Cellular Biomedicine Group, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Cellular Biomedicine Group, Inc.	Financial_Report.xls
EX-32.1 - CERTIFICATION - Cellular Biomedicine Group, Inc.	cmbg_ex321.htm
EX-31.1 - CERTIFICATION - Cellular Biomedicine Group, Inc.	cmbg_ex311.htm
EX-31.2 - CERTIFICATION - Cellular Biomedicine Group, Inc.	cmbg_ex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-52282

CELLULAR BIOMEDICINE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		86-1032927
State of Incorporation		IRS Employer Identification No.

530 University Avenue, #17

Palo Alto, California 94301

(Address of principal executive offices)

(650) 566-5064

(Registrant’s telephone number)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer,” and “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of August 1, 2014, there were 9,077,068 shares of common stock, par value $.001 per share issued and outstanding.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets (unaudited)	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)	4
	Condensed Consolidated Statements of Cash Flows (unaudited)	5
	Condensed Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57

Item 5.	Other Information	57

Item 6.	Exhibits	58

SIGNATURES		59

CELLULAR BIOMEDICINE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30,			December 31,
	2014			2013
Assets

Cash and cash equivalents	$	13,563,521		$	7,175,215
Accounts receivable		24,000			10,581
Other receivable		63,069			78,521
Inventory		156,490			119,119
Prepaid expenses		437,473			191,572
Total current assets		14,244,553			7,575,008

Investments		10,224,177			5,105,891
Property, plant and equipment, net		819,912			1,014,805
Goodwill		-			3,299,566
Intangibles, net		419,599			601,456
Long-term prepaid expenses and other assets		498,888			-
Total assets (1)	$	26,207,129		$	17,596,726

Liabilities and Stockholders' Equity

Liabilities:
Accounts payable	$	109,097		$	213,891
Accrued expenses		1,071,606			503,717
Advances payable to related party		34,471			67,999
Other current liabilities		1,305,066			1,416,046
Total current liabilities		2,520,240			2,201,653

Total liabilities (1)		2,520,240			2,201,653

Stockholders' equity:

Preferred stock, par value $.001, 50,000,000 shares
authorized; none issued and outstanding as of
June 30, 2014 and December 31, 2013, respectively		-			-

Common stock, par value $.001, 300,000,000 shares authorized;
9,074,068 and 7,382,797 issued and outstanding
as of June 30, 2014 and December 31, 2013, respectively		9,074			7,383
Additional paid in capital		49,757,998			37,861,593
Accumulated deficit		(29,536,773	)		(22,415,979	)
Accumulated other comprehensive income (loss)		3,456,590			(57,924	)
Total stockholders' equity		23,686,889			15,395,073
Total liabilities and stockholders' equity	$	26,207,129		$	17,596,726

(1) The Company's consolidated assets as of June 30, 2014 and December 31, 2013 included $1,156,232 and $1,031,350, respectively, of assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. Each of the following amounts represent the balances as of June 30, 2014 and December 31, 2013, respectively. These assets include cash and cash equivalents of $235,795 and $9,100; other receivables of $55,943 and $50,383; inventory of $35,338 and $26,526; prepaid expenses of $216,567 and $117,676; property, plant and equipment, net, of $564,169 and $772,872; and intangibles of $48,420 and $54,793. The Company's consolidated liabilities as of June 30, 2014 and December 31, 2013 included $338,160 and $387,703, respectively, of liabilities of the VIEs whose creditors have no recourse to the Company. These liabilities include accounts payable of $22,312 and $24,868; other payables of $132,335 and $268,301; payroll accrual of $141,284 and $74,384; and tax payable of $42,229 and $20,150. See further description in Note 5, Variable Interest Entity.

The accompanying notes are an integral part of these condensed consolidated financial statements.

CELLULAR BIOMEDICINE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013

Net sales and revenue:
Biomedical	$	118,069		$	-		$	179,120		$	-
Total sales and revenue		118,069			-			179,120			-

Operating expenses:
Cost of sales		51,953			-			92,553			-
General and administrative		1,719,316			1,578,653			3,101,828			5,758,402
Selling and marketing		44,136			46,552			65,495			52,230
Research and development		642,830			639,276			1,140,977			1,119,781
Total operating expenses		2,458,235			2,264,481			4,400,853			6,930,413
Operating loss		(2,340,166	)		(2,264,481	)		(4,221,733	)		(6,930,413	)

Other income:
Interest income		341			560			565			872
Other income		74,480			22,611			94,617			16,540
Total other income		74,821			23,171			95,182			17,412
Loss from continuing operations before taxes		(2,265,345	)		(2,241,310	)		(4,126,551	)		(6,913,001	)

Income tax provision		-			-			-			-

Loss from continuing operations		(2,265,345	)		(2,241,310	)		(4,126,551	)		(6,913,001	)

Loss from discontinued Consulting segment		(4,408,918	)		(263,204	)		(2,994,243	)		(1,007,558	)
Income tax benefit		-			-			-			-
Loss on discontinued operations		(4,408,918	)		(263,204	)		(2,994,243	)		(1,007,558	)
Net loss	$	(6,674,263	)	$	(2,504,514	)	$	(7,120,794	)	$	(7,920,559	)
Other comprehensive loss:
Cumulative translation adjustment		4,978			31,959			(6,835	)		31,959
Unrecognized gain (loss) on investments		4,042,797			(112,253	)		3,521,349			(734,573	)
Comprehensive loss	$	(2,626,488	)	$	(2,584,808	)	$	(3,606,280	)	$	(8,623,173	)

Earnings per share for continuing operations:
Basic	$	(0.29	)	$	(0.39	)	$	(0.54	)	$	(1.33	)
Diluted	$	(0.29	)	$	(0.39	)	$	(0.54	)	$	(1.33	)

Earnings per share discontinued operations:
Basic	$	(0.56	)	$	(0.05	)	$	(0.39	)	$	(0.19	)
Diluted	$	(0.56	)	$	(0.05	)	$	(0.39	)	$	(0.19	)

Earnings per share net loss:
Basic	$	(0.85	)	$	(0.44	)	$	(0.93	)	$	(1.52	)
Diluted	$	(0.85	)	$	(0.44	)	$	(0.93	)	$	(1.52	)

Weighted average common shares outstanding:
Basic		7,829,314			5,719,075			7,660,974			5,196,583
Diluted		7,829,314			5,719,075			7,660,974			5,196,583

The accompanying notes are an integral part of these condensed consolidated financial statements.

