dismiss, which was granted on May 20, 2016, with leave to amend. On June 6, 2016, Plaintiffs filed
a Second Amended Complaint, and on June 30, 2016, the Company filed a motion to dismiss. On September 2, 2016, the Court dismissed the Second Amended
Complaint with prejudice and entered judgment against Plaintiffs. On September 16, 2016, Plaintiffs filed a Notice of Appeal to the U.S. Court of Appeals for the
Ninth Circuit. On December 23, 2016, on Plaintiffs’ voluntary motion, the Ninth Circuit entered an order dismissing the appeal.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
As a result of the dismissal of the appeal, all proceedings in the case against the Company and its officers are concluded. We are currently not involved in
any other litigation that we believe could have a materially adverse effect on our financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is quoted on the Nasdaq Global Market under the symbol "CBMG." Our stock was formerly quoted under the symbol “EBIG.”
As of February 28, 2017, there were 14,281,380 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 2016
First Quarter (January – March 2016)
Second Quarter (April – June 2016)
Third Quarter (July – September 2016)
Fourth Quarter (October – December 2016)
Fiscal Year 2015
First Quarter (January – March 2015)
Second Quarter (April – June 2015)
Third Quarter (July – September 2015)
Fourth Quarter (October – December 2015)
High
Low
$
$
$
$
$
$
$
$
22.10
20.98
15.68
15.45
$
$
$
$
49.00
41.73
38.74
25.20
$
$
$
$
10.44
11.07
11.85
11.00
12.93
21.41
16.00
15.90
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, 2016, 2015 and 2014. 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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, 2016.
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 81,522 shares
available for issuance under this plan as of December 31, 2016.
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. There are 75,869 shares available for issuance under this plan as
of December 31, 2016.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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”)
covering 1.2 million shares 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. There are 384,979 shares available for
issuance under this plan as of December 31, 2016.
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.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, 2016:
Plan Catagory
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (#)
Weighted-
average exercise
price of
outstanding
options, warrants
and rights ($)
Number of
securities
Equity compensation plans approved by stockholders
1,766,571
$
12.36
542,370
Equity compensation plans not approved by stockholders
Total
-
1,766,571
$
-
12.36
-
542,370
Stock Performance Graph
The line graph that follows compares the cumulative total stockholder return on our shares of common stock with the cumulative total return of the Nasdaq
Healthcare Index (^IXHC)* and the Russell 3000 Index (RUA)* Index for the five years ended December 31 2016. The graph and table assume that $100 was
invested on the last day of trading for the fiscal year 2011 in each of our shares of common stock, the Nasdaq Healthcare Index, and the Russell 3000 Index, and
that no dividends were paid. Cumulative total stockholder returns for our shares of common stock, Nasdaq Healthcare Index, and the Russell 3000 Index are
based on our fiscal year, which is the same as the calendar year.
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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 for the year ended December 31, 2016 were previously disclosed in a Form 8-K or Form 10-Q
filed with the SEC.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth certain of our selected consolidated financial data as of the dates and for the years indicated. Historical results are not
necessarily indicative of the results to be expected for any future period.
The following selected consolidated financial information was derived from our fiscal year end consolidated financial statements. The following information
should be read in conjunction with those statements and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” and
Form 8-K/A filed on December 6, 2013. Our summary consolidated statement of operations and comprehensive loss data for the fiscal years ended December 31,
2014, 2015 and 2016 and our summary consolidated balance sheet data as of December 31, 2015 and 2016, as set forth below, are derived from, and are
qualified in their entirety by reference to, our audited consolidated financial statements, including the notes thereto, which are included in this Annual Report. The
summary balance sheet data as of December 31, 2013 and summary consolidated statement of operations and comprehensive loss data for the fiscal years ended
December 31, 2013, set forth below are derived from our audited consolidated financial statements which are not included herein. Our summary unaudited
consolidated statement of operations and comprehensive loss data for the fiscal years ended December 31, 2012 and our summary consolidated balance sheet
data as of December 31, 2012, as set forth below, are derived from Form 8-K/A filed on December 6, 2013.
Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States, or
U.S. GAAP.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Summary Consolidated statement of operations and
comprehensive loss data:
2016
2015
2014
2013
2012
For the Year Ended
December 31,
Net sales and revenue
$
627,930
$
2,505,423
$
564,377
$
204,914
$
273,620
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
860,417
11,670,506
425,040
11,475,587
4,611,714
29,043,264
(28,415,334)
1,880,331
13,068,255
709,151
7,573,228
123,428
23,354,393
(20,848,970)
242,215
7,875,413
314,894
3,146,499
1,427,840
13,006,861
(12,442,484)
296,212
9,162,172
58,275
2,041,872
-
11,558,531
(11,353,617)
78,943
132,108
211,051
(28,204,283)
42,220
630,428
672,648
(20,176,322)
15,043
71,982
87,025
(12,355,459)
1,294
(6,196)
(4,902)
(11,358,519)
194,264
3,455,444
471,420
3,214,289
7,335,417
(7,061,797)
1,788
28,492
30,280
(7,031,517)
Income taxes credit (provision)
Loss from continuing operations
(4,093)
(28,208,376)
728,601
(19,447,721)
-
(12,355,459)
-
(11,358,519)
-
(7,031,517)
Loss on discontinued operations, net of taxes
Net loss
Other comprehensive income (loss):
Cumulative translation adjustment
Unrealized gain (loss) on investments, net of tax
Reclassification adjustments, net of tax, in connection with
other-than-temporary impairment of investments
Total other comprehensive income (loss):
Comprehensive loss
-
$ (28,208,376)
-
$ (19,447,721)
(3,119,152)
$ (15,474,611)
(2,438,514)
$ (13,797,033)
$
-
(7,031,517)
(743,271)
5,300,633
(307,950)
(1,376,540)
15,254
1,611,045
78,650
(198,200)
13,705
-
(5,557,939)
(1,000,577)
$ (29,208,953)
-
(1,684,490)
$ (21,132,211)
-
1,626,299
$ (13,848,312)
-
(119,550)
$ (13,916,583)
$
-
13,705
(7,017,812)
Net loss per share :
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
(2.09)
$
(2.09)
$
(1.70)
$
(1.70)
$
(1.79)
$
(1.79)
$
(2.38)
$
(2.38)
$
(2.24)
(2.24)
13,507,408
13,507,408
11,472,306
11,472,306
8,627,094
8,627,094
5,792,888
5,792,888
3,134,833
3,134,833
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Summary Consolidated balance sheet data:
Cash and cash equivalents
Current working capital (2)
Total assets
Other non-current liabilities
Stockholders’ equity
2016
2015
2014
2013
2012
As of
December 31,
$
$
39,252,432
38,328,048
68,628,467
370,477
65,893,954
$
14,884,597
13,675,034
49,460,422
76,229
46,364,936
14,770,584
12,019,143
43,685,102
452,689
39,156,091
$
$
7,175,215
5,373,355
17,596,726
-
15,395,073
4,144,896
3,754,386
6,751,627
-
6,156,394
(1) The Company 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. 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”). 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.” CBMG BVI was the accounting acquirer and resulted in a reverse merger. The
consolidated balance sheet data as of December 31, 2012 and the consolidated statement of operation and comprehensive income data for the year
then ended represents the historical financial data of the acquirer - CBMG BVI. CBMG BVI was liquidated on November 25, 2016.
(2) Current working capital is the difference between total current assets and total current liabilities.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of December 31, 2016
and 2015, 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, 2016 and 2015. 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, 2016, allowance of $10,163 was provided for debtors of
certain customers as those debts are unrecoverable from customers. No allowance was provided as of December 31, 2015 as the Company was receiving
continuous payments and there was no indication of debts unrecoverable from customers.
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Inventory
Inventories consist of raw materials, work-in-process, semi-finished goods and finished goods. 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.
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 impairment may have occurred. As of December 31,
2016, the goodwill is $7,678,789, which all derived from the acquisition of Agreen.
As stipulated in ASC 350-20-35-3A, an entity may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, including goodwill. During the year ended December 31, 2016, the Company ceased its cooperation with the Jihua Hospital
(its largest customer) and several agents and was not actively pursuing the fragmented technical services opportunities since the second quarter of 2016. Since
then, net sales and revenue significantly decreased accordingly. It considered as triggering event indicating the goodwill impairment test was required at the
balance sheet date. The Company therefore proceeded with “Step 1” goodwill impairment test based on ASC 350-20-35-4 thru 35-8A. The first step of the
goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. The
Company is now prioritizing cancer therapeutic, and focusing the clinical efforts on developing CAR-T technologies, Vaccine, Tcm, and TCR clonality technologies,
all long-lived assets (including goodwill) are considered as an asset group under the same reporting unit for the Company’s research and development activities
purpose. The Company’s market capitalization as at the balance sheet date would fairly reflect the fair value of the Company’s research and development efforts
so as to provide an indication of whether the goodwill is subject to the impairment loss. Our market capitalization exceeds the carrying amount of net assets
(including goodwill) of the Company. We considered first step of goodwill impairment test passed and no second step of goodwill impairment test shall be
performed to measure the amount of impairment loss. No impairment loss of goodwill is considered to be required as of December 31, 2016.
Other intangibles mainly consists of knowhow, technologies, patent, licenses acquired and purchased software. The Company reviews the carrying value
of long-lived assets to be held and used, including other intangible assets subject to amortization, when events and circumstances warrants such a review. The
carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than
its carrying value. No impairment is considered to be required as of December 31, 2016.
The Company is an expanding company with a short operating history, accordingly, the Company faces some potential events and uncertainties
encountered by companies in the earlier stages of development and expansion, such as: (1) continuing market acceptance for our product extensions and our
services; (2) changing competitive conditions, technological advances or customer preferences that could harm sales of our products or services; (3) maintaining
effective control of our costs and expenses. If the Company is not able to meet the challenge of building our businesses and managing our growth, the likely result
would be slowed growth, lower margins, additional operational costs and lower income, and a risk of impairment charge of intangibles in future filings.
70
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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 receivable, 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.
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Stock-Based Compensation
We periodically use stock-based awards, consisting of shares of common stock or stock options, to compensate officers, employees, directors and
consultants. Awards 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.
Revenue Recognition
The Company utilizes the guidance set forth in the ASC 605, regarding the recognition, presentation and disclosure of revenue in its financial statements.
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.
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, 2016 and 2015, given the current and expected near term losses and the uncertainty with respect to our ability to generate sufficient profits
from our business model.
Recent Accounting Pronouncements
Recent accounting pronouncements that the Company has adopted or may be required to adopt in the future are summarized below.
In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment” (“ASU 2017-04”), which removes Step 2 from the goodwill impairment test. An entity will apply a one-step quantitative test and record the
amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the
reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. A publicly reporting company that is an SEC filer
should adopt the amendments in this ASU for its annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019. Early adoption
is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact of the
adoption of ASU 2017-04 on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which requires that a
statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU do not
provide a definition of restricted cash or restricted cash equivalents. The amendments in this ASU are effective for public business entities for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We are
currently evaluating the impact of the adoption of ASU 2016-18 on our consolidated financial statements.
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In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”
(“ASU 2016-15”), which addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt
instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent
consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned
life insurance policies (including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization
transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in this ASU are effective for public business
entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an
interim period. We are currently evaluating the impact of the adoption of ASU 2016-15 on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments” (“ASU 2016-13”). Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost
basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current
GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is
deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit
losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a
write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The
amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other
financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU will be effective for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years. We are currently evaluating the impact of the adoption of ASU 2016-13 on
our consolidated financial statements.
In April 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting” (“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions. The areas for simplification in
ASU 2016-09 include the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The
amendments in this ASU will be effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is
permitted. We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The amendments in this update create Topic 842, Leases,
and supersede the leases requirements in Topic 840, Leases. Topic 842 specifies the accounting for leases. The objective of Topic 842 is to establish the
principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows
arising from a lease. The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as
operating leases under Topic 840. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between
finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the
previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842,
the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. The amendments in
ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Early
application of the amendments in ASU 2016-02 is permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2016-02 on our
consolidated financial statements.
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In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities” (“ASU 2016-01”). The amendments in this update require all equity investments to be measured at fair value with changes in the
fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee).
The amendments in this update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a
liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair
value option for financial instruments. In addition the amendments in this update eliminate the requirement for to disclose the method(s) and significant
assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public
entities. For public business entities, the amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. Except for the early application guidance discussed in ASU 2016-01, early adoption of the amendments in this update is not permitted.
We do not expect the adoption of ASU 2016-01 to have a material impact on our consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”).
Topic 740, Income Taxes, requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of
financial position. Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial
reporting. Deferred tax liabilities and assets that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of
the temporary difference. To simplify the presentation of deferred income taxes, the amendments in ASU 2015-17 require that deferred income tax liabilities and
assets be classified as noncurrent in a classified statement of financial position. For public business entities, the amendments in this update are effective for
financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. We do not expect the
adoption of ASU 2015-17 to have a material impact on our consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). The amendments in
this update require an entity to measure inventory within the scope of ASU 2015-11 (the amendments in ASU 2015-11 do not apply to inventory that is measured
using last-in, first-out or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out
or average cost) at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is uncharged for inventory measured using last-in, first-out or
the retail inventory method. The amendments in ASU 2015-11 more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory
in International Financial Reporting Standards (“IFRS”). ASU 2015-11 is effective for public business entities for fiscal years beginning after December 15, 2016,
including interim periods within those fiscal years. The amendments in ASU 2015-11 should be applied prospectively with earlier application permitted as of the
beginning of an interim or annual reporting period. We do not expect the adoption of ASU No. 2015-11 to have a material impact on our consolidated financial
statements.
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. The FASB issued
ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”) in August 2015. The amendments in
ASU 2015-14 defer the effective date of ASU 2014-09. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the
guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier
adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
Further to ASU 2014-09 and ASU 2015-14, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”) in March 2016, ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing” (“ASU 2016-10”) in April 2016, ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606):
Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), and ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue
from Contracts with Customers” (“ASU 2016-20”), respectively. The amendments in ASU 2016-08 clarify the implementation guidance on principal versus agent
considerations, including indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. ASU
2016-10 clarifies guideline related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition
standard. The updates in ASU 2016-10 include targeted improvements based on input the FASB received from the Transition Resource Group for Revenue
Recognition and other stakeholders. It seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and
complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis. ASU 2016-12 addresses narrow-scope improvements to
the guidance on collectability, non-cash consideration, and completed contracts at transition. Additionally, the amendments in this ASU provide a practical
expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from
customers. The amendments in ASU 2016-20 represents changes to make minor corrections or minor improvements to the Codification that are not expected to
have a significant effect on current accounting practice or create a significant administrative cost to most entities. The effective date and transition requirements for
ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 are the same as ASU 2014-09. We are currently in the process of evaluating the impact of the
adoption of ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 on our consolidated financial statements.
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Comparison of Year Ended December 31, 2016 to Years Ended December 31, 2015 and 2014
Although the descriptions in the results of operations below reflect our operating results as set forth in our Consolidated Statement of Operations filed
herewith, 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.
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Year Ended
December 31, 2014
Net sales and revenue
$
627,930
$
CBMG
As stated
CBMG
As stated
2,505,423
CBMG
As stated
$
564,377
$
Agreen
Pro forma
Adjustment
1,198,414
Pro forma
Consolidated
$
1,762,791
Operating expenses:
Cost of sales *
General and administrative *
Selling and marketing *
Research and development *
Impairment of investments
Total operating expenses
Operating loss
860,417
11,670,506
425,040
11,475,587
4,611,714
29,043,264
(28,415,334) (20,848,970) (12,442,484)
1,880,331
13,068,255
709,151
7,573,228
123,428
23,354,393
242,215
7,875,413
314,894
3,146,499
1,427,840
13,006,861
880,797
245,911
6,351
113,635
-
1,246,694
1,123,012
8,121,324
321,245
3,260,134
1,427,840
14,253,555
(48,280) (12,490,764)
Other income (expense)
Interest income
Other income (expense)
Total other income (expense)
Loss from continuing operations before taxes
78,943
132,108
211,051
42,220
630,428
672,648
15,043
71,982
87,025
(28,204,283) (20,176,322) (12,355,459)
318
(147)
171
15,361
71,835
87,196
(48,109) (12,403,568)
Income taxes credit (provision)
Loss from Continuing operations
(4,093)
728,601
-
(28,208,376) (19,447,721) (12,355,459)
-
-
(48,109) (12,403,568)
Loss on discontinued operations, net of taxes
-
-
(3,119,152)
-
(3,119,152)
Net loss
Other comprehensive income (loss):
Cumulative translation adjustment
Unrealized gain (loss) on investments, net of
tax
Reclassification adjustments, net of tax, in
connection with other-than-temporary
impairment of investments
Total other comprehensive income (loss):
$ (28,208,376) $ (19,447,721) $ (15,474,611) $
(48,109) $ (15,522,720)
(743,271)
(307,950)
15,254
963
16,217
5,300,633
(1,376,540)
1,611,045
-
1,611,045
(5,557,939)
(1,000,577)
-
(1,684,490)
-
1,626,299
-
963
-
1,627,262
Comprehensive loss
$ (29,208,953) $ (21,132,211) $ (13,848,312) $
(47,146) $ (13,895,458)
Loss per share for continuing operations:
Basic
Diluted
Loss per share for discontinued operations:
Basic
Diluted
Net loss per share:
Basic
Diluted
Weighted average common shares
outstanding:
Basic
Diluted
$
$
$
$
$
$
(2.09) $
(2.09) $
(1.70) $
(1.70) $
(1.43) $
(1.43) $
(0.09) $
(0.09) $
(1.35)
(1.35)
-
-
$
$
-
-
$
$
(0.36) $
(0.36) $
-
-
$
$
(0.34)
(0.34)
(2.09) $
(2.09) $
(1.70) $
(1.70) $
(1.79) $
(1.79) $
(0.09) $
(0.09) $
(1.69)
(1.69)
13,507,408
13,507,408
11,472,306
11,472,306
8,627,094
8,627,094
555,335
555,335
9,182,429
9,182,429
* These line items include the following amounts of non-cash, stock-based compensation expense for the periods indicated:
Year Ended
December 31,
2016
Year Ended
December 31,
2015
Year ended Ended
December 31, 2014
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CBMG
As stated
CBMG
As stated
CBMG
As stated
Agreen
Pro forma
Adjustment
Pro forma
Consolidated
18,916 144,200
28,972
3,110,237 4,948,375 1,991,047
34,299
2,266,560 2,311,283 474,567
5,452,417 7,592,437 2,528,885
56,704 188,579
-
28,972
- 1,991,047
34,299
-
- 474,567
- 2,528,885
75
Cost of sales
General and administrative
Selling and marketing
Research and development
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. Following the
discontinuance of our consulting business, we operate in a single reportable 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.
Results of Operations:
Revenues
Year ended December 31,
2016
627,930 $ 2,505,423 $
2015
Change
2014
564,377 $ (1,877,493)
Percent
Change
(75)% $ 1,941,046
$
Percent
344%
2016 versus 2015
2015 versus 2014
Fiscal Year Ended December 31, 2016, Compared to Fiscal Year Ended December 31, 2015
All the revenue was derived from cell therapy technology service for year ended December 31, 2016. The decrease in revenue is the result of prioritizing cancer
therapeutic technologies and focusing our clinical efforts on developing CART technologies, Vaccine, Tcm and TCR clonality technologies. As a result of not
focusing on the cell therapy technology service revenue, in the second quarter of 2016 the Company ceased its cooperation with the Jihua Hospital and several
agents.
Fiscal Year Ended December 31, 2015, Compared to Fiscal Year Ended December 31, 2014
In late 2014, with the acquisition of AG, we started generating revenue from immune-cell therapy technology consulting services. We commenced providing similar
immune-cell therapy technology consulting services to several agents/hospitals located in Beijing, Shanghai, Jinin and Anhui, which also contributed to the
increase in revenue. All the revenue was derived from technology consulting services for year ended December 31, 2015.
Cost of Sales
Year ended December 31,
2016
860,417 $ 1,880,331 $
2015
Change
2014
242,215 $ (1,019,914)
Percent
Change
(54)% $ 1,638,116
$
Percent
676%
2016 versus 2015
2015 versus 2014
Fiscal Year Ended December 31, 2016, Compared to Fiscal Year Ended December 31, 2015
The cost of sales decreased in line with the sales. As fixed costs, such as rental and staff costs etc., accounts for a majority of the cost of sales, the cost of sales
didn’t decrease as much as sales.
Fiscal Year Ended December 31, 2015, Compared to Fiscal Year Ended December 31, 2014
The increase in cost of sales was primarily attributable to the increase in revenue from technology consulting services and the inventory provision of $129,000
made in 2015 (2014: zero). The cost was all incurred from the technology consulting services in 2015.
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General and Administrative Expenses
2016 versus 2015
Year ended December 31,
$ 11,670,506 $ 13,068,255 $ 7,875,413 $ (1,397,749)
2016
2015
2014
Change
Fiscal Year Ended December 31, 2016, Compared to Fiscal Year Ended December 31, 2015
Decreased expenses in 2016 were primarily attributed to below facts:
2015 versus 2014
Percent
Percent
Change
(11)% $ 5,192,842
66%
● A decrease in stock-based compensation expense of $1,838,000, which primarily resulted from: i) forfeiture of the options in connection with the
resignation of Wei Cao as the CEO of the Company in February 2016 and as director in May 2016. For further details please refer to Item 15 Note
16-Commitments and Contingencies - Service Agreement with Wei (William) Cao in this annual report; ii) the issuance of a large amount of
options in the first quarter of 2013, most of which vested over 3 years. With the end of vesting periods, the stock-based compensation expense
decreased significantly in 2016; and
● Offset by an increase in legal, audit and other professional fees of $383,000, which mainly related to the Company’s Registration Statements on
Forms S-3 and S-8 filing in 2016.
Fiscal Year Ended December 31, 2015, Compared to Fiscal Year Ended December 31, 2014
Increased expenses in 2015 were associated with increased corporate activities related to the management and the development of our biopharmaceutical
business, which were primarily attributed to below facts:
● An increase in stock-based compensation expense of $3,744,000, which primarily resulted from the new grants and higher fair value of unvested
options in 2015 after the Company listed on Nasdaq in June 2014 compared with those unvested options as of December 31, 2014;
● An increase in payroll of $314,000 in line with the headcount increase in management in 2015;
● An increase in depreciation and amortization of $235,000, which was mainly attributed to the knowhow and patents obtained from the acquisition
of AG in third quarter 2014;
● An increase in rental, property management and utility expenses of $466,000, which was mainly attributed to the new lease agreement concluded
for the construction of Beijing GMP;
● An increase in travelling expenses of $166,000; and
● An increase in legal and other professional services of $101,000.
Sales and Marketing Expenses
Year ended December 31,
2016
425,040 $
2015
709,151 $
$
2016 versus 2015
2015 versus 2014
2014
314,894 $
Change
Percent
Change
Percent
(284,111)
(40)% $
394,257
125%
Fiscal Year Ended December 31, 2016, Compared to Fiscal Year Ended December 31, 2015
Decreased expenses in 2016 were primarily attributed to below facts:
● A decrease in stock-based compensation of $132,000. This mainly resulted from the fact that one sales vice president resigned in April 2016 and
part of her options were forfeited; and
● A decrease in travelling expenses of $51,000, a decrease in market analysis and other professional fees of $68,000 and a decrease in staff cost
of $35,000 due to the Company ceased cooperation with hospitals and agents in 2nd quarter 2016.
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Fiscal Year Ended December 31, 2015, Compared to Fiscal Year Ended December 31, 2014
Sales and marketing expenses increased by approximately $394,000 for the year ended December 31, 2015 as compared to the same period in 2014, primarily as
a result of an increase in stock-based compensation expenses of $154,000, an increase in payroll expenses of $202,000, an increase in market analysis and
other professional fees of $68,000 and an increase in travel expenses of $57,000, which partially offset by the decrease in conference expenses of $116,000. The
Company sponsored China BioTherapy conference in 2014, while there was no such activity in 2015, which resulted in the decline of meeting and conference
expenses.
Research and Development Expenses
Year ended December 31,
$ 11,475,587 $ 7,573,228 $ 3,146,499 $ 3,902,359
2016
2015
2014
Change
Percent
Change
52% $ 4,426,729
Percent
141%
2016 versus 2015
2015 versus 2014
Fiscal Year Ended December 31, 2016, Compared to Fiscal Year Ended December 31, 2015
Research and development costs increased by approximately $3,902,000 as compared to the year ended December 31, 2015. The increase was primarily
attributed to the facts below:
● An increase in payroll expenses of $1,581,000 in line with the increase of our immunotherapy research and development team. Total headcount
of our R&D team increased from 47 as of December 31, 2015 to 81 as of December 31, 2016;
● An increase in depreciation and amortization of $568,000, which was mainly attributed to the technology obtained from 301 Hospital in June 2015
and newly purchased equipment for immunotherapy research and development;
● An increase in clinical studies expenditure of $675,000;
● An increase in raw material consumption of $697,000;
● An increase in rental expense of $210,000; and
● An increase in travelling expense of $59,000.
Fiscal Year Ended December 31, 2015, Compared to Fiscal Year Ended December 31, 2014
Research and development costs increased by approximately $4,427,000 for year ended December 31, 2015 as compared to same period 2014 due primarily to
increase of our immunotherapy research and development team, which resulted in an increase in payroll expenses of $1,246,000; an increase in stock-based
compensation expenses of $1,834,000, an increase in clinical trial expenditure of $432,000, and increase in depreciation and amortization of $353,000, an
increase in travelling expense of $216,000, an increase in raw material of $130,000 and an increase in rental of $127,000.
2015
123,428 $ 1,427,840 $ 4,488,286
Change
2014
Percent
Change
Percent
3636% $ (1,304,412)
(91)%
2016 versus 2015
2015 versus 2014
78
Impairment of Investments
Year ended December 31,
$ 4,611,714 $
2016
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Fiscal Year Ended December 31, 2016, Compared to Fiscal Year Ended December 31, 2015
The impairment of investments in 2016 and 2015 is attributed to the recognition of other than temporary impairment on the value of shares in investments. The
impairment on investments was primarily attributed to the valuation loss for the stock investment in Arem Pacific Corporation, which share price recently
significantly dropped. The stock of ARPC held by us are illiquid restricted shares that are very thinly traded on the OTC Markets, we consider that it indicates the
likelihood that the impairment is other-than-temporary.
Fiscal Year Ended December 31, 2015, Compared to Fiscal Year Ended December 31, 2014
The impairment of investments for the year ended December 31, 2014 was attributed to the recognition of other than temporary impairment on the value of shares
in one stock. In 2015, with the further decline of its fair value, additional impairment of $123,000 was provided against this stock.
Operating Loss
Year ended December 31,
$(28,415,334) $(20,848,970) $(12,442,484) $ (7,566,364)
2016
2015
2014
Change
Percent
Change
36% $ (8,406,486)
Percent
68%
2016 versus 2015
2015 versus 2014
The increase in the operating loss for 2016 as compared to 2015 and 2014 was primarily due to changes in revenues, cost of sales, general and administrative
expenses and research and development expenses, each of which was described above.
Other Income
Year ended December 31,
2016
211,051 $
2015
672,648 $
$
2014
Change
Percent
Change
Percent
87,025 $
(461,597)
(69)% $
585,623
673%
2016 versus 2015
2015 versus 2014
Fiscal Year Ended December 31, 2016, Compared to Fiscal Year Ended December 31, 2015
Other income, net for the year ended December 31, 2016 was primarily interest income of $79,000, third party R&D subsidy of $40,000, net foreign exchange gain
of $90,000 and government subsidy of $78,000, netting of the charity donation of $78,000.
Other income, net for the year ended December 31, 2015 was primarily a decrease in fair value of accrued expenses for the acquisition of intangible assets of
$346,000, government subsidy income of $233,000 and interest income of $42,000. On June 26, 2015, the Company completed its acquisition of the certain
license rights to technology and know-how from Blackbird and entered into an assignment and assumption agreement to acquire all of Blackbird’s right, title and
interest in and to the exclusive worldwide license to a CD40LGVAX vaccine from the University of South Florida. According to the Asset Purchase Agreement, by
and among the Company, Blackbird and its principals, 28,120 shares of Company common stock were issued as part of the consideration of this transaction. In
addition, 18,747 shares of Company common stock (equal to $700,000 based on the 20-day volume-weighted average price of the Company’s stock on the
closing date) will be delivered to Blackbird on the 6 month anniversary of the closing date upon satisfaction of certain conditions. Those shares were finally issued
in November 2015 with unanimous consent of the Board. Above shares were revalued according to the fair market value as of issuance date and resulted in the
other income of $346,000.
Fiscal Year Ended December 31, 2015, Compared to Fiscal Year Ended December 31, 2014
Other income, net for the year ended December 31, 2015 was primarily a decrease in fair value of accrued expenses for the acquisition of intangible assets of
$346,000, government subsidy income of $233,000 and interest income of $42,000.
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Other income, net for year ended December 31, 2014 consisted primarily of lease subsidy income, foreign exchange gains and losses on transactions in our
biopharmaceutical segment.
Income Tax (Expenses) Credit
Year ended December 31,
$
(4,093) $
2016
2015
728,601 $
2014
Change
- $
(732,694)
Percent
Change
Percent
(101)% $
728,601
N/A
2016 versus 2015
2015 versus 2014
Fiscal Year Ended December 31, 2016, Compared to Fiscal Year Ended December 31, 2015
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
deferred tax assets other than the extent of the benefit from other comprehensive income. Income tax credit for the year ended December 31, 2016 all represents
US state tax.
Fiscal Year Ended December 31, 2015, Compared to Fiscal Year Ended December 31, 2014
Income tax expense in 2015 mainly included the current income tax credit of $733,000 as tax losses incurred in U.S. group companies for year ended December
31, 2015.
Loss from Continuing Operations
Year ended December 31,
$(28,208,376) $(19,447,721) $(12,355,459) $ (8,760,655)
2016
2015
2014
Change
Percent
Change
45% $ (7,092,262)
Percent
57%
2016 versus 2015
2015 versus 2014
Changes in loss from continuing operations were primarily attributable to changes in operating loss as described above.
Loss from Discontinued Operations
Year ended December 31,
$
- $
2016
2015
2016 versus 2015
2015 versus 2014
2014
- $ (3,119,152) $
Change
Percent
Change
N/A $ 3,119,152
Percent
(100)%
-
Fiscal Year Ended December 31, 2016 and 2015, Compared to Fiscal Year Ended December 31, 2014
Change in loss on discontinued operations was attributable to our decision to terminate this Consulting business segment in 2014 and therefore there was no profit
or loss from discontinued operations in 2015 and 2016.
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Net Loss
Year ended December 31,
$(28,208,376) $(19,447,721) $(15,474,611) $ (8,760,655)
2016
2015
2014
Change
Percent
Change
45% $ (3,973,110)
Percent
26%
2016 versus 2015
2015 versus 2014
Changes in net loss were primarily attributable to changes in operations of our biopharmaceutical segment and the discontinued consulting segment, each of
which was described above.
Comprehensive Loss
Year ended December 31,
$(29,208,953) $(21,132,211) $(13,848,312) $ (8,076,742)
2016
2015
2014
Change
Percent
Change
38% $ (7,283,899)
Percent
53%
2016 versus 2015
2015 versus 2014
Fiscal Year Ended December 31, 2016, Compared to Fiscal Year Ended December 31, 2015
Comprehensive net loss for 2016 includes unrealized net gain on investments of approximately $5,301,000, reclassification adjustments, net of tax, of
approximately $5,558,000, in connection with other-than-temporary impairment of investments and a currency translation net loss of approximately $743,000
combined with the changes in net loss. The unrealized gain and reclassification adjustments on investments were primarily attributed to the valuation change for
the stock investment in ARPC.
Fiscal Year Ended December 31, 2015, Compared to Fiscal Year Ended December 31, 2014
Comprehensive loss for the year ended December 31, 2015 included an unrecognized loss on investments of approximately $1,377,000, and a currency
translation net loss of approximately $308,000 combined with the changes in net income. The unrecognized loss on investments was primarily attributed to the
valuation loss for the stock investment in Arem Pacific Corporation.
Share-Based Compensation
Share-based compensation totaled $5.5 million in 2016 ($7.6 million in 2015 and $2.5 million in 2014). Share-based compensation was included in cost of sales
and operating expenses.
As of December 31, 2016, unrecognized share-based compensation costs and the weighted average periods over which the costs are expected to be recognized
were as follows:
Non-vested stock options
Non-vested restricted stock
LIQUIDITY AND CAPITAL RESOURCES
Unrealised
Share-Based
Compensation
Costs
6,264,211
1,049,174
$
$
Weighted
Average
Period
1.21 year
1.26 year
Shares
613,663
54,307
We had working capital of $38,328,048 as of December 31, 2016 compared to $13,675,034 as of December 31, 2015. Our cash position increased to $39,252,432
at December 31, 2016 compared to $14,884,597 at December 31, 2015, as we had an increase in cash generated from financing activities due to a private
placement financing in 2016 for aggregate net proceeds of approximately $42,437,000, partially offset by an increase in cash used in operating and investing
activities.
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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 $15,868,000, $11,751,000 and $9,721,000 for the years ended December 31, 2016, 2015 and 2014,
respectively. The following table reconciles net loss to net cash used in operating activities:
2016 versus
2015
2015
versus
2014
For year ended December 31,
Net loss
Income statement reconciliation items
Changes in operating assets, net
Net cash used in operating activities
2015
2016
Change Change
2014
$(28,208,376) $(19,447,721) $(15,474,611) $ (8,760,655) $ (3,973,110)
12,596,060 9,595,098 7,100,381 3,000,962 2,494,717
(551,813)
$(15,867,735) $(11,751,098) $ (9,720,892) $ (4,116,637) $ (2,030,206)
(255,419) (1,898,475) (1,346,662) 1,643,056
The 2016 change in operating assets and liabilities was primarily due to an increase in prepaid expenses and long-term prepaid expenses, net of the decrease in
accounts receivable and inventory. The 2015 change in operating assets and liabilities was primarily due to an increase in accounts receivables, long-term prepaid
expenses combined with decreased tax payables and non-current liabilities partially offset by an increase in accrued expenses.
Net cash used in investing activities was approximately$2,733,000, $7,702,000and $1,806,000 for the years ended December 31, 2016, 2015 and 2014,
respectively. These amounts were the result of acquisition of business, purchases of fixed assets and intangible assets.
Cash provided by financing activities was approximately $43,286,000, $19,647,000 and $19,110,000 for the years ended December 31, 2016, 2015 and 2014,
respectively. These amounts were mainly attributable to the proceeds received from the issuance of common stock and exercise of stock options.
Liquidity and Capital Requirements Outlook
Excluding any potential sponsorship of a CD40LGVAX Trial in the U.S. and other regions outside of China CD40LGVAX Trial, we anticipate that the Company will
require approximately $33 million in cash to operate as planned in the coming 12 months. Of this amount, approximately $24 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. Approximately $9 million will be used as capital expenditure in machinery, equipment and facilities to
expand our immune cell therapy business and CAR-T research and development, although we may revise these plans depending on the changing circumstances
of our biopharmaceutical 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 stocks held, Arem Pacific Corporation, has a declared effective S-1 prospectus which relates to the resale of up to
13,694,711 shares of common stock, inclusive of the 8,000,000 shares held by the Company. However, the shares offered by this filing may only be sold by the
selling stockholders at $0.05 per share until the shares are quoted on the OTCQB® tier of OTC Markets or an exchange. Another one of our stocks held, Wonder
International Education & Investment Group Corporation (“Wonder”), is delisted. We do not know whether we can liquidate our 8,000,000 shares of Arem Pacific
stock or the 2,057,131 shares of Wonder stock or any of our other portfolio securities, or if liquidated, whether the realized amount will be meaningful at all. As a
result, we have written down above stocks to their fair value.
On April 15, 2016, the Company completed the second and final closing of a financing transaction with Wuhan Dangdai Science & Technology Industries Group
Inc., pursuant to which the Company sold to the Investor 2,006,842 shares of the Company’s common stock, par value $0.001 per share, for approximately
$38,130,000 in gross proceeds. As previously disclosed in a Current Report on Form 8-K filed on February 10, 2016, the Company conducted the initial closing of
the financing on February 4, 2016. The aggregate gross proceeds from both closings in the financing totaled approximately $43,130,000. In the aggregate,
2,270,000 shares of Common Stock were issued in the financing. On March 22, 2016, the Company filed a registration statement on Form S-3 to offer and sell
from time to time, in one or more series, any of the securities of the Company, for total gross proceeds up to $150,000,000. On June 17, 2016, the SEC declared
the S-3 effective; we have yet to utilize any of the $150,000,000 registered under the S-3. 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. 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.
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Our medium to long term capital needs involve the further development of our biopharmaceutical business, and may include, at management’s discretion, new
clinical trials for other indications, strategic partnerships, joint ventures, acquisition of licensing rights from new or current partners 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.
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
biopharmaceutical 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 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 biopharmaceutical business; or we may have to raise
funds on terms that we consider unfavorable.
Off-Balance Sheet Transactions
We do not have any off-balance sheet arrangements except the lease and capital commitment described in “Contractual Obligations” below.
Contractual Obligations
We have various contractual obligations that will affect our liquidity. The following table sets forth our contractual obligations as of December 31, 2016.
Contractual Obligations
Capital Commitment
Operating Lease Obligations
Total
Payments due by period
Less than
Total
1 year
2-3
years
3-5
years
More than
5 years
95,993 $
$ 1,451,278 $ 1,355,285 $
965,885 1,178,111
2,942,756
$ 4,394,034 $ 2,321,170 $ 1,274,104 $
- $
361,453
361,453 $
-
437,307
437,307
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Company’s business. The Company’s exposure to these
risks and the financial risk management policies and practices used by the Company to manage these risks are described below.
Interest Rate Risk
The Company’s interest rate risk arises primarily from cash deposited at banks and the Company doesn’t have any interest-bearing long-term payable/
borrowing, therefore the exposure to interest rate risk is limited.
Currency Risk
The Company is exposed to currency risk primarily from sales and purchases which give rise to receivables, payables that are denominated in a foreign
currency (mainly RMB). The Company has adopted USD as its functional currency, thus the fluctuation of exchange rates between RMB and USD exposes the
Company to currency risk.
The following table details the Company’s exposure as of December 31, 2016 to currency risk arising from recognised assets or liabilities denominated in
a currency other than the functional currency of the entity to which they relate. For presentation purposes, the amounts of the exposure are shown in USD
translated using the spot rate as of December 31, 2016. Differences resulting from the translation of the financial statements of entities into the Company’s
presentation currency are excluded.
Cash and cash equivalents
Net exposure arising from recognised assets and liabilities
Exposure to foreign currencies
(Expressed in USD)
As of December 31, 2016
RMB
892,709
USD
1,511,512
892,709
1,511,512
The following table indicates the instantaneous change in the Company’s net loss that would arise if foreign exchange rates to which the Company has
significant exposure at the end of the reporting period had changed at that date, assuming all other risk variables remained constant.
RMB (against USD)
As of December 31, 2016
increase/(decrease)
in foreign
exchange rates
Effect on net
loss
(Expressed in
USD)
5%
(30,940)
-5%
30,940
Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on each of the Company’s subsidiaries’ net
loss measured in the respective functional currencies, translated into USD at the exchange rate ruling at the end of the reporting period for presentation purposes.
The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the
Company which expose the Company to foreign currency risk at the end of the reporting period, including inter-company payables and receivables within the
Company which are denominated in a currency other than the functional currencies of the lender or the borrower. The analysis excludes differences that would
result from the translation of the financial statements of subsidiaries into the Company’s presentation currency.
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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.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Our
disclosure controls and procedures are designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our
principal executive officer and principal financial officer by others within our organization. Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as
of December 31, 2016 to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934
is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer as
appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer concluded
that our disclosure controls and procedures were effective as of December 31, 2016.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the
participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, our management concluded that our internal control
over financial reporting was effective as of December 31, 2016. Our internal control over financial reporting as of December 31, 2016, has been audited by BDO
China, an independent registered public accounting firm, as stated in its report, which is included herein.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2016, there were no changes in our internal control over financial reporting that materially affected, or that are
reasonably likely to materially affect, our internal control over financial reporting.
The Company undertook an in-depth process (the “Zhiyuan Project”) to improve its control procedures in September 2015. The purpose of this project
was to improve the efficiency of the business and enhance compliance so that all approval processes could be traced in the new system and users could track the
progress and status of each application. Phase I of the Zhiyuan Project replaced existing manual controls over procurement, payment processes with IT controls
and enhanced other controls over other processes, such as expense claimand contract review. Documentation was also enhanced. The Phase I work was
completed in November 2015. The Company also completed Phase II of the Zhiyuan project in January 2017, which focused on enhancing the asset management
processes, project management processes and other processes.
ITEM 9B. OTHER INFORMATION
None.
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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.
Effective February 3, 2017, Richard Wang resigned as the Company’s Chief Operating Officer. As a result, although he is not listed as a current officer below, as a
“named executive officer” (as such term is defined in Item 402 of Regulation SK promulgated under the Exchange Act, the terms of his compensation is disclosed
herein.
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 the 2016 annual meeting to the date of the 2019 annual meeting.
Class II
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
Class III
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 II directors extends from the date of this year’s Annual Meeting of stockholders in 2017 to the date of the 2020 annual meeting.
for Class III directors extends from the date of the 2018 annual meeting to the date of the 2021 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. Except for the board observer seat granted to Wuhan Dangdai as a condition of its $43.3 million investment in the Company, there are 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..
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Name
Wen Tao (Steve) Liu
Hansheng Zhou (2)
Tony (Bizuo) Liu
Chun Kwok Alan Au (1)(3)
Gang Ji (2)
Terry A. Belmont (1)(2)(3)
Nadir Patel (1)(3)
Yihong Yao
Andrew Chan
Age Position
Director
Independent Director
Chief Executive Officer and Chief Financial Officer
Independent Director
61
53
52
44
42
71
46
49
59
Independent Director
Chairman of the Board and Independent Director
Independent Director
Chief Scientific Officer
Secretary and Senior Vice President
Term
Class III
Class I
Class II
Class II
Class II
Class I
Class III
N/A
N/A
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Nominating and Corporate Governance Committee
The following is a brief description of the business experience during the past five years of each of the above-named persons:
Bizuo (Tony) Liu, Chief Executive Officer, Chief Financial Officer and Director
Tony Liu has served as the Company’s Chief Executive Officer since February 2016 and Chief Financial Officer and Secretary since January 2014.He has
also served 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, China and has completed MBA/MIS course work at Seattle Pacific University. Mr. Liu obtained
his Washington State CPA certificate in 1992.
In considering Mr. Liu’s eligibility to serve on the Board, the Board considered Mr. Liu’s leadership, extensive accounting and financial control background,
as well as multinational corporate executive management experience in diverse industries.
Wen Tao (Steve) Liu, Director
Wen Tao (Steve) Liu has been a director of the Company since October 2013. Dr. Liu has over 30 years of professional career encompassing
biomedicine, clean energy and semiconductor industries. He has led multi-national businesses as well as entrepreneurial companies, with a proven track record of
delivering financial results and shareholder value. He served on board of directors of various public and private companies in the United States, China, Hong
Kong, Canada, and Australia. Dr. Liu previously served as Chairman and CEO of Cellular Biomedicine Group Inc. In October 2013, he transitioned to the role
of Executive Chairman of the Board and, in February 2016, to the role of director and strategic advisor to CBMG’s management. Prior to CBMG, Dr. Liu served as
President and CEO of Seeo Inc. from July 2010 to Feb 2012, and as director to Aug 2015 where he led a team of scientists and entrepreneurs for the development
of solid-state lithium ion battery for electric vehicles and smart grid applications. Under his leadership, Seeo received multiple funding from Department of Energy
and venture capital firms. Seeo was elected to Global Cleantech 100 and top Energy Technology Startups in 2011. Before that, Mr. Liu worked 25 years in
semiconductor industry. From 2003 to 2009, he was President and CEO of Shanghai Huahong NEC Electronics Company (now HHGRACE), for which he received
the White Magnolia Award from Shanghai Government for his contribution to international collaboration and economic development of the city. From 1989 to 2002,
he was Vice President and GM of Peregrine Semiconductor, Vice President and GM of Integrated Device Technology, Vice President and General Manager of
Quality Semiconductor and Managing Director of Quality Semiconductor Australia. Mr. Liu served Cypress Semiconductor in various engineering capacity from
1984 to 1989. Mr. Liu earned a Bachelor’s degree in Chemistry from Nanjing University, Nanjing China. He holds a Doctorate in Physical 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 board experience as well
as his prior experience as a leader and executive officer. .
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Hangsheng Zhou – Director
Dr. Zhou has been a director of the Company since July 2016. Dr. Zhou is a well-respected and seasoned executive with over 28 years of experience in
the science and technology industries in China. He currently serves as Chief Executive Officer and Chairman of Wuhan Dangdai Science & Technology Industries
Group Co., Ltd. (“Wuhan Dangdai”), a China based privately held conglomerate with a substantial medical and pharmaceutical portfolio in China. Dr. Zhou
previously served as Chief Financial Officer and Managing Director of Wuhan Humanwell Healthcare Group Co., Ltd. He holds a bachelor’s degree in Cell Biology
and masters in Animal Biology from Wuhan University and has also earned his PhD degree in Applied Chemistry from Beijing Institute of Technology. Dr. Zhou is
a member of the Company’s Compensation Committee. In considering Dr. Zhou’s eligibility to serve on the Board, the Board considered his leadership experience
in managing both large pharmaceutical company in China and multinationals in substantially similar industries.
Chun Kwok Alan Au - Director
Alan was served as a member of our Board since November 2014. He currently serves as a member of the Audit Committee and Chair of the Nomination
Committee.
Alan has over 15 years of experience across healthcare investment banking, private equity and venture capital investments in Asia/China. He is
Founder/Managing Partner at GT Healthcare Group, a private equity fund focusing on cross border healthcare investments.
Alan is an Adviser to Simcere Pharmaceutical Group, a leading pharmaceutical company in China (previously listed on NYSE:SCR, privatized in Dec
2013, when Alan was Chairman of the Special Committee on the Board of Directors). He was also a member of the Board, Audit Committee and Compensation
Committee of China Nepstar Chain Drugstore Ltd. (NYSE: NPD, privatized in Sep 2016) from 2013 to 2016. Alan also serves as a panel member for the
Entrepreneur Support Scheme (ESS Program) of the Innovation and Technology Fund of the Hong Kong SAR Government since 2014.
Before that, Alan was Head of Asia Healthcare Investment Banking of Deutsche Bank Group, advising healthcare IPOs and M&A in the region between
2011 and 2012. 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 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.
Terry A. Belmont – Chairman of the Board and Director
Mr. Belmont has been serving CBMG as an Independent Director since December 2013 and as Vice Chairman of the Board from March 2015 to January
2016, when he was elected to serve as Chairman of the Board. He also serves as a member of the Audit Committee and Chair of the Compensation Committee.
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, Mr. 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 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.
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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 acumen in the healthcare industry.
Nadir Patel – Director
Mr. Patel has served as an independent Director of the Company since July 2014. Mr. Patel is a senior Canadian diplomat currently serving in India. He
previously held the position of Chief Financial Officer for Canada’s Department of Foreign Affairs, Trade and Development, which included the responsibilities of
strategic planning, corporate finance and operations, risk management and performance. Mr. Patel has previously served as Canada’s Consul General in
Shanghai, promoting trade and investment between Canada and China, as well as Canada’s Chief Air Negotiator where he negotiated bilateral treaties on behalf of
the Canadian government. Mr. Patel also served on the Board of Governors of the International Development Research Centre (and on its Audit and Finance
Committee), as well as the 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 his financial expertise, international experience, and knowledge of corporate
governance practices through his past participation on public sector Boards. Mr. Patel serves as Chair of the Audit Committee and as a member of the Nominating
and Governance Committee for CBMG.
Gang Ji – Director
Mr. Ji has been a director of the Company since October 2016. Mr. Ji has sixteen years of experience in finance and investment. He has been serving as
Vice President of Ant Financial since January 2016 responsible for global strategic investments of Ant Financial. Before joining Ant Financial, he served Alibaba
Group as Vice President responsible for strategic investment for seven years. Prior to joining Alibaba, Mr. Ji worked for several venture capital funds and also
served as an auditor of KPMG. He currently serves as a director of Asia Game Technology Ltd., a company listed on the Hong Kong Stock Exchange (HKEX:
8279) as well as several private technology companies. Mr. Ji holds a bachelor’s degree in international business management from University of International
Business and Economics (Beijing). He currently serves on the Company’s Compensation Committee. In considering Mr. Ji’s eligibility to serve on the Board, the
Board considered Mr. Ji’s board experience, leadership, extensive accounting and financial control background, venture capital tenure as well as multinational
corporate executive management experience in a highly regulated industry.
Yihong Yao – Chief Scientific Officer
Mr. Yao has been Chief Scientific Officer since August 2015. Mr. Yao brings nearly twenty years of experience in the life sciences industry and academia
with strong expertise in clinical biomarker discovery and development, strategy and personalized medicine. From 2005 until his appointment as Chief Scientific
Officer, Mr. Yao served in various senior scientific positions at MedImmune, including most recently as director and head of pharmacogenomics and bioinformatics
in the department of Translational Sciences from 2011 to July 2015. From 2001 to 2005, Mr.Yao served as Senior Scientist, Translational Science at Abbott
Bioresearch Center. He holds a bachelor’s degree in Biochemistry from Fudan University, Shanghai, China, a master’s degree in Bioinformatics from Boston
University, and a PhD in Molecular Biology and Biochemistry from the University of Kansas, and he was a postdoctoral fellow at Johns Hopkins University School
of Medicine.
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Andrew Chan – Secretary and Senior Vice President
Mr. Chan served as Senior Vice President of Corporate Business Development since January 2014, and was appointed Secretary in September 2016. He
previously served as Secretary and Chief Financial Officer from February 2011 to January 2014. From 2003 until 2011, Mr. Chan was with Jazz Semiconductor
and held various management roles focusing on business operations, business and corporate development. Prior to 2003, Mr. Chan was Vice President of
Business Operations and Supply Chain Management for Mindspeed Technologies. In 2000, Mr. Chan served as Vice President of Supply Chain Management at
Conexant Systems. Mindspeed and Jazz were spin-offs of Conexant. Previously, Mr. Chan’s focus was in aviation and aerospace services. He served in diverse
technical and operations management roles at Eastern Airlines, Continental Express and at Allied Signal (now called Honeywell) as Sr. Director of Strategic
Business Development. Mr. Chan earned a B.S. degree in Management from Embry Riddle Aeronautical University and an MBA with specialization in Computer
System Management and Operations Research from Nova University. He also holds a Jurisprudence Doctorate (J.D.) degree from South Texas College of Law.
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
Audit Committee
Compensation Committee
Nadir Patel
Terry A. Belmont
Gang Ji
Chun Kwok Alan Au
Hansheng Zhou
Chair
X
X
Chair
X
X
Nominating & Corporate
Governance Committee
X
X
Chair
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.
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Audit Committee
The Audit Committee consists of Chun Kwok Alan Au,, 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 (SEC). The Audit Committee operates pursuant to a charter,
which can be viewed on our website at www.cellbiomedgroup.com (under “Investor Relations”). The Audit Committee is expected to convene regular meetings
following the Annual Meeting. The role of the Audit Committee is to:
● 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.
Compensation Committee
The Compensation Committee consists of Terry Belmont (serving as Chairman), Hansheng Zhou and Gang Ji, each of whom is “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 “Investor Relations”).
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.
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Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee, or the “Governance Committee”, consists of Alan Au (serving as Chairman), Nadir Patel and Terry
Belmont and Mr. Au acting as Chairman, each of whom is “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 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.
● 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 “Investor Relations”).
Policy with Regard to Stockholder Recommendations
The Governance Committee does not presently have a policy with regard to consideration of any director candidates recommended by our stockholders.
No stockholder (other than members of the Governance Committee) has recommended a candidate to date.
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 biopharmaceutical, 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.
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The current director candidates, Tony Liu, Alan Au and Gang Ji, were recommended by management and nominated by the full board of directors.
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, 2016, except that Wei Cao inadvertently reported late one acquisition and one disposition of common stock transpired in 2016, Terry Belmont
inadvertently did not file his Form 5 in 2016.
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 “Investor Relations/Corporate Governance”). 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 8K or in our next periodic report..
Conflicts of Interest
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.
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Review, Approval or Ratification of Transactions with Related Persons
The 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.
Board Leadership Structure and Risk Oversight
The Chairman of the Board, who is a different individual from the Chief Executive Officer, presides at all meetings of the Board. The Chairman is appointed
on an annual basis by majority vote of the directors, excluding the vote of the appointee.
Enterprise risks are identified and prioritized by management and each prioritized risk is assigned to a Board committee or the full Board for oversight as
follows:
Full Board - Risks and exposures associated with strategic, financial and execution risks and other current matters that may present material risk to our operations,
plans, prospects or reputation.
Audit Committee - Risks and exposures associated with financial matters, particularly financial reporting, tax, accounting, disclosure, internal control over financial
reporting, financial policies, investment guidelines and credit and liquidity matters.
