SECURITIES & EXCHANGE COMMISSION EDGAR FILING
Cellular Biomedicine Group, Inc.
Form: 10-K
Date Filed: 2019-02-19
Corporate Issuer CIK: 1378624
© Copyright 2019, 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, 2018
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.
1345 Avenue of Americas, 15th Floor
New York, New York 10105
(Address of principal executive offices)
(347) 905 5663
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Common Stock, par value $.001 per share
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☑ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☑ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ☑ No ☐☐
Indicate by check mark whether the registrant has submitted electronically 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, a smaller reporting company, or an emerging
growth 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
☐
☐ (Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
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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 – $232,614,111 as of June 30, 2018.
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 4, 2019, there
were 19,136,867 shares and 18,081,368 shares of common stock, par value $.001 per share issued and outstanding, respectively.
Documents Incorporated By Reference –Portions of the Registrant’s definitive Proxy Statement for its 2019 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Form 10-K.
THE INFORMATION REQUIRED BY PART III OF THIS ANNUAL REPORT ON FORM 10-K, TO THE EXTENT NOT SET FORTH HEREIN, IS INCORPORATED
BY REFERENCE FROM THE REGISTRANT'S DEFINITIVE PROXY STATEMENT RELATING TO THE ANNUAL MEETING OF STOCKHOLDERS, WHICH
DEFINITIVE PROXY STATEMENT SHALL BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS AFTER THE END OF THE
FISCAL YEAR TO WHICH THIS ANNUAL REPORT ON FORM 10-K RELATES.
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CELLULAR BIOMEDICINE GROUP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018
TABLE OF CONTENTS
PART I
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16
BUSINESS
RISK FACTORS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
FORM 10-K SUMMARY
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 and the Private Securities Litigation Reform
Act of 1995, 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:
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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 degenerative 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 are developing (each as defined below);
fluctuations in the exchange rate between the U.S. dollars and the Chinese Yuan;
the changes associated with 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 clinical stage biopharmaceutical company, committed to developing therapies for cancer and degenerative diseases
utilizing proprietary cell-based technologies. Our focus is to reduce the aggregate cost and ensure quality products of cell therapies by leveraging our innovative
manufacturing capabilities and strong ability to process optimization to development of our internal proprietary cell therapy based pipelines and our ability to partner
with leading cell therapy companies seeking manufacturing capabilities for global collaborative partnerships. CBMG is headquartered in New York, New York, its
Research & Development facilities are based in Gaithersburg, Maryland and Shanghai, China, and its manufacturing facilities are based in China in the cities of
Shanghai and Wuxi.
The manufacturing and delivery of cell therapies involve complex, integrated processes, comprised of harvesting T cells from patients, T cell isolation,
activation, viral vector transduction and GMP grade purification. We are using a semi-automated, fully closed system and self-made high quality viral vector for cell
therapy manufacturing, which enables us to reduce the aggregate cost of cell therapies. Additionally, this system has the ability to scale for commercial supply at
an economical cost.
Our technology includes two major platforms: (i) Immune cell therapy for treatment of a broad range of cancer indications comprised of technologies in
Chimeric Antigen Receptor modified T cells ("CAR-T"), genetic modified T-cell receptors (“TCRs”), next generation neoantigen-reactive tumor infiltrating
lymphocyte (“TIL”), and (ii) human adipose-derived mesenchymal progenitor cells ("haMPC") for treatment of joint diseases. We expect to carry out clinical studies
leading to the eventual approval by the National Medical Products Administration (NMPA, renamed from China Food and Drug Administration (“CFDA”)) of our
products through Biologics License Application ("BLA") filings and authorized clinical centers throughout Greater China. We also plan to conduct clinical studies in
the United States that could potentially lead to FDA approval of our solid tumor clinical assets.
Our primary target market is China, where we believe that our cell-based therapies will be able to help patients with high unmet medical needs. We are
focused on developing and marketing safe and effective cell-based therapies to treat cancer and joint diseases. We have developed proprietary technologies and
know-how in our cell therapy platforms. We are conducting clinical studies in China with our stem cell based therapies to treat knee osteoarthritis (“KOA”). On
December 2017, the Chinese government issued trial guidelines concerning the development and testing of cell therapy products in China, which provides that all
cell therapy products are treated as “drug” from a regulatory perspective, and require official approval for INDs. Prior to this revised regulation in December 2017,
we have completed a Phase IIb autologous haMPC KOA clinical study and released the promising results. Led by Shanghai Renji Hospital, one of the largest
teaching hospitals in China, we completed a Phase I clinical trial of our off-the-shelf allogeneic haMPC (AlloJoin™) therapy for treating KOA patients. We also
completed and presented the Allojoin™ Phase I 48-week data in China, and have been approved by NMPA to initiate a Phase II clinical trial following the filing of
CBMG's IND application for AlloJoin® for KOA. CBMG’s IND application is the first stem cell drug application to be approved by NMPA for a Phase II KOA clinical
trial since the release of the updated regulation on cell therapy.
In addition to our own internal pipelinse, we have initiated successful partnerships with other cell therapy focused companies as it pertains to their
technology and platform’s market access into the Chinese market. We believe that our focus on process improvement and creating cost savings on cell therapy
manufacturing will enable us to collaborate with those firms as they enter into the Chinese market.
Prior to September 2018, CBMG has been developing its own anti-CD19 CAR-T cell therapy in B-cell non-Hodgkin lymphoma ("NHL")and adult acute
lymphoblastic leukemia (“ALL”) and had already initiated IND applications in China. On September 25, 2018, we entered into a strategic licensing and collaboration
agreement with Novartis to manufacture and supply their CAR-T cell therapy Kymriah® (tisagenlecleucel) in China. As part of the deal, Novartis took approximately
a 9% equity stake in CBMG, and CBMG is discontinuing development of its own anti-CD19 CAR-T cell therapy. This collaboration with Novartis reflects our shared
commitment to bringing the first marketed CAR-T cell therapy product, Kymriah® , currently approved in the US, EU and Canada for two difficult-to-treat cancers,
to China where the number of patients remains the highest in the world. We continue to develop cell therapies targeting other than CD19 on our own and Novartis
has the first right of negotiation on these developments. The CBMG oncology pipeline includes CAR-T targeting CD20-, CD22- and B-cell maturation antigen
(BCMA), NKG2D, AFP TCR and TIL. We are striving to build competitive research capabilities, a cutting edge translational medicine unit, along with a well-
established cellular manufacturing capability and ample capacity, to support Kymriah® in China and our development of cell therapy products. We expect to initiate
first in-human clinical trials for multiple CAR-T and TCR-T programs in 2019.
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Corporate History
Headquartered in New York, the Company is a Delaware biopharmaceutical company focused on developing treatment for cancer and joint diseases for patients
in China. The Company was formerly known as EastBridge Investment Group Corporation and originally incorporated in the State of Arizona on June 25, 2011.
The Company started its regenerative medicine business in China in 2009 and expanded to CAR-T therapies in 2014.
Recent Developments
On February 5, 2018, Sailings Capital invested in the Company for an aggregate of 1,719,324 shares (the “February 2018 Private Placement”) of the
Company’s common stock at $17.80 per share, for total gross proceeds of approximately $30.6 million. Pursuant to the shares purchase agreement, Sailings
Capital nominated, and Bosun S. Hau was appointed as a non-executive Class III director of the Company and his appointment was subsequent ratified by the
Company’s stockholders during the Annual Stockholders Meeting on April 27, 2018.
On February 15, 2018, we obtained a 36–month exclusive option with Augusta University to negotiate a royalty-bearing, exclusive license to the patent
rights owned by the Augusta University relating to an invention to identify novel alpha fetoprotein (“AFP”) specific TCR for a hepatocellular carcinoma (“HCC”)
immunotherapy. On February 14, 2019 we exercised our option and executed the exclusive license with Augusta University.
On March 16, 2018, we issued a press release announcing the presentation of the Allojoin™ Phase I 48-week data in China, as well as the termination of
the Company’s U.S. Allojoin™ program with CIRM to focus the clinical development in China. Prior to termination, the Company had received $1.2 million of the
potential $2.29 million available under the CIRM grant.
On April 18, 2018 and April 21, 2018, the NMPA CDE posted on its website acceptance of the IND application for CAR-T cancer therapies in treating
patients with NHL and ALL submitted by two of the wholly-owned subsidiaries of the Company, respectively. After executing the Novartis License and
Collaboration Agreement in September 2018 described below, we no longer pursue our own CD-19 CAR-T program.
On June 22, 2018, we expanded and moved to a new research and development center in Gaithersburg, Maryland.
On September 25, 2018, the Company, together with certain of its subsidiaries and controlled entities, entered into a License and Collaboration Agreement
(the “Collaboration Agreement”) with Novartis, pursuant to which the Company will manufacture and supply Novartis the T CAR-T cell therapy Kymriah®
(tisagenlecleucel) (the “Product”) in China. The Company also granted Novartis a world-wide license certain of its intellectual property and technology, including
intellectual property and technology related to the Product. Such license is exclusive with respect to the development, manufacture and commercialization of the
Product and non-exclusive with respect to the development, manufacture and commercialization of other products.
Also, on September 25, 2018, we entered into a Share Purchase Agreement with Novartis pursuant to which the Company agreed to sell, and Novartis
agreed to purchase from the Company, an aggregate of 1,458,257 shares of the Company’s common stock, at a purchase price of $27.43 per share, which was
the equivalent of 130% of the volume-weighted average price of the Common Stock for the prior 20 consecutive trading days, for total gross proceeds of
approximately $40 million (the “Private Placement”). In connection with the Private Placement, the Company filed a Form S-3 with the SEC on October 10, 2018
to satisfy the registration requirement. The SEC declared the registration effective on October 22 and the Company filed the Private Placement Prospectus on
October 23, 2018.
On October 2, 2018, we entered into a non-exclusive license agreement with The U.S. Department of Health and Human Services, as represented by
National Cancer Institute, an Institute or Center (the “IC”) of the National Institutes of Health, pursuant to which the Company was granted rights to the worldwide
development, manufacture and commercialization of autologous, tumor-reactive lymphocyte adoptive cell therapy products, isolated from tumor infiltrating
lymphocytes as claimed in the IC licensed patent rights, for the treatment of non-small cell lung, stomach, esophagus, colorectal, and head and neck cancer(s) in
humans.
On October 10, 2018, we announced that we commenced a stock repurchase program (the “2018 Share Repurchase Program”) granting the Company
authority to purchase up to $8.48 million in common shares through open market purchases pursuant to a plan adopted in accordance with Rule 10b5-1 and Rule
10b-18 of the Exchange Act. The program contemplated repurchases of shares of the Company’s common stock in the open market in accordance with all
applicable securities laws and regulations. It is contemplated that total shares to be repurchased under the 2017 and 2018 Share Repurchase Programs shall not
exceed $15 million in the aggregate. From June 2017 to December 2018 the Company repurchased a total of 1,001,499 shares of our common stock at a total
price of $13,953,666, or an average of $13.93 per share.
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On October 29, 2018, after reassessing CBMG broad pipelines in immune cell technologies which comprises of CAR-T, TCRT, and TIL, CBMG notified
USF and Moffitt to prioritize our clinical efforts primary on cell therapy efforts and to terminate its GVAX license agreements.
On November 2, 2018, we relocated our principal executive offices from Cupertino, California to New York, New York.
On November 7, 2018, NMPA CDE formally accepted the IND application for allogeneic adipose-derived mesenchymal progenitor cell (haMPC) off-the-
shelf therapy AlloJoin® for Knee Osteoarthritis (KOA) submitted by two of our wholly-owned subsidiaries.
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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:
Execute the technical transfer and align the manufacturing processes with Novartis to support Novartis’ development of the Kymriah® therapy in China;
Advance Allojoin™ KOA Phase II clinical trial to support the BLA submissions in China ;
Advance Rejoin™ KOA IND applications with the NMPA’s CDE and initiate clinical studies to support the BLA submissions in China ;
Initiate investigator sponsored and/or CBMG sponsored clinical trials and get early proof of concept results for the following clinical assets:
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Anti-BCMA CAR-T for Multiple Myeloma (MM)
Anti-CD22 CAR-T for anti-CD19 CAR-T relapsing ALL
NKG2D CAR-T for acute myeloid leukemia (AML)
Alpha Fetoprotein Specific TCR-T for HCC
anti-CD 20 CAR-T for anti-CD19 CAR-T relapsing NHL
TIL for solid tumors
Bolster R&D resources to fortify our intellectual properties portfolio and scientific development. Continue to develop a competitive cell therapy pipeline for
CBMG. Seek opportunities to file new patent applications in potentially the rest of the world and in China ;
Leveraging our quality system and our strong scientific expertise to develop a platform as preferred parties for international pharmaceutical companies to
co-develop cell therapies in Chinaby implementing our quality strategies and leveraging the experience and expertise of our strong scientific team in the
U.S. and in China;
Evaluate and implement digital platform system for research, material management, production and clinical data tracking;
Evaluate new regenerative medicine technology platform for other indications and review recent development in the competitive landscape;
Advance our Quality Management System (QMS), Validation Master Plan (VMP) and electronic records for quality assurance ;
Improve liquidity and fortify our balance sheet by courting institutional investors; and
Evaluate the addition of gene therapy for disease treatment to our portfolio; and
Evaluate possibility of dual listing on the Hong Kong Stock Exchange to expand investor base in Asia.
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Our operating expenses for year ended December 31, 2018 were in line with management’s plans and expectations. We have an increase in total
operating expenses of approximately $12.8 million for the year ended December 31, 2018, as compared to the year ended December 31, 2017, which is primarily
attributable to increased R&D expenses and clinical developments in 2018.
Corporate Structure
Our current corporate structure is illustrated in the following diagram:
Currently we have the following subsidiaries (including a controlled VIE entity):
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.
Cellular Biomedicine Group HK Limited, a Hong Kong company limited by shares, is a holding company and wholly owned subsidiary of the Company.
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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 Chinese 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 research and development, technical support, technical service,
technology transfer in biomedical technology field, manufaturing of non-food, pharmaceutical polypeptides and medical devices (in vitro diagnostic reagents)
extracted by biology making foreign investment with its own funds; cosmetics, sanitary products and biological agents wholesale, commission agents
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 Chinese 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 investors of CBMG Shanghai constituting the entire management of the same. Mr. Chen
and Mr. Lu receive no compensation for their roles as investors 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., established on January 17, 2017, is a PRC domestic corporation and wholly owned subsidiary of CBMG
Shanghai.
Shanghai Cellular Biopharmaceutical Group Ltd., established on January 18, 2017, is a PRC domestic corporation and wholly owned subsidiary of CBMG
Shanghai.
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.
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.
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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 that 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
The biopharmaceutical business was founded in 2009 by a team of seasoned Chinese-American executives, scientists and doctors. In 2010, we
established a facility designed and built to China's Good Manufacture Practice (GMP) standards in Wuxi, China 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. In November 2017, we opened our Zhangjiang facility in Shanghai, of which 40,000 square feet was designed and built to GMP standards
and dedicated to advanced cell manufacturing. Our focus has been to serve the rapidly growing health care market in China by marketing and commercializing
immune cell and stem cell therapeutics, related tools and products from our patent-protected homegrown and acquired cell technology, as well as by utilizing in-
licensed and other acquired intellectual properties.
Our current treatment focal points are KOA and cancer.
Cancer. We are focusing our clinical development efforts on CD20-, CD22- and B-cell maturation antigen (BCMA)-specific CAR-T therapies, T-cell
receptor (TCR) and tumor infiltrating lymphocyte (TIL) technologies. With the execution of the Novartis Collaboration Agreement we have prioritized our efforts on
working with Novartis to bring Kymriah® to patients in China as soon as practicable. In view of our collaboration with Novartis, we will no longer pursue our own
ALL and DLBCL BLA submission with the NMPA. On the research and development side we will endeavor to bring our CD22 HCL and CD19 CAR-T relapsing
ALL, CD 20 for CD19 CAR-T Relapsing NHL, BCMA in Multiple Myeloma (MM), NKG2D in acute myeloid leukemia (AML), AFP TCR-T in Hepatocellular
carcinoma (HCC) and neoantigen reactive TIL on solid tumors, respectively, in first in human trial as soon as possible. We plan to continue to leverage our quality
system and our strong scientific expertise to develop a platform as preferred parties for international pharmaceutical companies to co-develop cell therapies with
the Company in China by implementing our quality strategies and leveraging the experience and expertise of our strong scientific team in the U.S and in China.
KOA. In 2013, we completed a Phase I/IIa clinical study, in China, for our KOA therapy named Re-Join®. 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 Re-Join®
therapy to be both safe and effective.
In Q2 of 2014, we completed patient enrollment for the Phase IIb clinical trial of Re-Join® 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-week data indicated that
patients have reported a decrease in pain and a significant improvement in mobility and flexibility, while the clinical data shows our Re-Join® regenerative
medicine treatment to be safe. We announced the interim 24 week results for Re-Join® 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 Re-Join® therapy group having all improved significantly compared to their baseline,
which has confirmed some of the Company’s Phase I/IIa results. Our Re-Join® human adipose-derived mesenchymal progenitor cell (haMPC) therapy for KOA is
an interventional therapy using proprietary process, culture and medium.
Our process is distinguishable from sole Stromal Vascular Fraction (SVF) therapy. The immunophenotype of our haMPCs exhibited a homogenous
population expressing multiple biomarkers such as CD73+, CD90+, CD105+, 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.
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. On
March 16, 2018, we announced the positive 48-week Allojoin™ Phase I data in China, which demonstrated good safety and early efficacy for the prevention of
cartilage deterioration. China has finalized its cell therapy policy in December, 2017. Our AlloJoinTM Phase I IND application with the NMPA has been approved
and we plan to implement our Phase II clinical trial soon. We plan to advance the KOA IND application for Rejoin™ with NMPA in the near future.
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The unique lines of adult adipose-derived progenitor cells and the immune cell therapies enable us to create multiple cell formulations in treating specific
medical conditions and diseases. The quality management systems of CBMG Shanghai were issued a Certificate of ISO-9001:2015 in 2018 and to be updated to
9001:2015 with full components. (i)The cleanrooms in our new facility are ISO 14644 certified and in compliance with China’s Good Manufacture Practice (GMP)
requirement (2010 edition); (ii) the process equipment and analytical equipment in the new Shanghai facility has been calibrated and qualified, and the biological
safety cabinets were also qualified. The quality management systems of WX SBM were also certified as meeting the requirement of ISO-9001:2015, and the facility
and equipment were also qualified.
Our proprietary processes and procedures include (i) banking of allogenic cellular product and intermediate product; (ii) manufacturing procedures of GMP-
grade viral vectors; (iii) manufacturing procedures of GMP-grade cellular product; (iv) analytical testing to ensure the safety, identity, purity and potency of cellular
product.
Recent Developments in Adoptive Immune Cell Therapy (ACT)
The immune system plays an essential role in cancer development and growth. In the past decade, immune checkpoint blockade has demonstrated a
major breakthrough in cancer treatment and has currently been approved for the treatment of multiple tumor types. Adoptive immune cell therapy (ACT) with
tumor-infiltrating lymphocytes (TIL) or gene-modified T cells expressing novel T cell receptors (TCR) or chimeric antigen receptors (CAR) is another strategy to
modify the immune system to recognize tumor cells and thus carry out an anti-tumor effector function.
The TILs consist tumor-resident T cells which are isolated and expanded ex vivo after surgical resection of the tumor. Thereafter, the TILs are further
expanded in a rapid expansion protocol (REP). Before intravenous adoptive transfer into the patient, the patient is treated with a lymphodepleting conditioning
regimen. TCR gene therapy and CAR gene therapy are ACT with genetically modified peripheral blood T cells. For both treatment modalities, peripheral blood T
cells are isolated via leukapheresis. These T cells are then transduced by viral vectors to either express a specific TCR or CAR, respectively. These treatments
have shown promising results in various tumor types.
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CAR-Ts
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. This approach is called adoptive
cell transfer (ACT). ACT’s building blocks are T cells, a type of immune cell collected from the patient’s own blood. One of the well-established ACT approaches is
CAR-T cancer therapy. 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 until the
number reaches dose level. 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.
CAR-T cell therapies, such as anti-CD19 CAR-T and anti-BCMA 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 encouraging clinical efficacy in many of these patients, and some of them have durable clinical response for years. However,
some adverse effects, such as cytokine release syndrome (CRS) and neurological toxicity, have been observed in patients treated with CAR-T cells. For example,
in July 2016, Juno Therapeutics, Inc. reported the death of patients enrolled in the U.S. Phase II clinical trial of JCAR015 (anti-CD19 CAR-T) 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 attributed the cause of patient deaths to the use of Fludarabine preconditioning and they switched to use only
cyclophosphamide pre-conditioning in subsequent enrollment.
In August 2017, the U.S. FDA approved Novartis’ Kymriah® (tisagenlecleucel), a CD19-targeted CAR-T therapy, for the treatment of patients up to 25
years old for relapsed or refractory (r/r) acute lymphoblastic leukemia (ALL), the most common cancer in children. Current treatments show a rate of 80%
remission using intensive chemotherapy. However, there are almost no conventional treatments to help patients who have relapsed or are refractory to traditional
treatment. Kymriah® has shown results of complete and long lasting remission, and was the first FDA-approved CAR-T therapy. In October 2017, the U.S.
FDA approved Kite Pharmaceuticals’ (Gilead) CAR-T therapy for diffuse large B-cell lymphoma (DLBCL), the most common type of NHL in adults. The initial
results of axicabtagene ciloleucel (Yescarta), the prognosis of high-grade chemo refractory NHL is dismal with a medium survival time of a few weeks. Yescarta is
a therapy for patients who have not responded to or who have relapsed after at least two other kinds of treatment.
In May 2018, the FDA approved Novartis’ Kymriah® for intravenous infusion for its second indication - the treatment of adult patients with relapsed or
refractory (r/r) large B-cell lymphoma after two or more lines of systemic therapy including diffuse large B-cell lymphoma (DLBCL) not otherwise specified, high
grade B-cell lymphoma and DLBCL arising from follicular lymphoma. Kymriah® is now the only CAR-T cell therapy to receive FDA approval for two distinct
indications in non-Hodgkin lymphoma (NHL) and B-cell ALL. On September 25, 2018, we entered into the Collaboration Agreement with Novartis to manufacture
and supply Kymriah® to Novartis in China.
Besides anti-CD19 CAR-T, anti-BCMA CAR-T has shown promising clinical efficacy in treatment of multiple myeloma. For example, bb2121, a CAR-T
therapy targeting BCMA, has been developed by Bluebird bio, Inc. and Celgene for previously treated patients with multiple myeloma. Based on preliminary clinical
data from the ongoing phase 1 study CRB-401, bb2121 has been granted Breakthrough Therapy Designation by the U.S. FDA and PRIME eligibility by the
European Medicines Agency (EMA) in November 2017. We plan to initiate our anti-BCMA CAR-T investigator initiated trial in the near future.
Recent progress in Universal Chimeric Antigen Receptor (UCAR) T-cells showed benefits such as ease of use, availability and the drug pricing challenge.
Currently, most therapeutic UCAR products have been developed with gene editing platforms such as CRISPR or TALEN. For example, UCART19 is an
allogeneic CAR T-cell product candidate developed by Cellectis for treatment of CD19-expressing hematological malignancies. UCART19 Phase I clinical trials
started in adult and pediatric patients in Europe in June 2016 and in the U.S. in 2017. The use of UCAR may has the potential to overcome the limitation of the
current autologous approach by providing an allogeneic, frozen, “off-the-shelf” T cell product for cancer treatment.
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TILs
While CAR-T cell therapy has been proven successful in treatment of several hematological malignancies, other cell therapy approaches, including Tumor
Infiltrating Lymphocytes (TIL) are being developed to treat solid tumors. For example, Iovance Biotherapeutics is focused on the development of autologous
tumor-directed TILs for treatments of patients with various solid tumor indications. Iovance is conducting several Phase 2 clinical trials to assess the efficacy and
safety of autologous TIL for treatment of patients with Metastatic Melanoma, Squamous Cell Carcinoma of the Head and Neck, Non-Small Cell Lung Cancer
(NSCLC) and Cervical Cancer in the US and Europe.
TCRs
Adaptimmune is partnering with GlaxoSmithKline to develop TCR-T therapy targeting the NY-ESO-1 peptide, which is present across multiple cancer
types. Their NY-ESO SPEAR T-cell has been used in multiple Phase 1/2 clinical trials in patients with solid tumors and haematological malignancies, including
synovial sarcoma, myxoid round cell liposarcoma, multiple myeloma, melanoma, NSCLC and ovarian cancer. The initial data suggested positive clinical responses
and evidence of tumor reduction in patients. NY-ESO SPEART T-cell has been granted breakthrough therapy designation by the U.S. FDA and PRIME regulatory
access in Europe. Adaptimmune’s other TCR-T product, AFP SPEAR T-cell targeting AFP peptide, is aimed at the treatment of patients with hepatocellular
carcinoma (HCC). AFP SPEAR T-cell is in a Phase I study and enrolling HCC patients in the U.S.