CELLULAR BIOMEDICINE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Six Months Ended
	June 30,
	2014			2013

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,120,794	)	$	(7,920,559	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		437,015			425,578
Loss on disposal of assets		10,358			-
Stock based compensation expense		612,622			710,402
Amortization of deferred stock compensation		63,518			337,217
Common stock issued for services		-			1,844,155
Impairment of goodwill		3,299,566			-
Loss recognized in excess of cash received on disposition of investment stock		5,913			69,071
Value of stock received for services		(1,610,000	)		-
Deferred tax		-			(14,783	)
Changes in operating assets and liabilities:
Accounts receivables		(13,419	)		20,683
Investments		7,150			-
Other receivables		15,452			(38,104	)
Inventory		(37,371	)		6,802
Prepaid expenses and other assets		(245,901	)		(154,994	)
Long-term prepaid expenses and other assets		(498,888	)		14,802
Accounts payables		(104,794	)		(16,704	)
Other current liabilities		(110,980	)		(149,048	)
Accrued expenses		567,889			254,944
Net cash used in operating activities		(4,722,664	)		(4,610,538	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired		-			2,568,995
Proceeds from the sale of assets		-			10,071
Purchases of intangibles		-			(12,880	)
Purchases of assets		(77,537	)		(52,465	)
Net cash (used in) provided by investing activities		(77,537	)		2,513,721

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock		11,221,956			-
Repayment of advances from affiliate		(33,528	)		(1,250	)
Net cash provided by (used in) financing activities		11,188,428			(1,250	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		79			13,319

INCREASE (DECREASE) IN CASH		6,388,306			(2,084,748	)
CASH, BEGINNING OF PERIOD		7,175,215			4,144,896
CASH, END OF PERIOD	$	13,563,521		$	2,060,148

SUPPLEMENTAL CASH FLOW INFORMATION

Non cash financing and investing activities:
Issuance of company stock for accrued liabilities and advances	$	-		$	149,475
Issuance of stock for services	$	-		$	1,844,155

The accompanying notes are an integral part of these condensed consolidated financial statements.

CELLULAR BIOMEDICINE GROUP, INC.

FOR THE THREE MONTHS ENDED JUNE 30, 2014 AND 2013

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.

Overview

Cellular Biomedicine Group, Inc. is primarily a biomedicine company, principally engaged in the development of new treatments for cancerous and degenerative diseases utilizing proprietary cell-based technologies. Our technology includes four cell platforms: (i) TC-DC (tumor cell specific dendritic cells) for treatment of a broad range of cancers, (ii) haMPC (human adipose-derived mesenchymal progenitor cells) for treatment of joint disease, (iii) huMPC (human umbilical cord-derived mesenchymal progenitor cells), (iv) MNP (human embryo-derived motor neuron precursor cells) and (v) NP (human embryo-derived neuronal precursor cells) for treatment of central nervous system diseases.

We are focused on developing and marketing safe and effective cell-based therapies based on our cellular platforms, to treat serious chronic and degenerative diseases including cancers, orthopedic diseases including osteoarthritis and tissue damage, spinal muscular atrophy, various inflammatory diseases and metabolic diseases. We have developed proprietary practical knowledge in the use of cell-based therapeutics that we believe could be used to help a great number of people suffering from serious chronic diseases. We have two therapies undergoing clinical studies in China: stem cell based therapies to treat knee osteoarthritis (“KOA”) and an immune cell therapy to treat liver cancer (“HCC”). We have initiated preclinical studies in asthma.

Our primary target market is Greater China. Our first two therapy candidates are currently used to treat patients in research studies conducted in China. We are also engaged in a number of pre-clinical studies for other product or therapy candidates, which we believe have the potential to become safe and effective treatment options for a variety of degenerative and debilitating conditions. We believe that the results of our research studies will support expanded preclinical and clinical trials with a larger population of patients, which we expect to carry out through authorized treatment centers throughout Greater China.

Corporate History

Cellular Biomedicine Group, Inc., (formerly known as EastBridge Investment Group Corporation) was originally incorporated in the State of Arizona on June 25, 2001 under the name ATC Technology Corporation. ATC Technology Corporation changed its corporate name to EastBridge Investment Group Corporation in September 2005 and changed its business focus to providing investment related services in Asia, with a strong focus on high GDP growth countries, such as China. The Company provides consulting services necessary for small to medium-sized companies to obtain capital to grow their businesses. The Company assists its clients in locating investment banking, financial advisory and other financial services necessary to become public companies in the United States or find joint venture partners or raise capital to expand their businesses.

On November 13, 2012, EastBridge Investment Group Corporation, an Arizona corporation (“EastBridge”), CBMG Acquisition Limited, a British Virgin Islands company and the Company’s wholly-owned subsidiary (“Merger Sub”) and Cellular Biomedicine Group Ltd. (“CBMG BVI”), a British Virgin Islands company, entered into a Merger Agreement, pursuant to which CBMG BVI was the surviving entity in a merger with Merger Sub whereby CBMG BVI became a wholly-owned subsidiary of the Company (the “Merger”). The Merger was consummated on February 6, 2013 (the “Closing Date”). Upon consummation of the Merger, CBMG BVI shareholders were issued 3,638,941 shares of common stock, par value $0.001 per share, of the Company (the “Company Common Stock”) constituting approximately 70% of the outstanding stock of the Company on a fully-diluted basis and the then current Company shareholders retained approximately 30% of the Company on a fully-diluted basis. Specifically, each of CBMG BVI’s ordinary shares (“CBMG BVI Ordinary Shares”) were converted into the right to receive 0.020019 shares of Company Common Stock.

Also in connection with the Merger, the Company created a new Delaware subsidiary named EastBridge Investment Corp. (“EastBridge Sub”). Pursuant to a Contribution Agreement by and between the Company and EastBridge Sub dated February 5, 2013, the Company contributed all of its then current assets and liabilities to EastBridge Sub which continued the business and operations of the Company at the subsidiary level. A copy of the Contribution Agreement is attached as Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on February 12, 2013.

As a result of the Merger, CBMG BVI and EastBridge Sub became the two direct subsidiaries of the Company.