Nominating and Corporate Governance Committee – Risks and exposures relating to corporate governance and management and director succession planning.
Compensation Committee - Risks and exposures associated with leadership assessment, and compensation programs and arrangements, including incentive
plans.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth for the years ended December 31, 2016, 2015, and 2014 compensation awarded to, paid to, or earned by, Steve Liu (our former
President and Chairman of the Board), William Cao (our former CEO), Bizuo (Tony) Liu (our current CEO and CFO), Andrew Chan (our former CFO, Senior Vice
President, Corporate Business Development and Secretary), Richard L Wang (our former COO) and Yihong Yao (our CSO).
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Name and Principal Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive
Plan
Nonqualified
Deferred
Compensation
All Other
Compensation
($)
Earnings
($)
Compensation
($)
Total
($)
Wen Tao (Steve) Liu, Director, Former
President and Chairman of the Board (1)
Wei (William) Cao, Former Director,
Former Chief Executive Officer (1)
Bizuo (Tony) Liu, Chief Executive Officer,
Chief Financial Officer and Director (2)
Andrew Chan, Senior Vice President,
Corporate Business Development,
Company Secretary (2)
Richard L. Wang, Chief Operating Officer
(2)
Yihong Yao, Chief Scientific Officer (2)
2016 15,341
2015 150,000
2014 200,004
-
-
- 37,727
-
-
- 697,860
-
2016 24,834
2015 247,717
2014 225,000
2016 240,000
2015 226,750
2014 155,491
-
-
-
-
-
-
-
-
- 4,723,010
-
-
- 637,240
- 3,507,780
- 1,141,712
2016 242,584 80,000
2015 228,338 61,217
2014 220,006
- 206,700
-
-
- 46,200 209,625
- 137,800
2016 225,000 41,664
- 590,800 659,100
2015 128,461
-
2014
-
-
-
2016 250,000 30,648
- 137,800
- 613,865 490,000
2015 116,045
-
-
-
-
2014
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
68,274 83,615
- 847,860
- 237,731
75,000 99,834
- 4,970,727
- 225,000
23,017 900,257
- 3,734,530
- 1,297,203
26,015 555,299
- 289,555
- 475,831
14,126 418,590
- 1,378,361
-
-
23,985 442,433
- 1,219,910
-
-
(1) In January 2016, the Company and each of William Cao and Steve Liu mutually agreed not to renew their employment agreements at the end of their
respective terms. The Company then entered into consulting agreements with William Cao and Steve Liu respectively, which became effective as of
February 7, 2016. These consultation fees are included as all other compensation in above table. Details of the consulting agreement could be referred to
the NOTE 13 – COMMITMENTS AND CONTINGENCIES in 10Q filing dated May 9, 2016.
(2) All other compensation of these officers represents health insurance expenses.
(3) Salary, bonus and all other compensation included above are on a cash basis. Pursuant to the Compensation Committee’s January 20, 2017 meeting and
the Board’s Executive Session on January 21, 2017 the Board has granted the following compensation and awards for 2016.
Bizuo (Tony) Liu
Andrew Chan
Yihong Yao
Richard Wang
Shares of
options
granted as
2016 bonus
(note)
Cash bonus
for 2016 ($)
100,000
30,000
80,000
15,000
75,000
50,000
-
-
Note
1
2
Note 1: These non-qualified options with exercise price of $12.55 were all granted on January 21, 2017 and vested immediately on the grant date.
Note 2: These non-qualified options with exercise price of $12.55 were all granted on January 20, 2017 and vested immediately on the grant date.
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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, 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.
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.
On May 1, 2014 the Company revised Wen Tao (Steve) Liu’s agreement (the “Wen Tao Employment Agreement”). Pursuant to the Wen Tao Agreement,
Steve Liu will receive an annual base salary of $150,000 as part-time Executive Chairman.
On May 24, 2015, the Board approved the appointment of Richard L. Wang as the Company’s Chief Operating Officer. In connection with Mr. Wang’s
appointment, the Company entered into an agreement with Mr. Wang, pursuant to which Mr. Wang will receive an annual base salary of $210,000. The term of the
agreement is effective as of May 18, 2015 for a period of three years, with a probation period from May 18, 2015 to November 18, 2015. Additionally, on May 18,
2015 the Company issued to Mr. Wang 20,000 restricted common stock and 30,000 options to purchase common stock with full vesting of 30%, 30% and 40% at
each year anniversary of the grant date for 3 years. The strike price related to above option was $29.54 and its expiration date is May 18, 2025.
On May 24, 2015, the Board approved the appointment of Yihong Yao as the Company’s Chief Scientific Officer. In connection with Mr. Yao’s
appointment, the Company entered into an agreement with Mr. Yao, pursuant to which Mr. Yao will receive an annual base salary of $250,000. The term of the
agreement is effective as of August 4, 2015 for a period of three years, with a six-month probation period. Additionally, on August 4, 2015 the Company issued to
Mr. Yao 25,000 restricted common stock and 25,000 options to purchase common stock with full vesting of 30%, 30% and 40% at each year anniversary of the
grant date for 3 years. The strike price related to above option was $26.53 and its expiration date is August 4, 2025.
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In January 2016, the Company and each of Wei (William) Cao and Wen Tao (Steve) Liu mutually agreed not to renew their employment agreements at the
end of their respective terms.
In February 2016, the Board elected Bizuo (Tony) Liu to serve as Chief Executive Officer of the Company. In connection with Mr. Liu’s election, the
Company entered into an employment agreement (the “Agreement”) with Mr. Liu on April 11, 2016, the terms of which are effective retroactive to February 7,
2016. Pursuant to the Agreement, Mr. Liu will receive an annual base salary of $240,000 and, commencing with the end of the calendar year during his first year of
employment, shall be eligible for an annual cash bonus. Such annual salary and bonus eligibility will be reviewed annually by the Board and its compensation
committee and may be changed in the sole direction of the Board and/or its compensation committee. In addition, Mr. Liu will be granted 120, 000 options under
the Company’s 2014 Equity Incentive Plan.
The term of the Agreement is effective as of February 7, 2016 for a period of one year (the “Initial Term”) which will be renewed automatically for another
one year term (the “First Renewal Term”) unless the Company provides Mr. Liu with 90 days’ notice of non-renewal prior to the expiration of the Initial Term. After
the First Renewal Term, the Agreement shall be renewed automatically for another one year term unless the Company provides Mr. Liu with 90 days’ notice of
non-renewal prior to the expiration of the First Renewal Term, provided that in no event shall the Agreement remain in effect past February 6, 2019.
The agreement could not be terminated by either party during the Initial Term except upon Mr. Liu’s death, disability or for cause. "Cause," as defined in
the agreement, includes, but is not limited to: (1) conviction for or pleading of felony, (2) misappropriation of company assets, (3) willful violation of company policy
or a directive of the Board and (4) failure to perform duties. The Company may terminate for cause with a 3-day advance written notice. Upon termination by the
Company for cause, the Company will have no obligation to provide Mr. Liu with any form of severance or any other benefits, except as may be required by
COBRA. If Mr. Liu’s employment is terminated by the Company for reasons other than his death, disability or for cause after February 6, 2017, the Company will
pay Mr. Liu severance in the amount equal to his base salary and, subject to Mr. Liu’s election to receive COBRA, his COBRA premiums during the twelve month
period commencing with continuation coverage following the month in which the date of termination occurs.
On January 20, 2017, the Compensation Committee met and deliberated a new retention plan with long-term incentives as recommended by the CEO for
eight key management executives. Besides Mr. Tony Liu, Mr. Yihong Yao and Mr. Andrew Chan, the retention plan also included five management executives in
the LTIP. On January 21, 2017, the Board ratified the Compensation Committee’s recommendation to implement the retention plan, pursuant to which the
Company will enter into a new four-year employment agreement with each of the eight key management executives. It was approved that the new agreement
terms would include customary change of control provisions and a four-year long-term incentive award under the 2014 Incentive Plan, comprised of:
1.Stock Price Sensitive Performance RSU awards (“Performance RSUs”) to be vested and delivered in 2021; and
2.Time Sensitive RSUs and Stock Options, which vest monthly vesting over 48 months.
At the January 20, 2017 meeting and as ratified by the Board on January 21, 2017, the Compensation Committee determined that Mr. Tony Liu would
receive an annual base salary of $300,000 and would be granted 240,000 shares of Performance RSUs and 120,000 shares in each of the Time Sensitive RSUs
and Stock Options.
On the recommendation of the CEO, and as approved by the Compensation Committee, it was determined that Mr. Yihong Yao would be granted 27,000
shares of Performance RSUs and 26,500 shares in each of the Time Sensitive RSUs and Stock Options and Mr. Andrew Chan would receive an annual base
salary of $240,000 and will be granted 24,000 shares of Performance RSUs and 23,000 shares in each of the Time Sensitive RSUs and Stock Options.
On March 3, 2017, the Company amended and restated its existing employment agreements (each, a “2017 Employment Agreement”) with each of Tony
Liu, Andrew Chan and Yihong Yao. In addition to the compensation terms ratified by the Board or Compensation Committee and discussed above, the 2017
Employment Agreements amended certain terms of each officer’s prior employment agreement, including but not limited to the duration of such officer’s
employment, and the conditions of such officer’s termination, non-competition and non-solicitation provisions. Each 2017 Employment Agreement has a term of
four years starting from the agreement date (“Initial Employment Term”). At the end of the Initial Employment Term and on each succeeding anniversary of the
2017 agreement date, and subject to earlier termination set forth under the agreement, the term of each 2017 Employment Agreement will be automatically
extended by an additional twelve months (each, a “Renewed Term”), unless either party provides the other party with notice of non-renewal prior to the end of the
Initial Employment Term or any Renewal Term, as applicable.
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In addition to termination upon non-renewal, each officer may terminate the agreement for good reason. Good reason, as defined in each 2017
Employment Agreement, includes a material deduction in base salary and relocation of an executive’s principal office by more than 50 miles. In addition, pursuant
to Mr. Liu and Mr. Chan’s 2017 Employment Agreements, good reason includes a material adverse change in title, duties or responsibilities. Each officer is required
to provide 30 days’ written notice in advance in the event of his voluntary termination. In addition, the Company may terminate the agreement for cause. Cause, as
defined in each 2017 Employment Agreement, includes: (i) material and intentional breach of the agreement, (ii) willful and continued failure to substantially
perform duties, (iii) intentional misconduct, (iv) conviction or indictment for felonies, (v) intentional or knowing violation of antifraud provisions of securities laws, (vii)
current use or abuse of illegal substance that affects performance, and (viii) knowing and material violations of the Company’s code of ethics.
Pursuant to the 2017 Employment Agreements, upon the officer’s voluntary termination without good reason, termination by the Company for cause or
non-renewal, such officer will not be entitled to a base salary or any right to participate in benefit plans after such termination. If the employment is terminated by
the officer for good reason or by the Company without cause, the officer will be entitled to certain amount of cash salary, bonus as well as health insurance
coverage for 12 months after such termination, subject to certain conditions and forfeiture.
Each 2017 Employment Agreement includes a non-solicitation and a non-competition provision that will apply during each officer’s employment and for a
period of two years following termination.
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Compensation Discussion and Analysis
2016 LISTED OFFICERS
Wen Tao (Steve) Liu - Executive Chairman of the Board (term as Chairman expired in February 2016)
Wei (William) Cao – Chief Executive Officer (resigned as Chief Executive Officer effective February 2016)
Bizuo (Tony) Liu – Chief Executive Officer (since February 2016), Acting Chief Financial Officer (since February 2016), and Secretary (until September 2016)
Richard Wang – Chief Operating Officer (from May 2015 to February 2017)
Yihong Yao – Chief Scientific Officer (since August 2015)
Andrew Chan – Secretary (since September 2016) and Senior Vice President
This section explains how the Compensation Committee of the Board of Directors oversees our executive compensation programs and discusses the
compensation earned by CBMG’s named executive officers, also referenced to herein as our listed officers. For additional information about compensation to our
named officers, see "Executive Compensation" in this annual filing.
Executive Summary
BUSINESS PERFORMANCE AND PAY
2016 was a critical year for CBMG, reflected in our prioritization of our cancer therapeutic technologies and a focus of our efforts on developing CART
clinical trials.
For fiscal year ended December 31, 2016, we achieved net revenue of $0.6 million, down 75% from 2015, operating loss of $28.4 million, down 36% from
2015, and diluted loss per share of $2.09, down 17% from 2015. This drop mainly resulted from (i) the reprioritization and focusing our efforts on developing CART
clinical trials instead of cell therapy technology services and (ii) impairment of certain legacy investments. Total Shareholder Return (“TSR”) is a measure of the
performance of the Company’s stock over time. It combines stock price appreciation and dividends paid, if any, to show the total return to the shareholder
expressed as an annualized percentage. The Company’s TSR was 153.1% for 2014, 66.5% for 2015 and 39%% for 2016. The Nasdaq Healthcare Index was
28.5%, 6.9% and 16.9%, and Russell 3000 Index was 12.6%, 0.48% and 12.74%. The five-year cumulative TSR is 262% for the Company, 228% for the Nasdaq
Healthcare Index and 198% for the Russell 3000 Index. Because our Stock and Option grants and awards are based on the grant date and cannot be accrued in
accordance with U.S. GAAP, the earned awards are reported in arrears.
We used the Black Scholes model for our stock options grant valuation. Specifically we used the following assumptions in our modeling for the 2016
issued options:
● Expected volatility – 88.44% to 90.03%; and
● Risk-free rate of return – 1.07% to 2.17% ; and
● Dividend yield –zero; and
● Time to exercise – six years.
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In addition, we did not consider non-transferability but used a 11% risk of forfeiture for employees, advisors and Directors and Officers.
Because the majority of our executive compensation is tied to performance and TSR, our Chief Executive Officer, Chief Operating Officer and Chief
Scientific Officer saw a decrease in their total compensation in 2016 as compared to 2015. The decrease is mainly a result of reduced number of option awards. In
2016 we started granting restricted stock units ("RSUs") to some of our listed officers, which better align their compensation with the long-term interests of CBMG
stockholders by focusing our executive officers on TSR. We believe the compensation structure, including the grant of restricted stock awards to certain listed
officers in 2016, is commensurate with industry standards, namely for executives in the highly in-demand immune cell therapy industry and executives with
substantial experience at larger pharmaceutical companies in the industry. However, attracted by a potentially large cancer immune cell therapy market in China,
recently some U.S. companies have been making inroads in China. Specifically, these U.S. companies are establishing their foothold in geographical areas close
to our China operations. The presence of these companies in China have created a new risk on talent retention that we are seeking to address through the addition
of a long-term incentive plan for officers beginning in 2017.
Stockholder Engagement and “Say on Pay” Vote
At our annual meeting of stockholders in 2014, our shareholders approved by advisory vote the Company’s compensation to its executives and determined
to conduct advisory votes every three years. As such, we plan to next provide shareholders with a nonbinding advisory vote on executive compensation at our
2017 annual meeting of stockholder. The Compensation Committee plans to take into consideration the percentage of votes cast “For” our advisory “say on pay”
proposal. The Board believes that “say on pay” “For” results can be an affirmation of the structural soundness of our executive compensation programs, which will
include our long-term incentive plan for business continuity and talent retention.
2016 Compensation of Our Listed Officers
PERFORMANCE AND INCENTIVE PAY FOR 2016
CBMG has a long-standing commitment to pay-for-performance that we implement by providing the majority of compensation through arrangements that
are designed to hold our executive officers accountable for business results and reward them for strong corporate performance and creation of value for our
stockholders. Our executive compensation programs are periodically adjusted over time so that they support our business goals and promote long-term growth of
the company.
As illustrated below, approximately 71% of targeted total direct compensation in 2016 for Mr. Liu, our Chief Executive Officer, was performance-based,
consisting of approximately 71% equity, and 0% annual incentive cash bonus. Only 27% of his compensation, in the form of base salary, was fixed, ensuring a
strong link between his targeted total direct compensation and the company result. The remaining 2% of other compensation is healthcare insurance premium
expense.
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Note: 2016 Officers Compensation data is prepared on the below basis: (i) Salary, bonus and all other compensation is on a cash basis. and (ii) For stock and
option awards, the illustrated amount is the grant date fair value calculated according to U.S. GAAP without amortizing over the vesting periods. Under
this method, the compensation cannot be accrued due to the Company's inability to ascertain the stock option exercise price and grant date, and the
amount of cash bonus that the Compensation Committee may grant to each officer as of the fiscal year end.
The following chart shows the allocation of the listed officers’ total direct compensation paid or granted for 2016, reflecting the extent to which their total
direct compensation consists of performance-based compensation.
The majority of executive compensation for our listed officers is delivered through programs that link pay realized by executive officers with both
operational results and with TSR. As noted below, equity-based compensation comprises a significant portion of each listed officer’s compensation package and
consists of variable performance-based stock options and RSUs, which we believe aligns compensation with the long-term interests of CBMG’s stockholders by
focusing our listed officers on TSR. As a result, total compensation for each listed officer varies with both individual performance and CBMG’s performance in
achieving financial and nonfinancial objectives established by our Compensation Committee.
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2016 Cash Compensation
As reflected in the table below and commensurate with the industry’s practice, Mr. Steve Liu’s salary was reduced to reflect reduced responsibilities. Mr.
Tony Liu and Mr. Andrew Chan’s salary were increased to reflect increased responsibilities.
Mr. Richard Wang and Mr. Yihong Yao joined the Company in May 2015 and August 2015, respectively, and their increase in salary below reflects their
full year work period in 2016.
2016 Incentive Compensation Payouts
Based in part on the significant achievement in the closing in the first half of 2016 of a $43 million funding at a premium to market share price, the Chief
Executive Officer received a performance cash bonus paid out in 2016. And because of the biotech segment’s major setback in the stock market TSR was not
weighed as heavily when determining the level of management’s incentive Stock Option Awards.
In addition, we strive to be competitive with other similarly situated companies in our industry. The process of developing biopharmaceutical products and
bringing those products to market is a long-term proposition and outcomes may not be measurable for several years. Therefore, in order to build long-term value
for us and our stockholders, and in order to achieve our business objectives, we believe that we must compensate our officers and employees in a competitive and
fair manner that reflects our current activities but also reflects contributions to building long-term value. On January 20 and 21, 2017, the Compensation Committee
reviewed the 2016 annual performance results evaluated how each listed officer met his performance targets in 2016 and determined the final performance-based
payouts as follows:
Bizuo (Tony) Liu
Andrew Chan
Yihong Yao
Richard Wang
Shares of
options
granted as
2016 bonus
(note)
Cash bonus
for 2016 ($)
100,000
30,000
80,000
15,000
75,000
50,000
-
-
Note
1
2
Note 1: These non-qualified options with exercise price of $12.55 were all granted on January 21, 2017 and vested immediately on the grant date.
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Note 2: These non-qualified options with exercise price of $12.55 were all granted on January 20, 2017 and vested immediately on the grant date.
The table below summarizes the 2016 performance goals criteria which the Compensation Committee uses to evaluate the listed officers’ performance
and determine their incentive compensation payouts.
Category
2016 Goals
Financing; Growth in Top Line and Gross Margin, management of approved budget, and maintenance of ample working capital
Financials
Corporate
Development
Product Development Manage Clinical Trials execution
Develop strategic partnership and acquisition of complementary technologies
2016 Officers Compensation data is prepared on the below basis: (i) Salary, bonus and all other compensation is on a cash basis. and (ii) For stock and
option awards, the illustrated amount is the grant date fair value calculated according to U.S. GAAP without amortizing over the vesting periods. Under this
method, the compensation cannot be accrued due to the Company's inability to ascertain the stock option exercise price and grant date, and the amount of cash
bonus that the Compensation Committee may grant to each officer as of the fiscal year end. For purpose of clarity and in order to reflect the Compensation
Committee’s late January 2017 decision as to 2016 performance, we are providing a pro-forma 2016 Officers Compensation to indicate all compensation that has
been earned and accrued by each listed officer in 2016.
Bizuo (Tony) Liu
Andrew Chan
Yihong Yao
Richard Wang
All other
Option
compensation
Salary ($) Bonus ($)
Awards ($)
Note 1
Note 2
($)
Note 3
Total ($)
Note
240,000
100,000
279,600
23,017
642,617
242,584
80,000
139,800
26,015
488,399
4
5
250,000
75,000
-
23,985
348,985
225,000
50,000
-
14,126
289,126
Note 1: Approved by Compensation Committee in January 2017 as earned 2016 performance award. included in 2016 year end general accruals.
Note 2: Approved by Compensation Committee in January 2017 recorded as 2017 option expenses.
Note 3: Predominantly health insurance expenses.
Note 4: It represents 30,000 nonqualified options with exercise price of $12.55 were all granted on January 21, 2017 and vested immediately on the grant date.
Note 5: It represents 15,000 nonqualified options with exercise price of $12.55 were all granted on January 20, 2017 and vested immediately on the grant date.
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Changes To Compensation Program
2016 was a forgettable year for biopharmaceutical companies with key indices trailing the S&P500. By most accounts it was a very bad year for
biopharmaceutical stocks. Fueled by various drug pricing controversies and other setbacks, the biopharmaceutical segment experienced substantial downward
stock price volatility in the capital markets. Generalist participation in the segment was essentially nonexistent. In addition, attracted by a potentially large cancer
immune cell therapy market in China, U.S. biopharmaceutical companies started to make inroads in China, establishing their foothold in geographical areas close
to our China operations. We have spent many years recruiting talent and training our people. Our employees are highly coveted and have cultivated valuable
relationships with the cell therapy clinical partners. However, cell therapy is a relatively new science, the talent pool is limited and there is a dearth of trained
specialists in this discipline. Against this backdrop, the Compensation Committee conducted a review of our compensation program in late January 2017. The
Committee reviewed its compensation structure and its individual components to ensure we provide a competitive executive compensation scheme commensurate
to retain and attract talented leaders to bolster our continued journey to advance our clinical trials and to bring our cell therapies to commercialization. The
Committee established a long-term incentive plan (“LTIP”) that will take effect in 2017 to mitigate increased talent retention risk. We believe the new addition of the
long-term incentive plan is necessary to attract and retain key personnel. One of the elements in the long-term incentive is tied to long-term stock price
performance. We believe that upon diligent execution and product commercialization the fundamentals will speak for itself and the stock price will eventually reflect
our value. Thus the 2017 LTIP not only seeks to encourage talent retention, it is also aligned with stockholders’ best interests.
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Elements of Our Compensation Program and Why We Chose Each
Main Compensation Components
Our companywide compensation program, including for our key executives, is broken down into three main components: base salary, performance cash
bonuses and potential long-term compensation in the form of stock options or restricted stock units (“RSUs”). We believe these three components constitute the
minimum essential elements of a competitive compensation package in our industry. In January 2017, in an effort to boost talent retention, we also created an LTIP
for our named executives and selected senior officers, which compensates such employees with performance-based RSUs as well as time-based RSUs and stock
options.
Salary
Base salary is used to recognize the experience, skills, knowledge and responsibilities required of our executives as well as recognizing the competitive
nature of the biopharmaceutical industry. This is determined partially by evaluating our peer companies as well as the degree of responsibility and experience
levels of our executives and their overall contributions to our company. Base salary is one component of the compensation package for our key executives; the
other components being cash bonuses, annual equity grants, a long-term incentive plan and our benefit programs. Base salary is determined in advance whereas
the other components of compensation are awarded in varying degrees following an assessment of the performance of the executive. This variegated approach to
compensation reflects the philosophy of our board of directors and its Compensation Committee to emphasize and reward, on an annual basis, performance levels
achieved by our executives.
Performance Cash Bonus Plan
We have a performance cash bonus plan under which bonuses are paid to our executives based on achievement of our performance goals and objectives
established by the Compensation Committee and/or our Board as well as on individual performance. The bonus program is discretionary and is intended to:
(i) strengthen the connection between individual compensation and the Company’s corporate achievements; (ii) encourage teamwork among all disciplines within
our company; (iii) reinforce our pay-for-performance philosophy by awarding higher bonuses to higher performing employees; and (iv) help ensure that our cash
compensation is competitive. The Compensation Committee and our Board also has the discretion, after consulting with our CEO, to not pay cash bonuses in
order that we may conserve cash and support ongoing development programs and commercialization efforts. Regardless of our cash position, we consistently
grant annual merit-based stock options to continue incentivizing both our senior management and our employees.
Based on their employment agreements, each executive is assigned a target payout under the performance cash bonus plan, expressed as a percentage
of base salary for the year. Actual payouts under the performance cash bonus plan are based on an assessment of both individual and corporate achievements,
each of which is separately weighted as a component of such officer’s target payout. For executive officers, the corporate goals receive the highest weighting in
order to ensure that the bonus system for our management team is closely tied to our corporate performance. Each such employee also has specific individual
goals and objectives as well that are tied to the overall corporate goals the performance of which is evaluated by the Compensation Committee and the Board.
Equity Incentive Compensation
We view long-term compensation, currently in the form of stock options and RSUs, as a tool to align the interests of our executives and employees
generally with the creation of stockholder value, to motivate our employees to achieve and exceed corporate and individual objectives and to encourage them to
remain employed by us. While cash compensation is a significant component of employees’ overall compensation, the Compensation Committee and our Board,
together with our CEO, believe that the driving force of any employee working in a small biotechnology company should be strong equity participation. We believe
that this not only creates the potential for substantial longer-term corporate value but also motivates employees and fosters loyalty and commitment with
appropriate personal compensation. The Compensation Committee believes that stock options and RSUs equity grants constitute a significant retention incentive
and a tool to foster continuity of management, an important factor in business continuity in a company with rich talents in a rapidly growing industry in China.
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Long Term Incentive Plan (LTIP)
In January 2017, in anticipation of the commencement of substantial clinical trials initiation towards product commercialization and to mitigate risk of talent
retention, the Compensation Committee approved our LTIP. The LTIP is designed as an attractive incentive for our senior management to focus on creating
shareholder value for us by advancing the clinical trials towards product commercialization.
The LTIP is a four-year long-term incentive award comprised of the following grants from the 2014 Equity Incentive Plan:
1) Stock Price Sensitive Performance RSU awards (“Performance RSUs”) to be vested and delivered in 2021. and
2) Time Sensitive RSUs and Stock Options, which vest monthly over a period of 48 months:
The total number of Performance RSUs currently contemplated to be issuable under the LTIP is 534,000. The Performance RSUs under the LTIP will not
vest upon granting, but instead are subject to potential vesting in 2021 depending on the achievement of certain stock price performance by us. Performance RSUs
will be valued on the date of issuance and will vest and be delivered in 2021.
The total number of time sensitive RSUs currently contemplated to be issuable under the LTIP is 267,000. The total number of time sensitive stock
options covered by the LTIP is 266,000. Both the time sensitive RSUs and Stock Options are subject to monthly vesting over a 4 year term.
Other Compensation
In addition to the main components of compensation outlined above, the LTIP will also provide contractual severance and/or change in control benefits to
the executives and certain key members of management. The change in control benefits for all applicable persons has a “double trigger.” A double-trigger means
that the executive officers will receive the change in control benefits described in the agreements only if there is both (1) a Change in Control of our company (as
defined in the agreements) and (2) a termination by us of the applicable person’s employment “without cause” or a resignation by the applicable persons for “good
reason” (as defined in the agreements) within a specified time period following the Change in Control. We believe this double trigger requirement creates the
potential to maximize stockholder value because it prevents an unintended windfall to management as no benefits are triggered solely in the event of a Change in
Control while providing appropriate incentives to act in furtherance of a change in control that may be in the best interests of the stockholders. We believe these
severance/change in control benefits are important elements of our compensation program that assist us in retaining talented individuals at the executive and
senior managerial levels and that these arrangements help to promote stability and continuity of our executives and senior management team. We also believe that
the interests of our stockholders will be best served if the interests of these members of our management are aligned with theirs. Furthermore, we believe that
providing change in control benefits lessens or eliminates any potential reluctance of members of our management to pursue potential change in control
transactions that may be in the best interests of the stockholders. Finally, we believe that it is important to provide severance benefits to members of our
management, to promote stability, business continuity and to focus on the job at hand.
We do not have deferred compensation plans, pension arrangements or post-retirement health coverage for our executive officers or employees. All of our
employees not specifically under contract are “at-will” employees, which mean that their employment can be terminated at any time for any reason by either us or
the employee. Our key executives (as well as certain of our senior managers) have employment agreements that provide lump sum compensation in the event of
their termination without cause or, under certain circumstances, upon a Change of Control.
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Determination of Compensation Amounts
A number of factors impact the determination of compensation amounts for our executives, including the individual’s role in our company and individual
performance, length of service with us, competition for talent, individual compensation package, assessments of internal pay equity and industry data. Stock price
performance has generally not been a significant factor in determining annual compensation because the price of our common stock is subject to a variety of
factors outside of our control.
Utilizing publicly available information, our Compensation Committee establishes a list of peer companies to best assure ourselves that we are
compensating our executives on a fair and reasonable basis. We also utilize Hewitt-prepared data for below-executive level personnel, which data focuses on
similarly sized life science companies in China. The availability of peer data is used by the Compensation Committee strictly as a guide in determining
compensation levels with regard to salaries, cash bonuses and performance related annual equity grants to all employees. However, the availability of this data
does not imply that the Compensation Committee is under any obligation to follow peer companies in compensation matters.
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 $20,000 for each non-independent director. In addition, each independent director of the Board is eligible to receive a non-qualified option
grant under the Plan, under which such director’s initial option grant shall be for a number of shares of common stock as set forth in the Independent Director
Agreement for each such director and shall include such other terms to be determined by the Board and or its Compensation Committee.
On September 19, 2015, the Company held a Board meeting and approved new director compensation plan. The director compensation adjustment was
made as a result of a compensation review undertaken by a professional, independent firm which included a comparison with industry peers. The finalized
independent non-executive director compensation for 2016 is as follows:
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Terry A. Belmont
Chun Kwok Alan Au
Nadir Patel
Zhou Hansheng
Ji Gang
Cash
compensation
for 2016 ($)
Options
granted for
2016 (note)
Total
compensation
($)
Note
67,800
11,895
55,800
55,800
20,000
22,800
9,789
9,789
5,300
3,620
1
1
1
2
3
226,000
186,000
186,000
80,530
76,000
Note 1: These non-qualified options with exercise price of $13.35 were all granted on December 28, 2016 and will be fully vested on June 2, 2017.
Note 2: These non-qualified options with exercise price of $16 were all granted on July 8, 2016 and will be fully vested on July 8, 2017.
Note 3: These non-qualified options with exercise price of $14.7 were all granted on November 11, 2016 and will be fully vested on June 2, 2017.
The Company determined that annual cash compensation (prorated daily) of $36,000 to be paid to each non-independent director.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is or has been an executive officer of the Company, nor did they have any relationships requiring
disclosure by the Company under Item 404 of Regulation S-K. None of the Company’s executive officers served as a director or a member of a compensation
committee (or other committee serving an equivalent function) of any other entity, an executive officer of which served as a director of the Company or member of
the Compensation Committee during 2016.
Service Agreement with Wei (William) Cao
The Company entered into a consulting agreement with Wei Cao, which is effective as of February 7, 2016 and terminate on February 7, 2018, pursuant to
which Wei Cao will advise the Chief Executive Officer on M&A and other strategic opportunities, participate in the Company’s internal scientific review and actively
work with the Company’s Scientific Advisory Board and provide other consulting services etc. The Company agreed to: (i) pay cash compensation of $12,500 per
month for an average of 10 hours of service per week; (ii) reimburse the actual travel and other out-of-pocket expenses incurred solely in connection with services
performed pursuant to the Company’s request. Prior to August 7, 2016, such expenses may include up to RMB10,000 per month for car and driver expenses
incurred in Shanghai; (iii) pay premiums changed to continue medical coverage pursuant to the Company’s existing employee health plan during the 12-month
period following February 7, 2016. Provided Wei Cao is ineligible to receive, or the Company is not able to provide, continuation coverage under the Company’s
existing employee health plan, the Company shall pay cash payment equal to $1,667 for each month during the period and aggregate cash payment should not
exceed $20,000; (iv) the terms of stock options shall be amended as additional consideration for the services rendered as follows: 1) Any unvested portion of the
Non-Qualified stock option with an exercise price of $15.53 issued dated December 31, 2014 will vest until February 4, 2017 at the existing monthly rate. The
options will have an expiration date of August 6, 2017. After February 4, 2017 vesting will continue monthly for up to another 6 months as long as this agreement is
effective. However, after the termination of this agreement, all vesting will cease. Notwithstanding the above, if Wei Cao ceases to serve as a director of the
Company prior to February 6, 2017, he will be deemed to have forfeited such options and any unvested options will vest and expire pursuant to the terms of the
above-referenced stock option award agreement; 2)Any unvested portion of the non-qualified stock option issued dated February 20, 2013 shall immediately vest
in full on February 6, 2016 and expire on February 6, 2017; 3)Options granted in September 2013 shall cease vesting February 6, 2016 and shall expire February
6, 2017; 4)Any other options held will cease to vest on February 6, 2016 and will expire on February 7, 2016. On May 25, 2016 Wei Cao notified the Company of
his intention to terminate the Service Agreement on August 7, 2016.
108
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Consulting Agreement with Steve (Wen Tao) Liu
The Company entered into a consulting agreement with Steve (Wen Tao) Liu, which is effective as of February 7, 2016 and terminate on February 7, 2018,
pursuant to which Steve Liu will advise the Chief Executive Officer on strategic opportunities, advise the Company on Chinese hospitals management and provide
other consulting services and advice as reasonably requested by the Company from time to time. The Company agreed to: (i) pay cash compensation of $3,666
per month; (ii) reimburse the actual travel and other out-of-pocket expenses incurred solely in connection with services performed pursuant to the Company’s
request; and (iii) pay premiums changed to continue medical coverage pursuant to the Company’s existing employee health plan. Provided Steve Liu is ineligible
to receive, or the Company is not able to provide, continuation coverage under the Company’s existing employee health plan, the Company shall pay cash
payment equal to $1,667 for each month during the period and aggregate cash payment should not exceed $20,000; (iv) the terms of stock options shall be
amended as additional consideration for the services rendered as follows: 1) all options will expire on May 6, 2017 or 3 months after Steve Liu ceases to serve on
the Board, whichever is later; 2) Any unvested portion of the non-qualified stock option issued in 2013 with a strike price of $3.00 will continue to vest at a monthly
rate until fully vested; and 3) Any unvested portion of the non-qualified stock option issued in 2015 with a strike price of $15.53 will continue to vest at a monthly
rate until fully vested.
109
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Outstanding Equity Awards at Fiscal Year-End December 31, 2016
Outstanding Equity Awards at Fiscal Year-End
Option awards
Stock awards
Number of
securities
underlying
unexercised
options(#)
exercisable
(b)
Number of
securities
underlying
unexercised
options (#)
unexercisable
(c)
Equity
incentive
plan awards:
Number of
securities
underlying
unexercised
unearned
options (#)
(d)
Option
exercise
price ($)
(e)
Name
(a)
Wen Tao (Steve) Liu (1)
146,667
-
- $
3.00
Equityincentive
plan awards:
Number of
unearned
shares, units
or other
rights that
have not
vested (#)
(i)
Equityincentive
plan awards:
Market or
payout value
of unearned
shares, units
or other
rights that
have not
vested ($)
(j)
Number of
shares or
units of stock
that have not
vested (#)
(g)
Market value
of shares of
units of
stock that
have not
vested ($)
(h)
-
-
-
-
Option
expiration
date
(f)
2017-5-6
or 3
months
after board
role ends,
whichever
is later
2017-5-6
or 3
months
after board
role ends,
whichever
is later
Wen Tao (Steve) Liu (2)
Andrew Chan, Company
Secretary, Senior Vice
President, Corporate Business
Development (3)
Andrew Chan (4)
Andrew Chan (5)
Andrew Chan (6)
Bizuo (Tony) Liu, Chief
Executive Officer and Chief
Financial Officer (7)
Bizuo (Tony) Liu (8)
Bizuo (Tony) Liu (9)
Bizuo (Tony) Liu (10)
Bizuo (Tony) Liu (11)
Bizuo (Tony) Liu (12)
Bizuo (Tony) Liu (13)
Bizuo (Tony) Liu (14)
Bizuo (Tony) Liu (15)
Bizuo (Tony) Liu (16)
Bizuo (Tony) Liu (17)
Terry A. Belmont (18)
Terry A. Belmont (19)
Terry A. Belmont (20)
Terry A. Belmont (21)
David Bolocan (22)
Nadir Patel (23)
Nadir Patel (24)
Nadir Patel (25)
Nadir Patel (26)
Nadir Patel (27)
Chun Kwok Alan Au (28)
Chun Kwok Alan Au (29)
Chun Kwok Alan Au (30)
Chun Kwok Alan Au (31)
Guotong Xu (32)
Guotong Xu (33)
Guotong Xu (34)
Richard L. Wang, Chief
Operation Officer (35)
Richard L. Wang (36)
Richard L. Wang (37)
Yihong Yao, Chief Scientific
Officer (38)
Yihong Yao (39)
Yihong Yao (40)
Hansheng Zhou (41)
Gang Ji (42)
20,572
1,872
- $
15.53
-
-
-
38,880
37,904
-
-
-
-
4,500
10,500
- $
- $
- $
- $
3.00 2/20/2023
5.61 5/16/2024
18.61 4/8/2026
18.61 4/8/2026
247,918
5,300
10,000
10,000
65,200
5,334
9,000
-
-
-
-
4,000
3,000
8,761
-
3,620
5,000
2,000
5,000
5,946
-
4,000
5,056
2,060
-
2,000
3,313
-
7,082
-
5,000
5,000
32,600
2,666
21,000
13,000
40,000
-
-
-
-
-
11,895
-
-
-
-
-
9,789
-
-
-
9,789
-
-
6,626
9,000
-
-
21,000
-
10,000
7,500
-
-
-
-
17,500
-
10,000
5,300
3,620
- $
- $
- $
- $
- $
- $
- $
- $
- $
40,000 $
40,000 $
- $
- $
- $
- $
- $
- $
- $
- $
- $
- $
- $
- $
- $
$
- $
- $
- $
- $
-
- $
- $
-
- $
- $
- $
5.00 1/3/2024
7.23 3/5/2023
20.63 7/23/2021
20.63 8/14/2021
15.53 12/31/2021
15.53 12/31/2021
35.53 4/6/2025
40.00 1/23/2026
20.00 4/11/2026
20.00 3/7/2027
20.00 3/7/2028
12.94 12/9/2024
15.62 11/7/2024
20.00 2/9/2023
13.35 12/28/2026
13.40 12/9/2026
5.00 1/3/2024
15.62 11/7/2024
13.79 1/3/2025
20.00 2/9/2023
13.35 12/28/2026
15.62 11/7/2024
20.00 2/9/2023
20.00 3/25/2023
13.35 12/28/2026
15.62 11/7/2024
20.00 2/9/2023
14.70 11/11/2026
29.54 5/18/2025
-
N/A
18.61 4/8/2026
26.53 8/4/2025
-
N/A
18.61 4/8/2026
16.00 7/8/2026
14.70 11/11/2026
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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-
-
-
-
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-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,000 $ 413,560
-
-
-
-
17,500 $ 415,975
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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-
-
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-
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-
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-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
110
(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 will be May 6, 2017 or 3 months after his board role ends, whichever is later.
(2) Represents an option to purchase up to 22,444 shares that were issued on 2/11/2015 vesting at monthly rate until February 6, 2017, an exercise price of
$15.53 and an expiration date will be May 6, 2017 or 3 months after his board role ends, whichever is later.
(3) 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, within which 7,787shares has been exercised in 2015 and 2016.
(4) 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, within which 9,096 shares has been exercised in 2015 and 2016.
(5) Represents an Incentive Stock Option (ISO) to purchase up to 4,500 shares that were issued on 4/8/2016, with full vesting at the one year anniversary of the
grant date, an exercise price of $18.61 and an expiration date of 4/8/2026.
(6) Represents an option to purchase up to 10,500 shares that were issued on 4/8/2016, with 4,500 shares vesting on February 7, 2018 and 6,000 shares vesting
on February 7, 2019, an exercise price of $18.61 and an expiration date of 4/8/2026.
(7) 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 and an expiration date of 1/3/2024.
(8) 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.
(9) Represents an option to purchase up to 15,000 shares that were issued on 2/11/2015 vesting 1/3 on 7/23/2015 and each anniversary, an exercise price of
$20.63 and an expiration date of 7/23/2021.
(10) Represents an option to purchase up to 15,000 shares that were issued on 2/11/2015 vesting 1/3 on 8/14/2015 and each anniversary, an exercise price of
$20.63 and an expiration date of 8/14/2021.
(11) Represents an option to purchase up to 97,800 shares that were issued on 2/11/2015 vesting 1/3 on 12/31/2015 and each anniversary, an exercise price of
$15.53 and an expiration date of 12/31/2021.
(12) Represents an option to purchase up to 8,000 shares that were issued on 2/11/2015 vesting 1/3 on 12/31/2015 and each anniversary, an exercise price of
$15.53 and an expiration date of 12/31/2021.
(13) Represents an option to purchase up to 30,000 shares that were issued on 4/6/2015, with full vesting of 30%, 30% and 40% at each year anniversary of the
grant date for 3 years, an exercise price of $35.53 and an expiration date of 4/6/2025.
(14) Represents an option to purchase up to 13,000 shares that were issued on 1/23/2016, with full vesting of 30%, 30% and 40% at each year anniversary of the
grant date for 3 years, an exercise price of $40 and an expiration date of 1/23/2026.
(15) Represents an option to purchase up to 40,000 shares that were issued on 4/11/2016, with full vesting of 30%, 30% and 40% at each year anniversary of the
grant date for 3 years, an exercise price of $20 and an expiration date of 4/11/2026.
(16) Represents an option to purchase up to 40,000 shares that to be issued on 3/7/2017, with full vesting of 30%, 30% and 40% at each year anniversary of the
grant date for 3 years, an exercise price of $20 and an expiration date of 3/7/2027.
(17) Represents an option to purchase up to 40,000 shares that to be issued on 3/7/2018, with full vesting of 30%, 30% and 40% at each year anniversary of the
grant date for 3 years, an exercise price of $20 and an expiration date of 3/7/2028.
(18) Represents an option to purchase up to 4,000 shares that were issued on 12/9/2014, with full vesting at the one year anniversary of the grant date, an
exercise price of $12.94 and an expiration date of 12/9/2024.
(19) Represents an 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
$15.62 and an expiration date of 11/7/2024.
(20) Represents an option to purchase up to 8,761 shares issued on 2/9/2016 with full vesting on November 8, 2016, an exercise price of $20 and an expiration
date of 2/9/2023.
(21) Represents an option to purchase up to 11,895 shares issued on 12/28/2016 with full vesting on June 2, 2017, an exercise price of $13.35 and an expiration
date of 12/28/2026.
(22) Represents an option to purchase up to 3,620 shares that were issued on 12/9/2016, with full vesting at the one year anniversary of the grant date, an
exercise price of $13.4 and an expiration date of 12/9/2026.
(23) 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.
(24) 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.
(25) Represents an option to purchase up to 5,000 shares that were issued on 1/3/2015, with full vesting at the one year anniversary of the grant date, an exercise
price of $13.79 and an expiration date of 1/3/2025.
(26) Represents an option to purchase up to 5,946 shares that were issued on 2/9/2016, with full vesting on November 8, 2016, an exercise price of $20 and an
expiration date of 2/9/2023.
(27) Represents an option to purchase up to 9,789 shares issued on 12/28/2016 with full vesting on June 2, 2017, an exercise price of $13.35 and an expiration
date of 12/28/2026.
111
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(28) 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.
(29) Represents an option to purchase up to 5,056 shares that were issued on 2/9/2016, with full vesting on November 8, 2016, an exercise price of $20 and an
expiration date of 2/9/2023.
(30) Represents an option to purchase up to 2,060 shares that were issued on 3/25/2016, with full vesting on November 6, 2016, an exercise price of $20 and an
expiration date of 3/25/2023.
(31) Represents an option to purchase up to 9,789 shares issued on 12/28/2016 with full vesting on June 2, 2017, an exercise price of $13.35 and an expiration
date of 12/28/2026.
(32) 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.
(33) Represents an option to purchase up to 3,313 shares that were issued on 2/9/2016, with full vesting on November 8, 2016, an exercise price of $20 and an
expiration date of 2/9/2023.
(34) Represents an option to purchase up to 6,626 shares that were issued on 11/11/2016, with vesting of 50% at each year anniversary of the grant date for 2
years, an exercise price of $14.7 and an expiration date of 11/11/2026.
(35) Represents an option to purchase up to 30,000 shares that were issued on 5/18/2015, with full vesting of 30%, 30% and 40% at each year anniversary of the
grant date for 3 years, an exercise price of $29.54 and an expiration date of 5/18/2025.
(36) Represents a right to obtain restricted stock up to 20,000 shares that were issued on 5/18/2015, with full vesting of 30%, 30% and 40% at each year
anniversary of the grant date for 3 years.
(37) Represents an option to purchase up to 10,000 shares that were issued on 4/8/2016, with full vesting of 30%, 30% and 40% at each year anniversary of the
grant date for 3 years, an exercise price of $18.61and an expiration date of 4/8/2026.
(38) Represents an option to purchase up to 25,000 shares that were issued on 8/4/2015, with full vesting of 30%, 30% and 40% at each year anniversary of the
grant date for 3 years, an exercise price of $26.53 and an expiration date of 8/4/2025.
(39) Represents a right to obtain restricted stock up to 25,000 shares that were issued on 8/4/2015, with full vesting of 30%, 30% and 40% at each year
anniversary of the grant date for 3 years.
(40) Represents an option to purchase up to 10,000 shares that were issued on 4/8/2016, with full vesting of 30%, 30% and 40% at each year anniversary of the
grant date for 3 years, an exercise price of $18.61and an expiration date of 4/8/2026.
(41) Represents an option to purchase up to 5,300 shares that were issued on 7/8/2016, with full vesting at the one year anniversary of the grant date, an exercise
price of $16 and an expiration date of 7/8/2026.
(42) Represents an option to purchase up to 3,620 shares that were issued on 11/11/2016, with full vesting on June 2, 2017, an exercise price of $14.7 and an
expiration date of 11/11/2026.
112
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Option Exercises and Stock Vested during the Year-End December 31, 2016
Name
Option awards
Stock awards
Number of
shares
acquired on
exercise
Value realized
on exercise
($)
Number of
shares
acquired on
vesting
Value realized
on vesting ($)
Wei (William) Cao, Director
142,500
1,485,779
Andrew Chan, Senior Vice President, Corporate Business Development, Company
Secretary
David Bolocan, former director
Yihong Yao, Chief Scientific Officer
Richard L. Wang, former Chief Operation Officer
5,635
7,000
-
-
61,801
54,866
-
-
-
-
-
-
-
-
7,500
6,000
85,500
90,000
113
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2016 DIRECTOR COMPENSATION TABLE
Salary
($)
(note 1)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
(note 2)
Non-Equity
Incentive
Plan
Nonqualified
Deferred
Compensation
Compensation
($)
Earnings
($)
All Other
Compensation
($)
(note3)
Total
($)
62,800
41,180
12,000
26,622
36,000
36,000
97,996
37,300
22,260
9,605
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
219,194
93,312
-
-
-
-
165,839
180,295
38,132
51,516
39,205
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
41,755
281,994
176,247
-
12,000
-
26,622
-
36,000
-
-
36,000
263,835
-
77,460
-
-
217,595
137,852
61,121
39,205
Name
Terry A.
Belmont
David Bolocan
Wei (William)
Cao
Gerardus A.
Hoogland
Bizuo (Tony)
Liu
Wen Tao
(Steve) Liu
Nadir Patel
Chun Kwok
Alan Au
Guotong Xu
Hansheng Zhou
Gang Ji
Year
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
Note 1: Salary disclosed above is on cash basis. As of December 31, 2016, there was director fee of $3,082 due to Mr. Gang Ji.
Note 2: Option awards is the grant date fair value calculated according to U.S. GAAP without amortizing over the vesting periods.
Note 3: On November 11, 2016, the Company entered into consulting agreement with Guotong Xu for his leading stem cell advisor roll in Scientific Advisory
Board. It includes cash compensation of $5,700 in 2016 and option awards of $71,760, which will be amortised over the service period according to US
GAAP.
On December 9, 2016, the Company entered into consulting agreement with David Bolocan for his advisory work on statistical analysis and advice on
strategic development based on his experience and expertise working for multinationals. It includes cash compensation of $5,700 in 2016 and option
awards of $36,055, which will be amortised over the service period according to US GAAP.
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.
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, 2017. 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., 19925 Stevens Creek
Blvd., Suite 100, Cupertino, California, 95014.
114
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Name and Address of Beneficial Owner
Named Executive Officers and Directors
Wen Tao (Steve) Liu (1)
Director
Bizuo (Tony) Liu (2)
Director, Chief Executive Officer and Chief Financial Officer
Andrew Chan (3)
Senior Vice President, Corporate Business Development and Company Secretary
Yihong Yao
Chief Scientific Officer (4)
Richard Wang
Former Chief Operating Officer (5)
Terry A. Belmont (6)
Independent Director, Chairman of the Board
Nadir Patel (7)
Independent Director
Chun Kwok Alan Au (8)
Independent Director
Hansheng Zhou
Independent Director
Gang Ji
Independent Director
All Officers and Directors as a Group
5% or more Stockholders
Dangdai International Group Co Ltd. (9)
Mission Right Limited (10)
* Less than 1%
Shares of
Common
Stock
Beneficially
Owned
Percent
of Class
382,187
524,734
243,957
20,708
15,000
15,761
17,946
11,116
-
-
2.5%
3.5%
1.6%
*
*
*
*
*
*
*
1,231,409
8.2%
2,270,000
1,036,040
15.1%
6.9%
(1) Total shares owned by Wen Tao (Steve) Liu includes (i) 213,076 shares of common stock; (ii)146,667 options issued under 2011 Plan vested as of February
28, 2017; (iii) 22,444 options issued under 2014 Plan vested as of February 28, 2017.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(2) Total shares owned by Bizuo (Tony) Liu includes (i) 100,000 shares of common stock; (ii) 35,300 options issued under 2011 Plan vested as of February 28,
2017; (iii)255,000 options issued under 2013 Plan vested as of February 28, 2017; (iv) 129,434 options issued under 2014 Plan vested/to be vested within 60
days as of February 28, 2017; (v) 5,000 shares of common stock to be vested within 60 days as of February 28, 2017.
(3) Total shares owned by Andrew Chan includes (i) 145,757 shares of common stock; (ii) 53,880 options issued under 2011 Plan vested as of February 28,
2017; (iii) 37,904 options issued under 2013 Plan vested as of February 28, 2017; (iv) 5,458 options issued under 2014 Plan vested/to be vested within 60
days as of February 28, 2017; (v) 958 shares of common stock to be vested within 60 days as of February 28, 2017.
(4) Total shares owned by Yihong Yao includes (i) 8,000 shares of common stock; (ii) 11,604 options issued under 2014 Plan vested/to be vested within 60 days
as of February 28, 2017; (v) 1,104 shares of common stock to be vested within 60 days as of February 28, 2017.
(5) Total shares owned by Richard L. Wang includes (i) 6,000 shares of common stock; (ii) 9,000 options issued under 2014 Plan vested as of February 28,
2017.
(6) Total shares owned by Terry A. Belmont includes (i) 7,000 options issued under 2013 Plan vested as of February 28, 2017; (ii) 8,761 options issued under
2014 Plan vested as of February 28, 2017.
(7) Total shares owned by Nadir Patel includes (i) 12,000 options issued under 2013 Plan vested as of February 28, 2017; (ii) 5,946 options issued under 2014
Plan vested as of February 28, 2017.
(8) Total shares owned by Chun Kwok Alan Au includes (i) 4,000 options issued under 2013 Plan vested as of February 28, 2017; (ii) 7,116 options issued under
2014 Plan vested as of February 28, 2017.
(9) Represents 2,270,000 shares held by Dangdai International Group Co., Limited. Wuhan Dangdai Technology & Industries Group Inc. has voting and
dispositive power over the shares of Dangdai International Group Co., Limited in Hong Kong. Wuhan Dangdai Technology & Industries Group Inc. is
controlled by Hansheng Zhou, Xiaodong Zhang, Luming Ai, Xuehai Wang, Lei Yu, Xiaoling Du and Haichun Chen. Such individuals share voting and
dispositive power over the shares held by Dangdai International Group Co., Limited.
(10) Based on information available as of June 30, 2016, 1,036,040 shares are held by Mission Right Limited. 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.
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ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
As previously disclosed in the Company’s Current Reports on Form 8K on April 20 and July 14, 2016, Wuhan Dangdai, through its wholly owned
subsidiary Dangdai International Group Co., invested $43.1 million in the Company (the “Financing”). Dangdai International Group Co. has been a major
shareholder of the Company since February 2016 in connection with the first closing of the Financing. Dr. Hansheng Zhou, one of the Company’s directors,
currently serves as Chief Executive Officer and Chairman of Wuhan Dangdai.
The Company lent petty cash to Tony (Bizuo) Liu and Yihong Yao, its current CFO and CSO, for business travel purpose. As of December 31, 2015, other
receivables due from Tony (Bizuo) Liu and Yihong Yao were $2,120 and $17,094, respectively. As of December 31, 2016 there are no receivables due from Tony
(Bizuo) Liu and Yihong Yao.
