Company Quick10K Filing
Quick10K
Cellular Biomedicine Group
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-10-01 Enter Agreement, Other Events, Exhibits
8-K 2019-09-27 Regulation FD, Exhibits
8-K 2019-09-12 Regulation FD, Exhibits
8-K 2019-09-11 Regulation FD, Exhibits
8-K 2019-08-27 Enter Agreement, Exhibits
8-K 2019-07-23 Regulation FD, Exhibits
8-K 2019-06-17 Regulation FD, Exhibits
8-K 2019-05-15
8-K 2019-04-26 Shareholder Vote, Regulation FD, Exhibits
8-K 2019-04-25 Regulation FD, Exhibits
8-K 2019-04-23 Regulation FD, Exhibits
8-K 2019-03-28 Regulation FD, Exhibits
8-K 2019-03-21 Enter Agreement, Other Events, Exhibits
8-K 2019-03-20 Regulation FD, Exhibits
8-K 2019-03-01 Regulation FD, Exhibits
8-K 2019-01-19 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-01-19 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-01-17 Regulation FD, Exhibits
8-K 2019-01-08 Regulation FD, Exhibits
8-K 2018-12-31 Other Events
8-K 2018-12-21 Enter Agreement, Exhibits
8-K 2018-11-07 Other Events
8-K 2018-10-29 Regulation FD, Exhibits
8-K 2018-10-10 Other Events
8-K 2018-10-02 Enter Agreement, Other Events, Exhibits
8-K 2018-10-02 Regulation FD, Exhibits
8-K 2018-09-25 Enter Agreement, Sale of Shares, Other Events, Exhibits
8-K 2018-06-22 Regulation FD, Exhibits
8-K 2018-04-27 Shareholder Vote, Regulation FD, Exhibits
8-K 2018-04-23 Other Events
8-K 2018-04-19 Other Events
8-K 2018-03-16 Regulation FD, Exhibits
8-K 2018-03-06 Earnings, Exhibits
8-K 2018-02-15 Other Events
8-K 2018-02-06 Officers
8-K 2018-02-05 Enter Agreement, Sale of Shares, Officers, Other Events, Exhibits
8-K 2018-01-30 Enter Agreement, Sale of Shares, Exhibits
IOVA Iovance Biotherapeutics 2,505
VYGR Voyager Therapeutics 778
ADVM Adverum Biotechnologies 677
AUTL Autolus Therapeutics 411
BCRX Biocryst Pharmaceuticals 327
LQDA Liquidia Technologies 103
GMDA Gamida Cell 92
IDRA Idera Pharmaceuticals 66
ASNS Arsanis 43
AST Asterias Biotherapeutics 0
CBMG 2019-06-30
Part I – Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Note 1 – Description of Business
Note 2 – Basis of Presentation and Significant Accounting Policies
Note 3 – Variable Interest Entities
Note 4 – Restricted Cash and Short-Term Debt
Note 6 – Investments
Note 7 – Fair Value Accounting
Note 8 – Intangible Assets
Note 9 – Leases
Note 10 – Related Party Transactions
Note 11 – Equity
Note 12 – Commitments and Contingencies
Note 13 – Stock Based Compensation
Note 14 – Net Loss per Share
Note 15 – Income Taxes
Note 16 – Segment Information
Note 17 – Subsequent Events
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 cbmg_ex311.htm
EX-32.1 cbmg_ex321.htm

Cellular Biomedicine Group Earnings 2019-06-30

CBMG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 cbmg_10q.htm QUARTERLY REPORT Blueprint
 
 

  UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2019
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number 001-36498
 
CELLULAR BIOMEDICINE GROUP, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
86-1032927
State of Incorporation
 
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 Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001
CBMG
The Nasdaq Global Select Market
 
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, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit such files). Yes  No 
 
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 the definition of “accelerated filer,” and “large accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer 
Accelerated filer 
Non-accelerated filer 
Smaller reporting company 
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
 
As of August 1, 2019, there were 20,308,164 and 19,252,665 shares of common stock, par value $.001 per share, issued and outstanding, respectively.
 


 
 
 
TABLE OF CONTENTS
 
PART I FINANCIAL INFORMATION
 
 
 
 
3
 

 
 
3
 

 
 
4
 

 
 
5
 

 
 
6
 

 
 
8
 
 
 
22
 
 
 
41
 
 
 
43
 
 
 
PART II OTHER INFORMATION
 
 
 
 
44
 
 
 
44
 
 
 
46
 
 
 
46
 
 
 
46
 
 
 
46
 
 
 
47
 
 
 
48
 

 

 
 
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
 
  CELLULAR BIOMEDICINE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF JUNE 30, 2019 AND DECEMBER 31, 2018
 

 
June 30,
 
 
December 31,
 

 
2019
 
 
2018
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
Cash and cash equivalents
 $39,713,746 
 $52,812,880 
Restricted cash
  17,000,000 
  - 
Accounts receivable, less allowance for doubtful accounts of nil and $94,868 as of June 30, 2019 and December 31, 2018, respectively
  - 
  787 
Other receivables
  440,847 
  101,909 
Prepaid expenses
  2,262,527 
  1,692,135 
Total current assets
  59,417,120 
  54,607,711 
 