CBMG’s Adoptive Immune Cell Therapy (ACT) Programs
In December 2017, the Chinese government issued trial guidelines concerning the development and testing of cell therapy products in China. Although
these trial guidelines are not yet codified as mandatory regulation, we believe they provide a measure of clarity and a preliminary regulatory pathway for our cell
therapy operations in a still uncertain regulatory environment. On April 18 and April 21, 2018, the CDE posted on its website acceptance of the IND application for
CAR-T cancer therapies in treating patients with NHL and adult ALL submitted by the Company’s wholly-owned subsidiaries Cellular Biomedicine Group
(Shanghai) Ltd. and Shanghai Cellular Biopharmaceutical Group Ltd. On September 25, 2018 we entered into a strategic licensing and collaboration agreement
with Novartis to manufacture and supply Kymriah® in China. As part of the deal, Novartis took approximately a 9% equity stake in CBMG, and CBMG is
discontinuing development of its own anti-CD19 CAR-T cell therapy. This collaboration with Novartis reflects our shared commitment to bringing the first marketed
CAR-T cell therapy, Kymriah®, a transformative treatment option currently approved in the US, EU and Canada for two difficult-to-treat cancers, to China where
the number of patients in need remains the highest in the world. Together with Novartis, we plan to bring the first CAR-T cell therapy to patients in China as soon
as possible. We continue to develop CAR-T therapies other than CD 19 on our own and Novartis has the first right of negotiation on these CAR-T developments.
The CBMG oncology pipeline includes CAR-T targeting CD20-, CD22- and B-cell maturation antigen (BCMA), AFP TCR-T, which could specific eradicate AFP
positive HCC tumors and TIL technologies. Our current priority is to collaborate with Novartis to bring Kymriah® to China. At the same time, we remain committed
to developing our existing pipeline of immunotherapy candidates for hematologic and solid tumor cancers to help deliver potential new treatment options for
patients in China. We are striving to build a competitive research and development function, a translational medicine unit, along with a well-established cellular
manufacturing capability and ample capacity, to support Kymriah® in China and our development of multiple assets in multiple indications. We believe that these
efforts will allow us to boost the Company's Immuno-Oncology presence. We have initiated a clinical trial to evaluate anti-BCMA CAR-T therapy in Multiple
Myeloma (“MM”) and expect to initiate first in-human studies for multiple CAR-T and TCR-T programs in 2019.
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Market for Stem Cell-Based Therapies
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. According to an article
published by the Journal of the American Medical Association, approximately 505,000 hip replacements and 723,000 knee replacements were performed in the
United States in 2014 and they cost more than $20 billion. 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.
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.
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Our Strategy
CBMG is a drug development company focusing on developing cell therapies first in China, and seek opportunity globally when appropriate. Our goal is to
develop safe and effective cellular therapies for indications that represent a large unmet need in China. 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 believe that few competitors in China are as well-equipped as we are in the clinical trial development, diversified international
standard compliant manufacturing facilities, quality assurance and control processes, regulatory compliance vigor, as well as continuous process improvement to
speed up manufacturing timelines for its cell therapy clinical trials and commercial launch.
The key issues with cell therapy as a modality are drug therapeutic index, institutionalized, scalable manufacturing and an affordable price for the patients.
Our continuous improvement approach in our manufacturing platform is unique as we utilize a semi-automatic, fully closed system, which is expected to lead to
economies of scale. Additionally, our focus on being a fully integrated, cell therapy company has enabled us to be one of only a few companies that are able to
manufacture clinical grade lentivirus in China.
In China, the Good Clinical Practice (“GCP”) compliant Investigator Initialized Trial (“IIT”) only requires IRB from hospital and local approval. IITs can
provide early evidences of proof concept for novel drugs which are time and cost efficient. IITs are also good ways to identify and develop novel platforms.
Currently, we have our own drug development pipeline in CAR-T, AFP TCR-T, TIL and KOA. Our R&D team continues to identify additional platform cell therapy
technologies to develop internally or acquire established technologies.
In addition to the manufacturing Novartis’ Kymriah® for patients in China that is contemplated by the Collaboration Agreement and Manufacture and
Supply Agreement with Novartis, we are also actively developing and evaluating other therapies comprised of other CAR-T, TCR-T and TIL. We plan to advance
our KOA Allojoin™ to Phase II clinical trial and IND applications for Rejoin™ with the NMPA in the near future.
In addition to our drug development efforts, we also actively seek co-development opportunities with international partners. Such partnership will enable us
to take advantage of the technologies of our partners while leveraging our quality control and manufacturing infrastructure and further expand our pipelines in a
relatively rapid fashion.
In order to expedite fulfillment of patient treatment, we have 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 world-wide exclusive license to the AFP TCR-T
patent rights owned by the Augusta University provides an enlarged opportunity to expand the application of CBMG’s cancer therapy-enabling technologies and to
initiate clinical trials with leading cancer hospitals.
Our proprietary and patent-protected production processes enable us to produce raw material, manufacture cells, and conduct cell banking and
distribution. Our clinical 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, handling potential adverse effects and their proper management.
Applying our proprietary intellectual property, we plan to customize specialize formulations to address complex diseases and debilitating conditions.
We have a total of approximately 70,000 square feet of manufacturing space in three locations, the majority of which is in the new Shanghai facility. We
operate our manufacturing facilities under the design of the standard GMPconditions as well ISO standards. We employ institutionalized and proprietary process
and quality management system to optimize reproducibility and to hone our efficiency. Our Beijing, Shanghai and Wuxi facilities are designed and built to meet
international GMP standards. With our integrated Plasmid, Viral Vectors platforms, our T cells manufacturing capacities are highly distinguishable from other
companies in the cellular therapy industry.
Most importantly, our seasoned cell therapy team members have decades of highly-relevant experience in the United States, China, and European Union.
We believe that these are the primary factors that make CBMG a high quality cell products manufacturer in China.
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Our Targeted Indications and Potential Therapies
The chart below illustrates CBMG’s pipelines:
** NMPA has approved our Phase I IND application under the new regulation. We plan to start our Phase II clinical trial as soon as practicable.
* December 2017, Chinese government issued trial guidelines concerning development and testing of cell therapy products in China. Albeit we finished the
Phase IIb study prior to December 2017 we have yet to file the IND anew under the new regulation. We plan to apply for IND under the new regulation as soon
as practicable.
Immuno-oncology (I/o)
Our CAR-T platform is built on lenti-virial vector and second-generation CAR design, which is used by most of the current trials and studies. We select the
patient population for each asset and indication to allow the optimal path forward for potential regulatory approval. We 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 attempt to identify the optimal
targeting patient population. We plan to continue to grow our translational medicine team and engage key opinion leaders to support our development efforts.
We have developed a serial of CAR-Ts to treat hematological malignancies including CD20, CD22, and BCMA CAR-Ts, which have been proved to be
potent and effective in treating hematology tumors in early phase of clinical studies.
CD20 CAR
CD20 is broadly overexpressed in a serial of B cell malignant tumors. In the patients relapsed after CD19 CAR-T treatment, the expression of CD20 on
target tumor cells is relatively stable. It is proven to be an optimal target for treating CD19 CAR-T relapsing patients. We have developed a novel CD20 CARs
clinical lead, which demonstrated strong anti-tumor activity in both in vitro assays and in vivo animal studies. We have filed patent in China and plan to initiate first
in human investigator initiated trial with CD19 CAR-T relapsed NHL patients in 2019.
CD22 CAR
CD22 is another surface maker highly expressed in B cell malignancies especially in Hairy cell leukemia. It also expresses in the patients relapsed after
CD19 CAR-T treatment. We have developed a novel CD22 CARs clinical lead, which displayed effective anti-tumor activity in in vitro cytotoxicity assays. We plan
to initiate investigator initiated trial with CD19 CAR-T relapsing ALL patients and Hairy cell leukemia in the first half of 2019.
BCMA CAR
BCMA is a member of the TNF receptor superfamily, universally expressed in multiple myeloma (MM) cells. It is not detectable in normal tissues except
plasma and mature B cells. It is proven to be an effective and safer target for treating refractory MM patients in several clinical trials. We have developed unique
BCMA CARs. Our BCMA CAR clinical lead exhibits potent anti-tumor activity both in vitro and in vivo. We have filed patent for BCMA CAR in China and initiated
investigator initiated trial in refractory MM patients in January, 2019.
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NKG2D CAR
Early studies on CAR-T therapy targeting NK cell signaling has shown promising clinical benefits. We are developing novel second generation CARs using
NKG2D extracellular fragment as antigen binding domain. These CARs can recognize targets tumor cells expressing NKG2D ligands. We plan to initiate first in
human investigator initiated trial with R/R AML patients in the second half of 2019.
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 will continue our effort in developing cell based therapies to target both hematological cancers and solid tumors.
AFP TCR
We license the technology from Augusta University. We are continuing our evaluation on the efficacy and specificity of the AFP TCRs to identity the most
appropriate candidate for first time in human (FTIH) study. We plan to redirect Human T cells with the AFP TCRs and evaluate their anti-tumor activity on in vitro
cytokine release and cytotoxicity assays; and potential on/off-target toxicity including allo-reactivity as well as in vivo efficacy tests in animal models.
TIL
Augmented by the U.S. National Cancer Institute (“NCI”) technology license, CBMG is developing neoantigen reactive TIL therapies to treat immunogenic
cancers. In the early stages of cancer, lymphocytes infiltrate into the tumor, specifically recognizing the tumor targets and mediating anti-tumor response. These
cells are known as TIL. TIL based therapies have shown encouraging clinical results in early development. For example, in Phase-2 clinical studies in patients with
metastatic melanoma performed by Dr. Rosenberg at NCI, TIL therapy demonstrated robust efficacy in patients with metastatic melanoma with objective response
rates of 56% and complete response rates of 24%. We plan to start our development with NSCLC in 2019, and eventually expand into other cancer indications.
Knee Osteoarthritis (KOA)
We are currently pursuing two primary therapies for the treatment of KOA: Re-Join® therapy and AlloJoin™ 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 Re-Join® therapy to be both safe and
effective.
In the second quarter of 2014, we completed patient enrollment for the Phase IIb clinical trial of Re-Join® 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 Re-Join® regenerative
medicine treatment to be safe. We announced positive Phase IIb 48-week follow-up data in January 2016, with statistical significant evidence that Re-Join®
enhanced cartilage regeneration, which concluded the planned phase IIb trial.
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 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 SAEs have
been observed. On March 16, 2018, we announced the positive 48-week Allojoin™ Phase I data in China, which demonstrated good safety and early efficacy for
the prevention of cartilage deterioration. In January 2019, the NMPA approved the Company’s Phase I AlloJoin™ IND application. We plan to initiate our Phase II
AlloJoin™ clinical trial as soon as practicable.
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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.
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 multipotent 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 autologous 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. For allogeneic KOA we use donor haMPC cells.
These haMPC cells are capable of differentiating into bone, cartilage, 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 autologous haMPC, offering a choice for those where
factors such as donor age and health are an issue.
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 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) submit to the NMPA an IND package for Allojoin™ to treat patients with donor haMPC cells,
and (c) file joint applications with Class AAA hospitals to use Re-Join® to treat patients with their own haMPC cells.
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.
Based on current estimates, we expect to generate collaboration payment and revenues through our sale of Kymriah® products to Novartis within the next
two to three years. We plan to systematically advance our own cell therapy pipeline and timely seek BLA opportunities to commercialize our products within the
next three to four years although we cannot assure you that we will be successful at all or within the foregoing timeframe.
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Competition
Many companies operate in the cellular biopharmaceutical field. Currently there are several approved stem cell therapies on the market including
Canada’s pediatric graft-versus-host disease and the European Commission’s approval in March 2018 for the treatment of complex perianal fistulas in adult
Crohn’s disease. There are several public and 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 stem cells and the plasticity of adult stem cells. To the best of our knowledge, none of the companies in China are
utilizing our proposed international manufacturing protocol and our unique technologies in conducting what we believe will be fully compliant NMPA-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. In the biopharmaceutical specialty segment, 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.
Our primary competitors in the field of stem cell therapy for osteoarthritis, and other indications include 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 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 planned to initiate clinical trial in China in 2016. To our knowledge, none of the aforementioned companies
have made any progress or advancement in the clinical development in China.
Our primary competitors in the field of cancer immune cell therapies include pharmaceutical, biotechnology companies such as Eureka Therapeutics, Inc.,
Iovance Biotherapeutics Inc., Juno Therapeutics, Inc. (BMS), Kite Pharma, Inc. (Gilead), CARSgen, Sorrento Therapeutics, Inc. and others. Among our
competitors, the ones based in and operating in Greater China are CARsgen, Hrain Biotechnology, Nanjing Legend Biotechnology Cooperated with Johnson-
Johnson , Galaxy Biomed, Persongen and Anke Biotechnology, Shanghai Minju Biotechnology, Unicar Therapy (Cooperated with Terumo BCT), Wuxi Biologics,
Junshi Pharma, BeiGene, Immuno China Biotech, Chongqing Precision Biotech, SiDanSai Biotechnology 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 have
made inroads in China by partnering with local companies. For example, in April, 2016, Seattle-based Juno Therapeutics, Inc. (Celgene) started a new company
with WuXi AppTec in China named JW Biotechnology (Shanghai) Co., Ltd. by leveraging Juno's CAR-T and 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 solid organ cancers. In January
2017, Shanghai Fosun Pharmaceutical created a joint venture with Santa Monica-based Kite Pharma Inc. (Gilead) to develop, manufacture and commercialize
CAR-T and TCR products in China. In late 2017 Gilead acquired Kite Pharma for $11.9 billion. On March 6, 2018 Celgene completed its acquisition of Juno
Therapeutics for approximately $9 billion. On January 3, 2019, Bristol-Myers Squibb announced it will acquire Celgene in a cash and stock transaction with an
equity value of approximately $74 billion.
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The NMPA has received IND applications for CD19 chimeric antigen receptor T cells cancer therapies from many companies and have granted the initial
phase of acceptance to several companies thus far.
Additionally, in the general area of cell-based therapies for knee osteoarthritis ailments, we potentially compete with a variety of companies, from big
pharma to specialty medical products or biotechnology companies. Some of these, such as Abbvie, Merck KGaA, Sanofi, Teva, GlaxosmithKline, Baxter, Johnson
& Johnson, Sanumed, Medtronic and Miltenyi Biotech, 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 more direct competitors are smaller biotechnology and specialty medical
products companies comprised of Vericel Corporation, Regeneus Ltd., Advanced Cell Technology, Inc., Nuo Therapeutics, Inc., Arteriocyte Medical Systems, Inc.,
ISTO technologies, Inc., Ember Therapeutics, Athersys, Inc., Bioheart, Inc., Cytori Therapeutics, Inc., Harvest Technologies Corporation, Mesoblast, Pluristem,
Inc., TissueGene, Inc. Medipost Co. Ltd. and others. There are also several non-cell-based, small molecule and peptide clinical trials targeting knee osteoarthritis,
and several other FDA approved treatments for knee pain.
Certain CBMG 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.
We believe we have a strategic advantage over our competitors based on our outstanding quality management system, robust and efficient manufacturing
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 China market.
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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 isolation, serum free-cell expansion, 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 isolation,
expansion, 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.
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.
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Patents
The following is a brief list of our patents, patent applications and work in process as of December 31, 2018:
Work in Process
Patents Filed, Pending
Granted
Total
China Patents
U.S. Patents
EU Patents
Rest of the
World
Patent
Cooperation
Treaty (PCT)
Total
8
29
24
61
-
2
3
5
-
1
1
2
-
-
2
2
-
7
-
7
8
39
30
77
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 scaling up and optimizing our manufacturing capacity. Our facilities are
operated by a manufacturing and technology team with decades 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 as well the ISO standards. 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.
The quality management systems of CBMG Shanghai have been assessed and certified as meeting the requirements of ISO 9001: 2015. (i)The
cleanrooms in our new facility have been inspected and certified to meet the requirements of ISO 14644 and in compliance with China’s Good Manufacture
Practice (GMP) requirements (2010 edition); (ii) the equipment in the new Shanghai facility has been calibrated and qualified, and the biological safety cabinets
were also qualified. The quality management systems of WX SBM were certified as meeting the requirements of ISO 9001: 2015, and the facility and equipment in
Wuxi Site were also qualified.
With our integrated GMP level plasmid, viral vectors, and CAR-T cell chemistry, manufacturing, and controls processes as well as planned capacity
expansion, we believe that we are highly distinguishable with other companies in the cellular therapy industry.
In January 2017, we leased a 113,038-square foot building located in the “Pharma Valley” of Shanghai, the People’s Republic of China. We are
establishing 43,000 square foot facilities there with 25 clean-rooms and equipped with 12 independent production lines to support clinical batch production and
commercial scale manufacturing. With the above expansion, the Company could support up to thousands of patients with CAR-T therapy and thousands of KOA
patients with the stem cell therapy per annum.
Employees
As of December 31, 2018, the total enrollment of full time employees of the Company is 193. Among these 193 professionals, 122 have postgraduate and
PhD degrees, 61 have undergraduate degrees. In other words, 94.8% of our employees have germane educational background. As a biotech company, 139 out of
our 193 employees have medical or biological scientific credentials and qualifications.
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Facilities
Our corporate headquarters are located at 1345 Avenue of Americas, 15th Floor, New York, New York 10105. Our aggregate monthly rental expense for
our New York, Maryland and China’s offices for administration, R&D and manufacturing facilities is $265,000 for a combined approximately 181,000 square feet.
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.
On December 22, 2017, the tax reform bill was passed (Tax Cut and Jobs Act (H.R.1)) and reduced top corporate tax rate from 35% to 21% effective from
January 1, 2018. Pursuant to this new Act, non-operating loss carry back period is eliminated and the loss carry forward period was expanded from 20 years to an
indefinite period.
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 AG,
Cellular Biomedicine Group Ltd. (Shanghai) (“CBMG Shanghai”) and Shanghai Cellular Biopharmaceutical Group Ltd. (“SH SBM”). 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. CBMG Shanghai re-applied and SH
SBM applied for the certificate of “advanced and new technology enterprise” in 2018. Both of them received preliminary approval in November 2018 and are now in
the public announcement period. Final approval will be obtained if there is no objection raised during the public announcement period. AG was certified as a “small
and micro enterprise” in its 2017 annual tax filing and enjoys the preferential income tax rate of 20%. AG’s eligibility for the reduced tax rate will need to be verified
annually.
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. With respect to cell therapies, however, the Chinese regulatory infrastructure is less established and China has not yet codified any mandatory
regulations governing the development of cell therapy products. In December 2017, the Chinese government issued trial guidelines concerning development and
testing of cell therapy products, including stem cell treatments and immune cell therapies such as CAR-T cell therapeutics. These trial guidelines are not
mandatory regulation but provide some general principles and basic requirements for cell therapy products in the areas of pharmaceutical research, non-clinical
research and clinical research. The cell therapy products provided in the trial guideline refer to the human-sourced living cell products which are used for human
disease therapy, whose source, operation and clinical trial process are in line with ethics and whose research and registration application are in line with
regulations on pharmaceutical administration. The competent authority of pharmaceutical administration is the NMPA. It is further clarified by the NMPA that the
non-registered clinical trial data would be acceptable for drug registration on a case by case basis, pending on the consistency of the samples used for the clinical
trial and the drug applied for registration, the generation process of the clinical trial data, whether the data is authentic, complete, accurate and traceable to the
source, and the inspection outcome of the NMPA on the clinical trial. Moreover, an applicant of the clinical trial of the said cell therapy products can propose the
phases of the clinical trial and the trial plan by itself (generally the trial can be divided into early stage clinical trial phase and confirmatory clinical trial phase),
instead of the application of the traditional phases I, II and III of a clinical trial. However, it remains unclear if any of our clinical trials will be offered U.S.FDA-like
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. standards 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 in an undeveloped industry. In addition, we have begun 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 Market Regulation, General Administration of Quality Supervision, Inspection and Quarantine, and the State Taxation Administration, 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 Ecology and
Environment. 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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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, 2018. 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.
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:
●
●
●
●
●
●
Educating medical personnel regarding the application protocol;
Sourcing clinical and commercial supplies for the materials used to manufacture and process our product candidates;
Developing a consistent and reliable process, while limiting contamination risks regarding the application protocol;
Conditioning patients with chemotherapy in conjunction with delivering immune cell therapy treatment, which may increase the risk of adverse side effects;
Obtaining regulatory approval, as the NMPA, 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 cell 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:
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;
ethical concerns that may arise regarding our commercial use of stem cells, including adult stem cells, in the manufacture of the product candidates;
●
●
●
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●
●
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.
Laws and the regulatory infrastructure governing cellular biopharmaceuticals 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.
In December 2017, the Chinese government issued trial guidelines concerning development and testing of cell therapy products, including stem cell
treatments and immune cell therapies such as CAR-T cell therapeutics. These trial guidelines are not mandatory regulation but provide some general principles
and basic requirements for cell therapy products in the areas of pharmaceutical research, non-clinical research and clinical research. The cell therapy products
provided in the trial guideline refer to the human-sourced living cell products which are used for human disease therapy, whose source, operation and clinical trial
process are in line with ethics and whose research and registration application are in line with regulations on pharmaceutical administration. The competent
authority of pharmaceutical administration is the NMPA. It is further clarified by the NMPA that the non-registered clinical trial data would be acceptable for drug
registration on a case by case basis, pending on the consistency of the samples used for the clinical trial and the drug applied for registration, the generation
process of the clinical trial data, whether the data is authentic, complete, accurate and traceable to the source, and the inspection outcome of the NMPA on the
clinical trial. Moreover, an applicant of the clinical trial of the said cell therapy products can propose the phases of the clinical trial and the trial plan by itself
(generally the trial can be divided into early stage clinical trial phase and confirmatory clinical trial phase), instead of the application of the traditional phases I, II
and III of a clinical trial. However, remains unclear if any of our clinical trials will be offered U.S.FDA-like 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 PRC
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.
NMPA’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 NMPA 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 2003, 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.
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The NMPA 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, AFP-TCR and TIL, whether preclinical or clinical, 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 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.
We cannot be sure that our T cell immunotherapy and 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 viral vector, we are subject to many of the challenges and risks that gene
therapies face, including regulatory requirements governing gene and cell therapy products have evolved 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 CAR-T, AFP TCR-T, and TIL 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 the proof of concept results of our cell therapy assets, and our ability
to obtain regulatory approval of and successfully commercialize these products. All of these products are in the early stages of development, and will require
additional pre-clinical and clinical 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.
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Our CAR-T, AFP TCR-T and TIL 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, AFP TCR-T and TIL 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.
Although we continue to develop our own manufacturing facilities to support our clinical and commercial manufacturing activities, we may, in any event,
never be successful in establishing our own manufacturing facilities. 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 clinical and commercial 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, AFP TCR-T, TIL or stem cell
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, NMPA 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, NMPA 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.
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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.
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 in solid tumors. 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 employees, consultants,
outside scientific collaborators, sponsored researchers, affiliates, other advisors and potential investors. 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.
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We may be unable to obtain or maintain patent protection for our products and product candidates, which could have a material adverse effect on our
business.
Our commercial success will depend, in part, on obtaining and maintaining patent protection for new technologies, product candidates, products and
processes and successfully defending such patents against third party challenges. To that end, we file or acquire patent applications, and have been issued
patents that are intended to cover certain methods and uses relating to stem cells and cancer immune cell therapies.
The patent positions of biotechnology companies can be highly uncertain and involve complex legal, scientific and factual questions and recent court
decisions have introduced significant uncertainty regarding the strength of patents in the industry. Moreover, the legal systems of some countries do not favor the
aggressive enforcement of patents and may not protect our intellectual property rights to the same extent as they would, for instance, under the laws of the United
States. Any of the issued patents we own or license may be challenged by third parties and held to be invalid, unenforceable or with a narrower or different scope
of coverage that what we currently believe, effectively reducing or eliminating protection we believed we had against competitors with similar products or
technologies. If we ultimately engage in and lose any such patent disputes, we could be subject to competition and/or significant liabilities, we could be required to
enter into third party licenses or we could be required to cease using the disputed technology or product. In addition, even if such licenses are available, the terms
of any license requested by a third party could be unacceptable to us.
The claims of any current or future patents that may issue or be licensed to us may not contain claims that are sufficiently broad to prevent others from
utilizing the covered technologies and thus may provide us with little commercial protection against competing products. Consequently, our competitors may
independently develop competing products that do not infringe our patents or other intellectual property. To the extent a competitor can develop similar products
using a different chemistry, our patents and patent applications may not prevent others from directly competing with us. Product development and approval
timelines for certain products and therapies in our industry can require a significant amount of time (i.e. many years). As such, it is possible that any patents that
may cover an approved product or therapy may have expired at the time of commercialization or only have a short remaining period of exclusivity, thereby
reducing the commercial advantages of the patent. In such case, we would then rely solely on other forms of exclusivity which may provide less protection to our
competitive position.
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. Our efforts to protect these trade secrets are comprised of the use of confidentiality and proprietary information agreement, physically secured
documentation, 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 be insufficient to protect our competitive position or may not exist. The inadvertent disclosure of our trade secrets could also 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 NMPA, 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:
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survive and persist in the desired location;
provide the intended therapeutic benefit;
engraft or integrate into existing tissue in the desired manner; or
achieve therapeutic benefits equal to, or better than, the standard of treatment at the time of testing.
In addition, our therapeutic products may cause undesirable side effects. Results of preclinical research in animals may not be indicative of future clinical
results in humans.
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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
National Medicinal Product Administration and the Ministry of Health, or do not otherwise produce positive results, we may incur additional costs or
experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidates.
Currently, a regulatory structure has not been established to standardize the approval process for products or therapies based on the technology that
exists or that is being developed in our field. Therefore we must conduct, at our own expense, extensive clinical trials to demonstrate the safety and efficacy of the
product candidates in humans, and then archive our results until such time as a new regulatory regime is put in place. If and when this new regulatory regime is
adopted it may be easier or more difficult to navigate than CBMG may anticipate, with the following potential barriers:
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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;
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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 de minimis 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 NMPA 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 NMPA or other foreign regulatory authorities for support of a marketing application, approval of our
product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct
additional trials in support of potential approval of our product candidates.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with
their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of
patients depends on many factors, including:
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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.