Except as disclosed herein, there have been no transactions or proposed transactions in which the amount involved exceeds $120,000 since January 1,
2016 or are currently being proposed 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.
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 Messrs. Terry A. Belmont, Nadir Patel, Chun Kwok Alan Au, Hansheng Zhou and Gang Ji, 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 and Bizuo (Tony) Liu 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
Accountants, LLP, Dahua CPA Co., Ltd., and BDO USA, LLP:
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Audit and review fees
BDO USA, LLP
BDO China Shu Lun Pan Certified Public Accountants LLP
Dahua CPA Co., Ltd.
Shanghai Ying Ming De CPA SGP
Wuxi Zhong Xing CPA Co., Ltd.
C.K.Lam & Co.
Other assurance and tax fees
Shanghai Ying Ming De CPA SGP
Wuxi Zhong Xing CPA Co., Ltd.
C.K.Lam & Co.
Total of audit related and tax fees
Year ended
December 31,
2016
Year ended
December 31,
2015
Year ended
December 31,
2014
166,051
296,681
-
710
710
-
464,152
1,421
2,415
1,764
5,600
137,801
148,894
-
1,514
757
1,721
290,687
3,785
1,666
-
5,451
217,256
118,049
3,257
-
-
-
338,562
-
-
-
-
Overall total of audit, review and assurance fees
$
469,752
$
296,138
$
338,562
Audit fees include fees for the audit of our annual financial statements, reviews of our quarterly financial statements, and related consents for documents
filed with the SEC. All other fees include fees for auditing of listing agreement clients as required by the SEC for listing.
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
Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and 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.
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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
4.8
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
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 Stock Incentive Plan (28)
2014 Stock Incentive Plan (29)
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)
US Listing Agreement with Anhui Wenda Educational & Investment Management Corporation, dated April 12, 2008 (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)
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
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
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(30)
Employment Agreement with Wei (William) Cao, dated February 6, 2013(30)
Employment Agreement with Andrew Chan, February 6, 2013(30)
Form of Director Agreement(31)
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10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10. 42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59
10.60
14.1
21
23.1
23.2
31
32
Amendment to Employment Agreement with Wen Tao (Steve) Liu, dated August 20, 2013(30)
Amendment to Employment Agreement with Wei (William) Cao, dated August 20, 2013(30)
Amendment to Employment Agreement with Andrew Chan, dated August 20, 2013(30)
Advisory Services Agreement, dated August 23, 2013, by and between Cellular Biomedicine Group Inc. and HealthCrest AG(30)
Purchase Agreement, dated September 10, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and Fisher Scientific
Worldwide (Shanghai) Co., Ltd. (30)
Technical Service Contract, dated September 22, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and National
Engineering Research Center of Tissue Engineering. (30)
Clinical Trial Agreement, dated November 6, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and Renji Hospital(30)
Clinical Trial Agreement, dated December 20, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and China Armed Police
General Hospital(30)
Consulting Agreement with Wei (William) Cao, dated February 7, 2016*
Form of Subscription Agreement (24)
Employment Agreement with Bizuo (Tony) Liu, dated January 3, 2014 (25)
Framework Agreement by and among the Company, Agreen Biotech Co. Ltd. and its Shareholders, dated August 02, 2014 (26)
Technology Transfer Agreement by and between the Company and the General Hospital of the Chinese People’s Liberation Army, dated
February 4, 2015*
Asset Purchase Agreement, dated June 8, 2015, by and among the Company, Blackbird BioFinance, LLC, Scott Antonia and Sam
Shrivastava (27)
Patent Transfer Agreement, dated November 16, 2015, by and between CBMG Shanghai and China Pharmaceutical University (32)
Clinical Trial Agreement, dated December 15, 2015, by and between CBMG Shanghai and Renji Hospital (32)
Share Purchase Agreement, dated February 4, 2016, by and between the Company and Dangdai International Group Co., Limited (35)
Lease Agreement, dated January 1, 2017, by and between CBMG Shanghai and Shanghai Chuangtong Industrial Development Co., Ltd. *
Consulting agreement with Wen Tao (Steve) Liu, dated February 7, 2016 (33)
Clinical Trial Agreement, dated February 16, 2016, by and between CBMG Shanghai and Shanghai Tongji Hospital (33)
Agreement on Termination of Cooperation with Jilin Luhong Real Estate Development Co., Ltd. (34)
Lease agreement of office building located at Room E2301 and 1125, Zone A, 2/F, Wuxi (Huishan) Life Science & Technology Industrial Park,
1619 Huishan Avenue, Wuxi, the P.R.C. (34)
Lease agreement of office building located at Zone B, 2/F, Building No.7, Block C, Wuxi (Huishan) Life Science & Technology Industrial Park,
1699 Huishan Avenue, Wuxi, the P.R.C.(34)
Agreement, dated as of April 11, 2016, by and between the Company and Bizuo (Tony) Liu (36)
Letter Agreement, dated November 11, 2016, by and between the Company and Gang Ji (37)
Employment Agreement, dated March 3, 2017, by and between the Company and Bizuo (Tony) Liu *
Employment Agreement, dated March 3, 2017, by and between the Company and Andrew Chan*
Employment Agreement, dated March 3, 2017, by and between the Company and Yihong Yao*
Lease Agreement, dated November 16, 2016, by and between CBMG Shanghai and Shanghai Guilin Industrial Co., Ltd.*
Lease Agreement, dated November 16, 2016, by and between CBMG Shanghai and Shanghai Guilin Industrial Co., Ltd.*
Code of Ethics for EastBridge Investment Group Corporation (1)
Subsidiaries of the Company (34)
Consent of BDO USA LLP*
Consent of BDO China Shu Lun Pan Certified Public Accountants LLP *
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer and Chief Financial Officer*
Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.
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101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
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 filed with the Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on October 30, 2006 (File
No. 000-52282)
Incorporated by reference filed with the Registration Statement on Form 10-SB/A filed with the Securities and Exchange Commission on February 27, 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 June 19, 2007 (File No.
333-143878)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on July 20, 2007 (File No. 000-52282)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on September 25, 2007 (File No. 000-52282)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on October 1, 2007 (File No. 000-52282)
Incorporated by reference filed with 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 filed with the Form 8-K filed with the Securities and Exchange Commission on October 22, 2008 (File No. 000-52282)
Incorporated by reference filed with the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on April 15, 2009 (File No.
333-158583)
Incorporated by reference filed with the Form 8-K/A filed with the Securities and Exchange Commission on December 12, 2013 (File No. 000-52282)
Incorporated by reference filed with the Form 10-K filed with the Securities and Exchange Commission on April 15, 2010 (File No. 000-52282)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on July 14, 2010 (File No. 000-52282)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on November 12, 2010 (File No. 000-52282
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on December 7, 2010 (File No. 000-52282)
Incorporated by reference filed with the Form 10-K filed with the Securities and Exchange Commission on June 18, 2013 (File No. 000-52282)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on November 20, 2012 (File No. 000-52282)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on January 22, 2013 (File No. 000-52282)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on February 4, 2013 (File No. 000-52282)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on February 12, 2013 (File No. 000-52282)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on January 3, 2012 (File No. 000-52282)
Incorporated by reference filed with the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on March 7, 2012 (File No.
333-179974)
Incorporated by reference filed with the Form 10-K filed with the Securities and Exchange Commission on April 4, 2013 (File No. 000-52282)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on December 16, 2013 (File No. 000-52282)
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on January 3, 2014 (File No. 000-52282)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on October 2, 2014 (File No. 001-36498)
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on July 2, 2015 (File No. 001-36498)
Incorporated by reference filed with Schedule 14A filed with the Securities and Exchange Commission on November 21, 2013 (File No. 000-52282)
Incorporated by reference filed with Schedule 14A filed with the Securities and Exchange Commission on September 23, 2014 (File No. 001-36498)
25.
26.
27.
28.
29.
30 Incorporated by reference filed with the Form 10-K filed with the Securities and Exchange Commission on April 15, 2014 (File No. 000-52282).
31 Incorporated by reference filed with the Form 10-K filed with the Securities and Exchange Commission on March 31, 2015 (File No. 001-36498).
32 Incorporated by reference filed with the Form 10-K filed with the Securities and Exchange Commission on March 14, 2016 (File No. 001-36498).
33 Incorporated by reference filed with the Form 10-Q filed with the Securities and Exchange Commission on May 9, 2016 (File No. 001-36498).
34 Incorporated by reference filed with the Form 10-Q filed with the Securities and Exchange Commission on August 8, 2016 (File No. 001-36498).
35 Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on February 4, 2016 (File No. 000- 36498).
36 Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on April 15, 2016 (File No. 000- 36498).
37 Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on November 15, 2016 (File No. 000- 36498).
122
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 13, 2017
Cellular Biomedicine Group, Inc.
By:
/s/ Bizou (Tony) Liu
Bizuo (Tony) Liu
Chief Executive Officer and Chief
Financial Officer
(principal executive officer and 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
/s/ Terry A. Belmont
Terry A. Belmont
/s/ Bizuo (Tony) Liu
Bizuo (Tony) Liu
/s/ Wen Tao (Steve) Liu
Wen Tao (Steve) Liu
/s/ Hansheng Zhou
Hansheng Zhou
/s/ Nadir Patel
Nadir Patel
/s/ Chun Kwok Alan Au
Chun Kwok Alan Au
/s/ Gang Ji
Gang Ji
Chairman of the Board of Directors
Chief Executive Officer and Chief Financial Officer
(principal executive officer and financial and accounting officer)
Director
Director
Director
Director
Director
123
Date
March 13, 2017
March 13, 2017
March 13, 2017
March 13, 2017
March 13, 2017
March 13, 2017
March 13, 2017
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
TABLE OF CONTENTS
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 2016 and 2015
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014
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
To the Board of Directors and Stockholders of
Cellular Biomedicine Group, Inc.
We have audited the accompanying consolidated balance sheets of Cellular Biomedicine Group, Inc. and its subsidiaries and variable interest entities (the
“Company”) as of December 31, 2016 and 2015 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity
and cash flows for each of the two years in the period ended December 31, 2016. 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 audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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 as of December
31, 2016 and 2015, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2016, in conformity with
accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over
financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 13, 2017 expressed an unqualified opinion thereon.
/s/ BDO China Shu Lun Pan Certified Public Accountants LLP
Shenzhen, the People’s Republic of China
March 13, 2017
F-2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cellular Biomedicine Group, Inc.
We have audited the internal control over financial reporting of Cellular Biomedicine Group, Inc. and its subsidiaries and variable interest entities (the “Company”)
as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the “COSO criteria”). The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Controls and Procedures, Management’s
Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of
Cellular Biomedicine Group, Inc. and its subsidiaries and variable interest entities as of December 31, 2016 and 2015, and the related statements of operations and
comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2016 and our report dated March
13, 2017 expressed an unqualified opinion thereon.
/s/ BDO China Shu Lun Pan Certified Public Accountants LLP
Shenzhen, the People’s Republic of China
March 13, 2017
F-3
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.
Cupertino, California
We have audited the accompanying consolidated statements of operations, comprehensive loss, changes in equity, and cash flows of Cellular Biomedicine Group,
Inc. (the “Company”) for the year ended December 31, 2014. 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 audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of the Company’s operations and its cash
flows for the year ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.
/s/ BDO USA, LLP
Phoenix, Arizona
March 31, 2015
F-4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
Assets
Cash and cash equivalents
Accounts receivable, less allowance for doubtful amounts of $10,163
and $nil as of December 31, 2016 and December 31, 2015, respectively
Other receivables
Inventory
Prepaid expenses
Taxes recoverable
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
Taxes payable
Other current liabilities
Total current liabilities
Other non-current liabilities
Total liabilities (1)
Commitments and Contingencies (note 16)
Stockholders' equity:
Preferred stock, par value $.001, 50,000,000 shares
authorized; none issued and outstanding as of
December 31, 2016 and 2015, respectively
Common stock, par value $.001, 300,000,000 shares authorized;
14,281,378 and 11,711,645 issued and outstanding
as of December 31, 2016 and 2015, respectively
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
December 31,
2016
2015
$
39,252,432
$
14,884,597
39,974
412,727
-
986,951
-
40,692,084
509,424
4,117,739
7,678,789
14,092,581
1,537,850
68,628,467
216,154
1,168,787
28,875
950,220
2,364,036
370,477
2,734,513
$
$
630,332
271,344
390,886
367,050
150,082
16,694,291
5,379,407
2,768,900
7,678,789
15,949,100
989,935
49,460,422
260,886
845,087
-
1,913,284
3,019,257
76,229
3,095,486
$
$
-
-
14,281
152,543,052
(85,546,687)
(1,116,692)
65,893,954
11,711
103,807,651
(57,338,311)
(116,115)
46,364,936
$
68,628,467
$
49,460,422
(1) The Company’s consolidated assets as of December 31, 2016 and 2015 included $9,626,171 and $6,115,073, 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, 2016 and
2015, respectively. These assets include cash and cash equivalents of $4,021,992 and $1,821,883; accounts receivable of $ nil and $337,345; other
receivables of $370,702 and $136,621; inventory of $ nil and $180,973; prepaid expenses of $777,445 and $250,123; property, plant and equipment, net, of
$2,398,576 and $1,145,924; intangibles of $1,613,582 and $1,892,551; and long-term prepaid expenses and other assets of $443,874 and $349,653. The
Company’s consolidated liabilities as of December 31, 2016 and 2015 included $1,372,391 and $1,478,160, respectively, of liabilities of the VIEs whose
creditors have no recourse to the Company. These liabilities include accounts payable of $161,825 and $38,004; other payables of $407,769 and $914,817;
payroll accrual of $792,706 and $464,510; and other non-current liabilities of $10,091 and $60,829. See further description in Note 6, Variable Interest
Entities.
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.
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:
Interest income
Other income
Total other income
Loss from continuing operations before taxes
Income taxes (expenses) credit
Loss from continuing operations
For the Year Ended December 31,
2016
2015
2014
$
627,930
$
2,505,423
$
564,377
860,417
11,670,506
425,040
11,475,587
4,611,714
29,043,264
(28,415,334)
1,880,331
13,068,255
709,151
7,573,228
123,428
23,354,393
(20,848,970)
242,215
7,875,413
314,894
3,146,499
1,427,840
13,006,861
(12,442,484)
78,943
132,108
211,051
(28,204,283)
42,220
630,428
672,648
(20,176,322)
15,043
71,982
87,025
(12,355,459)
(4,093)
728,601
-
(28,208,376)
(19,447,721)
(12,355,459)
Loss on discontinued operations, net of taxes
-
-
(3,119,152)
Net loss
Other comprehensive income (loss):
Cumulative translation adjustment
Unrealized gain (loss) on investments, net of tax
Reclassification adjustments, net of tax, in connection with other-than-temporary impairment of
investments
Total other comprehensive income (loss):
$ (28,208,376)
$ (19,447,721)
$ (15,474,611)
(743,271)
5,300,633
(307,950)
(1,376,540)
(5,557,939)
(1,000,577)
-
(1,684,490)
15,254
1,611,045
-
1,626,299
Comprehensive loss
$ (29,208,953)
$ (21,132,211)
$ (13,848,312)
Loss per share for continuing operations:
Basic
Diluted
Loss per share for discontinued operations:
Basic
Diluted
Net loss per share :
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
$
$
$
$
(2.09)
$
(2.09)
$
(1.70)
$
(1.70)
$
-
-
$
$
-
-
$
$
(2.09)
$
(2.09)
$
(1.70)
$
(1.70)
$
(1.43)
(1.43)
(0.36)
(0.36)
(1.79)
(1.79)
13,507,408
13,507,408
11,472,306
11,472,306
8,627,094
8,627,094
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.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock
Preferred Stock
Additional
Paid in
Accumulated
Other
Accumulated
Comprehensive
Shares
Amount
Shares
Amount
Capital
Deficit
Income
(Loss)
Total
Balance at December 31, 2013
7,382,797
$
7,383
-
$
-
$
37,861,593
$
(22,415,979)
$
(57,924)
$
15,395,073
Common stock issued with Private
Placement Memorandum (“PPM”)
Common stock issued for services
Stock based compensation
Restricted stock grants
Accrual of stock options
Exercise of stock options
Exercise of warrant issued in PPM
Common stock issued for acquisition
Unrealized loss on investments, net of
tax
Foreign currency translation
Net loss
1,686,566
43,760
13,413
13,862
-
3,650
1,017,765
828,522
-
-
-
1,686
44
13
14
-
4
1,018
828
-
-
-
Balance at December 31, 2014
10,990,335
10,990
Common stock issued with PPM
Common stock issued foracquisition of
intangible assets
Restricted stock grants
Accrual of stock options
Exercise of stock options
Unrealized loss on investments, net of
tax
Foreign currency translation
Net loss
515,786
46,867
6,253
-
152,404
-
-
-
516
47
6
-
152
-
-
-
Balance at December 31, 2015
11,711,645
11,711
Common stock issued with PPM and
other financing
Restricted stock grants
Accrual of stock options
Exercise of stock options
Unrealized loss on investments, net of
tax
Reclassification adjustments, net of tax,
in connection with other-than-temporary
impairment of investments
Foreign currency translation
Net loss
2,348,888
24,660
-
196,185
-
-
-
-
2,349
25
-
196
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,120,270
578,937
207,188
106,378
1,636,311
19,383
7,998,978
15,938,278
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,121,956
578,981
207,201
106,392
1,636,311
19,387
7,999,996
15,939,106
-
-
-
-
-
(15,474,611)
1,611,045
15,254
-
1,611,045
15,254
(15,474,611)
75,467,316
(37,890,590)
1,568,375
18,584,338
1,481,415
410,314
7,182,117
682,151
-
-
-
-
-
-
-
-
39,156,091
.
18,584,854
1,481,462
410,320
7,182,117
682,303
-
-
-
-
-
(19,447,721)
(1,376,540)
(307,950)
-
(1,376,540)
(307,950)
(19,447,721)
103,807,651
(57,338,311)
(116,115)
46,364,936
42,397,525
709,472
4,742,920
885,484
-
-
-
-
-
-
-
-
42,399,874
709,497
4,742,920
885,680
-
-
5,300,633
5,300,633
-
-
-
-
-
(28,208,376)
(5,557,939)
(743,271)
-
(5,557,939)
(743,271)
(28,208,376)
Balance at December 31, 2016
14,281,378
$
14,281
-
$
-
$ 152,543,052
$
(85,546,687)
$
(1,116,692)
$
65,893,954
The accompanying notes are an integral part of these consolidated financial statements.
F-7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
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 on investments
Realized losses from sale of investments
Value of stock received for services
Impairment of goodwill
(Reversal) of inventory provision
Allowance for doubtful account
Decrease in fair value of accrued expenses for the acquisition of intangible assets
Changes in operating assets and liabilities:
Accounts receivable
Other receivables
Inventory
Prepaid expenses
Taxes recoverable
Other current assets
Investments
Long-term prepaid expenses and other assets
Accounts payable
Accrued expenses
Advance payable to related party
Other current liabilities
Taxes payable
Other non-current liabilities
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired
Proceed from sale of investments, net of issuance cost paid
Purchases of intangible assets
Purchases of property, plant and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common stock
Proceeds from exercise of stock options
Repayment of advance from affiliate
Net cash provided by financing activities
For the Year Ended
December 31,
2015
2016
2014
$ (28,208,376)
$ (19,447,721)
$ (15,474,611)
2,635,001
2,156
5,452,417
4,611,714
-
-
-
(115,391)
10,163
-
537,155
(156,672)
514,734
(669,598)
150,082
-
-
(643,673)
(28,205)
356,420
-
(640,573)
28,875
296,036
(15,867,735)
-
-
(56,519)
(2,676,888)
(2,733,407)
2,094,644
1,444
7,592,438
123,428
5,178
-
-
123,848
-
(345,882)
(497,937)
(143,711)
(142,486)
181,679
(150,082)
110,347
-
(384,432)
(166,032)
396,557
(30,216)
113,919
(814,288)
(371,793)
(11,751,098)
(1,568,627)
1,480
(4,260,420)
(1,874,538)
(7,702,105)
1,190,505
257,672
2,528,885
1,427,840
5,913
(1,610,000)
3,299,566
-
-
-
20,645
(25,638)
(78,310)
(494,057)
-
24,314
7,150
(504,678)
165,517
409,109
-
(694,131)
(176,583)
-
(9,720,892)
(1,485,548)
-
(8,989)
(311,625)
(1,806,162)
42,399,874
885,680
-
43,285,554
18,964,849
682,303
-
19,647,152
19,121,956
19,383
(31,745)
19,109,594
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(316,577)
(79,936)
12,829
INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD
SUPPLEMENTAL CASH FLOW INFORMATION
24,367,835
14,884,597
39,252,432
$
114,013
14,770,584
14,884,597
$
7,595,369
7,175,215
14,770,584
$
Cash paid for income taxes
$
6,705
$
108,075
$
460,924
Non-cash investing activities
Acquisition of intangible assets through issuance of the Company's stock
Acquisition of business through issuance of the Company's stock
$
$
-
-
$
$
1,481,462
$
1,442,850
-
$
14,496,256
The accompanying notes are an integral part of these consolidated financial statements.
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, 2016, 2015 AND 2014
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 platforms: (i) Immune Cell therapy for treatment of a broad range of
cancers using : Chimeric Antigen Receptor T cell (CAR-T), cancer vaccine, and T Central Memory Cell (Tcm) technology, and (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 diseases such as
cancer, orthopedic diseases, 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 stem cell based therapies to treat knee osteoarthritis (“KOA”). We have completed Phase IIb autologous haMPC KOA clinical study and
published its promising results. Led by Shanghai Renji Hospital, one of the largest teaching hospitals in China, we launched Phase I clinical trial of an off-the-shelf
allogeneic haMPC (AlloJoinTM) therapy for KOA. We have completed patient recruitment and treatment for Phase I clinical studies of KOA on August 5, 2016. We
also initiated multiple dose preclinical studies in a Chronic Obstructive Pulmonary Disease ("COPD") animal model, and plan to initiate manufacturing of
(AlloJoinTM) product for KOA preclinical and clinical studies in the United States.
Our primary target market is Greater China. We believe that the results of our research, the acquired knowhow and clinical study results will help to cure or
alleviate illness and suffering of the patients. We expect to carry out the clinical studies leading to eventual CFDA approval through IND filings and authorized
treatment centers throughout Greater China.
With the acquisition of the University of South Florida’s license on the next generation GVAX vaccine (CD40LGVAX) and its related standard operational
procedures (SOPs), we have expanded our immuno-oncology portfolio significantly. We plan to use the knowledge we obtained from the previous phase l clinical
study conducted in the U.S. by Moffitt center to support an investigator sponsored trial to evaluate the potential synergistic effect of the combination of
CD40LGVAX with anti-PD1 checkpoint inhibitor, to treat a selected segment of late stage non-small cell lung cancer (NSCLC) adenocarcinoma patients. We may
also seek approval to conduct clinical trials with leading non-U.S. medical centers or seek partnership for CD40LGVAX sub-license opportunities.
With our recent build-up of multiple cancer therapeutic technologies, we have prioritized our clinical efforts on launching multiple trials for CAR-Ts in
several indications and not actively pursuing the fragmented technical services opportunities. We are striving to build a highly competitive research and
development function, a translational medicine team, along with a well-established cellular manufacturing capability for clinical grade materials, to support the
development of multiple assets in several cancer indications. These efforts will allow us to boost the Company's Immuno-Oncology presence, and pave the way for
future partnerships.
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.
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”).
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, 2016, 2015 AND 2014
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.
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 fit into management’s long-term strategy and vision. The Company is now focusing resources on
becoming a biotechnology company bringing therapies to improve the health of patients in China.
On September 26, 2014, the Company completed its acquisition of Beijing Agreen Biotechnology Co. Ltd. ("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.
At the end of September, 2015, the Company moved its corporate headquarters to 19925 Stevens Creek Blvd., Suite 100 in Cupertino, California.
NOTE 2 – BASIS OF PRESENTATION
The consolidated financial statements include the financial statements of the Company and all of its subsidiaries and variable interest entities. All
significant inter-company transactions and balances are eliminated upon consolidation. The consolidated financial statements have been prepared in accordance
with the accounting principles generally accepted in the United States of America (“GAAP”).
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies are as follows:
Principles of Consolidation
The consolidated financial statements have been prepared in conformity with GAAP, and reflect the accounts and operations of the Company and its
subsidiaries, beginning with the date of their respective acquisition. In accordance with the provisions of Financial Accounting Standards Board (“FASB”),
Accounting Standards Codification (“ASC”) Topic 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.
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, 2016, 2015 AND 2014
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities 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. Significant accounting estimates reflected in the Company’s consolidated financial statements include
inventory valuation, account receivable valuation, useful lives of property, plant and equipment and acquired intangibles, the valuation allowance for deferred
income tax assets, valuation of goodwill, valuation of long-lived assets and share-based compensation expense. Actual results could materially differ from those
estimates.
Revenue Recognition
The Company utilizes the guidance set forth in the FASB’s ASC Topic 605, “Revenue Recognition”, regarding the recognition, presentation and disclosure
of revenue in its financial statements. 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.
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, 2016 and
2015, 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, 2016 and 2015. Account
receivables 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, 2016, allowance of $10,163 was provided for debtors of
certain customers as those debts are unrecoverable from customers. No allowance was provided as of December 31, 2015 as the Company was receiving
continuous settlement and there was no indication of debts unrecoverable from customers.
Inventory
Inventories consist of raw materials, work-in-process, semi-finished goods and finished goods. 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.
F-11
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, 2016, 2015 AND 2014
For the years ended December 31, 2016, 2015 and 2014, depreciation expense was $850,793, $573,015 and $586,679, respectively.
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 impairment may have occurred.
The carrying amount of the goodwill at December 31, 2016 and 2015 represents the cost arising from the business combinations in previous years and no
impairment on goodwill was recognized for the years ended December 31, 2016 and 2015. As part of the determination to discontinue the Consulting segment, the
Company has written off goodwill of approximately $3,300,000 during the year ended December 31, 2014.
Valuation of long-lived asset
The Company reviews the carrying value of long-lived assets to be held and used, including other intangible assets subject to amortization, when events
and circumstances warrants such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from
such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset and intangible assets. Fair market value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved. Losses on long-lived assets and intangible assets to be disposed are determined in a similar manner, except that
fair market values are reduced for the cost to dispose.
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, 2016 and 2015 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.
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, 2016, 2015 AND 2014
● 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 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.
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.
F-13
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, 2016, 2015 AND 2014
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 receivable, 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.
Basic and Diluted Net Loss Per Share
Diluted net 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 net loss per share.
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.
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 $29,208,953, $21,132,211and $13,848,312 for the years ended December 31, 2016, 2015 and 2014, 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.
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, 2016, 2015 AND 2014
Segment Information
FASB ASC Topic 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 January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment” (“ASU 2017-04”), which removes Step 2 from the goodwill impairment test. An entity will apply a one-step quantitative test and record the
amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the
reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. Public business entity that is a U.S. Securities and
Exchange Commission filer should adopt the amendments in this ASU for its annual or any interim goodwill impairment test in fiscal years beginning after
December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently
evaluating the impact of the adoption of ASU 2017-04 on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which requires that a
statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU do not
provide a definition of restricted cash or restricted cash equivalents. The amendments in this ASU are effective for public business entities for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We are
currently evaluating the impact of the adoption of ASU 2016-18 on our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”
(“ASU 2016-15”), which addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt
instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent
consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned
life insurance policies (including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization
transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in this ASU are effective for public business
entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an
interim period. We are currently evaluating the impact of the adoption of ASU 2016-15 on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments” (“ASU 2016-13”). Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost
basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current
GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is
deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit
losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a
write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The
amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other
financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU will be effective for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years. We are currently evaluating the impact of the adoption of ASU 2016-13 on
our 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, 2016, 2015 AND 2014
In April 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting” (“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions. The areas for simplification in
ASU 2016-09 include the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The
amendments in this ASU will be effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is
permitted. We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The amendments in this update create Topic 842, Leases,
and supersede the leases requirements in Topic 840, Leases. Topic 842 specifies the accounting for leases. The objective of Topic 842 is to establish the
principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows
arising from a lease. The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as
operating leases under Topic 840. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between
finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the
previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842,
the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. The amendments in
ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Early
application of the amendments in ASU 2016-02 is permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2016-02 on our
consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities” (“ASU 2016-01”). The amendments in this update require all equity investments to be measured at fair value with changes in the
fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee).
The amendments in this update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a
liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair
value option for financial instruments. In addition the amendments in this update eliminate the requirement for to disclose the method(s) and significant
assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public
entities. For public business entities, the amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. Except for the early application guidance discussed in ASU 2016-01, early adoption of the amendments in this update is not permitted.
We do not expect the adoption of ASU 2016-01 to have a material impact on our consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”).
Topic 740, Income Taxes, requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of
financial position. Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial
reporting. Deferred tax liabilities and assets that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of
the temporary difference. To simplify the presentation of deferred income taxes, the amendments in ASU 2015-17 require that deferred income tax liabilities and
assets be classified as noncurrent in a classified statement of financial position. For public business entities, the amendments in this update are effective for
financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. We do not expect the
adoption of ASU 2015-17 to have a material impact on our consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). The amendments in
this update require an entity to measure inventory within the scope of ASU 2015-11 (the amendments in ASU 2015-11 do not apply to inventory that is measured
using last-in, first-out or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out
or average cost) at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is uncharged for inventory measured using last-in, first-out or
the retail inventory method. The amendments in ASU 2015-11 more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory
in International Financial Reporting Standards (“IFRS”). ASU 2015-11 is effective for public business entities for fiscal years beginning after December 15, 2016,
including interim periods within those fiscal years. The amendments in ASU 2015-11 should be applied prospectively with earlier application permitted as of the
beginning of an interim or annual reporting period. We do not expect the adoption of ASU No. 2015-11 to have a material impact on our consolidated financial
statements.
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, 2016, 2015 AND 2014
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. The FASB issued
ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”) in August 2015. The amendments in
ASU 2015-14 defer the effective date of ASU 2014-09. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the
guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier
adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
Further to ASU 2014-09 and ASU 2015-14, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”) in March 2016, ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing” (“ASU 2016-10”) in April 2016, ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606):
Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), and ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue
from Contracts with Customers” (“ASU 2016-20”), respectively. The amendments in ASU 2016-08 clarify the implementation guidance on principal versus agent
considerations, including indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. ASU
2016-10 clarifies guideline related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition
standard. The updates in ASU 2016-10 include targeted improvements based on input the FASB received from the Transition Resource Group for Revenue
Recognition and other stakeholders. It seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and
complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis. ASU 2016-12 addresses narrow-scope improvements to
the guidance on collectability, non-cash consideration, and completed contracts at transition. Additionally, the amendments in this ASU provide a practical
expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from
customers. The amendments in ASU 2016-20 represents changes to make minor corrections or minor improvements to the Codification that are not expected to
have a significant effect on current accounting practice or create a significant administrative cost to most entities. The effective date and transition requirements for
ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 are the same as ASU 2014-09. We are currently in the process of evaluating the impact of the
adoption of ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 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
$17,745,415. 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 is directed to kit for
detecting human T-cell receptor (TCR) Vb repertoires, 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 initial 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:
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, 2016, 2015 AND 2014
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
Total liabilities assumed
Net assets acquired
$
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)
(1,035,191)
$
17,747,415
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.
As part of 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 since 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, 2014 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:
Net sales and revenue
Net loss
Weighted average common shares outstanding:
Basic
Diluted
Earnings (loss) per share net loss:
Basic
Diluted
NOTE 5 – DISCONTINUED OPERATIONS
Year Ended December 31, 2014
CBMG
As stated
Agreen
Pro forma
Adjustment
$
564,377
(15,474,611)
$
1,198,414
(48,109)
$
Pro forma
Consolidated
1,762,791
(15,522,720)
8,627,094
8,627,094
555,335
555,335
9,182,429
9,182,429
$
$
(1.79)
(1.79)
$
$
(0.09)
(0.09)
$
$
(1.69)
(1.69)
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.
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, 2016, 2015 AND 2014
The Company had liquidated all of the Consulting segment’s remaining assets and settled all related liabilities as of December 31, 2014.
Amounts presented for the year ended December 31, 2014, have been reclassified to conform to the current presentation. The following table provides the
amounts reclassified for the year ended December 31, 2014:
Amounts reclassified:
Consulting revenue
Consulting operating expenses
Selling and marketing
Impairment expense
Other income (expense)
Income tax provision
Total amount reclassified as discontinued operations
Year Ended
December 31,
2014
$
$
1,612,746
(1,352,189)
(27,673)
(3,299,566)
(1,725)
(50,745)
(3,119,152)
All income and expenses for the years ended December 31, 2016 and 2015 were attributable to the operating results of the Company’s continuing
operations.
NOTE 6 – VARIABLE INTEREST ENTITY
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”) and its
subsidiaries are variable interest entities (VIEs), through which the Company conducts stem cell and immune therapy research and clinical trials in China. The
registered shareholders of CBMG Shanghai are Lu Junfeng 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. AG was 100% acquired by CBMG
Shanghai in September 2014. The registered capital of AG is five million RMB and was incorporated on April 27, 2011. For the year ended December 31, 2016,
2015 and 2014, 78%, 80% and 100% of the Company revenue is derived from VIEs respectively.
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 Topic 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 VIEs and no creditors of VIEs have recourse to the general credit of the
Company.
As the primary beneficiary of CBMG Shanghai and its subsidiaries, the Company consolidates in its financial statements the financial position, results of
operations, and cash flows of CBMG Shanghai and its subsidiaries, and all intercompany balances and transactions between the Company and CBMG Shanghai
and its subsidiaries are eliminated in the consolidated financial statements.
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, 2016, 2015 AND 2014
The Company has aggregated the financial information of CBMG Shanghai and its subsidiaries in the table below. The aggregate carrying value of assets
and liabilities of CBMG Shanghai and its subsidiaries (after elimination of intercompany transactions and balances) in the Company’s consolidated balance sheets
as of December 31, 2016 and 2015 are as follows:
Assets
Liabilities
Cash
Accounts receivable
Other receivables
Inventory
Prepaid expenses
Total current assets
Property, plant and equipment, net
Intangibles
Long-term prepaid expenses and other assets
Total assets
Accounts payable
Other payables
Payroll accrual
Total current liabilities
Other non-current liabilities
Total liabilities
NOTE 7 – OTHER RECEIVABLES
December 31,
December 31,
2016
2015
$
$
$
$
$
4,021,992
-
370,702
-
777,445
5,170,139
2,398,576
1,613,582
443,874
9,626,171
$
$
1,821,883
337,345
136,621
180,973
250,123
2,726,945
1,145,924
1,892,551
349,653
6,115,073
161,825
407,769
792,706
1,362,300
$
$
38,004
914,817
464,510
1,417,331
10,091
1,372,391
$
60,829
1,478,160
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, 2016 and 2015 the amounts of other receivables was $412,727 and $271,344, respectively.
NOTE 8 – INVENTORY
At December 31, 2016 and 2015, inventory consisted of the following:
Raw Materials
Work in progress
Semi-finished goods
Finished goods
December 31,
2016
December 31,
2015
357,896
-
15,346
17,644
390,886
$
$
-
-
-
-
-
F-20
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, 2016, 2015 AND 2014
Provision for inventories is as below:
Balance at the beginning of year
Addition
Reversal
Exchange difference
Balance at the end of the year
NOTE 9 – PROPERTY, PLANT AND EQUIPMENT
2016
2015
2014
$
$
123,848
110,145
(225,536)
(8,457)
-
$
$
-
123,848
-
-
123,848
$
$
-
-
-
-
-
As of December 31, 2016 and 2015, property, plant and equipment, carried at cost, consisted of the following:
Office equipment
Manufacturing equipment
Computer equipment
Leasehold improvements
Construction in progress
Less: accumulated depreciation
December 31,
2016
December 31,
2015
$
$
80,485
3,347,458
162,769
1,912,573
1,172,433
24,526
2,680,805
150,698
1,417,997
680,740
6,675,718
(2,557,979)
4,117,739
$
4,954,766
(2,185,866)
2,768,900
$
Depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $850,793, $573,015 and $586,679, respectively.
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, 2016, 2015 AND 2014
NOTE 10 – INVESTMENTS
The Company’s investments represent the investment in equity securities listed in Over-The-Counter (“OTC”) markets of the United States of America:
December 31, 2016
Equity position in Alpha Lujo, Inc.
Equity position in Arem Pacific Corporation
Total
Gross
Unrealized
Gains
Gross
Unrealized
Losses more
than 12
months
- $
-
- $
- $
-
- $
Adjusted Cost
$
$
251,388 $
480,000
731,388 $
Gross
Unrealized
Losses less
than 12
months
(221,964) $
-
(221,964) $
Market or Fair
Value
29,424
480,000
509,424
December 31, 2015
Equity position in Alpha Lujo, Inc.
Equity position in Arem Pacific Corporation
Equity position in Wonder International Education & Investment Group
Corporation
Total
Gross
Unrealized
Gains
Gross
Unrealized
Losses more
than 12
months
-
170,000
- $
-
Gross
Unrealized
Losses less
than 12
months
(133,694) $
Market or Fair
Value
117,694
- $ 5,200,000
Adjusted Cost
$
251,388 $
$ 5,030,000 $
$
61,713 $
$ 5,343,101 $
-
170,000 $
-
- $
- $
61,713
(133,694) $ 5,379,407
There were no net proceeds from sale of investments for the year ended December 31, 2016. Net proceeds from sale of investments for the year ended
December 31, 2015 was $1,480. Net realized losses from sale of investments for the year ended December 31, 2016, 2015 and 2014 was $ nil, $5,178 and
$5,913, respectively.
The unrealized holding gain (loss) for the investments, net of tax that were recognized in other comprehensive income for the year ended December 31,
2016 was other comprehensive gain of $5,300,633, as compared to $(1,376,540) and $1,611,045 for the year ended December 31, 2015 and 2014, respectively.
Reclassification adjustment of $5,557,939 in connection with other-than-temporary impairment of investments was recorded in other comprehensive income for
the year ended December 31, 2016. No adjustment was recorded in other comprehensive income for the year ended December 31, 2015 and 2014.
The Company tracks each investment with an unrealized loss and evaluates 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. Other-than-temporary impairment of investments
for the year ended December 31, 2016 was $4,611,714. For the years ended December 31, 2015 and 2014, other-than-temporary impairment of investments was
$123,428 and $1,427,840, respectively.
NOTE 11 – FAIR VALUE ACCOUNTING
The Company has adopted ASC Topic 820, Fair Value Measurement and Disclosure, which defines fair value, establishes a framework for measuring fair
value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to
measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation
techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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, 2016, 2015 AND 2014
Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.
The carrying value of financial items of the Company including cash and cash equivalents, accounts receivable, other receivables, accounts payable and
accrued liabilities, approximate their fair values due to their short-term nature and are classified within Level 1 of the fair value hierarchy. The Company’s
investments are classified within Level 2 of the fair value hierarchy because of the insufficient volatility of the three stocks traded in OTC market. The Company did
not have any Level 3 financial instruments as of December 31, 2016 and 2015.
Assets measured at fair value within Level 2 on a recurring basis as of December 31, 2016 and 2015 are summarized as follows:
Assets:
Equity position in Alpha Lujo, Inc.
Equity position in Arem Pacific Corporation
As of December 31, 2016
Fair Value Measurements at Reporting Date Using:
Quoted Prices in
Active Markets
for
Identical Assets
Total
(Level 1)
Significant Other
Significant
Observable
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
$
$
29,424
480,000
509,424
$
$
-
-
-
$
$
29,424
480,000
509,424
$
$
-
-
-
As of December 31, 2015
Fair Vaue Measurements at Reporting Date Using:
Quoted Prices in
Active Markets
for
Identical Assets
Total
(Level 1)
Significant Other
Significant
Observable
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Assets:
Equity position in Alpha Lujo, Inc.
Equity position in Arem Pacific Corporation
Equity position in Wonder International Education & Investment Group Corporation
$
$
117,694
5,200,000
61,713
5,379,407
$
$
-
-
-
-
$
$
117,694
5,200,000
61,713
5,379,407
$
$
-
-
-
-
No shares were acquired during the year ended December 31, 2016 and 2015.
As of December 31, 2016 and 2015, the Company holds 8,000,000 shares in Arem Pacific Corporation, 2,942,350 shares in Alpha Lujo, Inc. and
2,057,131 shares in Wonder International Education and Investment Group Corporation. All available-for-sale investments held by the Company at December 31,
2016 and 2015 have been valued based on level 2 inputs due to the limited trading of all three of these companies.
F-23
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, 2016, 2015 AND 2014
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.
As of December 31, 2016 and 2015, intangible assets, consisted of the following:
Patents & knowhow & license
Cost basis
Less: accumulated amortization
Software
Cost basis
Less: accumulated amortization
December 31,
2016
December 31,
2015
$
$
17,560,496
(3,539,617)
14,020,879
$
$
17,686,700
(1,790,045)
15,896,655
December 31,
2016
December 31,
2015
$
$
125,964
(54,262)
71,702
$
$
90,951
(38,506)
52,445
Total intangibles, net
$
14,092,581
$
15,949,100
All software is provided by a third party vendor, is not internally developed, and has an estimated useful life of 5 years. Patents, knowhow and license are
amortized using an estimated useful life of five to ten years. Amortization expense for the years ended December 31, 2016, 2015 and 2014 was $1,784,208,
$1,521,629 and $603,826, respectively. Estimated amortization expense for each of the ensuing years are as follows for the years ending December 31:
Years ending December 31,
2017
2018
2019
2020
2021 and thereafter
F-24
Amount
1,779,961
1,771,556
1,770,911
1,767,337
7,002,816
14,092,581
$
$
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, 2016, 2015 AND 2014
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 rental expense on a straight-line basis over the life of the lease period. Rent expense under operating leases for the year
ended December 31, 2016, 2015 and 2014 was approximately $1,043,968, $1,043,833 and $576,000, respectively.
As of December 31, 2016, the Company has the following future minimum lease payments due under the foregoing lease agreements:
Years ending December 31,
2017
2018
2019
2020
2021 and thereafter
$
Amount
965,885
718,856
459,255
252,126
546,634
$
2,942,756
NOTE 14 – RELATED PARTY TRANSACTIONS
Prior to August 26, 2014, Global Health Investment Holdings Ltd. (“Global Health”) was the Company’s largest shareholder. On August 26, 2014 Global
Health disseminated its CBMG shareholdings, on a pro rata basis, to its shareholders. Global Health and its subsidiaries are no longer the Company’s affiliate
since then. The Company received income of approximately $179,000 from the Subsidiaries of Global Health for the period ended August 26, 2014.
As of December 31, 2016, accrued expenses included director fees of $3,082 due to independent director Mr. Gang Ji. There was no director fees due to
directors as of December 31, 2015.
The Company advanced petty cash to officers for business travel purpose. As of December 31, 2016 and 2015, other receivables due from officers for
business travel purpose was $ nil and $19,214, respectively.
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.
F-25
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, 2016, 2015 AND 2014
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 upon the exercise in full of this option.
In September 2014, the Company entered into several agreements with selected parties for the purchase of AG and patents. 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 in connection with the AG acquisition and recorded expense for the issuance 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.
In March 2015, the Company closed a financing transaction pursuant to which it sold 515,786 shares of the Company’s common stock to selected
investors at $38 per share, for total gross proceeds of approximately $19,600,000. The shares were sold pursuant to separate subscription agreements between
the Company and each investor. The Company incurred a finder fee of $979,992, equal to 5% of the gross proceeds from the investors that were introduced by
such finders, which was recorded as reduction in equity.
On June 26, 2015, the Company completed its acquisition of the certain license rights to technology and know-how from Blackbird BioFinance, LLC
(“Blackbird”) and entered into an assignment and assumption agreement to acquire all of Blackbird’s right, title and interest in and to the exclusive worldwide
license to a CD40LGVAX vaccine from the University of South Florida. According to the asset purchase agreement, $1,050,500 in restricted common stock (based
on the 20-day volume-weighted average price of the Company’s stock on the closing date) will be delivered to Blackbird at closing, thus 28,120 shares of
Company common stock were issued as part of the consideration of this transaction. In addition, 18,747 shares of Company common stock (equal to $700,000
based on the 20-day volume-weighted average price of the Company’s stock on the closing date) would be delivered to Blackbird on the 6 month anniversary of
the closing date upon satisfaction of certain conditions according to the agreements. Above shares were issued in November 2015.
On February 4, 2016, the Company conducted an initial closing of a financing transaction (the “Financing”), pursuant to which it sold an aggregate of
263,158 shares of the Company’s common stock, par value $0.001 per share to Wuhan Dangdai Science & Technology Industries Group Inc. (the “Investor”) at
$19.00 per share, for total gross proceeds of approximately $5,000,000. The Investor agreed to purchase, in one or more subsequent closings, up to an additional
2,006,842 shares on or before April 15, 2016, for a potential aggregate additional raise of $38,130,000. The Company had received the proceeds of $5,000,000 on
February 4, 2016.
On April 15, 2016, the Company completed the second and final closing of the Financing with the Investor, pursuant to which the Company sold to the
Investor 2,006,842 shares of the Company’s Common Stock, for approximately $38,130,000 in gross proceeds. The aggregate gross proceeds from both closings
in the Financing totaled approximately $43,130,000. In the aggregate, 2,270,000 shares of Common Stock were issued in the Financing.
In connection with the above Financing, the Company agreed to pay a finder’s fee equal to 5% of the gross proceeds comprised of (i) $657,628 from the
gross proceeds of the Financing and (ii) 78,888 restricted shares of Common Stock based on the per share purchase price in the Financing of $19 per share. On
April 28, 2016, 78,888 shares of common stock were issued to the finder, which was recorded against the equity.
During the year ended December 31, 2016, 2015 and 2014, the Company expensed $4,742,920, $7,182,118 and $1,636,311 associated with unvested
options awards and $709,497, $410,320 and $106,392 associated with restricted common stock issuances, respectively.
During the year ended December 31, 2016, 2015 and 2014, options for 196,185, 152,404 and 3,650 underlying shares were exercised, 196,185, 152,404
and 3,650 shares of the Company’s common stock were issued accordingly.
During the year ended December 31, 2016, 2015 and 2014, 24,660, 6,253 and 27,275 shares of the Company's restricted common stock were issued to
directors, employees and advisors respectively.
F-26
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, 2016, 2015 AND 2014
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Operating lease commitments
The future minimum lease payment due under the executed operating lease agreements as of December 31, 2016 was presented in note 13 to the
consolidated financial statements.
Capital commitments
As of December 31, 2016, the capital commitments of the Company are summarized as follows:
Contracts for acquisition of plant and equipment being or to be executed
Legal proceedings
December 31,
2016
$
1,451,278
On April 21, 2015, a putative class action complaint was filed against the Company in the U.S. District Court for the Northern District of California
captioned Bonnano v. Cellular Biomedicine Group, Inc., 3:15-cv-01795-WHO (N.D. Ca.). The complaint also named Wei Cao, the Company’s Chief Executive
Officer, and Tony Liu, the Company’s Chief Financial Officer, as defendants. The complaint alleged that during the class period, June 18, 2014, through April 7,
2015, the Company made material misrepresentations in its periodic reports filed with the SEC. The complaint alleged a cause of action under Section 10(b) of the
Securities Exchange Act of 1934 (the “1934 Act”) against all defendants and under Section 20(a) of the 1934 Act against the individual defendants. The complaint
did not state the amount of the damages sought.
On June 3, 2015, defendants were served. On June 29, 2015, the Court ordered, as stipulated by the parties, that defendants are not required to respond
to the initial complaint in this action until such time as a lead plaintiff and lead counsel have been appointed and a consolidated complaint has been filed. The
deadline for filing motions for the appointment of lead plaintiff and selection of lead counsel was June 22, 2015. On that date, one motion was filed by the Rosen
Law Firm on behalf of putative plaintiff Michelle Jackson. On August 3, 2015, having received no opposition, the Court appointed Jackson as lead plaintiff and the
Rosen Law Firm as class counsel. As stipulated among the parties, Jackson filed an amended class action complaint on September 17, 2015.
The amended complaint names ten additional individuals and entities as defendants (“additional defendants”), none of whom are affiliated with the
Company, and asserts an additional claim under Section 10(b) and Rule 10b-5(a) and (c) thereunder that the Company purportedly engaged in a scheme with the
additional defendants to promote its securities. The amended complaint does not assert any claims against Mr. Liu.
On January 19, 2016, the Company filed a motion to dismiss, which was granted on May 20, 2016, with leave to amend. On June 6, 2016, Plaintiffs filed
a Second Amended Complaint, and on June 30, 2016, the Company filed a motion to dismiss. On September 2, 2016, the Court dismissed the Second Amended
Complaint with prejudice and entered judgment against Plaintiffs. On September 16, 2016, Plaintiffs filed a Notice of Appeal to the U.S. Court of Appeals for the
Ninth Circuit. On December 23, 2016, on Plaintiffs’ voluntary motion, the Ninth Circuit entered an order dismissing the appeal.
As a result of the dismissal of the appeal, all proceedings in the case against the Company and Mr. Liu are concluded. We are currently not involved in
any other litigation that we believe could have a materially adverse effect on our financial condition or results of operations.
F-27
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, 2016, 2015 AND 2014
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”, “2013 Plan” and the “2014 Plan”), and certain awards granted outside of these plans. The compensation cost that has been charged against
income related to stock options (including shares issued for services and expense true-ups and reversals described in Note 15) for the year ended December 31,
2016, 2015 and 2014 was $4,742,920, $7,182,118 and $1,636,311 , respectively. The compensation cost that has been charged against income related to restrict
stock awards for the year ended December 31, 2016, 2015 and 2014 was $709,497, $410,320 and $106,392 , respectively.
These expenses are included in overhead, general and administrative expense, selling and marketing expense as well as research and development
expenses in our Consolidated Statements of Operations.
As of December 31, 2016, there was $6,264,211 all unrecognized compensation cost related to an aggregate of 613,663 of non-vested stock option
awards and $1,049,174 related to an aggregate of 54,307 of non-vested restricted stock awards. These costs are expected to be recognized over a weighted-
average period of 1.21 years for the stock options awards and 1.26 years for the restricted stock awards.
During the year ended December 31, 2016, the Company issued an aggregate of 309,382 options under the 2013 Plan and 2014 Plan to officers,
directors, employees and advisors. The grant date fair value of these options was $3,811,362 using Black-Scholes option valuation models with the following
assumptions: grant date strike price from $12.13 to $40, volatility 88.44% to 90.03%, expected life 6.0 years, and risk-free rate of 1.07% to 2.17%. The Company is
expensing these options on a straight-line basis over the requisite service period.
During the year ended December 31, 2015, the Company issued an aggregate of 721,779 options under the 2013 Plan and 2014 Plan to officers,
directors and employees. The grant date fair value of these options was $13,687,655 using Black-Scholes option valuation models with the following assumptions:
exercise price equal to the grant date stock price of $12.91 to $38.4, volatility 88.41% to 99.27%, expected life 6.0 years, and risk-free rate of 1.39% to 1.92%. The
Company is expensing these options on a straight-line basis over the requisite service period.
During the year ended December 31, 2014, the Company issued an aggregate of 795,500 options under the 2011 Plan and 2013 Plan 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 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.
The following table summarizes stock option activity as of December 31, 2016 and 2015 and for the year ended December 31, 2016:
F-28
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, 2016, 2015 AND 2014
Outstanding at December 31, 2014
Grants
Forfeitures
Exercises
Outstanding at December 31, 2015
Grants
Forfeitures
Exercises
Outstanding at December 31, 2016
Number of
Options
Weighted-
Average Exercise
Price
$
1,425,173
721,779
(41,900)
(152,404)
1,952,648
309,382
(458,030)
(196,185)
1,607,815
$
$
7.37
20.89
15.58
4.48
12.42
18.65
19.45
4.51
12.59
Weighted-
Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic Value
8.9
$
11,065,770
7.8
$
17,701,962
7.3
$
6,355,072
Vested and exercisable at December 31, 2016
994,152
$
5.53
6.7
$
5,899,528
Exercise
Price
Outstanding
Exercisable
Number of Options
$3.00 - $4.95
$5.00 - $9.19
$12.91+
185,547
566,704
855,564
1,607,815
185,547
509,262
299,343
994,152
The aggregate intrinsic value for stock options outstanding is defined as the positive difference between the fair market value of our common stock and the
exercise price of the stock options.
Cash received from option exercises under all share-based payment arrangements for the year ended December 31, 2016, 2015 and 2014 was $885,680,
$682,303and $ 19,387, respectively.