In connection with the Merger, effective March 5, 2013, the Company (formerly named “EastBridge Investment Group Corporation”) changed its name to “Cellular Biomedicine Group, Inc.” In addition in March 2013, the Company changed its corporate headquarters to 530 University Avenue in Palo Alto, California.

From February 6, 2013 to June 23, 2014, we operated the Company in two separate reportable segments: (i) Biomedicine Cell Therapy (“Biomedicine”); and (ii) Financial Consulting (“Consulting”). The Consulting segment is conducted through EastBridge Sub. On June 23, 2014, the Company announced the discontinuation of the Consulting segment as it no longer fits into management’s long-term strategy and vision. The Company will focus resources on becoming a pure-play biotechnology company bringing therapies to improve the health of patients in China.

NOTE 2 – BASIS OF PRESENTATION AND LIQUIDTY

Basis of Presentation

As of February 6, 2013, in connection with the Merger, Cellular Biomedicine Group, Ltd. became the accounting acquirer thus resulting in a reverse merger for accounting purposes. Therefore, the accompanying financial statements are on a consolidated basis subsequent to February 6, 2013, but only reflect the operations of CBMG BVI prior to the date of acquisition.

The accompanying Unaudited Condensed Consolidated Financial Statements were prepared on a going concern basis in accordance with U.S. GAAP. The going concern basis of presentation assumes that the Company will continue in operation for the next twelve months and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the Company’s inability to continue as a going concern. In order for the Company to continue operations beyond the next twelve months and be able to discharge its liabilities and commitments in the normal course of business, the Company must establish sustained positive operating results through increased sales, successfully manage its costs and implement cost cutting measures, if necessary, and implement better planning and forecasting strategies to avoid further unforeseen expenses, potentially raise additional equity or debt capital. There can be no assurance that the Company will be able to achieve sustainable positive operating results or cost reductions or obtain additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to management.

Liquidity

If the Company does not continue to achieve positive operating results and does not raise sufficient additional capital, material adverse events may occur including, but not limited to, (1) a reduction in the nature and scope of the Company’s operations, and (2) the Company’s inability to fully implement its current business plan. There can be no assurance that the Company will successfully improve its liquidity position. The accompanying Unaudited Condensed Consolidated Financial Statements do not reflect any adjustments that might be required if our liquidity position does not improve.

In the three months ended June 30, 2014, the Company experienced an increase in revenue of approximately $118,000, compared to the three months ended June 30, 2013, and a $179,000 increase in revenue for the six months ended June 30, 2014 over the comparable six months of 2013. These revenues are not a result of primary operations as the Company is still developing the market and partnerships needed for the treatments that have been or are being developed and approved. In addition, future revenue from the primary operations is contingent upon successful completion of clinical trials and regulatory approval of our treatment methodologies. There can be no assurance the Company will be successful in generating revenue from primary operations. In the three months ended June 30, 2014, the Company experienced a loss from continuing operations of approximately $2.2 million compared to the loss of approximately $2.2 million for the three months ended June 30, 2013, and a $4.1 million loss from continuing operations for the six months ended June 30, 2014 compared to a loss from continuing operations of $6.9 million for the comparable period in 2013. At June 30, 2014, the Company had a substantial working capital surplus totaling $11.7 million, which improved by $6.3 million from the working capital surplus of $5.4 million at December 31, 2013.

As of the date of this report, our stock price is trading above the $8.00 exercise price for the option to purchase 1 million shares, which was issued in connection with our recent $10 million financing. The option is immediately exercisable and redeemable after 18 months following the date of issuance once our stock price meets certain market conditions. We do not plan to rely on market conditions to support the additional $8 million capital infusion from a potential option exercise. As a developmental stage company, based on our currently anticipated course of business, there is a significant risk that, while we believe we have sufficient cash to meet our ordinary course obligations for at least the next twelve months, we will need to continue to raise capital to meet our cash needs and consider alternatives to the $8 million option exercise, though there can be no guarantee that any capital raise will be successful or provide favorable value for the Company’s stockholders.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are as follows:

Principles of Consolidation

The consolidated financial statements have been prepared in conformity with U.S. GAAP, and reflect the accounts and operations of the Company and its majority or wholly-owned subsidiaries, beginning with the date of their respective acquisition. In accordance with the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Section 810, or ASC 810, Consolidation, the Company consolidates any variable interest entity, or VIE, of which it is the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as variable interest entities, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE in which it has a majority ownership interest when the Company is not considered the primary beneficiary. The Company has determined that it is the primary beneficiary in a VIE—refer to Note 5, 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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.

These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.

Revenue Recognition

The Company utilizes the guidance set forth in the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 104, regarding the recognition, presentation and disclosure of revenue in its financial statements.

For its Consulting segment, the Company engaged in listing contracts with its clients which provided for the payment of fees, either in cash or equity, upon the achievement of certain milestones by the client, including, but not limited to the successful completion of a financial statement audit, the successful listing on a national stock exchange or over-the-counter market and the maintenance of ongoing 1934 Act reporting requirements with the Securities and Exchange Commission. In some instances, payment was made in advance of performance; however, such payment was often refundable in the event that milestones were not reached. The Company recognized revenue as milestones are reached in accordance with FASB’s ASC No. 605-28-25. Such guidance stipulates that revenue be recognized for individual elements in a multiple deliverable arrangement using the relative selling price method. The Company relied on internal estimates of the relative selling price of each element as objective third-party evidence is unattainable.

The Company has historically not recognized revenue for consulting services performed in exchange for shares of client stock until such shares are received as collectability has not been assured prior to receipt of such shares. At June 30, 2014, the Company has not recognized revenue for services that have been completed for which the Company is due to receive 5 million shares of Arem Pacific, as such shares have not yet been received.

For its Biomedicine segment, the Company recognizes revenue when pervasive evidence of an arrangement exists, the price is fixed and determinable, collection is reasonably assured and delivery of products or services has been rendered. Based on current estimates we expect our biomedicine business to generate revenues primarily from the development of therapies for the treatment of KOA within the next three years and HCC within the next three to five years.

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 June 30, 2014 and December 31, 2013, cash and cash equivalents include cash on hand and cash in the bank. At times, cash deposits may exceed government-insured limits.

Accounts Receivable

Accounts receivable represent amounts earned but not collected in connection with the Company’s Consulting segment sales. The Company’s Consulting and Biomedicine segments may have account receivable balances at any given point in time. Account receivables are carried at their estimated collectible amounts.