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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 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 CAR-T, TCR-T, TIL or KOA 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 CAR-T, TCR-T, TIL or KOA 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.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
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. We have started the environmental assessment and permit
application process for our new Zhenjiang facility, which is required to be in place prior to the approval of production permit. We have terminated our Beijing facility
lease.
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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.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, , 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 immune oncology acquisitions 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.
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 NMPA 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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, including but not
limited to our collaboration with Novartis, 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.
Among other challenges in connection with our strategic alliances and licensing transactions, our partnership with Novartis may not be successful or
profitable. We may face unfavorable regulatory, technical or market developments. While our manufacturing capabilities on CAR-T products set us apart from
many of our competitors, we have yet to commercialize any of our drug candidates and have yet to generate any revenue from the sale of our products, and there
is no assurance that we will be able to generate revenue or net profit from our production of Kymriah® for Novartis. There is no assurance that we can
successfully transfer Kymriah® to our manufacturing facility and receive regulatory approval to commence commercial production. We cannot be assured that after
a drug candidate is eventually made available for sale that it will gain market acceptance from physicians, patients, third-party payers and others in the medical
community. Market acceptance after the drug approval may cause us not be able to generate sufficient revenue to recuperate our investment in the partnership.
Any unfavorable developments before or after Kymriah® is commercialized in China may have a material adverse effect on our business. Any unfavorable
regulatory, technical or market development could render the partnership with Novartis untenable.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 be 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.
We plan to continue to launch several new Immune Oncology clinical trials and continue to advance our KOA clinical trials in China. We also plan to
conduct solid tumor clinical trials in the United States. 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 NMPA and FDA, and to commercialize these therapies. Subsequent phases may
be larger and more expensive than the initial 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:
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the scope, progress, results, costs, timing and outcomes of our other cell therapy product or therapy candidates;
our ability to enter into, or continue, any collaboration agreements with third parties for our product or therapy candidates and the timing and terms of any
such agreements;
the timing of and the costs involved in obtaining regulatory approvals for our product or therapy candidates, a process which could be particularly lengthy
or complex given the lack of precedent for cell therapy products in China; and
the costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities.
To fund clinical studies and support our future operations, we would likely seek to raise capital through a variety of different public and/or private financings
vehicles. This could include, but not be limited to, the use of loans or issuances of debt or equity securities in public or private financings. If we raise capital
through the sale of equity, or securities convertible into equity, it would result in dilution to our then existing stockholders. Servicing the interest and principal
repayment obligations under debt facilities could divert funds that would otherwise be available to support clinical or commercialization activities. In certain cases,
we also may seek funding through collaborative arrangements, that would likely require us to relinquish certain rights to our technology or product or therapy
candidates and share in the future revenues associated with the partnered product or therapy.
Ultimately, we may be unable to raise capital or enter into collaborative relationships on terms that are acceptable to us, if at all. Our inability to obtain
necessary capital or financing to fund our future operating needs could adversely affect our business, results of operations and financial condition.
The agreements governing the loan facilities we currently have contain restrictions and limitations that could significantly affect our ability to operate
our business, raise capital, as well as significantly affect our liquidity, and therefore could adversely affect our results of operations.
Under the Credit Agreement with the Merchants Bank, SH SBM has the obligation to notify the Merchants Bank prior to certain corporate actions and
assist the bank in taking measures to ensure repayment of the loans provided under the Credit Agreement upon occurrence of such events. Such corporation
actions include: (i) major financial losses and assets losses, (ii) loans to or guarantees for third parties or mortgages on its properties, (iii) revocation or
cancellation of business license or applications for bankruptcy, (iv) major operational or financial crises of its controlling shareholder or other related entities that
affect its business operations, (v) related party transactions that involve 10% or more of SH SBM’s net assets and (vi) legal proceeding that have material adverse
effects on its operations or financial condition. Pursuant to the Credit Agreement, SH SBM cannot enter into a merger, an acquisition or a joint venture, transfer its
equity interest or consummate a reorganization or share ownership restructuring without prior written consent of the Merchants Bank. The Credit Agreement also
contains a covenant requiring that SH SBM maintain or improve its existing operations and preserve or increase the value of its existing assets.
The foregoing provisions restrict, among other aspects, SH SBM’s ability to:
● incur or permit to exist any additional indebtedness or liens;
● guarantee or otherwise become liable with respect to the obligations of another party or entity;
● acquire any assets or enter into merger or joint venture transactions; and
● consummate certain related party transactions.
Our ability to comply with these provisions may be affected by events beyond our control. A failure to comply with any of such provisions will constitute an
event of default under the Credit Agreement, upon which the Merchant Bank will have the right to take a number of remedial actions that could adversely affect our
liquidity and results of operations. See “ - Defaults under our loan agreements with the Merchants Bank could result in a substantial loss of our assets .”
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Defaults under our loan agreements with the Merchants Bank could result in a substantial loss of our assets.
We have pledged $17 million of cash as collateral under the loan agreements with the Merchants Bank. A failure to repay any of the indebtedness under
our agreements with the Merchants Bank as it becomes due or to otherwise comply with the covenants contained therein could result in an event of default
thereunder. In addition, a default under any other loan agreement of SH SBM that is not cured within three months of such default will be deemed an event of
default under the loan agreements with the Merchants Bank. If not cured or waived, an event of default under any of loan agreements with the Merchant Bank
could enable the lender to declare all borrowings outstanding on such debt, together with accrued and unpaid interest and fees, to be due and payable and
terminate all commitments to extend further credit. The lender could also elect to foreclose on our assets securing such debt. In such an event, we may not be
able to refinance or repay our indebtedness, pay dividends or have sufficient liquidity to meet operating and capital expenditure requirements. Any such
acceleration could cause us to lose a substantial portion of our assets and will substantially adversely affect our ability to continue our operations.
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 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.
The Company’s revenue may become subject to tightened regulation that may affect the Company’s financial condition.
Currently we are not generating any meaningful revenue, which revenue is currently primarily comprised of technical services relating to the preparation of
subset T Cell and clonality assay platform technology for treatment of cancers. Nonetheless our revenue may be subject to the risk of progressive regulatory
actions by the PRC government. From time to time there may also be adverse publicity relating to the practice of cell therapy 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.
Litigation and other proceedings 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 or otherwise.
To protect our intellectual property, we may initiate litigation or other proceedings. Third parties may also initiate proceedings to challenge our intellectual
property rights. For instance, in April 2018, a company based in Hangzhou, China, submitted a petition with the PRC Trademark Office to challenge our Rejoin™
trademark on the basis of a lack of use. Upon such petition, the PRC Trademark Office has issued a notice, requesting us to provide evidence of use by August
30, 2018. We collected evidence in response to such notice and timely submitted a response to refute the claim. In December 2018, the State Trademark Office
accepted our response and overruled the Hangzhou company’s application for revoking Rejoin™. The Hangzhou company is entitled to appeal to the State
Trademark Review and Adjudication Board within fifteen (15) days after receiving the above decision. Although we are dedicated to protecting our intellectual
property in such proceedings and believe that we have resources to do so, there is no assurance that we will succeed or defend such notice in each of these
matters. 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. In addition, intellectual property litigation and other adverse proceedings are costly and time-consuming in general, divert the attention of management
and technical personnel and could result in substantial uncertainty regarding our future viability, even if we ultimately prevail. Furthermore, any public
announcements related to such litigation or regulatory proceedings could adversely affect the price of our common stock.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 intellectual property 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 intellectual property
rights. If we are found to have infringed the intellectual property 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.
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.
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:
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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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 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, and Notice of the State Administration of Foreign Exchange on Reforming and Regulating the Policies for the Administration
of Settlement of Foreign Exchange under Capital Accounts promulgated on June 9, 2016, or the SAFE Notice 16, 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.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Although other foreign companies have used VIE structures similar to ours and such arrangements are not uncommon in connection with business
operations of foreign companies in China in industry sectors in which foreign direct investments are limited or prohibited, recently there has been greater scrutiny
by the business community of the VIE structure and, additionally, the application of a VIE structure to control companies in a sector in which foreign direct
investment is specifically prohibited carries increased risks.
In addition, the Ministry of Commerce (“MOFCOM”), promulgated the Rules of Ministry of Commerce on Implementation of Security Review System of
Mergers and Acquisitions of Domestic Enterprises by Foreign Investors in August 2011, or the MOFCOM Security Review Rules, to implement the Notice of the
General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors
promulgated on February 3, 2011, or Circular No. 6. The MOFCOM Security Review Rules came into effect on September 1, 2011 and replaced the Interim
Provisions of the Ministry of Commerce on Matters Relating to the Implementation of the Security Review System for Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors promulgated by MOFCOM in March 2011. According to these circulars and rules, a security review is required for mergers and
acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign investors may acquire the “de
facto control” of domestic enterprises having “national security” concerns. In addition, when deciding whether a specific merger or acquisition of a domestic
enterprise by foreign investors is subject to the security review, the MOFCOM will look into the substance and actual impact of the transaction. The MOFCOM
Security Review Rules further prohibit foreign investors from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect
investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating that our
business falls into the scope subject to the security review, and there is no requirement for foreign investors in those mergers and acquisitions transactions already
completed prior to the promulgation of Circular No. 6 to submit such transactions to MOFCOM for security review. The enactment of the MOFCOM National
Security Review Rules specifically prohibits circumvention of the rules through VIE arrangement in the area of foreign investment in business of national security
concern. Although we believe that our business, judging from its scale, should not cause any concern for national security review at its current state, there is no
assurance that MOFCOM would not apply the same concept of anti-circumvention in the future to foreign investment in prohibited areas through VIE structure, the
same way that our investment in China was structured.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 have obtained the SAFE approvals under Circular 7 for one PRC subsidiary. 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.
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, is subject to a quota based on the statutory formulas and there are two alternative applicable quotas:
the difference between the registered capital and total investment of the PRC subsidiary; certain times of the net asset value of PRC subsidiary (currently up to
twice of the net assets value), 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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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. 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.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
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.
A new China taxation rule about the “beneficial owner” in a tax agreement became effective on April 1, 2018 which superseded Circular 601 and could
affect the determination of whether a resident of a contracting state is the “beneficial owner” of an item of income under China’s tax treaties and similar
arrangements.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
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. 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. We have obtained the SAFE approvals regarding our PRC resident employees participating in our share incentive plans. If we or any our PRC
resident option grantees fail to follow the compliance with above 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 the 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.
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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.
On July 30, 2017, MOFCOM issued the Interim Measures on Filing Administration of Establishment and Changes of Foreign-Invested Enterprises (2017
Revision) which came into force as of July 30, 2017. It is stipulated in the Interim Measures that the transformation of a non-foreign invested enterprise into a
foreign invested enterprise through M&A, merger by absorption, foreign investor’s strategic investment into non-foreign invested listed company, etc. would no
longer be subject to MOFCOM approval, but instead would only need to undergo the simplified filing procedures with MOFCOM, in case the business of the target
enterprise does not fall into the foreign investment negative list. But, if any business of the target enterprise falls into the foreign investment negative list, the
complex procedures for an acquisition of the target enterprise by foreign investors would be still applicable.
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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.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
On November 18, 2016, the PCAOB issued its 2016 to 2020 Strategic Plan on improving the quality of the audit for the protection and benefits of
investors, which revised the plan to update initiatives relating to the PCAOB’s new standard-setting process, planning for and adopting a permanent broker-dealer
inspection program, inspecting firms located in China, audit quality indicators, monitoring and developing reports related to independence and the business model
of the firms, and business continuity. This may eventually improve PCAOB’s ability to conduct inspections of independent registered public accounting firms
operating in China.
On December 7, 2018, the SEC and PCAOB issued a joint “Statement on the Vital role of Audit Quality and Regulatory Access to Audit and Other
Information Internationally—Discussion of Current Information Access Challenges with Respect to U.S.-listed Companies with Significant Operations in China”.
The statement discussed challenges with respect
in China. (https://www.sec.gov/news/public-
statement/statement-vital-role-audit-quality-and-regulatory-access-audit-and-other) . Efforts with Chinese regulators to improve information access and audit
inspections are ❑ngoing and not yet made satisfactory progress.
inspection of PCAOB-registered auditing
firms
to
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
RISKS RELATED TO OUR COMMON STOCK
If we fail to meet all applicable Nasdaq 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:
●
●
●
●
●
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 1345 Avenue of Americas, 15th Floor, New York. 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 ($203,000). 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. We currently pay rent for a
total of $265,000 per month for an aggregate of approximately 181,000 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.
ITEM 3. LEGAL PROCEEDINGS
We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is quoted on the Nasdaq Global Market under the symbol "CBMG." Our stock was formerly quoted under the symbol “EBIG.”
As of February 4, 2019, there were 19,136,867 and 18,081,368 shares of common stock of the Company issued and outstanding, respectively, and there
were approximately 1,700 stockholders of record of the Company's common stock.
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.
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, 2018.
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 2,805 shares
available for issuance under this plan as of December 31, 2018.
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 48,236 shares available for issuance under this plan as
of December 31, 2018.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Each sale or award of shares under the 2013 Plan is made pursuant to the terms and conditions provided for in an award agreement (an “ Award
Agreement”) entered into by the Company and the individual recipient. The number of shares covered by each outstanding Award Agreement shall be
proportionately adjusted for (a) any increase or decrease in the number of issued shares of common stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the common stock, or similar transaction affecting the common stock or (b) any other increase or decrease in the
number of issued shares of common stock effected without receipt of consideration by the Company.
Under the 2013 Plan, the Board or its administrator have the authority to: (i) to select the employees, directors and consultants to whom awards may be
granted from time to time hereunder; (ii) to determine whether and to what extent awards are granted; (iii) to determine the number of shares or the amount of
other consideration to be covered by each award granted; (iv) to approve forms of Award Agreements for use under the 2013 Plan; (v) to determine the terms and
conditions of any award granted; (vi) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign
jurisdictions and to afford grantees favorable treatment under such rules or laws; provided, however, that no award shall be granted under any such additional
terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the 2013 Plan; (vii) to amend the terms of any
outstanding award granted under the 2013 Plan, provided that any amendment that would adversely affect the grantee’s rights under an outstanding award shall
not be made without the grantee’s written consent; (viii) to construe and interpret the terms of the 2013 Plan and awards, including without limitation, any notice of
award or Award Agreement, granted pursuant to the 2013 Plan; (ix) to take such other action, not inconsistent with the terms of the 2013 Plan, as the
administrator deems appropriate.
The awards under the 2013 Plan other than Incentive Stock Options (“ISOs”) may be granted to employees, directors and consultants. ISOs may be
granted only to Employees of the Company, a parent or a subsidiary. An employee, director or consultant who has been granted an award may, if otherwise
eligible, be granted additional awards. Awards may be granted to such employees, directors or consultants who are residing in foreign jurisdictions as the
administrator may determine from time to time. Options granted under the 2013 Plan will be subject to the terms and conditions established by the
administrator. Under the terms of the 2013 Plan, the exercise price of the options will not be less than the fair market value (as determined under the 2013 Plan)
of our common stock at the time of grant. Options granted under the 2013 Plan will be subject to such terms, including the exercise price and the conditions and
timing of exercise, as may be determined by the administrator and specified in the applicable award agreement. The maximum term of an option granted under the
2013 Plan will be ten years from the date of grant. Payment in respect of the exercise of an option may be made in cash, by certified or official bank check, by
money order or with shares, pursuant to a “cashless” or “net issue” exercise, by a combination thereof, or by such other method as the administrator may
determine to be appropriate and has been included in the terms of the option.
The 2013 Plan may be amended, suspended or terminated by the Board, or an administrator appointed by the Board, at any time and for any reason.
2014 Stock Incentive Plan
On September 22, 2014, the Company’s Board of Directors adopted the Cellular Biomedicine Group, Inc. 2014 Stock Incentive Plan (the “2014 Plan”)
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. In 2017 the Company’s Board of
Directors approved the Amended and Restated 2014 Incentive Stock Option Plan (the “Restated Plan”), which amended and restated the 2014 Plan to increase
the number of shares available for issuance by 1,000,000 shares. The Restated Plan was approved by our stockholders on April 28, 2017. There are 175,577
shares available for issuance under this plan as of December 31, 2018.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Each sale or award of shares under the 2014 Plan is made pursuant to the terms and conditions provided for in an award agreement (an “ Award
Agreement”) entered into by the Company and the individual recipient. The number of shares covered by each outstanding Award Agreement shall be
proportionately adjusted for (a) any increase or decrease in the number of issued shares of common stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the common stock, or similar transaction affecting the common stock or (b) any other increase or decrease in the
number of issued shares of common stock effected without receipt of consideration by the Company.
Under the 2014 Plan, the Board or its administrator have the authority to: (i) to select the employees, directors and consultants to whom awards may be
granted from time to time hereunder; (ii) to determine whether and to what extent awards are granted; (iii) to determine the number of shares or the amount of
other consideration to be covered by each award granted; (iv) to approve forms of Award Agreements for use under the 2014 Plan; (v) to determine the terms and
conditions of any award granted; (vi) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign
jurisdictions and to afford grantees favorable treatment under such rules or laws; provided, however, that no award shall be granted under any such additional
terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the 2014 Plan; (vii) to amend the terms of any
outstanding award granted under the 2014 Plan, provided that any amendment that would adversely affect the grantee’s rights under an outstanding award shall
not be made without the grantee’s written consent; (viii) to construe and interpret the terms of the 2014 Plan and awards, including without limitation, any notice of
award or Award Agreement, granted pursuant to the 2014 Plan; (ix) to take such other action, not inconsistent with the terms of the 2014 Plan, as the
administrator deems appropriate.
The awards under the 2014 Plan other than Incentive Stock Options (“ISOs”) may be granted to employees, directors and consultants. ISOs may be
granted only to Employees of the Company, a parent or a subsidiary. An employee, director or consultant who has been granted an award may, if otherwise
eligible, be granted additional awards. Awards may be granted to such employees, directors or consultants who are residing in foreign jurisdictions as the
administrator may determine from time to time. Options granted under the 2014 Plan will be subject to the terms and conditions established by the
administrator. Under the terms of the 2014 Plan, the exercise price of the options will not be less than the fair market value (as determined under the 2013 Plan)
of our common stock at the time of grant. Options granted under the 2014 Plan will be subject to such terms, including the exercise price and the conditions and
timing of exercise, as may be determined by the administrator and specified in the applicable award agreement. The maximum term of an option granted under the
2014 Plan will be ten years from the date of grant. Payment in respect of the exercise of an option may be made in cash, by certified or official bank check, by
money order or with shares, pursuant to a “cashless” or “net issue” exercise, by a combination thereof, or by such other method as the administrator may
determine to be appropriate and has been included in the terms of the option.
The 2014 Plan may be amended, suspended or terminated by the Board, or an administrator appointed by the Board, at any time and for any reason.
All Equity Compensation Plans
The following table presents securities authorized for issuance under the Company’s equity compensation plans, as of December 31, 2018:
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
56
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
remaining
available
for future
issuance under
equity
compensation
plans
2,056,817
-
2,056,817
$
$
11.03
-
11.03
231,211
-
231,211
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, 2018. The graph and table assume that $100 was
invested on the last day of trading for the fiscal year 2013 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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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, 2018 were previously disclosed in a Form 8-K or Form 10-Q
filed with the SEC.
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.”. Our
summary consolidated statement of operations and comprehensive loss data for the fiscal years ended December 31, 2016, 2017 and 2018 and our summary
consolidated balance sheet data as of December 31, 2017 and 2018, 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, 2016, 2015 and 2014, and summary consolidated statement of operations and comprehensive loss data for the fiscal years ended December 31, 2015 and
2014, set forth below are derived from our audited consolidated financial statements which are not included herein.
Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States, or
U.S. GAAP.
Summary Consolidated statement of operations and comprehensive loss
data:
2018
2017
2016
2015
2014
For the Year Ended December 31,
Net sales and revenue
$
224,403 $
336,817 $
627,930 $ 2,505,423 $
564,377
Operating expenses:
Cost of sales
General and administrative
Selling and marketing
Research and development
Impairment on non-current assets
Total operating expenses
Operating loss
Other income:
Interest income
Other income
Total other income
Loss from continuing operations before taxes
162,218
308,830
135,761
860,417 1,880,331
242,215
13,220,757 12,780,483 11,670,506 13,068,255 7,875,413
314,894
24,150,480 14,609,917 11,475,587 7,573,228 3,146,499
2,914,320
123,428 1,427,840
- 4,611,714
40,730,148 27,913,384 29,043,264 23,354,393 13,006,861
(40,505,745) (27,576,567) (28,415,334) (20,848,970) (12,442,484)
709,151
360,766
425,040
392,328
15,043
133,621
71,982
1,172,879 1,955,086
1,565,207 2,088,707
87,025
(38,940,538) (25,487,860) (28,204,283) (20,176,322) (12,355,459)
42,220
630,428
672,648
78,943
132,108
211,051
Income taxes credit (provision)
(4,954)
(2,450)
(4,093)
728,601
-
Loss from continuing operations
(38,945,492) (25,490,310) (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):
$(38,945,492) $(25,490,310) $(28,208,376) $(19,447,721) $(15,474,611)
(1,079,689)
-
-
(1,079,689)
15,254
967,189
(240,000) 5,300,633 (1,376,540) 1,611,045
(307,950)
(743,271)
- (5,557,939)
-
727,189 (1,000,577) (1,684,490) 1,626,299
-
Comprehensive loss
Net loss per share :
Basic and diluted
$(40,025,181) $(24,763,121) $(29,208,953) $(21,132,211) $(13,848,312)
$
(2.20) $
(1.78) $
(2.09) $
(1.70) $
(1.79)
Weighted average common shares outstanding:
Basic and diluted
17,741,104 14,345,604 13,507,408 11,472,306 8,627,094
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Summary Consolidated balance sheet data:
Cash and cash equivalents
Current working capital (1)
Total assets
Other non-current liabilities
Stockholders’ equity
2018
2017
2016
2015
2014
As of December 31,
$ 52,812,880 $ 21,568,422 $ 39,252,432 $ 14,884,597 $14,770,584
48,440,775 20,118,725 38,328,048 13,675,034 12,019,143
91,643,146 61,162,296 68,628,467 49,460,422 43,685,102
452,689
85,218,392 57,302,526 65,893,954 46,364,936 39,156,091
257,818
183,649
370,477
76,229
1.
Current working capital is the difference between total current assets and total current liabilities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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, 2018
and 2017, respectively, cash and cash equivalents include cash on hand and cash in the bank. At times, cash deposits may exceed government-insured limits.
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Accounts Receivable
Accounts receivable represent amounts earned but not collected in connection with the Company’s sales as of December 31, 2018 and 2017. 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, 2018 and 2017, allowance of $94,868 and $10,789 was
provided for debtors of certain customers as those debts are unrecoverable from customers, respectively.
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,
2018, 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, in which relevant triggering events and circumstances should be assessed. During the year ended
December 31, 2018, it considered no triggering event indicating the goodwill impairment test was required at the balance sheet date. In addition, 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. No impairment loss of goodwill is considered required as of December 31, 2018.
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. The Company recognized a full impairment of $2,884,896 for the USF and Moffitt licenses for year ended December 31, 2018.
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.
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Treasury Stock
The treasury stock is recorded and carried at their repurchase cost. The Company recorded the entire purchase price of the treasury stock as a reduction
of equity. A gain and or loss will be determined when treasury stock is reissued or retired, and the original issue price and book value of the stock do not enter into
the accounting. Additional paid-in capital from treasury stock is credited for gains and debited for losses when treasury stock is reissued at prices that differ from
the repurchase cost.
Government Grants
Government grants are recognized in the balance sheet initially when there is reasonable assurance that they will be received and that the enterprise will
comply with the conditions attached to them. When the Company received the government grants but the conditions attached to the grants have not been fulfilled,
such government grants are deferred and recorded as deferred income. The reclassification of short-term or long-term liabilities is depended on the management’s
expectation of when the conditions attached to the grant can be fulfilled. Grants that compensate the Company for expenses incurred are recognized as other
income in statement of income on a systematic basis in the same periods in which the expenses are incurred.
For the year ended December 31, 2018 and 2017, the Company received government grants of $1,105,272 and $1,905,213 for purpose of R&D and
related capital expenditure, respectively. Government subsidies recognized as other income in the statement of income for the year ended December 31, 2018
and 2017 were $1,119,827 and $2,077,486, respectively.
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.
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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.
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
Revenues consist mainly of cell banking services as well as cell therapy technology services with customers. The Company evaluates the separate
performance obligation(s) under each contract, allocates the transaction price to each performance obligation considering the estimated stand-alone selling prices
of the services and recognizes revenue upon the satisfaction of such obligations over time or at a point in time dependent on the satisfaction of one of the following
criteria: (1) the customer simultaneously receives and consumes the economic benefits provided by the vendor’s performance (2) the vendor creates or enhances
an asset controlled by the customer (3) the vendor’s performance does not create an asset for which the vendor has an alternative use, and the vendor has an
enforceable right to payment for performance completed to date. Revenue from rendering of services is measured at the fair value of the consideration received
or receivable under the contract or agreement. Revenue from cell therapy technology services is recognized in profit or loss at the point when customers
simultaneously receive and consume the services. Revenue from cell banking storage is recognized in profit or loss on a straight-line basis over the storage
period.