F-29
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, 2016, 2015 AND 2014
NOTE 18 – NET 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
Net loss per basic share
Net loss per diluted share
For the Year Ended
December 31,
2016
2015
2014
$ (28,208,376)
$ (19,447,721)
$ (12,355,459)
$
-
$
-
$
(3,119,152)
$ (28,208,376)
$ (19,447,721)
$ (15,474,611)
13,507,408
-
-
13,507,408
11,472,306
-
-
11,472,306
8,627,094
-
-
8,627,094
$
$
$
$
$
$
(2.09)
$
(2.09)
$
(1.70)
$
(1.70)
$
-
-
$
$
-
-
$
$
(2.09)
$
(2.09)
$
(1.70)
$
(1.70)
$
(1.43)
(1.43)
(0.36)
(0.36)
(1.79)
(1.79)
For the year ended December 31, 2016, 2015 and 2014, the effect of conversion and exercise of the Company’s outstanding options are excluded from
the calculations of dilutive net income (loss) per share as their effects would have been anti-dilutive since the Company had generated loss for the year ended
December 31, 2016, 2015 and 2014.
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 year ended December 31, 2016, 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.
F-30
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, 2016, 2015 AND 2014
The following represent components of the current tax expense for the year ended December 31, 2016, 2015 and 2014:
Current:
US federal
US state
Foreign
Total current tax (credit) expense
Deferred:
Federal
State
Foreign
Total deferred tax expense
Total income tax (credit) expense
For the Year Ended
December 31,
2016
2015
2014
$
$
$
$
$
$
-
4,093
4,093
$
(733,158)
4,557
-
(728,601)
-
-
-
-
$
$
-
-
-
-
$
$
$
$
41,798
8,947
-
50,745
-
-
-
-
4,093
$
(728,601)
$
50,745
Tax effects of temporary differences that give rise to significant portions of the Company's deferred tax assets at December 31, 2016 and 2015 are
presented below:
Deferred tax assets:
Net operating loss carry forwards (offshore)
Net operating loss carry forwards (US)
Accruals (offshore)
Accrued compensation (US)
Stock-based compensation (US)
Investments (US)
Credits (US)
Goodwill & intangibles
Subtotal
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Property and equipment
Goodwill & intangibles
Subtotal
Net deferred tax asset
December 31,
December 31,
2016
2015
$
$
3,827,747
4,496,655
280,756
25,168
3,018,905
3,673,382
97,504
33,079
15,453,196
(15,452,737)
459
(459)
-
(459)
1,994,281
2,300,322
176,859
36,177
1,430,243
1,683,237
72,004
-
7,693,123
(7,663,450)
29,673
(1,377)
(28,296)
(29,673)
$
-
$
-
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).
F-31
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, 2016, 2015 AND 2014
As of December 31, 2016, the Company had net operating loss carryforwards of $11.1 million for U.S federal purposes, $10.7 million for U.S. state
purposes, and $9.48 million for Chinese income tax purposes, such losses are set to expire in 2034, 2034, and 2021 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 due to the unpredictability of future profit streams prior to the expiration of the tax losses. The Company's effective tax rate differs
from statutory rates of 35% for U.S. federal income tax purposes, 15% ~ 25% for Chinese income tax purpose and 16.5% for Hong Kong 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.
Pursuant to the Corporate Income Tax Law of the PRC, all of the Company’s PRC subsidiaries are liable to PRC Corporate Income Taxes (“CIT”) at a rate
of 25% except for Cellular Biomedicine Group Ltd. (Shanghai) (“CBMG Shanghai”). According to Guoshuihan 2009 No. 203, if an entity is certified as an “advanced
and new technology enterprise”, it is entitled to a preferential income tax rate of 15%. CBMG Shanghai obtained the certificate of “advanced and new technology
enterprise” dated October 30, 2015 with an effective period of three years and the provision for PRC corporate income tax for CBMG Shanghai is calculated by
applying the income tax rate of 15% in 2015 (2014: 25%; 2013: 25%).
Income tax expense for year ended December 31, 2016, 2015 and 2014 differed from the amounts computed by applying the statutory federal income tax
rate of 35% to pretax income (loss) as a result of the following:
Effective Tax Rate Reconciliation
Income tax provision at statutory rate
State income taxes, net of federal benefit
Goodwill impairement
Foreign rate differential
Other permanent difference
Change in valuation allowance
Total tax (credit) expense
NOTE 20 – COLLABORATION AGREEMENT
For the Year
Ended
December 31,
2016
For the Year
Ended
December 31,
2015
For the Year
Ended
December 31,
2014
(35)%
0%
0%
9%
2%
24%
(35)%
0%
0%
12%
4%
15%
0%
(4)%
(35)%
0%
7%
14%
0%
14%
0%
Part of AG’s business includes a collaboration agreement to establish and operate a biologic treatment center in the Jilin province of China. Under the
terms of the Collaboration Agreement dated December 10, 2012 and its supplementary agreement dated July 19, 2014 (the “Collaboration Agreement”), AG’s
collaborative partner (the “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 accounted for this transaction in accordance with ASC 808 Collaborative
Arrangements and have reflected all assets and liabilities of the treatment center. With our recent build-up of multiple cancer therapeutic technologies, we have
prioritized our clinical efforts on developing CAR-T technologies, Vaccine, Tcm and TCR clonality technologies, and not actively pursuing the fragmented technical
services opportunities.
In June 2016, the Company and the Partner agreed to terminate the Collaboration Agreement and in July 2016 entered into a cooperation termination
agreement (the “Termination Agreement”) with the Partner. In August 2016, in accordance with the Termination Agreement, the Company paid $0.3 million (RMB2
million equivalent) to settle all the liabilities with the Partner and retain the ownership of all the assets under the Collaboration Agreement.
F-32
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, 2016, 2015 AND 2014
NOTE 21 – SEGMENT INFORMATION
As stated in Note 5, as of June 23, 2014, the Company decided to discontinue the Consulting segment. As such, since the discontinuation, the Company
only has one business unit. Therefore, the Company will not be presenting segment information until such time as another segment is developed.
NOTE 22 – SUBSEQUENT EVENTS
On January 1, 2017, the Company entered into a lease agreement with Shanghai Chuangtong Industrial Development Co., Ltd., pursuant to which the
Company leased a 10,501.60 square meter building located in the “Pharma Valley” of Shanghai, the Peopleís Republic of China for research and development,
manufacturing and office space purposes. The term of the lease is 10 years, starting from January 1, 2017 and ending on December 31, 2026.
On January 9, 2017, the Company announced the commencement of patient enrollment in China for its CALL1 (“CART against Acute Lymphoblastic
Leukemia”) Phase I clinical trial utilizing its optimized proprietary CCAR011 construct of CD19 chimeric antigen receptor Tcell (“CART”) therapy for the treatment of
patients with relapsed or refractory (r/r) CD19+ Bcell Acute Lymphoblastic Leukemia.
Effective February 3, 2017, Richard Wang resigned as the Company’s Chief Operating Officer.
The governing Board of the California Institute for Regenerative Medicine (CIRM), California's stem cell agency, has awarded the Company $2.29 million
to support preclinical studies of AlloJoinTM, CBMG’s “Off-the-Shelf” Allogeneic Human Adipose-derived Mesenchymal Stem Cells for the treatment of Knee
Osteoarthritis in the United States in February 2017.
NOTE 23 – UNAUDITED QUARTERLY FINANCIAL INFORMATION
Selected Income Statement Data:
Net sales and revenue
Gross Profit/(Loss)
Loss from continuing operations
Net loss
Net loss per share :
Basic
Diluted
Selected Income Statement Data:
Net sales and revenue
Gross Profit
Loss from continuing operations
Net loss
Net loss per share :
Basic
Diluted
Q4
Q3
Q2
Q1
Total
Year ended December 31, 2016
$
$
57,828
33,319
(6,139,761)
(6,139,761)
10,012
884
(10,661,220)
(10,661,220)
$
71,599
(251,988)
(7,197,282)
(7,197,282)
$
$
488,491
(14,702)
(4,210,113)
(4,210,113)
627,930
(232,487)
(28,208,376)
(28,208,376)
(0.43)
(0.43)
(0.75)
(0.75)
(0.52)
(0.52)
(0.35)
(0.35)
(2.09)
(2.09)
Q4
Q3
Q2
Q1
Total
Year ended December 31, 2015
$
$
620,167
75,543
(4,991,877)
(4,991,877)
$
624,907
181,491
(5,142,198)
(5,142,198)
656,959
258,730
(5,026,475)
(5,026,475)
$
$
603,390
109,328
(4,287,171)
(4,287,171)
2,505,423
625,092
(19,447,721)
(19,447,721)
(0.43)
(0.43)
(0.44)
(0.44)
(0.44)
(0.44)
(0.39)
(0.39)
(1.70)
(1.70)
F-33
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Lease Contract
Exhibit 10.48
Lessor: Shanghai Chuangtong Industrial Development Co., Ltd. (hereinafter referred to as Party A)
Registered address: No. 89, Faladi Road, China (Shanghai) Pilot Free Trade Zone Legal Legal Representative: Zhou Huajie
Lessee: Shanghai Saibiman Biotechnology Co., Ltd. (hereinafter referred to as Party B)
Registered address:
Legal representative:
Whereas,
1. Party A is a legally registered and operated company with business scope covering lease of self-owned house;
2. Party B is a company engaged in innovative R&D in biotechnology field and it plans to rent house from Party A for the purposes of scientific research and office
work;
3. Party A signed a Deposit Agreement with Cellular Biomedicine Group (Shanghai) Ltd, an affiliated company of Party B (hereinafter referred to as “Cellular
Biomedicine Company”) on September 26, 2016 previously. Currently, Party A, Party B and Cellular Biomedicine Company agree that Party B enjoys and
undertakes all rights and obligations of Cellular Biomedicine Company in Deposit Agreement and capital already paid by Cellular Biomedicine Company to Party A
is deemed as payment by Party B.
Party A and Party B hereby enter into this contract for mutual observation and execution after reaching negotiated consensus concerning the matter that
Party B rents house from Party A according to stipulations set out in relevant laws and regulations such as Contract Law of the People’s Republic of
China, based on Deposit Agreement and on the basis of equality, free will, fairness and good faith.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
I. Conditions of Leased House
1. Party A rents out a whole five-floor building located in 3# Building, No. 85,
Faladi Road, Pudong New Area, Shanghai (hereinafter referred to as “Object House”) to Party B for use, covering a construction area of 10,501.6m2.
The plan of this house is shown in Appendix 1 of this contract . The real estate ownership certificate number shall be in line with property ownership
issued by real estate department.
2. Party A has already clearly informed Party B that mortgage of Object House is already established in Shanghai Rural Commercial Bank Pudong
Branch before signing this contract. If the mortgagee realizes mortgage right to result in Party B’s failure to continuously rent Object House, Party A
shall not only refund the lease deposit in double amount but also undertake liabilities for breach of contract to Party B according to stipulations set out
in Paragraph 5 of Article X of this contract.
II. Usage of Lease
1. Party B promises to Party A that Object House rented is only used for R&D, production and office and Party B will abide by relevant house use and property
management provisions of the state and the city.
2. Party B guarantees not to change the usage agreed above without authorization unless otherwise consented by Party A in writing and reviewed and approved
by relevant department as stipulated within lease term.
III. Delivery of Object House and Lease Term
1. Party A and Party B agree that Party A delivers Object House to Party B on January 1, 2017 (date of delivery). The term of lease contract lasts for ten (10) years
and it is calculated since the date of delivery of Object House as per anniversary, i.e. from January 1, 2017 to December 31, 2026.
2. When Party A delivers Object House to Party B, Party B and Party A (including property management personnel of Object House entrusted by Party A) to clearly
check Object House and its auxiliary facilities, decorative materials, other articles and public facilities. Party A guarantees that elevator, fire protection and security
system, public toilets, tap water system and pump house of Object House are under normal service statuses. If such facilities are damaged, Party A shall finish the
repair work itself or by entrusting professional organization within 3 days or other time limit approved by Party B. The parties will jointly sign Confirmation of
Delivery on this basis as a voucher indicating Party A’s completion of its delivery obligation.
3. Upon expiry of lease term, Party A has the right to take back Object House while Party B shall return it as scheduled. If Party B needs to continuously rent
Object House, it shall submit a written request for renewal of lease to Party A 3 months before expiry of lease term. The lease contract can be resigned after Party
A consents. 8. Party A shall rent out Object House to Party B under same conditions after expiry of lease term.
2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
IV. Rent-free Period of Decoration and Lease Inception
1. Party A agrees to offer a 150-day rent-free period of decoration to Party B. This rent-free period shall be calculated since the date of delivery of Object House.
Party B’s decoration scheme shall be approved by Party A in writing ahead of time. If it is required to submit the decoration scheme to relevant department for
approval as stipulated, the decoration may be conducted only after being approved by relevant department.
2. The date when rent of Object House is initially calculated is the second day after expiry of rent-free period of decoration, i.e. June 1, 2017. Party A and Party B
agree to begin the calculation of rent since the initial rent calculation day.
3. Only rent is exempted during rent-free period. Water bill, electric charge, network fee and property fee incurred during use of Object House shall still be borne by
Party B. If Party B completes decoration work ahead of time, Party B may check in to work ahead of time while Party A will still calculate lease term and rent since
the lease inception.
4. When Party B enters the site for decoration, Party A shall assist and coordinate Party B’s completion of administrative filing work such as fire protection filing.
5. If relevant accident occurs, or Party B is unable to conduct decoration work within rent-free period due to Party A’s reason, the rent-free period of decoration
shall be postponed with same duration and Party A shall assume relevant responsibilities; Party B shall take relevant responsibility for relevant accident resulting
from Party B’s reason. If losses are caused to Object House, Party B shall compensate relevant losses.
V. Rent, Payment Method and Term
1. As for rent of Object House in the first year (calculated since lease inception as per anniversary), the rent of floor 1 is 4.3 Yuan/m2/day (same currency below),
the rent of floor 2-5 is 3.7 Yuan/m2/day. The rent in the first and the second years within lease term remains unchanged. Later, the rent will be progressively
increased with growth rate of 6% per two years. The current property management fee is 12 Yuan/m2/month. It will be uniformly adjusted based on actual
circumstances and according to provisions of the park. See the followings for details:
Stage 1
Stage 2
Stage 3
Stage 4
Stage 5
Year 1-2
Year 3-4
Year 5-6
Year 7-8
Year 9-10
Rent of floor 1: 4.30 Yuan/m2/day
Rent of floor 1: 4.56 Yuan/m2/day
Rent of floor 1: 4.83 Yuan/m2/day
Rent of floor 1: 5.12 Yuan/m2/day
Rent of floor 1: 5.43 Yuan/m2/day
Rent of floor 2-5: 3.70 Yuan/m2/day
Rent of floor 2-5: 3.92 Yuan/m2/day
Rent of floor 2-5: 4.16 Yuan/m2/day
Rent of floor 2-5: 4.41 Yuan/m2/day
Rent of floor 2-5: 4.67 Yuan/m2/day
3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2. Party B shall deliver rent of the first period (six months for each period), property management fee and lease deposit equal to three months of rent (i.e. paying of
six months of rent and three months of rent as lease deposit) within fifteen working days after this contract is signed and Party A completes the delivery of Object
House. Due to existence of a rent-free period lasting for 150 days, Party B is only required to pay one month of rent as the rent in the first period. During the whole
lease term, Party B shall pay rent and property management fee of the second half year to Party A within 30 working days before start of every half a year. a
3. Since Party B has already paid deposit of RMB 1,200,000.00 Yuan (RMB One Million and Two Hundred Thousand Yuan only) before signing of this lease
contract and it is agreed that this amount is used to deduct rent in the first period upon signing of this contract, Party B shall still pay rent in the first period, property
management fee and lease deposit with a total amount of RMB 4,434,119 Yuan within fifteen working days after this lease contract is signed and Party A delivers
Object House.
4. Expenses incurred during use of Object House within lease term such as water bill, electric charge, gas fee, communication fee and equipment fee shall be
borne by Party B. Party A shall vicariously collect and pay such expenses every month based on actual circumstances.
VI. House Use Requirements and Repair Responsibilities
1. The standards of Object House delivered by Party A are consistent with its status quo. Also, the entrance door on floor 1 of Object House shall be relocated to
the middle upon Party B’s request. Party A guarantees that this house and its auxiliary facilities are under a normal serviceable and safe status.
2. Party A confirms that the design load-bearing live load of floor slabs of Object House is 2.5kN/m 2. This figure can be increased to 6kN/m 2 due to Party B’s
demand for scientific research.
3. Party B may implement decoration and fitment of Object House according to actual demand (including installation of freight elevator outside the building), while
Party A may offer necessary assistance. Relevant expenses shall be borne by Party B itself. Party B’s responsibility for repair of decoration and fitment shall be
borne by Party B itself.
4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
4. If any accident, loss compensation, administrative responsibility or other situation occurs, or certain losses are caused to Party A’s Object House during
decoration, reinforcement and use of Object House due to Party B’s fault, Party B shall assume all legal liabilities and actively take charge of repair and
compensation. If Party A has to take responsibility for others due to the foregoing, Party A will have the right to demand compensation from Party B. If damage or
fault obstructing safe and normal use of Object House occurs to Object House or its auxiliary facilities not due to Party B’s fault, Party B shall timely inform Party A
and take possible effective measures to prevent further expansion of defects; in case of emergency repair application (referring to faults influencing Party B’s work
and operational safety, such as big-area rain leakage of the house), Party A shall come to repair within eight hours after Party B sends a notice of emergency repair
application; as for general repair application beyond emergency repair application, Party A shall come to repair within three days after Party B sends a notice of
repair application. If Party A fails to do so within the abovementioned time limit, Party B will have the right to repair itself or by entrusting a third party. Relevant
repair expenses and funds shall be borne by Party A and they will be deducted by Party B from rent payable to Party A.
5. Party B shall reasonably use and take good care of this house and its auxiliary facilities during lease term. If this house and its auxiliary facilities are subject to
damages and faults due to Party B’s improper or unreasonable use, Party B shall timely take charge of repair and renovation. If Party B delays or refuses to repair
or renovate, Party A may do the work on behalf of Party B and expenses therefore incurred shall be borne by Party B.
6. If Party B needs to decorate or add auxiliary facilities and equipment besides those agreed herein above, it shall obtain Party A’s written consent first and then
report to relevant department for approval as stipulated. Party B may decorate or add such facilities and equipment only after being approved by relevant
department.
VII. Status of House upon Return
1.
2.
If this lease contract is canceled ahead of time due to Party A’s reason or it is terminated upon expiry of lease term, Party B will not be required to recover
Object House returned to original shape. However, Party B shall ensure that Object House is free from hidden dangers involving safety, health, etc..
If Party B throws a lease ahead of time, or Party B breaches the contract and consequently Party A cancels the lease contract, Party B shall recover Object
House returned to original shape as that upon delivery and there shall be no hidden dangers involving safety, health, etc If a subsequent lessee is willing to
deliver the house under its status quo, or it is not required to recover with Party A’s written consent, Party B will not be required to recover Object House upon
return.
3. When Party B returns Object House, Party A’s acceptance and recognition shall be obtained. Besides, the parties shall settle expense payable by themselves.
5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
VIII. Sublease
1.
If Party B subleases the house within lease term, Party A’s written consent shall be obtained ahead of time before Party B subleases this house to others in
part or in whole. Party B shall not adopt any subleasing behavior without Party A’s written consent ahead of time.
IX. Conditions for Cancelation of Contract
1. Party A and Party B agree that this contract can be naturally terminated within lease term if Object House is damaged or lost due to force majeure. After Party
A returns lease deposit and rent to Party B according to actual lease term of Party B, the parties will not assume liabilities for breach of contract to each other.
2. Party A and Party B agree that Party A shall return lease deposit and rent to Party B according to actual lease term and Party B will have the right to enjoy
relevant compensation according to relevant policies of the state if Object House is legally acquired due to public interests or land use right within scope of
occupation of Object House is legally taken back ahead of time. Once such conditions occur, Party A shall immediately inform Party B and allow Party B to
take part in the negotiation with relevant functional departments of the government all the way.
3. Party A and Party B agree that either party may inform the other party in writing to cancel this contract under any of the following circumstances.
(1) Restriction or defect of right exists in the leased house or Party A fails to faithfully disclose any matter to result in the restriction of use of leased house by Party
B and even failure to use the house;
(2) Party B changes usage of the house without Party A’s written consent and still fails to repair or correct within a reasonable time after receiving a written notice
from Party A;
(3) The main structure of the house is damaged due to Party B’s reason and Party B still fails to repair it within a reasonable time after receiving a written notice
from Party A;
(4) Party B subleases Object House without Party A’s written consent and fails to correct within ten working days after receiving a written notice from Party A;
(5) Party B delays the paying of rent, property management fee and other expenses for more than 30 accumulated days and still fails to make the payment within
ten working days after receiving a written notice from Party A;
(6) Party B’s decoration scheme is not approved by Party A in writing ahead of time or Party B fails to decorate the house according to decoration scheme agreed
by Party A, and in this case Party B refuses to rectify within a reasonable time limit after Party A sends a written notice demand rectification or the requirement is
still not fulfilled even after rectification;
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
4. Either party may send a written notice of premature cancelation of contract to the other party six months ahead of time before expiry of lease term (six months
before date of premature surrender of lease). This contract is terminated immediately when the notice is received by the other party. If Party A cancels the
contract ahead of time, Party A shall not only compensate amount listed in Paragraph 5 of Article X of this contract to the observant party but also return the
lease deposit in double amount; if Party B cancels the contract ahead of time, Party B shall compensate 11 months of rent to Party A and lease deposit
already paid by Party B will not be returned.
X. Liabilities for Breach of Contract
1.
2.
3.
If Party B delays the paying of relevant funds for more than five days according to term agreed herein, Party B shall pay 0.1% of payable to Party A as
liquidated damages for each delayed day since the sixth day. If the delay accumulatively exceeds 30 days, Party A will have the right to unilaterally inform
Party B in writing to cancel this house lease contract. If Party B cancels the contract, Party B shall compensate 11 months of rent to Party A and lease deposit
already paid by Party B will not be returned.
If the main structure of Object House is damaged due to Party B’s reason, Party A shall send a written notice requiring Party B to repair it within a reasonable
time limit. If Party B does not repair, Party A will have the right to choose to cancel this contract. Party B shall compensate 11 months of rent to Party A and
lease deposit already paid by Party B will not be returned.
If Party B subleases Object House or changes the usage of the house without Party A’s written consent, Party A shall send a written notice requiring Party B to
correct it within a reasonable time limit. If Party B does not correct, Party A will have the right to choose to cancel this contract. Party B shall compensate 11
months of rent to Party A and lease deposit already paid by Party B will not be returned.
4. Party B shall return Object House to Party A according to conditions agreed herein within 15 days since the date when this lease contract is terminated
regardless of reason. If Party B fails to return the house within the abovementioned time limit or the return of house does not meet the requirement, Party B
shall pay house occupation fee according to standard of double rent.
If restriction or defect of right exists in the leased house or Party A fails to faithfully disclose any matter to result in the restriction of use of leased house by
Party B and even failure to use the house and consequently Party B cancels this lease contract, Party A shall not only return lease deposit already paid by
Party B in double amount but also assume liabilities for breach of contract according to the following table.
5.
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Year of lease
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6- Year 10
XI. Dispute Settlement
Compensation limit
Six months of rent + RMB 25 million (as per actual decoration loss)
Six months of rent + RMB 20 million
Six months of rent + RMB 15 million
Six months of rent + RMB 10 million
Six months of rent + RMB 5 million
Six months of rent
If a dispute arises during performing of this lease contract, Party A and Party B shall settle it through amicable negotiation. If negotiation fails or no
consensus is reached during negotiation, either party may file a lawsuit to people’s court of Shanghai Pudong New Area in the place where Object
House is located.
XII. Miscellaneous
1. If Party A needs to sell Object House within lease term, it shall inform Party B one month ahead of time. Party B enjoys the right of first refusal under same
conditions. Besides, Party B’s right to rent shall not be affected according to principle of no break of lease with bargain.
2. Party A and Party B are strictly prohibited to disclose contents of business secrets involved herein and all terms of this contract to a third party (unless otherwise
for the purpose of obtaining of legal assistance, and other relevant assistance). Otherwise, the responsible party shall assume all consequences.
3. When signing this contract, Party A and Party B are very clear about their rights, obligations and responsibilities and they are willing to strictly execute
stipulations set out herein.
4. Party A and Party B shall hold this contract and relevant supporting documents and apply to Real Estate Transaction Center of Pudong New Area for lease
registration and filing within 15 working days since the date when this contract takes effect.
5. Contact addresses specified in this lease contract are addresses for service determined by the parties. Otherwise, notice sent to the abovementioned address
will be deemed as already delivered once sent. If either party needs to change its address, it shall timely inform the other party in writing.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
6. Matters not mentioned herein shall be specified in supplementary agreement or appendix negotiated and signed by the parties separately.
7. This contract is made in four copies. Party A and Party B shall hold two copies respectively with same legal effect. This contract takes effect after the parties
sign their names and stamp seals.
Party A (signature and seal): (Seal)
Legal representative:
Contact address:
Signing date: 01/01/2017
Party B (signature and seal): (Seal)
Legal representative:
Contact address:
Signing date: 01/01/2017
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EMPLOYMENT AGREEMENT
(Amended and Restated as of March 3, 2017)
Exhibit 10.56
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into effective as of April 11, 2016 (the “Effective Date”) by and between
Cellular Biomedicine Group Inc., a Delaware corporation (the “Company”) on behalf of itself and any of its subsidiaries, affiliates and related entities and Bizuo
(Tony) Liu (the “Executive”) (the Company and the Executive, collectively, the “Parties,” and each, a “Party”). This Agreement is amended and restated effective as
of March 3, 2017 (the “Restatement Effective Date”). Certain capitalized terms are defined in Section 28.
WHEREAS, the Company desires to employ the Executive as President and Chief Executive Officer of the Company, and the Executive is willing to do so,
pursuant to the terms of this Agreement.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements set forth herein and for other good and valuable
consideration, the sufficiency and receipt of which are hereby acknowledged, the Company and the Executive hereby agree as follows:
1) Employment.
a) As of the Restatement Effective Date, the Company will employ the Executive, and the Executive will be employed by the Company, upon the terms and
conditions set forth herein.
b) The employment relationship between the Company and the Executive shall be governed by the general employment policies and practices of the
Company, including without limitation, those relating to the Company’s Code of Conduct and Ethics, confidential information and avoidance of conflicts,
except that when the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or practices, the terms of this
Agreement shall control.
2) Employment Term. Subject to earlier termination under Section 9, the Executive’s employment under this Agreement shall be for an initial term that
commences on the Restatement Effective Date and continues through March 2 (the “Initial Employment Term”), 2021. At the end of the Initial Employment
Term and on each succeeding anniversary of the Restatement Effective Date, the term of the Executive’s employment under this Agreement will (subject to
earlier termination under Section 9) be automatically extended by an additional twelve (12) months as of 12:00 a.m. on the anniversary of the Restatement
Effective Date (each, a “Renewal Term”) (the Initial Employment Term and any subsequent Renewal Term, the “Employment Term”), unless not less than
ninety (90) days prior to the end of the Initial Employment Term or any Renewal Term, either Party has given the other Party written notice of non-renewal in
accordance with Section 20. In the event of any voluntary termination of his employment under this Agreement by the Executive, he shall provide the
Company with at least 30 days written notice of his intent to terminate such employment.
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3) Position and Duties of the Executive.
a) During the Employment Term, the Executive shall serve as the President and Chief Executive Officer of the Company and shall have such duties and
authorities consistent with such position as are customary for the position of chief executive officer of a company of the size and nature of the Company,
and such other duties and authorities as shall be reasonably determined from time to time by the Board of Directors of the Company (the “Board”)
consistent with such position and agrees to serve as an officer and/or be an employee of any Subsidiary as may be reasonably requested from time to
time by the Board or any committee of the Board. In his capacity as President and Chief Executive Officer of the Company, the Executive shall report only
to the Board and shall be the highest-ranking senior officer of the Company. During the Employment Term, all employees of the Company and its
Subsidiaries shall report, directly or indirectly, to the Executive. The Company will throughout the Employment Term nominate the Executive for election to
the Board by the Company’s shareholders at all future annual shareholders’ meetings and any special shareholder meeting at which members of the Board
are elected.
b) During the Employment Term and except as may from time to time be otherwise agreed to in writing by the Company, or during reasonable vacations
taken in accordance with Section 7, or during authorized leave, or as otherwise provided in Section 3(c), the Executive shall devote his best reasonable
efforts, exclusive and full attention and energies (except for attention to personal interests outside of normal working time) to the Executive’s position and
duties as set forth in Section 3(a), in each case within the framework of the Company’s policies and objectives.
c) During the Employment Term, Executive may not undertake any other paid work without the Company’s prior express written authorization, which
authorization may be revoked at any time in the Company’s sole discretion. However, provided that such activities do not contravene the provisions of
Sections 3(a), 10, 11, 12, or 13 and provided further, that the Executive does not engage in any other substantial business activity for gain, profit or other
pecuniary advantage which materially interferes with the performance of his duties hereunder, the Executive may (i) participate in any governmental,
educational, charitable or other community affairs, (ii) subject to the prior approval of the Board, serve as a member of the governing board of any such
organization or any private or public for-profit entity, (iii) manage his personal investments and affairs, and (iv) engage in any other activity that has been
approved by the Board. The Executive may retain all fees and other compensation or other proceeds from any such service or activities, and the
Company shall not reduce his compensation hereunder by the amount of such fees, compensation or other proceeds.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
4) Compensation.
a) Base Salary. Effective January 22, 2017 and during the Employment Term, the Company shall pay to the Executive an annual base salary of $300,000
(the “Base Salary”), which Base Salary shall be payable at the times and in the manner consistent with the Company’s general policies regarding payment
of salary to the Company’s senior executives but no less frequently than monthly, less lawful deductions including the permitted allowance consistent with
expat tax deduction allowance practice in China comprised of the following as deduction to the China Individual Income Tax:
● Allowances for housing, meals, relocation and laundry expenses; and
● Relocation expenses upon commencement or cessation of employment in China; and
● Reasonable business travel expenses and two personal trips to the Executive’s country of origin; and
● Reasonable allowances for language training and children’s education.
After December 31, 2017, the Base Salary will be reviewed at least annually by the Compensation Committee and may be increased, from time to time in
the Compensation Committee’s sole discretion.
b)
Incentive Compensation. The Executive will be eligible to participate in any short term and long-term incentive compensation plans and such other
management incentive programs or arrangements of the Company approved by the Board that are generally available to the Company’s senior executives.
Except to the extent otherwise provided in this Agreement, incentive compensation shall be paid in accordance with the terms and conditions of the
applicable plans, programs and arrangements and the documents evidencing the grant of awards thereunder. Such participation shall include the
following.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
i. Annual Performance Bonus. During the Employment Term, contingent upon Executive attaining the individual performance objectives set by the
Compensation Committee in its sole discretion, as such objectives may change from time to time, the Executive shall be entitled to participate in the
Annual Performance Bonus, with such opportunities as may be determined by the Compensation Committee in its sole discretion (each such annual
opportunity, a “Target Bonus”); provided, however, that beginning on January 1, 2017 and for each calendar year thereafter that commences during the
Employment Term, the Executive will participate at an annual Target Bonus opportunity of 50% of his Base Salary, which percentage may be
increased. Executive is not entitled to payment of this Annual Bonus until such time as the Compensation Committee informs the Executive that the
Annual Bonus has been “earned.” Each earned bonus payable pursuant to this Section 4(b)(i) shall be paid in a cash lump sum no later than January
31 and shall be referred to herein as a “Bonus Award”. Executive is not entitled to payment of any Annual Bonus, or portion thereof, which has not
been “earned” as of the date of termination of employment, regardless of the reason for termination. Any document provided by the Company or
Compensation Committee at any point after the execution of this Agreement which details Executive’s entitlement to the Annual Bonus described
herein shall be considered part of this Agreement and deemed incorporated herein unless it is expressly stated that such document supersedes the
terms of this provision.
ii. Long-Term Incentive Plan (the “LTIP”). During the Employment Term, the Executive shall be entitled to participate in the Long-Term Incentive Plan
with such opportunities as may be determined (consistent with this Section 4(b)(ii)) by the Compensation Committee (the target opportunities referred
to herein as the “LTIP Target Award Opportunities”). The Executive shall be granted, effective as of the Restatement Effective Date (the “Grant Date”),
an initial LTIP Target Award Opportunity with a total aggregate 360,000 shares on the Grant Date (the “Initial LTIP Target Award”), with 120,000
shares of such value granted as a time-vesting nonqualified stock option award, 120,000 shares of such value granted as a time-vesting restricted
stock unit award and 120,000 shares of such value granted as a Company’s Common Stock price performance-vesting restricted stock unit award.
The Initial LTIP Target Award is intended to cover any LTIP awards that might otherwise have been granted to the Executive under this Section 4(b)(ii)
for 2017. The Executive shall be entitled to no LTIP awards for 2018, 2019 or 2020. For purposes of clarity, save for the event of a Change of Control
upon which all of the Executive’s outstanding Initial LTIP Target Award shall be accelerated and vested in full, the portion of the Initial LTIP Target
Award granted in the form of performance-based restricted stock units shall be subject to the performance targets and periods established by the
Compensation Committee for the 2017 LTIP for the Company’s senior executives, and can only be accelerated due to death, disability or termination of
employment in accordance with Section 9(b).
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(1) Taxes. The Executive is liable for any and all taxes, including withholding taxes, arising out of this Initial LTIP Target Award grant or the issuance
of the Common Stock on vesting and delivery of the RSUs. The Company is authorized to deduct the amount of tax withholding from the amount
payable to you upon settlement of the RSUs. The Company will withhold from the total number of shares of Common Stock the Executive is to
receive a number of shares the value of which is sufficient to satisfy any such withholding obligation at the minimum applicable withholding rate.
5) Benefits.
a) Executive shall receive benefits, including, but not limited to, life insurance and retirement plan participation, as determined by the Board of Directors. To
the extent offered and maintained by the Company, Executive shall be entitled to participate in the Employer’s healthcare plans, welfare benefit plans,
fringe benefit plans, profit sharing plans, and any qualified or non-qualified retirement plans as may be in effect from time to time, on the same basis as
those benefits are made available to the other similarly situated employees of the Company, in accordance with the Company policy as in effect from time
to time and in accordance with the terms of the applicable plan documents (if any). Nothing in this Agreement shall be construed as requiring the
Company or any affiliate of the Company to offer or maintain any particular employee benefit plan or program or preclude the Company from terminating
same from time to time.
b) Without limiting the generality of Section 5(a), in the event the Executive becomes Disabled during the Employment Term, the Executive shall be entitled
to periodic payments in an aggregate amount equal to his Base Salary in effect immediately prior to the date that he is Disabled, which payments shall be
paid to the Executive in equal installments on the regular payroll dates under the Company’s payroll practices applicable to its senior executives (but no
less frequently than monthly), until six months after the first anniversary of the date he was Disabled, but reduced by any disability benefits paid under all
other plans during such disability period provided that payments under this Section 5(b) are made at the same time as the installments contemplated
herein. Each payment payable pursuant to this Section 5(b) is intended to constitute a separate payment for purposes of Treasury regulation section
1.409A-2(b)(2). For the avoidance of doubt, the Disability Benefits described herein are intended to comply with Section 409A(a)(2)(A) and Treasury
Regulation Section 1.409A-3.
6) Expenses. The Company shall promptly pay or reimburse the Executive for business expenses reasonably incurred by the Executive in connection with his
duties on behalf of the Company following submission by the Executive of appropriate documentation substantiating such expenses.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
7) Vacation. In addition to company and public holidays at the Place of Performance, sick leave, personal leave and other paid leave as is allowed under the
Company’s policies applicable to senior executives generally, the Executive shall be entitled to participate in the Company’s vacation policy at a minimum of
three (3) weeks vacation per calendar year, in accordance with the Company’s policy generally applicable to senior executives.
8) Place of Performance. The Executive’s principal place of work, subject to reasonable and necessary domestic and international travel requirements, shall be at
the China office of the Company, which is currently located in Shanghai, China. If the Company relocates the Executive’s principal place of work more than 50
miles from his principal place of work immediately prior to such relocation, the Executive shall, subject to any right to terminate his employment for Good
Reason, establish a residence within the greater of (a) 50 miles of such relocated office or (b) the total number of miles the Executive commuted to his
principal place of work prior to such relocation. To the extent the Executive establishes new residences as provided in this Section 8, the Company will pay or
reimburse the Executive’s relocation expenses in accordance with the Company’s relocation policy that is then applicable to its most senior executives.
9) Termination.
a) Termination Upon Non-Renewal of the Employment Term by the Executive or the Company, Termination by the Company for Cause, or Resignation by
the Executive Without Good Reason. If the Executive or the Company provides notice of non-renewal of the Employment Term in accordance with Section
2 and the Executive’s employment hereunder terminates upon the resulting expiration of the Employment Term, or if the Executive’s employment
hereunder is terminated by the Company for Cause, or if the Executive resigns his employment hereunder without Good Reason, the Executive shall not
be eligible to receive Base Salary, or to participate in any Employee Plans, with respect to any period of time after the date the Executive’s employment
hereunder terminates (the “Termination Date”) unless the Parties otherwise agree in writing.
b) Termination by the Company Without Cause or within one-year following completion of a Change of Control, or Resignation by the Executive with Good
Reason . If, the Executive’s employment hereunder is terminated by the Company without Cause, or within one-year following completion of a Change of
Control, the Executive’s employment hereunder is terminated by the Company without Cause, or the Executive terminates his employment hereunder with
Good Reason, the Executive shall be entitled to receive, conditioned upon the Executive’s execution and delivery to the Company of a Release in the form
of Exhibit A hereto, within the Release Consideration Period and upon the expiration of the Release Revocation Period without revocation, and in full
satisfaction of any rights the Executive might otherwise have under the Agreement:
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
i. An aggregate amount equal to two times the Base Salary in effect immediately prior to the Termination Date.
ii. Payment of a pro rata Bonus Award for the portion of the Company’s then current fiscal year prior to and including the Termination Date.
iii. Heath Insurance Coverage. A cash payment equal to its portion of the applicable 12-month COBRA (or equivalent health insurance coverage
comparable to the terms in effect immediately prior to the Termination Date) premiums on an after-tax basis, with such payment to be made in the
same month for which the continuation coverage was otherwise to be provided but no less than 30 days after the Termination Date for the Executive
and his eligible family members. Notwithstanding the forgoing provisions of this paragraph, in the event the Executive becomes reemployed with
another employer and becomes eligible to receive medical and dental benefits from such employer during any month in the 12 month continuation
period provided for by this paragraph, the Company shall have no obligation to pay, reimburse or otherwise provide the Executive with continuation
coverage for any such month.
iv. Outplacement services, paid for by the Company promptly following receipt of appropriate documentation substantiating the expense, up to a
maximum amount of $35,000; provided, however, that all outplacement services that are paid for by the Company must be completed, and all
payments by the Company must be made, by December 31st of the second calendar year following the calendar year in which the Executive’s
Separation from Service occurs.
v. With respect to any outstanding equity, or equity-based, awards, accelerate and vest in full effective as of immediately upon the Termination Date; and
with respect to all vested stock options, the post-termination exercise period shall be fifteen months from the date of Separation from Service. For the
avoidance of doubt, the terms on post-termination exercise period in this Section 9(b), and the Section 4(b)(ii)(1) withholding tax terms shall be the
controlling terms for all of the Executive’s vested stock options and the issuance of the Common Stock on vesting of RSUs.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
i. With respect to the Initial LTIP Target Award, the accelerated vesting and payout of any award shall be subject to the Release Requirements of this
Section 9(b).
Notwithstanding anything in this Section 9(b) to the contrary, to the extent the Executive has not executed the Release and delivered it to the Company
within the Release Consideration Period, or has revoked the executed Release within the Release Revocation Period, the Executive will forfeit any right to
receive the payments and benefits specified in this Section 9(b) and to the extent any such payments and benefits have been paid, the Company shall
have the right to recover the after-tax amount of any such payment.
c) Termination by Death . If the Executive dies during the Employment Term, the Executive’s employment hereunder will terminate as of the date of his
death.
d) Termination by Disability . If the Executive becomes Disabled prior to the expiration of the Employment Term, the Executive’s employment hereunder
will terminate, and the Executive and his eligible family members shall be entitled to continue to participate, through the first anniversary of the Termination
Date, in the Company’s health plans at his then-existing participation and coverage levels and on the terms that are in effect from time to time for the
Company’s senior executives.
e) No Mitigation Obligation . In the event of any termination of the Executive’s employment hereunder, the Executive shall be under no obligation to seek
other employment or otherwise mitigate the obligations of the Company under this Agreement, and no amounts paid, or benefits provided, under Section 9
will be reduced on account of any compensation or benefits that the Executive may receive from any other source, except as expressly provided in
Section 9.
f ) Forfeiture. Notwithstanding the foregoing, any right of the Executive to receive termination payments and benefits under Sections 9(b) or 9(c) (or
continued vesting or vesting acceleration of equity awards pursuant to the terms and conditions of such awards) shall be subject to forfeiture to the extent
provided in Section 14 after any breach of Section 10, 11, or 12 by the Executive.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
g) Accrued Benefits. Upon any termination of the Executive’s employment hereunder, regardless of the reason, (i) the Executive shall promptly receive
any accrued but unpaid cash compensation (including, without limitation, Base Salary through the Termination Date and cash compensation for accrued
but unused vacation days) and (notwithstanding his termination) reimbursement for business expenses incurred prior to the Termination Date and
otherwise reimbursable under Section 6; (ii) other than in connection with a termination of the Executive’s employment hereunder by the Company for
Cause, or by the Executive without Good Reason and not due to non-renewal of the Employment Term as a result of the notice of non-renewal from the
Executive, the Executive shall be entitled to payment of any unpaid Bonus Award for any fiscal year that ended prior to, or is ending during the year of, the
Termination, determined and paid in good faith without any exercise of negative discretion at the time of determination that is not also applied in equal
percentage amounts across-the-board to the bonuses payable to the Company’s other senior executives; (iii) the Executive shall be entitled to any vested,
accrued or earned benefits under any Employee Plan or equity, or equity-based, award in accordance with the terms of such Employee Plan and
applicable law; and (iv) the Executive shall be entitled to any other non-duplicative payments or benefits then or thereafter due in accordance with the then
applicable terms of any applicable Company Arrangement.
10. Confidential Information; Statement to Third Parties .
a) During the Employment Term and following termination of Executive’s employment, the Executive acknowledges and agrees that:
i.
all information, whether or not reduced to writing (or in a form from which information can be obtained, translated, or derived into reasonably usable
form) and whether compiled or created by the Company, any of its Subsidiaries, or any entity or venture in which the Company, directly or indirectly,
has an ownership interest of 20% or more or which has an ownership interest of 20% or more in the Company (collectively, the “Company Group”) of
a proprietary, private, secret or confidential nature (including, without exception, inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, sales strategies, plans, research data, clinical data, financial data, personnel data, computer
programs, customer and supplier lists, trademarks, service marks, copyrights (whether registered or unregistered), artwork, and contacts at or
knowledge of customers or prospective customers) concerning the Company Group’s business, business relationships or financial affairs, which
derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value
from the disclosure or use of such information (collectively, “Proprietary Information”) shall be the exclusive property of the Company Group.
ii.
reasonable efforts have been put forth by the Company Group to maintain the secrecy of its Proprietary Information; and
iii. any willful retention or use by the Executive of Proprietary Information that violates this Agreement after the termination of the Executive’s employment
will constitute a misappropriation of the Company Group’s Proprietary Information.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
b) The Executive further acknowledges and agrees that he will take all affirmative steps as reasonably necessary or requested by the Company to protect the
Proprietary Information from inappropriate disclosure during and after his employment with the Company, provided that the Company agrees to pay any
expenses reasonably incurred by the Executive in complying with this obligation promptly following receipt of appropriate documentation from the
Executive substantiating such expenses.
c) All materials or copies thereof and all tangible things and other property of the Company Group that embody, represent or contain Proprietary Information
in the Executive’s custody or possession shall be delivered to the Company (to the extent the Executive has not already returned them) within ten
business days after the earlier of: (i) any request by the Company delivered in accordance with Section 20 or (ii) any termination of the Executive’s
employment with the Company for any reason. After such delivery, the Executive shall not retain any such materials or portions or copies thereof or any
such tangible things and other property and shall execute any affirmation of compliance that the Company may reasonably require. Anything in this
Agreement or elsewhere to the contrary notwithstanding the Executive shall at all times be entitled to retain, and use appropriately (i) papers and other
materials of a personal nature, including, but not limited to, photographs, correspondence, personal diaries, calendars, rolodexes (and electronic
equivalents), personal files and phone books, (ii) information and documents pertaining to his personal rights, obligations and entitlements, (iii) information
the Executive reasonably believes may be needed for tax purposes, and (iv) copies of plans, programs and agreements related to his employment, or
termination thereof, with the Company.
d) The Executive further agrees that his obligation not to disclose or to use information and materials set forth in Sections 10(a), 10(b) and 10(c) above, and
his obligation to return materials and tangible property set forth in Section 10(c) above, also extends to corresponding types of information, materials and
tangible property of customers of the Company Group, consultants for the Company Group, suppliers to the Company Group, or other third parties who
may have disclosed or entrusted the same to the Company Group or to the Executive.
e) The Executive further acknowledges and agrees that he will continue to keep in strict confidence, and will not, directly or indirectly, at any time, disclose,
furnish, disseminate, make available, use or suffer to be used in any manner except in carrying out his duties hereunder any Proprietary Information
without limitation as to when or how the Executive may have acquired such Proprietary Information and that he will not disclose any Proprietary
Information to any person or entity other than appropriate employees of the Company or use the same for any purposes (other than in the performance of
his duties under this Agreement) without written approval of the Board, either during or after his employment with the Company.
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f)
Further the Executive acknowledges that his obligation of confidentiality will survive, regardless of any other breach of this Agreement or any other
agreement, by any party hereto, until and unless such Proprietary Information of the Company Group has become, through no fault of the Executive,
generally known to the public. In the event that the Executive is required by law, regulation, or court order to disclose any Proprietary Information, the
Executive will promptly notify the Company prior to making any such disclosure to facilitate the Company seeking a protective order or other appropriate
remedy from the proper authority prior to disclosing such information. The Executive further agrees to cooperate with the Company in seeking such order
or other remedy and that, if the Company is not successful in precluding the requesting legal body from requiring the disclosure of the Proprietary
Information, the Executive will furnish only that portion of the Proprietary Information that he reasonably believes is legally required to be disclosed, and
the Executive will exercise all reasonable efforts to obtain reliable assurances that confidential treatment will be accorded to the Proprietary Information;
provided that, in each case, the Company agrees to promptly pay any expenses reasonably incurred by the Executive in complying with these obligations
following receipt of appropriate documentation from the Executive substantiating such expenses.
g) The Executive’s obligations under this Section 10 are in addition to, and not in limitation of, all other obligations of confidentiality under the Company’s
policies, general legal or equitable principles or statutes. However, nothing in this Agreement or elsewhere shall prohibit the Executive from making truthful
statements, or disclosing Proprietary Information in good faith (i) to appropriate members of the Company Group, or to any authorized (or apparently
authorized) agent or representatives of any of them, (ii) in connection with the good faith performance of his duties for the Company, (iii) when required to
do so by a court, government agency, legislative body, arbitrator or another person with apparent jurisdiction to require such disclosure provided the
Executive give the Company notice of same and the opportunity to seek a protective order in accordance with the provisions of (f) above, (iv) as
reasonably necessary in the course of any proceeding under Section 16 or 21, (v) in confidence to an attorney or other professional for the purpose of
securing professional assistance or advice, or (vi) when specifically authorized to do so in writing by the Board.
h) During and after the Employment Term:
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i.
ii.
the Executive covenants and agrees not to engage in conduct that involves the making or publishing of written or oral statements or remarks,
(including, without limitation, the repetition or distribution of derogatory rumors, allegations, negative reports or comments) which are disparaging,
deleterious or damaging to the integrity, reputation or good will of the Company. This prohibition applies to statements made privately and publicly,
and whether by electronic, written or oral means, in person, by phone, by voicemail, by text message, by email and by any other electronic means,
including on the internet via a blog post or comment, vlog, instant message, video, any online conversation, and on any social media sites or
applications; and
the Company shall refrain from making any statements about the Executive that would disparage, or reflect unfavorably upon the image or reputation
of the Executive; provided, however, that the foregoing shall not prohibit the Company from complying with its policies regarding public statements
with respect to the Executive, or otherwise complying with applicable law, and any such statements shall be deemed to be made by the Company
only if made or authorized by a member of the Board or a senior executive officer of the Company; and
iii. nothing in this Agreement or elsewhere shall prohibit honest and good faith reporting by the Executive to appropriate Company or legal enforcement
authorities or otherwise complying with applicable law.
11. Non-Competition. In consideration of the Company entering into this Agreement, for the period commencing on the Restatement Effective Date and
ending on the expiration of the Restricted Period:
a) The Executive covenants and agrees that the Executive will not, directly or indirectly, engage in any activities on behalf of or have an interest in any
Competitor of the Company Group, whether as an owner, investor, executive, manager, employee, independent consultant, contractor, advisor, agent,
stockholder, officer, director or otherwise. The Executive’s ownership of less than three percent (3%) of any class of stock in a publicly-traded entity shall
not be a breach of this Section 11(a).
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b)
“Competitor” means, at the time of the termination of the Executive’s employment with the Company for any reason, any individual, corporation,
partnership, limited liability company, association, joint venture, trust, joint stock company, joint venture, or unincorporated organization (a “Person”) or any
of such Person’s Divisions doing business in the United States including any territory of the United States and the Place of Performance (collectively, the
“Territory”) or any of such Person’s Divisions employing the Executive doing business in the Territory if such Person or its Division: (i) receives at least
15% of its gross operating revenues from providing substantially similar cell therapies of any type (for example, Knee Osteoarthritis and the Company’s
Chimeric Antigen Receptor T-Cell therapies targeted indications ), (ii) is operating for less than 5 years a substantially similar line of cell therapies business
from which the Company Group derives, and the Company Group has specifically disclosed to the Executive that it derives, or that the Executive knows or
should reasonably know based on his position, duties or responsibilities with the Company that it derives, at least 20% of gross operating revenues,
notwithstanding such Person’s or Division’s lack of substantial revenues in such line of business, or (iii) is engaged in any activity or has an interest in any
activity in which Proprietary Information to which the Executive had access at any time during the two-year period before his termination of employment
that could be of substantial harm to the Company Group. For this purpose, “Division” means any distinct group, subsidiary, or unit organized as a segment
or portion of a Person that is devoted to the production, provision, or management of a common product or service or group of related products or services,
regardless of whether the group is organized as a legally distinct entity. For purposes of the foregoing, gross operating revenues of the Company Group
and such other Person shall be those of the Company Group or such Person, together with their Company Group, but those of any Division employing or
proposing to employ the Executive shall be on a stand-alone basis, all measured by the most recent available financial information of both the Company
Group and such other Person or Division at the time the Executive accepts, or proposes to accept, employment with or to otherwise perform services for
such Person or Division. If financial information concerning any potential Competitor is not publicly available or is inadequate for purposes of applying this
definition, the ultimate burden shall be on the Executive to present information that such Person or Division is not a Competitor.
c) The Executive acknowledges and agrees that, for purposes of this Section 11, due to the continually evolving nature of the Company Group’s industry, the
scope of its business and/or the identities of Competitors may change over time and that breach of this Agreement by accepting employment with a
Competitor would irreparably injure the Company Group. The Parties further acknowledge and agree that the Company Group currently markets its
products and services on an international basis, encompassing the Territory, and may expand such Territory to include any international and foreign
markets, in which case the Parties acknowledge that the terms and provisions of this Section 11 shall apply to such expanded markets.
d) The Executive covenants and agrees that should a court of competent jurisdiction at any time determine that any restriction or limitation in this Section 11 is
unreasonable or unenforceable, it will be deemed amended so as to provide the maximum protection to the Company Group and be deemed reasonable
and enforceable by the court.
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12. Non-Solicitation. In consideration of the Company entering into this Agreement, for the period commencing on the Restatement Effective Date and
ending on the expiration of the Restricted Period, the Executive hereby covenants and agrees that he shall not individually or in cooperation with any
other person or entity do any of the following:
a) Non-Solicitation of Employees. Executive agrees that he will not, while employed by the Company and for a period of two (2) years following the
Termination Date:
i.
directly solicit, encourage, or take any other action which is intended to induce any other employee of the Company to terminate his or her
employment with the Company; or
ii. directly interfere in any manner with the contractual or employment relationship between the Company and any such employee of the Company.
The foregoing shall not prohibit Executive or any entity with which Executive may later be affiliated from hiring a former or existing employee of the Company
or any of its subsidiaries, provided that such hiring does not result from the direct actions of Executive.
a) Non-Solicit of Customers with respect to Competitive Business Activity . Executive agrees that he will not, while employed by the Company and for a period
of two (2) years following termination of such employment, directly or indirectly, whether for his own account or for the account of any other individual or
entity, solicit the business or patronage of any customers of the Company with respect to products and/or services directly related to a Competitive
Business Activity. “Competitive Business Activity” shall mean engaging in, whether independently or as an employee, agent, consultant, advisor,
independent contractor, partner, stockholder, officer, director or otherwise, any business which is materially competitive with the business of the Company
as conducted or actively planned to be conducted by the Company during his employment by it, provided that Executive shall not be deemed to engage in
a Competitive Business Activity under this Section 12(b) solely by reason of (i) owning 1% or less of the outstanding common stock of any corporation if
such class of common stock is registered under Section 12 of the Securities Exchange Act of 1934, or (ii) after the termination of his employment by the
Company, being employed by or otherwise providing services to a corporation having total revenue of at least $500 million (or such lower number as may
be agreed by the Board) so long as such services are provided solely to a division or other business unit of such corporation which does not engage in a
business which is then competitive with the business of the Company.