    
    
Investments
  240,000 
  240,000 
Property, plant and equipment, net
  19,992,728 
  15,193,761 
Right of use
  15,203,003 
  15,938,203 
Goodwill
  7,678,789 
  7,678,789 
Intangibles, net
  7,868,803 
  7,970,692 
Long-term prepaid expenses and other assets
  7,286,803 
  5,952,193 
Total assets (1)
 $117,687,246 
 $107,581,349 
 
    
    
Liabilities and Stockholders' Equity
    
    
 
    
    
Liabilities:
    
    
Short-term debt
 $14,546,035 
 $- 
Accounts payable
  1,351,930 
  422,752 
Accrued expenses
  1,058,273 
  1,878,926 
Taxes payable
  28,950 
  28,950 
Other current liabilities
  5,186,335 
  5,710,578 
Total current liabilities
  22,171,523 
  8,041,206 
 
    
    
Other non-current liabilities
  13,338,721 
  14,321,751 
Total liabilities (1)
  35,510,244 
  22,362,957 
 
    
    
Commitments and Contingencies (note 12)
    
    
 
    
    
Stockholders' equity:
    
    
Preferred stock, par value $.001, 50,000,000 shares authorized; none issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
  - 
  - 
Common stock, par value $.001, 300,000,000 shares authorized; 20,301,425 and 19,120,781 issued; and 19,245,926 and 18,119,282 outstanding, as of June 30, 2019 and December 31, 2018, respectively
  20,301 
  19,121 
Treasury stock at cost; 1,055,499 and 1,001,499 shares of common stock as of June 30, 2019 and December 31, 2018, respectively
  (14,992,694)
  (13,953,666)
Additional paid in capital
  270,033,960 
  250,604,618 
Accumulated deficit
  (171,415,974)
  (149,982,489)
Accumulated other comprehensive loss
  (1,468,591)
  (1,469,192)
Total stockholders' equity
  82,177,002 
  85,218,392 
 
    
    
Total liabilities and stockholders' equity
 $117,687,246 
 $107,581,349 
   _______________
(1)
The Company’s consolidated assets as of June 30, 2019 and December 31, 2018 included $44,532,828 and $40,254,691, 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 June 30, 2019 and December 31, 2018, respectively. These assets include cash and cash equivalents of $861,817 and $2,376,974; other receivables of $70,097 and $61,722; prepaid expenses of $2,164,997 and $1,497,072; property, plant and equipment, net, of $19,335,743 and $14,280,949; right of use of $14,721,084 and $15,431,554; intangibles of $1,307,398 and $1,412,375; and long-term prepaid expenses and other assets of $6,071,692 and $5,194,045. The Company’s consolidated liabilities as of June 30, 2019 and December 31, 2018 included $33,421,139 and $20,548,793, respectively, of liabilities of the VIEs whose creditors have no recourse to the Company. These liabilities include short-term debt of $14,546,035 and nil; accounts payable of $1,318,249 and $359,980; other payables of $3,917,065 and $4,937,541; payroll accrual of $718,740 and $1,367,658, which mainly includes bonus accrual of $714,505 and $1,358,709; deferred income of nil and $6,280; and other non-current liabilities of $12,921,050 and $13,877,334. See further description in Note 3, Variable Interest Entities.
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
3
 
 
CELLULAR BIOMEDICINE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018
 
 
 
For the Three Months Ended
 
 
For the Six Months Ended
 
 
 
  June 30,      
 
 
  June 30,      
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales and revenue
 $- 
 $77,313 
 $49,265 
 $128,274 
 
    
    
    
    
Operating expenses:
    
    
    
    
Cost of sales
  - 
  54,393 
  8,087 
  76,693 
General and administrative
  3,180,709 
  3,121,695 
  6,628,443 
  6,310,492 
Selling and marketing
  41,252 
  92,880 
  83,512 
  167,465 
Research and development
  9,062,526 
  6,166,556 
  15,030,622 
  11,440,507 
Impairment of long-term investments
  - 
  29,424 
  - 
  29,424 
         Total operating expenses
  12,284,487 
  9,464,948 
  21,750,664 
  18,024,581 
Operating loss
  (12,284,487)
  (9,387,635)
  (21,701,399)
  (17,896,307)
 
    
    
    
    
Other income :
    
    
    
    
Interest income, net
  182,017 
  116,835 
  279,051 
  122,284 
Other income (expense), net
  7,123 
  84,724 
  (7,387)
  93,924 
        Total other income
  189,140 
  201,559 
  271,664 
  216,208 
Loss before taxes
  (12,095,347)
  (9,186,076)
  (21,429,735)
  (17,680,099)
 
    
    
    
    
Income taxes provision
  (1,350)
  - 
  (3,750)
  (2,400)
Net loss
 $(12,096,697)
 $(9,186,076)
 $(21,433,485)
 $(17,682,499)
Other comprehensive income (loss):
    
    
    
    
Cumulative translation adjustment
  (395,525)
  (1,120,722)
  601 
  (302,361)
Total other comprehensive income (loss):
  (395,525)
  (1,120,722)
  601 
  (302,361)
Comprehensive loss
 $(12,492,222)
 $(10,306,798)
 $(21,432,884)
 $(17,984,860)
 