The Company plans to follow 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 June 30, 2014 and December 31, 2013, an allowance was determined to not be needed as the Company is still performing clinical trials and has not yet generated revenues from its cell therapy candidates in the Biomedicine segment. Correspondingly, the Company has not recorded any bad debt expense for the three and six months ended June 30, 2014 and the year ended December 31, 2013.

Inventory

Inventory consists of finished goods, raw materials, work-in-process, and low value consumable materials. Inventory is initially recognized at cost and subsequently at the lower of costs and net realizable value. First-in first-out cost is used to determine the cost. 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 five 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.

For the three and six months ended June 30, 2014, depreciation expense was $133,268 and $263,660, respectively, while for the three and six months ended June 30, 2013 depreciation expense was $121,585 and $253,000, 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 an impairment may have occurred. As part of the determination to discontinue the Consulting segment, in the three and six months ended June 30, 2014, the Company expensed approximately $3,300,000 which represents the remaining goodwill from the merger. No such expense was incurred in three or six months ended June 30, 2013.

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 for which 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 June 30, 2014 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.

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 following is a description of the valuation methodologies used for instruments measured at fair value:

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 determined by the closing price for the investment as of the balance sheet date. Realized investment gains and losses are included in the statement of operations, as are provisions for other than temporary declines in the market value of available for-sale securities. Unrealized gains and unrealized losses deemed to be temporary are excluded from earnings (losses), net of applicable taxes, as a component of other comprehensive income (loss). Factors considered in judging whether an impairment is other than temporary include the financial condition, business prospects and creditworthiness of the issuer, the length of time that fair value has been less than cost, the relative amount of decline, and the Company’s ability and intent to hold the investment until the fair value recovers.

The carrying amounts of other financial instruments, including cash, accounts payable and accrued liabilities, income tax payable and related party payable approximate fair value due to their short maturities.

At June 30, 2014, the Company does not currently hold any non-marketable investments.

Basic and Diluted Net Loss Per Share

Diluted income (loss) per share reflects potential dilution from the exercise or conversion of securities into common stock. The dilutive effect of the Company's share-based awards is computed using the treasury stock method, which assumes that all share-based awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price during the period. Share-based awards whose effects are anti-dilutive are excluded from computing diluted income (loss) per share.

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 income. 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 taken to profit or loss as a gain or loss on foreign currency translation in the statements of income. 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 People’s Republic of China (“PRC”) government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Company because it has not engaged in any significant transactions that are subject to the restrictions.

Comprehensive Loss

We apply ASC No. 220, Comprehensive Income (“ASC 220”). ASC 220 establishes standards for the reporting and display of comprehensive income or loss, requiring its components to be reported in a financial statement that is displayed with the same prominence as other financial statements. Our accumulated comprehensive gain (loss) was $3,456,590 and $(57,924) as of the periods ended June 30, 2014 and December 31, 2013, respectively.

Reclassification

Certain prior period amounts have been reclassified to conform to current year presentations. There was no change to previously reported accumulated deficit or net loss.

Recent Accounting Pronouncements

Recent accounting pronouncements that the Company has adopted or will be required to adopt in the future are summarized below.

In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (“Topic 830”)—Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity, (“ASU 2013-05”). This amendment clarifies the applicable guidance for the release of cumulative translation adjustment into net earnings. When an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, the entity is required to apply the guidance in ASC 830-30 to release any related cumulative translation adjustment into net earnings. Accordingly, the cumulative translation adjustment should be released into net earnings only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. ASU 2013-05 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. Early adoption is permitted as of the beginning of the entity's fiscal year. The adoption of this guidance did not have a significant impact on the presentation of the Company's Condensed Consolidated Financial Statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

NOTE 4 – DISCONTINUED OPERATIONS

On June 23, 2014, at a Board of Directors meeting, the Company approved the discontinuation of all activities of the Consulting segment. Accordingly, based on management’s intent at June 30, 2014, the Company discontinued the Consulting segment.

As a result the Company’s activities for the Consulting segment at June 30, 2014 are now limited to winding down our consulting business activities, realizing the value of the Consulting segment’s remaining assets and making tax and regulatory filings related to the Consulting segment. Management’s goal is to liquidate all of the Consulting segment’s remaining assets as soon as practical while seeking to maximize stockholder value. It is currently anticipated that all of the operations of the Consulting segment will be concluded in the third quarter of 2014, and that all significant obligations to pay or make provisions to satisfy all of its expenses and liabilities. The Company intends to retain a sufficient amount of assets to ensure it is able to pay or satisfy all of the Consulting segment’s remaining expenses and liabilities. Payroll and related costs and other expenses are currently anticipated to be incurred at least through September 30, 2014, in order to complete all required regulatory filings and audits. Accordingly, our estimate of expenses anticipated to be incurred from July 1, 2014, to September 30, 2014, have been accrued as of June 30, 2014, in our financial statements.

In conjunction with the discontinuance of operations, the Company recognized that all assets carrying amounts are already at their fair values less estimated cost to sell. The assets and liabilities of the discontinued operations are presented below under the captions ‘‘Assets of discontinued segment’’ and ‘‘Liabilities of discontinued segment,’’ respectively, in the accompanying Balance Sheets at June 30, 2014, and December 31, 2013, and consist of the following:

	June 30,		December 31,
	2014		2013
Assets of discontinued segment:

Cash and cash equivalents	$	64,311	$	409,882
Accounts receivable		24,000		10,581
Other receivable		-		50,000
Total current assets		88,311		470,463

Goodwill		-		3,299,566
Total assets	$	88,311	$	3,770,029

Liabilities of discontinued segment:

Accounts payable	$	84,879	$	110,373
Accrued expenses		890,677		125,130
Advances payable to related party		-		30,590
Total liabilities	$	975,556	$	266,093

In addition, the Company transferred investments, 13,073,455 shares of client stock, with a value at June 30, 2014 of $10,224,177, to the continuing operations. The investments had a value at December 31, 2013 of $5,105,891 (see Note 9). Management intends to utilize these shares in on-going operations.