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13) Developments.
a) The Executive acknowledges and agrees that he will, upon request by the Company, make full and prompt disclosure to the Company of all inventions,
improvements, discoveries, methods, developments, software, written material, record, document, firmware, development, design, mask works, and works
of authorship, whether patentable or copyrightable or not, (i) which relate to the Company’s business and have heretofore been created, made, conceived
or reduced to practice by the Executive or under his direction or jointly with others, and not assigned to prior employers, or (ii) which have utility in or relate
to the Company’s business, and which are created, made, conceived or reduced to practice by the Executive or under his direction or jointly with others
during his employment with the Company, whether or not during normal working hours or on the premises of the Company (all of the foregoing of which
are collectively referred to in this Agreement as “Developments”).
b) The Executive agrees that all lab notebooks, description of planned and conducted experiments, all documents referencing the company’s technology, and
invention disclosure form (whether signed, executed of not) are the Company’s proprietary property.
c)
The Executive further agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all of the
Executive’s rights, title and interest worldwide in and to all Developments and all related intellectual properties comprised of patents, patent applications,
trademark/service mark application, trade dress, copyrights and copyright applications, and any other applications for registration of a proprietary right. This
Section 13(b) shall not apply to Developments that the Executive developed entirely on his own time without using the Company’s equipment, supplies,
facilities, or Proprietary Information and that does not, at the time of conception or reduction to practice, have utility in or relate to the Company’s business,
or actual or demonstrably anticipated research or development. The Executive understands that, to the extent this Agreement shall be construed in
accordance with the laws of any Territory which precludes a requirement in an employee agreement to assign certain classes of inventions made by an
employee, this Section 13(b) shall be interpreted not to apply to any invention which a court or arbitrator rules, or the Company agrees, falls within such
classes.
d) The Executive further agrees to cooperate with the Company, both during and after the Employment Term and upon the Company’s reasonable request
and at the Company’s sole expense, with respect to the procurement, maintenance and enforcement of copyrights, patents and other intellectual property
rights (both in the United States and other countries) relating to Developments. The Executive shall not be required to incur or pay any costs or expenses
in connection with the rendering of such cooperation. Upon reasonable request by the Company, the Executive will sign all papers, including, without
limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights, and powers of attorney, and
do all other things reasonably requested by the Company (at its sole expense) to protect the Company’s rights and interests in any Development.
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e) The Executive further acknowledges and agrees that if the Company is unable, after reasonable effort, to secure the Executive’s signature on any such
papers as reasonably requested, any executive officer of the Company shall be entitled to execute any such papers as the Executive’s agent and attorney-
in-fact, and the Executive hereby irrevocably designates and appoints each executive officer of the Company as his agent and attorney-in-fact for the sole
purpose of executing any such papers on the Executive’s behalf under such circumstances and taking any and all actions reasonably requested by the
Company (at the Company’s sole expense) in order to protect its rights and interests in any Development, under the conditions described in this sentence.
f) Executive hereby forever fully releases and discharges the Company, and the Company and their respective officers, directors and employees, from and
against any and all claims, demands, damages, liabilities, costs and expenses of Executive arising out of, or relating to, any Developments.
14) Remedies. The Executive and the Company agree that the covenants contained in Sections 10, 11, 12, and 13 are reasonable under the
circumstances, and further agree that if in the opinion of any court of competent jurisdiction any such covenant is not reasonable in any respect, such
court will have the right, power and authority to sever or modify any provision or provisions of such covenants as to the court will appear not reasonable
and to enforce the remainder of the covenants as so amended. The Executive acknowledges and agrees that the remedy at law available to the
Company for breach of any of the Executive’s obligations under Sections 10, 11, 12, and 13 would be inadequate and that damages flowing from such a
breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Executive acknowledges, consents and agrees that, in
the event of any such breach, in addition to any other rights or remedies that the Company may have at law, in equity or under this Agreement, upon
adequate proof of the Executive’s violation of any such provision of this Agreement, the Company will be entitled to seek immediate injunctive relief and
may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage. Without limiting the
applicability of this Section 14 or in any way affecting the right of the Company to seek equitable remedies hereunder, in the event that the Executive
materially and willfully breaches any of the provisions of Sections 10, 11, or 12 or engages in any activity that would constitute a material and willful
breach save for the Executive’s action being in a state where any of the provisions of Sections 10, 11, 12, or this Section 14 is not enforceable as a
matter of law, and, if such breach or activity is susceptible to cure and such breach or activity is not cured by the Executive within 7 days after the
Company delivers a notice to the Executive describing the breach or activity in reasonable detail and requesting cure, then the Company’s obligation to
pay any remaining severance compensation and benefits that have not already been paid to the Executive pursuant to Sections 9(a), 9(b) or 9(d) shall
terminate. During any breach of the provisions of paragraph 10 of this Agreement, the period of restraint set forth therein shall be automatically tolled
and suspended for the amount of time that the violation continues. Executive understands and agrees that he will be liable to pay all expenses, including
court costs and reasonable attorneys’ fees, necessarily incurred by him in connection with the Company’s enforcement of the Restrictive Covenants,
whether or not litigation is entirely commenced and including litigation of any appeal taken or defended by the Company in any action to enforce this
agreement. If any tribunal having jurisdiction determines that any of the provisions of the Restrictive Covenants, or any part thereof, is invalid or
unenforceable because of the duration or geographical scope of such provision, such tribunal shall have the power to reduce the duration or
geographical scope of such provision and in its reduced form, such provision shall then be enforceable.
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15) Continued Availability and Cooperation.
a) Following termination of the Executive’s employment under this Agreement for any reason, the Executive agrees that, consistent with the Executive’s
business and personal affairs and his fiduciary duties both to the Company and to any new employer, he will (upon reasonable request by the Company) cooperate
with the Company and with the Company’s counsel in connection with any present and future actual or threatened litigation, administrative proceeding or
investigation involving the Company that relates to events, occurrences or conduct occurring (or claimed to have occurred) during the period of the Executive’s
employment by the Company (other than any litigation, administrative proceeding or investigation in which the Executive and the Company are opposing parties);
provided, however, nothing in this Section 15(a) shall require the Executive to cooperate in such a way that would jeopardize his legal interests. Cooperation may
include, but is not limited to:
i. making himself reasonably available for interviews and discussions with the Company’s counsel as well as for depositions and trial testimony;
ii.
if depositions or trial testimony are to occur, making himself reasonably available and cooperating in the preparation therefore, as and to the extent that
the Company or the Company’s counsel reasonably requests;
iii.
refraining from impeding in any way the Company’s prosecution or defense of such litigation or administrative proceeding; and
iv. cooperating in the development and presentation of the Company’s prosecution or defense of such litigation or administrative proceeding.
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b) The Company will promptly pay directly, or promptly reimburse the Executive for, any expense reasonably incurred by him in connection with
rendering cooperation under Section 15(a), including (without limitation) attorneys’ fees and other charges of counsel (if the Executive reasonably
determines that he should retain independent legal counsel), incurred in connection with any cooperation, consultation and advice rendered
under this Agreement following receipt of appropriate documentation from the Executive substantiating such expenses.
16) Dispute Resolution.
a)
b)
c)
d)
In the event that the Parties are unable to resolve any controversy or claim arising out of or relating to this Agreement, the Executive’s employment
with the Company, or any termination of such employment, either Party to the dispute shall refer the dispute to binding arbitration, which shall
(except as otherwise provided in Section 16(d)) be the exclusive forum for resolving all such controversies and claims. Such arbitration will be
administered by Judicial Arbitration and Mediation Services, Inc. (“JAMS”) pursuant to its Comprehensive Arbitration Rules and Procedures (the
“JAMS Rules”). The arbitration shall be conducted by a single arbitrator selected by the Parties according to the JAMS Rules. In the event that the
Parties fail to agree on the selection of the arbitrator within 30 days after either Party’s request for arbitration, the arbitrator will be chosen by JAMS.
Unless the Parties otherwise agree, any arbitration hearings shall commence on a mutually agreeable date within 90 days after the request for
arbitration and shall be conducted within thirty (30) miles of the location of the Place of Performance.
The Parties agree that each will bear their own costs and attorneys’ fees. The arbitrator shall not have authority to award attorneys’ fees or costs to
any Party.
The arbitrator shall have no power or authority to make awards or orders granting relief that would not be available to a Party in a court of law. The
arbitrator’s award is limited by and must comply with this Agreement and controlling federal, state, and local laws. Except as otherwise provided by
law, the decision of the arbitrator shall otherwise be final and binding on the Parties.
Notwithstanding the foregoing, no claim for injunctive or similar non-monetary equitable relief contemplated by or allowed under applicable law with
respect to alleged violations of Sections 10, 11, 12, and 13 of this Agreement will be subject to arbitration under this Section 16, but will instead be
subject to determination in a court of competent jurisdiction as set forth in Section 21, which court shall apply Delaware law consistent with Section
21 of this Agreement.
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17)
Other Agreements. No agreements (other than the agreements evidencing grants of equity awards and those expressly referred to in this Agreement,
and other Company Arrangements arising out of or relating to the Executive’s service as a member of the Company’s Board) (collectively, “Other
Arrangements”)) or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either Party
which are not set forth in this Agreement. Each Party acknowledges that no representations, inducements, promises, or other agreements, orally or
otherwise, have been made by any Party, or anyone acting on behalf of such Party, pertaining to the subject matter hereof, which are not embodied in
this Agreement (or in any Other Arrangement), and that no prior and/or contemporaneous agreement, statement or promise pertaining to the subject
matter hereof that is not contained in this Agreement (or in any Other Arrangement) shall be valid or binding on either Party.
18) Withholding of Taxes. The Company will withhold from any amounts payable by it under this Agreement all federal, state, city or other taxes that the
Company is required to withhold pursuant to any applicable statute or government regulation or ruling.
19)
Successors and Binding Agreements .
a)
b)
Nothing in this Agreement, except as expressly set forth herein, is intended to confer any rights or remedies under or by reason of this Agreement
on any persons other than the parties to this Agreement and the successors, assigns and affiliates of the Company, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any third person to any party to this Agreement, nor shall any provision give
any third person any right of action over or against any party to this Agreement.
The Company may assign its rights under the Agreement only to any successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or assets of the Company that expressly agrees to assume and perform this
Agreement in the same manner and to the same extent the Company would have been required to perform if no such succession had taken place.
This Agreement will be binding upon and inure to the benefit of the Company and any such successor to the Company, (and such successor shall
thereafter be deemed to be included in the term the “Company” for the purposes of this Agreement, except to the extent that the result would be to
expand the restrictions applying to the Executive under Section 11), but will not otherwise be assignable, transferable or `delegable by the
Company.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
c)
d)
This Agreement will inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in Sections 19(a) and 19(b). Without limiting the generality or effect
of the foregoing, the Executive’s right to receive payments and benefits hereunder will (except as otherwise expressly provided in any other
applicable Company Arrangement) not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise,
other than by a transfer by the Executive’s will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer
contrary to this Section 19(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated.
20)
Notices. All communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in
writing and will be duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five business
days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three business days after having
been sent by a nationally recognized overnight courier service such as DHL, Federal Express or UPS, addressed to the Company (to the attention of the
Company Secretary) at its principal executive offices and to the Executive at his principal residence, with (during the Employment Term) a copy delivered
to the Executive’s principal office at the Company and with a copy (which shall not constitute notice) also delivered to Ellenoff Grossman & Schole LLP,
1345 Avenue of the Americas, 11th Floor, New York, NY 10105, attention Sara Williams, Esq., or to such other address as either Party may have
furnished to the other in writing and in accordance herewith, except that notices of changes of address shall be effective only upon receipt.
21) Governing Law and Choice of Forum.
a) This Agreement will be construed and enforced according to the laws of the State of Delaware, without giving effect to the conflict of laws principles
thereof.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
b) To the extent not otherwise provided for by Section 16 of this Agreement, the Executive and the Company consent to the jurisdiction of all state and
federal courts located in Cupertino, Santa Clara County, California, as well as to the jurisdiction of all courts of which an appeal may be taken from
such courts, for the purpose of any suit, action, or other proceeding arising out of, or in connection with, this Agreement or that otherwise arise out of
the employment relationship. Each Party hereby expressly waives any and all rights to bring any suit, action, or other proceeding in or before any court
or tribunal other than the courts described above and covenants that it shall not seek in any manner to resolve any dispute other than as set forth in
this paragraph. Further, the Parties each hereby expressly waives any and all objections either may have to venue, including, without limitation, the
inconvenience of such forum, in any of such courts. In addition, each of the Parties consents to the service of process by personal service or any
manner in which notices may be delivered hereunder in accordance with this Agreement.
22) Severability. If any provision of this Agreement or the application of any provision is held invalid, unenforceable or otherwise illegal, the remainder of
this Agreement and the application of such provision will not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal will
be reformed to the extent (and only to the extent) necessary to make it enforceable, valid or legal. To the extent any provisions are held to be invalid,
unenforceable or otherwise illegal cannot be reformed, such provisions are to be stricken herefrom and the remainder of this Agreement will be binding
on the Parties and their successors and assigns as if such invalid or illegal provisions were never included in this Agreement
from the first instance.
23) Survival of Provisions. Notwithstanding any other provision of this Agreement, the Parties’ respective rights and obligations under Sections 5, 9, 10, 11,
12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 23, 25 and 26, will survive any termination of the Executive’s employment under this Agreement.
24) Representations and Acknowledgements .
a)
b)
The Executive hereby represents that, except as he has disclosed to the Company, he is not subject to any restriction on his ability to enter into
this Agreement or to perform his duties and responsibilities hereunder, including, but not limited to, any covenant not to compete with any former
employer that would so restrict him.
The Executive further represents that, to the best of his knowledge, his performance of all the terms of this Agreement and as an employee of the
Company does not and will not breach any agreement with another party, and that he will not knowingly disclose to the Company or induce the
Company to use any confidential or proprietary information or material belonging to any previous employer not included in the Company Group or
others.
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c)
d)
e)
Executive hereby represents and warrants to Company that as of the date of execution of this Agreement: (i) this Agreement will not cause or
require Executive to breach any obligation to, or agreement or confidence with, any other person; (ii) Executive is not representing, or otherwise
affiliated in any capacity with, any other research organizations, lines of products, manufacturers, vendors or customers of the Company; and (iii)
Executive has not been induced to enter into this Agreement by any promise or representation other than as expressly set forth in this Agreement.
The Executive hereby represents and agrees that, during the Restricted Period, if the Executive is offered employment or the opportunity to enter
into any business activity, whether as owner, investor, executive, manager, employee, independent consultant, contractor, advisor or otherwise,
the Executive will inform the offeror of the existence of Sections 10, 11, 12, and 13 of this Agreement and provide the offeror a copy thereof. The
Executive authorizes the Company to provide a copy of the relevant provisions of this Agreement to any of the persons or entities described in this
Section 24(c) and to make such persons aware of the Executive’s obligations under this Agreement.
The Company represents and warrants that (i) it is fully authorized by action of its Board (and of any other person or body whose action is
required) to enter into this Agreement and to perform its obligations under it, and (ii) upon the execution and delivery of this Agreement by the
Parties, this Agreement shall be its valid and binding obligation, enforceable against it in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.
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25) Compliance with Code Section 409A . With respect to reimbursements or in-kind benefits provided under this Agreement or under any other Company
Arrangement: (a) the Company will not provide for cash in lieu of a right to reimbursement or in-kind benefits to which the Executive has a right under
this Agreement or under any other Company Arrangement, (b) any reimbursement of provision of in-kind benefits made during the Executive’s lifetime
(or such shorter period prescribed by a specific provision of this Agreement or of any other Company Arrangement) shall be made not later than
December 31st of the year following the year in which the Executive incurs the expense, and (c) in no event will the amount of expenses so reimbursed,
or in-kind benefits provided, by the Company in one year affect the amount of expenses eligible for reimbursement or in-kind benefits to be provided, in
any other taxable year. Each payment, reimbursement or in-kind benefit made pursuant to the provisions of this Agreement or of any other Company
Arrangement shall be regarded as a separate payment and not one of a series of payments for purposes of Section 409A of the Code. It is intended that
any amounts payable under this Agreement, any Employee Plan or any other Company Arrangement, and any exercise of the Company’s and the
Executive’s authority or discretion hereunder, shall comply with the provisions of Section 409A of the Code and the treasury regulations relating thereto
so as not to subject the Executive to the payment of the additional tax, interest and any tax penalty which may be imposed under Code Section 409A. In
furtherance of this interest, to the extent that any provision hereof would result in the Executive being subject to payment of the additional tax, interest
and tax penalty under Code Section 409A, the Parties agree to amend this Agreement in order to bring this Agreement into compliance with Code
Section 409A; and thereafter to interpret its provisions in a manner that complies with Section 409A of the Code. Reference to Section 409A of the Code
is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any proposed, temporary or final regulations, or any other
guidance, promulgated with respect to such Section by the U.S. Department of Treasury or the Internal Revenue Service. Notwithstanding anything in
this Agreement or elsewhere to the contrary, and unless the Executive otherwise agrees in a signed writing executed in connection with the termination
of his employment under this Agreement, the Executive shall have no duties or responsibilities after the Termination Date that are inconsistent with his
having had a Separation from Service on the Termination Date. If the Executive agrees, in a signed writing that is executed in connection with the
termination of his employment under this Agreement, to undertake duties and responsibilities that will result in his not incurring a Separation from
Service on the Termination Date, all references to the Termination Date herein for the purposes of determining the commencement of any severance
payments and benefits that constitute deferred compensation within the meaning of Section 409A shall mean the date Executive incurs a Separation
from Service. Notwithstanding the foregoing, no particular tax result for the Executive with respect to any income recognized by the Executive in
connection with this Agreement is guaranteed, and the Executive shall be responsible for any taxes, penalties and interest imposed on him under or as
a result of Section 409A of the Code in connection with payments and benefits made in accordance with the terms of this Agreement.
26) Amendment;
Waiver.
No provision of this Agreement may be modified or amended other than through a writing that is signed by the
Parties and that expressly identifies the provision being modified or amended. No waiver by either Party at
any time of any breach by the other Party hereto of compliance with any provision of this Agreement to be
performed by such other Party will be effective unless in a signed writing that expressly identifies the
provision of this Agreement that is being waived, nor shall any such waiver, deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent time.
27) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together
will constitute one and the same agreement. Signatures delivered by facsimile (including, without limitation, by “pdf”) shall be effective for all purposes.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
28) Defined Terms.
a)
b)
c)
d)
“Base Salary” has the meaning set forth in Section 4(a).
“Board” has the meaning set forth in Section 3(a).
“Bonus Award” has the meaning set forth in Section 4(b)(i).
“Cause” Shall mean:
i.
any act or omission constituting a material and intentional breach by the Executive of any provisions of this Agreement after notice is delivered
by the Company that identifies the manner in which the breach occurred, if within 30 days of such notice, the Executive fails to cure any such
failure capable of being cured;
ii.
the willful and continued failure by the Executive to substantially perform his duties hereunder, after demand for performance is delivered by
the Company that identifies the manner in which the Company believes the Executive has not performed his duties, if, within 30 days of such
demand, the Executive fails to cure any such failure capable of being cured;
iii. any intentional misconduct by the Executive (including, but not limited to, misappropriation, fraud including with respect to the Company’s
accounting and financial statements, embezzlement or conversion by the Executive of the Company’s or any of its Subsidiary’s property in
connection with the Executive’s duties or in the course of the Executive’s employment with the Company) that causes material harm to the
Company or any Subsidiary, financially or otherwise;
iv.
the conviction (or plea of no contest) of the Executive for any felony, or the indictment of the Executive for any felony (including, but not limited
to, any felony involving fraud, moral turpitude, embezzlement or theft in connection with the Executive’s duties or in the course of the
Executive’s employment with the Company); provided, however that if the Executive’s employment is terminated for Cause based on an
indictment, and such indictment is thereafter resolved other than by a conviction or a plea of no contest, the Executive shall be entitled to the
benefits (or the economic equivalent thereof) that he would have received under Section 9(a) or 9(b) if those Sections had been applied as of
his Termination Date, provided that the Release Consideration Period in Sections 9(a) and 9(b) shall be deemed not to have commenced until
the date that his indictment was resolved;
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v.
the commission of any intentional or knowing violation of any material antifraud provision of the federal or state securities laws;
vi.
there is a final, non-appealable order in a proceeding before a court of competent jurisdiction, or a final order arising out of an administrative
proceeding, finding that the Executive committed any willful misconduct or criminal activity, either for his personal benefit or in connection with
his duties for the Company or any Subsidiary but excluding traffic violations and other minor offenses, which misconduct or activity is materially
harmful to the interests of the Company or any of its Subsidiaries;
vii.
Current use or abuse of illegal substance that affects work performance;
viii. knowing and material violation of specific prohibitions or requirements in the Company’s Code of Conduct and Ethics (which the Executive
shall be deemed to have read and understood), which violation causes significant harm to the Company, financially or otherwise, with written
notice of termination by the Company for Cause in each case given by the Company to the Executive in accordance with Section 20 prior to
the Termination Date.
For purposes of this Agreement, no act or failure to act on the part of the Executive shall be deemed “intentional” or “willful” or “knowing” if it was
due primarily to an error in judgment or gross negligence, and any act or failure to act on the part of the Executive shall be deemed “intentional” or
“willful” or “knowing” only if done or omitted to be done by the Executive not in good faith and without reasonable belief that the Executive’s action
or omission was in the interest of the Company. Failure to meet performance expectations, unless willful, continuing, substantial, and uncured
after demand for cure to the extent such failure is curable, shall not be considered “Cause.”
e)
“Change in Control” means a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act as in effect on the date of this Agreement, whether or not the Company is
then subject to such reporting requirement; provided that, without limitation, a Change in Control shall be deemed to have occurred if:
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i. any “Person” (as defined in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined
voting power of the Company’s then outstanding securities; provided that a Change in Control shall not be deemed to occur under this
clause (i) by reason of the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan)
maintained by the Company;
ii. during any period of one year there shall cease to be a majority of the Board comprised of “Continuing Directors” as hereinafter defined; or
iii.there occurs (A) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting
power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B)
the approval by the stockholders of the Company of a plan of complete liquidation of the Company, or (C) the sale or disposition by the
Company of more than fifty percent (50%) of the Company’s assets. For purposes of this Section 28(e)(iii), a sale of more than fifty percent
(50%) of the Company’s assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and
its subsidiaries or the sale of stock of one or more of the Company’s subsidiaries with an aggregate value in excess of fifty percent (50%)
of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent (50%) of the
aggregate value of the Company and its subsidiaries is sold.
iv.For purposes of this Agreement, a “Change in Control” will be deemed to occur:
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1. on the day on which a thirty percent (30%) or greater ownership interest described in Section 28(e)(i) is acquired, provided that a
subsequent increase in such ownership interest after it first equals or exceeds thirty percent (30%) shall not be deemed a
separate Change in Control;
2. on the day on which “Continuing Directors”, as hereinafter defined, cease to be a majority of the Board as described in Section
28(e)(ii);
3. on the day of a merger, consolidation or sale of assets as described in Section 28(e)(iii); or
4. on the day of the approval of a plan of complete liquidation as described in Section 28(e)(iii).
v. For purposes of this Section 28(e), the words “Continuing Directors” mean individuals who at the beginning of any period (not including
any period prior to the date of this Agreement) of one year constitute the Board and any new Director(s) whose election by the Board or
nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the Directors then still in office who
either were Directors at the beginning of the period or whose election or nomination for election was previously so approved.
“Code” means the Internal Revenue Code of 1986, as amended.
“Common Stock” means common stock of the Company listed on NASDAQ under the symbol “CBMG”.
“Company Arrangement” means any written plan, program, agreement or arrangement of the Company or any of its Subsidiaries applicable to the
Executive and relating to employment, compensation or benefits.
“Company Group” has the meaning set forth in Section 10(a).
“Compensation Committee” means the Compensation Committee of the Board or its successor.
“Competitor” has the meaning set forth in Section 11(b).
“Director” means a member of the Board.
f)
g)
h)
i)
j)
k)
l)
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m)
n)
o)
p)
q)
r)
s)
“Disability” or “Disabled” means due to illness or accidental injury, a physical or mental incapacity that prevents the Executive from performing his
material and substantial duties for a total of one hundred eighty (180) days in any twenty four (24) month period; provided, however, for purposes
of Section 5(b), (x) no termination of the Executive’s employment shall be required for his illness or incapacity to constitute “Disability” but (y) his
illness or incapacity must also constitute a disability within the meaning of Section 409A(a)(2)(C) of the Code and Treasury regulation section
1.409A-3(i)(4), as each may be amended from time to time; provided, further, if the Executive shall not agree with a determination to terminate his
employment because of Disability, the question of the Executive’s disability shall be subject to the certification of a qualified medical doctor agreed
to by the Company and the Executive. All fees and other costs relating to such certification shall be promptly paid by the Company.
“Employee Plans” has the meaning set forth in Section 5(a).
“Executive” has the meaning set forth in the preamble, provided that, in the event of the Executive’s death or a judicial determination of his
incapacity, the term shall mean (where appropriate) his designated beneficiary or beneficiaries, his heirs, his estate, his executor or executors, or
his other legal representative or representatives.
“Good Reason” means the occurrence of any of the following without the Executive's consent: (i) a material adverse change in Executive's title,
duties or responsibilities (including reporting responsibilities); (ii) a material reduction in Executive's base salary; and (iii) any relocation of
Executive's principal office by more than 50 miles from his office in Shanghai, China. Company and Executive agree that “Good Reason“ shall not
exist unless and until Executive provides the Company with written notice of the acts alleged to constitute Good Reason within ninety (90) days of
Executive's knowledge of the occurrence of such event, and Company fails to cure such acts within ten (10) days of receipt of such notice, if
curable. Executive must terminate his employment within sixty (60) days following the expiration of such cure period for the termination to be on
account of Good Reason.
“Release” means a release of claims in the form attached hereto as Exhibit A.
“Release Consideration and Revocation Period” means the combined total of the Release Consideration Period and the Release Revocation
Period.
“Release Consideration Period” means the 21-day period described in the Release during which the Executive is entitled to consider whether to
sign it.
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t)
u)
v)
w)
“Release Revocation Period” means the period pursuant to the terms of an executed Release in which it may be revoked by the Executive.
“Restricted Period” means the 24-month period following the date on which the Executive’s employment with the Company terminates for any
reason.
“Separation from Service” means “separation from service” from the Company and its subsidiaries as described under Section 409A of the Code
and the guidance and Treasury regulations issued thereunder. Separation from Service will occur on the date on which the Executive’s level of
services to the Company decreases to 21 percent or less of the average level of services performed by the Executive over the immediately
preceding 36-month period (or if providing services for less than 36 months, such lesser period) after taking into account any services that the
Executive provided prior to such date or that the Company and the Executive reasonably anticipate the Executive may provide (whether as an
employee or as an independent contractor) after such date. For purposes of the determination of whether the Executive has had a Separation from
Service, the term “Company” shall mean the Company and any affiliate with which the Company would be considered a single employer under
Section 414(b) or 414(c) of the Code, provided that in applying Sections 1563(a)(1), (2), and (3) of the Code for purposes of determining a
controlled group of corporations under Section 414(b) of the Code, the language “at least 50 percent” is used instead of “at least 80 percent” each
place it appears in Sections 1563(a)(1), (2) and (3) of the Code, and in applying Treasury Regulation Section 1.414(c)-2 for purposes of
determining trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code, “at
least 50 percent” is used instead of “at least 80 percent” each place it appears in Treasury Regulation Section 1.414(c)-2. In addition, where the
use of such definition of “Company” for purposes of determining a Separation from Service is based upon legitimate business criteria, in applying
Sections 1563(a)(1), (2), and (3) of the Code for purposes of determining a controlled group of corporations under Section 414(b) of the Code, the
language “at least 20 percent” is used instead of “at least 80 percent” at each place it appears in Sections 1563(a)(1), (2) and (3) of the Code, and
in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining trades or businesses (whether or not incorporated) that are under
common control for purposes of Section 414(c) of the Code, “at least 20 percent” is used instead of “at least 80 percent” at each place it appears in
Treasury Regulation Section 1.414(c)-2.
“Subsidiary” shall mean any entity, corporation, partnership (general or limited), limited liability company, entity, firm, business organization,
enterprise, association or joint venture in which the Company directly or indirectly controls twenty percent (20%) or more of the voting interest.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by the Chairman pursuant to the authority of its Board, and the
Executive has executed this Agreement, as of the Restatement Effective Date.
Cellular Biomedicine Group Inc.
/s/ Terry Belmont
Terry Belmont
Chairman of the Board
Executive
/s/ Bizuo (Tony) Liu
Bizuo (Tony) Liu
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EXHIBIT A
FORM OF RELEASE
WHEREAS, Cellular Biomedicine Group Inc., a Delaware corporation (the “Company”) and (the “Executive”) are parties to that certain employment
agreement dated April 11, 2016 and amended and restated effective March 3, 2017 (the “Agreement”);
WHEREAS, the Executive’s employment with the Company under this Agreement terminated on [ ] (the “Termination Date”); and
WHEREAS, under Section 9(a) and 9(b) of the Agreement, the Executive is required to sign this release (the “Release”) within 21 days after the
Termination Date, in order to receive the payments to be made and the benefits to be received by the Executive pursuant to Section 9(a) or 9(b) of the
Agreement.
NOW THEREFORE, in consideration of the promises and agreements contained herein and in the Agreement and for other good and valuable
consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, the Executive agrees as follows:
This Release shall become effective on the Effective Date, as defined in Section 7(b) hereof.
1)
In consideration of the payments to be made and the benefits to be received by the Executive pursuant to Section 9(a) or 9(b) of the Agreement, the
Executive, for himself and the Executive’s dependents, successors, assigns, heirs, executors and administrators (and the Executive’s and their legal
representatives of every kind), (the “Executive Releasors”), hereby irrevocably and unconditionally releases, acquits and forever discharges the Company and
its affiliated companies and their past and present parents, subsidiaries, affiliated corporations, partnerships, joint ventures and their successors and assigns
(the “Company Affiliated Group”), and their current and former officers, directors, stockholders, members, employees, heirs, assigns, representatives, insurers,
agents and counsel and all persons acting by, through, under or in concert with any of them (but as to any such identified categories of persons, including
those acting by, through, under or in concert with them, only in such capacity in such designated category or relationship to such designated category)
(together with the Company Affiliated Group, the “Company Releasees”), from any and all arbitrations, complaints, claims, charges, demands, controversies,
suits, proceedings and causes of action with respect to liabilities, obligations, promises, agreements, damages, costs, losses, debts or expenses including
attorneys’ fees and other legal costs, of any kind whatsoever and every description that are related to the Executive’s employment or termination of
employment, whether known or unknown, suspected or unsuspected, which the Executive now has, may have, claimed to have, or any time had against any of
the Company Affiliated Group arising prior to the Effective Date (as defined in Section 7(b) below) (collectively “Claims”), and the Executive agrees not to
assert any such Claims.
a) More specifically, this release of Claims includes, without express or implied limitation, the release of all Claims of wrongful termination of employment
whether in contract or tort; all Claims of intentional, reckless, or negligent infliction of emotional distress; all Claims of breach of any express or implied
contract or express or implied covenant of employment, including the covenant of good faith and fair dealing; all Claims of interference with contractual or
advantageous relations, whether prospective or existing; all Claims of deceit or misrepresentation; all Claims of discrimination under local, state or federal
law; any legal restrictions on the right of any of the Company Affiliated Group to terminate employees; Claims arising under any federal, state, local
statutory or common law or other governmental statute, regulation or ordinance, including, without limitation, the Sarbanes-Oxley Act of 2002; Section
1981 of Title 42 of the United States Code; 42 U.S.C. §1981; and/or Title VII of the Civil Rights Act of 1964; the Age Discrimination in Employment Act; the
Older Workers’ Benefit Protection Act; the Americans with Disabilities Act; the Equal Pay Act; the Fair Labor Standards Act; the Family and Medical Leave
Act; the Employee Retirement Income Security Act of 1974, as amended; the Rehabilitation Act of 1973; the Racketeer Influenced and Corrupt
Organizations Act; the Worker Adjustment and Retraining Notification Act; all Claims of defamation or damage to reputation; all Claims for reinstatement;
all Claims for punitive or emotional distress damages; and all Claims for wages, bonuses, severance, back or front pay or other forms of compensation
which are based upon or arise from the acts, practices, transactions, events, and/or facts underlying any wage claim that was or could have been
asserted.
b) Notwithstanding the foregoing, nothing herein shall constitute a release by the Executive of any of the following:
i.
any rights he has under the Agreement, including any right to enforce any of the terms thereof, and any rights he has under this Release, including any
right to enforce the terms thereof;
ii. any Claim for payments, benefits or other entitlements, to which the Executive is or will be entitled under the terms of any compensation or benefit
plan, program or other arrangement maintained by any of the Company Affiliated Group, including without limitation any incentive or deferred
compensation plan, any pension plan or benefits under any medical, dental, vision, life insurance, disability insurance or other welfare benefit plan;
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iii. any Claim for indemnification the Executive may have under applicable laws, under the applicable constituent documents (including bylaws and
certificates of incorporation) of any of the Company Affiliated Group, under any applicable insurance policy the Company Affiliated Group may
maintain, or any under any other written agreement or arrangement with any of the Company Affiliated Group, with respect to any liability, costs or
expenses the Executive incurs or has incurred as a director, officer or employee of any of the Company Affiliated Group;
iv. any Claim the Executive may have to obtain contribution as permitted by law in the event of entry of judgment against the Executive as a result of any
act or failure to act for which the Executive and any of the Company Affiliated Group are jointly liable;
v. any Claim that by law may not be released by private agreement without judicial or governmental review and approval;
vi. any Claim that arises after the Effective Date; and
vii. any Claim the Executive has against any of the Company Releasees solely in his capacity as a shareholder of Cellular Biomedicine Group Inc. or of
any affiliate of the Company or as a former shareholder of Cellular Biomedicine Group Inc.
2) The Executive understands and acknowledges that the Company does not admit any violation of law, liability or invasion of any of his rights and that any such
violation, liability or invasion is expressly denied. The consideration provided to the Executive for this Release is made for the purpose of settling and
extinguishing all Claims arising prior to the Effective Date that relate to his employment or termination of employment with the Company that the Executive
ever had or now may have against the Company or any of the other Company Releasees to the extent provided in this Release. The Executive further agrees
and acknowledges that no representations, promises or inducements have been made by any of the Company Releasees to the Executive with respect to this
Release other than as appear in the Agreement or this Release.
3) The Executive agrees to release and discharge each Company Releasee, not only from any and all Claims which he could make on his own behalf, but also
Claims that may or could be brought by any person or organization on his behalf, for monetary relief, and he specifically waives any right to recovery, directly
or indirectly, in connection with any class or collective action or representative proceeding in which a Claim or Claims against any Company Releasee for
monetary relief may arise, in whole or in part, from any event which occurred up through and including the Effective Date.
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4) The Executive acknowledges that his waiver and release of rights and claims as set forth in this Release is in exchange for valuable consideration which he
would not otherwise be entitled to receive.
5) The parties understand, agree and intend that, except as otherwise provided in Section 1(b) above, upon the Executive’s receipt of all of the payments and
benefits to be paid or provided to him by the Company pursuant to Section 9(a) and 9(b) of the Agreement, he will have received complete satisfaction of any
and all Claims arising prior to the Effective Date , whether known, suspected, or unknown, that he may have or had against any of the Company Releasees
that are related to his employment, or termination of employment, with any of them.
6) The Executive agrees to pay any reasonable legal fees or costs incurred by any of the Company Affiliated Group as a result of any breach of his promises in
this Release, including his promise to fully release each member of the Company Affiliated Group from all Claims and to compensate any such company for its
legal costs, including attorneys’ fees incurred by such company as a result of any breach of the Release, except to the extent that he challenges the validity of
the Release under the Age Discrimination in Employment Act, in which case such company may only recover such fees and expenses as may be permitted by
state and federal law.
7) The Executive further represents, agrees and acknowledges that:
a) he has been advised by the Company to consult with his own legal counsel prior to executing and delivering this Release, has had an opportunity to
consult with and to be advised by legal counsel of his choice, fully understands the terms of this Release, and enters into this Release freely, voluntarily,
without coercion or duress of any kind and intending to be bound;
b) he has been given the opportunity to consider this Release for a period of at least 21 days after the Termination Date (as defined in the Agreement). In
the event that the Executive has executed this Release within less than such 21-day period, the Executive acknowledges that his decision to so
execute the Release was entirely voluntary and that he had the opportunity to consider this Release for the entire 21- day period. The Executive and
the Company acknowledge that for a period of seven (7) days from the date that the Executive executes this Release (the “Revocation Period”), he
shall retain the right to revoke this Release by written notice that is received by the Company’s Secretary before the end of such Revocation Period.
Provided that this Release is not revoked pursuant to the preceding sentence, this Release shall become effective, binding, irrevocable and
enforceable on the date immediately following the last day of the Revocation Period (the “Effective Date”). If the Executive timely exercises his right to
revoke this Release, the Executive will forfeit his right to receive any of the benefits that were conditioned on this Release becoming effective, without
affecting the effectiveness of the termination of the Executive’s employment with the Company, and without altering the termination of the Executive’s
employment from all offices and any directorships and any fiduciary positions;
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c)
d)
in executing this Release, the Executive does not rely and has not relied upon any representation or statement not set forth herein or in the
Agreement made by the Company with regard to the subject matter, basis, or effect of this Release or otherwise; and
for the purpose of implementing a full and complete release and discharge of all Claims against the Company Affiliated Group, the Executive expressly
acknowledges that this Release is intended to include in its effect, to the extent herein provided, all Claims related to his employment or termination of
employment with any of the Company Affiliated Group arising before the Effective Date , which the Executive does not know or suspect to exist in his
favor at the time of execution hereof, and that this Release contemplates the extinguishment of any such Claim or Claims. IN EXECUTING THIS
RELEASE, THE EXECUTIVE EXPRESSLY REPRESENTS THAT HE IS DOING SO VOLUNTARILY AND OF HIS OWN FREE WILL AND THAT HE
IS OF SOUND MIND AT THE TIME OF SAID EXECUTION.
8) The Executive represents that he will not seek to recover any monetary damages in the future with respect to Claims that arose prior to the Effective Date;
provided, however, that nothing in this Release shall not limit the Executive from commencing any proceeding for the purpose of enforcing the Executive’s
rights arising under, or preserved by, this Release or the Agreement.
9) The Executive waives and releases any Claim that the Executive has or may have to reemployment.
10) This Release does not waive any of the rights of any of the Company Affiliated Group to enforce any clawback policy including to the extent it may be required
under final NASDAQ Stock Market (or other applicable exchange) listing standards subsequently adopted. Executive agrees that as of the date set forth
below, Executive has not reported information to the Securities and Exchange Commission concerning, and is not aware of, any securities law compliance
failure at any of the Company Affiliated Group by any person that has not been reported to the Compliance Officer of the Company, and further agrees to
report to the Compliance Officer of the Company information Executive learns about any securities law compliance failure by any of the Company Affiliated
Group after the date set forth below before taking any further action.
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IN WITNESS WHEREOF, the Executive has executed and delivered this Release on the date set forth below.
Dated: ____________________________________________
_____________________________________
Bizuo (Tony) Liu
THIS RELEASE IS INVALID IF SIGNED BY THE EXECUTIVE BEFORE THE
TERMINATION DATE
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EMPLOYMENT AGREEMENT
(Amended and Restated as of March 3, 2017)
Exhibit 10.57
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into effective as of February 6, 2013 (the “Effective Date”) by and between Cellular
Biomedicine Group Inc., a Delaware corporation (the “Company”) on behalf of itself and any of its subsidiaries, affiliates and related entities and Andrew Chan (the
“Executive”) (the Company and the Executive, collectively, the “Parties,” and each, a “Party”). This Agreement is amended and restated effective as of March 3,
2017 (the “Restatement Effective Date”). Certain capitalized terms are defined in Section 28.
WHEREAS, the Company desires to employ the Executive as Senior Vice President, Corporate Development, Legal and Secretary of the Company, and
the Executive is willing to do so, pursuant to the terms of this Agreement.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements set forth herein and for other good and valuable
consideration, the sufficiency and receipt of which are hereby acknowledged, the Company and the Executive hereby agree as follows:
1) Employment.
a) As of the Restatement Effective Date, the Company will employ the Executive, and the Executive will be employed by the Company, upon the terms and
conditions set forth herein.
b) The employment relationship between the Company and the Executive shall be governed by the general employment policies and practices of the
Company, including without limitation, those relating to the Company’s Code of Conduct and Ethics, confidential information and avoidance of conflicts,
except that when the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or practices, the terms of this
Agreement shall control.
2) Employment Term. Subject to earlier termination under Section 9, the Executive’s employment under this Agreement shall be for an initial term that
commences on the Restatement Effective Date and continues through March 2 (the “Initial Employment Term”), 2021. At the end of the Initial Employment
Term and on each succeeding anniversary of the Restatement Effective Date, the term of the Executive’s employment under this Agreement will (subject to
earlier termination under Section 9) be automatically extended by an additional twelve (12) months as of 12:00 a.m. on the anniversary of the Restatement
Effective Date (each, a “Renewal Term”) (the Initial Employment Term and any subsequent Renewal Term, the “Employment Term”), unless not less than
ninety (90) days prior to the end of the Initial Employment Term or any Renewal Term, either Party has given the other Party written notice of non-renewal in
accordance with Section 20. In the event of any voluntary termination of his employment under this Agreement by the Executive, he shall provide the
Company with at least 30 days written notice of his intent to terminate such employment.
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3) Position and Duties of the Executive.
a) During the Employment Term, the Executive shall serve as the Senior Vice President, Corporate Development, Legal and Secretary of the Company and
shall have such duties and authorities consistent with such position as are customary for the position of Senior Vice President, Corporate Development,
Legal and Secretary of a company of the size and nature of the Company, and such other duties and authorities as shall be reasonably determined from
time to time by the Chief Executive Officer and Board of Directors of the Company (the “Board”) consistent with such position and agrees to serve as an
officer and/or be an employee of any Subsidiary as may be reasonably requested from time to time by the Chief Executive Officer, Board or any committee
of the Board. In his capacity as Senior Vice President, Corporate Development, Legal and Secretary of the Company, the Executive shall report only to the
Chief Executive Officer of the Company. The Company will throughout the Employment Term nominate the Executive for Secretary of the Board by the
Company’s Directors at the Board of Directors meetings immediately after the annual shareholders’ meetings.
b) During the Employment Term and except as may from time to time be otherwise agreed to in writing by the Company, or during reasonable vacations
taken in accordance with Section 7, or during authorized leave, or as otherwise provided in Section 3(c), the Executive shall devote his best reasonable
efforts, exclusive and full attention and energies (except for attention to personal interests outside of normal working time) to the Executive’s position and
duties as set forth in Section 3(a), in each case within the framework of the Company’s policies and objectives.
c) During the Employment Term, Executive may not undertake any other paid work without the Company’s prior express written authorization, which
authorization may be revoked at any time in the Company’s sole discretion. However, provided that such activities do not contravene the provisions of
Sections 3(a), 10, 11, 12, or 13 and provided further, that the Executive does not engage in any other substantial business activity for gain, profit or other
pecuniary advantage which materially interferes with the performance of his duties hereunder, the Executive may (i) participate in any governmental,
educational, charitable or other community affairs, (ii) subject to the prior approval of the Company, serve as a member of the governing board of any such
organization or any private or public for-profit entity, (iii) manage his personal investments and affairs, and (iv) engage in any other activity that has been
approved by the Company. The Executive may retain all fees and other compensation or other proceeds from any such service or activities, and the
Company shall not reduce his compensation hereunder by the amount of such fees, compensation or other proceeds.
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4) Compensation.
a) Base Salary. Effective January 22, 2017 and during the Employment Term, the Company shall pay to the Executive an annual base salary of $240,000
(the “Base Salary”), which Base Salary shall be payable at the times and in the manner consistent with the Company’s general policies regarding payment
of salary to the Company’s senior executives but no less frequently than monthly, less lawful deductions. After December 31, 2017, the Base Salary will
be reviewed at least annually by the Company and may be increased from time to time in the Company’s sole discretion.
b)
Incentive Compensation. The Executive will be eligible to participate in any short term and long-term incentive compensation plans and such other
management incentive programs or arrangements of the Company approved by the Board that are generally available to the Company’s senior executives.
Except to the extent otherwise provided in this Agreement, incentive compensation shall be paid in accordance with the terms and conditions of the
applicable plans, programs and arrangements and the documents evidencing the grant of awards thereunder. Such participation shall include the
following.
i. Annual Performance Bonus. During the Employment Term, contingent upon Executive attaining the individual performance objectives set by the Chief
Executive Officer in his/her sole discretion, as such objectives may change from time to time, the Executive shall be entitled to participate in the
Annual Performance Bonus, with such opportunities as may be determined by the Chief Executive Officer in his/her sole discretion (each such annual
opportunity, a “Target Bonus”); provided, however, that beginning on January 1, 2017 and for each calendar year thereafter that commences during the
Employment Term, the Executive will participate at an annual Target Bonus opportunity of 50% of his Base Salary, which percentage may be
increased. Executive is not entitled to payment of this Annual Bonus until such time as the Chief Executive Officer informs the Executive that the
Annual Bonus has been “earned.” Each earned bonus payable pursuant to this Section 4(b)(i) shall be paid in a cash lump sum no later than January
31 and shall be referred to herein as a “Bonus Award”. Executive is not entitled to payment of any Annual Bonus, or portion thereof, which has not
been “earned” as of the date of termination of employment, regardless of the reason for termination. Any document provided by the Company at any
point after the execution of this Agreement which details Executive’s entitlement to the Annual Bonus described herein shall be considered part of this
Agreement and deemed incorporated herein unless it is expressly stated that such document supersedes the terms of this provision.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ii. Long-Term Incentive Plan (the “LTIP”). During the Employment Term, the Executive shall be entitled to participate in the Long-Term Incentive Plan
with such opportunities as may be determined (consistent with this Section 4(b)(ii)) by the Compensation Committee (the target opportunities referred
to herein as the “LTIP Target Award Opportunities”). The Executive shall be granted, effective as of the Restatement Effective Date (the “Grant Date”),
an initial LTIP Target Award Opportunity with a total aggregate 70,000 shares on the Grant Date (the “Initial LTIP Target Award”), with 23,000 shares
of such value granted as a time-vesting nonqualified stock option award, 23,000 shares of such value granted as a time-vesting restricted stock unit
award and 24,000 shares of such value granted as a Company’s Common Stock price performance-vesting restricted stock unit award. The Initial
LTIP Target Award is intended to cover any LTIP awards that might otherwise have been granted to the Executive under this Section 4(b)(ii) for 2017.
The Executive shall be entitled to no LTIP awards for 2018, 2019 or 2020. For purposes of clarity, save for the event of a Change of Control upon
which all of the Executive’s outstanding Initial LTIP Target Award shall be accelerated and vested in full, the portion of the Initial LTIP Target Award
granted in the form of performance-based restricted stock units shall be subject to the performance targets and periods established by the
Compensation Committee for the 2017 LTIP for the Company’s senior executives, and can only be accelerated due to death, disability or termination of
employment in accordance with Section 9(b).
(1) Taxes. The Executive is liable for any and all taxes, including withholding taxes, arising out of this Initial LTIP Target Award grant or the issuance
of the Common Stock on vesting and delivery of the RSUs. The Company is authorized to deduct the amount of tax withholding from the amount
payable to you upon settlement of the RSUs. The Company will withhold from the total number of shares of Common Stock the Executive is to
receive a number of shares the value of which is sufficient to satisfy any such withholding obligation at the minimum applicable withholding rate.
5) Benefits.
a) Executive shall receive benefits, including, but not limited to, life insurance and retirement plan participation, as determined by the Company. To the
extent offered and maintained by the Company, Executive shall be entitled to participate in the Employer’s healthcare plans, welfare benefit plans, fringe
benefit plans, profit sharing plans, and any qualified or non-qualified retirement plans as may be in effect from time to time, on the same basis as those
benefits are made available to the other similarly situated employees of the Company, in accordance with the Company policy as in effect from time to
time and in accordance with the terms of the applicable plan documents (if any). Nothing in this Agreement shall be construed as requiring the Company
or any affiliate of the Company to offer or maintain any particular employee benefit plan or program or preclude the Company from terminating same from
time to time.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
b) Without limiting the generality of Section 5(a), in the event the Executive becomes Disabled during the Employment Term, the Executive shall be entitled
to periodic payments in an aggregate amount equal to his Base Salary in effect immediately prior to the date that he is Disabled, which payments shall be
paid to the Executive in equal installments on the regular payroll dates under the Company’s payroll practices applicable to its senior executives (but no
less frequently than monthly), until six months after the first anniversary of the date he was Disabled, but reduced by any disability benefits paid under all
other plans during such disability period provided that payments under this Section 5(b) are made at the same time as the installments contemplated
herein. Each payment payable pursuant to this Section 5(b) is intended to constitute a separate payment for purposes of Treasury regulation section
1.409A-2(b)(2). For the avoidance of doubt, the Disability Benefits described herein are intended to comply with Section 409A(a)(2)(A) and Treasury
Regulation Section 1.409A-3.
6) Expenses. The Company shall promptly pay or reimburse the Executive for business expenses reasonably incurred by the Executive in connection with his
duties on behalf of the Company following submission by the Executive of appropriate documentation substantiating such expenses.
7) Vacation. In addition to company and public holidays at the Place of Performance, sick leave, personal leave and other paid leave as is allowed under the
Company’s policies applicable to senior executives generally, the Executive shall be entitled to participate in the Company’s vacation policy at a minimum of
three (3) weeks vacation per calendar year, in accordance with the Company’s policy generally applicable to senior executives.
8) Place of Performance. The Executive’s principal place of work, subject to reasonable and necessary domestic and international travel requirements, shall be in
California. If the Company relocates the Executive’s principal place of work more than 50 miles from his principal place of work immediately prior to such
relocation, the Executive shall, subject to any right to terminate his employment for Good Reason, establish a residence within the greater of (a) 50 miles of
such relocated office or (b) the total number of miles the Executive commuted to his principal place of work prior to such relocation. To the extent the
Executive establishes new residences as provided in this Section 8, the Company will pay or reimburse the Executive’s relocation expenses in accordance
with the Company’s relocation policy that is then applicable to its most senior executives.
9) Termination.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
a) Termination Upon Non-Renewal of the Employment Term by the Executive or the Company, Termination by the Company for Cause, or Resignation by
the Executive Without Good Reason. If the Executive or the Company provides notice of non-renewal of the Employment Term in accordance with Section
2 and the Executive’s employment hereunder terminates upon the resulting expiration of the Employment Term, or if the Executive’s employment
hereunder is terminated by the Company for Cause, or if the Executive resigns his employment hereunder without Good Reason, the Executive shall not
be eligible to receive Base Salary, or to participate in any Employee Plans, with respect to any period of time after the date the Executive’s employment
hereunder terminates (the “Termination Date”) unless the Parties otherwise agree in writing.
b) Termination by the Company Without Cause or within one-year following completion of a Change of Control, or Resignation by the Executive with Good
Reason . If, the Executive’s employment hereunder is terminated by the Company without Cause, or within one-year following completion of a Change of
Control, the Executive’s employment hereunder is terminated by the Company without Cause, or the Executive terminates his employment hereunder with
Good Reason, the Executive shall be entitled to receive, conditioned upon the Executive’s execution and delivery to the Company of a Release in the form
of Exhibit A hereto, within the Release Consideration Period and upon the expiration of the Release Revocation Period without revocation, and in full
satisfaction of any rights the Executive might otherwise have under the Agreement:
i. An aggregate amount equal to two times the Base Salary in effect immediately prior to the Termination Date.
ii. Payment of a pro rata Bonus Award for the portion of the Company’s then current fiscal year prior to and including the Termination Date.
iii. Heath Insurance Coverage. A cash payment equal to its portion of the applicable 12-month COBRA (or equivalent health insurance coverage
comparable to the terms in effect immediately prior to the Termination Date) premiums on an after-tax basis, with such payment to be made in the
same month for which the continuation coverage was otherwise to be provided but no less than 30 days after the Termination Date for the Executive
and his eligible family members. Notwithstanding the forgoing provisions of this paragraph, in the event the Executive becomes reemployed with
another employer and becomes eligible to receive medical and dental benefits from such employer during any month in the 12 month continuation
period provided for by this paragraph, the Company shall have no obligation to pay, reimburse or otherwise provide the Executive with continuation
coverage for any such month.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
iv. Outplacement services, paid for by the Company promptly following receipt of appropriate documentation substantiating the expense, up to a
maximum amount of $35,000; provided, however, that all outplacement services that are paid for by the Company must be completed, and all
payments by the Company must be made, by December 31st of the second calendar year following the calendar year in which the Executive’s
Separation from Service occurs.
v. With respect to any outstanding equity, or equity-based, awards, accelerate and vest in full effective as of immediately upon the Termination Date; and
with respect to all vested stock options, the post-termination exercise period shall be fifteen months from the date of Separation from Service. For the
avoidance of doubt, the terms on post-termination exercise period in this Section 9(b), and the Section 4(b)(ii)(1) withholding tax terms shall be the
controlling terms for all of the Executive’s vested stock options and the issuance of the Common Stock on vesting of RSUs.
i. With respect to the Initial LTIP Target Award, the accelerated vesting and payout of any award shall be subject to the Release Requirements of this
Section 9(b).