    
    
    
    
Net loss per share :
    
    
    
    
  Basic and diluted
 $(0.63)
 $(0.53)
 $(1.15)
 $(1.03)
Weighted average common shares outstanding:
    
    
    
    
  Basic and diluted
  19,223,113 
  17,487,184 
  18,690,729 
  17,116,944 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
  
 
4
 
 
CELLULAR BIOMEDICINE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
 
 
 
For the Six Months Ended
 
 
 
  June 30,      
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
  Net loss
 $(21,433,485)
 $(17,682,499)
  Adjustments to reconcile net loss to net cash
    
    
     used in operating activities:
    
    
Depreciation and amortization
  2,659,038 
  2,486,145 
Loss on disposal of assets
  92,487 
  2,721 
Stock based compensation expense
  2,113,535 
  2,477,614 
Other than temporary impairment on long-term investments
  - 
  29,424 
Interest expense
  158,430 
  - 
Interest from pledged bank deposits
  (317,696)
  - 
  Changes in operating assets and liabilities:
    
    
Accounts receivable
  785 
  66,451 
Other receivables
  (19,821)
  20,006 
Prepaid expenses
  (572,978)
  (579,479)
Long-term prepaid expenses and other assets
  (978,505)
  (649,262)
Accounts payable
  333,463 
  114,249 
Accrued expenses
  (818,327)
  (9,892)
Deferred income
  - 
  (4,515)
Other current liabilities
  205,632 
  166,870 
Other non-current liabilities
  (74,105)
  (93,732)
          Net cash used in operating activities
  (18,651,547)
  (13,655,899)
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES:
    
    
   Proceeds from disposal of assets
  359 
  - 
   Putting six-month deposits with the banks
  - 
  (10,000,000)
Purchases of intangibles
  (752,449)
  (34,172)
Purchases of assets
  (7,468,850)
  (2,167,527)
          Net cash used in investing activities
  (8,220,940)
  (12,201,699)
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES:
    
    
Net proceeds from the issuance of common stock
  17,166,199 
  30,506,521 
Proceeds from exercise of stock options
  150,788 
  1,165,763 
Proceeds from short-term debt
  14,546,035 
  - 
Interest paid
  (145,159)
  - 
Repurchase of treasury stock
  (1,039,028)
  (2,536,064)
          Net cash provided by financing activities
  30,678,835 
  29,136,220 
 
    
    
EFFECT OF EXCHANGE RATE CHANGES ON CASH
  94,518 
  (61,177)
 
    
    
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
  3,900,866 
  3,217,445 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD
  52,812,880 
  21,568,422 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
 $56,713,746 
 $24,785,867 
 
    
    
SUPPLEMENTAL CASH FLOW INFORMATION
    
    
 
    
    
Cash paid for income taxes
 $3,750 
 $2,400 
 
 
 
June 30,
 
 
June 30,
 
 
 
2019
 
 
2018
 
Reconciliation of cash, cash equivalents and restricted cash in condensed consolidated statements of cash flows:
Restricted cash
 $17,000,000 
 $- 
Cash and cash equivalents
  39,713,746 
 24,785,867
 
    
    
Cash, cash equivalents and restricted cash
 $56,713,746 
 $24,785,867
  
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
5
 
 
CELLULAR BIOMEDICINE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other
 
 
 
Common Stock
 
 
Preferred Stock
 
 
Treasury Stock
 
 
Additional
 
 
Accumulated
 
 
Comprehensive
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Paid in Capital
 
 
Deficit
 
 
Income (Loss)
 
 
Total
 
Balance at March 31, 2019
  20,182,654 
 $20,183 
  - 
 $- 
  (1,055,499)
 $(14,992,694)
 $267,875,883 
 $(159,319,277)
 $(1,073,066)
 $92,511,029 
 
    
    
    
    
    
    
    
    
    
    
Common stock issued with public offering
  77,549 
  78 
  - 
  - 
  - 
  - 
  1,127,617 
  - 
  - 
  1,127,695 
Restricted stock grants
  37,467 
  37 
  - 
  - 
  - 
  - 
  402,264 
  - 
  - 
  402,301 
Accrual of stock options
  - 
  - 
  - 
  - 
  - 
  - 
  586,672 
  - 
  - 
  586,672 
Exercise of stock options
  3,755 
  3 
  - 
  - 
  - 
  - 
  41,524 
  - 
  - 
  41,527 
Treasury stock purchase
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
Foreign currency translation
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (395,525)
  (395,525)
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (12,096,697)
  - 
  (12,096,697)
 
    
    
    
    
    
    
    
    
    
    
Balance at June 30, 2019
  20,301,425 
 $20,301 
  - 
 $- 
  (1,055,499)
 $(14,992,694)
 $270,033,960 
 $(171,415,974)
 $(1,468,591)
 $82,177,002 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other
 
 
 
Common Stock
 
 
Preferred Stock
 
 
Treasury Stock
 
 
Additional
 
 
Accumulated
 
 
Comprehensive
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Paid in Capital
 
 
Deficit
 
 
Income (Loss)
 