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, 2018 and 2017, 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
Accounting pronouncements adopted during the year ended December 31, 2018
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-09, “Compensation—Stock
Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), which provides guidance on determining which changes to the terms and
conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments in this ASU are effective for all
entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in
any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting
periods for which financial statements have not yet been made available for issuance. The amendments in this ASU should be applied prospectively to an award
modified on or after the adoption date. The adoption of the ASU 2017-09 did not have a material impact on the Company’s consolidated financial statements.
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In February 2017, the FASB issued ASU No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-
20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (“ASU 2017-05”), which clarifies the scope of
the nonfinancial asset guidance in Subtopic 610-20. This ASU also clarifies that the derecognition of all businesses and nonprofit activities (except those related to
conveyances of oil and gas mineral rights or contracts with customers) should be accounted for in accordance with the derecognition and deconsolidation
guidance in Subtopic 810-10. The amendments in this ASU also provide guidance on the accounting for what often are referred to as partial sales of nonfinancial
assets within the scope of Subtopic 610-20 and contributions of nonfinancial assets to a joint venture or other non-controlled investee. The amendments in this
ASU are effective for annual reporting reports beginning after December 15, 2017, including interim reporting periods within that reporting period. Public entities
may apply the guidance earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting
period. The adoption of the ASU 2017-05 did not have a material impact on the Company’s 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. The adoption
of the ASU 2016-18 did not have a material impact on the Company’s 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. The adoption of the ASU 2016-15 did not have a material impact on the Company’s 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.
The adoption of the ASU 2016-01 did not have a material impact on the Company’s consolidated financial statements.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 , Revenue from Contracts
with Customers. ASU 2014-09 and its related amendments provide companies with a single model for accounting for revenue arising from contracts with
customers and supersedes prior revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize
revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer
under the existing revenue guidance. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the
requirements in the year of adoption, through a cumulative adjustment. The Company adopted the new accounting standard using the modified retrospective
transition method effective January 1, 2018 and there was no impact on the Company’s consolidated financial statements.
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Accounting pronouncements not yet effective
In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) , which eliminates, adds and
modifies certain disclosure requirements for fair value measurements. The modified standard eliminates the requirement to disclose changes in unrealized gains
and losses included in earnings for recurring Level 3 fair value measurements and requires changes in unrealized gains and losses be included in other
comprehensive income for recurring Level 3 fair value measurements of instruments. The standard also requires the disclosure of the range and weighted average
used to develop significant unobservable inputs and how weighted average is calculate for recurring and nonrecurring Level 3 fair value measurements. The
amendment is effective for fiscal years beginning after December 15, 2019 and interim periods within that fiscal year with early adoption permitted. We do not
expect the standard to have a material impact on our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, which simplifies several aspects of the accounting for nonemployee share-based payment transactions
resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and
services from non-employees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-
based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment
awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards
granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.
The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that
fiscal year. Early adoption is permitted. We do not plan to early adopt this ASU. We are currently evaluating the potential impacts of this updated guidance, and do
not expect the adoption of this guidance to have a material impact on our consolidated financial statements and related disclosures.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”), which provides financial statement preparers with an option to reclassify stranded tax
effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income
tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments in this ASU are effective for all entities for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2018-02 is permitted, including adoption in any interim period for the
public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this ASU should be applied either in the
period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and
Jobs Act is recognized. We do not expect the adoption of ASU 2018-02 to have a material impact on our consolidated financial statements.
In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and
Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope
Exception” (“ASU 2017-11”), which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are
features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity
offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with
down round features that require fair value measurement of the entire instrument or conversion option. The amendments in Part I of this ASU are effective for
public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the
impact of the adoption of ASU 2017-11 on its consolidated financial statements.
In January 2017, the FASB issued 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 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.
64
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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 evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial
statements.
Comparison of Year Ended December 31, 2018 to Years Ended December 31, 2017 and 2016
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.
Net sales and revenue
Operating expenses:
Cost of sales *
General and administrative *
Selling and marketing *
Research and development *
Impairment of non-current assets
Total operating expenses
Operating loss
Other income
Interest income
Other income
Total other income
Loss before taxes
Income taxes provision
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
Net loss per share:
Basic and diluted
Weighted average common shares outstanding:
Basic and diluted
For the Year Ended December 31,
2018
2017
2016
$
224,403
$
336,817
$
627,930
135,761
13,220,757
308,830
24,150,480
2,914,320
40,730,148
(40,505,745)
162,218
12,780,483
360,766
14,609,917
-
27,913,384
(27,576,567)
860,417
11,670,506
425,040
11,475,587
4,611,714
29,043,264
(28,415,334)
392,328
1,172,879
1,565,207
(38,940,538)
133,621
1,955,086
2,088,707
(25,487,860)
78,943
132,108
211,051
(28,204,283)
(4,954)
$ (38,945,492)
(2,450)
$ (25,490,310)
(4,093)
$ (28,208,376)
(1,079,689)
-
-
(1,079,689)
967,189
(240,000)
-
727,189
(743,271)
5,300,633
(5,557,939)
(1,000,577)
$ (40,025,181)
$ (24,763,121)
$ (29,208,953)
$
(2.20)
$
(1.78)
$
(2.09)
17,741,104
14,345,604
13,507,408
* These line items include the following amounts of non-cash, stock-based compensation expense for the periods indicated:
Cost of sales
General and administrative
Selling and marketing
Research and development
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
For the Year Ended December 31,
2018
2017
2016
-
2,307,191
79,845
2,439,709
4,826,745
51,288
2,935,798
52,984
2,305,141
5,345,211
18,916
3,110,237
56,704
2,266,560
5,452,417
65
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Segments
The Company is engaged in the development of new treatments for cancerous and degenerative diseases utilizing proprietary cell-based technologies, which have
been organized as one reporting segment since they have similar nature and economic characteristics. The Company’s principle operating decision maker, the
Chief Executive Officer, receives and reviews the result of the operation for all major cell platforms as a whole when making decisions about allocating resources
and assessing performance of the Company. In accordance with FASB ASC 280-10, the Company is not required to report the segment information.
Results of Operations:
Revenues
2018
2017
2016
Change
Percent
Change
Percent
2018 versus 2017
2017 versus 2016
Year ended December 31,
$
224,403 $
336,817 $
627,930 $
(112,414)
(33)% $
(291,113)
(46)%
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017
Revenue for the year ended December 31, 2018 was mainly derived from both cell banking services and cell therapy technology service whereas revenue for the
year ended December 31, 2017 was solely derived from cell therapy technology service. In 2018, we determined to further deprioritize our cell therapy technology
service, which was only partially offset by the introduction of our cell banking services.
Fiscal Year Ended December 31, 2017, Compared to Fiscal Year Ended December 31, 2016
A majority of the revenue was derived from cell therapy technology service for the year ended December 31, 2017. The decrease in revenue is the result of
prioritizing cancer therapeutic technologies, and focusing our clinical efforts on developing CAR-T technologies. Such decrease in revenue was also attributable to
the fact that the Company ceased its cooperation with the Jihua Hospital and several agents in the second quarter of 2016 and were not actively pursuing the
fragmented technical services opportunities.
Cost of Sales
2018
2017
2016
Change
Percent
Change
Percent
2018 versus 2017
2017 versus 2016
Year ended December 31,
$
135,761 $
162,218 $
860,417 $
(26,457)
(16)% $
(698,199)
(81)%
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017
The gross margin change was a result of the revenue mix change towards adipose cell banking services.
Fiscal Year Ended December 31, 2017, Compared to Fiscal Year Ended December 31, 2016
The cost of sales decreased in line with the sales. The cost of sales in 2016 was mainly due to the high fixed cost of Beijing site. Since there was no revenue from
the Beijing site in 2017, the cost of sales decreased significantly.
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General and Administrative Expenses
2018
2017
2016
Change
Percent
Change
Percent
2018 versus 2017
2017 versus 2016
Year ended December 31,
$ 13,220,757 $ 12,780,483 $ 11,670,506 $
440,274
3% $ 1,109,977
10%
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017
Change in G&A expenses was primarily additional costs related to advisory in financing, and professional fees in the Novartis transaction.
Fiscal Year Ended December 31, 2017, Compared to Fiscal Year Ended December 31, 2016
Increased expenses in 2017 was primarily attributed to below facts:
●
●
●
●
An increase in rental expenses of $2,224,000, which mainly resulted from the new leased plant located in the “Pharma Valley” of Shanghai from
January 1, 2017;
A decrease in legal, audit and other professional fees of $478,000, which mainly attributed to the Company’s registration statements on Forms S-
3 and S-8 filed in first half of 2016 that led to large professional fees in 2016;
A decrease in salary of $465,000; and
A decrease in insurance fee of $171,000, which mainly resulted from the decrease in premium for director and officer liability and Company
reimbursement insurance.
Sales and Marketing Expenses
Year ended December 31,
$
308,830 $
360,766 $
425,040 $
(51,936)
(14)% $
(64,274)
(15)%
2018
2017
2016
Change
Percent
Change
Percent
2018 versus 2017
2017 versus 2016
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017 and 2016
No material change as compared with the year ended December 31, 2017 and 2016.
Research and Development Expenses
2018
2017
2016
Change
Percent
Change
Percent
2018 versus 2017
2017 versus 2016
Year ended December 31,
$ 24,150,480 $ 14,609,917 $ 11,475,587 $ 9,540,563
65% $ 3,134,330
27%
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017
Research and development costs increased by approximately $9,541,000 as compared to the year ended December 31, 2017. The increase was primarily
attributed to increased spending in the growth of our pipeline in both liquid tumor and solid tumor development and expanding the U.S. R&D operations at
Gaithersburg, Maryland.
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Fiscal Year Ended December 31, 2017, Compared to Fiscal Year Ended December 31, 2016
Research and development costs increased by approximately $3,134,000 as compared to the year ended December 31, 2016. The increase was primarily
attributed to the facts below:
●
●
●
●
An increase in payroll expenses of $626,000 as a result of headcount increase and payroll raise. Total headcount for our R&D team increased from
81 as of December 31, 2016 to 98 as of December 31, 2017;
An increase in raw material consumption of $447,000;
An increase in rental expenses of $1,514,000, which was mainly attributed to the launching of R&D activities at our Beijing GMP facility in the 2nd
quarter of 2016 and the lease of a GMP facility in the United States to commence the KOA preclinical and clinical studies in 2017; and
An increase in depreciation and amortization of $455,000, which was mainly attributed to the purchase of our new equipment for immunotherapy
research and development.
Impairment of Non-current Assets
2018
2017
2016
Change
Percent
Change
Percent
2018 versus 2017
2017 versus 2016
Year ended December 31,
$ 2,914,320 $
- $ 4,611,714 $ 2,914,320
N/A $ (4,611,714)
(100)%
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017
The impairment of investments for the year ended December 31, 2018 is comprised of the recognition of other than temporary impairment on the value of shares
in investments of $29,423 and impairment of $2,884,896 provided against the net book value of GVAX license. No such expense existed for the year ended
December 31, 2017.
The Company provided full impairment of $29,424 for shares of ALEV for the year ended December 31, 2018 as ALEV filed Form 15 with the SEC and was no
longer traded in the market in recent quarter.
The Company reassessed the prioritization of our immune-oncology assets, decided to terminate the development of GVAX technology and its license
agreements with the University of South Florida (“USF”) and the Moffitt Cancer Center (“Moffitt”). As a result the Company made a full impairment of $2,884,896
for the USF and Moffitt licenses.
Fiscal Year Ended December 31, 2017, Compared to Fiscal Year Ended December 31, 2016
No impairment of investment was made in 2017. The impairment of investments in 2016 is attributed to the recognition of other than temporary impairment on the
value of shares in investments.
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Operating Loss
2018
2017
2016
Change
Percent
Change
Percent
2018 versus 2017
2017 versus 2016
Year ended December 31,
$(40,505,745) $(27,576,567) $(28,415,334) $(12,929,178)
47% $
838,767
(3)%
The increase in the operating loss for 2018 as compared to 2017 and the decrease compared to 2016 was primarily due to changes in general and administrative
expenses, research and development expenses and impairment of investments, each of which was described above.
Other Income
2018
2017
2016
Change
Percent
Change
Percent
2018 versus 2017
2017 versus 2016
Year ended December 31,
$ 1,565,207 $ 2,088,707 $
211,051 $
(523,500)
(25)% $ 1,877,656
890%
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017
Other income, net for the year ended December 31, 2018 was primarily government subsidy of $1,120,000, interest income of $392,000, and netting of the net
foreign exchange gain of $74,000.
Other income, net for the year ended December 31, 2017 was primarily government subsidy of $2,077,000, interest income of $134,000, and netting of the net
foreign exchange loss of $112,000.
Fiscal Year Ended December 31, 2017, Compared to Fiscal Year Ended December 31, 2016
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.
Income Tax Provision
2018
2017
2016
Change
Percent
Change
Percent
2018 versus 2017
2017 versus 2016
Year ended December 31,
$
(4,954) $
(2,450) $
(4,093) $
(2,504)
102% $
1,643
(40)%
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017
While we have plans for growing and developing our business, 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 expense for the year ended December 31, 2018 was
comprised of US state tax of $2,475 and the withholding corporation income tax of $2,479 of Hong Kong subsidiary for its royalty income derived from China.
Income tax expense for the year ended December 31, 2017 all represent US state tax.
Fiscal Year Ended December 31, 2017, Compared to Fiscal Year Ended December 31, 2016
Income tax expenses for the year ended December 31, 2017 and 2016 all represent US state tax.
69
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Net Loss
2018
2017
2016
Change
Percent
Change
Percent
2018 versus 2017
2017 versus 2016
Year ended December 31,
$(38,945,492) $(25,490,310) $(28,208,376) $(13,455,182)
53% $ 2,718,066
(10)%
Changes in net loss are primarily attributable to changes in operations of our biomedicine segment which are described above.
Comprehensive Loss
2018
2017
2016
Change
Percent
Change
Percent
2018 versus 2017
2017 versus 2016
Year ended December 31,
$(40,025,181) $(24,763,121) $(29,208,953) $(15,262,060)
62% $ 4,445,832
(15)%
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017
Comprehensive net loss for the year ended December 31, 2018 includes a currency translation net loss of approximately $1,080,000 combined with the changes
in net income.
Fiscal Year Ended December 31, 2017, Compared to Fiscal Year Ended December 31, 2016
Comprehensive net loss for 2017 includes unrealized loss on investments of approximately $240,000 and a currency translation net gain of approximately
$967,000 combined with the changes in net loss. The unrealized loss on investments was attributed to the valuation change for the stock investment in ARPC.
Share-Based Compensation
Share-based compensation totaled $4.8 million in 2018 ($5.3 million in 2017 and $5.5 million in 2016). Share-based compensation was included in cost of sales
and operating expenses.
As of December 31, 2018, unrecognized share-based compensation costs and the weighted average periods over which the costs are expected to be recognized
were as follows:
Unrealised Share-
Based
Compensation
Costs
Shares
Weighted Average Period
Non-vested stock options
Non-vested restricted stock
492,340
227,951
$
$
4,215,079
2,904,245
1.66 year
1.35 year
Non-vested restricted stock above doesn’t include restricted stock awards (RS) linked to the stock price performance to be issued under long-term incentive plan.
LIQUIDITY AND CAPITAL RESOURCES
We had working capital of $48,440,775 as of December 31, 2018 compared to $20,850,823 as of December 31, 2017. Our cash position increased to $52,812,880
at December 31, 2018 compared to $21,568,422 at December 31, 2017, as we had cash inflow generated from financing activities due to private placement
financing in 2018 for aggregate net proceeds of approximately $70,351,173, partially offset by an increase in cash used in operating and investing activities.
Net cash provided by or used in operating, investing and financing activities from continuing operations were as follows (in thousands):
70
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Net cash used in operating activities was approximately $25,113,000, $18,593,000 and $15,868,000 for the years ended December 31, 2018, 2017 and 2016,
respectively. The following table reconciles net loss to net cash used in operating activities:
2018 versus
2017
2017 versus
2016
For year ended December 31,
Net loss
Income statement reconciliation items
Changes in operating assets, net
Net cash used in operating activities
2017
2018
2016
$(38,945,492) $(25,490,310) $(28,208,376) $(13,455,182) $ 2,718,066
12,704,688 8,331,491 12,596,060 4,373,197 (4,264,569)
1,127,805 (1,434,573)
(255,419) 2,562,378 (1,179,154)
$(25,112,999) $(18,593,392) $(15,867,735) $ (6,519,607) $ (2,725,657)
Change
Change
The 2018 change in non-cash transaction was primarily due to the increase in impairment on intangible assets of $2,885,000 as well as the increase in
depreciation and amortization of $2,064,000 compared with same period in 2017. The 2017 change in non-cash transaction was primarily due to the decrease in
impairment on investment of $4,612,000 compared with same period in 2016.
Net cash used in investing activities was approximately $6,609,000, $10,193,000 and $2,733,000 for the years ended December 31, 2018, 2017 and 2016,
respectively. These amounts were the result of purchases of fixed assets and intangible assets.
Cash provided by financing activities was approximately $63,114,000, $10,826,000 and $43,286,000 for the years ended December 31, 2018, 2017 and 2016,
respectively. These amounts were mainly attributable to the proceeds received from the issuance of common stock and exercise of stock options, netting of by the
cash used in repurchase of treasury stock.
Liquidity and Capital Requirements Outlook
We anticipate that the Company will require approximately $52 million in cash to operate as planned in the coming 12 months. Of this amount, approximately $36
million will be used in operation and approximately $16 million will be used as capital expenditure, although we may revise these plans depending on the changing
circumstances of our biopharmaceutical business.
We expect to rely on current cash balances on hand and additional financing arrangements to provide for these capital requirements. We do not intend to use, and
will not rely on our holdings in these illiquid 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. Other two of our stocks held, Alpha Lujo, Inc. (“ALEV”) and Wonder International Education & Investment Group Corporation (“Wonder”), are no longer
traded on any stock market. We do not know whether we can liquidate any of our 8,000,000 shares of Arem Pacific stock or the 2,942,350 shares of ALEV stock
and the 2,057,131 shares of Wonder stock, or if liquidated, whether the realized amount will be meaningful at all. As a result, we have written down these stocks to
their fair value.
Recent Equity Financing
In February and April of 2016, the Company completed two closings of a financing transaction with Wuhan Dangdai Science & Technology Industries Group Inc.,
pursuant to which the Company sold to the Investor an aggregate of 2,270,000 shares of the Company’s common stock, par value $0.001 per share, for
approximately $43,130,000 in gross proceeds. 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. On December 26, 2017, the Company entered into a Share Purchase Agreement with two
investors, pursuant to which the Company agreed to sell and the two investors agreed to purchase from the Company, an aggregate of 1,166,667 shares of the
Company’s common stock, par value $0.001 per share, at $12.00 per share, for total gross proceeds of approximately $14,000,000. The transaction closed on
December 28, 2017. Together with a private placement with three of its executive officers on December 22, 2017, the Company raised an aggregate of
approximately $14.5 million in the two private placements in December 2017. On January 30, 2018 and February 5, 2018, the Company entered into Securities
Purchase Agreements with certain investors, pursuant to which the Company agreed to sell, and the Investors agreed to purchase from the Company, an
aggregate of 1,719,324 shares of the Company’s common stock, par value $0.001 per share, at $17.80 per share, for total gross proceeds of approximately $30.6
million. The February 2018 Private Placement closed on February 5, 2018. On March 5, 2018, the Company filed a registration statement on Form S-3 for resale
of up to 2,927,658 shares acquired on three private placement financing on December, 2017 and on February 2018. On April 9, 2018, the SEC declared the S-3
effective; and on April 11, 2018 we filed the requisite resale prospectus. On September 25, 2018, the Company entered into a Securities Purchase Agreement
with Novartis Pharma AG, pursuant to which the Company agreed to sell, and the Investors agreed to purchase from the Company, an aggregate of 1,458,257
shares of the Company’s common stock, par value $0.001 per share (the “Novartis Shares”), at $27.43 per share, for total gross proceeds of approximately $40
million. On October 10, 2018, the Company filed a registration statement on Form S-3 for resale of the Novartis Shares. On October 22, 2018, the SEC declared
the S-3 effective. On October 23, 2018, we filed the requisite resale prospectus.
71
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Recent Debt Financing
On January 19, 2019, SH SBM entered into a credit agreement (the “Credit Agreement”) with China Merchants Bank, Shanghai Branch (the “Merchants Bank”).
Pursuant to the Credit Agreement, the Merchants Bank agreed to extend credit of up to RMB 100 million (approximately $14.7 million) to SH SBM via revolving
and/or one-time credit lines. The types of credit available under the Credit Agreement, include, but not limited to, working capital loans, trade financing, commercial
draft acceptance, letters of guarantee and derivative transactions. The credit period under the Credit Agreement runs until December 30, 2019. As of Feb 20,
2019, around $3 million had been drawn down under the Credit Agreement.
Pursuant to the Credit Agreement, SH SBM will enter into a supplemental agreement with the Merchants Bank prior to the applicable drawdown that will set forth
the terms of each borrowing thereunder (except for working capital loans), including principal, interest rate, term of loan and use of borrowing proceeds. With
regard to working capital loans to be provided pursuant to the Credit Agreement, SH SBM shall submit a withdrawal application that includes the principal amount
needed, purposes of the loan and a proposed quarterly interest rate and term of the loan for the Merchants Bank’s review and approval. The terms approved by
the bank will govern such working capital loans. The bank has the right to adjust the interest rate for working capital loans from time to time based on changes in
national policy, changes in interest rate published by the People’s Bank of China, credit market conditions and the bank’s credit policies. Upon SH SBM’s non-
compliance with the agreed use of loan proceeds, the interest rate for the amount of loan proceeds improperly used will be the original rate plus 100% starting on
the first day of such use. If SH SBM fails to pay a working capital loan on time, an extra 50% interest will be charged on the outstanding balances starting on the
first day of such default.
Pursuant to a pledge agreement which became enforceable upon execution of the Credit Agreement, Cellular Biomedicine Group Ltd. (HK), a wholly owned
subsidiary of the Company (“CBMG HK”), provided a guarantee of SH SBM’s obligations under the Credit Agreement. In connection with such guarantee, CBMG
HK deposited $17,000,000 into its account at the Merchants Bank for a 12-month period starting January 7, 2019 and also granted the Merchants Bank a security
interest in the cash deposited.
As we continue to incur losses, achieving profitability is dependent upon the successful development of our cell 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 debt or equity offerings, and may seek additional capital through arrangements with strategic partners or from
other sources.
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. 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.
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 NMPA), 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.
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Contractual Obligations
We have various contractual obligations that will affect our liquidity. The following table sets forth our contractual obligations as of December 31, 2018.
Payments due by period
2-3
years
Less than
1 year
4-5
years
More than
5 years
Total
$ 1,318,440 $ 1,318,440 $
-
19,933,728 2,815,534 5,183,165 4,988,993 6,946,036
- $
- $
$ 21,252,168 $ 4,133,974 $ 5,183,165 $ 4,988,993 $ 6,946,036
73
Contractual Obligations
Capital Commitment
Operating Lease Obligations
Total
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
Credit Risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The
Company’s credit risk is primarily attributable to cash at bank and receivables etc. Exposure to these credit risks are monitored by management on an ongoing
basis.
The cash at bank of the Group is mainly held with well-known or state owned financial institutions, such as HSBC, Bank of China and China Merchant
Bank etc. Management does not foresee any significant credit risks from these deposits and does not expect that these financial institutions may default and cause
losses to the Company.
In respect of receivables, the Company does not obtain collateral from customers. The Company’s exposure to credit risk is influenced mainly by the
individual characteristics of each customer rather than the industry, country or area in which the customers operate and therefore significant concentrations of
credit risk arise primarily when the Group has significant exposure to individual customers. As of December 31, 2018, 100% of the total accounts receivable was
due from one customer.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.
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, 2018 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, 2018. Differences resulting from the translation of the financial statements of entities into the Company’s
presentation currency are excluded.
Cash and cash equivalents
Exposure to foreign currencies
(Expressed in USD)
As of December 31, 2018
RMB
8,824
USD
17,142
Net exposure arising from recognised assets and liabilities
8,824
17,142
As of December 31, 2018
increase/(decrease)
in foreign
exchange rates
Effect on net loss
(Expressed in
USD)
5%
-5%
(416)
416
RMB (against USD)
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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)
increase/(decrease)
in foreign
exchange rates
Effect on net
loss (Expressed
in USD)
5%
-5%
(416)
416
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.
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, 2018 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, 2018.
75
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, 2018, 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, 2018. Our internal control over financial reporting as of December 31, 2018, has been audited and
attested to by BDO China Shu Lun Pan Certified Public Accountants LLP, or 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, 2018, 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.
ITEM 9B. OTHER INFORMATION
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As previously disclosed on a Current Report on Form 8-K filed on June 1, 2017, the Company authorized a share repurchase program (the “2017 Share
Repurchase Program”), pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate purchase price not to
exceed $10 million under which approximately $6.52 million in shares of common stock were repurchased. On October 10, 2018, the Company commenced a
share repurchase program (the “2018 Share Repurchase Program”), pursuant to which the Company may, from time to time, purchase shares of its common stock
for an aggregate purchase price not to exceed approximately $8.48 million. It is contemplated that total shares to be repurchased under the 2017 and 2018 Share
Repurchase Programs shall not exceed $15 million in the aggregate. The table below summarizes purchases made by or on behalf of the Company or affiliated
purchasers as defined in Regulation S-K under the 2017 and 2018 Share Purchase Program during the year ended December 31, 2018.