Notwithstanding anything in this Section 9(b) to the contrary, to the extent the Executive has not executed the Release and delivered it to the Company
within the Release Consideration Period, or has revoked the executed Release within the Release Revocation Period, the Executive will forfeit any right to
receive the payments and benefits specified in this Section 9(b) and to the extent any such payments and benefits have been paid, the Company shall
have the right to recover the after-tax amount of any such payment.
c) Termination by Death . If the Executive dies during the Employment Term, the Executive’s employment hereunder will terminate as of the date of his
death.
d) Termination by Disability . If the Executive becomes Disabled prior to the expiration of the Employment Term, the Executive’s employment hereunder
will terminate, and the Executive and his eligible family members shall be entitled to continue to participate, through the first anniversary of the Termination
Date, in the Company’s health plans at his then-existing participation and coverage levels and on the terms that are in effect from time to time for the
Company’s senior executives.
e) No Mitigation Obligation . In the event of any termination of the Executive’s employment hereunder, the Executive shall be under no obligation to seek
other employment or otherwise mitigate the obligations of the Company under this Agreement, and no amounts paid, or benefits provided, under Section 9
will be reduced on account of any compensation or benefits that the Executive may receive from any other source, except as expressly provided in
Section 9.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
f ) Forfeiture. Notwithstanding the foregoing, any right of the Executive to receive termination payments and benefits under Sections 9(b) or 9(c) (or
continued vesting or vesting acceleration of equity awards pursuant to the terms and conditions of such awards) shall be subject to forfeiture to the extent
provided in Section 14 after any breach of Section 10, 11, or 12 by the Executive.
g) Accrued Benefits. Upon any termination of the Executive’s employment hereunder, regardless of the reason, (i) the Executive shall promptly receive
any accrued but unpaid cash compensation (including, without limitation, Base Salary through the Termination Date and cash compensation for accrued
but unused vacation days) and (notwithstanding his termination) reimbursement for business expenses incurred prior to the Termination Date and
otherwise reimbursable under Section 6; (ii) other than in connection with a termination of the Executive’s employment hereunder by the Company for
Cause, or by the Executive without Good Reason and not due to non-renewal of the Employment Term as a result of the notice of non-renewal from the
Executive, the Executive shall be entitled to payment of any unpaid Bonus Award for any fiscal year that ended prior to, or is ending during the year of, the
Termination, determined and paid in good faith without any exercise of negative discretion at the time of determination that is not also applied in equal
percentage amounts across-the-board to the bonuses payable to the Company’s other senior executives; (iii) the Executive shall be entitled to any vested,
accrued or earned benefits under any Employee Plan or equity, or equity-based, award in accordance with the terms of such Employee Plan and
applicable law; and (iv) the Executive shall be entitled to any other non-duplicative payments or benefits then or thereafter due in accordance with the then
applicable terms of any applicable Company Arrangement.
10. Confidential Information; Statement to Third Parties .
a) During the Employment Term and following termination of Executive’s employment, the Executive acknowledges and agrees that:
i.
all information, whether or not reduced to writing (or in a form from which information can be obtained, translated, or derived into reasonably usable
form) and whether compiled or created by the Company, any of its Subsidiaries, or any entity or venture in which the Company, directly or indirectly,
has an ownership interest of 20% or more or which has an ownership interest of 20% or more in the Company (collectively, the “Company Group”) of
a proprietary, private, secret or confidential nature (including, without exception, inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, sales strategies, plans, research data, clinical data, financial data, personnel data, computer
programs, customer and supplier lists, trademarks, service marks, copyrights (whether registered or unregistered), artwork, and contacts at or
knowledge of customers or prospective customers) concerning the Company Group’s business, business relationships or financial affairs, which
derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value
from the disclosure or use of such information (collectively, “Proprietary Information”) shall be the exclusive property of the Company Group.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ii.
reasonable efforts have been put forth by the Company Group to maintain the secrecy of its Proprietary Information; and
iii. any willful retention or use by the Executive of Proprietary Information that violates this Agreement after the termination of the Executive’s employment
will constitute a misappropriation of the Company Group’s Proprietary Information.
b) The Executive further acknowledges and agrees that he will take all affirmative steps as reasonably necessary or requested by the Company to protect the
Proprietary Information from inappropriate disclosure during and after his employment with the Company, provided that the Company agrees to pay any
expenses reasonably incurred by the Executive in complying with this obligation promptly following receipt of appropriate documentation from the
Executive substantiating such expenses.
c) All materials or copies thereof and all tangible things and other property of the Company Group that embody, represent or contain Proprietary Information
in the Executive’s custody or possession shall be delivered to the Company (to the extent the Executive has not already returned them) within ten
business days after the earlier of: (i) any request by the Company delivered in accordance with Section 20 or (ii) any termination of the Executive’s
employment with the Company for any reason. After such delivery, the Executive shall not retain any such materials or portions or copies thereof or any
such tangible things and other property and shall execute any affirmation of compliance that the Company may reasonably require. Anything in this
Agreement or elsewhere to the contrary notwithstanding the Executive shall at all times be entitled to retain, and use appropriately (i) papers and other
materials of a personal nature, including, but not limited to, photographs, correspondence, personal diaries, calendars, rolodexes (and electronic
equivalents), personal files and phone books, (ii) information and documents pertaining to his personal rights, obligations and entitlements, (iii) information
the Executive reasonably believes may be needed for tax purposes, and (iv) copies of plans, programs and agreements related to his employment, or
termination thereof, with the Company.
d) The Executive further agrees that his obligation not to disclose or to use information and materials set forth in Sections 10(a), 10(b) and 10(c) above, and
his obligation to return materials and tangible property set forth in Section 10(c) above, also extends to corresponding types of information, materials and
tangible property of customers of the Company Group, consultants for the Company Group, suppliers to the Company Group, or other third parties who
may have disclosed or entrusted the same to the Company Group or to the Executive.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
e) The Executive further acknowledges and agrees that he will continue to keep in strict confidence, and will not, directly or indirectly, at any time, disclose,
furnish, disseminate, make available, use or suffer to be used in any manner except in carrying out his duties hereunder any Proprietary Information
without limitation as to when or how the Executive may have acquired such Proprietary Information and that he will not disclose any Proprietary
Information to any person or entity other than appropriate employees of the Company or use the same for any purposes (other than in the performance of
his duties under this Agreement) without written approval of the Board, either during or after his employment with the Company.
f)
Further the Executive acknowledges that his obligation of confidentiality will survive, regardless of any other breach of this Agreement or any other
agreement, by any party hereto, until and unless such Proprietary Information of the Company Group has become, through no fault of the Executive,
generally known to the public. In the event that the Executive is required by law, regulation, or court order to disclose any Proprietary Information, the
Executive will promptly notify the Company prior to making any such disclosure to facilitate the Company seeking a protective order or other appropriate
remedy from the proper authority prior to disclosing such information. The Executive further agrees to cooperate with the Company in seeking such order
or other remedy and that, if the Company is not successful in precluding the requesting legal body from requiring the disclosure of the Proprietary
Information, the Executive will furnish only that portion of the Proprietary Information that he reasonably believes is legally required to be disclosed, and
the Executive will exercise all reasonable efforts to obtain reliable assurances that confidential treatment will be accorded to the Proprietary Information;
provided that, in each case, the Company agrees to promptly pay any expenses reasonably incurred by the Executive in complying with these obligations
following receipt of appropriate documentation from the Executive substantiating such expenses.
g) The Executive’s obligations under this Section 10 are in addition to, and not in limitation of, all other obligations of confidentiality under the Company’s
policies, general legal or equitable principles or statutes. However, nothing in this Agreement or elsewhere shall prohibit the Executive from making truthful
statements, or disclosing Proprietary Information in good faith (i) to appropriate members of the Company Group, or to any authorized (or apparently
authorized) agent or representatives of any of them, (ii) in connection with the good faith performance of his duties for the Company, (iii) when required to
do so by a court, government agency, legislative body, arbitrator or another person with apparent jurisdiction to require such disclosure provided the
Executive give the Company notice of same and the opportunity to seek a protective order in accordance with the provisions of (f) above, (iv) as
reasonably necessary in the course of any proceeding under Section 16 or 21, (v) in confidence to an attorney or other professional for the purpose of
securing professional assistance or advice, or (vi) when specifically authorized to do so in writing by the Board.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
h) During and after the Employment Term:
i.
ii.
the Executive covenants and agrees not to engage in conduct that involves the making or publishing of written or oral statements or remarks,
(including, without limitation, the repetition or distribution of derogatory rumors, allegations, negative reports or comments) which are disparaging,
deleterious or damaging to the integrity, reputation or good will of the Company. This prohibition applies to statements made privately and publicly,
and whether by electronic, written or oral means, in person, by phone, by voicemail, by text message, by email and by any other electronic means,
including on the internet via a blog post or comment, vlog, instant message, video, any online conversation, and on any social media sites or
applications; and
the Company shall refrain from making any statements about the Executive that would disparage, or reflect unfavorably upon the image or reputation
of the Executive; provided, however, that the foregoing shall not prohibit the Company from complying with its policies regarding public statements
with respect to the Executive, or otherwise complying with applicable law, and any such statements shall be deemed to be made by the Company
only if made or authorized by a member of the Board or a senior executive officer of the Company; and
iii. nothing in this Agreement or elsewhere shall prohibit honest and good faith reporting by the Executive to appropriate Company or legal enforcement
authorities or otherwise complying with applicable law.
11. Non-Competition. In consideration of the Company entering into this Agreement, for the period commencing on the Restatement Effective Date and
ending on the expiration of the Restricted Period:
a) The Executive covenants and agrees that the Executive will not, directly or indirectly, engage in any activities on behalf of or have an interest in any
Competitor of the Company Group, whether as an owner, investor, executive, manager, employee, independent consultant, contractor, advisor, agent,
stockholder, officer, director or otherwise. The Executive’s ownership of less than three percent (3%) of any class of stock in a publicly-traded entity shall
not be a breach of this Section 11(a).
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b)
“Competitor” means, at the time of the termination of the Executive’s employment with the Company for any reason, any individual, corporation,
partnership, limited liability company, association, joint venture, trust, joint stock company, joint venture, or unincorporated organization (a “Person”) or any
of such Person’s Divisions doing business in the United States including any territory of the United States and the Place of Performance (collectively, the
“Territory”) or any of such Person’s Divisions employing the Executive doing business in the Territory if such Person or its Division: (i) receives at least
15% of its gross operating revenues from providing substantially similar cell therapies of any type (for example, Knee Osteoarthritis and the Company’s
Chimeric Antigen Receptor T-Cell therapies targeted indications ), (ii) is operating for less than 5 years a substantially similar line of cell therapies business
from which the Company Group derives, and the Company Group has specifically disclosed to the Executive that it derives, or that the Executive knows or
should reasonably know based on his position, duties or responsibilities with the Company that it derives, at least 20% of gross operating revenues,
notwithstanding such Person’s or Division’s lack of substantial revenues in such line of business, or (iii) is engaged in any activity or has an interest in any
activity in which Proprietary Information to which the Executive had access at any time during the two-year period before his termination of employment
that could be of substantial harm to the Company Group. For this purpose, “Division” means any distinct group, subsidiary, or unit organized as a segment
or portion of a Person that is devoted to the production, provision, or management of a common product or service or group of related products or services,
regardless of whether the group is organized as a legally distinct entity. For purposes of the foregoing, gross operating revenues of the Company Group
and such other Person shall be those of the Company Group or such Person, together with their Company Group, but those of any Division employing or
proposing to employ the Executive shall be on a stand-alone basis, all measured by the most recent available financial information of both the Company
Group and such other Person or Division at the time the Executive accepts, or proposes to accept, employment with or to otherwise perform services for
such Person or Division. If financial information concerning any potential Competitor is not publicly available or is inadequate for purposes of applying this
definition, the ultimate burden shall be on the Executive to present information that such Person or Division is not a Competitor.
c) The Executive acknowledges and agrees that, for purposes of this Section 11, due to the continually evolving nature of the Company Group’s industry, the
scope of its business and/or the identities of Competitors may change over time and that breach of this Agreement by accepting employment with a
Competitor would irreparably injure the Company Group. The Parties further acknowledge and agree that the Company Group currently markets its
products and services on an international basis, encompassing the Territory, and may expand such Territory to include any international and foreign
markets, in which case the Parties acknowledge that the terms and provisions of this Section 11 shall apply to such expanded markets.
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d) The Executive covenants and agrees that should a court of competent jurisdiction at any time determine that any restriction or limitation in this Section 11 is
unreasonable or unenforceable, it will be deemed amended so as to provide the maximum protection to the Company Group and be deemed reasonable
and enforceable by the court.
12. Non-Solicitation. In consideration of the Company entering into this Agreement, for the period commencing on the Restatement Effective Date and
ending on the expiration of the Restricted Period, the Executive hereby covenants and agrees that he shall not individually or in cooperation with any
other person or entity do any of the following:
a) Non-Solicitation of Employees. Executive agrees that he will not, while employed by the Company and for a period of two (2) years following the
Termination Date:
i.
directly solicit, encourage, or take any other action which is intended to induce any other employee of the Company to terminate his or her
employment with the Company; or
ii. directly interfere in any manner with the contractual or employment relationship between the Company and any such employee of the Company.
The foregoing shall not prohibit Executive or any entity with which Executive may later be affiliated from hiring a former or existing employee of the Company
or any of its subsidiaries, provided that such hiring does not result from the direct actions of Executive.
a) Non-Solicit of Customers with respect to Competitive Business Activity . Executive agrees that he will not, while employed by the Company and for a period
of two (2) years following termination of such employment, directly or indirectly, whether for his own account or for the account of any other individual or
entity, solicit the business or patronage of any customers of the Company with respect to products and/or services directly related to a Competitive
Business Activity. “Competitive Business Activity” shall mean engaging in, whether independently or as an employee, agent, consultant, advisor,
independent contractor, partner, stockholder, officer, director or otherwise, any business which is materially competitive with the business of the Company
as conducted or actively planned to be conducted by the Company during his employment by it, provided that Executive shall not be deemed to engage in
a Competitive Business Activity under this Section 12(b) solely by reason of (i) owning 1% or less of the outstanding common stock of any corporation if
such class of common stock is registered under Section 12 of the Securities Exchange Act of 1934, or (ii) after the termination of his employment by the
Company, being employed by or otherwise providing services to a corporation having total revenue of at least $500 million (or such lower number as may
be agreed by the Board) so long as such services are provided solely to a division or other business unit of such corporation which does not engage in a
business which is then competitive with the business of the Company.
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13) Developments.
a) The Executive acknowledges and agrees that he will, upon request by the Company, make full and prompt disclosure to the Company of all inventions,
improvements, discoveries, methods, developments, software, written material, record, document, firmware, development, design, mask works, and works
of authorship, whether patentable or copyrightable or not, (i) which relate to the Company’s business and have heretofore been created, made, conceived
or reduced to practice by the Executive or under his direction or jointly with others, and not assigned to prior employers, or (ii) which have utility in or relate
to the Company’s business, and which are created, made, conceived or reduced to practice by the Executive or under his direction or jointly with others
during his employment with the Company, whether or not during normal working hours or on the premises of the Company (all of the foregoing of which
are collectively referred to in this Agreement as “Developments”).
b) The Executive agrees that all lab notebooks, description of planned and conducted experiments, all documents referencing the company’s technology, and
invention disclosure form (whether signed, executed of not) are the Company’s proprietary property.
c)
The Executive further agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all of the
Executive’s rights, title and interest worldwide in and to all Developments and all related intellectual properties comprised of patents, patent applications,
trademark/service mark application, trade dress, copyrights and copyright applications, and any other applications for registration of a proprietary right. This
Section 13(b) shall not apply to Developments that the Executive developed entirely on his own time without using the Company’s equipment, supplies,
facilities, or Proprietary Information and that does not, at the time of conception or reduction to practice, have utility in or relate to the Company’s business,
or actual or demonstrably anticipated research or development. The Executive understands that, to the extent this Agreement shall be construed in
accordance with the laws of any Territory which precludes a requirement in an employee agreement to assign certain classes of inventions made by an
employee, this Section 13(b) shall be interpreted not to apply to any invention which a court or arbitrator rules, or the Company agrees, falls within such
classes.
d) The Executive further agrees to cooperate with the Company, both during and after the Employment Term and upon the Company’s reasonable request
and at the Company’s sole expense, with respect to the procurement, maintenance and enforcement of copyrights, patents and other intellectual property
rights (both in the United States and other countries) relating to Developments. The Executive shall not be required to incur or pay any costs or expenses
in connection with the rendering of such cooperation. Upon reasonable request by the Company, the Executive will sign all papers, including, without
limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights, and powers of attorney, and
do all other things reasonably requested by the Company (at its sole expense) to protect the Company’s rights and interests in any Development.
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e) The Executive further acknowledges and agrees that if the Company is unable, after reasonable effort, to secure the Executive’s signature on any such
papers as reasonably requested, any executive officer of the Company shall be entitled to execute any such papers as the Executive’s agent and attorney-
in-fact, and the Executive hereby irrevocably designates and appoints each executive officer of the Company as his agent and attorney-in-fact for the sole
purpose of executing any such papers on the Executive’s behalf under such circumstances and taking any and all actions reasonably requested by the
Company (at the Company’s sole expense) in order to protect its rights and interests in any Development, under the conditions described in this sentence.
f) Executive hereby forever fully releases and discharges the Company, and the Company and their respective officers, directors and employees, from and
against any and all claims, demands, damages, liabilities, costs and expenses of Executive arising out of, or relating to, any Developments.
14) Remedies. The Executive and the Company agree that the covenants contained in Sections 10, 11, 12, and 13 are reasonable under the
circumstances, and further agree that if in the opinion of any court of competent jurisdiction any such covenant is not reasonable in any respect, such
court will have the right, power and authority to sever or modify any provision or provisions of such covenants as to the court will appear not reasonable
and to enforce the remainder of the covenants as so amended. The Executive acknowledges and agrees that the remedy at law available to the
Company for breach of any of the Executive’s obligations under Sections 10, 11, 12, and 13 would be inadequate and that damages flowing from such a
breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Executive acknowledges, consents and agrees that, in
the event of any such breach, in addition to any other rights or remedies that the Company may have at law, in equity or under this Agreement, upon
adequate proof of the Executive’s violation of any such provision of this Agreement, the Company will be entitled to seek immediate injunctive relief and
may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage. Without limiting the
applicability of this Section 14 or in any way affecting the right of the Company to seek equitable remedies hereunder, in the event that the Executive
materially and willfully breaches any of the provisions of Sections 10, 11, or 12 or engages in any activity that would constitute a material and willful
breach save for the Executive’s action being in a state where any of the provisions of Sections 10, 11, 12, or this Section 14 is not enforceable as a
matter of law, and, if such breach or activity is susceptible to cure and such breach or activity is not cured by the Executive within 7 days after the
Company delivers a notice to the Executive describing the breach or activity in reasonable detail and requesting cure, then the Company’s obligation to
pay any remaining severance compensation and benefits that have not already been paid to the Executive pursuant to Sections 9(a), 9(b) or 9(d) shall
terminate. During any breach of the provisions of paragraph 10 of this Agreement, the period of restraint set forth therein shall be automatically tolled
and suspended for the amount of time that the violation continues. Executive understands and agrees that he will be liable to pay all expenses, including
court costs and reasonable attorneys’ fees, necessarily incurred by him in connection with the Company’s enforcement of the Restrictive Covenants,
whether or not litigation is entirely commenced and including litigation of any appeal taken or defended by the Company in any action to enforce this
agreement. If any tribunal having jurisdiction determines that any of the provisions of the Restrictive Covenants, or any part thereof, is invalid or
unenforceable because of the duration or geographical scope of such provision, such tribunal shall have the power to reduce the duration or
geographical scope of such provision and in its reduced form, such provision shall then be enforceable.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
15) Continued Availability and Cooperation.
a) Following termination of the Executive’s employment under this Agreement for any reason, the Executive agrees that, consistent with the Executive’s
business and personal affairs and his fiduciary duties both to the Company and to any new employer, he will (upon reasonable request by the Company) cooperate
with the Company and with the Company’s counsel in connection with any present and future actual or threatened litigation, administrative proceeding or
investigation involving the Company that relates to events, occurrences or conduct occurring (or claimed to have occurred) during the period of the Executive’s
employment by the Company (other than any litigation, administrative proceeding or investigation in which the Executive and the Company are opposing parties);
provided, however, nothing in this Section 15(a) shall require the Executive to cooperate in such a way that would jeopardize his legal interests. Cooperation may
include, but is not limited to:
i. making himself reasonably available for interviews and discussions with the Company’s counsel as well as for depositions and trial testimony;
ii.
if depositions or trial testimony are to occur, making himself reasonably available and cooperating in the preparation therefore, as and to the extent that
the Company or the Company’s counsel reasonably requests;
iii.
refraining from impeding in any way the Company’s prosecution or defense of such litigation or administrative proceeding; and
iv. cooperating in the development and presentation of the Company’s prosecution or defense of such litigation or administrative proceeding.
b) The Company will promptly pay directly, or promptly reimburse the Executive for, any expense reasonably incurred by him in connection with
rendering cooperation under Section 15(a), including (without limitation) attorneys’ fees and other charges of counsel (if the Executive reasonably
determines that he should retain independent legal counsel), incurred in connection with any cooperation, consultation and advice rendered
under this Agreement following receipt of appropriate documentation from the Executive substantiating such expenses.
16) Dispute Resolution.
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a)
b)
c)
d)
In the event that the Parties are unable to resolve any controversy or claim arising out of or relating to this Agreement, the Executive’s employment
with the Company, or any termination of such employment, either Party to the dispute shall refer the dispute to binding arbitration, which shall
(except as otherwise provided in Section 16(d)) be the exclusive forum for resolving all such controversies and claims. Such arbitration will be
administered by Judicial Arbitration and Mediation Services, Inc. (“JAMS”) pursuant to its Comprehensive Arbitration Rules and Procedures (the
“JAMS Rules”). The arbitration shall be conducted by a single arbitrator selected by the Parties according to the JAMS Rules. In the event that the
Parties fail to agree on the selection of the arbitrator within 30 days after either Party’s request for arbitration, the arbitrator will be chosen by JAMS.
Unless the Parties otherwise agree, any arbitration hearings shall commence on a mutually agreeable date within 90 days after the request for
arbitration and shall be conducted within thirty (30) miles of the location of the Place of Performance.
The Parties agree that each will bear their own costs and attorneys’ fees. The arbitrator shall not have authority to award attorneys’ fees or costs to
any Party.
The arbitrator shall have no power or authority to make awards or orders granting relief that would not be available to a Party in a court of law. The
arbitrator’s award is limited by and must comply with this Agreement and controlling federal, state, and local laws. Except as otherwise provided by
law, the decision of the arbitrator shall otherwise be final and binding on the Parties.
Notwithstanding the foregoing, no claim for injunctive or similar non-monetary equitable relief contemplated by or allowed under applicable law with
respect to alleged violations of Sections 10, 11, 12, and 13 of this Agreement will be subject to arbitration under this Section 16, but will instead be
subject to determination in a court of competent jurisdiction as set forth in Section 21, which court shall apply Delaware law consistent with Section
21 of this Agreement.
17) Other Agreements. No agreements (other than the agreements evidencing grants of equity awards and those expressly referred to in this Agreement, and
other Company Arrangements arising out of or relating to the Executive’s service as a member of the Company’s Board) (collectively, “Other Arrangements”)) or
representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either Party which are not set forth in this
Agreement. Each Party acknowledges that no representations, inducements, promises, or other agreements, orally or otherwise, have been made by any Party, or
anyone acting on behalf of such Party, pertaining to the subject matter hereof, which are not embodied in this Agreement (or in any Other Arrangement), and that
no prior and/or contemporaneous agreement, statement or promise pertaining to the subject matter hereof that is not contained in this Agreement (or in any Other
Arrangement) shall be valid or binding on either Party.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
18) Withholding of Taxes. The Company will withhold from any amounts payable by it under this Agreement all federal, state, city or other taxes that the
Company is required to withhold pursuant to any applicable statute or government regulation or ruling.
19) Successors and Binding Agreements .
a)
b)
c)
d)
Nothing in this Agreement, except as expressly set forth herein, is intended to confer any rights or remedies under or by reason of this Agreement
on any persons other than the parties to this Agreement and the successors, assigns and affiliates of the Company, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any third person to any party to this Agreement, nor shall any provision give
any third person any right of action over or against any party to this Agreement.
The Company may assign its rights under the Agreement only to any successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or assets of the Company that expressly agrees to assume and perform this
Agreement in the same manner and to the same extent the Company would have been required to perform if no such succession had taken place.
This Agreement will be binding upon and inure to the benefit of the Company and any such successor to the Company, (and such successor shall
thereafter be deemed to be included in the term the “Company” for the purposes of this Agreement, except to the extent that the result would be to
expand the restrictions applying to the Executive under Section 11), but will not otherwise be assignable, transferable or `delegable by the
Company.
This Agreement will inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in Sections 19(a) and 19(b). Without limiting the generality or effect
of the foregoing, the Executive’s right to receive payments and benefits hereunder will (except as otherwise expressly provided in any other
applicable Company Arrangement) not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise,
other than by a transfer by the Executive’s will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer
contrary to this Section 19(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
20) Notices. All communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing
and will be duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five business days after having
been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three business days after having been sent by a nationally
recognized overnight courier service such as DHL, Federal Express or UPS, addressed to the Company (to the attention of the Company Secretary) at its principal
executive offices and to the Executive at his principal residence, with (during the Employment Term) a copy delivered to the Executive’s principal office at the
Company and with a copy (which shall not constitute notice) also delivered to Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas, 11th Floor, New
York, NY 10105, attention Sarah Williams, Esq., or to such other address as either Party may have furnished to the other in writing and in accordance herewith,
except that notices of changes of address shall be effective only upon receipt.
21) Governing Law and Choice of Forum.
a) This Agreement will be construed and enforced according to the laws of the State of California, without giving effect to the conflict of laws principles
thereof.
b) To the extent not otherwise provided for by Section 16 of this Agreement, the Executive and the Company consent to the jurisdiction of all state and
federal courts located in Cupertino, Santa Clara County, California, as well as to the jurisdiction of all courts of which an appeal may be taken from
such courts, for the purpose of any suit, action, or other proceeding arising out of, or in connection with, this Agreement or that otherwise arise out of
the employment relationship. Each Party hereby expressly waives any and all rights to bring any suit, action, or other proceeding in or before any court
or tribunal other than the courts described above and covenants that it shall not seek in any manner to resolve any dispute other than as set forth in
this paragraph. Further, the Parties each hereby expressly waives any and all objections either may have to venue, including, without limitation, the
inconvenience of such forum, in any of such courts. In addition, each of the Parties consents to the service of process by personal service or any
manner in which notices may be delivered hereunder in accordance with this Agreement.
22) Severability. If any provision of this Agreement or the application of any provision is held invalid, unenforceable or otherwise illegal, the remainder of
this Agreement and the application of such provision will not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal will
be reformed to the extent (and only to the extent) necessary to make it enforceable, valid or legal. To the extent any provisions are held to be invalid,
unenforceable or otherwise illegal cannot be reformed, such provisions are to be stricken herefrom and the remainder of this Agreement will be binding
on the Parties and their successors and assigns as if such invalid or illegal provisions were never included in this Agreement from the first instance.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
23) Survival of Provisions. Notwithstanding any other provision of this Agreement, the Parties’ respective rights and obligations under Sections 5, 9, 10, 11,
12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 23, 25 and 26, will survive any termination of the Executive’s employment under this Agreement.
24) Representations and Acknowledgements .
a)
b)
c)
d)
e)
The Executive hereby represents that, except as he has disclosed to the Company, he is not subject to any restriction on his ability to enter into
this Agreement or to perform his duties and responsibilities hereunder, including, but not limited to, any covenant not to compete with any former
employer that would so restrict him.
The Executive further represents that, to the best of his knowledge, his performance of all the terms of this Agreement and as an employee of the
Company does not and will not breach any agreement with another party, and that he will not knowingly disclose to the Company or induce the
Company to use any confidential or proprietary information or material belonging to any previous employer not included in the Company Group or
others.
Executive hereby represents and warrants to Company that as of the date of execution of this Agreement: (i) this Agreement will not cause or
require Executive to breach any obligation to, or agreement or confidence with, any other person; (ii) Executive is not representing, or otherwise
affiliated in any capacity with, any other research organizations, lines of products, manufacturers, vendors or customers of the Company; and (iii)
Executive has not been induced to enter into this Agreement by any promise or representation other than as expressly set forth in this Agreement.
The Executive hereby represents and agrees that, during the Restricted Period, if the Executive is offered employment or the opportunity to enter
into any business activity, whether as owner, investor, executive, manager, employee, independent consultant, contractor, advisor or otherwise,
the Executive will inform the offeror of the existence of Sections 10, 11, 12, and 13 of this Agreement and provide the offeror a copy thereof. The
Executive authorizes the Company to provide a copy of the relevant provisions of this Agreement to any of the persons or entities described in this
Section 24(c) and to make such persons aware of the Executive’s obligations under this Agreement.
The Company represents and warrants that (i) it is fully authorized by action of its Board (and of any other person or body whose action is
required) to enter into this Agreement and to perform its obligations under it, and (ii) upon the execution and delivery of this Agreement by the
Parties, this Agreement shall be its valid and binding obligation, enforceable against it in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
25) Compliance with Code Section 409A . With respect to reimbursements or in-kind benefits provided under this Agreement or under any other Company
Arrangement: (a) the Company will not provide for cash in lieu of a right to reimbursement or in-kind benefits to which the Executive has a right under
this Agreement or under any other Company Arrangement, (b) any reimbursement of provision of in-kind benefits made during the Executive’s lifetime
(or such shorter period prescribed by a specific provision of this Agreement or of any other Company Arrangement) shall be made not later than
December 31st of the year following the year in which the Executive incurs the expense, and (c) in no event will the amount of expenses so reimbursed,
or in-kind benefits provided, by the Company in one year affect the amount of expenses eligible for reimbursement or in-kind benefits to be provided, in
any other taxable year. Each payment, reimbursement or in-kind benefit made pursuant to the provisions of this Agreement or of any other Company
Arrangement shall be regarded as a separate payment and not one of a series of payments for purposes of Section 409A of the Code. It is intended that
any amounts payable under this Agreement, any Employee Plan or any other Company Arrangement, and any exercise of the Company’s and the
Executive’s authority or discretion hereunder, shall comply with the provisions of Section 409A of the Code and the treasury regulations relating thereto
so as not to subject the Executive to the payment of the additional tax, interest and any tax penalty which may be imposed under Code Section 409A. In
furtherance of this interest, to the extent that any provision hereof would result in the Executive being subject to payment of the additional tax, interest
and tax penalty under Code Section 409A, the Parties agree to amend this Agreement in order to bring this Agreement into compliance with Code
Section 409A; and thereafter to interpret its provisions in a manner that complies with Section 409A of the Code. Reference to Section 409A of the Code
is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any proposed, temporary or final regulations, or any other
guidance, promulgated with respect to such Section by the U.S. Department of Treasury or the Internal Revenue Service. Notwithstanding anything in
this Agreement or elsewhere to the contrary, and unless the Executive otherwise agrees in a signed writing executed in connection with the termination
of his employment under this Agreement, the Executive shall have no duties or responsibilities after the Termination Date that are inconsistent with his
having had a Separation from Service on the Termination Date. If the Executive agrees, in a signed writing that is executed in connection with the
termination of his employment under this Agreement, to undertake duties and responsibilities that will result in his not incurring a Separation from
Service on the Termination Date, all references to the Termination Date herein for the purposes of determining the commencement of any severance
payments and benefits that constitute deferred compensation within the meaning of Section 409A shall mean the date Executive incurs a Separation
from Service. Notwithstanding the foregoing, no particular tax result for the Executive with respect to any income recognized by the Executive in
connection with this Agreement is guaranteed, and the Executive shall be responsible for any taxes, penalties and interest imposed on him under or as
a result of Section 409A of the Code in connection with payments and benefits made in accordance with the terms of this Agreement.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
26) Amendment; Waiver.
No provision of this Agreement may be modified or amended other than through a writing that is signed by the
Parties and that expressly identifies the provision being modified or amended. No waiver by either Party at any
time of any breach by the other Party hereto of compliance with any provision of this Agreement to be
performed by such other Party will be effective unless in a signed writing that expressly identifies the provision
of this Agreement that is being waived, nor shall any such waiver, deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
27) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together
will constitute one and the same agreement. Signatures delivered by facsimile (including, without limitation, by “pdf”) shall be effective for all purposes.
28) Defined Terms.
a)
b)
c)
d)
“Base Salary” has the meaning set forth in Section 4(a).
“Board” has the meaning set forth in Section 3(a).
“Bonus Award” has the meaning set forth in Section 4(b)(i).
“Cause” Shall mean:
i.
any act or omission constituting a material and intentional breach by the Executive of any provisions of this Agreement after notice is delivered
by the Company that identifies the manner in which the breach occurred, if within 30 days of such notice, the Executive fails to cure any such
failure capable of being cured;
ii.
the willful and continued failure by the Executive to substantially perform his duties hereunder, after demand for performance is delivered by
the Company that identifies the manner in which the Company believes the Executive has not performed his duties, if, within 30 days of such
demand, the Executive fails to cure any such failure capable of being cured;
iii. any intentional misconduct by the Executive (including, but not limited to, misappropriation, fraud including with respect to the Company’s
accounting and financial statements, embezzlement or conversion by the Executive of the Company’s or any of its Subsidiary’s property in
connection with the Executive’s duties or in the course of the Executive’s employment with the Company) that causes material harm to the
Company or any Subsidiary, financially or otherwise;
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iv.
the conviction (or plea of no contest) of the Executive for any felony, or the indictment of the Executive for any felony (including, but not limited
to, any felony involving fraud, moral turpitude, embezzlement or theft in connection with the Executive’s duties or in the course of the
Executive’s employment with the Company); provided, however that if the Executive’s employment is terminated for Cause based on an
indictment, and such indictment is thereafter resolved other than by a conviction or a plea of no contest, the Executive shall be entitled to the
benefits (or the economic equivalent thereof) that he would have received under Section 9(a) or 9(b) if those Sections had been applied as of
his Termination Date, provided that the Release Consideration Period in Sections 9(a) and 9(b) shall be deemed not to have commenced until
the date that his indictment was resolved;
v.
the commission of any intentional or knowing violation of any material antifraud provision of the federal or state securities laws;
vi.
there is a final, non-appealable order in a proceeding before a court of competent jurisdiction, or a final order arising out of an administrative
proceeding, finding that the Executive committed any willful misconduct or criminal activity, either for his personal benefit or in connection with
his duties for the Company or any Subsidiary but excluding traffic violations and other minor offenses, which misconduct or activity is materially
harmful to the interests of the Company or any of its Subsidiaries;
vii.
Current use or abuse of illegal substance that affects work performance;
viii. knowing and material violation of specific prohibitions or requirements in the Company’s Code of Conduct and Ethics (which the Executive
shall be deemed to have read and understood), which violation causes significant harm to the Company, financially or otherwise, with written
notice of termination by the Company for Cause in each case given by the Company to the Executive in accordance with Section 20 prior to
the Termination Date.
For purposes of this Agreement, no act or failure to act on the part of the Executive shall be deemed “intentional” or “willful” or “knowing” if it was
due primarily to an error in judgment or gross negligence, and any act or failure to act on the part of the Executive shall be deemed “intentional” or
“willful” or “knowing” only if done or omitted to be done by the Executive not in good faith and without reasonable belief that the Executive’s action
or omission was in the interest of the Company. Failure to meet performance expectations, unless willful, continuing, substantial, and uncured
after demand for cure to the extent such failure is curable, shall not be considered “Cause.”
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
e)
“Change in Control” means a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act as in effect on the date of this Agreement, whether or not the Company is
then subject to such reporting requirement; provided that, without limitation, a Change in Control shall be deemed to have occurred if:
i. any “Person” (as defined in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined
voting power of the Company’s then outstanding securities; provided that a Change in Control shall not be deemed to occur under this
clause (i) by reason of the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan)
maintained by the Company;
ii. during any period of one year there shall cease to be a majority of the Board comprised of “Continuing Directors” as hereinafter defined; or
iii.there occurs (A) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting
power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B)
the approval by the stockholders of the Company of a plan of complete liquidation of the Company, or (C) the sale or disposition by the
Company of more than fifty percent (50%) of the Company’s assets. For purposes of this Section 28(e)(iii), a sale of more than fifty percent
(50%) of the Company’s assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and
its subsidiaries or the sale of stock of one or more of the Company’s subsidiaries with an aggregate value in excess of fifty percent (50%)
of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent (50%) of the
aggregate value of the Company and its subsidiaries is sold.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
iv.For purposes of this Agreement, a “Change in Control” will be deemed to occur:
1. on the day on which a thirty percent (30%) or greater ownership interest described in Section 28(e)(i) is acquired, provided that a
subsequent increase in such ownership interest after it first equals or exceeds thirty percent (30%) shall not be deemed a
separate Change in Control;
2. on the day on which “Continuing Directors”, as hereinafter defined, cease to be a majority of the Board as described in Section
28(e)(ii);
3. on the day of a merger, consolidation or sale of assets as described in Section 28(e)(iii); or
4. on the day of the approval of a plan of complete liquidation as described in Section 28(e)(iii).
v. For purposes of this Section 28(e), the words “Continuing Directors” mean individuals who at the beginning of any period (not including
any period prior to the date of this Agreement) of one year constitute the Board and any new Director(s) whose election by the Board or
nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the Directors then still in office who
either were Directors at the beginning of the period or whose election or nomination for election was previously so approved.
“Code” means the Internal Revenue Code of 1986, as amended.
“Common Stock” means common stock of the Company listed on NASDAQ under the symbol “CBMG”.
“Company Arrangement” means any written plan, program, agreement or arrangement of the Company or any of its Subsidiaries applicable to the
Executive and relating to employment, compensation or benefits.
“Company Group” has the meaning set forth in Section 10(a).
“Compensation Committee” means the Compensation Committee of the Board or its successor.
“Competitor” has the meaning set forth in Section 11(b).
f)
g)
h)
i)
j)
k)
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l)
m)
n)
o)
p)
“Director” means a member of the Board.
“Disability” or “Disabled” means due to illness or accidental injury, a physical or mental incapacity that prevents the Executive from performing his
material and substantial duties for a total of one hundred eighty (180) days in any twenty four (24) month period; provided, however, for purposes
of Section 5(b), (x) no termination of the Executive’s employment shall be required for his illness or incapacity to constitute “Disability” but (y) his
illness or incapacity must also constitute a disability within the meaning of Section 409A(a)(2)(C) of the Code and Treasury regulation section
1.409A-3(i)(4), as each may be amended from time to time; provided, further, if the Executive shall not agree with a determination to terminate his
employment because of Disability, the question of the Executive’s disability shall be subject to the certification of a qualified medical doctor agreed
to by the Company and the Executive. All fees and other costs relating to such certification shall be promptly paid by the Company.
“Employee Plans” has the meaning set forth in Section 5(a).
“Executive” has the meaning set forth in the preamble, provided that, in the event of the Executive’s death or a judicial determination of his
incapacity, the term shall mean (where appropriate) his designated beneficiary or beneficiaries, his heirs, his estate, his executor or executors, or
his other legal representative or representatives.
“Good Reason” means the occurrence of any of the following without the Executive's consent: (i) a material adverse change in Executive's title,
duties or responsibilities (including reporting responsibilities); (ii) a material reduction in Executive's base salary; and (iii) any relocation of
Executive's principal office by more than 50 miles from his office in California. Company and Executive agree that “Good Reason“ shall not exist
unless and until Executive provides the Company with written notice of the acts alleged to constitute Good Reason within ninety (90) days of
Executive's knowledge of the occurrence of such event, and Company fails to cure such acts within ten (10) days of receipt of such notice, if
curable. Executive must terminate his employment within sixty (60) days following the expiration of such cure period for the termination to be on
account of Good Reason.
q)
“Release” means a release of claims in the form attached hereto as Exhibit A.
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r)
s)
t)
u)
v)
“Release Consideration and Revocation Period” means the combined total of the Release Consideration Period and the Release Revocation
Period.
“Release Consideration Period” means the 21-day period described in the Release during which the Executive is entitled to consider whether to
sign it.
“Release Revocation Period” means the period pursuant to the terms of an executed Release in which it may be revoked by the Executive.
“Restricted Period” means the 24-month period following the date on which the Executive’s employment with the Company terminates for any
reason.
“Separation from Service” means “separation from service” from the Company and its subsidiaries as described under Section 409A of the Code
and the guidance and Treasury regulations issued thereunder. Separation from Service will occur on the date on which the Executive’s level of
services to the Company decreases to 21 percent or less of the average level of services performed by the Executive over the immediately
preceding 36-month period (or if providing services for less than 36 months, such lesser period) after taking into account any services that the
Executive provided prior to such date or that the Company and the Executive reasonably anticipate the Executive may provide (whether as an
employee or as an independent contractor) after such date. For purposes of the determination of whether the Executive has had a Separation from
Service, the term “Company” shall mean the Company and any affiliate with which the Company would be considered a single employer under
Section 414(b) or 414(c) of the Code, provided that in applying Sections 1563(a)(1), (2), and (3) of the Code for purposes of determining a
controlled group of corporations under Section 414(b) of the Code, the language “at least 50 percent” is used instead of “at least 80 percent” each
place it appears in Sections 1563(a)(1), (2) and (3) of the Code, and in applying Treasury Regulation Section 1.414(c)-2 for purposes of
determining trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code, “at
least 50 percent” is used instead of “at least 80 percent” each place it appears in Treasury Regulation Section 1.414(c)-2. In addition, where the
use of such definition of “Company” for purposes of determining a Separation from Service is based upon legitimate business criteria, in applying
Sections 1563(a)(1), (2), and (3) of the Code for purposes of determining a controlled group of corporations under Section 414(b) of the Code, the
language “at least 20 percent” is used instead of “at least 80 percent” at each place it appears in Sections 1563(a)(1), (2) and (3) of the Code, and
in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining trades or businesses (whether or not incorporated) that are under
common control for purposes of Section 414(c) of the Code, “at least 20 percent” is used instead of “at least 80 percent” at each place it appears in
Treasury Regulation Section 1.414(c)-2.
w)
“Subsidiary” shall mean any entity, corporation, partnership (general or limited), limited liability company, entity, firm, business organization,
enterprise, association or joint venture in which the Company directly or indirectly controls twenty percent (20%) or more of the voting interest.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by the Chief Executive Officer pursuant to the authority of its Board, and
the Executive has executed this Agreement, as of the Restatement Effective Date.
Cellular Biomedicine Group Inc.
/s/Bizuo (Tony) Liu
Bizuo (Tony) Liu
Chief Executive Officer
Executive
/s/ Andrew Chan
Andrew Chan
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EXHIBIT A
FORM OF RELEASE
WHEREAS, Cellular Biomedicine Group Inc., a Delaware corporation (the “Company”) and (the “Executive”) are parties to that certain employment
agreement dated February 6, 2013 and amended and restated effective March 3, 2017 (the “Agreement”);
WHEREAS, the Executive’s employment with the Company under this Agreement terminated on [ ] (the “Termination Date”); and
WHEREAS, under Section 9(a) and 9(b) of the Agreement, the Executive is required to sign this release (the “Release”) within 21 days after the
Termination Date, in order to receive the payments to be made and the benefits to be received by the Executive pursuant to Section 9(a) or 9(b) of the
Agreement.
NOW THEREFORE, in consideration of the promises and agreements contained herein and in the Agreement and for other good and valuable
consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, the Executive agrees as follows:
This Release shall become effective on the Effective Date, as defined in Section 7(b) hereof.
1)
In consideration of the payments to be made and the benefits to be received by the Executive pursuant to Section 9(a) or 9(b) of the Agreement, the
Executive, for himself and the Executive’s dependents, successors, assigns, heirs, executors and administrators (and the Executive’s and their legal
representatives of every kind), (the “Executive Releasors”), hereby irrevocably and unconditionally releases, acquits and forever discharges the Company and
its affiliated companies and their past and present parents, subsidiaries, affiliated corporations, partnerships, joint ventures and their successors and assigns
(the “Company Affiliated Group”), and their current and former officers, directors, stockholders, members, employees, heirs, assigns, representatives, insurers,
agents and counsel and all persons acting by, through, under or in concert with any of them (but as to any such identified categories of persons, including
those acting by, through, under or in concert with them, only in such capacity in such designated category or relationship to such designated category)
(together with the Company Affiliated Group, the “Company Releasees”), from any and all arbitrations, complaints, claims, charges, demands, controversies,
suits, proceedings and causes of action with respect to liabilities, obligations, promises, agreements, damages, costs, losses, debts or expenses including
attorneys’ fees and other legal costs, of any kind whatsoever and every description that are related to the Executive’s employment or termination of
employment, whether known or unknown, suspected or unsuspected, which the Executive now has, may have, claimed to have, or any time had against any of
the Company Affiliated Group arising prior to the Effective Date (as defined in Section 7(b) below) (collectively “Claims”), and the Executive agrees not to
assert any such Claims.
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a) More specifically, this release of Claims includes, without express or implied limitation, the release of all Claims of wrongful termination of employment
whether in contract or tort; all Claims of intentional, reckless, or negligent infliction of emotional distress; all Claims of breach of any express or implied
contract or express or implied covenant of employment, including the covenant of good faith and fair dealing; all Claims of interference with contractual or
advantageous relations, whether prospective or existing; all Claims of deceit or misrepresentation; all Claims of discrimination under local, state or federal
law; any legal restrictions on the right of any of the Company Affiliated Group to terminate employees; Claims arising under any federal, state, local
statutory or common law or other governmental statute, regulation or ordinance, including, without limitation, the Sarbanes-Oxley Act of 2002; Section
1981 of Title 42 of the United States Code; 42 U.S.C. §1981; and/or Title VII of the Civil Rights Act of 1964; the Age Discrimination in Employment Act; the
Older Workers’ Benefit Protection Act; the Americans with Disabilities Act; the Equal Pay Act; the Fair Labor Standards Act; the Family and Medical Leave
Act; the Employee Retirement Income Security Act of 1974, as amended; the Rehabilitation Act of 1973; the Racketeer Influenced and Corrupt
Organizations Act; the Worker Adjustment and Retraining Notification Act; all Claims of defamation or damage to reputation; all Claims for reinstatement;
all Claims for punitive or emotional distress damages; and all Claims for wages, bonuses, severance, back or front pay or other forms of compensation
which are based upon or arise from the acts, practices, transactions, events, and/or facts underlying any wage claim that was or could have been
asserted.
b) Notwithstanding the foregoing, nothing herein shall constitute a release by the Executive of any of the following:
i.
any rights he has under the Agreement, including any right to enforce any of the terms thereof, and any rights he has under this Release, including any
right to enforce the terms thereof;
ii. any Claim for payments, benefits or other entitlements, to which the Executive is or will be entitled under the terms of any compensation or benefit
plan, program or other arrangement maintained by any of the Company Affiliated Group, including without limitation any incentive or deferred
compensation plan, any pension plan or benefits under any medical, dental, vision, life insurance, disability insurance or other welfare benefit plan;
iii. any Claim for indemnification the Executive may have under applicable laws, under the applicable constituent documents (including bylaws and
certificates of incorporation) of any of the Company Affiliated Group, under any applicable insurance policy the Company Affiliated Group may
maintain, or any under any other written agreement or arrangement with any of the Company Affiliated Group, with respect to any liability, costs or
expenses the Executive incurs or has incurred as a director, officer or employee of any of the Company Affiliated Group;
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iv. any Claim the Executive may have to obtain contribution as permitted by law in the event of entry of judgment against the Executive as a result of any
act or failure to act for which the Executive and any of the Company Affiliated Group are jointly liable;
v. any Claim that by law may not be released by private agreement without judicial or governmental review and approval;
vi. any Claim that arises after the Effective Date; and
vii. any Claim the Executive has against any of the Company Releasees solely in his capacity as a shareholder of Cellular Biomedicine Group Inc. or of
any affiliate of the Company or as a former shareholder of Cellular Biomedicine Group Inc.
2) The Executive understands and acknowledges that the Company does not admit any violation of law, liability or invasion of any of his rights and that any such
violation, liability or invasion is expressly denied. The consideration provided to the Executive for this Release is made for the purpose of settling and
extinguishing all Claims arising prior to the Effective Date that relate to his employment or termination of employment with the Company that the Executive
ever had or now may have against the Company or any of the other Company Releasees to the extent provided in this Release. The Executive further agrees
and acknowledges that no representations, promises or inducements have been made by any of the Company Releasees to the Executive with respect to this
Release other than as appear in the Agreement or this Release.
3) The Executive agrees to release and discharge each Company Releasee, not only from any and all Claims which he could make on his own behalf, but also
Claims that may or could be brought by any person or organization on his behalf, for monetary relief, and he specifically waives any right to recovery, directly
or indirectly, in connection with any class or collective action or representative proceeding in which a Claim or Claims against any Company Releasee for
monetary relief may arise, in whole or in part, from any event which occurred up through and including the Effective Date.
4) The Executive acknowledges that his waiver and release of rights and claims as set forth in this Release is in exchange for valuable consideration which he
would not otherwise be entitled to receive.
5) The parties understand, agree and intend that, except as otherwise provided in Section 1(b) above, upon the Executive’s receipt of all of the payments and
benefits to be paid or provided to him by the Company pursuant to Section 9(a) and 9(b) of the Agreement, he will have received complete satisfaction of any
and all Claims arising prior to the Effective Date , whether known, suspected, or unknown, that he may have or had against any of the Company Releasees
that are related to his employment, or termination of employment, with any of them.
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6) The Executive agrees to pay any reasonable legal fees or costs incurred by any of the Company Affiliated Group as a result of any breach of his promises in
this Release, including his promise to fully release each member of the Company Affiliated Group from all Claims and to compensate any such company for its
legal costs, including attorneys’ fees incurred by such company as a result of any breach of the Release, except to the extent that he challenges the validity of
the Release under the Age Discrimination in Employment Act, in which case such company may only recover such fees and expenses as may be permitted by
state and federal law.
7) The Executive further represents, agrees and acknowledges that:
a) he has been advised by the Company to consult with his own legal counsel prior to executing and delivering this Release, has had an opportunity to
consult with and to be advised by legal counsel of his choice, fully understands the terms of this Release, and enters into this Release freely, voluntarily,
without coercion or duress of any kind and intending to be bound;
b) he has been given the opportunity to consider this Release for a period of at least 21 days after the Termination Date (as defined in the Agreement). In
the event that the Executive has executed this Release within less than such 21-day period, the Executive acknowledges that his decision to so
execute the Release was entirely voluntary and that he had the opportunity to consider this Release for the entire 21- day period. The Executive and
the Company acknowledge that for a period of seven (7) days from the date that the Executive executes this Release (the “Revocation Period”), he
shall retain the right to revoke this Release by written notice that is received by the Company’s Secretary before the end of such Revocation Period.
Provided that this Release is not revoked pursuant to the preceding sentence, this Release shall become effective, binding, irrevocable and
enforceable on the date immediately following the last day of the Revocation Period (the “Effective Date”). If the Executive timely exercises his right to
revoke this Release, the Executive will forfeit his right to receive any of the benefits that were conditioned on this Release becoming effective, without
affecting the effectiveness of the termination of the Executive’s employment with the Company, and without altering the termination of the Executive’s
employment from all offices and any directorships and any fiduciary positions;
c)
in executing this Release, the Executive does not rely and has not relied upon any representation or statement not set forth herein or in the
Agreement made by the Company with regard to the subject matter, basis, or effect of this Release or otherwise; and
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d)
for the purpose of implementing a full and complete release and discharge of all Claims against the Company Affiliated Group, the Executive expressly
acknowledges that this Release is intended to include in its effect, to the extent herein provided, all Claims related to his employment or termination of
employment with any of the Company Affiliated Group arising before the Effective Date , which the Executive does not know or suspect to exist in his
favor at the time of execution hereof, and that this Release contemplates the extinguishment of any such Claim or Claims. IN EXECUTING THIS
RELEASE, THE EXECUTIVE EXPRESSLY REPRESENTS THAT HE IS DOING SO VOLUNTARILY AND OF HIS OWN FREE WILL AND THAT HE
IS OF SOUND MIND AT THE TIME OF SAID EXECUTION.
8) The Executive represents that he will not seek to recover any monetary damages in the future with respect to Claims that arose prior to the Effective Date;
provided, however, that nothing in this Release shall not limit the Executive from commencing any proceeding for the purpose of enforcing the Executive’s
rights arising under, or preserved by, this Release or the Agreement.