 
Total
 
Balance at March 31, 2018
  17,453,623 
 $17,454 
  - 
 $- 
  (464,256)
 $(4,693,597)
 $205,102,775 
 $(119,533,420)
 $428,858 
 $81,322,070 
 
    
    
    
    
    
    
    
    
    
    
Common stock issued with PPM
  - 
  - 
  - 
  - 
  - 
  - 
  (2,149)
  - 
  - 
  (2,149)
Restricted stock grants
  19,771 
  20 
  - 
  - 
  - 
  - 
  451,550 
  - 
  - 
  451,570 
Accrual of stock options
  - 
  - 
  - 
  - 
  - 
  - 
  891,163 
  - 
  - 
  891,163 
Exercise of stock options
  29,844 
  29 
  - 
  - 
  - 
  - 
  396,011 
  - 
  - 
  396,040 
Treasury stock purchase
  - 
  - 
  - 
  - 
  (96,512)
  (1,820,396)
  -
  - 
  - 
  (1,820,396)
Foreign currency translation
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (1,120,722)
  (1,120,722)
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (9,186,076)
  - 
  (9,186,076)
 
    
    
    
    
    
    
    
    
    
    
Balance at June 30, 2018
  17,503,238 
 $17,503 
  - 
 $- 
  (560,768)
 $(6,513,993)
 $206,839,350 
 $(128,719,496)
 $(691,864)
 $70,931,500 
 
 Note: No dividend was declared for the three months ended June 30, 2019 and 2018.
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
6
 
  
CELLULAR BIOMEDICINE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other
 
 
 
Common Stock
 
 
Preferred Stock
 
 
Treasury Stock
 
 
Additional
 
 
Accumulated
 
 
Comprehensive
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Paid in Capital
 
 
Deficit
 
 
Income (Loss)
 
 
Total
 
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 
 
    
    
    
    
    
    
    
    
    
    
Common stock issued with public offering
  1,106,961 
  1,107 
  - 
  - 
  - 
  - 
  17,165,092 
  - 
  - 
  17,166,199 
Restricted stock grants
  57,520 
  57 
  - 
  - 
  - 
  - 
  744,183 
  - 
  - 
  744,240 
Accrual of stock options
  - 
  - 
  - 
  - 
  - 
  - 
  1,369,295 
  - 
  - 
  1,369,295 
Exercise of stock options
  16,163 
  16 
  - 
  - 
  - 
  - 
  150,772 
  - 
  - 
  150,788 
Treasury stock purchase
  - 
  - 
  - 
  - 
  (54,000)
  (1,039,028)
  - 
  - 
  - 
  (1,039,028)
Foreign currency translation
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  601 
  601 
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (21,433,485)
  - 
  (21,433,485)
 
    
    
    
    
    
    
    
    
    
    
Balance at June 30, 2019
  20,301,425 
 $20,301 
  - 
 $- 
  (1,055,499)
 $(14,992,694)
 $270,033,960 
 $(171,415,974)
 $(1,468,591)
 $82,177,002 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other
 
 
 
Common Stock
 
 
Preferred Stock
 
 
Treasury Stock
 
 
Additional
 
 
Accumulated
 
 
Comprehensive
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Paid in Capital
 
 
Deficit
 
 
Income (Loss)
 
 
Total
 
Balance at December 31, 2017
  15,615,558 
 $15,616 
  - 
 $- 
  (426,794)
 $(3,977,929)
 $172,691,339 
 $(111,036,997)
 $(389,503)
 $57,302,526 
 
    
    
    
    
    
    
    
    
    
    
Common stock issued with PPM
  1,719,324 
  1,719 
  - 
  - 
  - 
  - 
  30,504,802 
  - 
  - 
  30,506,521 
Restricted stock grants
  36,082 
  36 
  - 
  - 
  - 
  - 
  881,872 
  - 
  - 
  881,908 
Accrual of stock options
  - 
  - 
  - 
  - 
  - 
  - 
  1,595,706 
  - 
  - 
  1,595,706 
Exercise of stock options
  132,274 
  132 
  - 
  - 
  - 
  - 
  1,165,631 
  - 
  - 
  1,165,763 
Treasury stock purchase
  - 
  - 
  - 
  - 
  (133,974)
  (2,536,064)
  -
  - 
  - 
  (2,536,064)
Foreign currency translation
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (302,361)
  (302,361)
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (17,682,499)
  - 
  (17,682,499)
 
    
    
    
    
    
    
    
    
    
    
Balance at June 30, 2018
  17,503,238 
 $17,503 
  - 
 $- 
  (560,768)
 $(6,513,993)
 $206,839,350 
 $(128,719,496)
 $(691,864)
 $70,931,500 
 
 Note: No dividend was declared for the six months ended June 30, 2019 and 2018.
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
7
 
  
CELLULAR BIOMEDICINE GROUP, INC.
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 – DESCRIPTION OF BUSINESS
 
As used in this quarterly 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 and variable interest entities.
 