Period
Total number of
shares purchased
Average price
paid per share
Total number of
shares
purchased as part
of publicly
announced plans
or programs
Maximum dollar
value of shares
that may yet be
purchased under
the plans or
programs
Prior to 2018
January 1, 2018 ~ January 31, 2018
February 1, 2018 ~ February 28, 2018
March 1, 2018 ~ March 31, 2018
April 1, 2018 ~ April 30, 2018
May 1, 2018 ~ May 31, 2018
June 1, 2018 ~ June 30, 2018
July 1, 2018 ~ July 31, 2018
August 1, 2018 ~ August 31, 2018
September 1, 2018 ~ September 30, 2018
October 1, 2018 ~ October 31, 2018
November 1, 2018 ~ November 30, 2018
December 1, 2018 ~ December 31, 2018
426,794
-
-
37,462
17,984
47,006
31,522
-
-
-
144,038
83,999
212,694
$
$
$
$
$
$
$
$
$
$
$
$
$
9.32
-
-
19.10
19.84
18.97
18.14
-
-
-
14.49
17.24
18.36
426,794
-
-
37,462
17,984
47,006
31,522
-
-
-
144,038
83,999
212,694
Total
1,001,499
$
13.93
1,001,499
1,046,335
76
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
We will file with the SEC a definitive Proxy Statement for our Annual Meeting of Stockholders (the “2018 Proxy Statement”) not later than 120 days after
the fiscal year ended December 31, 2018. The information required by this item is incorporated herein by reference to the information contained in the 2018 Proxy
Statement.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to the information contained in the 2018 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference to the information contained in the 2018 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to the information contained in the 2018 Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated herein by reference to the information contained in the 2018 Proxy Statement.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
PART IV
Exhibit
Number
2.1
2.2
2.3
2.4
2.5
3.1
3.2
4.5
4.6
4.7
4.8
4.6
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
10.21
10.22
10.23
10.24
10.25
Description
Plan of reorganization and exchange agreement (1)
Agreement and Plan of Merger, dated November 13, 2012 (2)
Amendment No. 1 to Agreement and Plan of Merger, dated January 15, 2013 (3)
Amendment No. 2 to Agreement and Plan of Merger, dated January 31, 2013 (4)
Amendment No. 3 to Agreement and Plan of Merger, dated February 5, 2013 (5)
Articles of Incorporation of Cellular Biomedicine Group, Inc.(22)
Amended and Restated Bylaws of Cellular Biomedicine Group, Inc.(23)
2011 Incentive Stock Option Plan (6)
Amended and Restated 2011 Incentive Stock Option Plan (7)
2013 Stock Incentive Plan (12)
2014 Stock Incentive Plan (13)
Amendment No. 1 to 2014 Stock Incentive Plan (20)
Purchase Agreement, dated September 10, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and Fisher Scientific Worldwide
(Shanghai) Co., Ltd. (14)
Technical Service Contract, dated September 22, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and National Engineering
Research Center of Tissue Engineering. (14)
Clinical Trial Agreement, dated November 6, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and Renji Hospital (14)
Clinical Trial Agreement, dated December 20, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and China Armed Police General
Hospital(30)
Form of Subscription Agreement (8)
Employment Agreement with Bizuo (Tony) Liu, dated January 3, 2014 (9)
Framework Agreement by and among the Company, Agreen Biotech Co. Ltd. and its Shareholders, dated August 02, 2014 (10)
Technology Transfer Agreement by and between the Company and the General Hospital of the Chinese People’s Liberation Army, dated February
4, 2015 (15)
Asset Purchase Agreement, dated June 8, 2015, by and among the Company, Blackbird BioFinance, LLC, Scott Antonia and Sam Shrivastava (11)
Patent Transfer Agreement, dated November 16, 2015, by and between CBMG Shanghai and China Pharmaceutical University (15)
Clinical Trial Agreement, dated December 15, 2015, by and between CBMG Shanghai and Renji Hospital (15)
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. (21)
Consulting agreement with Wen Tao (Steve) Liu, dated February 7, 2016 (16)
Clinical Trial Agreement, dated February 16, 2016, by and between CBMG Shanghai and Shanghai Tongji Hospital (16)
Agreement on Termination of Cooperation with Jilin Luhong Real Estate Development Co., Ltd. (17)
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.(17)
Agreement, dated as of April 11, 2016, by and between the Company and Bizuo (Tony) Liu (18)
Letter Agreement, dated November 11, 2016, by and between the Company and Gang Ji (19)
Employment Agreement, dated March 3, 2017, by and between the Company and Bizuo (Tony) Liu (21)
Employment Agreement, dated March 3, 2017, by and between the Company and Andrew Chan (21)
Employment Agreement, dated March 3, 2017, by and between the Company and Yihong Yao (39)
Lease Agreement, dated December 1, 2018, by and between CBMG Shanghai and Shanghai Guilin Industrial Co., Ltd.*
Share Purchase Agreement, dated December 15, 2017, by and among the Company and its executive officers (24)
Share Purchase Agreement, dated December 26, 2017, by and among the Company and certain investors (25)
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.26
Registration Rights Agreement, dated January 30, 2018, by and among the Company, Wealth Map Holdings Limited, Earls Mill Limited, and Bosun
S. Hau (26)
10.27
Securities Purchase Agreement, dated January 30, 2018, by and among the Company, Wealth Map Holdings Limited, Earls Mill Limited, and Bosun
S. Hau (26)
10.28
Amendment No. 1 to Registration Rights Agreement, dated February 5, 2018, by and among the Company, Wealth Map Holdings Limited, Earls Mill
Limited, Bosun S. Hau and Rui Zhang. (27)
10.29
Amendment No. 1 to Securities Purchase Agreement, dated February 5, 2018, by and among the Company, Wealth Map Holdings Limited, Earls
Mill Limited, Bosun S. Hau and Rui Zhang.(27)
10.30
10.31
10.32
Registration Rights Agreement, dated September 26, 2018, by and between the Company and Novartis Pharma AG. (28)
License and Collaboration Agreement, dated September 25, 2018, by and among the Company, Novartis Pharma AG and other parties thereto. (28)
Securities Purchase Agreement, dated September 25, 2018, by and among the Company, Novartis Pharma AG and Shanghai Cellular
Biopharmaceutical Group Ltd.(28)
10.33
License Agreement, dated October 2, 2018, by and among the Company and the U.S. Department of Health and Human Services, as represented
by the National Cancer Institute, an Institute or Center of the National Institutes of Health (29)
10.34
Toll Manufacturing and Supply Agreement, dated December 21, 2018, by and among the Company, Novartis Pharma AG and other parties thereto.
(29)
10.35
14.1
21
23.1
31
32
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
License Agreement, dated as of February 14, 2019, by and between the Company and Augusta University Research Institute, Inc.*†
Code of Ethics for EastBridge Investment Group Corporation (1)
Subsidiaries of the Company(34)
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.
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.
† Confidential treatment is requested for portions of this exhibit pursuant to 17 CFR Section 240.246-2.
———————
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)
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2.
3.
4.
5.
6.
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 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)
7.
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on December 16, 2013 (File No. 000-52282)
8.
9.
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on January 3, 2014 (File No. 000-52282)
10. Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on October 2, 2014 (File No. 001-36498)
11. Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on July 2, 2015 (File No. 001-36498)
12. Incorporated by reference filed with Schedule 14A filed with the Securities and Exchange Commission on November 21, 2013 (File No. 000-52282)
13. Incorporated by reference filed with Schedule 14A filed with the Securities and Exchange Commission on September 23, 2014 (File No. 001-36498)
14 Incorporated by reference filed with the Form 10-K filed with the Securities and Exchange Commission on April 15, 2014 (File No. 000-52282).
15 Incorporated by reference filed with the Form 10-K filed with the Securities and Exchange Commission on March 14, 2016 (File No. 001-36498).
16 Incorporated by reference filed with the Form 10-Q filed with the Securities and Exchange Commission on May 9, 2016 (File No. 001-36498).
17 Incorporated by reference filed with the Form 10-Q filed with the Securities and Exchange Commission on August 8, 2016 (File No. 001-36498).
18 Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on April 15, 2016 (File No. 000- 36498).
19 Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on November 15, 2016 (File No. 000- 36498).
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
20 Incorporated by reference filed with Schedule 14A/A filed with the Securities and Exchange Commission on March 23, 2017 (File No. 001-36498)
21 Incorporated by reference filed with the Form 10-K filed with the Securities and Exchange Commission on March 13, 2017 (File No. 001-36498).
22 Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on March 4, 2013 (File No. 000-52282)
23 Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on September 21, 2016 (File No. 000-36498).
24 Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on December 21, 2017 (File No. 000-36498).
25 Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on December 28, 2017 (File No. 000-36498).
26. Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on January 31, 2018 (File No. 000-36498).
27. Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on February 5, 2018 (File No. 000-36498).
28. Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on September 27, 2018 (File No. 000-36498).
29. Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on October 9, 2018 (File No. 000-36498).
Incorporated by reference filed with the Form 8-K filed with the Securities and Exchange Commission on December 28, 2018 (File No. 000-36498).
Item 16. Form 10-K Summary
Not applicable.
81
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: February 19, 2019
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
/s/ Bosun S. Hau
Bosun S. Hau
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
Director
82
Date
February 19, 2019
February 19, 2019
February 19, 2019
February 19, 2019
February 19, 2019
February 19, 2019
February 19, 2019
February 19, 2019
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, 2018 and 2017
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page
F-2
F-3
F-4
F-5
F-7
F-8
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.
Opinion on the Consolidated Financial Statements
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, 2018 and 2017 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity,
and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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) (“PCAOB”), the Company’s internal
control over financial reporting as of December 31, 2018, 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 February 19, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO China Shu Lun Pan Certified Public Accountants LLP
We have served as the Company’s auditor since 2015.
Shenzhen, the People’s Republic of China
February 19, 2019
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.
Opinion on Internal Control over Financial Reporting
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, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance
sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive loss, changes in stockholders’
equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and our report dated February 19, 2019
expressed an unqualified opinion thereon.
Basis for Opinion
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 are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
/s/ BDO China Shu Lun Pan Certified Public Accountants LLP
Shenzhen, the People’s Republic of China
February 19, 2019
F-3
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 $94,868
and $10,789 as of December 31, 2018 and December 31, 2017, respectively
Other receivables
Prepaid expenses
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 12)
Preferred stock, par value $.001, 50,000,000 shares
authorized; none issued and outstanding as of
December 31, 2018 and 2017, respectively
Common stock, par value $.001, 300,000,000 shares authorized;
19,120,781 and 15,615,558 issued; and 18,119,282 and 15,188,764 outstanding,
as of December 31, 2018 and 2017, respectively
Treasury stock at cost; 1,001,499 and 426,794 shares of common stock
as of December 31, 2018 and December 31, 2017, respectively
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
December 31,
2018
2017
(note 18)
$
52,812,880
$
21,568,422
787
101,909
1,692,135
54,607,711
240,000
15,193,761
7,678,789
7,970,692
5,952,193
91,643,146
422,752
1,878,926
28,950
3,836,308
6,166,936
257,818
6,424,754
$
$
202,887
170,842
1,852,695
23,794,846
269,424
12,973,342
7,678,789
12,419,692
4,026,203
61,162,296
225,287
1,097,327
28,875
2,324,632
3,676,121
183,649
3,859,770
$
$
-
-
19,121
(13,953,666)
15,616
(3,977,929)
250,604,618
(149,982,489)
(1,469,192)
85,218,392
172,691,339
(111,036,997)
(389,503)
57,302,526
$
91,643,146
$
61,162,296
(1) The Company’s consolidated assets as of December 31, 2018 and 2017 included $24,823,137 and $21,775,087, 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, 2018 and
2017, respectively. These assets include cash and cash equivalents of $2,376,974 and $2,337,173; other receivables of $61,722 and $61,735; prepaid
expenses of $1,497,072 and $1,750,509; property, plant and equipment, net, of $14,280,949 and $12,477,315; intangibles of $1,412,375 and $1,516,449; and
long-term prepaid expenses and other assets of $5,194,045 and $3,631,906. The Company’s consolidated liabilities as of December 31, 2018 and 2017
included $5,117,239 and $2,688,520, respectively, of liabilities of the VIEs whose creditors have no recourse to the Company. These liabilities include
accounts payable of $359,980 and $181,231; other payables of $3,125,504 and $1,631,582; payroll accrual of $1,367,658 and $682,248, which mainly
includes bonus accrual of $1,358,709 and $673,443; deferred income of $6,280 and $9,810; and other non-current liabilities of $257,817 and $183,649. See
further description in Note 4, Variable Interest Entities.
The accompanying notes are an integral part of these consolidated financial statements.
F-4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CELLULAR BIOMEDICINE GROUP, INC.
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 on non-current assets
Total operating expenses
Operating loss
Other income:
Interest income
Other income
Total other income
Loss before taxes
Income taxes provision
For the Year Ended
December 31,
2018
2017
2016
$
224,403
$
336,817
$
627,930
135,761
13,220,757
308,830
24,150,480
2,914,320
40,730,148
(40,505,745)
162,218
12,780,483
360,766
14,609,917
-
27,913,384
(27,576,567)
860,417
11,670,506
425,040
11,475,587
4,611,714
29,043,264
(28,415,334)
392,328
1,172,879
1,565,207
(38,940,538)
133,621
1,955,086
2,088,707
(25,487,860)
78,943
132,108
211,051
(28,204,283)
(4,954)
(2,450)
(4,093)
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):
$ (38,945,492)
$ (25,490,310)
$ (28,208,376)
(1,079,689)
-
-
(1,079,689)
967,189
(240,000)
-
727,189
(743,271)
5,300,633
(5,557,939)
(1,000,577)
Comprehensive loss
Net loss per share:
Basic and diluted
Weighted average common shares outstanding:
Basic and diluted
$ (40,025,181)
$ (24,763,121)
$ (29,208,953)
$
(2.20)
$
(1.78)
$
(2.09)
17,741,104
14,345,604
13,507,408
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 CHANGES IN STOCKHOLDERS' EQUITY
Common Stock
Preferred Stock
Treasury Stock
Shares
Amount
Shares
Amount
Shares
Amount
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
-
-
-
-
Balance at December 31, 2016
14,281,378
14,281
Common stock issued with PPM
Restricted stock grants
Accrual of stock options
Exercise of stock options
Treasury stock purchase
Unrealized loss on investments, net of
tax
Foreign currency translation
Net loss
1,208,334
68,446
-
57,400
-
-
-
-
1,208
69
-
58
-
-
-
-
Balance at December 31, 2017
15,615,558
15,616
Common stock issued with PPM
Restricted stock grants
Accrual of stock options
Exercise of stock options
Treasury stock purchase
Foreign currency translation
Net loss
3,177,581
91,713
-
235,929
-
-
-
3,177
92
-
236
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
(Loss)
Total
-
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) (5,557,939)
(743,271)
- (28,208,376)
(743,271)
-
152,543,052
(85,546,687)
(1,116,692) 65,893,954
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(426,794)
-
-
-
-
(3,977,929)
14,494,832
832,950
4,512,192
308,313
-
-
-
-
-
-
- 14,496,040
-
833,019
- 4,512,192
308,371
-
- (3,977,929)
-
-
-
-
-
-
-
-
-
-
-
(25,490,310)
(240,000)
967,189
(240,000)
967,189
- (25,490,310)
(426,794)
(3,977,929)
172,691,339
(111,036,997)
(389,503) 57,302,526
-
-
-
-
(574,705)
-
-
-
-
-
-
(9,975,737)
-
-
70,347,996
1,642,228
3,184,425
2,738,630
-
-
-
-
-
-
-
-
-
(38,945,492)
- 70,351,173
- 1,642,320
- 3,184,425
- 2,738,866
- (9,975,737)
(1,079,689) (1,079,689)
- (38,945,492)
Balance at December 31, 2018
19,120,781
$
19,121
-
$
-
(1,001,499)
$(13,953,666)
$250,604,618
$(149,982,489)
$ (1,469,192) $85,218,392
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 CASH FLOWS
For the Year Ended
December 31,
2018
2017
2016
$ (38,945,492)
$ (25,490,310)
$ (28,208,376)
5,049,523
4,957
4,826,745
29,424
2,884,896
(175,479)
-
84,622
107,263
66,108
-
68,435
-
(538,349)
133,740
816,936
390,181
75
83,416
(25,112,999)
1,625
10,175,479
(10,000,000)
(196,836)
(6,589,493)
(6,609,225)
2,985,963
317
5,345,211
-
-
-
-
-
(160,628)
(467,985)
-
(812,675)
-
(1,005,029)
(814)
(118,968)
1,339,866
-
(208,340)
(18,593,392)
-
-
-
(23,734)
(10,169,134)
(10,192,868)
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)
70,351,173
2,738,866
(9,975,737)
63,114,302
14,496,040
308,371
(3,977,929)
10,826,482
42,399,874
885,680
-
43,285,554
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
Impairment on intangible assets
Interest from six-month deposits with the banks
Reversal of inventory provision
Allowance for doubtful account
Changes in operating assets and liabilities:
Accounts receivable
Other receivables
Inventory
Prepaid expenses
Taxes recoverable
Long-term prepaid expenses and other assets
Accounts payable
Accrued expenses
Other current liabilities
Taxes payable
Other non-current liabilities
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets
Withdrawing six-month deposits with the banks
Putting six-month deposits with the banks
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
Repurchase of treasury stock
Net cash provided by financing activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(147,620)
275,768
(316,577)
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD
SUPPLEMENTAL CASH FLOW INFORMATION
31,244,458
21,568,422
52,812,880
$
(17,684,010)
39,252,432
21,568,422
$
24,367,835
14,884,597
39,252,432
$
Cash paid for income taxes
$
4,879
$
2,450
$
6,705
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.
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 clinical stage biopharmaceutical company, committed to developing therapies for cancer and degenerative diseases
utilizing proprietary cell-based technologies. Our focus is to reduce the aggregate cost and ensure quality products of cell therapies by leveraging our innovative
manufacturing capabilities and strong ability to process optimization to development of our internal proprietary cell therapy based pipelines and our ability to partner
with leading cell therapy companies seeking manufacturing capabilities for global collaborative partnerships. CBMG is headquartered in New York, New York, it’s
Research & Development facilities are based in Gaithersburg, Maryland and Shanghai, China, and its manufacturing facilities are based in China in the cities of
Shanghai and Wuxi.
The manufacturing and delivery of cell therapies involve complex, integrated processes, comprised of harvesting T cells from patients, T cell isolation,
activation, viral vector transduction and GMP grade purification . We are using a semi-automated, fully closed system and self-made high quality viral vector for
cell therapy manufacturing, which enables us to reduce the aggregate cost of cell therapies. Additionally, this system has the ability to scale for commercial supply
at an economical cost.
Our technology includes two major platforms: (i) Immune cell therapy for treatment of a broad range of cancer indications comprised of technologies in
Chimeric Antigen Receptor modified T cells ("CAR-T"), genetic modified T-cell receptors (“TCRs”), next generation neoantigen-reactive tumor infiltrating
lymphocyte (“TIL”), and (ii) human adipose-derived mesenchymal progenitor cells ("haMPC") for treatment of joint diseases. We expect to carry out clinical studies
leading to the eventual approval by the NMPA of our products through Biologics License Application ("BLA") filings and authorized clinical centers throughout
Greater China. We also plan to conduct clinical studies in the United States that could potentially lead to FDA approval of our solid tumor clinical assets.
Our primary target market is China, where we believe that our cell-based therapies will be able to help patients with high unmet medical needs. We are
focused on developing and marketing safe and effective cell-based therapies to treat cancer and joint diseases. We have developed proprietary technologies and
know-how in our cell therapy platforms. We are conducting clinical studies in China with our stem cell based therapies to treat knee osteoarthritis (“KOA”). On
December 2017, the Chinese government issued trial guidelines concerning the development and testing of cell therapy products in China, which provides that all
cell therapy products are treated as “drug” from a regulatory perspective, and require official approval for INDs. Prior to this revised regulation in December 2017,
we have completed a Phase IIb autologous haMPC KOA clinical study and released the promising results. Led by Shanghai Renji Hospital, one of the largest
teaching hospitals in China, we completed a Phase I clinical trial of our off-the-shelf allogeneic haMPC (AlloJoin™) therapy for treating KOA patients. We also
completed and presented the Allojoin™ Phase I 48-week data in China, and have been approved by NMPA to initiate a Phase II clinical trial following the filing of
CBMG's IND application for AlloJoin® for KOA. CBMG’s IND application is the first stem cell drug application to be approved by NMPA for a Phase II KOA clinical
trial since the release of the updated regulation on cell therapy.
In addition to our own internal pipelinse, we have initiated successful partnerships with other cell therapy focused companies as it pertains to their
technology and platform’s market access into the Chinese market. We believe that our focus on process improvement and creating cost savings on cell therapy
manufacturing will enable us to collaborate with those firms as they enter into the Chinese market.
Prior to September 2018, CBMG has been developing its own anti-CD19 CAR-T cell therapy in B-cell non-Hodgkin lymphoma ("NHL") and adult acute
lymphoblastic leukemia (“ALL”) and had already initiated IND applications in China. On September 25, 2018, we entered into a strategic licensing and collaboration
agreement with Novartis to manufacture and supply their CAR-T cell therapy Kymriah® (tisagenlecleucel) in China. As part of the deal, Novartis took approximately
a 9% equity stake in CBMG, and CBMG is discontinuing development of its own anti-CD19 CAR-T cell therapy. This collaboration with Novartis reflects our shared
commitment to bringing the first marketed CAR-T cell therapy product, Kymriah®, currently approved in the US, EU and Canada for two difficult-to-treat cancers, to
China where the number of patients remains the highest in the world. We continue to develop cell therapies targeting other than CD19 on our own and Novartis
has the first right of negotiation on these developments. The CBMG oncology pipeline includes CAR-T targeting CD20-, CD22- and B-cell maturation antigen
(BCMA), NKG2D, AFP TCR and TIL. We are striving to build competitive research capabilities, a cutting edge translational medicine unit, along with a well-
established cellular manufacturing capability and ample capacity, to support Kymriah® in China and our development of cell therapy products. We expect to initiate
first in-human clinical trials for multiple CAR-T and TCR-T programs in 2019.
F-8
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Corporate History
Headquartered in New York, the Company is a Delaware biopharmaceutical company focused on developing treatment for cancer and orthopedic
diseases for patients in China. The Company started its regenerative medicine business in China in 2009 and expanded to CAR-T therapies in 2014.
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 4, Variable Interest Entity. The Company evaluates
its relationships with the VIE on an ongoing basis to ensure that it continues to be the primary beneficiary. All intercompany transactions and balances have been
eliminated in consolidation.
Use of Estimates
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
Revenues consist mainly of cell banking services as well as cell therapy technology services with customers. The Company evaluates the separate
performance obligation(s) under each contract, allocates the transaction price to each performance obligation considering the estimated stand-alone selling prices
of the services and recognizes revenue upon the satisfaction of such obligations over time or at a point in time dependent on the satisfaction of one of the following
criteria: (1) the customer simultaneously receives and consumes the economic benefits provided by the vendor’s performance (2) the vendor creates or enhances
an asset controlled by the customer (3) the vendor’s performance does not create an asset for which the vendor has an alternative use, and the vendor has an
enforceable right to payment for performance completed to date. Revenue from rendering of services is measured at the fair value of the consideration received
or receivable under the contract or agreement. Revenue from cell therapy technology services is recognized in profit or loss at the point when customers
simultaneously receive and consume the services. Revenue from cell banking storage is recognized in profit or loss on a straight-line basis over the storage
period.
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, 2018 and
2017, respectively, cash and cash equivalents include cash on hand and cash in the bank. At times, cash deposits may exceed government-insured limits.
F-9
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Accounts Receivable
Accounts receivable represent amounts earned but not collected in connection with the Company’s sales of goods or services as of December 31, 2018
and 2017. 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, 2018 and 2017, allowance of $94,868 and $10,789 was
provided for debtors of certain customers as those debts are unrecoverable from customers, respectively.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets
ranging from three to ten years and begins when the related assets are placed in service. Maintenance and repairs that neither materially add to the value of the
property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred. Plant, property and equipment
are reviewed each year to determine whether any events or circumstances indicate that the carrying amount of the assets may not be recoverable. We assess the
recoverability of the asset by comparing the projected undiscounted net cash flows associated with the related assets over the estimated remaining life against the
respective carrying value.
For the years ended December 31, 2018, 2017 and 2016, depreciation expense was $3,360,517, $1,195,705 and $850,793, 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, 2018 and 2017 represents the cost arising from the business combinations in previous years and no
impairment on goodwill was recognized for the years ended December 31, 2018 and 2017.
Treasury Stock
The treasury stock is recorded and carried at their repurchase cost. The Company recorded the entire purchase price of the treasury stock as a reduction
of equity. A gain or loss will be determined when treasury stock is reissued or retired, and the original issue price and book value of the stock do not enter into the
accounting. Additional paid-in capital from treasury stock is credited for gains and debited for losses when treasury stock is reissued at prices that differ from the
repurchase cost.
Government Grants
Government grants are recognized in the balance sheet initially when there is reasonable assurance that they will be received and that the enterprise will
comply with the conditions attached to them. When the Company received the government grants but the conditions attached to the grants have not been fulfilled,
such government grants are deferred and recorded as deferred income. The classification of short-term or long-term liabilities is depended on the management’s
expectation of when the conditions attached to the grant can be fulfilled. Grants that compensate the Company for expenses incurred are recognized as other
income in statement of income on a systematic basis in the same periods in which the expenses are incurred.
For the year ended December 31, 2018, 2017 and 2016, the Company received government grants of $1,105,272, $1,905,213 and $422,839 for purpose
of R&D and related capital expenditure, respectively. Government subsidies recognized as other income in the statement of income for the year ended December
31, 2018, 2017 and 2016 were $1,119,827, $2,077,486 and $78,542, respectively.