9) The Executive waives and releases any Claim that the Executive has or may have to reemployment.
10) This Release does not waive any of the rights of any of the Company Affiliated Group to enforce any clawback policy including to the extent it may be required
under final NASDAQ Stock Market (or other applicable exchange) listing standards subsequently adopted. Executive agrees that as of the date set forth
below, Executive has not reported information to the Securities and Exchange Commission concerning, and is not aware of, any securities law compliance
failure at any of the Company Affiliated Group by any person that has not been reported to the Compliance Officer of the Company, and further agrees to
report to the Compliance Officer of the Company information Executive learns about any securities law compliance failure by any of the Company Affiliated
Group after the date set forth below before taking any further action.
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IN WITNESS WHEREOF, the Executive has executed and delivered this Release on the date set forth below.
Dated: ____________________________________________
_____________________________________
Andrew Chan
THIS RELEASE IS INVALID IF SIGNED BY THE EXECUTIVE BEFORE THE
TERMINATION DATE
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EMPLOYMENT AGREEMENT
(Amended and Restated as of March 3, 2017)
Exhibit 10.57
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into effective as of August 4, 2015 (the “Effective Date”) by and between
Cellular Biomedicine Group Inc., a Delaware corporation (the “Company”) on behalf of itself and any of its subsidiaries, affiliates and related entities and Yihong
Yao (the “Executive”) (the Company and the Executive, collectively, the “Parties,” and each, a “Party”). This Agreement is amended and restated effective as of
March 3, 2017 (the “Restatement Effective Date”). Certain capitalized terms are defined in
Section 28.
WHEREAS, the Company desires to employ the Executive as Chief Scientific Officer of the Company, and the Executive is willing to do so, pursuant to the
WITNESSETH:
terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements set forth herein and for other good and valuable
consideration, the sufficiency and receipt of which are hereby acknowledged, the Company and the Executive hereby agree as follows:
1) Employment.
a) As of the Restatement Effective Date, the Company will employ the Executive, and the Executive will be employed by the Company, upon the terms and
conditions set forth herein.
b) The employment relationship between the Company and the Executive shall be governed by the general employment policies and practices of the
Company, including without limitation, those relating to the Company’s Code of Conduct and Ethics, confidential information and avoidance of conflicts,
except that when the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or practices, the terms of this
Agreement shall control.
2) Employment Term. Subject to earlier termination under Section 9, the Executive’s employment under this Agreement shall be for an initial term that
commences on the Restatement Effective Date and continues through March 2 (the “Initial Employment Term”), 2021. At the end of the Initial Employment
Term and on each succeeding anniversary of the Restatement Effective Date, the term of the Executive’s employment under this Agreement will (subject to
earlier termination under Section 9) be automatically extended by an additional twelve (12) months as of 12:00 a.m. on the anniversary of the Restatement
Effective Date (each, a “Renewal Term”) (the Initial Employment Term and any subsequent Renewal Term, the “Employment Term”), unless not less than
thirty (30) days prior to the end of the Initial Employment Term or any Renewal Term, either Party has given the other Party written notice of non-renewal in
accordance with Section 20. In the event of any voluntary termination of his employment under this Agreement by the Executive, he shall provide the
Company with at least 30 days written notice of his intent to terminate such employment.
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3) Position and Duties of the Executive.
a) During the Employment Term, the Executive shall serve as the Chief Scientific Officer of the Company and shall have such duties and authorities
consistent with such position as are customary for the position of Chief Scientific Officer of a company of the size and nature of the Company, and such
other duties and authorities as shall be reasonably determined from time to time by the Chief Executive Officer and Board of Directors of the Company (the
“Board”) consistent with such position and agrees to serve as an officer and/or be an employee of any Subsidiary as may be reasonably requested from
time to time by the Chief Executive Officer, Board or any committee of the Board. In his capacity as Chief Scientific Officer of the Company, the Executive
shall report to the Chief Executive Officer of the Company.
b) During the Employment Term and except as may from time to time be otherwise agreed to in writing by the Company, or during reasonable vacations
taken in accordance with Section 7, or during authorized leave, or as otherwise provided in Section 3(c), the Executive shall devote his best reasonable
efforts, exclusive and full attention and energies (except for attention to personal interests outside of normal working time) to the Executive’s position and
duties as set forth in Section 3(a), in each case within the framework of the Company’s policies and objectives.
c) During the Employment Term, Executive may not undertake any other paid work without the Company’s prior express written authorization, which
authorization may be revoked at any time in the Company’s sole discretion. However, provided that such activities do not contravene the provisions of
Sections 3(a), 10, 11, 12, or 13 and provided further, that the Executive does not engage in any other substantial business activity for gain, profit or other
pecuniary advantage which materially interferes with the performance of his duties hereunder, the Executive may (i) participate in any governmental,
educational, charitable or other community affairs, (ii) subject to the prior approval of the Company, serve as a member of the governing board of any such
organization or any private or public for-profit entity, (iii) manage his personal investments and affairs, and (iv) engage in any other activity that has been
approved by the Company. The Executive may retain all fees and other compensation or other proceeds from any such service or activities, and the
Company shall not reduce his compensation hereunder by the amount of such fees, compensation or other proceeds.
4) Compensation.
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a) Base Salary. Effective August 4, 2015 and during the Employment Term, the Company shall pay to the Executive an annual base salary of $250,000 (the
“Base Salary”), which Base Salary shall be payable at the times and in the manner consistent with the Company’s general policies regarding payment of
salary to the Company’s senior executives but no less frequently than monthly, less lawful deductions. After December 31, 2017, the Base Salary will be
reviewed at least annually by the Company and may be increased from time to time in the Company’s sole discretion.
b)
Incentive Compensation. The Executive will be eligible to participate in any short term and long-term incentive compensation plans and such other
management incentive programs or arrangements of the Company approved by the Board that are generally available to the Company’s senior executives.
Except to the extent otherwise provided in this Agreement, incentive compensation shall be paid in accordance with the terms and conditions of the
applicable plans, programs and arrangements and the documents evidencing the grant of awards thereunder. Such participation shall include the
following.
i. Annual Performance Bonus. During the Employment Term, contingent upon Executive attaining the individual performance objectives set by the Chief
Executive Officer in his/her sole discretion, as such objectives may change from time to time, the Executive shall be entitled to participate in the
Annual Performance Bonus, with such opportunities as may be determined by the Chief Executive Officer in his/her sole discretion (each such annual
opportunity, a “Target Bonus”); provided, however, that beginning on January 1, 2017 and for each calendar year thereafter that commences during the
Employment Term, the Executive will participate at an annual Target Bonus opportunity of 50% of his Base Salary, which percentage may be
increased. Executive is not entitled to payment of this Annual Bonus until such time as the Chief Executive Officer informs the Executive that the
Annual Bonus has been “earned.” Each earned bonus payable pursuant to this Section 4(b)(i) shall be paid in a cash lump sum no later than January
31 and shall be referred to herein as a “Bonus Award”. Executive is not entitled to payment of any Annual Bonus, or portion thereof, which has not
been “earned” as of the date of termination of employment, regardless of the reason for termination. Any document provided by the Company at any
point after the execution of this Agreement which details Executive’s entitlement to the Annual Bonus described herein shall be considered part of this
Agreement and deemed incorporated herein unless it is expressly stated that such document supersedes the terms of this provision.
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ii. Long-Term Incentive Plan (the “LTIP”). During the Employment Term, the Executive shall be entitled to participate in the Long-Term Incentive Plan
with such opportunities as may be determined (consistent with this Section 4(b)(ii)) by the Compensation Committee (the target opportunities referred
to herein as the “LTIP Target Award Opportunities”). The Executive shall be granted, effective as of the Restatement Effective Date (the “Grant Date”),
an initial LTIP Target Award Opportunity with a total aggregate 80,000 shares on the Grant Date (the “Initial LTIP Target Award”), with 26,500 shares
of such value granted as a time-vesting nonqualified stock option award, 26,500 shares of such value granted as a time-vesting restricted stock unit
award and 27,000 shares of such value granted as a Company’s Common Stock price performance-vesting restricted stock unit award. The Initial
LTIP Target Award is intended to cover any LTIP awards that might otherwise have been granted to the Executive under this Section 4(b)(ii) for 2017.
The Executive shall be entitled to no LTIP awards for 2018, 2019 or 2020. For purposes of clarity, save for the event of a Change of Control upon
which all of the Executive’s outstanding Initial LTIP Target Award shall be accelerated and vested in full, the portion of the Initial LTIP Target Award
granted in the form of performance-based restricted stock units shall be subject to the performance targets and periods established by the
Compensation Committee for the 2017 LTIP for the Company’s senior executives, and can only be accelerated due to death, disability or termination of
employment in accordance with Section 9(b).
(1) Taxes. The Executive is liable for any and all taxes, including withholding taxes, arising out of this Initial LTIP Target Award grant or the issuance
of the Common Stock on vesting and delivery of the RSUs. The Company is authorized to deduct the amount of tax withholding from the amount
payable to you upon settlement of the RSUs. The Company will withhold from the total number of shares of Common Stock the Executive is to
receive a number of shares the value of which is sufficient to satisfy any such withholding obligation at the minimum applicable withholding rate.
5) Benefits.
a) Executive shall receive benefits, including, but not limited to, life insurance and retirement plan participation, as determined by the Company. To the
extent offered and maintained by the Company, Executive shall be entitled to participate in the Employer’s healthcare plans, welfare benefit plans, fringe
benefit plans, profit sharing plans, and any qualified or non-qualified retirement plans as may be in effect from time to time, on the same basis as those
benefits are made available to the other similarly situated employees of the Company, in accordance with the Company policy as in effect from time to
time and in accordance with the terms of the applicable plan documents (if any). Nothing in this Agreement shall be construed as requiring the Company
or any affiliate of the Company to offer or maintain any particular employee benefit plan or program or preclude the Company from terminating same from
time to time.
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b) Without limiting the generality of Section 5(a), in the event the Executive becomes Disabled during the Employment Term, the Executive shall be entitled
to periodic payments in an aggregate amount equal to his Base Salary in effect immediately prior to the date that he is Disabled, which payments shall be
paid to the Executive in equal installments on the regular payroll dates under the Company’s payroll practices applicable to its senior executives (but no
less frequently than monthly), until six months after the first anniversary of the date he was Disabled, but reduced by any disability benefits paid under all
other plans during such disability period provided that payments under this Section 5(b) are made at the same time as the installments contemplated
herein. Each payment payable pursuant to this Section 5(b) is intended to constitute a separate payment for purposes of Treasury regulation section
1.409A-2(b)(2). For the avoidance of doubt, the Disability Benefits described herein are intended to comply with Section 409A(a)(2)(A) and Treasury
Regulation Section 1.409A-3.
6) Expenses. The Company shall promptly pay or reimburse the Executive for business expenses reasonably incurred by the Executive in connection with his
duties on behalf of the Company following submission by the Executive of appropriate documentation substantiating such expenses.
7) Vacation. In addition to company and public holidays at the Place of Performance, sick leave, personal leave and other paid leave as is allowed under the
Company’s policies applicable to senior executives generally, the Executive shall be entitled to participate in the Company’s vacation policy at a minimum of
two (2) weeks vacation per calendar year, in accordance with the Company’s policy generally applicable to senior executives.
8) Place of Performance. The Executive’s principal place of work, subject to reasonable and necessary domestic and international travel requirements, shall be in
Maryland and up to 182 days in China. If the Company relocates the Executive’s principal place of work (Maryland) more than 50 miles from his principal place
of work immediately prior to such relocation, the Executive shall, subject to any right to terminate his employment for Good Reason, establish a residence
within the greater of (a) 50 miles of such relocated office or (b) the total number of miles the Executive commuted to his principal place of work prior to such
relocation. To the extent the Executive establishes new residences as provided in this Section 8, the Company will pay or reimburse the Executive’s relocation
expenses in accordance with the Company’s relocation policy that is then applicable to its most senior executives.
9) Termination.
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a) Termination Upon Non-Renewal of the Employment Term by the Executive or the Company, Termination by the Company for Cause, or Resignation by
the Executive Without Good Reason. If the Executive or the Company provides notice of non-renewal of the Employment Term in accordance with Section
2 and the Executive’s employment hereunder terminates upon the resulting expiration of the Employment Term, or if the Executive’s employment
hereunder is terminated by the Company for Cause, or if the Executive resigns his employment hereunder without Good Reason, the Executive shall not
be eligible to receive Base Salary, or to participate in any Employee Plans, with respect to any period of time after the date the Executive’s employment
hereunder terminates (the “Termination Date”) unless the Parties otherwise agree in writing.
b) Termination by the Company Without Cause or within one-year following completion of a Change of Control, or Resignation by the Executive with Good
Reason . If, the Executive’s employment hereunder is terminated by the Company without Cause, or within one-year following completion of a Change of
Control, the Executive’s employment hereunder is terminated by the Company without Cause, or the Executive terminates his employment hereunder with
Good Reason, the Executive shall be entitled to receive, conditioned upon the Executive’s execution and delivery to the Company of a Release in the form
of Exhibit A hereto, within the Release Consideration Period and upon the expiration of the Release Revocation Period without revocation, and in full
satisfaction of any rights the Executive might otherwise have under the Agreement:
i. An aggregate amount equal to two times the Base Salary in effect immediately prior to the Termination Date.
ii. Payment of a pro rata Bonus Award for the portion of the Company’s then current fiscal year prior to and including the Termination Date.
iii. Heath Insurance Coverage. A cash payment equal to its portion of the applicable 12-month COBRA (or equivalent health insurance coverage
comparable to the terms in effect immediately prior to the Termination Date) premiums on an after-tax basis, with such payment to be made in the
same month for which the continuation coverage was otherwise to be provided but no less than 30 days after the Termination Date for the Executive
and his eligible family members. Notwithstanding the forgoing provisions of this paragraph, in the event the Executive becomes reemployed with
another employer and becomes eligible to receive medical and dental benefits from such employer during any month in the 12 month continuation
period provided for by this paragraph, the Company shall have no obligation to pay, reimburse or otherwise provide the Executive with continuation
coverage for any such month.
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iv. Outplacement services, paid for by the Company promptly following receipt of appropriate documentation substantiating the expense, up to a
maximum amount of $35,000; provided, however, that all outplacement services that are paid for by the Company must be completed, and all
payments by the Company must be made, by December 31st of the second calendar year following the calendar year in which the Executive’s
Separation from Service occurs.
v. With respect to any outstanding equity, or equity-based, awards, accelerate and vest in full effective as of immediately upon the Termination Date; and
with respect to all vested stock options, the post-termination exercise period shall be fifteen months from the date of Separation from Service. For the
avoidance of doubt, the terms on post-termination exercise period in this Section 9(b), and the Section 4(b)(ii)(1) withholding tax terms shall be the
controlling terms for all of the Executive’s vested stock options and the issuance of the Common Stock on vesting of RSUs.
i. With respect to the Initial LTIP Target Award, the accelerated vesting and payout of any award shall be subject to the Release Requirements of this
Section 9(b).
Notwithstanding anything in this Section 9(b) to the contrary, to the extent the Executive has not executed the Release and delivered it to the Company
within the Release Consideration Period, or has revoked the executed Release within the Release Revocation Period, the Executive will forfeit any right to
receive the payments and benefits specified in this Section 9(b) and to the extent any such payments and benefits have been paid, the Company shall
have the right to recover the after-tax amount of any such payment.
c) Termination by Death . If the Executive dies during the Employment Term, the Executive’s employment hereunder will terminate as of the date of his
death.
d) Termination by Disability . If the Executive becomes Disabled prior to the expiration of the Employment Term, the Executive’s employment hereunder
will terminate, and the Executive and his eligible family members shall be entitled to continue to participate, through the first anniversary of the Termination
Date, in the Company’s health plans at his then-existing participation and coverage levels and on the terms that are in effect from time to time for the
Company’s senior executives.
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e) No Mitigation Obligation . In the event of any termination of the Executive’s employment hereunder, the Executive shall be under no obligation to seek
other employment or otherwise mitigate the obligations of the Company under this Agreement, and no amounts paid, or benefits provided, under Section 9
will be reduced on account of any compensation or benefits that the Executive may receive from any other source, except as expressly provided in
Section 9.
f ) Forfeiture. Notwithstanding the foregoing, any right of the Executive to receive termination payments and benefits under Sections 9(b) or 9(c) (or
continued vesting or vesting acceleration of equity awards pursuant to the terms and conditions of such awards) shall be subject to forfeiture to the extent
provided in Section 14 after any breach of Section 10, 11, or 12 by the Executive.
g) Accrued Benefits. Upon any termination of the Executive’s employment hereunder, regardless of the reason, (i) the Executive shall promptly receive
any accrued but unpaid cash compensation (including, without limitation, Base Salary through the Termination Date and cash compensation for accrued
but unused vacation days) and (notwithstanding his termination) reimbursement for business expenses incurred prior to the Termination Date and
otherwise reimbursable under Section 6; (ii) other than in connection with a termination of the Executive’s employment hereunder by the Company for
Cause, or by the Executive without Good Reason and not due to non-renewal of the Employment Term as a result of the notice of non-renewal from the
Executive, the Executive shall be entitled to payment of any unpaid Bonus Award for any fiscal year that ended prior to, or is ending during the year of, the
Termination, determined and paid in good faith without any exercise of negative discretion at the time of determination that is not also applied in equal
percentage amounts across-the-board to the bonuses payable to the Company’s other senior executives; (iii) the Executive shall be entitled to any vested,
accrued or earned benefits under any Employee Plan or equity, or equity-based, award in accordance with the terms of such Employee Plan and
applicable law; and (iv) the Executive shall be entitled to any other non-duplicative payments or benefits then or thereafter due in accordance with the then
applicable terms of any applicable Company Arrangement.
10. Confidential Information; Statement to Third Parties .
a) During the Employment Term and following termination of Executive’s employment, the Executive acknowledges and agrees that:
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i.
all information, whether or not reduced to writing (or in a form from which information can be obtained, translated, or derived into reasonably usable
form) and whether compiled or created by the Company, any of its Subsidiaries, or any entity or venture in which the Company, directly or indirectly,
has an ownership interest of 20% or more or which has an ownership interest of 20% or more in the Company (collectively, the “Company Group”) of
a proprietary, private, secret or confidential nature (including, without exception, inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, sales strategies, plans, research data, clinical data, financial data, personnel data, computer
programs, customer and supplier lists, trademarks, service marks, copyrights (whether registered or unregistered), artwork, and contacts at or
knowledge of customers or prospective customers) concerning the Company Group’s business, business relationships or financial affairs, which
derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value
from the disclosure or use of such information (collectively, “Proprietary Information”) shall be the exclusive property of the Company Group.
ii.
reasonable efforts have been put forth by the Company Group to maintain the secrecy of its Proprietary Information; and
iii. any willful retention or use by the Executive of Proprietary Information that violates this Agreement after the termination of the Executive’s employment
will constitute a misappropriation of the Company Group’s Proprietary Information.
b) The Executive further acknowledges and agrees that he will take all affirmative steps as reasonably necessary or requested by the Company to protect the
Proprietary Information from inappropriate disclosure during and after his employment with the Company, provided that the Company agrees to pay any
expenses reasonably incurred by the Executive in complying with this obligation promptly following receipt of appropriate documentation from the
Executive substantiating such expenses.
c) All materials or copies thereof and all tangible things and other property of the Company Group that embody, represent or contain Proprietary Information
in the Executive’s custody or possession shall be delivered to the Company (to the extent the Executive has not already returned them) within ten
business days after the earlier of: (i) any request by the Company delivered in accordance with Section 20 or (ii) any termination of the Executive’s
employment with the Company for any reason. After such delivery, the Executive shall not retain any such materials or portions or copies thereof or any
such tangible things and other property and shall execute any affirmation of compliance that the Company may reasonably require. Anything in this
Agreement or elsewhere to the contrary notwithstanding the Executive shall at all times be entitled to retain, and use appropriately (i) papers and other
materials of a personal nature, including, but not limited to, photographs, correspondence, personal diaries, calendars, rolodexes (and electronic
equivalents), personal files and phone books, (ii) information and documents pertaining to his personal rights, obligations and entitlements, (iii) information
the Executive reasonably believes may be needed for tax purposes, and (iv) copies of plans, programs and agreements related to his employment, or
termination thereof, with the Company.
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d) The Executive further agrees that his obligation not to disclose or to use information and materials set forth in Sections 10(a), 10(b) and 10(c) above, and
his obligation to return materials and tangible property set forth in Section 10(c) above, also extends to corresponding types of information, materials and
tangible property of customers of the Company Group, consultants for the Company Group, suppliers to the Company Group, or other third parties who
may have disclosed or entrusted the same to the Company Group or to the Executive.
e) The Executive further acknowledges and agrees that he will continue to keep in strict confidence, and will not, directly or indirectly, at any time, disclose,
furnish, disseminate, make available, use or suffer to be used in any manner except in carrying out his duties hereunder any Proprietary Information
without limitation as to when or how the Executive may have acquired such Proprietary Information and that he will not disclose any Proprietary
Information to any person or entity other than appropriate employees of the Company or use the same for any purposes (other than in the performance of
his duties under this Agreement) without written approval of the Board, either during or after his employment with the Company.
f)
Further the Executive acknowledges that his obligation of confidentiality will survive, regardless of any other breach of this Agreement or any other
agreement, by any party hereto, until and unless such Proprietary Information of the Company Group has become, through no fault of the Executive,
generally known to the public. In the event that the Executive is required by law, regulation, or court order to disclose any Proprietary Information, the
Executive will promptly notify the Company prior to making any such disclosure to facilitate the Company seeking a protective order or other appropriate
remedy from the proper authority prior to disclosing such information. The Executive further agrees to cooperate with the Company in seeking such order
or other remedy and that, if the Company is not successful in precluding the requesting legal body from requiring the disclosure of the Proprietary
Information, the Executive will furnish only that portion of the Proprietary Information that he reasonably believes is legally required to be disclosed, and
the Executive will exercise all reasonable efforts to obtain reliable assurances that confidential treatment will be accorded to the Proprietary Information;
provided that, in each case, the Company agrees to promptly pay any expenses reasonably incurred by the Executive in complying with these obligations
following receipt of appropriate documentation from the Executive substantiating such expenses.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
g) The Executive’s obligations under this Section 10 are in addition to, and not in limitation of, all other obligations of confidentiality under the Company’s
policies, general legal or equitable principles or statutes. However, nothing in this Agreement or elsewhere shall prohibit the Executive from making truthful
statements, or disclosing Proprietary Information in good faith (i) to appropriate members of the Company Group, or to any authorized (or apparently
authorized) agent or representatives of any of them, (ii) in connection with the good faith performance of his duties for the Company, (iii) when required to
do so by a court, government agency, legislative body, arbitrator or another person with apparent jurisdiction to require such disclosure provided the
Executive give the Company notice of same and the opportunity to seek a protective order in accordance with the provisions of (f) above, (iv) as
reasonably necessary in the course of any proceeding under Section 16 or 21, (v) in confidence to an attorney or other professional for the purpose of
securing professional assistance or advice, or (vi) when specifically authorized to do so in writing by the Board.
h) During and after the Employment Term:
i.
ii.
the Executive covenants and agrees not to engage in conduct that involves the making or publishing of written or oral statements or remarks,
(including, without limitation, the repetition or distribution of derogatory rumors, allegations, negative reports or comments) which are disparaging,
deleterious or damaging to the integrity, reputation or good will of the Company. This prohibition applies to statements made privately and publicly,
and whether by electronic, written or oral means, in person, by phone, by voicemail, by text message, by email and by any other electronic means,
including on the internet via a blog post or comment, vlog, instant message, video, any online conversation, and on any social media sites or
applications; and
the Company shall refrain from making any statements about the Executive that would disparage, or reflect unfavorably upon the image or reputation
of the Executive; provided, however, that the foregoing shall not prohibit the Company from complying with its policies regarding public statements
with respect to the Executive, or otherwise complying with applicable law, and any such statements shall be deemed to be made by the Company
only if made or authorized by a member of the Board or a senior executive officer of the Company; and
iii. nothing in this Agreement or elsewhere shall prohibit honest and good faith reporting by the Executive to appropriate Company or legal enforcement
authorities or otherwise complying with applicable law.
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11. Non-Competition. In consideration of the Company entering into this Agreement, for the period commencing on the Restatement Effective Date and
ending on the expiration of the Restricted Period:
a) The Executive covenants and agrees that the Executive will not, directly or indirectly, engage in any activities on behalf of or have an interest in any
Competitor of the Company Group, whether as an owner, investor, executive, manager, employee, independent consultant, contractor, advisor, agent,
stockholder, officer, director or otherwise. The Executive’s ownership of less than three percent (3%) of any class of stock in a publicly-traded entity shall
not be a breach of this Section 11(a).
b)
“Competitor” means, at the time of the termination of the Executive’s employment with the Company for any reason, any individual, corporation,
partnership, limited liability company, association, joint venture, trust, joint stock company, joint venture, or unincorporated organization (a “Person”) or any
of such Person’s Divisions doing business in the United States including any territory of the United States and the Place of Performance (collectively, the
“Territory”) or any of such Person’s Divisions employing the Executive doing business in the Territory if such Person or its Division: (i) receives at least
15% of its gross operating revenues from providing substantially similar cell therapies of any type (for example, Knee Osteoarthritis and the Company’s
Chimeric Antigen Receptor T-Cell therapies targeted indications ), (ii) is operating for less than 5 years a substantially similar line of cell therapies business
from which the Company Group derives, and the Company Group has specifically disclosed to the Executive that it derives, or that the Executive knows or
should reasonably know based on his position, duties or responsibilities with the Company that it derives, at least 20% of gross operating revenues,
notwithstanding such Person’s or Division’s lack of substantial revenues in such line of business, or (iii) is engaged in any activity or has an interest in any
activity in which Proprietary Information to which the Executive had access at any time during the two-year period before his termination of employment
that could be of substantial harm to the Company Group. For this purpose, “Division” means any distinct group, subsidiary, or unit organized as a segment
or portion of a Person that is devoted to the production, provision, or management of a common product or service or group of related products or services,
regardless of whether the group is organized as a legally distinct entity. For purposes of the foregoing, gross operating revenues of the Company Group
and such other Person shall be those of the Company Group or such Person, together with their Company Group, but those of any Division employing or
proposing to employ the Executive shall be on a stand-alone basis, all measured by the most recent available financial information of both the Company
Group and such other Person or Division at the time the Executive accepts, or proposes to accept, employment with or to otherwise perform services for
such Person or Division. If financial information concerning any potential Competitor is not publicly available or is inadequate for purposes of applying this
definition, the ultimate burden shall be on the Executive to present information that such Person or Division is not a Competitor.
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c) The Executive acknowledges and agrees that, for purposes of this Section 11, due to the continually evolving nature of the Company Group’s industry, the
scope of its business and/or the identities of Competitors may change over time and that breach of this Agreement by accepting employment with a
Competitor would irreparably injure the Company Group. The Parties further acknowledge and agree that the Company Group currently markets its
products and services on an international basis, encompassing the Territory, and may expand such Territory to include any international and foreign
markets, in which case the Parties acknowledge that the terms and provisions of this Section 11 shall apply to such expanded markets.
d) The Executive covenants and agrees that should a court of competent jurisdiction at any time determine that any restriction or limitation in this Section 11 is
unreasonable or unenforceable, it will be deemed amended so as to provide the maximum protection to the Company Group and be deemed reasonable
and enforceable by the court.
12. Non-Solicitation. In consideration of the Company entering into this Agreement, for the period commencing on the Restatement Effective Date and
ending on the expiration of the Restricted Period, the Executive hereby covenants and agrees that he shall not individually or in cooperation with any
other person or entity do any of the following:
a) Non-Solicitation of Employees. Executive agrees that he will not, while employed by the Company and for a period of two (2) years following the
Termination Date:
i.
directly solicit, encourage, or take any other action which is intended to induce any other employee of the Company to terminate his or her
employment with the Company; or
ii. directly interfere in any manner with the contractual or employment relationship between the Company and any such employee of the Company.
The foregoing shall not prohibit Executive or any entity with which Executive may later be affiliated from hiring a former or existing employee of the Company
or any of its subsidiaries, provided that such hiring does not result from the direct actions of Executive.
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a) Non-Solicit of Customers with respect to Competitive Business Activity . Executive agrees that he will not, while employed by the Company and for a period
of two (2) years following termination of such employment, directly or indirectly, whether for his own account or for the account of any other individual or
entity, solicit the business or patronage of any customers of the Company with respect to products and/or services directly related to a Competitive
Business Activity. “Competitive Business Activity” shall mean engaging in, whether independently or as an employee, agent, consultant, advisor,
independent contractor, partner, stockholder, officer, director or otherwise, any business which is materially competitive with the business of the Company
as conducted or actively planned to be conducted by the Company during his employment by it, provided that Executive shall not be deemed to engage in
a Competitive Business Activity under this Section 12(b) solely by reason of (i) owning 1% or less of the outstanding common stock of any corporation if
such class of common stock is registered under Section 12 of the Securities Exchange Act of 1934, or (ii) after the termination of his employment by the
Company, being employed by or otherwise providing services to a corporation having total revenue of at least $500 million (or such lower number as may
be agreed by the Board) so long as such services are provided solely to a division or other business unit of such corporation which does not engage in a
business which is then competitive with the business of the Company.
13) Developments.
a) The Executive acknowledges and agrees that he will, upon request by the Company, make full and prompt disclosure to the Company of all inventions,
improvements, discoveries, methods, developments, software, written material, record, document, firmware, development, design, mask works, and works
of authorship, whether patentable or copyrightable or not, (i) which relate to the Company’s business and have heretofore been created, made, conceived
or reduced to practice by the Executive or under his direction or jointly with others, and not assigned to prior employers, or (ii) which have utility in or relate
to the Company’s business, and which are created, made, conceived or reduced to practice by the Executive or under his direction or jointly with others
during his employment with the Company, whether or not during normal working hours or on the premises of the Company (all of the foregoing of which
are collectively referred to in this Agreement as “Developments”).
b) The Executive agrees that all lab notebooks, description of planned and conducted experiments, all documents referencing the company’s technology, and
invention disclosure form (whether signed, executed of not) are the Company’s proprietary property.
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c)
The Executive further agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all of the
Executive’s rights, title and interest worldwide in and to all Developments and all related intellectual properties comprised of patents, patent applications,
trademark/service mark application, trade dress, copyrights and copyright applications, and any other applications for registration of a proprietary right. This
Section 13(b) shall not apply to Developments that the Executive developed entirely on his own time without using the Company’s equipment, supplies,
facilities, or Proprietary Information and that does not, at the time of conception or reduction to practice, have utility in or relate to the Company’s business,
or actual or demonstrably anticipated research or development. The Executive understands that, to the extent this Agreement shall be construed in
accordance with the laws of any Territory which precludes a requirement in an employee agreement to assign certain classes of inventions made by an
employee, this Section 13(b) shall be interpreted not to apply to any invention which a court or arbitrator rules, or the Company agrees, falls within such
classes.
d) The Executive further agrees to cooperate with the Company, both during and after the Employment Term and upon the Company’s reasonable request
and at the Company’s sole expense, with respect to the procurement, maintenance and enforcement of copyrights, patents and other intellectual property
rights (both in the United States and other countries) relating to Developments. The Executive shall not be required to incur or pay any costs or expenses
in connection with the rendering of such cooperation. Upon reasonable request by the Company, the Executive will sign all papers, including, without
limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights, and powers of attorney, and
do all other things reasonably requested by the Company (at its sole expense) to protect the Company’s rights and interests in any Development.
e) The Executive further acknowledges and agrees that if the Company is unable, after reasonable effort, to secure the Executive’s signature on any such
papers as reasonably requested, any executive officer of the Company shall be entitled to execute any such papers as the Executive’s agent and attorney-
in-fact, and the Executive hereby irrevocably designates and appoints each executive officer of the Company as his agent and attorney-in-fact for the sole
purpose of executing any such papers on the Executive’s behalf under such circumstances and taking any and all actions reasonably requested by the
Company (at the Company’s sole expense) in order to protect its rights and interests in any Development, under the conditions described in this sentence.
f) Executive hereby forever fully releases and discharges the Company, and the Company and their respective officers, directors and employees, from and
against any and all claims, demands, damages, liabilities, costs and expenses of Executive arising out of, or relating to, any Developments.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
14) Remedies. The Executive and the Company agree that the covenants contained in Sections 10, 11, 12, and 13 are reasonable under the
circumstances, and further agree that if in the opinion of any court of competent jurisdiction any such covenant is not reasonable in any respect, such
court will have the right, power and authority to sever or modify any provision or provisions of such covenants as to the court will appear not reasonable
and to enforce the remainder of the covenants as so amended. The Executive acknowledges and agrees that the remedy at law available to the
Company for breach of any of the Executive’s obligations under Sections 10, 11, 12, and 13 would be inadequate and that damages flowing from such a
breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Executive acknowledges, consents and agrees that, in
the event of any such breach, in addition to any other rights or remedies that the Company may have at law, in equity or under this Agreement, upon
adequate proof of the Executive’s violation of any such provision of this Agreement, the Company will be entitled to seek immediate injunctive relief and
may obtain a temporary order restraining any threatened or further breach, without the necessity of proof of actual damage. Without limiting the
applicability of this Section 14 or in any way affecting the right of the Company to seek equitable remedies hereunder, in the event that the Executive
materially and willfully breaches any of the provisions of Sections 10, 11, or 12 or engages in any activity that would constitute a material and willful
breach save for the Executive’s action being in a state where any of the provisions of Sections 10, 11, 12, or this Section 14 is not enforceable as a
matter of law, and, if such breach or activity is susceptible to cure and such breach or activity is not cured by the Executive within 7 days after the
Company delivers a notice to the Executive describing the breach or activity in reasonable detail and requesting cure, then the Company’s obligation to
pay any remaining severance compensation and benefits that have not already been paid to the Executive pursuant to Sections 9(a), 9(b) or 9(d) shall
terminate. During any breach of the provisions of paragraph 10 of this Agreement, the period of restraint set forth therein shall be automatically tolled
and suspended for the amount of time that the violation continues. Executive understands and agrees that he will be liable to pay all expenses, including
court costs and reasonable attorneys’ fees, necessarily incurred by him in connection with the Company’s enforcement of the Restrictive Covenants,
whether or not litigation is entirely commenced and including litigation of any appeal taken or defended by the Company in any action to enforce this
agreement. If any tribunal having jurisdiction determines that any of the provisions of the Restrictive Covenants, or any part thereof, is invalid or
unenforceable because of the duration or geographical scope of such provision, such tribunal shall have the power to reduce the duration or
geographical scope of such provision and in its reduced form, such provision shall then be enforceable.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
15) Continued Availability and Cooperation.
a) Following termination of the Executive’s employment under this Agreement for any reason, the Executive agrees that, consistent with the Executive’s
business and personal affairs and his fiduciary duties both to the Company and to any new employer, he will (upon reasonable request by the Company) cooperate
with the Company and with the Company’s counsel in connection with any present and future actual or threatened litigation, administrative proceeding or
investigation involving the Company that relates to events, occurrences or conduct occurring (or claimed to have occurred) during the period of the Executive’s
employment by the Company (other than any litigation, administrative proceeding or investigation in which the Executive and the Company are opposing parties);
provided, however, nothing in this Section 15(a) shall require the Executive to cooperate in such a way that would jeopardize his legal interests. Cooperation may
include, but is not limited to:
i. making himself reasonably available for interviews and discussions with the Company’s counsel as well as for depositions and trial testimony;
ii.
if depositions or trial testimony are to occur, making himself reasonably available and cooperating in the preparation therefore, as and to the extent that
the Company or the Company’s counsel reasonably requests;
iii.
refraining from impeding in any way the Company’s prosecution or defense of such litigation or administrative proceeding; and
iv. cooperating in the development and presentation of the Company’s prosecution or defense of such litigation or administrative proceeding.
b) The Company will promptly pay directly, or promptly reimburse the Executive for, any expense reasonably incurred by him in connection with
rendering cooperation under Section 15(a), including (without limitation) attorneys’ fees and other charges of counsel (if the Executive reasonably
determines that he should retain independent legal counsel), incurred in connection with any cooperation, consultation and advice rendered
under this Agreement following receipt of appropriate documentation from the Executive substantiating such expenses.
16) Dispute Resolution.
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a)
b)
c)
d)
In the event that the Parties are unable to resolve any controversy or claim arising out of or relating to this Agreement, the Executive’s employment
with the Company, or any termination of such employment, either Party to the dispute shall refer the dispute to binding arbitration, which shall
(except as otherwise provided in Section 16(d)) be the exclusive forum for resolving all such controversies and claims. Such arbitration will be
administered by Judicial Arbitration and Mediation Services, Inc. (“JAMS”) pursuant to its Comprehensive Arbitration Rules and Procedures (the
“JAMS Rules”). The arbitration shall be conducted by a single arbitrator selected by the Parties according to the JAMS Rules. In the event that the
Parties fail to agree on the selection of the arbitrator within 30 days after either Party’s request for arbitration, the arbitrator will be chosen by JAMS.
Unless the Parties otherwise agree, any arbitration hearings shall commence on a mutually agreeable date within 90 days after the request for
arbitration and shall be conducted within thirty (30) miles of the location of the Place of Performance.
The Parties agree that each will bear their own costs and attorneys’ fees. The arbitrator shall not have authority to award attorneys’ fees or costs to
any Party.
The arbitrator shall have no power or authority to make awards or orders granting relief that would not be available to a Party in a court of law. The
arbitrator’s award is limited by and must comply with this Agreement and controlling federal, state, and local laws. Except as otherwise provided by
law, the decision of the arbitrator shall otherwise be final and binding on the Parties.
Notwithstanding the foregoing, no claim for injunctive or similar non-monetary equitable relief contemplated by or allowed under applicable law with
respect to alleged violations of Sections 10, 11, 12, and 13 of this Agreement will be subject to arbitration under this Section 16, but will instead be
subject to determination in a court of competent jurisdiction as set forth in Section 21, which court shall apply Delaware law consistent with Section
21 of this Agreement.
17) Other Agreements. No agreements (other than the agreements evidencing grants of equity awards and those expressly referred to in this Agreement, and
other Company Arrangements arising out of or relating to the Executive’s service as a member of the Company’s Board) (collectively, “Other Arrangements”)) or
representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either Party which are not set forth in this
Agreement. Each Party acknowledges that no representations, inducements, promises, or other agreements, orally or otherwise, have been made by any Party, or
anyone acting on behalf of such Party, pertaining to the subject matter hereof, which are not embodied in this Agreement (or in any Other Arrangement), and that
no prior and/or contemporaneous agreement, statement or promise pertaining to the subject matter hereof that is not contained in this Agreement (or in any Other
Arrangement) shall be valid or binding on either Party.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
18) Withholding of Taxes. The Company will withhold from any amounts payable by it under this Agreement all federal, state, city or other taxes that the
Company is required to withhold pursuant to any applicable statute or government regulation or ruling.
19) Successors and Binding Agreements .
a)
b)
c)
d)
Nothing in this Agreement, except as expressly set forth herein, is intended to confer any rights or remedies under or by reason of this Agreement
on any persons other than the parties to this Agreement and the successors, assigns and affiliates of the Company, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any third person to any party to this Agreement, nor shall any provision give
any third person any right of action over or against any party to this Agreement.
The Company may assign its rights under the Agreement only to any successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or assets of the Company that expressly agrees to assume and perform this
Agreement in the same manner and to the same extent the Company would have been required to perform if no such succession had taken place.
This Agreement will be binding upon and inure to the benefit of the Company and any such successor to the Company, (and such successor shall
thereafter be deemed to be included in the term the “Company” for the purposes of this Agreement, except to the extent that the result would be to
expand the restrictions applying to the Executive under Section 11), but will not otherwise be assignable, transferable or `delegable by the
Company.
This Agreement will inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in Sections 19(a) and 19(b). Without limiting the generality or effect
of the foregoing, the Executive’s right to receive payments and benefits hereunder will (except as otherwise expressly provided in any other
applicable Company Arrangement) not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise,
other than by a transfer by the Executive’s will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer
contrary to this Section 19(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated.
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20) Notices. All communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing
and will be duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five business days after having
been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three business days after having been sent by a nationally
recognized overnight courier service such as DHL, Federal Express or UPS, addressed to the Company (to the attention of the Company Secretary) at its principal
executive offices and to the Executive at his principal residence, with (during the Employment Term) a copy delivered to the Executive’s principal office at the
Company and with a copy (which shall not constitute notice) also delivered to Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas, 11th Floor, New
York, NY 10105, attention Sarah Williams, Esq., or to such other address as either Party may have furnished to the other in writing and in accordance herewith,
except that notices of changes of address shall be effective only upon receipt.
21) Governing Law and Choice of Forum.
a) This Agreement will be construed and enforced according to the laws of the State of Maryland, without giving effect to the conflict of laws principles
thereof.
b) To the extent not otherwise provided for by Section 16 of this Agreement, the Executive and the Company consent to the jurisdiction of all state and
federal courts located in Cupertino, Santa Clara County, California, as well as to the jurisdiction of all courts of which an appeal may be taken from
such courts, for the purpose of any suit, action, or other proceeding arising out of, or in connection with, this Agreement or that otherwise arise out of
the employment relationship. Each Party hereby expressly waives any and all rights to bring any suit, action, or other proceeding in or before any court
or tribunal other than the courts described above and covenants that it shall not seek in any manner to resolve any dispute other than as set forth in
this paragraph. Further, the Parties each hereby expressly waives any and all objections either may have to venue, including, without limitation, the
inconvenience of such forum, in any of such courts. In addition, each of the Parties consents to the service of process by personal service or any
manner in which notices may be delivered hereunder in accordance with this Agreement.
22) Severability. If any provision of this Agreement or the application of any provision is held invalid, unenforceable or otherwise illegal, the remainder of
this Agreement and the application of such provision will not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal will
be reformed to the extent (and only to the extent) necessary to make it enforceable, valid or legal. To the extent any provisions are held to be invalid,
unenforceable or otherwise illegal cannot be reformed, such provisions are to be stricken herefrom and the remainder of this Agreement will be binding
on the Parties and their successors and assigns as if such invalid or illegal provisions were never included in this Agreement
from the first instance.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
23) Survival of Provisions. Notwithstanding any other provision of this Agreement, the Parties’ respective rights and obligations under Sections 5, 9, 10, 11,
12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 23, 25 and 26, will survive any termination of the Executive’s employment under this Agreement.
24) Representations and Acknowledgements .
a)
b)
c)
d)
The Executive hereby represents that, except as he has disclosed to the Company, he is not subject to any restriction on his ability to enter into
this Agreement or to perform his duties and responsibilities hereunder, including, but not limited to, any covenant not to compete with any former
employer that would so restrict him.
The Executive further represents that, to the best of his knowledge, his performance of all the terms of this Agreement and as an employee of the
Company does not and will not breach any agreement with another party, and that he will not knowingly disclose to the Company or induce the
Company to use any confidential or proprietary information or material belonging to any previous employer not included in the Company Group or
others.
Executive hereby represents and warrants to Company that as of the date of execution of this Agreement: (i) this Agreement will not cause or
require Executive to breach any obligation to, or agreement or confidence with, any other person; (ii) Executive is not representing, or otherwise
affiliated in any capacity with, any other research organizations, lines of products, manufacturers, vendors or customers of the Company; and (iii)
Executive has not been induced to enter into this Agreement by any promise or representation other than as expressly set forth in this Agreement.
The Executive hereby represents and agrees that, during the Restricted Period, if the Executive is offered employment or the opportunity to enter
into any business activity, whether as owner, investor, executive, manager, employee, independent consultant, contractor, advisor or otherwise,
the Executive will inform the offeror of the existence of Sections 10, 11, 12, and 13 of this Agreement and provide the offeror a copy thereof. The
Executive authorizes the Company to provide a copy of the relevant provisions of this Agreement to any of the persons or entities described in this
Section 24(c) and to make such persons aware of the Executive’s obligations under this Agreement.
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e)
The Company represents and warrants that (i) it is fully authorized by action of its Board (and of any other person or body whose action is
required) to enter into this Agreement and to perform its obligations under it, and (ii) upon the execution and delivery of this Agreement by the
Parties, this Agreement shall be its valid and binding obligation, enforceable against it in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.
25) Compliance with Code Section 409A . With respect to reimbursements or in-kind benefits provided under this Agreement or under any other Company
Arrangement: (a) the Company will not provide for cash in lieu of a right to reimbursement or in-kind benefits to which the Executive has a right under
this Agreement or under any other Company Arrangement, (b) any reimbursement of provision of in-kind benefits made during the Executive’s lifetime
(or such shorter period prescribed by a specific provision of this Agreement or of any other Company Arrangement) shall be made not later than
December 31st of the year following the year in which the Executive incurs the expense, and (c) in no event will the amount of expenses so reimbursed,
or in-kind benefits provided, by the Company in one year affect the amount of expenses eligible for reimbursement or in-kind benefits to be provided, in
any other taxable year. Each payment, reimbursement or in-kind benefit made pursuant to the provisions of this Agreement or of any other Company
Arrangement shall be regarded as a separate payment and not one of a series of payments for purposes of Section 409A of the Code. It is intended that
any amounts payable under this Agreement, any Employee Plan or any other Company Arrangement, and any exercise of the Company’s and the
Executive’s authority or discretion hereunder, shall comply with the provisions of Section 409A of the Code and the treasury regulations relating thereto
so as not to subject the Executive to the payment of the additional tax, interest and any tax penalty which may be imposed under Code Section 409A. In
furtherance of this interest, to the extent that any provision hereof would result in the Executive being subject to payment of the additional tax, interest
and tax penalty under Code Section 409A, the Parties agree to amend this Agreement in order to bring this Agreement into compliance with Code
Section 409A; and thereafter to interpret its provisions in a manner that complies with Section 409A of the Code. Reference to Section 409A of the Code
is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any proposed, temporary or final regulations, or any other
guidance, promulgated with respect to such Section by the U.S. Department of Treasury or the Internal Revenue Service. Notwithstanding anything in
this Agreement or elsewhere to the contrary, and unless the Executive otherwise agrees in a signed writing executed in connection with the termination
of his employment under this Agreement, the Executive shall have no duties or responsibilities after the Termination Date that are inconsistent with his
having had a Separation from Service on the Termination Date. If the Executive agrees, in a signed writing that is executed in connection with the
termination of his employment under this Agreement, to undertake duties and responsibilities that will result in his not incurring a Separation from
Service on the Termination Date, all references to the Termination Date herein for the purposes of determining the commencement of any severance
payments and benefits that constitute deferred compensation within the meaning of Section 409A shall mean the date Executive incurs a Separation
from Service. Notwithstanding the foregoing, no particular tax result for the Executive with respect to any income recognized by the Executive in
connection with this Agreement is guaranteed, and the Executive shall be responsible for any taxes, penalties and interest imposed on him under or as
a result of Section 409A of the Code in connection with payments and benefits made in accordance with the terms of this Agreement.
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26) Amendment;
Waiver.
No provision of this Agreement may be modified or amended other than through a writing that is signed by the
Parties and that expressly identifies the provision being modified or amended. No waiver by either Party at
any time of any breach by the other Party hereto of compliance with any provision of this Agreement to be
performed by such other Party will be effective unless in a signed writing that expressly identifies the
provision of this Agreement that is being waived, nor shall any such waiver, deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent time.
27) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together
will constitute one and the same agreement. Signatures delivered by facsimile (including, without limitation, by “pdf”) shall be effective for all purposes.
28) Defined Terms.
a)
b)
c)
d)
“Base Salary” has the meaning set forth in Section 4(a).
“Board” has the meaning set forth in Section 3(a).
“Bonus Award” has the meaning set forth in Section 4(b)(i).
“Cause” Shall mean:
i.
any act or omission constituting a material and intentional breach by the Executive of any provisions of this Agreement after notice is delivered
by the Company that identifies the manner in which the breach occurred, if within 30 days of such notice, the Executive fails to cure any such
failure capable of being cured;
ii.
the willful and continued failure by the Executive to substantially perform his duties hereunder, after demand for performance is delivered by
the Company that identifies the manner in which the Company believes the Executive has not performed his duties, if, within 30 days of such
demand, the Executive fails to cure any such failure capable of being cured;
iii. any intentional misconduct by the Executive (including, but not limited to, misappropriation, fraud including with respect to the Company’s
accounting and financial statements, embezzlement or conversion by the Executive of the Company’s or any of its Subsidiary’s property in
connection with the Executive’s duties or in the course of the Executive’s employment with the Company) that causes material harm to the
Company or any Subsidiary, financially or otherwise;
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iv.
the conviction (or plea of no contest) of the Executive for any felony, or the indictment of the Executive for any felony (including, but not limited
to, any felony involving fraud, moral turpitude, embezzlement or theft in connection with the Executive’s duties or in the course of the
Executive’s employment with the Company); provided, however that if the Executive’s employment is terminated for Cause based on an
indictment, and such indictment is thereafter resolved other than by a conviction or a plea of no contest, the Executive shall be entitled to the
benefits (or the economic equivalent thereof) that he would have received under Section 9(a) or 9(b) if those Sections had been applied as of
his Termination Date, provided that the Release Consideration Period in Sections 9(a) and 9(b) shall be deemed not to have commenced until
the date that his indictment was resolved;
v.
the commission of any intentional or knowing violation of any material antifraud provision of the federal or state securities laws;
vi.
there is a final, non-appealable order in a proceeding before a court of competent jurisdiction, or a final order arising out of an administrative
proceeding, finding that the Executive committed any willful misconduct or criminal activity, either for his personal benefit or in connection with
his duties for the Company or any Subsidiary but excluding traffic violations and other minor offenses, which misconduct or activity is materially
harmful to the interests of the Company or any of its Subsidiaries;
vii.
Current use or abuse of illegal substance that affects work performance;
viii. knowing and material violation of specific prohibitions or requirements in the Company’s Code of Conduct and Ethics (which the Executive
shall be deemed to have read and understood), which violation causes significant harm to the Company, financially or otherwise, with written
notice of termination by the Company for Cause in each case given by the Company to the Executive in accordance with Section 20 prior to
the Termination Date.
For purposes of this Agreement, no act or failure to act on the part of the Executive shall be deemed “intentional” or “willful” or “knowing” if it was
due primarily to an error in judgment or gross negligence, and any act or failure to act on the part of the Executive shall be deemed “intentional” or
“willful” or “knowing” only if done or omitted to be done by the Executive not in good faith and without reasonable belief that the Executive’s action
or omission was in the interest of the Company. Failure to meet performance expectations, unless willful, continuing, substantial, and uncured
after demand for cure to the extent such failure is curable, shall not be considered “Cause.”
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e)
“Change in Control” means a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act as in effect on the date of this Agreement, whether or not the Company is
then subject to such reporting requirement; provided that, without limitation, a Change in Control shall be deemed to have occurred if:
i. any “Person” (as defined in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined
voting power of the Company’s then outstanding securities; provided that a Change in Control shall not be deemed to occur under this
clause (i) by reason of the acquisition of securities by the Company or an employee benefit plan (or any trust funding such a plan)
maintained by the Company;
ii. during any period of one year there shall cease to be a majority of the Board comprised of “Continuing Directors” as hereinafter defined; or
iii.there occurs (A) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity) more than eighty percent (80%) of the combined voting
power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B)
the approval by the stockholders of the Company of a plan of complete liquidation of the Company, or (C) the sale or disposition by the
Company of more than fifty percent (50%) of the Company’s assets. For purposes of this Section 28(e)(iii), a sale of more than fifty percent
(50%) of the Company’s assets includes a sale of more than fifty percent (50%) of the aggregate value of the assets of the Company and
its subsidiaries or the sale of stock of one or more of the Company’s subsidiaries with an aggregate value in excess of fifty percent (50%)
of the aggregate value of the Company and its subsidiaries or any combination of methods by which more than fifty percent (50%) of the
aggregate value of the Company and its subsidiaries is sold.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
iv.For purposes of this Agreement, a “Change in Control” will be deemed to occur:
1. on the day on which a thirty percent (30%) or greater ownership interest described in Section 28(e)(i) is acquired, provided that a
subsequent increase in such ownership interest after it first equals or exceeds thirty percent (30%) shall not be deemed a
separate Change in Control;
2. on the day on which “Continuing Directors”, as hereinafter defined, cease to be a majority of the Board as described in Section
28(e)(ii);
3. on the day of a merger, consolidation or sale of assets as described in Section 28(e)(iii); or
4. on the day of the approval of a plan of complete liquidation as described in Section 28(e)(iii).
v. For purposes of this Section 28(e), the words “Continuing Directors” mean individuals who at the beginning of any period (not including
any period prior to the date of this Agreement) of one year constitute the Board and any new Director(s) whose election by the Board or
nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the Directors then still in office who
either were Directors at the beginning of the period or whose election or nomination for election was previously so approved.
“Code” means the Internal Revenue Code of 1986, as amended.
“Common Stock” means common stock of the Company listed on NASDAQ under the symbol “CBMG”.
“Company Arrangement” means any written plan, program, agreement or arrangement of the Company or any of its Subsidiaries applicable to the
Executive and relating to employment, compensation or benefits.
“Company Group” has the meaning set forth in Section 10(a).