Overview
 
We are a clinical-stage biopharmaceutical company committed to using our proprietary cell-based technologies to develop immunotherapies for the treatment of cancer and stem cell therapies for the treatment of degenerative diseases. We view ourselves as a leader in cell therapy industry through our diverse, multi-target, broad pipeline ranging from immune-oncology, featuring CAR-T, TCR-T and TIL to regenerative medicine. Our focus is to bring our products to market and reduce the manufacturing cycle time, the aggregate cost and ensure quality products of cell therapies. We provide comprehensive and integrated research and manufacturing services throughout the discovery, development and manufacturing spectrum for cell-based technologies. We have two major components to our global strategy. Firstly, we intend on developing our own internal pipeline, focusing on immune cell therapy, regenerative medicine, as well as other innovative biotechnology modalities that can leverage our infrastructure, human capital and intellectual property. Secondly, we plan to partner with leading companies to monetize our innovative technologies outside of China and may also seek to bring their technologies to the China market.
 
Our end-to-end platform enables discovery, development and manufacturing of cell-based therapies from concept to commercial manufacturing in a cost-efficient manner. 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. Our in-house cell therapy manufacturing is comprised of semi-automated, fully closed system and high quality plasmid, serum-free reagents as well as viral vector for our immune-oncology products. Because we are vertically integrated we are able to reduce the aggregate cost of cell therapies. We plan to build out our manufacturing capacity to scale for commercial supply at an economical cost. We hone our manufacturing process in our GMP facilities in China to address cycle time reduction, improved quality assurance and control, efficiency and our therapies’ efficacy.
 
Our technology includes two major cell platforms:
 
A.
Immune cell therapy for treatment of a broad range of cancer indications.
a.
 Hematological Cancer
i.
Chimeric Antigen Receptor modified T cells (CAR-T); and
b.
Solid Tumors
i.
T cells with genetic modified, tumor antigen-specific T-cell receptors (TCRs); and
ii.
Next generation neoantigen-reactive, bio-marker based tumor infiltrating lymphocytes (TILs).
 
B.
Regenerative Medicines using human adipose-derived mesenchymal progenitor cells (haMPC) for treatment of joint diseases.
a.
Allogeneic haMPC on Knee Osteoarthritis; and
b.
Autologous haMPC on Knee Osteoarthritis.
 
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. For hematological cancer we:
 
Have initiated patient recruitment in China for our Phase I clinical trial of our B cell maturation antigen, or anti-BCMA, CAR-T therapy for the treatment of multiple myeloma. We have submitted our pre-IND meeting application with the NMPA and are waiting for feedback.
Have initiated patient recruitment in China for our Phase 1 investigator initiated clinical trial of anti-CD20 Chimeric Antigen Receptor T-Cell (“CAR-T”) targeting anti-CD19 treated, relapsed diffuse large B-cell lymphoma (“DLBCL”) and small B-cell lymphoma patients.
Plan to initiate first-in-human non-Hodgkin lymphoma clinical trials in China for our CD19 and CD20 bi-specific CAR by the fourth quarter of 2019.
For solid tumors we plan to initiate first-in-human:
Hepatocellular carcinoma (“HCC”) TCR clinical trials in China within a year; and
Non-small cell lung cancer (“NSCLC”) TIL clinical trials in the U.S. within a year.
 
On the regenerative medicine development we have been approved by the National Medical Products Administration, or NMPA, in China to initiate a Phase II clinical trial of AlloJoin®, our allogenic haMPC therapy for the treatment of knee osteoarthritis, which represents the first stem cell drug application approved by the NMPA for a Phase II clinical trial in knee osteoarthritis since the NMPA clarified its cell therapy regulations in December 2017. Using data from our Phase IIb clinical studies before the NMPA clarified its cell therapy regulations, we have submitted our IND application with the NMPA for our autologous knee osteoarthritis and are awaiting feedback.
 
 
8
 
 
When and if the data of our China based, immuno-oncology clinical trials proves to be positive, our intentions are to submit Investigational New Drug (IND) applications with the United States Food and Drug Administration (FDA) in order to conduct clinical trials in the United States.
 
In addition to our own internal clinical pipelines, we have formed, and plan to continue to seek, partnerships with other cell therapy focused companies as it pertains to building out their technology in the Chinese market. Our comprehensive capabilities have attracted global pharmaceutical companies seeking to improve the efficiency of their drug development. We believe that we are positioned to capture opportunities from the rapid expansion of global pharmaceutical companies by leveraging our focus on cell manufacturing process improvement, which offers the benefits of improving product quality and creates cost savings. Positioned at the forefront of science, we believe our established clinical network in China will enable us to collaborate with those firms as they enter the Chinese market, develop in-house capabilities and infrastructure, and improve efficiency throughout the drug development process.
 
In September 2018, we executed a License and Collaboration Agreement (hereinafter “Novartis LCA”) with Novartis to manufacture and supply their FDA-approved CAR-T cell therapy product Kymriah® in China. Pursuant to the Novartis LCA agreement, we also granted Novartis a worldwide license to certain of our CAR-T intellectual property for the development, manufacturing and commercialization of CAR-T products. We are entitled to an escalating single digit percentage royalty of Kymriah®’s net sales in China. CBMG is responsible for the costs of bi-directional technology transfers between the two companies. We will receive collaboration payments equal to a single-digit escalating percentage of net sales of Kymriah® in China, subject to certain caps set forth under the Novartis LCA, for sales in diffuse large B-cell lymphoma and pediatric acute lymphoblastic leukemia indications and up to a maximum amount to be agreed upon for sales in other indications. We are also obligated to assist Novartis with the development of Kymriah® in China as Novartis may request and is responsible for a certain percentage of the total development costs for development of Kymriah® in China for indications other than diffuse large B-cell lymphoma and pediatric acute lymphoblastic leukemia indications.
 