Amounts presented for the three and six months ended June 30, 2014 and 2013, have been reclassified to conform to the current presentation. The following table provides the amounts reclassified for the three and six months ended June 30, 2014 and 2013:

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Amounts reclassified:
Consulting revenue	$	-		$	111,434		$	1,636,745.70		$	111,434
Consulting operating expenses		(1,098,269	)		(334,374	)		(1,305,477	)		(738,320	)
Selling and marketing		(14,515	)		(32,399	)		(24,221	)		(55,423	)
Impairment expense		(3,299,566	)		-			(3,299,566	)		-
Other income (expense)		3,432			(7,865	)		(1,725	)		(325,249	)
Total amount reclassified as discontinued operations	$	(4,408,918	)	$	(263,204	)	$	(2,994,244	)	$	(1,007,558	)

NOTE 5 – VARIABLE INTEREST ENTITY

Variable interest entities 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 (Shanghai) Ltd (“CBMG Shanghai”) is a VIE, through which the Company conducts stem cell research and clinical trials in China. The shareholders of record for CBMG Shanghai are Cao Wei and Chen Mingzhe, who together own 100% of the equity interests in CBMG Shanghai. The initial capitalization and operating expenses of CBMG Shanghai are funded by our wholly foreign-owned enterprise (“WFOE”), Cellular Biomedicine Group (Wuxi) Ltd. (“CBMG Wuxi”). The initial registered capital of CBMG Shanghai is 10 million RMB and was incorporated on October 19, 2011.

In February 2012, CBMG Wuxi provided financing to CBMG Shanghai in the amount of $1,587,075 for working capital purposes. In conjunction with the provided financing, exclusive option agreements were executed granting CBMG Wuxi the irrevocable and exclusive right to convert the unpaid portion of the provided financing into equity interest of CBMG Shanghai at CBMG Wuxi’s sole and absolute discretion. CBMG Wuxi and CBMG Shanghai additionally executed a business cooperation agreement whereby CBMG Wuxi is to provide CBMG Shanghai with technical and business support, consulting services, and other commercial services. The shareholders of CBMG Shanghai pledged their equity interest in CBMG Shanghai as collateral in the event CBMG Shanghai does not perform its obligations under the business cooperation agreement.

The Company has determined it is the primary beneficiary of CBMG Shanghai by reference to the power and benefits criterion under ASC 810, Consolidation. This determination was reached after considering the financing provided by CBMG Wuxi to CBMG Shanghai is convertible into equity interest of CBMG Shanghai and the business cooperation agreement grants the Company and its officers the power to manage and make decisions that affect the operation of CBMG Shanghai.

There are substantial uncertainties regarding the interpretation, application and enforcement of PRC laws and regulations, including but not limited to the laws and regulations governing our business or the enforcement and performance of our contractual arrangements. See Risk Factors below regarding “Risks Related to Our Structure”. The Company has not provided any guarantees related to CBMG Shanghai and no creditors of CBMG Shanghai have recourse to the general credit of the Company.

As the primary beneficiary of CBMG Shanghai, the Company consolidates in its financial statements the financial position, results of operations, and cash flows of CBMG Shanghai, and all intercompany balances and transactions between the Company and CBMG Shanghai are eliminated in the consolidated financial statements.

The Company has aggregated the financial information of CBMG Shanghai in the table below. The aggregate carrying value of CBMG Shanghai’s assets and liabilities (after elimination of intercompany transactions and balances) in the Company’s condensed consolidated balance sheets as of June 30, 2014 and December 31, 2013, are as follows:

	June 30,		December 31,
	2014		2013
Assets
Cash	$	235,795	$	9,100
Other receivable		55,943		50,383
Inventory		35,338		26,526
Prepaid expenses		216,567		117,676
Total current assets		543,643		203,685

Property, plant and equipment, net		564,169		772,872
Intangibles		48,420		54,793
Total assets	$	1,156,232	$	1,031,350

Liabilities and Stockholders' Equity
Liabilities:
Accounts payable	$	22,312	$	24,868
Other payable		132,335		268,301
Payroll accrual		141,284		74,384
Tax payable		42,229		20,150
Total liabilities	$	338,160	$	387,703

NOTE 6 – OTHER CURRENT ASSETS

Other Receivables

The Company pays deposits on various items relating to office expenses. Management has classified these deposits as receivables as the intention is to recover these deposits in less than 12 months. As of June 30, 2014 and December 31, 2013 the amounts of other receivables was $63,069 and $78,521.

NOTE 7 – INVENTORY

At June 30, 2014 and December 31, 2013, inventory consisted of the following:

	June 30, 2014		December 31, 2013
Raw materials	$	48,593	$	27,979
Work in progress		17,584		-
Finished goods		90,313		91,140
	$	156,490	$	119,119

This inventory is from the Biomedicine segment. The Consulting segment did not have inventory.

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT

As of June 30, 2014 and December 31, 2013, property, plant and equipment, carried at cost, consisted of the following:

	June 30, 2014			December 31, 2013

Office equipment	$	17,530		$	17,100
Manufacturing equipment		828,553			775,449
Computer equipment		44,561			38,147
Leasehold improvements		1,068,680			1,049,889
Construction work in process		-			18,645
		1,959,324			1,899,230
Less: accumulated depreciation		(1,139,412	)		(884,425	)
	$	819,912		$	1,014,805

NOTE 9 - FAIR VALUE ACCOUNTING

Assets measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013 are summarized as follows:

	As of June 30, 2014
	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 Alpha Lujo, Inc.	$	588,470	$	588,470	$	-	$	-
Equity position in Arem Pacific Corporation		8,080,000		8,080,000		-		-
Equity position in Wonder International Education & Investment Group Corporation		1,555,707		1,555,707		-		-
	$	10,224,177	$	10,224,177	$	-	$	-

	As of December 31, 2013
	Fair Vaue 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 Alpha Lujo, Inc.	$	107,118	$	107,118	$	-	$	-
Equity position in Arem Pacific Corporation		3,500,000		3,500,000		-		-
Equity position in Wonder International Education & Investment Group Corporation		1,498,773		1,498,773		-		-
	$	5,105,891	$	5,105,891	$	-	$	-

During the six months ended June 30, 2014, the Company received 3,000,000 shares of Arem Pacific Corporation and 800,000 shares of Alpha Lujo, Inc. as compensation for services performed by the Company’s Consulting segment. No shares were received in the three months ended June 30, 2014. During the year ended December 31, 2013, the Company received 5,000,000 shares of Arem Pacific Corporation as compensation for services performed by the Company’s Consulting segment. As of June 30, 2014 and December 31, 2013, the Company holds 8,000,000 and 5,000,000 shares in Arem Pacific Corporation, 2,942,350 and 2,142,350 shares in Alpha Lujo, Inc., and 2,131,105 and 2,141,105 shares in Wonder International Education and Investment Group Corporation, respectively. The Company has valued these shares at the closing OTCBB quoted price on June 30, 2014. As such, the estimated fair values of these financial instruments subsequent to the reporting date may be different than the amounts reported at period end.