F-10
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, 2018 and 2017 based on estimates of
recoverability. While the Company has optimistic plans for its business strategy, we determined that such a valuation allowance was necessary given the current
and expected near term losses and the uncertainty with respect to the Company’s ability to generate sufficient profits from its business model.
Share-Based Compensation
The Company periodically uses stock-based awards, consisting of shares of common stock and stock options, to compensate certain officers and
consultants. Shares are expensed on a straight line basis over the requisite service period based on the grant date fair value, net of estimated forfeitures, if any.
We currently use the Black-Scholes option-pricing model to estimate the fair value of our stock-based payment awards. This model requires the input of highly
subjective assumptions, including the fair value of the underlying common stock, the expected volatility of the price of our common stock, risk-free interest rates,
the expected term of the option and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of
management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.
These assumptions are estimated as follows:
● Fair Value of Our Common Stock — Our common stock is valued by reference to the publicly-traded price of our common stock.
● Expected Volatility — Prior to the Eastbridge merger, we did not have a history of market prices for our common stock and since the merger, we do not have
what we consider a sufficiently active and readily traded market for our common stock to use historical market prices for our common stock to estimate
volatility. Accordingly, we estimate the expected stock price volatility for our common stock by taking the median historical stock price volatility for industry
peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of other public
companies in the stem cell industry similar in size, stage of life cycle and financial leverage. We intend to continue to consistently apply this process using the
same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes
available.
● Risk-Free Interest Rate — The risk-free interest rate assumption is based on observed interest rates appropriate for the expected terms of our awards. The
risk-free interest rate assumption is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option
group.
● Expected Term — The expected term represents the period that our stock-based awards are expected to be outstanding. The expected terms of the awards
are based on a simplified method which defines the life as the average of the contractual term of the options and the weighted-average vesting period for all
open tranches.
● Expected Dividend Yield — We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.
Consequently, we used an expected dividend yield of zero.
F-11
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
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.
F-12
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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 $40,025,181, $24,763,121 and $29,208,953 for the years ended December 31, 2018, 2017 and 2016, respectively.
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
Accounting pronouncements adopted during the year ended December 31, 2018
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-09, “Compensation—Stock
Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), which provides guidance on determining which changes to the terms and
conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments in this ASU are effective for all
entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in
any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting
periods for which financial statements have not yet been made available for issuance. The amendments in this ASU should be applied prospectively to an award
modified on or after the adoption date. The adoption of the ASU 2017-09 did not have a material impact on the Company’s consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-
20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (“ASU 2017-05”), which clarifies the scope of
the nonfinancial asset guidance in Subtopic 610-20. This ASU also clarifies that the derecognition of all businesses and nonprofit activities (except those related to
conveyances of oil and gas mineral rights or contracts with customers) should be accounted for in accordance with the derecognition and deconsolidation
guidance in Subtopic 810-10. The amendments in this ASU also provide guidance on the accounting for what often are referred to as partial sales of nonfinancial
assets within the scope of Subtopic 610-20 and contributions of nonfinancial assets to a joint venture or other non-controlled investee. The amendments in this
ASU are effective for annual reporting reports beginning after December 15, 2017, including interim reporting periods within that reporting period. Public entities
may apply the guidance earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting
period. The adoption of the ASU 2017-05 did not have a material impact on the Company’s consolidated financial statements.
F-13
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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. The adoption
of the ASU 2016-18 did not have a material impact on the Company’s 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. The adoption of the ASU 2016-15 did not have a material impact on the Company’s 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.
The adoption of the ASU 2016-01 did not have a material impact on the Company’s consolidated financial statements.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 , Revenue from Contracts
with Customers. ASU 2014-09 and its related amendments provide companies with a single model for accounting for revenue arising from contracts with
customers and supersedes prior revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize
revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer
under the existing revenue guidance. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the
requirements in the year of adoption, through a cumulative adjustment. The Company adopted the new accounting standard using the modified retrospective
transition method effective January 1, 2018 and there was no impact on the Company’s consolidated financial statements.
Accounting pronouncements not yet effective
In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) , which eliminates, adds and
modifies certain disclosure requirements for fair value measurements. The modified standard eliminates the requirement to disclose changes in unrealized gains
and losses included in earnings for recurring Level 3 fair value measurements and requires changes in unrealized gains and losses be included in other
comprehensive income for recurring Level 3 fair value measurements of instruments. The standard also requires the disclosure of the range and weighted average
used to develop significant unobservable inputs and how weighted average is calculate for recurring and nonrecurring Level 3 fair value measurements. The
amendment is effective for fiscal years beginning after December 15, 2019 and interim periods within that fiscal year with early adoption permitted. We do not
expect the standard to have a material impact on our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, which simplifies several aspects of the accounting for nonemployee share-based payment transactions
resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and
services from non-employees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-
based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment
awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards
granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.
The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that
fiscal year. Early adoption is permitted. We do not plan to early adopt this ASU. We are currently evaluating the potential impacts of this updated guidance, and do
not expect the adoption of this guidance to have a material impact on our consolidated financial statements and related disclosures.
F-14
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”), which provides financial statement preparers with an option to reclassify stranded tax
effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income
tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments in this ASU are effective for all entities for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2018-02 is permitted, including adoption in any interim period for the
public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this ASU should be applied either in the
period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and
Jobs Act is recognized. We do not expect the adoption of ASU 2018-02 to have a material impact on our consolidated financial statements.
In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and
Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope
Exception” (“ASU 2017-11”), which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are
features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity
offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with
down round features that require fair value measurement of the entire instrument or conversion option. The amendments in Part I of this ASU are effective for
public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the
impact of the adoption of ASU 2017-11 on its consolidated financial statements.
In January 2017, the FASB issued 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 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 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 evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial
statements.
F-15
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 4 – 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. Beijing Agreen Biotechnology Co., Ltd.
(‘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. In
2017, CBMG Shanghai established two subsidiaries in Wuxi and Shanghai. Wuxi Cellular Biopharmaceutical Group Ltd. (“WX SBM”) was established on January
17, 2017 with registered capital of RMB 20 million and wholly owned by CBMG Shanghai. Shanghai Cellular Biopharmaceutical Group Ltd. (“SH SBM”) was
established on January 18, 2017 with registered capital of RMB 100 million and wholly owned by CBMG Shanghai. For the year ended December 31, 2018, 2017
and 2016, 29%, 3% and 78% 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-16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, 2018 and 2017 are as follows:
Assets
Liabilities
Cash
Other receivables
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 *
Deferred income
Total current liabilities
Other non-current liabilities
Total liabilities
* Accrued payroll mainly includes bonus accrual of $1,358,709 and $673,443.
F-17
December 31,
December 31,
2018
2017
(note 18)
$
$
$
$
$
$
2,376,974
61,722
1,497,072
3,935,768
2,337,173
61,735
1,750,509
4,149,417
14,280,949
1,412,375
5,194,045
24,823,137
359,980
3,125,504
1,367,658
6,280
4,859,422
$
$
$
12,477,315
1,516,449
3,631,906
21,775,087
181,231
1,631,582
682,248
9,810
2,504,871
257,817
5,117,239
$
183,649
2,688,520
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
As of December 31, 2018 and 2017, 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,
2018
December 31,
2017
$
$
101,608
7,636,905
426,507
12,861,186
1,030,760
105,114
4,781,936
233,539
4,196,589
7,498,272
22,056,966
(6,863,205)
15,193,761
$
16,815,450
(3,842,108)
12,973,342
$
Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $3,360,517, $1,195,705 and $850,793, respectively.
NOTE 6 – INVESTMENTS
The Company’s investments represent the investment in equity securities listed in Over-The-Counter (“OTC”) markets of the United States of America:
Equity position in Arem Pacific Corporation
December 31, 2018
Gross
Unrealized
Gains
Gross
Unrealized
Losses more
than 12
months
(240,000)
Gross
Unrealized
Losses less
than 12
months
-
Market or Fair
Value
240,000
-
Cost
480,000
Total
$
480,000 $
- $
(240,000) $
- $
240,000
Equity position in Alpha Lujo, Inc.
Equity position in Arem Pacific Corporation
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses more
than 12
months
(221,964) $
-
- $
-
Gross
Unrealized
Losses less
than 12
months
Market or Fair
Value
- $
(240,000)
29,424
240,000
$
Cost
251,388 $
480,000
Total
$
731,388 $
- $(221,964.00) $
(240,000) $
269,424
There were no sale of investments for the year ended December 31, 2018 and 2017.
The unrealized holding gain (loss) for the investments, net of tax that were recognized in other comprehensive income (loss) for the year ended December
31, 2018 was nil, as compared to $(240,000) and $5,300,633 for the year ended December 31, 2017 and 2016, 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 (loss) for the year ended December 31, 2018 and 2017.
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, 2018 was $29,424, as compared with nil and $4,611,714 for the year ended December 31, 2017 and 2016, respectively. The
Company provided full impairment of $29,424 for shares of Alpha Lujo, Inc. (“ALEV”) for the year ended December 31, 2018 as ALEV filed Form 15 (Certification
and Notice of Termination of Registration under Section 12(g) of the Securities Exchange Act of 1934 or Suspension of Duty to File Reports) with the SEC and is
no longer traded in the market in 2018.
F-18
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 7 – 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.
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, 2018 and 2017.
Assets measured at fair value within Level 2 on a recurring basis as of December 31, 2018 and 2017 are summarized as follows:
Assets:
Equity position in Arem Pacific Corporation
Assets:
Equity position in Alpha Lujo, Inc.
Equity position in Arem Pacific Corporation
As of December 31, 2018
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)
$
$
240,000
$
-
$
240,000
$
240,000
$
-
$
240,000
$
-
-
As of December 31, 2017
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)
$
$
29,424
240,000
269,424
$
$
-
-
-
$
$
29,424
240,000
269,424
$
$
-
-
-
No shares were acquired during the year ended December 31, 2018 and 2017.
As of December 31, 2018 and 2017, the Company holds 8,000,000 shares in Arem Pacific Corporation (“ARPC”), 2,942,350 shares in ALEV and
2,057,131 shares in Wonder International Education and Investment Group Corporation (“Wonder”). Full impairment has been provided for shares of Wonder and
ALEV as of September 30, 2018. All available-for-sale investments held by the Company at December 31, 2018 and December 31, 2017 have been valued based
on level 2 inputs due to the illiquid nature of these non-reporting securities that cannot easily be sold or exchanged for cash.
F-19
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 8 – 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, 2018 and 2017, intangible assets, consisted of the following:
Patents & knowhow & license
Cost basis
Less: accumulated amortization
Less: impairment
Software
Cost basis
Less: accumulated amortization
Total intangibles, net
December 31,
2018
December 31,
2017
$
$
17,580,368
(6,950,656)
(2,884,896)
7,744,816
$
$
17,674,431
(5,325,113)
-
12,349,318
December 31,
2018
December 31,
2017
$
$
$
340,918
(115,042)
225,876
$
$
158,273
(87,899)
70,374
7,970,692
$
12,419,692
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, 2018, 2017 and 2016 was $1,689,006,
$1,790,258 and $1,784,208, respectively.
The Company reassessed its return on investment to develop GVAX for cancer therapies in the current competitive market and decided to terminate its
GVAX program and its license agreements with the University of South Florida (“USF”) and the Moffitt Cancer Center (“Moffitt”). As a result the Company made a
full impairment of $2,884,896 for the USF and Moffitt licenses. CD40LGVAX was licensed in 2015 with the intention of providing alternative treatment options for
late stage non-small cell lung cancer (NSCLC) patients. Since then, the landscape of NSCLC has changed dramatically. Pembrolizumab has been approved as
first-line treatment for patients with metastatic NSCLC with high PD-L1 expression, and for patients with metastatic NSCLC following disease progression on
chemotherapy. Recently, the FDA has accepted a supplemental biologics license application (sBLA) for the combination of nivolumab plus ipilimumab for the
frontline treatment of patients with advanced NSCLC with tumor mutational burden (TMB) ≥10 mutations per megabase (mut/Mb). In addition, the Company has
recently licensed TIL patents from NIH/NCI for multiple indications in solid tumors and decided that TIL technology platform has a higher potential to capture a
broader solid tumors market. Hence we decided to terminate the development of CD40LGVAX and focus our clinical development effort based on the TCR-T and
TIL technologies for solid tumors.
Estimated amortization expense for each of the ensuing years are as follows for the years ending December 31:
Years ending December 31,
2019
2020
2021
2022
2023 and thereafter
Amount
1,383,044
1,379,431
1,374,224
1,362,315
2,471,678
7,970,692
$
$
F-20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 9 – 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, 2018, 2017 and 2016 was approximately $3,222,373, $4,345,893 and $1,043,968, respectively.
As of December 31, 2018, the Company has the following future minimum lease payments due under the foregoing lease agreements:
Years ending December 31,
2019
2020
2021
2022
2023 and thereafter
$
Amount
2,815,534
2,678,861
2,504,304
2,504,304
9,430,725
$
19,933,728
NOTE 10 – RELATED PARTY TRANSACTIONS
As of December 31, 2018 and 2017, accrued expenses included director fees of nil and $25,882 due to independent director Mr. Gang Ji.
On December 15, 2017, the Company entered into a Share Purchase Agreement with three of its executive officers, pursuant to which the Company
agreed to sell, and the three executive officers agreed to purchase an aggregate of 41,667 shares of the Company’s common stock, par value $0.001 per share at
$12.00 per share, for total gross proceeds of approximately $500,000. The transaction closed on December 22, 2017.
The Company advanced petty cash to officers for business travel purpose. As of December 31, 2018 and 2017, other receivables due from officers for
business travel purpose was nil and $8,531, respectively.
NOTE 11 – 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.
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.
On December 15, 2017, the Company entered into a Share Purchase Agreement with three of its executive officers, pursuant to which the Company
agreed to sell, and the three executive officers agreed to purchase an aggregate of 41,667 shares of the Company’s common stock, par value $0.001 per share at
$12.00 per share, for total gross proceeds of approximately $500,000. The transaction closed on December 22, 2017.
F-21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
On December 26, 2017, the Company entered into a Share Purchase Agreement with two investors, pursuant to which the Company agreed to sell and
the two investors agreed to purchase from the Company, an aggregate of 1,166,667 shares of the Company’s common stock, par value $0.001 per share, at
$12.00 per share, for total gross proceeds of approximately $14,000,000. The transaction closed on December 28, 2017. Together with a private placement with
three of its executive officers on December 22, 2017, the Company raised an aggregate of approximately $14.5 million in the two private placements in December
2017.
On January 30, 2018 and February 5, 2018, the Company entered into securities purchase agreements with certain investors pursuant to which the
Company agreed to sell, and the investors agreed to purchase from the Company, an aggregate of 1,719,324 shares of the Company’s common stock, par value
$0.001 per share, at $17.80 per share, for total gross proceeds of approximately $30.6 million. The transaction closed on February 5, 2018.
On September 25, 2018, the Company entered into a share purchase agreement with Novartis Pharma AG (“Novartis”) pursuant to which the Company
agreed to sell, and Novartis agreed to purchase from the Company, an aggregate of 1,458,257 shares of the Company’s common stock, par value $0.001 per
share, at a purchase price of $27.43 per share, for total gross proceeds of approximately $40 million. The transaction closed on September 26, 2018.
During the year ended December 31, 2018, 2017 and 2016, the Company expensed $3,184,425, $4,512,192 and $4,742,920 associated with unvested
options awards and $1,642,320, $833,019 and $709,497 associated with restricted common stock issuances, respectively.
During the year ended December 31, 2018, 2017 and 2016, options for 235,929, 57,400 and 196,185 underlying shares were exercised, 235,929, 57,400
and 196,185 shares of the Company’s common stock were issued accordingly.
During the year ended December 31, 2018, 2017 and 2016, 91,713, 68,446 and 24,660 shares of the Company's restricted common stock were issued to
directors, employees and advisors respectively.
As previously disclosed on a Current Report on Form 8-K filed on June 1, 2017, the Company authorized a share repurchase program (the “2017 Share
Repurchase Program”), pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate purchase price not to
exceed $10 million under which approximately $6.52 million in shares of common stock were repurchased. On October 10, 2018, the Company commenced a
share repurchase program (the “2018 Share Repurchase Program”), pursuant to which the Company may, from time to time, purchase shares of its common stock
for an aggregate purchase price not to exceed approximately $8.48 million. It is contemplated that total shares to be repurchased under the 2017 and 2018 Share
Repurchase Programs shall not exceed $15 million in the aggregate.
For the year ended December 31, 2018, the Company repurchased 574,705 shares of its common stock with the total cost of $9,975,737. Details are as
follows:
Treasury stock as of December 31, 2017
Repurchased from January 1, 2018 to March 31, 2018
Repurchased from April 1, 2018 to June 30, 2018
Repurchased from July 1, 2018 to September 30, 2018
Repurchased from October 1, 2018 to December 31, 2018
Treasury stock as of December 31, 2018
F-22
Total number of
shares
purchased
Average price
paid per share
426,794
37,462
96,512
-
440,731
$
$
$
$
$
9.32
19.10
18.86
-
16.88
1,001,499
$
13.93
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Operating lease commitments
The future minimum lease payment due under the executed operating lease agreements as of December 31, 2018 was presented in Note 9 to the
consolidated financial statements.
Capital commitments
As of December 31, 2018, the capital commitments of the Company are summarized as follows:
Contracts for acquisition of plant and equipment being or to be executed
NOTE 13 – STOCK BASED COMPENSATION
December 31,
2018
$
1,318,440
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 11) for the year ended December 31,
2018, 2017 and 2016 was $3,184,425, $4,512,192 and $4,742,920 , respectively. The compensation cost that has been charged against income related to restrict
stock awards for the year ended December 31, 2018, 2017 and 2016 was $1,642,320, $833,019 and $709,497 , 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, 2018, there was $4,215,079 all unrecognized compensation cost related to an aggregate of 492,340 of non-vested stock option
awards and $2,904,245 related to an aggregate of 227,951 of non-vested restricted stock awards. Restricted stock awards under long-term incentive plan is not
accounted for as attendant could chose to surrender part of the restricted stock awards for individual income tax payment purpose. These costs are expected to be
recognized over a weighted-average period of 1.66 years for the stock options awards and 1.35 years for the restricted stock awards.
During the year ended December 31, 2018, the Company issued an aggregate of 244,682 options under the 2011 Plan, 2013 Plan and 2014 Plan to
officers, directors, employees and advisors. The grant date fair value of these options was $3,528,715 using Black-Scholes option valuation models with the
following assumptions: grant date strike price from $14.5 to $23.55, volatility 65.15% to 206.42%, expected life 6.0 years, and risk-free rate of 2.33% to 3.11%.
The Company is expensing these options on a straight-line basis over the requisite service period.
As of December 31, 2017, there was $4,362,541 all unrecognized compensation cost related to an aggregate of 592,249 of non-vested stock option
awards and $385,331 related to an aggregate of 34,105 of non-vested restricted stock awards. Restricted stock awards under long-term incentive plan is not
accounted for as attendant could chose to surrender part of the restricted stock awards for individual income tax payment purpose. These costs are expected to be
recognized over a weighted-average period of 2.29 years for the stock options awards and 1.37 years for the restricted stock awards.
During the year ended December 31, 2017, the Company issued an aggregate of 547,793 options under the 2011 Plan, 2013 Plan and 2014 Plan to
officers, directors, employees and advisors. The grant date fair value of these options was $4,600,926 using Black-Scholes option valuation models with the
following assumptions: grant date strike price from $5.3 to $13.2, volatility 85.41% to 89.62%, expected life 6.0 years, and risk-free rate of 1.86% to 2.29%. The
Company is expensing these options on a straight-line basis over the requisite service period.
F-23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following table summarizes stock option activity as of December 31, 2018 and 2017 and for the year ended December 31, 2018:
Outstanding at December 31, 2016
Grants
Forfeitures
Exercises
Outstanding at December 31, 2017
Grants
Forfeitures
Exercises
Outstanding at December 31, 2018
Number of
Options
Weighted-
Average Exercise
Price
$
1,607,815
547,793
(206,019)
(57,400)
1,892,189
244,682
(72,076)
(235,929)
1,828,866
$
$
12.59
11.34
20.68
5.37
11.54
18.68
13.95
7.01
12.41
Weighted-
Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic Value
7.3
$
6,355,072
7.0
$
4,909,194
6.5
$
11,496,058
Vested and exercisable at December 31, 2018
1,336,526
$
11.32
5.7
$
10,018,369
Exercise
Price
Outstanding
Exercisable
Number of Options
$3.00 - $4.95
$5.00 - $9.19
$9.20 - $15.00
$15.01 - $20.00
$20.10+
185,547
464,464
522,865
493,490
162,500
1,828,866
185,547
429,592
325,911
262,976
132,500
1,336,526
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, 2018, 2017 and 2016 was
$2,738,866, $308,371 and $885,680, respectively.
F-24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 14 – 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:
For the Year Ended
December 31,
2018
2017
2016
Net loss
$ (38,945,492)
$ (25,490,310)
$ (28,208,376)
Weighted average shares of common stock
Dilutive effect of stock options
Restricted stock vested not issued
Common stock and common stock equivalents
17,741,104
-
-
17,741,104
14,345,604
-
-
14,345,604
13,507,408
-
-
13,507,408
Net loss per basic and diluted share
$
(2.20)
$
(1.78)
$
(2.09)
Basic and diluted net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period,
without consideration for common stock equivalents. The Company’s potentially dilutive shares, which include unvested restricted stock and options to purchase
common stock, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.
NOTE 15 – 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, 2018, 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-25
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following represent components of the income tax (expense) credit for the year ended December 31, 2018, 2017 and 2016:
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,
2018
2017
2016
$
$
$
$
$
-
(2,475)
(2,479)
(4,954)
-
-
-
-
$
$
$
$
-
(2,450)
-
(2,450)
-
-
-
-
$
$
$
$
-
(4,093)
-
(4,093)
-
-
-
-
(4,954)
$
(2,450)
$
(4,093)
Tax effects of temporary differences that give rise to significant portions of the Company's deferred tax assets at December 31, 2018 and 2017 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)
Property and equipment
Goodwill & intangibles
Subtotal
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Property and equipment
Subtotal
Net deferred tax asset
December 31,
December 31,
2018
2017
$
$
10,124,478
5,670,678
429,013
128,207
3,665,226
2,363,843
395,112
(19,675)
827,994
23,584,876
(23,584,876)
-
5,448,339
3,864,824
588,277
83,071
2,315,801
1,893,532
217,329
123
49,653
14,460,949
(14,460,949)
-
-
-
$
-
$
-
-
-
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).
On December 22, 2017, US President signed tax reform bill (Tax Cut and Jobs Act (H.R.1)) and reduced top corporate tax rate from 35% to 21% effective
from January 1, 2018. Pursuant to this new Act, non-operating loss carry back period is eliminated and an indefinite carry forward period is permitted. As of
December 31, 2018, the Company had net operating loss carryforwards of $22.8 million for U.S federal purposes, $17.2 million for U.S. state purposes.
F-26
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Company's effective tax rate differs from statutory rates of 21% 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 CBMG Shanghai, SH SBM and AG.
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% from 2015. CBMG Shanghai re-applied
and SH SBM applied for the certificate of “advanced and new technology enterprise” in 2018. Both of them received preliminary approval in November 2018 and
are now in the public announcement period. Final approval will be obtained if there is no objection raised during the public announcement period. On August 23,
2018, State Administration of Taxation (“SAT”) issued a Bulletin on Enterprise Income Tax Issues Related to the Extension of Loss Carry-forward Period for
Advanced and New Technology Enterprises and Small and Medium-sized Technology Enterprises (“Bulletin 45”). According to the Bulletin 45, an enterprise that
obtains the two type of qualification in 2018, is allowed to carry forward all its prior year loss incurred between 2013 and 2017 to up to ten years instead of five
years. Same for the enterprise obtains the qualification after 2018. AG was certified as a “small and micro enterprise” in its 2017 annual tax filing and enjoys the
preferential income tax rate of 20%. AG’s eligibility for the reduced tax rate will need to be verified annually.
As of December 31, 2018, the Company had net operating loss carryforwards of $16.8 million and $16.3 million for Chinese income tax purposes, which
are set to expire in 2023 and 2028 for 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.
Income tax expense for year ended December 31, 2018, 2017 and 2016 differed from the amounts computed by applying the statutory federal income tax
rate of 21%/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
Rate deduction
Foreign rate differential
Other permanent difference
Change in valuation allowance
Total tax credit (expense)
NOTE 16 – COLLABORATION AGREEMENT
For the Year
Ended
December 31,
2018
For the Year
Ended
December 31,
2017
For the Year
Ended
December 31,
2016
21%
0%
(3)%
0%
(1)%
(17)%
35%
0%
(20)%
(13)%
(2)%
0%
0%
0%
35%
0%
0%
(9)%
(2)%
(24)%
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, 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-27
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 17 – SEGMENT INFORMATION
The Company is engaged in the development of new treatments for cancerous and degenerative diseases utilizing proprietary cell-based technologies,
which have been organized as one reporting segment as they have substantially similar economic characteristic since they have similar nature and economic
characteristics. The Company’s principle operating decision maker, the Chief Executive Officer, receives and reviews the result of the operation for all major cell
platforms as a whole when making decisions about allocating resources and assessing performance of the Company. In accordance with FASB ASC 280-10, the
Company is not required to report the segment information.