On October 2, 2018, we partnered with the National Cancer Institute (“NCI”) by entering into a non-exclusive license agreement (the “License Agreement”) for 10 patents, pursuant to which we acquired rights to the worldwide development, manufacture and commercialization of autologous, tumor-reactive lymphocyte adoptive cell therapy products, isolated from tumor infiltrating lymphocytes for the treatment of non-small cell lung, stomach, esophagus, colorectal, and head and neck cancer(s) in humans. We agreed to pay certain license fees for such right, including (i) an initial upfront cash payment; (ii) a de minimus non-refundable annual royalty that may be credited against any earned royalties due from net sales; (iii) a small single-digit percentage of net sales of the licensed products, payable on a semi-annual basis, which may be adjusted downward in the event that the Company must pay a license fee to a third party; (iv) an additional small single-digit sublicense fee on the fair market value of any consideration received for granting a sublicense; and (v) milestone payment component tied to certain clinical and commercial developments. We have an unilateral right to terminate the License Agreement. The NCI has the right to terminate the License Agreement if CBMG (i) commits material breach; (ii) fails to use commercially reasonable effort in developing the licensed products or processes; (iii) fails to achieve certain performance benchmarks; (iv) willfully makes a false statement; (v) is not keeping licensed products or processes reasonably available to the public after commercial use; (vi) cannot reasonably satisfy unmet health and safety needs; or (vii) cannot meet certain requirements by federal regulations. The agreement became effective upon execution by both parties and will expire upon the expiration of the last to expire of patent rights licensed pursuant thereto. Other than an initial upfront payment and a de minimus annual royalty payment, the Company has not paid any royalty under the License Agreement as of the date of this report.
 
In order to expedite fulfillment of patient treatment, we have been actively developing technologies and products with strong intellectual property protection. CBMG’s world-wide exclusive license to the T Cell patent rights owned by the Augusta University provides an opportunity to expand the application of CBMG’s cancer therapy-enabling technologies and to initiate clinical trials with leading cancer hospitals.  On February 14, 2019, Augusta University granted us an exclusive, world-wide license with sublicense rights to its the patent rights to Human Alpha Fetoprotein-Specific T Cell Receptors. In consideration for the license granted, the Company agreed to pay the university a one-time, non-refundable, non-creditable license fee within 30 days of execution of the license agreement and a single digit percent of running royalty on net sales of the licensed products . The Company also agreed to (a) 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 the licensed products in at least one country in certain major markets listed in the license agreement, and (b) upon receipt of such approvals, to use commercially reasonable efforts to market, each licensed product in such country. The Company, at its sole expense, has the obligation to fund the costs of all research, development, preclinical and clinical trials, regulatory approval and commercialization of the licensed products. The license agreement will expire upon the termination of the Company’s obligation to pay royalty pursuant to the terms thereof. Upon expiration of the term, the license granted the Company will survive the expiration of the Agreement, and convert to a perpetual, fully paid up license. The Company may terminate the agreement, in its sole discretion, upon thirty (30) days prior written notice to Augusta University and either party may terminate the agreement upon or after the breach of a material provision of the agreement that is not cured within 45 days after notice thereof by the non-breaching party. The Company has not paid any remaining royalty since there have not been any sales of Licensed products as of the date of this report.
 
 
9
 
 
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. We also plan to develop our products targeting solid tumor indications in the United States. The Company started its regenerative medicine business in China in 2009 and expanded to CAR-T therapies in 2014.
 
NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements herein. The unaudited Condensed Consolidated Financial Statements herein should be read in conjunction with the historical consolidated financial statements of the Company for the years ended December 31, 2018 included in our Annual Report on Form 10-K for the year ended December 31, 2018. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
 
Principles of Consolidation
 
Our unaudited condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. Such adjustments are of a normal recurring nature, unless otherwise noted. The balance sheet as of June 30, 2019 and the results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for any future period.
 
Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions that affect the reported amounts if assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe that the estimates, judgments and assumptions are reasonable, based on information available at the time they are made. Actual results could differ materially from those estimates.
 
 
10
 
 
Lease
 
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets.
 
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
 
Investment
 
Equity investments with or without readily determinable fair values are measured at fair value with changes in the fair value recognized through other income (expense), net.
 
Recent Accounting Pronouncements
 
Accounting pronouncements adopted during the six months ended June 30, 2019
 
In June 2018, the Financial Accounting Standards Board (“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. The adoption of the ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.
 
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. The adoption of the ASU 2018-02 did not have a material impact on the Company’s 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 adoption of the ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.
 
 
11
 
 
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. The adoption impact of the ASU 2016-02 on the Company’s consolidated financial statements is illustrated in Note 9.
 