NOTE 10 – GOODWILL & INTANGIBLE ASSETS

As of June 30, 2014, the Company determined that an impairment existed with the remaining goodwill balance. This impairment is the result of the discontinuation of the Consulting segment. For the three and six months ended June 30, 2014 the Company recorded an impairment expense of approximately $3,300,000 which was reclassified to discontinued operations with the Consulting segment. No such expense was recorded in the three and six months ended June 30, 2013.

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 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. Goodwill is reviewed for possible impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value.

As of June 30, 2014 and December 31, 2013, intangible assets, net consisted of the following:

Patents
	June 30, 2014			December 31, 2013
Cost basis	$	1,019,771		$	1,020,577
Less: accumulated amortization		(640,588	)		(475,381	)
	$	379,183		$	545,196

Software
	June 30, 2014			December 31, 2013
Cost basis	$	58,465		$	57,031
Less: accumulated amortization		(18,049	)		(12,479	)
	$	40,416		$	44,552

Trademark
	June 30, 2014		December 31, 2013
Cost basis	$	-	$	11,708
Less: accumulated amortization		-		-
	$	-	$	11,708
Total intangibles, net	$	419,599	$	601,456

All software is provided by a third party vendor, is not internally developed, and has an estimated useful life of five years. Patents are amortized using an estimated useful life of three to five years. Amortization expense for the three and six months ended June 30, 2014 was $86,683 and $173,355, respectively, and amortization expense for the three and six months ended June 30, 2013 was $87,242 and $172,578, respectively. Estimated amortization expense for each of the ensuing years are as follows for the years ending December 31:


Years ending December 31,	Amount
2014	$	171,460
2015		222,105
2016		9,582
2017 and thereafter		16,452
	$	419,599

NOTE 11 – LEASES

Our corporate headquarters are located at 530 University Avenue in Palo Alto, California. We currently pay rent in the amount of $1,400 per month on a month-to-month basis.

As a result of the Merger, the Company inherited the following lease obligations. The Company had leased office space in Scottsdale, Arizona under a two year non-cancelable operating lease agreement initiated in August 2012. The monthly rent amount was $776 and expired in July 2014. In 2012, the Company agreed to continue the lease agreement for housing in Beijing. This lease continues on a month-to-month basis. Rent expense for the six months ended June 30, 2014 and 2013 was $240,647 and $221,356, respectively. It is anticipated that both of these leases will not be renewed.

Additionally, the Biomedicine segment has entered into nine tenancy agreements. The details of the nine tenancy agreements are as follows:

CBMG Wuxi, the lessee, has a tenancy agreement with Wuxi Huishan Xin Cheng Life Technology Industry Development Co., LTD’s., the lessor, for lease of the demised premises in Room E2301, Life Technology Industry A Zone, 1619, Huishan Da Dao, Huishan District, Wuxi, P. R. China. The lease term is three years, commencing from March 1, 2011 to February 28, 2014. This lease continues on a month-to-month basis at June 30, 2014. In June 2014, the Company obtained a notification from Wuxi Huishan Xin Cheng Life Technology Industry Development Co., LTD, advising that the rent would be exempted from January 1, 2013 to February 28, 2015. This exemption is a subsidy awarded to the Company, which resulted in the recording of other income of approximately $14,000 for rent expense of previous periods and no additional expense will be recorded until after this period.

CBMG Shanghai, the lessee, has a tenancy agreement with Shanghai Guilin Industry Company Ltd., the lessor, for lease of the demised premises in level 5 and level 6, Building 1,333 Guiping Road, Xuhui District, Shanghai, P.R. China. The lease term is three years, commencing from December 31, 2011 to November 30, 2014.

CBMG Shanghai, the lessee, has a tenancy agreement with HuiQian, the lessor, for lease of the demised premises in Room 202, Lianhua Road, Minhang District, Shanghai, P.R. China. The renewed lease term is one year, commencing from February 12, 2014 to February 11, 2015.

CBMG Shanghai, the lessee, has a tenancy agreement with WangJing, the lessor, for lease of the demised premises in Room 3-308, Alley 1458, Gumei Road, Minhang District, Shanghai, P.R. China. The lease term is one year, commencing from March 4, 2013 and was terminated on March 3, 2014.

CBMG Shanghai, the lessee, has a tenancy agreement with Zhilin Chen, the lessor, for lease of the demised premises in Room 704, 66 Longcao Road, Xuhui District, Shanghai, P.R. China. The lease term is one year, commencing from March 1, 2014 to February 28, 2015.

CBMG Shanghai, the lessee, has a tenancy agreement with Qinhua Zhu, the lessor, for lease of the demised premises in Room 601, 300 Pinyang Road, Xuhui District, Shanghai, P.R. China. The lease term is one year, commencing from March 1, 2014 to February 28, 2015.

Cellular Biomedicine Group Hong Kong (“HK”), the lessee, has a tenancy agreement with Global Incorporation Centre (HK) Limited, the lessor, for lease of the demised premises in Unit 402, 4th Floor, Fairmont House, No. 8 Cotton Tree Drive, Admiralty, Hong Kong. The lease term is one year, commencing from July 1, 2013 to June 30, 2014. This contract has been renewed for one year and will expire on June 30, 2015.

CBMG Shanghai, the lessee, has a tenancy agreement with Shanghai Xuhui Huizhong Public rental housing, the lessor, for lease of the demised premises in Room 1210, NO. 36 Caodong Road, Xuhui District. The lease term is two years, commencing from December 17, 2012 to December 31, 2014.