NOTE 18 – COMPARATIVE FIGURES
Lease deposits of $690,870 might be recovered over one year considering the lease term, the Company reclassified it from other receivables to other
long-term assets. Comparative figures of $732,098 have been reclassified to conform with the current period’s presentation to facilitate comparison.
NOTE 19 – SUBSEQUENT EVENTS
On January 17, 2019, the Company was approved to conduct a Phase II clinical trial in China for its AlloJoin® Therapy for Knee Osteoarthritis (KOA).
On January 19, 2019, SH SBM entered into a credit agreement (the “Credit Agreement”) with China Merchants Bank, Shanghai Branch (the “Merchants
Bank”). Pursuant to the Credit Agreement, the Merchants Bank agreed to extend credit of up to RMB 100 million (approximately $14.7 million) to SH SBM via
revolving and/or one-time credit lines. The types of credit available under the Credit Agreement, include, but not limited to, working capital loans, trade financing,
commercial draft acceptance, letters of guarantee and derivative transactions. The credit period under the Credit Agreement runs until December 30, 2019. As of
February 15, 2019, around $3.6 million had been drawn down under the Credit Agreement.
Pursuant to the Credit Agreement, SH SBM will enter into a supplemental agreement with the Merchants Bank prior to the applicable drawdown that will
set forth the terms of each borrowing thereunder (except for working capital loans), including principal, interest rate, term of loan and use of borrowing proceeds.
With regard to working capital loans to be provided pursuant to the Credit Agreement, SH SBM shall submit a withdrawal application that includes the principal
amount needed, purposes of the loan and a proposed quarterly interest rate and term of the loan for the Merchants Bank’s review and approval. The terms
approved by the bank will govern such working capital loans. The bank has the right to adjust the interest rate for working capital loans from time to time based on
changes in national policy, changes in interest rate published by the People’s Bank of China, credit market conditions and the bank’s credit policies. Upon SH
SBM’s non-compliance with the agreed use of loan proceeds, the interest rate for the amount of loan proceeds improperly used will be the original rate plus 100%
starting on the first day of such use. If SH SBM fails to pay a working capital loan on time, an extra 50% interest will be charged on the outstanding balances
starting on the first day of such default.
Pursuant to a pledge agreement which became enforceable upon execution of the Credit Agreement, Cellular Biomedicine Group Ltd. (HK), a wholly
owned subsidiary of the Company (“CBMG HK”), provided a guarantee of SH SBM’s obligations under the Credit Agreement. In connection with such guarantee,
CBMG HK deposited $17,000,000 into its account at the Merchants Bank for a 12-month period starting January 7, 2019 and also granted the Merchants Bank a
security interest in the cash deposited.
On February 14, 2019, the Company exercised its option to license AFP TCR-T from Augusta University for an undisclosed license fee. Augusta
University is entitled to certain low single digit royalty upon commercialization of the AFP TCR-T therapy.
F-28
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOTE 20 – UNAUDITED QUARTERLY FINANCIAL INFORMATION
Q4
Year ended December 31, 2018
Q2
Q3
Q1
Total
$
25,698 $
4,113
224,403
88,642
(8,519,229) (12,743,764) (9,186,076) (8,496,423) (38,945,492)
77,313 $
22,920
70,431 $
32,948
50,961 $
28,661
(0.45)
(0.72)
(0.53)
(0.51)
(2.20)
Q4
Q3
Q2
Q1
Total
Year ended December 31, 2017
$
68,691 $
37,266
336,817
174,599
(6,922,585) (6,202,214) (6,203,518) (6,161,993) (25,490,310)
106,787 $
51,493
62,914 $
24,817
98,425 $
61,023
(0.48)
(0.43)
(0.43)
(0.43)
(1.78)
F-29
Selected Income Statement Data:
Net sales and revenue
Gross Profit
Net loss
Net loss per share :
Basic and diluted
Selected Income Statement Data:
Net sales and revenue
Gross Profit
Net loss
Net loss per share :
Basic and diluted
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 10.23
House Lease Contract
Shanghai Guilin Industry Co., Ltd.
1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
House Lease Contract
SN: GK-023
Leasor: Shanghai Guilin Industry Co., Ltd.
(hereinafter referred to as "Party A")
Legal Address: Room 402, 4th Floor, No. 291 of Guiping Road, Xuhui District, Shanghai.
Legal Representative: Yu Mingfang
Duty: Chairman of the BoardTel.: 64708353
Leasee: Cellular Biomedicine (Shanghai) Co., Ltd.
(Hereinafter referred to as "Party B")
Legal Address: 6th Floor, Building No. 1, No. 333 of Guiping Road, Xuhui District, Shanghai
Legal Representative: Liu Bizuo
Duty: CEO
Tel: 54069990
In accordance with the Contract Law of the People's Republic of China , Regulations of Shanghai Municipality on House Leasing and other relevant laws and
regulations, Party A and Party B conclude the Contract with regard to the matters about Party B's leasing of the House (hereinafter referred to as "Property for
Lease") that Party A can rent out legally in the principles of good faith and mutual benefits and interests.
I. Location, Area, Facilities and Purpose of the Property for Lease
(I)
(II)
Location: 6th Floor, Building No. 1 , No. 333 of Guiping Road, Xuhui District, Shanghai.
Area: contract area of 1190 m2.
(III)
Facilities: relevant auxiliary facilities (see details in Hand-over List).
(IV)
Purpose: purpose of property leased by Party B for business and R&D(Planning documents approved by the government shall prevail).
II. Lease Term, Hand-over Date and Renewal of Lease
(I)
(II)
The lease term in the Contract is two years from December 1, 2018 to November 30, 2020. Party B enjoys the priority for leasing under the same
conditions after the Contract expires and the price shall be otherwise agreed upon.
Party A and Party B hand over the property and sign the Hand-over Confirmation Letter in accordance with status quo of the Property for Lease.
The hand-over time isMMDDYY. If Party B has not signed the Hand-over Confirmation Letter at that time, both Parties will be deemed to confirm
the hand-over in accordance with status quo of the Property for Lease. (excluding the circumstance under which the delivery of Property for Lease
is delayed due to Party A).
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(III)
Party B shall return the Property for Lease on time when the Contract expires or terminates in accordance with laws. If Party B renews the lease
when the Contract expires, Party B shall apply for renewal of lease in writing 90 days in advance before the Contract expires. If the area of the
Property for lease is more than 3000 m2, Party B shall apply for renewal of lease in writing 180 days in advance before the Contract expires
(Party B enjoys the priority for leasing under the same conditions).
Party A shall answer Party B in writing about whether it agrees the renewal of lease or not within 30 days after receipt of the written application
from Party B. If Party A agrees that Party B renews the lease, both Parties shall resign the Lease Contract upon agreement through negotiation
within 30 days. If both Parties cannot reach an agreement and resign the contract for renewal of the lease within 30 days, Party A has the right to
withdraw the Property for Lease when the lease term expires.
III. Rent, Deposit, Property Management Fee and Payment Mode
(I) Rent, Deposit
1.
Payment Principles of Rent and Deposit: paid before use; "three months' deposit and one month's rent".
(1) The settlement period of the rent between both Parties is three natural months; Party B shall pay the rent of the first period within 10
working days after the Contract comes into force and pay the rent for the very period within 3 working days after receipt of the valid invoice
for the rent of Party A thereafter.
(2) Party B shall pay the lease deposit of RMB 123066 at the same time while paying the rent for the first period of three months (the lease
deposit of Party B transferred in from the Contract of last period shall be deemed as performance guarantee). When the lease relationship
terminates, Party A shall return the deposit (including the deposit balance when the overdue rent, expenses for water, electricity, etc. of
Party B are deducted) it received to Party B with no interests within 10 working days after Party B returns the Property for Lease to Party A,
completes the hand-over work and settles all the expenses for water, electricity, communication, cancellation or change its domicile and
take the Property for Lease as its domicile (if any) and deals with all the matters.
(3) During the lease period, Party B shall not use the lease deposit to set off the rent for the Property for Lease and property management
fees.
(4) Party A shall issue a receipt after receiving the deposit paid by Party B. If the rent increases during the Lease Term, the deposit shall
increase too at the same time and Party B shall complement the deposit amount calculated in accordance with the increased rent within a
month since the day when the rent increases.
2.
Rent Standards and Payment Mode
(1) The rent is calculated in accordance with the contract area, which is RMB 4.6/m2 per day. The rent is RMB 166500 for each month, RMB
499500 for each quarter and 1998000 for each year (in words: RMB ONE MILLION NINE HUNDRED AND NINTY EIGHT THOUSAND ).
(2) Payment Mode of the Rent: the rent for the very period (totally three months) shall be paid off by Party B before 10th of the first month of
each period, the rent for the second and later periods shall be paid also in such a way until the Contract Term expires. The rent is settled
through bank transfer or by cheque. If the payment of Party B delays, Party B shall pay overdue fines and the overdue fine is 0.5‰ of the
total amount of overdue rent each day.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(II) Property Management Fees and Payment Mode
1.
2.
The payment and receipt of the Property Management Fees and other expenses shall be agreed upon by the property management companies
designated by Party A and Party B in the Property Management Agreement.
Problems that occur during the performance of the Property Management Agreement by the property management companies shall be subject to
the coordination, regulation and mediation of Party A.
IV. Rights and Obligations of Both Parties
(I) Rights and Obligations of Party A
1.
2.
3.
4.
Party A guarantees that it has the right to lease the Property for Lease and ensures that Party B can use the Property for Lease safely during the
Lease Term and that it will not interfere with the normal operating activities of Party B.
Party A shall provide assistance and relevant materials (subject to Party A's possession) to Party B when Party B go through the procedures by
itself for the application of all kinds of licenses required fort the operation.
If Party A changes the obligee of the Property for Lease due to sale, transfer and other reasons during the lease term, it shall guarantee that the
right of Party B to use the Property for Lease survives and assist Party B to complete relevant procedures.
Party A enjoys the right to charge the expenses for rent, water, electricity and communication, etc. as agreed. If Party B fails to pay relevant
expenses in full amount on schedule, Party A is entitled to collect overdue fines of 0.5‰ of the overdue amount each day
5.
Party A shall enjoy or perform other rights and obligations as agreed in the Contract or stipulated by laws and regulations.
(II) Rights and Obligations of Party B
1.
2.
3.
Party B guarantees to use the Property for Lease, operate legally and pay all kinds of operating and management fees incurred after leasing the
Property for Lease in accordance with laws as agreed or pursuant to relevant policies and regulations.
Party B shall not sublease or transfer the Property for Lease (unless the prior written consent of Party A is obtained), change the use subject
agreed by both Parties and use any asset in the Property for Lease for mortgage or guarantee. Party B ensures that the decoration and
ornamental properties in the Property for Lease are free from any right of the third party.
Party B's transformation or decoration within the scope of the Property for Lease shall comply with laws, regulations and policies and be subject to
the regulation of relevant government departments. The decoration plan of Party B shall be subject to the prior written consent of Party A.
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4.
Party B shall bear the obligations for the daily maintenance and guard of the Property for Lease and ensure that the environment in the Property
for Lease complies with the requirements for environmental protection, public security and fire protection, etc. Party A shall be responsible for the
repair of natural damage of the structure and outer wall and roof of the Property for Lease under the Contract and Party B shall be liable for the
repair of other parts and any part transformed or decorated by Party B of the Property for Lease.
5.
Party A shall enjoy or perform other rights and obligations as agreed in the Contract or stipulated by laws and regulations.
V. Return of Property for Lease
(I)
(II)
Party B is liable to restore the Property for Lease into its original state (excluding reasonable wear and tear) in accordance with the standards for
the hand-over of Property for Lease listed in the Hand-over Confirmation Letter agreed in the Contract when the Contract is terminated or expires.
Only after Party A inspects and accepts the Property for Lease after it is returned by Party B can Party B go through the procedures for canceling
of the lease. Otherwise, Party A has the right to restore the Property for Lease into its original state and deduct relevant expenses from the lease
deposit; if the lease deposit is not enough to set off relevant expenses, Party A has the right to recourse for such expenses.
If Party B hopes not to restore the Property for Lease into its original state and return the Property for Lease with the added or transformed
decoration and auxiliary facilities reserved, Party B shall apply in writing to Party A 30 days in advance before the Contract expires. If Party A
agrees that Party B needs not to restore the Property for Lease into its original state, the ornaments and decoration formed by Party B's
investment shall belong to Party A for free. Party B agrees that the movable properties of Party B which cannot be moved out within 10 days after
the Contract between both Parties expires or is terminated legally shall be owned by Party A for free, excluding the properties on which Party A
exercises the right of lien. And Party B shall provide complete drawings, fire protection acceptance certificate, quality guarantee certificate,
operation instruction with regard to all the left decoration and auxiliary facilities.
(III)
If Party B has not paid off relevant expenses when the Property for Lease is returned upon release or termination of the Contract and any
economic loss is incurred to Party A due to Party B, Party A is entitled to deduct relevant expenses from the lease deposit with the left amount
being returned to Party B with no interests. If the lease deposit is not enough to set off relevant expenses, Party A has the right to recourse for
such expenses.
(IV) When the Contract is released or terminated and if Party B has ever taken the Property for Lease as the registration address, Party B shall
complete the procedures for the change of registration address before the Contract is released or terminated. If Party B has not completed the
procedures for change within 15 working days after the Contract is released or terminated, the lease deposit will not be returned, unless both
Parties reach an agreement through negotiation and Party A agrees that Party B keeps the registration address.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(V)
(VI)
Party B shall return the Property for Lease within 5 working days from the day when the Contract expires or is terminated in advance for any
reason and if Party B fails to return the Property for Lease on schedule without the consent of Party B, Party B shall pay the use fee of 2 times
rent to Party A during the period when it occupies the Property for Lease for each overdue day, unless Party A agrees that Party B renew the
lease and sign the renewal contract. If Party B cancels the Contract in advance, the deposit will not be returned.
Party B agrees that if Party B fails to perform the obligations to restore the Property for Lease into its original state and return the Property for
Lease with more than 5 working days overdue, Party A has the right to enter into the Property for Lease by itself through written notification to
Party B 5 working days in advance; at the same time, Party B is deemed as giving up by itself the ownership or use right of the decoration,
facilities, equipment and other items which are dismantled or removed within the Property for Lease, including the equipment and items which are
deemed to belong to Party B (whether belong to Party B or the third party); Party A is entitled to dispose on its own and any legal right involving
the third party shall be compensated by Party B. The expenses of Party A to restore the Property for Lease into its original state on behalf of Party
B shall be undertaken by Party B. The Property for Lease shall be deemed as returned to Party A when Party A enters into the Property for Lease.
VI. Special Agreement Between Both Parties
(I)
(II)
(III)
(IV)
Both Parties agree that Party B shall register this Property for Lease as the address of its Company within 90 days after the Contract comes into
force. The taxes of the Company registering this Property for Lease as its address shall be collected within the scope of Huajing County, Xuhui
District and meeting the annual tax contribution requirements per unit of the lease area (specific information can be seen in the Attachments). If
the taxes have not met the annual tax contribution requirements of the place where it is registered, Party A has the right to collect at least another
10% rent on the basis of the rent of last year. If Party B meets the tax requirements, Party A can coordinate and apply to the government for
preferential financial supports for Party B.
Both Parties agree that the lease invoice under the Contract shall be issued by Party A and the payment shall be made into the bank account
issued by Party A.
Party B shall purchase insurance for properties in the Property for Lease and other necessary insurances within the Valid Term of the Contract.
Losses or risk responsibilities incurred during the use of Property for Lease without buying insurance shall be undertaken by the using party.
Party A provides the electricity with a upper limit of 120 KVA needed by Party B. Party B shall undertake relevant electricity expenses with regard
to the electricity consumption amount and in accordance with the electricity price calculated by the property management company of the building.
Party B shall propose an application to increase electricity needs and it can use such increased electricity only with the approval of Party A. Party
B shall undertake all the expenses to increase the capacitance.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(V)
Party A shall install independent meters to measure water and electricity for Party B; if the water and electricity interfaces are connected to the
floor of the Property for Lease, Party A does not undertake relevant responsibilities if measures to stop the use of water and electricity are taken in
case of peak of use of water and electricity or without prior notification by relevant departments and Party B is influenced by such measures.
(VI)
All the parking spaces of Party A shall all be managed with fees charged. (See details in Property Management Agreement).
(VII)
If Party B needs to set up a advertisement board on the building of the Property for Lease, it shall obtain the written consent of Party A and submit
to Party A for filing after completing relevant approval procedures in accordance with relevant stipulations of the government.
(VIII) Both Parties must sign the Agreement for Fire Protection, Safe Manufacturing and Operation Responsibilities while performing the Contract, the
specific rights and obligations of such agreement shall be concluded independently.
VII. Conditions for Release of the Contract
(I)
Both Parties agree that any of the following circumstances shall be deemed as a force majeure within the lease term. At that time, the Contract
shall terminate naturally and both Parties undertake no responsibilities to each other, but Party A shall provide relevant documents and notify Party
B in a timely manner:
1.
2.
3.
4.
The use right of the land within the occupation scope of the Property for Lease is taken back by the government.
The Property for Lease is expropriated in accordance with laws for social public interests.
The Property for Lease needs to be included in the demolition permit scope due to city construction.
Both Parties agree the serious natural disasters such as earthquake, fire disaster, typhoon and government actions occur during the
Contract Term which cause that both Parties cannot realize the contract purpose shall be deemed as force majures.
(II)
Both Parties agree that a Party can terminate the Contract unilaterally through notification to the other Party and is entitled to call the breaching
party into account for breach of the Contract in accordance with laws in case of any of the following circumstances:
7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
1.
2.
3.
4.
5.
6.
7.
VIII. Default Liabilities
Party A fails to deliver the Property for Lease on time and still has not delivered within 10 working days after being reminded by Party B.
The Property for Lease does not comply with the agreements in the Contract when Party A delivers the Property for Lease, which causes
Party B cannot use the Property for Lease lawfully, or the Property for Lease delivered by Party A threatens the safety of the Party B during
Party B's use of the Property for Lease.
Party B changes the use purpose of the Property for Lease arbitrarily.
The main body structure of the Property for Lease is damaged due to Party B.
Party B subleases or transfers the rights of the Property for Lease arbitrarily.
Party B fails to pay the rent with more than 30 days overdue accumulated.
Party B fails to perform the obligations stipulated in Clause (I), Article VI in the Contract.
(I)
(II)
(III)
(IV)
The failure of any Party to the Contract to perform the obligations in accordance with this Contract shall be deemed as the breach of the Contract.
The breaching party shall assume civil liabilities in accordance with the Contract, laws and regulations and pay the liquidated damage of 2 times of
a month's rent to the other party. If the liquidated damage of the breaching party cannot set off the losses of the non-breaching party, the balance
between the actual loss and the liquidated damage shall be compensated by the breaching party.
If Party A fails to deliver the Property for Lease on schedule through no fault of Party B (agreed by both Parties, excluding that Party A delays the
delivery of the Property for Lease), the Contract shall terminate naturally; Party B is entitled to hold Party A responsible for breach of the Contract
and the amount of the liquidated damage shall be the same as the deposit which shall be paid by Party B.
If Party B fails to pay the deposit on schedule in accordance with Article 3 of the Contract through no fault of Party A (agreed by both Parties,
excluding that Party A delays the delivery of the Property for Lease), the Contract shall terminate naturally; Party A is entitled to hold Party B
responsible for breach of the Contract and the amount of the liquidated damage shall be the same as the deposit which shall be paid by Party B.
Party B confirms that if Party B delays the payment of rent and property management fee, etc. during the lease term and still fails to make such
payment within 10 working days after receiving written notification from Party A, Party A has the right to stop all the services with regard to the
Property for Lease. All the consequences incurred therefrom shall be undertaken by Party B and Party A undertakes no liability.
IX. Dispute Resolution
(I)
The content unspecified in this Contract or the disputes between both Parties shall be settled friendly.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(II)
If both Parties have no common opinion or program within 15 days after one Party proposes a written opinion or solution, any Party can settle in
accordance with laws.
X. Supplementary Provisions
(I)
(II)
(III)
The change of the Contract shall be agreed by both Parties through negotiation. For matters unspecified or uncovered in the Contract which are
necessary to specify, supplementary agreement shall be concluded independently. The supplementary agreement, correspondences, faxes, etc.
between both Parties and agreed by them in writing are all the valid components of the Contract.
The address or main business place and telephone number in the Contract between both Parties are all valid mailing address. In case of any
change to the address or main business place and telephone number, the changing Party shall notify the other Party within a week from the day
of such change; failure to give notification shall not influence the legal force of the content in the letters or faxes of the other Party.
Taxes incurred by the Contract shall be undertaken by both Parties by law respectively. If the Contract needs to be filed for registration, both
Parties shall file to relevant authorities for registration of the Contract. Whether both Parties file for registration of the Contract shall not influence
the legal force of the Contract.
(IV)
The representatives of both Parties have no objection to the contract area in the Contract.
(V)
The Contract comes into force since the day when it is signed and sealed by both Parties and the Witnessing Party.
(VI)
The Contract is made in quintuplicate, with two held by both Parties respectively and one by the Witnessing Party.
(The text of the Contract is 10 pages totally. The following one is the page for signature with no text.)
9
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Party A: Shanghai Guilin Industry Co., Ltd. (Seal)
Authorized Representative:
Legal Representative:
Party B: Cellular Biomedicine (Shanghai) Co., Ltd. (Seal)
Authorized Representative:
Legal Representative:
The Witnessing Party: Shanghai Huajing Enterprise Consultation Service Center (Seal)
Contract Signing Date: August 30, 2018
Attachments:
1. A copy of the business license (including tax registration certificate and special license, etc.) and the ID card of the legal representative of Party B
respectively;
2. A copy of the drawing attached to the graph of the location and area of the Property for Lease;
3. The hand-over List of the Property for Lease and facilities and equipment between both Parties;
4. A copy of the tax payment record of recent years of Party B (excluding newly established companies);
5. A copy of the Property Management Agreement;
6. A copy of the Agreement for Fire Protection, Safe Manufacturing and Operation Responsibilities
7. A copy of the annual tax contribution schedule per square meter;
8. Others:
10
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LICENSE AGREEMENT
Exhibit 10.35
This License Agreement (this “Agreement”) dated as of February 14, 2019 (the “Effective Date”), by and between Augusta University Research Institute,
Inc., having an office at 1120 15th Street, Augusta, Georgia 30912 (“AURI”) and Cellular Biomedicine Group HK Ltd., a Hong Kong corporation, and its Affiliates,
as defined herein, with its principal place of business at Unit 402, 4th Floor, Fairmont House, No. 8 Cotton Tree Drive, Admiralty, Hong Kong ("CBMG"). AURI and
CBMG are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.
1 BACKGROUND
WHEREAS, AURI is the assignee of invention " Human Alpha Fetoprotein-Specific T Cell Receptors and Uses Thereof" invented in the laboratory of
Augusta University faculty, Dr. Yukai He, and described in in US patent application #15/969,211 and PCT patent application #PCT/US2018/030637; and
WHEREAS, CBMG desires to obtain, and AURI is willing to grant, an exclusive license in the Field (as defined below) under AURI’s rights in the Licensed
Patent Rights (as defined below) to develop and commercialize according to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the Parties hereby agree as follows:
2 DEFINITIONS
For purposes of this Agreement, the terms defined in this Section shall have the respective meanings set forth below:
2.1 “Affiliate” shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by, or is under common control
with, such Person. A Person shall be regarded as in control of another Person if it directly or indirectly possesses the power to direct or cause the direction of the
management and policies of the other Person by any means whatsoever.
2.2 “Commercially Reasonable Efforts” means, with respect to the efforts to be expended to research, develop, and commercialize the Licensed Product
in the Field in at least one country in a Major Market, such efforts materially consistent with the efforts and resources normally used by a prudent company in the
biopharmaceutical industry of a size comparable to CBMG, with respect to a biopharmaceutical product for which the same regulatory approval is held as the
Licensed Product, which biopharmaceutical product is owned or licensed in the same manner as the Licensed Product, which biopharmaceutical product is at a
similar stage in its product life and of similar market and profit potential as the Licensed Product, taking into account intellectual property protection, efficacy, safety,
approved labeling, the competitiveness of the market, the proprietary position of the biopharmaceutical product, the regulatory requirements involved, pricing /
reimbursement for the biopharmaceutical product, the profitability of the biopharmaceutical product, and other relevant factors, all as measured by the facts and
circumstances in existence at the time such efforts are due.
2.3 “Field” shall mean all commercial research, development, fields, applications, and uses.
2.4 “First Commercial Sale” shall mean, with respect to any Licensed Product, the earliest date of sale of a Licensed Product by CBMG, its Affiliates or
any of its Sublicensees. Any first sale of a Licensed Product shall only qualify as a First Commercial Sale if the Licensed Product has been approved for
commercialization in the applicable jurisdiction. The transfer of Licensed Products by CBMG, its Affiliates or its Sublicensees strictly for internal purposes, testing,
expanded access programs or compassionate use does not constitute a First Commercial Sale.
1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2.5 “Licensed Patent Rights” shall mean (a) US patent application #15/969,211 and PCT patent application #PCT/US2018/030637, all patent applications
generated thereon, and all foreign counterparts thereto; (b) all patents that have issued or in the future shall issue therefrom, including utility, model and design
patents and certificates of invention; and (c) all divisionals, continuations, continuations-in-part, reissues, renewals, reexaminations, extensions or additions to any
such patent applications and patents.
2.6 “Licensed Product” shall mean a product in the Field, which, if made, used, offered for sale, sold or imported in any country, would infringe a Valid
Patent Claim in such country, but for the license granted by this Agreement.