Accounting pronouncements not yet effective to adopt
 
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 calculated 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 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. Securitiesand 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.
 
 
12
 
 
NOTE 3 – VARIABLE INTEREST ENTITIES
 
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 all of 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. Agreen Biotech Co. Ltd. (“AG”) was 100% acquired by CBMG Shanghai in September 2014. AG was incorporated on April 27, 2011 and its registered capital is five million RMB. In January 2017, CBMG Shanghai established two fully owned subsidiaries - Wuxi Cellular Biopharmaceutical Group Ltd. (“Wuxi SBM”) and Shanghai Cellular Biopharmaceutical Group Ltd (“Shanghai SBM”), which are located in Wuxi and Shanghai 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” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. 
 
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.
 
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 condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018 are as follows:
 
 
 
June 30,
 
 
December 31,
 
 
 
2019
 
 
2018
 
 Assets
 
 
 
 
 
 
Cash
 $861,817 
 $2,376,974 
Other receivables
  70,097 
  61,722 
Prepaid expenses
  2,164,997 
  1,497,072 
Total current assets
  3,096,911 
  3,935,768 
 
    
    
Property, plant and equipment, net
  19,335,743 
  14,280,949 
Right of use
  14,721,084 
  15,431,554 
Intangibles
  1,307,398 
  1,412,375 
Long-term prepaid expenses and other assets
  6,071,692 
  5,194,045 
Total assets
 $44,532,828 
 $40,254,691 
 
    
    
Liabilities
    
    
Short-term debt
 $14,546,035 
 $- 
Accounts payable
  1,318,249 
  359,980 
Other payables
  3,917,065 
  4,937,541 
Accrued payroll *
  718,740 
  1,367,658 
Deferred income
  - 
  6,280 
Total current liabilities
 $20,500,089 
 $6,671,459 
 
    
    
Other non-current liabilities
  12,921,050 
  13,877,334 
Total liabilities
 $33,421,139 
 $20,548,793 
  
* Accrued payroll mainly includes bonus accrual of $714,505 and $1,358,709 as of June 30, 2019 and December 31, 2018, respectively.
 
 
13
 
 
NOTE 4 – RESTRICTED CASH AND SHORT-TERM DEBT
 
On January 19, 2019, Shanghai Cellular Biopharmaceutical Group Ltd., a wholly owned subsidiary of the Company (“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 $14.5 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 June 30, 2019, all $14.5 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 Merchants Bank a security interest in the cash deposited.
 
The details of the bank borrowings as of June 30, 2019 and December 31, 2018 are as follows:
 
 
 
 
 
 
 
 
As of
June 30,
2019
 
 
As of
December 31,
2018
 
Lender
 
Inception date
 
 
Maturity date
 
 
Interest rate
 
 
USD
 
 
USD
 
 
 
 
 
 
 
 
 
 
 
 
 
Merchants Bank
January 21, 2019 ~
January 31, 2019
January 21, 2020 ~
January 31, 2020
  4.785%
 $3,547,982 
 $- 
Merchants Bank
February 22, 2019 ~
June 24, 2019
February 22, 2020 ~
June 24, 2020
  4.35%
  10,998,053 
  - 
 
    
    
    
 
    
 $14,546,035 
 $- 
 
 
 
14
 
 
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
 
As of June 30, 2019 and December 31, 2018, property, plant and equipment, carried at cost, consisted of the following:
 
Fixed Asset Details
 
 
 
 
 
 
 
 
June 30,
2019
 
 
December 31,
2018
 
 
 
 
 
 
 
 
Office equipment
 $142,608 
 $101,608 
Manufacturing equipment
  10,001,694 
  7,636,905 
Computer equipment
  523,880 
  426,507 
Leasehold improvements
  13,645,548 
  12,861,186 
Construction work in process
  3,640,924 
  1,030,760 
 
  27,954,654 
  22,056,966 
Less: accumulated depreciation
  (7,961,926)
  (6,863,205)
 
 $19,992,728 
 $15,193,761 
 
 For the three and six months ended June 30, 2019, depreciation expense was $967,215 and $1,939,071, respectively, as compared to $861,084 and $1,587,702 for the three and six months ended June 30, 2018, 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:
 
June 30, 2019 and December 31, 2018
 
Cost
 
 
Gross Unrealized Gains/(losses)
 
 
Gross Unrealized Losses more than 12 months
 
 
Gross Unrealized Losses less than 12 months
 
 
Market or Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity position in Arem Pacific Corporation
 $480,000 
 $- 
 $(240,000)
 $- 
 $240,000 
 
There were no unrealized holding gains or losses for the investments that were recognized in other comprehensive income for the three and six months ended June 30, 2019 and 2018.
 
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 limited trading of the three stocks traded in OTC market.
 
Assets measured at fair value within Level 2 on a recurring basis as of June 30, 2019 and December 31, 2018 are summarized as follows:
 
 
 
  As of June 30, 2019 and December 31, 2018      
 
 
 
  Fair Value Measurements at Reporting Date Using:      
 
 
 
 
 
 
Quoted Prices in
 
 
Significant Other
 
 
Significant
 
 
 
 
 
 
Active Markets for
 
 
Observable
 
 
Unobservable
 
 
 
 
 
 
Identical Assets
 
 
Inputs
 
 
Inputs
 
 
 
 Total
 
 
 (Level 1)
 
 
 (Level 2)
 
 
 (Level 3)
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Equity position in Arem Pacific Corporation
 $240,000 
 $- 
 $240,000 
 $- 
 
 
15
 
 
 No shares were acquired in the six months ended June 30, 2019 and 2018.
 