As of June 30, 2014, the Company has the following future minimum lease payments due under the foregoing lease agreements:

Years ending December 31,	Amount
2014	$	181,560
2015	$	15,195
	$	196,755

NOTE 12 – RELATED PARTY TRANSACTIONS

The net balance due to related parties is $34,471 as of June 30, 2014, representing $4,256 for combined advances from the Company’s executives and $30,215 to a subsidiary of Global Health Investment Holdings Ltd., CBMG’s largest shareholder. The net balance due to related parties is $67,999 as of December 31, 2013, representing $37,784 for combined advances from the Company’s executives and $30,215 to a subsidiary of Global Health, CBMG’s largest shareholder.

The Company received income from the Subsidiaries of Global Health Investment Holdings Ltd. for cell kits with cell processing and storage for the three and six months ended June 30, 2014, of approximately $118,000 and $179,000, respectively. The Biomedicine segment did not have revenue for the three and six months ended June 30, 2013.

During the year ended December 31, 2013, the Company paid $1,493,439 to the executives of the consulting segment subsidiary to settle all outstanding accrued compensation liabilities. .

NOTE 13 – 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. ASC Topic 470 Debt paragraph 470-50-40-3 states that, in an early extinguishment of debt through exchange for common or preferred stock, the reacquisition price of the extinguished debt shall be determined by the value of the common or preferred stock issued or the value of the debt whichever is more clearly evident. The Company’s policy is to record all stock transactions at the quoted market price on the day of issuance, as the most consistently reliable measurement of the transaction value.

In June 2014, the Company entered into several Subscription Agreements with selected investors that met the criteria as “non-U.S. persons” who agreed to comply with the applicable requirements of Regulation S under the Act. As a result of these transactions, the Company issued to the purchasers an aggregate of 1,492,537 shares of common stock, with a par value of $0.001, at a price per share of $6.70 for an aggregate purchase price of approximately $10,000,000. The Company also issued to the lead investor in the financing, a three-year option to purchase up to 1,000,000 shares of common stock at $8.00 per share. Pursuant to the terms of the option, if at any time after 18 months following the date of issuance, the daily volume-weighted average price of the Company’s common stock exceeds $12.00 for a consecutive 20 trading days, the Company shall have the right to require the holder to exercise the option in full.

In March 2014, the Company entered into several Subscription Agreements with selected investors that met the criteria as “Accredited Investors” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933 (the “Act”), and other investors who met the criteria as “non-U.S. persons” who agreed to comply with the applicable requirements of Regulation S under the Act. As a result of these transactions, the Company issued to the purchasers an aggregate of 194,029 shares of common stock, with a par value of $0.001, at a price per share of $6.70 for an aggregate purchase price of approximately $1,220,000.

NOTE 14 – COMMITMENTS AND CONTINGENCIES

Executive Employment Agreements

At the close of the Merger with CBMG BVI, the Company entered into executive employment agreements with each of Wen Tao (Steve) Liu, Wei (William) Cao and Andrew Chan (the “New Officers”) dated February 6, 2013 (each an “Employment Agreement,” collectively, the “Employment Agreements”). Pursuant to Amendment 1 to the Employment Agreement, Andrew Chan will receive an annual base salary of $200,000. On September 29, 2013, the Company’s board of directors approved new annual base salaries to Steve Liu and William Cao of $200,000 and $225,000, respectively. The New Officers are also eligible to participate in the Company’s Amended and Restated 2011 Incentive Stock Option Plan (the “2011 Plan”) and receive an option grant thereunder for the purchase of common stock of the Company at the discretion of the board of directors of the Company (the “Board”). The term of the New Officers’ employment agreements are effective as of February 6, 2013 and continue for three years thereafter. After the three year term, if the New Officers continue to be employed, they will be employed on an at-will basis and their agreements shall automatically renew for successive one year terms, until and unless their employment is terminated.

Each of the above Executive Employment Agreements contain termination provisions that dependent on the reason an executive is terminated, severance payments and the payment of COBRA premiums may be triggered.

On January 3, 2014 the Company entered into an executive employment agreement with Bizuo (Tony) Liu (the "Liu Employment Agreement"). Pursuant to the Liu Employment Agreement, Tony Liu will receive an annual base salary of $210,000 with substantially similar terms and conditions as the New Officers.

On May 1, 2014 the Company revised Wen Tao (Steve) Liu’s agreement (the “Wen Tao Employment Agreement”) . Pursuant to the Wen Tao Agreement, Steve Liu will receive an annual base salary of $150,000 as part-time Executive Chairman.

EastBridge Employment Agreements with Norman Klein and Keith Wong

On February 6, 2013, EastBridge entered into employment agreements with Norman Klein and Keith Wong (each a “Subsidiary Employment Agreement,” collectively, the “Subsidiary Employment Agreements”).

Pursuant to Mr. Wong’s Subsidiary Employment Agreement with EastBridge, Mr. Wong is entitled to an annual base salary of $240,000. Mr. Wong is also eligible to participate in the Plan.

Pursuant to Mr. Klein’s Subsidiary Employment Agreement with EastBridge, Mr. Klein is entitled to an annual base salary of $180,000. Mr. Klein is also eligible to participate in the Plan.

The Subsidiary Employment Agreements are effective as of February 6, 2013 and shall continue for three years thereafter unless earlier terminated. After the three year term, Mr. Wong and Mr. Klein shall continue to be employed on an at-will basis and their employment agreements automatically renew for successive one year terms until terminated.

Each of the above Subsidiary Employment Agreements contain termination provisions dependent on the reason employment is terminated, severance payments and the payment of COBRA premiums may be triggered.

Deferred Compensation Arrangement with Former Officers

On February 5, 2013, the Company entered into a Deferred Compensation Agreement with Keith Wong and Norman Klein (the “Former Executives”), in which the Company agreed to: (i) pay its Former Executives certain accrued unpaid cash compensation consisting of $676,839 payable to Keith Wong and $459,300 payable to Norman Klein, plus aggregate accrued interest calculated at the simple rate of 12% per annum; and (ii) pay on August 31, 2013, a cash bonus payment of $204,723 to Mr. Wong and $152,577 to Mr. Klein. As of September 30, 2013, all such amounts were paid. No such agreements are in 2014.

Discontinued Operations Plan

On June 30, 2014, pursuant to the discontinuation of the Consulting business, the Company offered a severance agreement with Mr. Wong and Mr. Klein. The terms and conditions of the severance agreement are commensurate with the Subsidiary Employment Agreements and as a result the company has expensed approximately $887,000 in discontinued operations in the three months ended June 30, 2014.