2.7 “Major Market” shall mean the United States of America, the European Union, the Middle East, the United Kingdom, Canada, Australia, Japan, South
Korea, China, Taiwan, and India.
2.8 “Net Sales” shall mean the gross amount billed by CBMG and its Affiliates and Sublicensees for the sale of Licensed Products to a third party, less the
following:
taken;
(a) customary trade, quantity, prompt payment or cash rebates or other discounts, incentives or adjustments to the extent actually allowed and
(b) amounts repaid or credited by reason of rejection, claim, refund, allowance, damaged goods, retroactive price reduction, trade, or return;
(c) to the extent separately stated on purchase orders, invoices, or other documents of sale, any taxes or other governmental charges levied on
the production, sale, transportation, delivery, or use of a Licensed Product which is paid by or on behalf of CBMG; and
(d) outbound transportation, postage, shipping, packing, storage, and delivery costs, and costs of insurance in transit;
(e) non-affiliated brokers’ or agents’ commissions actually allowed;
(f) rebates and chargebacks provided to managed health care organizations, international organizations or federal, state, local or other
governments, including, in the United States, Medicare and Medicaid; and
(g) actual uncollectable accounts receivables determined in accordance with GAAP, consistently applied.
No deductions shall be made for commissions paid to individuals who are regularly employed by CBMG and on its payroll, or for cost of collections. Net
Sales shall occur on the date of billing for a Licensed Product. If a Licensed Product is distributed at a discounted price that is substantially lower than the
customary price charged by CBMG, or distributed for non-cash consideration (whether or not at a discount), Net Sales shall be calculated based on the non-
discounted (other than discounts allowed pursuant to clause (a) above) amount of the Licensed Product charged to an independent third party during the same
Reporting Period in the same country or, in the absence of such sales, on the fair market value of the Licensed Product.
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If CBMG, any Affiliate, or any Sublicensee sells any Licensed Products with any other goods or services, Net Sales will be calculated based on the fair
market value of the Licensed Product.
2.9 “Person” shall mean an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.
2.10 “Royalty Term” shall mean, with respect to each Licensed Product in each country, the term for which a Valid Patent Claim in such country remains in
effect and would, if in an issued patent, be infringed by the manufacture, use, offer for sale, sale or import of such Licensed Product in such country but for the
license granted by this Agreement.
2.11 “Third Party” shall mean any Person other than AURI, CBMG and their respective Affiliates.
2.12 “Valid Patent Claim” shall mean either (a) a claim of an issued and unexpired patent included within the Licensed Patent Rights, which has not been
canceled, abandoned, held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or
otherwise or (b) a claim of a pending patent application included within the Licensed Patent Rights, which claim was filed in good faith and has not been
abandoned or finally disallowed without the possibility of appeal or refiling of such application, and which claim has not been pending for more than eight (8) years
from the earliest claimed priority date.
3 REPRESENTATIONS AND WARRANTIES
AURI hereby represents and warrants to CBMG as follows:
3.1 AURI (a) is a 501 (c) (3) not-for-profit duly organized, validly existing and in good standing under the laws of the State of Georgia; (b) has the corporate
power and authority and the legal right to own and operate its property and assets, to lease the property and assets it operates under lease, and to carry on its
business as it is now being conducted and (c) is in compliance with all requirements of applicable law, except to the extent that any noncompliance would not have
a material adverse effect on the properties, business, financial or other condition of it and would not materially adversely affect its ability to perform its obligations
under this Agreement.
3.2 AURI (a) has the corporate power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder and (b) has
taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This
Agreement has been duly executed and delivered on behalf of AURI, and constitutes a legal, valid, binding obligation, enforceable against AURI in accordance with
its terms.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3.3 All necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by AURI in connection
with this Agreement have been obtained.
3.4 AURI is the legal and beneficial owner of all right, title and interest in and to the Licensed Patent Rights, having good title thereto, free and clear of any
and all mortgages, liens, security interest and charges, and no Person has or shall have any claim of ownership with respect to the Licensed Patent Rights. Except
as otherwise set forth in this Agreement, AURI has not sold, assigned, conveyed, mortgaged, encumbered, transferred or granted any license or other right under
the Licensed Patent Rights to any Person to develop, make, have made, use and sell Licensed Products for use in the Field.
3.5 To the best of AURI’s knowledge, neither the use of the Licensed Patent Rights nor the granting of this license to practice under the Licensed Patent
Rights violates, infringes or otherwise conflicts or interferes with any patent or any other intellectual property or proprietary right of any Third Party. To the best of
AURI’s knowledge, no Third Party is currently infringing upon the Licensed Patent Rights.
CBMG hereby represents and warrants to AURI as follows:
3.6 CBMG (a) has the corporate power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder and (b) has
taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This
Agreement has been duly executed and delivered on behalf of CBMG, and constitutes a legal, valid, binding obligation, enforceable against CBMG in accordance
with its terms.
3.7 CBMG (a) is a corporation duly organized, validly existing and in good standing under the laws of Hong Kong; (b) has the corporate power and
authority and the legal right to own and operate its property and assets, to lease the property and assets it operates under lease, and to carry on its business as it
is now being conducted and (c) is in compliance with all requirements of applicable law, except to the extent that any noncompliance would not have a material
adverse effect on the properties, business, financial or other condition of it and would not materially adversely affect its ability to perform its obligations under this
Agreement.
3.9 All necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by CBMG in
connection with this Agreement have been obtained.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
4 LICENSE GRANT
4.1 AURI hereby grants to CBMG and its Affiliates an exclusive worldwide license (with the right to grant sublicenses) under the Licensed Patent Rights to
make, have made, use, research, develop, have used, sell, have sold, offer for sale and import Licensed Products in the Field.
4.2 CBMG shall deliver to AURI a copy of each sublicense, with appropriate redactions as determined solely by CBMG, under this Agreement promptly
after execution of the same. Each sublicense shall be subject to the terms and conditions of this Agreement. Sublicense agreements shall automatically terminate
upon termination of this license. Any Third Party to which CBMG or its Affiliates granted a sublicense under the Licensed Patent Rights (each, a “Sublicensee”) not
then in default shall have the right to seek a license from AURI. AURI agrees to negotiate such licenses in good faith under reasonable terms and conditions.
4.3 It is expressly agreed that, notwithstanding any provisions herein, AURI and Augusta University retains the right on behalf of itself and all other non-
profit research institutions to practice under the Licensed Patent Rights for non-commercial research, teaching, and educational purposes. Should AURI or
Augusta University grant any Licensed Patent Rights to a Third Party for non-commercial research, teaching, and educational purposes, AURI shall promptly notify
CBMG. Furthermore, AURI and Augusta University shall be free to publish data from Licensed Patent Rights, as they see fit, provided such data does not include
CBMG Confidential Information (defined in Section 9.1). AURI and Augusta University shall disclose any publication materials related to the Licensed Patent
Rights to CBMG prior to publication so that CBMG will have at least thirty (30) days prior to publication to review and provide comments and/or to request edits
regarding intellectual property. Further, upon CBMG’s reasonable request, AURI and Augusta University will delay publication for no more than 45 additional days
to permit patent filing on such intellectual property. CBMG acknowledges that the U.S. federal government retains a royalty-free, non-exclusive, non-transferable
license to practice any government-funded invention claimed in any Licensed Patent Rights as set forth in 35 U.S.C. §§ 201-211, and the regulations promulgated
thereunder, as amended, or any successor statutes or regulations.
5 ROYALTIES, LICENSE FEES
5.1 In consideration for the license granted hereunder, within thirty (30) days of execution of this Agreement, CBMG shall pay to AURI a one-time, non-
refundable, non-creditable license fee in an amount equal to [***].
5.2 In consideration for the license granted hereunder, until the end of the Royalty Term or earlier termination thereof, CBMG shall pay to AURI running
royalties on Net Sales of Licensed Products by CBMG, its Affiliates and Sublicensees as follows:
a. [***] beginning on the Effective Date;
b. Royalties shall be due and payable on a quarterly basis and shall be submitted by CBMG along with the report as specified in Section 6.1
below.
5.3 If CBMG is required to take a license under any Third Party patents to use the Licensed Patent Rights, then [***].
5.4 For any non-royalty consideration that is comprised of either monetary instruments or quantifiable in-kind remuneration received by CBMG by
sublicense agreement from Sublicensees, [***].
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
6 ROYALTY REPORTS AND ACCOUNTING
6.1 During the term of this Agreement following the First Commercial Sale of a Licensed Product, CBMG shall furnish to AURI a quarterly written report
showing in reasonably specific detail, on a country by country basis, (a) the Net Sales of each Licensed Product sold by CBMG, its Affiliates and its Sublicensees
during the reporting period; (b) the royalties payable in United States dollars, if any, which shall have accrued hereunder based upon Net Sales of each Licensed
Product; (c) the withholding taxes, if any, required by law to be deducted in respect of such sales; (d) the date of the First Commercial Sales of each Licensed
Product in each country during the reporting period; and (e) the exchange rates used in determining the amount of United States dollars.
With respect to sales of Licensed Products invoiced in United States dollars, Net Sales and royalties payable shall be expressed in United States dollars.
With respect to sales of Licensed Products invoiced in a currency other than United States dollars, Net Sales and royalties payable shall be expressed in the
domestic currency of the Person making the sale together with the United States dollar equivalent of the royalty payable, calculated using the average closing
buying rate for such currency quoted in the continental terms method of quoting exchange rates (local currency per US$1) by the Wall Street Journal on the last
business day of each month in the calendar quarter prior to the date of payment.
CBMG may withhold taxes on the amounts otherwise payable to AURI under this agreement as required by applicable law. The Parties agree to cooperate
in good faith to reduce or eliminate the amount of any such withholding taxes under the provisions of applicable law, including the provisions of any applicable
income tax treaty. As may be required under applicable law in order to reduce or eliminate the amount of any withholding tax, AURI shall be entitled to timely
provide to CBMG a duly and properly executed certificate of exemption from withholding tax or certificate of reduced withholding tax, or such other forms as may
be required under applicable law to reduce or eliminate the amount of withholding tax, and CBMG shall withhold taxes in accordance with such duly and properly
executed certificate or forms. CBMG shall remit any withheld taxes to the relevant authorities on behalf of AURI and upon request of AURI, CBMG shall provide to
AURI appropriate evidence of the payment to the relevant authorities of the amounts withheld and remitted to the relevant authorities on behalf of AURI.
Reports shall be due on the sixtieth (60th) day following the close of each reporting period. CBMG shall keep complete and accurate records in sufficient
detail to properly reflect Net Sales and to enable the royalties payable hereunder to be determined.
6.2 Upon the written request of AURI and not more than once in each calendar year, CBMG shall permit an independent certified public accounting firm of
nationally recognized standing, selected by AURI and reasonably acceptable to CBMG, at AURI’s expense, to have access during normal business hours to such
of the records of CBMG as may be reasonably necessary to verify the accuracy of the royalty reports hereunder for any year ending not more than thirty-six (36)
months prior to the date of such request. The accounting firm shall disclose to AURI only whether the records are correct or not and the details concerning any
specific discrepancies. No other information shall be shared.
If such accounting firm concludes that additional royalties were owed during such period, CBMG shall pay the additional royalties within thirty (30) days of
the date AURI delivers to CBMG such accounting firm’s written report documenting the royalty underpayment. The fees charged by such accounting firm shall be
paid by AURI; provided, however, if the audit discloses that the royalties payable by CBMG for the audited period are more than [***] of the royalties actually paid
for such period, and the difference between royalties payable and royalties paid is greater than [***], then CBMG shall pay the reasonable fees and expenses
charged by such accounting firm.
6.3 CBMG shall include in each sublicense granted by it pursuant to this Agreement a provision requiring the Sublicensee to make reports to CBMG, to
keep and maintain records of sales made pursuant to such sublicense and to grant AURI’s independent accountant access to such records to the same extent
required of CBMG under this Agreement.
6.4 AURI shall treat all financial information subject to review under this Section 6 or under any sublicense agreement as Confidential Information pursuant
to Section 9 below, and shall cause its accounting firm to retain all such financial information in confidence.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
7 PAYMENTS
7.1 Royalties shown to have accrued in the quarter covered by each royalty report provided for under Section 6 of this Agreement shall be due and payable
on the date such royalty report is due. Payment of royalties in whole or in part may be made in advance of such due date.
7.2 All payments by CBMG to AURI under this Agreement shall be paid in United States dollars, and all such payments shall be made by bank wire
transfer in immediately available funds to such account as AURI shall designate before such payment is due. CBMG shall be responsible for any foreign
transaction fees.
7.3 If at any time legal restrictions prevent the prompt remittance of part or all royalties with respect to any country where the Licensed Product is sold,
payment shall be made through such lawful means or methods as AURI reasonably shall determine.
8 RESEARCH AND DEVELOPMENT OBLIGATIONS
8.1 CBMG (a) shall use its Commercially Reasonable Efforts to develop and conduct such research, development and validation studies as necessary or
desirable to obtain all regulatory approvals to manufacture and market such Licensed Products in the Field in at least one country in a Major Market, and (b) upon
receipt of such approvals, to use Commercially Reasonable Efforts to market, each such Licensed Product in the Field in such country. CBMG, at its sole expense,
shall fund the costs of all research, development, preclinical and clinical trials, regulatory approval and commercialization of the Licensed Products.
8.2 CBMG shall maintain records, in sufficient detail and in good scientific manner appropriate for patent purposes, which shall reflect all work done and
results achieved in the performance of its research and development regarding the Licensed Patent Rights and the Licensed Products (including all data in the
form required under all applicable laws and regulations).
8.3 Within ninety (90) days following the end of each calendar year during the term of this Agreement, CBMG shall prepare and deliver to AURI a written
report which shall describe, in reasonably sufficient detail, (a) the research performed to date employing the Licensed Patent Rights, (b) the progress of the
development, and testing of Licensed Products, and (c) the status of obtaining the necessary approvals to market Licensed Products. In addition, CBMG shall
provide AURI with written notice of all material regulatory filings and submissions prior to the date of such submissions, and written notice of all approvals obtained
promptly after obtaining such approvals.
9 CONFIDENTIALITY
9.1 During the term of this Agreement, and for a period of three (3) years following the expiration or earlier termination hereof, each Party shall maintain in
confidence all written information and data provided by one Party to the other hereunder and marked “Confidential” or, if information disclosed orally, visually or in
some other form, which is summarized in writing, is confirmed in writing as “Confidential” to the other Party within thirty (30) days of such disclosure, or, if not
marked “Confidential or summarized in writing as “Confidential,” any information exchanged between the Parties under this Agreement that should reasonably be
regarded as “Confidential” (collectively, the “Confidential Information”), and shall not use, disclose or grant the use of the Confidential Information except on a
need-to-know basis to those directors, officers, employees, agents, sublicensees and permitted assignees, to the extent such disclosure is reasonably necessary
in connection with such Party’s activities as expressly authorized by this Agreement. To the extent that disclosure is authorized by this Agreement, prior to
disclosure, each Party hereto shall obtain agreement of any such Person to hold in confidence and not make use of the Confidential Information for any purpose
other than those permitted by this Agreement.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
9.2 The confidentiality obligations contained in Section 9.1 of this Agreement shall not apply to the extent that (a) (i) any receiving Party (the “Recipient”) is
required to disclose information by law, order or regulation of a governmental agency or a court of competent jurisdiction, provided that the Recipient shall provide
written notice thereof to the other Party and sufficient opportunity to object to any such disclosure or to request confidential treatment thereof at such other Party’s
sole expense, or (ii) to the extent CBMG is required to disclose information to any governmental agency for purposes of obtaining approval to test or market a
product or to show to a potential Sublicensee or contractor subject to appropriate confidentiality agreement; or (b) the Recipient can demonstrate that (i) the
disclosed information was public knowledge at the time of such disclosure to the Recipient, or thereafter became public knowledge, other than as a result of
actions of the Recipient in violation hereof; (ii) the disclosed information was rightfully known by the Recipient (as shown by its written records) prior to the date of
disclosure to the Recipient by the other Party hereunder; or (iii) the disclosed information was disclosed to the Recipient on an unrestricted basis from a source
unrelated to any Party to this Agreement and not under a duty of confidentiality to the other Party.
9.3 Each Party hereby acknowledges and agrees that, in the event of any breach or threatened breach of this Agreement by the Recipient, the disclosing
Party may suffer irreparable injury for which damages at law may not be an adequate remedy. Accordingly, without prejudice to any other rights and remedies
otherwise available to the disclosing Party, the disclosing Party shall be entitled to seek equitable relief, including injunctive relief and specific performance, for any
breach or threatened breach of this Agreement by the Recipient, its Affiliates, or any of its or their employees, directors, officers, members, agents, or
representatives.
9.4 Neither Party shall make any public announcement, issue any press release or publish any study (collectively, all such communications, “Publication”)
concerning the transactions contemplated herein, or make any Publication which includes the name of the other Party or any of its Affiliates, or otherwise use the
name or names of the other Party or any of their employees or any adaptation, abbreviation or derivative of any of them, whether oral or written, related to the
terms, conditions or subject matter of this Agreement, without the prior written permission of such other Party, except as needed for the United States Securities
and Exchange Commission or the Nasdaq Global Market or as may be required by law, regulation or judicial order. Consistent with the foregoing, each party may
state that CBMG licensed from AURI and Augusta University the Licensed Patent Rights, and describe the type and extent of the License.
10 PATENTS
10.1 CBMG shall be responsible for paying past patent costs not to exceed [***]. During the term of this Agreement, CBMG shall be responsible for and
shall have the right to advise the preparation, filing, prosecution and maintenance of the Licensed Patent Rights, and shall be responsible for paying all reasonable
out-of-pocket costs thereof. AURI shall cooperate with CBMG, execute all lawful papers and instruments and make all rightful oaths and declarations as may be
necessary in the preparation, prosecution and maintenance of all patents and other filings referred to in this Section 10.1.
10.2 If CBMG decides not to continue prosecution of a patent application to issuance or maintain any United States or foreign patent application or patent
on technology within the Licensed Patent Rights, CBMG shall timely notify AURI in writing, and such patent shall be excluded from the definition of Licensed
Patent Rights upon AURI assuming such costs.
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10.3 If CBMG or AURI has actual notice of infringement of the Licensed Patent Rights, the Parties shall confer to determine in good faith an appropriate
course of action to enforce the Licensed Patent Rights or otherwise abate the infringement thereof, to take (or refrain from taking) appropriate action to enforce
Licensed Patent Rights, to control any litigation or other enforcement action and to enter into, or permit, the settlement of any such litigation or other enforcement
action with respect to Licensed Patent Rights. Such right shall include the right to recover any damages awarded in consequence of any actual or alleged
infringement of the Licensed Patent Rights, which, after recuperation of all expenses and costs, shall be treated as Net Sales hereunder. AURI shall join any
litigation or other enforcement action to the extent required by a court in order for CBMG to exercise the rights granted by this Section 10.3.
If CBMG does not file suit to enforce the Licensed Patent Rights against at least one (1) infringing party, AURI shall have the right at its sole expense to
take (or refrain from taking) appropriate action to enforce the Licensed Patent Rights, to initiate and control any litigation or other enforcement action and to enter
into, or permit, the settlement of any such litigation or other enforcement action regarding the Licensed Patent Rights, and shall consider, in good faith, the
interests of CBMG in so doing. CBMG shall reimburse AURI for any applicable out of pocket expenses and costs.
To AURI’s actual knowledge, neither the use of the Licensed Patent Rights nor the granting of this license to practice under the Licensed Patent Rights
violates, infringes or otherwise conflicts or interferes with any patent or any other intellectual property or proprietary right of any Third Party. To AURI’s actual
knowledge, no Third Party is currently infringing upon the Licensed Patent Rights in the Field.
11 TERMINATION
11.1 Subject to the provisions of Sections 11.2 and 11.3 of this Agreement, this Agreement shall expire on the termination of CBMG’s obligation to pay
royalties to AURI under Section 5 of this Agreement. Upon expiration of the Royalty Term, the license granted to CBMG in Section 4.1 shall survive such expiration
of this Agreement, and shall be converted to a perpetual, fully paid up license.
11.2 CBMG may terminate this Agreement, in its sole discretion, upon thirty (30) days prior written notice to AURI.
11.3 Except as otherwise provided in Section 13 of this Agreement, a Party may terminate this Agreement upon or after the breach of any material
provision of this Agreement by the other Party if the other Party has not cured such breach within forty five (45) days after notice thereof by the non-breaching
Party.
11.4 Expiration or termination of this Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination, and the
provisions of Sections 9, 10, 12, 14 and 15 shall survive the expiration or termination of this Agreement.
12 INDEMNIFICATION AND INSURANCE
12.1 CBMG shall indemnify and hold AURI, the Board of Regents of the University System of Georgia on behalf of Augusta University, and both of their
respective employees, officers, board members and agents (hereinafter “Indemnitees”) harmless from all losses, liabilities, damages and expenses (including
reasonable attorneys’ fees and costs) incurred by AURI as a result of any Third Party claim, demand, action or other proceeding arising directly out of the
manufacture, use or sale of any Licensed Product by CBMG, its Affiliates or Sublicensees, or their respective distributors, customers or end-users. AURI will be
liable for its own acts and omissions to the extent permitted by law.
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12.2 CBMG shall maintain liability insurance, or self-insurance, including product liability insurance with respect to the research, development,
manufacture and sales of Licensed Products by CBMG in such amount as CBMG customarily maintains with respect to the research, development, manufacture
and sales of its other products that are at a similar stage of development. CBMG shall maintain such insurance (or self-insurance) for so long as it continues to
manufacture or sell any Licensed Products, and thereafter for so long as CBMG customarily maintains insurance (or self-insurance) for itself covering the research,
development, manufacture or sales of its other products that it no longer manufactures or sells.
13 FORCE MAJEURE
Neither Party shall be held liable or responsible to the other Party nor be deemed to have defaulted under or breached this Agreement for failure or delay
in fulfilling or performing any term of this Agreement to the extent, and for so long as, such failure or delay is caused by or results from causes beyond the
reasonable control of the affected Party including but not limited to fire, floods, embargoes, war, acts of terror, acts of war (whether war be declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority
or other Party.
14 LIMITATION OF LIABILITY
EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES FOR LOSS OF PROFITS, REVENUE, DATA OR USE, INCURRED
BY EITHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. EACH PARTY’S LIABILITY FOR DAMAGES HEREUNDER SHALL IN NO EVENT EXCEED THE AMOUNT OF
FEES PAID (OR PAYABLE) BY CBMG UNDER THIS AGREEMENT.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
15 MISCELLANEOUS
15.1 Any consent, notice or report required or permitted to be given or made under this Agreement by one of the Parties hereto to the other Party shall be
in writing, delivered by any lawful means, and addressed to such other Party at its address indicated below, or to such other address as the addressee shall have
last furnished in writing to the addressor and (except as otherwise provided in this Agreement) shall be effective upon receipt by the addressee.
If to AURI:
Augusta University Research Institute
1120 15th Street
Augusta, Georgia 30912
Attn: Executive Director
If to CBMG:
Cellular Biomedicine Group HK, Ltd.
Unit 402, 4th Floor, Fairmont House
Admiralty, Hong Kong
Attn: General Counsel
15.2 This Agreement shall be governed by the laws of the State of Georgia.
15.3 Neither Party shall assign its rights or obligations under this Agreement, in whole or in part, by operation of law or otherwise, without the prior written
consent of the other Party, which consent shall not be unreasonably withheld; provided, however, that either Party may assign its rights to the successor to all or
substantially all of its assets or business to which this Agreement relates without the other Party’s prior written consent. Any purported assignment in violation of
this Section 15.3 shall be void.
15.4 No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in
writing and signed by duly authorized representatives of the Parties hereto.
15.5 This Agreement embodies the entire understanding between the Parties and supersedes any prior understanding and agreements between and
among them respecting the subject matter hereof. There are no representations, agreements, arrangements or understandings, oral or written, between the
Parties hereto relating to the subject matter of this Agreement which are not fully expressed herein.
15.6 Any of the provisions of this Agreement which are determined to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of
such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof and without affecting the validity
or enforceability of any of the terms of this Agreement in any other jurisdiction.
15.7 The waiver by either Party hereto of any right hereunder or the failure to perform or of a breach by the other Party shall not be deemed a waiver of
any other right hereunder or of any other breach or failure by said other Party whether of a similar nature or otherwise.
15.8 This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
15.9 Nothing in this Agreement or in the course of business between AURI and CBMG shall make or constitute either Party a partner, employee or agent
of the other and the relationship between the Parties is not a partnership, joint venture or agency. Neither Party shall have any right or authority to commit or
legally bind the other in any way whatsoever including, without limitation, the making of any agreement, representation or warranty.
[SIGNATURE PAGE FOLLOWS]
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above.
AUGUSTA UNIVERSITY RESEARCH INSTITUTE, INC.
By /s/ Diego
Vazquez
Diego Vazquez
Executive Director
CELLULAR BIOMEDICINE GROUP HK LTD.
By /s/ Andrew
Chan
Andrew Chan
Director
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Cellular Biomedicine Group, Inc.
1345 Avenue of Americas, 11th Floor
New York, New York 10105
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 333- 227773, 333-223452 and 333-210337) and
Forms S-8 (File Nos. 333-223453, 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 February 19, 2019, 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, 2018.
/s/ BDO China Shu Lun Pan Certified Public Accountants LLP
BDO China Shu Lun Pan Certified Public Accountants LLP
Shenzhen, the People’s Republic of China
February 19, 2019
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: February 19, 2019
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, 2018 (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: February 19, 2019
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.