“Compensation Committee” means the Compensation Committee of the Board or its successor.
“Competitor” has the meaning set forth in Section 11(b).
f)
g)
h)
i)
j)
k)
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
l)
m)
n)
o)
p)
q)
r)
“Director” means a member of the Board.
“Disability” or “Disabled” means due to illness or accidental injury, a physical or mental incapacity that prevents the Executive from performing his
material and substantial duties for a total of one hundred eighty (180) days in any twenty four (24) month period; provided, however, for purposes
of Section 5(b), (x) no termination of the Executive’s employment shall be required for his illness or incapacity to constitute “Disability” but (y) his
illness or incapacity must also constitute a disability within the meaning of Section 409A(a)(2)(C) of the Code and Treasury regulation section
1.409A-3(i)(4), as each may be amended from time to time; provided, further, if the Executive shall not agree with a determination to terminate his
employment because of Disability, the question of the Executive’s disability shall be subject to the certification of a qualified medical doctor agreed
to by the Company and the Executive. All fees and other costs relating to such certification shall be promptly paid by the Company.
“Employee Plans” has the meaning set forth in Section 5(a).
“Executive” has the meaning set forth in the preamble, provided that, in the event of the Executive’s death or a judicial determination of his
incapacity, the term shall mean (where appropriate) his designated beneficiary or beneficiaries, his heirs, his estate, his executor or executors, or
his other legal representative or representatives.
“Good Reason” means the occurrence of any of the following without the Executive's consent: (i) a material reduction in Executive's base salary;
and (ii) any relocation of Executive's principal office by more than 50 miles from his office in Maryland. Company and Executive agree that “Good
Reason“ shall not exist unless and until Executive provides the Company with written notice of the acts alleged to constitute Good Reason within
ten (10) days of Executive's knowledge of the occurrence of such event, and Company fails to cure such acts within ten (10) days of receipt of
such notice, if curable. Executive must terminate his employment within ten (10) days following the expiration of such cure period for the
termination to be on account of Good Reason.
“Release” means a release of claims in the form attached hereto as Exhibit A.
“Release Consideration and Revocation Period” means the combined total of the Release Consideration Period and the Release Revocation
Period.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
s)
t)
u)
v)
“Release Consideration Period” means the 21-day period described in the Release during which the Executive is entitled to consider whether to
sign it.
“Release Revocation Period” means the period pursuant to the terms of an executed Release in which it may be revoked by the Executive.
“Restricted Period” means the 24-month period following the date on which the Executive’s employment with the Company terminates for any
reason.
“Separation from Service” means “separation from service” from the Company and its subsidiaries as described under Section 409A of the Code
and the guidance and Treasury regulations issued thereunder. Separation from Service will occur on the date on which the Executive’s level of
services to the Company decreases to 21 percent or less of the average level of services performed by the Executive over the immediately
preceding 36-month period (or if providing services for less than 36 months, such lesser period) after taking into account any services that the
Executive provided prior to such date or that the Company and the Executive reasonably anticipate the Executive may provide (whether as an
employee or as an independent contractor) after such date. For purposes of the determination of whether the Executive has had a Separation from
Service, the term “Company” shall mean the Company and any affiliate with which the Company would be considered a single employer under
Section 414(b) or 414(c) of the Code, provided that in applying Sections 1563(a)(1), (2), and (3) of the Code for purposes of determining a
controlled group of corporations under Section 414(b) of the Code, the language “at least 50 percent” is used instead of “at least 80 percent” each
place it appears in Sections 1563(a)(1), (2) and (3) of the Code, and in applying Treasury Regulation Section 1.414(c)-2 for purposes of
determining trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code, “at
least 50 percent” is used instead of “at least 80 percent” each place it appears in Treasury Regulation Section 1.414(c)-2. In addition, where the
use of such definition of “Company” for purposes of determining a Separation from Service is based upon legitimate business criteria, in applying
Sections 1563(a)(1), (2), and (3) of the Code for purposes of determining a controlled group of corporations under Section 414(b) of the Code, the
language “at least 20 percent” is used instead of “at least 80 percent” at each place it appears in Sections 1563(a)(1), (2) and (3) of the Code, and
in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining trades or businesses (whether or not incorporated) that are under
common control for purposes of Section 414(c) of the Code, “at least 20 percent” is used instead of “at least 80 percent” at each place it appears in
Treasury Regulation Section 1.414(c)-2.
w)
“Subsidiary” shall mean any entity, corporation, partnership (general or limited), limited liability company, entity, firm, business organization,
enterprise, association or joint venture in which the Company directly or indirectly controls twenty percent (20%) or more of the voting interest.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by the Chief Executive Officer pursuant to the authority of its Board, and
the Executive has executed this Agreement, as of the Restatement Effective Date.
Cellular Biomedicine Group Inc.
/s/____ Bizuo (Tony) Liu____
Bizuo (Tony) Liu
Chief Executive Officer
Executive
_/s/ Yihong Yao
Yihong Yao
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT A
FORM OF RELEASE
WHEREAS, Cellular Biomedicine Group Inc., a Delaware corporation (the “Company”) and (the “Executive”) are parties to that certain employment
agreement dated August 4, 2015 and amended and restated effective March 3, 2017 (the “Agreement”);
WHEREAS, the Executive’s employment with the Company under this Agreement terminated on [ ] (the “Termination Date”); and
WHEREAS, under Section 9(a) and 9(b) of the Agreement, the Executive is required to sign this release (the “Release”) within 21 days after the
Termination Date, in order to receive the payments to be made and the benefits to be received by the Executive pursuant to Section 9(a) or 9(b) of the
Agreement.
NOW THEREFORE, in consideration of the promises and agreements contained herein and in the Agreement and for other good and valuable
consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, the Executive agrees as follows:
This Release shall become effective on the Effective Date, as defined in Section 7(b) hereof.
1)
In consideration of the payments to be made and the benefits to be received by the Executive pursuant to Section 9(a) or 9(b) of the Agreement, the
Executive, for himself and the Executive’s dependents, successors, assigns, heirs, executors and administrators (and the Executive’s and their legal
representatives of every kind), (the “Executive Releasors”), hereby irrevocably and unconditionally releases, acquits and forever discharges the Company and
its affiliated companies and their past and present parents, subsidiaries, affiliated corporations, partnerships, joint ventures and their successors and assigns
(the “Company Affiliated Group”), and their current and former officers, directors, stockholders, members, employees, heirs, assigns, representatives, insurers,
agents and counsel and all persons acting by, through, under or in concert with any of them (but as to any such identified categories of persons, including
those acting by, through, under or in concert with them, only in such capacity in such designated category or relationship to such designated category)
(together with the Company Affiliated Group, the “Company Releasees”), from any and all arbitrations, complaints, claims, charges, demands, controversies,
suits, proceedings and causes of action with respect to liabilities, obligations, promises, agreements, damages, costs, losses, debts or expenses including
attorneys’ fees and other legal costs, of any kind whatsoever and every description that are related to the Executive’s employment or termination of
employment, whether known or unknown, suspected or unsuspected, which the Executive now has, may have, claimed to have, or any time had against any of
the Company Affiliated Group arising prior to the Effective Date (as defined in Section 7(b) below) (collectively “Claims”), and the Executive agrees not to
assert any such Claims.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
a) More specifically, this release of Claims includes, without express or implied limitation, the release of all Claims of wrongful termination of employment
whether in contract or tort; all Claims of intentional, reckless, or negligent infliction of emotional distress; all Claims of breach of any express or implied
contract or express or implied covenant of employment, including the covenant of good faith and fair dealing; all Claims of interference with contractual or
advantageous relations, whether prospective or existing; all Claims of deceit or misrepresentation; all Claims of discrimination under local, state or federal
law; any legal restrictions on the right of any of the Company Affiliated Group to terminate employees; Claims arising under any federal, state, local
statutory or common law or other governmental statute, regulation or ordinance, including, without limitation, the Sarbanes-Oxley Act of 2002; Section
1981 of Title 42 of the United States Code; 42 U.S.C. §1981; and/or Title VII of the Civil Rights Act of 1964; the Age Discrimination in Employment Act; the
Older Workers’ Benefit Protection Act; the Americans with Disabilities Act; the Equal Pay Act; the Fair Labor Standards Act; the Family and Medical Leave
Act; the Employee Retirement Income Security Act of 1974, as amended; the Rehabilitation Act of 1973; the Racketeer Influenced and Corrupt
Organizations Act; the Worker Adjustment and Retraining Notification Act; all Claims of defamation or damage to reputation; all Claims for reinstatement;
all Claims for punitive or emotional distress damages; and all Claims for wages, bonuses, severance, back or front pay or other forms of compensation
which are based upon or arise from the acts, practices, transactions, events, and/or facts underlying any wage claim that was or could have been
asserted.
b) Notwithstanding the foregoing, nothing herein shall constitute a release by the Executive of any of the following:
i.
any rights he has under the Agreement, including any right to enforce any of the terms thereof, and any rights he has under this Release, including any
right to enforce the terms thereof;
ii. any Claim for payments, benefits or other entitlements, to which the Executive is or will be entitled under the terms of any compensation or benefit
plan, program or other arrangement maintained by any of the Company Affiliated Group, including without limitation any incentive or deferred
compensation plan, any pension plan or benefits under any medical, dental, vision, life insurance, disability insurance or other welfare benefit plan;
iii. any Claim for indemnification the Executive may have under applicable laws, under the applicable constituent documents (including bylaws and
certificates of incorporation) of any of the Company Affiliated Group, under any applicable insurance policy the Company Affiliated Group may
maintain, or any under any other written agreement or arrangement with any of the Company Affiliated Group, with respect to any liability, costs or
expenses the Executive incurs or has incurred as a director, officer or employee of any of the Company Affiliated Group;
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
iv. any Claim the Executive may have to obtain contribution as permitted by law in the event of entry of judgment against the Executive as a result of any
act or failure to act for which the Executive and any of the Company Affiliated Group are jointly liable;
v. any Claim that by law may not be released by private agreement without judicial or governmental review and approval;
vi. any Claim that arises after the Effective Date; and
vii. any Claim the Executive has against any of the Company Releasees solely in his capacity as a shareholder of Cellular Biomedicine Group Inc. or of
any affiliate of the Company or as a former shareholder of Cellular Biomedicine Group Inc.
2) The Executive understands and acknowledges that the Company does not admit any violation of law, liability or invasion of any of his rights and that any such
violation, liability or invasion is expressly denied. The consideration provided to the Executive for this Release is made for the purpose of settling and
extinguishing all Claims arising prior to the Effective Date that relate to his employment or termination of employment with the Company that the Executive
ever had or now may have against the Company or any of the other Company Releasees to the extent provided in this Release. The Executive further agrees
and acknowledges that no representations, promises or inducements have been made by any of the Company Releasees to the Executive with respect to this
Release other than as appear in the Agreement or this Release.
3) The Executive agrees to release and discharge each Company Releasee, not only from any and all Claims which he could make on his own behalf, but also
Claims that may or could be brought by any person or organization on his behalf, for monetary relief, and he specifically waives any right to recovery, directly
or indirectly, in connection with any class or collective action or representative proceeding in which a Claim or Claims against any Company Releasee for
monetary relief may arise, in whole or in part, from any event which occurred up through and including the Effective Date.
4) The Executive acknowledges that his waiver and release of rights and claims as set forth in this Release is in exchange for valuable consideration which he
would not otherwise be entitled to receive.
5) The parties understand, agree and intend that, except as otherwise provided in Section 1(b) above, upon the Executive’s receipt of all of the payments and
benefits to be paid or provided to him by the Company pursuant to Section 9(a) and 9(b) of the Agreement, he will have received complete satisfaction of any
and all Claims arising prior to the Effective Date , whether known, suspected, or unknown, that he may have or had against any of the Company Releasees
that are related to his employment, or termination of employment, with any of them.
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6) The Executive agrees to pay any reasonable legal fees or costs incurred by any of the Company Affiliated Group as a result of any breach of his promises in
this Release, including his promise to fully release each member of the Company Affiliated Group from all Claims and to compensate any such company for its
legal costs, including attorneys’ fees incurred by such company as a result of any breach of the Release, except to the extent that he challenges the validity of
the Release under the Age Discrimination in Employment Act, in which case such company may only recover such fees and expenses as may be permitted by
state and federal law.
7) The Executive further represents, agrees and acknowledges that:
a) he has been advised by the Company to consult with his own legal counsel prior to executing and delivering this Release, has had an opportunity to
consult with and to be advised by legal counsel of his choice, fully understands the terms of this Release, and enters into this Release freely, voluntarily,
without coercion or duress of any kind and intending to be bound;
b) he has been given the opportunity to consider this Release for a period of at least 21 days after the Termination Date (as defined in the Agreement). In
the event that the Executive has executed this Release within less than such 21-day period, the Executive acknowledges that his decision to so
execute the Release was entirely voluntary and that he had the opportunity to consider this Release for the entire 21- day period. The Executive and
the Company acknowledge that for a period of seven (7) days from the date that the Executive executes this Release (the “Revocation Period”), he
shall retain the right to revoke this Release by written notice that is received by the Company’s Secretary before the end of such Revocation Period.
Provided that this Release is not revoked pursuant to the preceding sentence, this Release shall become effective, binding, irrevocable and
enforceable on the date immediately following the last day of the Revocation Period (the “Effective Date”). If the Executive timely exercises his right to
revoke this Release, the Executive will forfeit his right to receive any of the benefits that were conditioned on this Release becoming effective, without
affecting the effectiveness of the termination of the Executive’s employment with the Company, and without altering the termination of the Executive’s
employment from all offices and any directorships and any fiduciary positions;
c)
in executing this Release, the Executive does not rely and has not relied upon any representation or statement not set forth herein or in the
Agreement made by the Company with regard to the subject matter, basis, or effect of this Release or otherwise; and
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
d)
for the purpose of implementing a full and complete release and discharge of all Claims against the Company Affiliated Group, the Executive expressly
acknowledges that this Release is intended to include in its effect, to the extent herein provided, all Claims related to his employment or termination of
employment with any of the Company Affiliated Group arising before the Effective Date , which the Executive does not know or suspect to exist in his
favor at the time of execution hereof, and that this Release contemplates the extinguishment of any such Claim or Claims. IN EXECUTING THIS
RELEASE, THE EXECUTIVE EXPRESSLY REPRESENTS THAT HE IS DOING SO VOLUNTARILY AND OF HIS OWN FREE WILL AND THAT HE
IS OF SOUND MIND AT THE TIME OF SAID EXECUTION.
8) The Executive represents that he will not seek to recover any monetary damages in the future with respect to Claims that arose prior to the Effective Date;
provided, however, that nothing in this Release shall not limit the Executive from commencing any proceeding for the purpose of enforcing the Executive’s
rights arising under, or preserved by, this Release or the Agreement.
9) The Executive waives and releases any Claim that the Executive has or may have to reemployment.
10) This Release does not waive any of the rights of any of the Company Affiliated Group to enforce any clawback policy including to the extent it may be required
under final NASDAQ Stock Market (or other applicable exchange) listing standards subsequently adopted. Executive agrees that as of the date set forth
below, Executive has not reported information to the Securities and Exchange Commission concerning, and is not aware of, any securities law compliance
failure at any of the Company Affiliated Group by any person that has not been reported to the Compliance Officer of the Company, and further agrees to
report to the Compliance Officer of the Company information Executive learns about any securities law compliance failure by any of the Company Affiliated
Group after the date set forth below before taking any further action.
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IN WITNESS WHEREOF, the Executive has executed and delivered this Release on the date set forth below.
Dated: ____________________________________________
_____________________________________
Yihong Yao
THIS RELEASE IS INVALID IF SIGNED BY THE EXECUTIVE BEFORE THE
TERMINATION DATE
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 10.59
Lease Contract
(5F)
1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Shanghai Guilin Industrial Co., Ltd.
Lease Contract
Contract No.: GK-024
Lessor: Shanghai Guilin Industrial Co., Ltd. (hereinafter referred to as Party A)
Statutory address: No. 31, Yangjiaqiao, South Hongcao Road, Xuhui District, Shanghai
Legal representative: Yu Mingfang Post: Board Chairman Tel.: 64361083
Lessee: Cellular Biomedicine Group (Shanghai) Ltd (hereinafter referred to as Party B)
Statutory address: 5F, 1# Building, No. 333, Guiping Road, Xuhui District, Shanghai
Legal representative: Liu Bizuo Post: CEO Tel.: 54069990
Party A and Party B hereby enter into this contract concerning the matter that Party B rents a house that can be legally rented out by Party A (hereinafter referred to
as the leased property) according to stipulations set out in relevant laws and regulations such as Contract Law of the People’s Republic of China and House
Lease Rules of Shanghai Municipality and based on the principles of honesty, creditability and mutual benefit.
I. Location, Area, Facilities and Usage of Leased Property
(1) Location: 5F, 1# Building, No. 333, Guiping Road, Xuhui District, Shanghai
(2) Area: Area specified in the signed contract is 1,190m2.
(3) Facilities: Relevant supporting facilities (detailed in handover list).
(4) Usage: Party B rents the leased property for purposes of office and R&D (in line with planning document verified and approved by the government)
II. Lease Term, Date of Handover and Renewal of Lease
(1) A 2+2 model is adopted to determine lease term of this contract. To be specific, the lease term starts from December 1, 2016 and ends on November 30,
2017. The rent for the third year shall be negotiated and determined by the parties separately. After the contract is due, Party B enjoys the priority of rental right
under same conditions.
(2) Party A and Party B hands over the property according to status quo of leased property and sign letter of confirmation of handover. The date of handover is . In
case that Party B fails to sign the letter of confirmation of handover at that point, it will be deemed that Party A and Party B confirms it according to status quo of
leased property (except delay of delivery of leased property due to Party A’s reason). (3) Party B shall return leased property as scheduled upon expiry of term of
this contract or legal termination of this contract. In case that Party B renews the lease upon expiry of contract term, Party B shall apply to Party A for renewal of
lease in writing 90 days before date of expiry of contract term. In case that the area of leased property rented by Party B exceeds 3,000m 2, Party B shall submit a
written application for renewal of lease to Party A 180 days before date of expiry of contract term (Party B enjoys the priority of rental right under same conditions).
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Party A shall reply to Party B in case that Party A agrees on Party B’s application for renewal of lease in writing within 30 days since the date when Party B submits
the written application. In case that Party A agrees on Party B’s application for renewal of lease, the parties shall reach negotiated consensus and resign the lease
contract within 30 days; in case that the parties cannot reach negotiated consensus or sign a lease renewal contract within 30 days, Party A will have the right to
take back the leased property upon expiry of lease term.
III. Rent, Deposit and Property Management Fee and Payment Method (1) Rent and Deposit
1. Principles for payment of rent and deposit: Payment first and use later; “payment of three months of rent and deposit of one month of rent”.
(1) The parties to this contract take every three natural months as a settlement period of rent; Party B shall pay the rent for the first period within 10 working days
since the date when this contract takes effect. Later, Party B shall pay rent incurred during settlement period within 3 working days after receiving effective rent
invoice from Party A.
(2) While paying 3 months of rent in the first period, Party B shall simultaneously pay lease deposit of RMB 123,066 Yuan; the lease deposit paid by Party B is
deemed as performance bond; upon termination of leasehold relationship and after Party B returns the leased property, Party A finishes handover, and Party A
settles all expenses and matters including water bill, electric charge and communication fee as well as cancelation or change of this leased property as residence
(if any). Party A shall return deposit collected (including balance of deposit obtained after deduction of expenses not paid by Party B as scheduled including rent,
water bill, electric charge and other relevant expenses) to Party B free of interest within 10 working days.
(3) During lease term, Party B shall not use lease deposit to deduct rent, property management fee and other expenses of this leased property.
(4) Party A will issue relevant receipt after Party B pays lease deposit. In case that the rent is floated up during lease term, the lease deposit will be increased
simultaneously. Party B shall supplement amount of lease deposit calculated according to the amount floated up within current month since the date when the rent
is floated up.
2. Rent Standard and Payment Method
(1) The rent is calculated as 4.1 Yuan/m2/day according to area specified in signed contract. The monthly rent amounts to RMB 148,403 Yuan, the annual rent
amounts to RMB 1,780,836 Yuan (in words: RMB One Million Seven Hundred and Eight Thousand Eight Hundred and Thirty-Six Yuan) and the monthly rent
amounts to RMB 445,209 Yuan.
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(2) Payment method of rent: Party B shall pay off rent in current period (three months in total) before the 10 th day of the first month in each period. The payment
shall be made in a similar manner since the second period until expiry of contract term and termination of contract. The rent is settled using bank remittance and
check; in case that Party B delays the paying of rent, Party B shall pay overdue fine which shall be calculated as 0.05% of total amount of rent delayed for each
delayed day;
(3) Property Management Fee and Payment Method
1. Paying and receiving of expenses such as property management fee are agreed in a property management contract signed by Party B with a property company
designated by Party A.
2. In case that certain problem occurs to Party B and the property company designated by Party A during performing of property management contract, Party A
shall coordinate, supervise and mediate.
IV. Rights and Obligations of Party A and Party B
(1) Rights and Obligations of Party A
1. Party A guarantees to own right of rental over the leased property, ensures that the leased property can be normally and safely used by Party B during lease
term, and guarantees not to interview with Party B’s normal operating activities.
2. Party A shall offer assistance for Party B to handle various licenses and other relevant formalities needed for business operation as well as provide relevant
materials (in line with those held by Party A).
3. When Party A changes the right holder of leased property due to sales, transfer and other reasons during lease term, Party A shall guarantee that Party B’s right
to use this leased property sustains and Party A will assist Party B in properly handling relevant formalities.
4. Party A enjoys the right to collect expenses from Party B as agreed including rent, water bill, electric charge and communication fee. In case that Party B fails to
pay relevant expenses in full amount as scheduled, Party A will have the right to calculate and collect 0.05% of owed amount as overdue fine for each delayed day.
5. Other rights and obligations that shall be enjoyed or performed by Party A as agreed herein and stipulated in laws and regulations.
(2) Rights and Obligations of Party B
1. Party B guarantees to legally use leased property, legally conduct business, and timely pay various operation and management expenses incurred to the leased
property according to law and contract or pursuant to relevant policies.
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2. Party B shall not sublease or transfer the leased property (unless otherwise approved by Party A in writing ahead of time), change subject of use agreed by the
parties, or use any asset in the property as mortgage and warranty. Party B shall ensure that no right of a third party exists in fitment and decoration property of the
leased property.
3. Reconstruction or decoration conducted by Party B within scope of property of Party A shall comply with stipulations set out in laws, regulations and policies and
obey supervision from relevant government department; Party B’s decoration scheme shall be approved by Party A in writing ahead of time.
4. Party B is obliged to conduct daily repair and care of leased property. Party B shall guarantee a tidy environment in the leased place and comply with relevant
requirements for security and fire protection; Party A is responsible for repairing natural structural damage and natural damages of exterior wall and roof in the
leased property under this contract, while Party B is responsible for repairing other parts of leased property as well as any parts reconstructed or decorated by
Party B.
5. Other rights and obligations that shall be enjoyed or performed by Party B as agreed herein and stipulated in laws and regulations.
V. Return of Leased Property
(1) Upon cancelation or termination of this contract, Party B shall take charge of recovering this leased property to its original shape (except reasonable wear and
tear) of standard of leased property handed over as specified in letter of confirmation of delivery agreed herein. After this leased property is returned to Party A and
passes Party A’s acceptance, Party B may handle formalities for throwing of a lease. Otherwise, Party A has the right to recover the leased property to its original
shape on behalf of Party A and deduct relevant expenses from lease deposit. In case of insufficiency, Party A has the right to demand compensation from Party B.
(2) In case that Party B hopes not to recover the leased property into its original shape and returns the leased property with decoration and auxiliary facilities added
or reconstructed by Party B retained, Party B shall submit a written application to Party A 30 days before date of expiry of contract term. In case that Party A agrees
that Party B is not required to recover the leased property to its original shape, upholstering, fitment and decoration formed with Party B’s investment shall be
handed over to Party A free of charge. Except assets Party A exercises lien over, in case that Party B’s movable property is not moved out within 10 working days
upon expiry of contract term of the parties or termination of contract according to law, Party B agrees that Party A will own such property free of charge. Further,
Party B shall provide Party A with complete drawings, fire protection acceptance certificate, quality warranty and instructions to use concerning all decoration and
auxiliary facilities left over in the property.
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(3) In case that Party B fails to pay off relevant expenses when returning the leased property upon cancelation or termination of this contract and certain economic
losses are caused to Party A due to Party B’s reason, Party A will have the right to deduct relevant amount from lease deposit and return the remaining amount to
Party B free of interest. In case of insufficiency, Party A will have the right to demand compensation from Party B.
(4) In case that Party B once used this leased property as a registered address upon cancelation or termination of this contract, Party B shall finish the handling of
registered place change formalities before cancelation or termination of this contract. In case that Party B still fails to finish the handling of change formalities within
15 working days after cancelation or termination of this contract, the lease deposit will not be returned unless otherwise Party A approves Party B to retain the
registered place after the parties reach negotiated consensus ahead of time.
(5) Except that Party A approves Party B to renew the lease and a lease renewal contract is signed, Party B shall return this leased property within 5 working days
since the date when lease term of this contract expires or the date when this contract is canceled ahead of time regardless of the reason. In case that Party B
delays the return of this leased property without Party A’s consent, Party B shall pay 2 times of daily rent to Party A as use fee of this leased property during period
of occupation for each delayed day. In case that Party B cancels this contract ahead of times, the cash deposit will not be returned.
(6) Party B agrees that Party A will have the right to enter this leased property by informing Party B in writing 5 working days ahead of time in case that Party B fails
to perform the obligations of recovering the property to its original shape and returning this leased property with a delay of 5 working days. In the meantime, it will
be deemed that Party B automatically waives ownership or use right of decoration, facilities and equipment in this leased property as well as other articles not
demolished or moved away, including equipment and articles deemed as belonging to Party B (no matter if they belong to Party B or a third party). In this case,
Party A has the right to handle the matter itself. In case that legitimate rights and interests of a third party are involved, Party B shall take charge of making
compensation to this third party. Further, Party B shall undertake expenses paid by Party A for Party B to recover the leased property into its original shape. When
Party A enters this leased property, it will be deemed that Party B returns the leased property to Party A.
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VI. Special Agreements Reached by the Parties
(1) The parties agree that Party B shall register its company in this leased property within 90 days after the date when this contract comes into force; in case that
the enterprise taxation settlement registered by Party B in the leased property is within the scope of Huajing Town, Xuhui District and it reaches the requirement of
annual taxation contribution as per unit of leased area (specifically shown in the appendix) but fails to reach the requirement of annual local taxation contribution,
Party A will have the right to increase the collection of an amount not lower than 10% of rent based on the rent of the next year; in case that Party B reaches
annual taxation requirement, Party A may coordinate the application for preferential financial support from the government for Party B.
(2) The parties agree that the lease invoice under this contract is issued by Party A under this contract. The payment shall be transferred to a bank account issued
by Party A.
(3) Party B shall handle property within the leased property and other necessary insurance within effective term of this contract; in case that Party B fails to handle
insurance and consequently responsibility for loss or risk of property used arises, the user shall take responsibility for such consequences.
(4) Party A provides Party B with electrical utilization demand with 120KVA as upper limit. Party B shall pay relevant electrical utilization expenses corresponding to
electrical utilization limit as well as calculate electricity price and pay electrical utilization expense according to relevant rules of property management company of
the building. As for extra electrical utilization demand, Party B shall submit relevant application to Party A for approval before use of electricity. In this case, Party B
shall pay each capacity expansion expense.
(5) Party A installs independent water meter and electricity meter for Party B’ water and power utilization interfaces are connected to floor. In case that measures
such as temporary power shutdown and suspension of water supply are taken during peak of water and power utilization or without advance notice from relevant
department to influence Party B’s use of the leased property, Party A will not take relevant responsibility.
(6) Charged management is implemented for all parking spaces of Party A (detailed in property management agreement).
(7) In case that Party B needs to erect advertising signs in the building where the leased property is located, Party A’s written consent shall be obtained and Party
B shall complete relevant approval application formalities and submit them to Party A for filing according to relevant provisions of government.
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(8) When performing this contract, Party A and Party B must sign a fire protection and work safety operation liability agreement. Specific rights and obligations of
this agreement are formulated separately.
VII. Conditions for Cancelation of Contract
(1) Party A and Party B agree to deem any of the following conditions as force majeure factors within lease term. At this point, this contract ends naturally and the
parties will not take responsibility for each other. However, Party A shall provide relevant documents and timely inform Party B:
1. The land use right of this leased property within scope of occupation is legally taken back by government.
2. This leased property is legally expropriated due to social public interests.
3. This leased property is legally listed in permitted scope of demolition and relocation due to urban construction demand.
4. Party A and Party B agree that it will be deemed as force majeure in case that the parties encounter with serious natural disasters such as earthquake, fire and
typhoon as well as act of government to influence performing of this contract and consequently lead to failure of the parties to realize contract purpose.
(2) Party A and Party B agree that a party may unilaterally inform the other party to cancel this contract in writing and hold the breaching party responsible for
assuming liabilities for breach of contract according to law under any of the following circumstances:
1. Party A fails to deliver this leased property as scheduled and still fails to do so within 10 working days after Party B demands.
2. This leased property does not comply with agreements reached herein when Party A delivers the property to result in Party B’s failure to legally used the
leased property, or the leased property delivered by Party A endangers Party B’s safe use of the property.
3. Party B changes the service usage of the leased property without authorization.
4. The main structure of the leased property is damaged due to Party B’s reason.
5. Party B subleases or transfers property rights of this leased property without authorization.
6. Party B delays the paying of rent for 30 accumulated days.
7. Party B fails to completely perform obligations stipulated in (1) of Article VI of this contract.
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VIII. Liabilities for Breach of Contract
(1) In case that either party under this contract fails to perform its obligations according to this contract, it will be deemed as a breaching behavior. The breaching
party shall assume civil responsibilities according to this contract as well as relevant laws and regulations; the party violating the contract shall pay 2 times of
monthly rent to the other party as liquidated damages; in case that the liquidated damages paid by the breaching party are not enough to deduct the losses
therefore caused to the observant party, the breaching party shall also compensate the balance between actual losses caused to the observant party and the
liquidated damages.
(2) In case that Party A fails to deliver the leased property as scheduled not due to Party B’s reason (except that Party A delays the delivery of leased property after
the parties reach negotiated consensus), this contract will end naturally and Party B will have the right to hold Party A responsible for assuming liabilities for breach
of contract. Amount of liquidated damages shall be same as the amount of deposit payable by Party B.
(3) In case that Party B fails to pay the deposit as scheduled according to stipulations set out in Article 3 of this contract not due to Party A’s reason (except that
Party B delays the paying of deposit after the parties reach negotiated consensus), this contract will end naturally and Party A will have the right to hold Party B
responsible for assuming liabilities for breach of contract. Amount of liquidated damages shall be same as the amount of deposit payable by Party B.
(4) Party B hereby confirms that Party A will have the right to stop all services of leased property in case that Party B delays the paying of rent, property
management fee and other relevant expenses during lease term and Party B still delays the paying of such expenses within 10 working days after Party A
demands in writing. Furthermore, Party B shall assume all consequences therefore incurred and Party A will not take any responsibility.
IX. Settlement of Disputes
(1) Contents not clarified in this contract or disputes arising between the parties shall be settled through amicable negotiation.
(2) In case that the parties still fail to reach an agreement or work out a solution after a party puts forward written opinion or solution to the other party, either party
may handle the matter according to law.
X. Supplementary Provisions
(1) In case that it is required to change this contract, Party A and Party B shall reach negotiated consensus. Contents not clarified or matters not mentioned herein
may be specified in a supplementary contract separately signed in case that it is necessary for the performing of this contract; contents recognized by the
parties in writing including supplementary contracts, correspondences and fax existing between the parties are all effective constituent parts of this contract.
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(2) Addresses or main business sites and telephone numbers of Party A and Party B specified in this contract are effective mailing addresses; in case of change of
address or main business site and telephone number, the changing party shall inform the other party within one week since the date when such change takes
place; in case that the changing party fails to inform, the legal effect of contents of correspondences or fax of the other party will not be affected.
(3) In case that taxes are generated due to this contract, Party A and Party B shall pay such taxes respectively according to law. In case that it is required to file
and register this contract, Party A and Party B shall handle such formalities in relevant authority. That whether the parties handle filing and registration
formalities does not affect legal effect of this contract.
(4) The parties raise no objection to area specified in the signed contract.
(5) This contract comes into force since the date when Party A, Party B and witness joint sign their names and stamp seals.
(6) This contract is made in five copies. Party A and Party B shall hold two copies and the witness shall hold one copy respectively.
(The text of this page contains 10 page. The reminder of this page is the contract signing page without text.)
Party A: Shanghai Guilin Industrial Co., Ltd.
Shanghai Guilin Industrial Co., Ltd. Special Seal for Contract (seal) Authorized representative:
Legal representative:
Party B: Cellular Biomedicine Group (Shanghai) Ltd
Cellular Biomedicine Group (Shanghai) Ltd Special Seal for Contract (seal)
Authorized representative:
Witness: Shanghai Longhua Warehousing Company
Shanghai Longhua Warehousing Company (seal)
Date of contract signing: November 16, 2016
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Appendixes:
1. One copy for each of Party B’s business licenses and certificates (including tax registration certificate and special license) as well as ID card of legal
representative of Party B;
2. One copy of attached diagram of tale of position and area of leased property;
3. List of handover of leased property of the parties as well as facilities and equipment;
4. One copy of taxpaying record of Party B in recent year (except newly established company);
5. One property management contract;
6. One fire protection and work safety operation liability agreement; 7. One table of agreement on annual taxation contribution as per square meter;
8. Others:
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Lease Contract
(6F)
Exhibit 10.60
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Shanghai Guilin Industrial Co., Ltd.
Lease Contract
Contract No.: GK-023
Lessor: Shanghai Guilin Industrial Co., Ltd. (hereinafter referred to as Party A)
Statutory address: No. 31, Yangjiaqiao, South Hongcao Road, Xuhui District, Shanghai
Legal representative: Yu Mingfang Post: Board Chairman Tel.: 64361083
Lessee: Cellular Biomedicine Group (Shanghai) Ltd (hereinafter referred to as Party B)
Statutory address: 5F, 1# Building, No. 333, Guiping Road, Xuhui District, Shanghai
Legal representative: Liu Bizuo Post: CEO Tel.: 54069990
Party A and Party B hereby enter into this contract concerning the matter that Party B rents a house that can be legally rented out by Party A (hereinafter referred to
as the leased property) according to stipulations set out in relevant laws and regulations such as Contract Law of the People’s Republic of China and House
Lease Rules of Shanghai Municipality and based on the principles of honesty, creditability and mutual benefit.
I. Location, Area, Facilities and Usage of Leased Property
(1) Location: 6F, 1# Building, No. 333, Guiping Road, Xuhui District, Shanghai
(2) Area: Area specified in the signed contract is 1,190m 2.
(3) Facilities: Relevant supporting facilities (detailed in handover list).
(4) Usage: Party B rents the leased property for purposes of office and R&D (in line with planning document verified and approved by the government)
II. Lease Term, Date of Handover and Renewal of Lease
(1) A 2+2 model is adopted to determine lease term of this contract. To be specific, the lease term starts from December 1, 2016 and ends on November 30, 2018.
The rent for the third year shall be negotiated and determined by the parties separately. After the contract is due, Party B enjoys the priority of rental right under
same conditions.
(2) Party A and Party B hands over the property according to status quo of leased property and sign letter of confirmation of handover. The date of handover is . In
case that Party B fails to sign the letter of confirmation of handover at that point, it will be deemed that Party A and Party B confirms it according to status quo of
leased property (except delay of delivery of leased property due to Party A’s reason). (3) Party B shall return leased property as scheduled upon expiry of term of
this contract or legal termination of this contract. In case that Party B renews the lease upon expiry of contract term, Party B shall apply to Party A for renewal of
lease in writing 90 days before date of expiry of contract term. In case that the area of leased property rented by Party B exceeds 3,000m 2, Party B shall submit a
written application for renewal of lease to Party A 180 days before date of expiry of contract term (Party B enjoys the priority of rental right under same conditions).
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Party A shall reply to Party B in case that Party A agrees on Party B’s application for renewal of lease in writing within 30 days since the date when Party B submits
the written application. In case that Party A agrees on Party B’s application for renewal of lease, the parties shall reach negotiated consensus and resign the lease
contract within 30 days; in case that the parties cannot reach negotiated consensus or sign a lease renewal contract within 30 days, Party A will have the right to
take back the leased property upon expiry of lease term.
III. Rent, Deposit and Property Management Fee and Payment Method (1) Rent and Deposit
1. Principles for payment of rent and deposit: Payment first and use later; “payment of three months of rent and deposit of one month of rent”.
(1) The parties to this contract take every three natural months as a settlement period of rent; Party B shall pay the rent for the first period within 10 working days
since the date when this contract takes effect. Later, Party B shall pay rent incurred during settlement period within 3 working days after receiving effective rent
invoice from Party A.
(2) While paying 3 months of rent in the first period, Party B shall simultaneously pay lease deposit of RMB 123,066 Yuan; the lease deposit paid by Party B is
deemed as performance bond; upon termination of leasehold relationship and after Party B returns the leased property, Party A finishes handover, and Party A
settles all expenses and matters including water bill, electric charge and communication fee as well as cancelation or change of this leased property as residence
(if any). Party A shall return deposit collected (including balance of deposit obtained after deduction of expenses not paid by Party B as scheduled including rent,
water bill, electric charge and other relevant expenses) to Party B free of interest within 10 working days.
(3) During lease term, Party B shall not use lease deposit to deduct rent, property management fee and other expenses of this leased property.
(4) Party A will issue relevant receipt after Party B pays lease deposit. In case that the rent is floated up during lease term, the lease deposit will be increased
simultaneously. Party B shall supplement amount of lease deposit calculated according to the amount floated up within current month since the date when the rent
is floated up.
2. Rent Standard and Payment Method
(1) The rent is calculated as 4.1 Yuan/m2/day according to area specified in signed contract. The monthly rent amounts to RMB 148,403 Yuan, the annual rent
amounts to RMB 1,780,836 Yuan (in words: RMB One Million Seven Hundred and Eight Thousand Eight Hundred and Thirty-Six Yuan) and the monthly rent
amounts to RMB 445,209 Yuan.
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(2) Payment method of rent: Party B shall pay off rent in current period (three months in total) before the 10 th day of the first month in each period. The payment
shall be made in a similar manner since the second period until expiry of contract term and termination of contract. The rent is settled using bank remittance and
check; in case that Party B delays the paying of rent, Party B shall pay overdue fine which shall be calculated as 0.05% of total amount of rent delayed for each
delayed day;
(2) Property Management Fee and Payment Method
1. Paying and receiving of expenses such as property management fee are agreed in a property management contract signed by Party B with a property company
designated by Party A.
2. In case that certain problem occurs to Party B and the property company designated by Party A during performing of property management contract, Party A
shall coordinate, supervise and mediate.
IV. Rights and Obligations of Party A and Party B (1) Rights and Obligations of Party A
1. Party A guarantees to own right of rental over the leased property, ensures that the leased property can be normally and safely used by Party B during lease
term, and guarantees not to interview with Party B’s normal operating activities.
2. Party A shall offer assistance for Party B to handle various licenses and other relevant formalities needed for business operation as well as provide relevant
materials (in line with those held by Party A).
3. When Party A changes the right holder of leased property due to sales, transfer and other reasons during lease term, Party A shall guarantee that Party B’s right
to use this leased property sustains and Party A will assist Party B in properly handling relevant formalities.
4. Party A enjoys the right to collect expenses from Party B as agreed including rent, water bill, electric charge and communication fee. In case that Party B fails to
pay relevant expenses in full amount as scheduled, Party A will have the right to calculate and collect 0.05% of owed amount as overdue fine for each delayed day.
5. Other rights and obligations that shall be enjoyed or performed by Party A as agreed herein and stipulated in laws and regulations.
(2) Rights and Obligations of Party B
1. Party B guarantees to legally use leased property, legally conduct business, and timely pay various operation and management expenses incurred to the leased
property according to law and contract or pursuant to relevant policies.
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2. Party B shall not sublease or transfer the leased property (unless otherwise approved by Party A in writing ahead of time), change subject of use agreed by the
parties, or use any asset in the property as mortgage and warranty. Party B shall ensure that no right of a third party exists in fitment and decoration property of the
leased property.
3. Reconstruction or decoration conducted by Party B within scope of property of Party A shall comply with stipulations set out in laws, regulations and policies and
obey supervision from relevant government department; Party B’s decoration scheme shall be approved by Party A in writing ahead of time.
4. Party B is obliged to conduct daily repair and care of leased property. Party B shall guarantee a tidy environment in the leased place and comply with relevant
requirements for security and fire protection; Party A is responsible for repairing natural structural damage and natural damages of exterior wall and roof in the
leased property under this contract, while Party B is responsible for repairing other parts of leased property as well as any parts reconstructed or decorated by
Party B.
5. Other rights and obligations that shall be enjoyed or performed by Party B as agreed herein and stipulated in laws and regulations.
V. Return of Leased Property
(1) Upon cancelation or termination of this contract, Party B shall take charge of recovering this leased property to its original shape (except reasonable wear and
tear) of standard of leased property handed over as specified in letter of confirmation of delivery agreed herein. After this leased property is returned to Party A and
passes Party A’s acceptance, Party B may handle formalities for throwing of a lease. Otherwise, Party A has the right to recover the leased property to its original
shape on behalf of Party A and deduct relevant expenses from lease deposit. In case of insufficiency, Party A has the right to demand compensation from Party B.
(2) In case that Party B hopes not to recover the leased property into its original shape and returns the leased property with decoration and auxiliary facilities added
or reconstructed by Party B retained, Party B shall submit a written application to Party A 30 days before date of expiry of contract term. In case that Party A agrees
that Party B is not required to recover the leased property to its original shape, upholstering, fitment and decoration formed with Party B’s investment shall be
handed over to Party A free of charge. Except assets Party A exercises lien over, in case that Party B’s movable property is not moved out within 10 working days
upon expiry of contract term of the parties or termination of contract according to law, Party B agrees that Party A will own such property free of charge. Further,
Party B shall provide Party A with complete drawings, fire protection acceptance certificate, quality warranty and instructions to use concerning all decoration and
auxiliary facilities left over in the property.
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(3) In case that Party B fails to pay off relevant expenses when returning the leased property upon cancelation or termination of this contract and certain economic
losses are caused to Party A due to Party B’s reason, Party A will have the right to deduct relevant amount from lease deposit and return the remaining amount to
Party B free of interest. In case of insufficiency, Party A will have the right to demand compensation from Party B.
(4) In case that Party B once used this leased property as a registered address upon cancelation or termination of this contract, Party B shall finish the handling of
registered place change formalities before cancelation or termination of this contract. In case that Party B still fails to finish the handling of change formalities within
15 working days after cancelation or termination of this contract, the lease deposit will not be returned unless otherwise Party A approves Party B to retain the
registered place after the parties reach negotiated consensus ahead of time.
(5) Except that Party A approves Party B to renew the lease and a lease renewal contract is signed, Party B shall return this leased property within 5 working days
since the date when lease term of this contract expires or the date when this contract is canceled ahead of time regardless of the reason. In case that Party B
delays the return of this leased property without Party A’s consent, Party B shall pay 2 times of daily rent to Party A as use fee of this leased property during period
of occupation for each delayed day. In case that Party B cancels this contract ahead of times, the cash deposit will not be returned.
(6) Party B agrees that Party A will have the right to enter this leased property by informing Party B in writing 5 working days ahead of time in case that Party B fails
to perform the obligations of recovering the property to its original shape and returning this leased property with a delay of 5 working days. In the meantime, it will
be deemed that Party B automatically waives ownership or use right of decoration, facilities and equipment in this leased property as well as other articles not
demolished or moved away, including equipment and articles deemed as belonging to Party B (no matter if they belong to Party B or a third party). In this case,
Party A has the right to handle the matter itself. In case that legitimate rights and interests of a third party are involved, Party B shall take charge of making
compensation to this third party. Further, Party B shall undertake expenses paid by Party A for Party B to recover the leased property into its original shape. When
Party A enters this leased property, it will be deemed that Party B returns the leased property to Party A.
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VI. Special Agreements Reached by the Parties
(1) The parties agree that Party B shall register its company in this leased property within 90 days after the date when this contract comes into force; in case that
the enterprise taxation settlement registered by Party B in the leased property is within the scope of Huajing Town, Xuhui District and it reaches the requirement of
annual taxation contribution as per unit of leased area (specifically shown in the appendix) but fails to reach the requirement of annual local taxation contribution,
Party A will have the right to increase the collection of an amount not lower than 10% of rent based on the rent of the next year; in case that Party B reaches
annual taxation requirement, Party A may coordinate the application for preferential financial support from the government for Party B.
(2) The parties agree that the lease invoice under this contract is issued by Party A under this contract. The payment shall be transferred to a bank account issued
by Party A.
(3) Party B shall handle property within the leased property and other necessary insurance within effective term of this contract; in case that Party B fails to handle
insurance and consequently responsibility for loss or risk of property used arises, the user shall take responsibility for such consequences.
(4) Party A provides Party B with electrical utilization demand with 120KVA as upper limit. Party B shall pay relevant electrical utilization expenses corresponding to
electrical utilization limit as well as calculate electricity price and pay electrical utilization expense according to relevant rules of property management company of
the building. As for extra electrical utilization demand, Party B shall submit relevant application to Party A for approval before use of electricity. In this case, Party B
shall pay each capacity expansion expense.
(5) Party A installs independent water meter and electricity meter for Party B’ water and power utilization interfaces are connected to floor. In case that measures
such as temporary power shutdown and suspension of water supply are taken during peak of water and power utilization or without advance notice from relevant
department to influence Party B’s use of the leased property, Party A will not take relevant responsibility.
(6) Charged management is implemented for all parking spaces of Party A (detailed in property management agreement).
(7) In case that Party B needs to erect advertising signs in the building where the leased property is located, Party A’s written consent shall be obtained and Party
B shall complete relevant approval application formalities and submit them to Party A for filing according to relevant provisions of government.
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(8) When performing this contract, Party A and Party B must sign a fire protection and work safety operation liability agreement. Specific rights and obligations of
this agreement are formulated separately.
VII. Conditions for Cancelation of Contract
(1) Party A and Party B agree to deem any of the following conditions as force majeure factors within lease term. At this point, this contract ends naturally and the
parties will not take responsibility for each other. However, Party A shall provide relevant documents and timely inform Party B:
1. The land use right of this leased property within scope of occupation is legally taken back by government.
2. This leased property is legally expropriated due to social public interests.
3. This leased property is legally listed in permitted scope of demolition and relocation due to urban construction demand.
4. Party A and Party B agree that it will be deemed as force majeure in case that the parties encounter with serious natural disasters such as earthquake, fire and
typhoon as well as act of government to influence performing of this contract and consequently lead to failure of the parties to realize contract purpose.
(2) Party A and Party B agree that a party may unilaterally inform the other party to cancel this contract in writing and hold the breaching party responsible for
assuming liabilities for breach of contract according to law under any of the following circumstances:
1. Party A fails to deliver this leased property as scheduled and still fails to do so within 10 working days after Party B demands.
2. This leased property does not comply with agreements reached herein when Party A delivers the property to result in Party B’s failure to legally used the
leased property, or the leased property delivered by Party A endangers Party B’s safe use of the property.
3. Party B changes the service usage of the leased property without authorization.
4. The main structure of the leased property is damaged due to Party B’s reason.
5. Party B subleases or transfers property rights of this leased property without authorization.
6. Party B delays the paying of rent for 30 accumulated days.
7. Party B fails to completely perform obligations stipulated in (1) of Article VI of this contract.
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VIII. Liabilities for Breach of Contract
(1) In case that either party under this contract fails to perform its obligations according to this contract, it will be deemed as a breaching behavior. The breaching
party shall assume civil responsibilities according to this contract as well as relevant laws and regulations; the party violating the contract shall pay 2 times of
monthly rent to the other party as liquidated damages; in case that the liquidated damages paid by the breaching party are not enough to deduct the losses
therefore caused to the observant party, the breaching party shall also compensate the balance between actual losses caused to the observant party and the
liquidated damages.
(2) In case that Party A fails to deliver the leased property as scheduled not due to Party B’s reason (except that Party A delays the delivery of leased property after
the parties reach negotiated consensus), this contract will end naturally and Party B will have the right to hold Party A responsible for assuming liabilities for breach
of contract. Amount of liquidated damages shall be same as the amount of deposit payable by Party B.
(3) In case that Party B fails to pay the deposit as scheduled according to stipulations set out in Article 3 of this contract not due to Party A’s reason (except that
Party B delays the paying of deposit after the parties reach negotiated consensus), this contract will end naturally and Party A will have the right to hold Party B
responsible for assuming liabilities for breach of contract. Amount of liquidated damages shall be same as the amount of deposit payable by Party B.
(4) Party B hereby confirms that Party A will have the right to stop all services of leased property in case that Party B delays the paying of rent, property
management fee and other relevant expenses during lease term and Party B still delays the paying of such expenses within 10 working days after Party A
demands in writing. Furthermore, Party B shall assume all consequences therefore incurred and Party A will not take any responsibility.
IX. Settlement of Disputes
(1) Contents not clarified in this contract or disputes arising between the parties shall be settled through amicable negotiation.
(2) In case that the parties still fail to reach an agreement or work out a solution after a party puts forward written opinion or solution to the other party, either party
may handle the matter according to law.
X. Supplementary Provisions
(1) In case that it is required to change this contract, Party A and Party B shall reach negotiated consensus. Contents not clarified or matters not mentioned herein
may be specified in a supplementary contract separately signed in case that it is necessary for the performing of this contract; contents recognized by the
parties in writing including supplementary contracts, correspondences and fax existing between the parties are all effective constituent parts of this contract.
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(2) Addresses or main business sites and telephone numbers of Party A and Party B specified in this contract are effective mailing addresses; in case of change of
address or main business site and telephone number, the changing party shall inform the other party within one week since the date when such change takes
place; in case that the changing party fails to inform, the legal effect of contents of correspondences or fax of the other party will not be affected.
(3) In case that taxes are generated due to this contract, Party A and Party B shall pay such taxes respectively according to law. In case that it is required to file
and register this contract, Party A and Party B shall handle such formalities in relevant authority. That whether the parties handle filing and registration
formalities does not affect legal effect of this contract.
(4) The parties raise no objection to area specified in the signed contract.
(5) This contract comes into force since the date when Party A, Party B and witness joint sign their names and stamp seals.
(6) This contract is made in five copies. Party A and Party B shall hold two copies and the witness shall hold one copy respectively.
(The text of this page contains 10 page. The reminder of this page is the contract signing page without text.)
Party A: Shanghai Guilin Industrial Co., Ltd.
Shanghai Guilin Industrial Co., Ltd. Special Seal for Contract (seal) Authorized representative:
Legal representative:
Party B: Cellular Biomedicine Group (Shanghai) Ltd
Cellular Biomedicine Group (Shanghai) Ltd (Special Seal for Contract)
Authorized representative:
Witness: Shanghai Longhua Warehousing Company
Shanghai Longhua Warehousing Company (seal)
Date of contract signing: November 16, 2016
Appendixes:
1. One copy for each of Party B’s business licenses and certificates (including tax registration certificate and special license) as well as ID card of legal
representative of Party B;
2. One copy of attached diagram of tale of position and area of leased property;
3. List of handover of leased property of the parties as well as facilities and equipment;
4. One copy of taxpaying record of Party B in recent year (except newly established company);
5. One property management contract;
6. One fire protection and work safety operation liability agreement; 7. One table of agreement on annual taxation contribution as per square meter;
8. Others:
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Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
Cellular Biomedicine Group, Inc.
Cupertino, California
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-210337) and Form S-8 (No. 333-158583, 333-187799,
333-198692, and 333-211679) of Cellular Biomedicine Group, Inc. of our report dated March 31, 2015, relating to the consolidated financial statements for the year
ended December 31, 2014, which appears in this Form 10-K.
/s/ BDO USA, LLP
Phoenix, Arizona
March 13, 2017
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.2
Cellular Biomedicine Group, Inc.
19925 Stevens Creek Blvd., Suite 100
Cupertino, California 95014
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-210337) and Form S-8 (File No. 333-211679, 333-
198692, 333-187799 and 333-158583) of Cellular Biomedicine Group, Inc. and its subsidiaries and variable interest entities (the “Company”) of our reports dated
March 13, 2017, relating to the Company’s consolidated financial statements and the effectiveness of the Company’s internal control over financial reporting, which
appear in this Annual Report on Form 10-K for the year ended December 31, 2016.
/s/ BDO China Shu Lun Pan Certified Public Accountants LLP
Shenzhen, The People’s Republic of China
March 13, 2017
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350
As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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 13, 2017
By:
/s/ Bizuo (Tony) Liu
Bizuo (Tony) Liu
Chief Executive Officer and Chief
Financial Officer
(principal executive officer and 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
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, 2016 (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 13, 2017
By:
/s/ Bizuo (Tony) Liu
Bizuo (Tony) Liu
Chief Executive Officer and Chief
Financial Officer
(principal executive officer and 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.