As of June 30, 2019 and December 31, 2018, the Company holds 8,000,000 shares in Arem Pacific Corporation (“ARPC”), 2,942,350 shares in Alpha Lujo, Inc. (“ALEV”) and 2,057,131 shares in Wonder International Education and Investment Group Corporation (“Wonder”), respectively.  Full impairment has been provided for shares of ALEV and Wonder. All investments held by the Company at June 30, 2019 and December 31, 2018 have been valued based on level 2 inputs due to the limited trading of these companies. 
  
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.
 
Most of our intellectual properties are developed internally. Because we do not capitalize our research and development expenses related to our home-grown intellectual properties, as of June 30, 2019, the intellectual properties acquired from the Agreen acquisition still accounted for the majority of the net book value of our intangible assets. We continue to apply the acquired Agreen intellectual properties in our immune-oncology research and development activities. As such there is no impairment on the continued use of the acquired Agreen intellectual properties.
 
As of June 30, 2019 and December 31, 2018, intangible assets, net consisted of the following:
 
Patents & knowhow & license
 
 
 
 
 
 
 
 
June 30,
2019
 
 
December 31,
2018
 
Cost basis
 $18,177,242 
 $17,580,368 
Less: accumulated amortization
  (7,637,030)
  (6,950,656)
Less: impairment
  (2,884,896)
  (2,884,896)
 
 $7,655,316 
 $7,744,816 
 
Software
 
 
 
 
 
 
 
 
June 30,
2019
 
 
December 31,
2018
 
Cost basis
 $359,167 
 $340,918 
Less: accumulated amortization
  (145,680)
  (115,042)
 
 $213,487 
 $225,876 
 
    
    
Total intangibles, net
 $7,868,803 
 $7,970,692 
 
All software is provided by a third party vendor, is not internally developed, and has an estimated useful life of five years. Patents and knowhow are amortized using an estimated useful life of three to ten years. Amortization expense for the three and six months ended June 30, 2019 was $362,124 and $719,967, respectively, and amortization expense for the three and six months ended June 30, 2018 was $449,573 and $898,443, respectively.
 
Estimated amortization expense for each of the ensuing years are as follows for the years ending June 30:
 
Years ending June 30,
 
Amount
 
2020
 $1,445,625 
2021
  1,440,062 
2022
  1,430,994 
2023
  1,423,374 
2024 and thereafter
  2,128,748 
 
 $7,868,803 
 
 
16
 
 
NOTE 9 – LEASES
 
The Company leases facilities and equipment under non-cancellable operating lease agreements.  These facilities and equipment 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.  Lease expense under operating leases for the three and six months ended June 30, 2019 was approximately $754,572 and $1,517,262, respectively, as compared to $981,423 and $1,948,855 for the three and six months ended June 30, 2018, respectively.
 
The Company has elected to apply the short-term lease exception to all leases of one year or less. As such, the Company applied the guidance in ASC 842 to its corporate office and equipment leases and has determined that these should be classified as operating leases. Consequently, as a result of the adoption of ASC 842, the Company recognized an operating liability with a corresponding Right-Of-Use (“ROU”) asset of the same amounts based on the present value of the minimum rental payments of such leases. As of December 31, 2018, the ROU asset has a balance of $15,938,203 which is included in other non-current assets in the consolidated balance sheets and current liabilities and non-current liabilities relating to the ROU asset were $1,874,270, and $14,063,933, respectively which are included in accrued liabilities and other non-current liabilities in the consolidated balance sheets, respectively. The discount rate used for leases accounted under ASC 842 is the Company’s estimated borrowing rate of 5%.
 
Quantitative information regarding the Company’s leases is as follows:
 
The components of lease expense were as follows:
 
 
 
For the Three Months Ended
 
 
For the Six Months Ended
 
 
 
  June 30,      
 
 
  June 30,      
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Lease cost
 
 
 
 
 
 
 
 
 
 
 
 
Operating lease cost
  708,700 
  673,318 
  1,415,880 
  1,340,057 
Short-term lease cost
  45,872 
  308,105 
  101,382 
  608,798 
Total lease cost
  754,572 
  981,423 
  1,517,262 
  1,948,855 
 
Supplemental cash flow information related to leases was as follows:

 
 
For the Three Months Ended
 
 
For the Six Months Ended
 
 
 
  June 30,        
 
 
  June 30,        
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Cash paid for the amounts included in the measurement of lease liabilities for operating leases:
 
 
 
 
 
 
 
 
 
 
 
 
Operating cashflows
  1,261,990 
  1,171,460 
  2,530,983 
  2,342,921 
 
Supplemental balance sheet information related to leases was as follows:
 
 
 
June 30,
2019
 
 
December 31,
2018
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating lease right-of-use assets  
  15,203,003 
  15,938,203