NOTE 15 – STOCK BASED COMPENSATION

Our stock-based compensation arrangements include grants of stock options and restricted stock awards under the Stock Option Plan (the “2009 Plan”, “2011 Plan”, and the “2013 Plan”), and certain awards granted outside of these plans.

Refer to the Current Report on Form 10-K filed April 15, 2014, for further information on our stock-based compensation arrangements. The compensation cost that has been charged against income related to stock-based compensation (including shares issued for services and expense true-ups and reversals) is as follows;

The Company recognized expense of $28,160 and $63,518 associated with restricted stock awards during the three and six months ended June 30, 2014 and $67,992 and $143,476 for the three and six months ended June 30, 2013, respectively. As of June 30, 2014, there was $140,622 related to an aggregate of 16,273 of non-vested restricted stock awards. These costs are expected to be recognized over a weighted-average period of 1.25 years for the restricted stock awards.

During the three and six months ended June 30, 2014, the Company issued stock options under the 2011 and 2013 Plans to purchase an aggregate of 500,700 shares of the Company’s common stock to officers, directors and employees. The grant date fair value of these options, net of estimated forfeitures, was $1,763,345 using Black-Scholes option valuation models with the following assumptions: exercise price equal to the grant date stock price of $5.00 to $6.80, volatility of 127% to 131%, expected life 6.0 years, and risk-free rate of 1.82 to 2.08%. The Company is expensing these stock option awards on a straight-line basis over the requisite service period. The Company recognized expense of $333,177 and $612,622 associated with stock option awards during the three and six months ended June 30, 2014 and $144,046 and $193,740 for the three and six months ended June 30, 2013, respectively. As of June 30, 2014, there was $2,921,364 of total unrecognized compensation cost related to an aggregate of 905,664 of non-vested stock option awards. These costs are expected to be recognized over a weighted-average period of 2.3 years for the stock options awards.

The following table summarizes stock option activity as of December 31, 2013 and for the six months ended June 30, 2014:

	Number of Units			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value

Outstanding at December 31, 2013		705,073		$	4.19		9.2	$	735,132
Grants		500,700			5.25
Forfeitures		(57,500	)		5.36
Exercises		-			-
Outstanding at June 30, 2014		1,148,273		$	4.60		9.2	$	11,141,879

Vested and exercisable at June 30, 2014		242,609		$	3.78		8.7	$	2,540,959

Exercise	Number of Shares
Price	Outstanding	Exercisable

$3.00 - $4.95	350,883	161,994
$5.00+	797,390	80,615
	1,148,273	242,609

NOTE 16 – NET INCOME (LOSS) PER SHARE

Basic and diluted net loss per common share is computed on the basis of our weighted average number of common shares outstanding, as determined by using the calculations outlined below:

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2014			2013			2014			2013

Loss from continuing operations		$	(2,265,345	)	$	(2,241,310	)	$	(4,126,551	)	$	(6,913,001	)

Loss on discontinued operations		$	(4,408,918	)	$	(263,204	)	$	(2,994,243	)	$	(1,007,558	)

Net loss		$	(6,674,263	)	$	(2,504,514	)	$	(7,120,794	)	$	(7,920,559	)

Weighted average shares of common stock			7,829,314			5,719,075			7,660,974			5,196,583
Dilutive effect of stock options			-			-			-			-
Restricted stock vested not issued			-			-			-			-
Common stock and common stock equivalents			7,829,314			5,719,075			7,660,974			5,196,583

	Loss from continuing operations per basic share	$	(0.29	)	$	(0.39	)	$	(0.54	)	$	(1.33	)
	Loss from continuing operations per diluted share	$	(0.29	)	$	(0.39	)	$	(0.54	)	$	(1.33	)

	Loss on discontinued operations per basic share	$	(0.56	)	$	(0.05	)	$	(0.39	)	$	(0.19	)
	Loss on discontinued operations per diluted share	$	(0.56	)	$	(0.05	)	$	(0.39	)	$	(0.19	)

	Net loss per basic share	$	(0.85	)	$	(0.44	)	$	(0.93	)	$	(1.52	)
	Net loss per diluted share	$	(0.85	)	$	(0.44	)	$	(0.93	)	$	(1.52	)

NOTE 17 – 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 an expected U.S. pre-tax loss for the fiscal year ending December 31, 2013, 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.

In both the three and six months ended June 30, 2014, income tax expense (benefit) was $0, as the Company applied a valuation allowance to the net tax benefit.

NOTE 18 – SEGMENT INFORMATION

As stated in Note 4, as of June 23, 2014, the Company decided to discontinue the Consulting segment. As such, going forward, the Company will only have one remaining business unit. Therefore, the Company will not be presenting segment information until such time as another segment is developed.

NOTE 19 – SUBSEQUENT EVENTS

On July 31, 2014, Mr. Wong and Mr. Klein have executed the severance agreements offered by the Company pursuant to the discontinuation of the Consulting business.

On August 4, 2014, Cellular Biomedicine Group, Inc. (the “Company”) issued a press release announcing its execution of a framework agreement for the Company’s proposed acquisition of the business and related technologies of Agreen Biotech Co. Ltd. China.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis summarizes the significant factors affecting our results of operations, financial condition and liquidity position for the three months ended June 30, 2014 and 2013, and should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this filing.

This report contains forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Factors that might affect our forward-looking statements include, among other things:

●	overall economic and business conditions;

●	the demand for our products and services;

●	competitive factors in the industries in which we compete;

●	the results of our pending and future litigation;

●	the emergence of new technologies which compete with our product and service offerings;

●	our cash position and cash burn rate;

●	other capital market conditions, including availability of funding sources;

●	the strength of our intellectual property portfolio; and

●	changes in government regulations in China and the U.S. related to our industries.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions. These statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” included in other reports we file with the Securities and Exchange Commission. Also, these forward-looking statements represent our estimates and assumptions only as of the date of the document containing the applicable statement.

Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements.

OVERVIEW

For purposes of this periodic report, “CBMG BVI” refers to Cellular Biomedicine Group Ltd., a British Virgin Islands corporation, which is now a wholly-owned subsidiary of the registrant, together with its business, operations, subsidiaries and controlled entities). The “Company”, “CBMG”, “we”, “us”, “our” and similar terms refer to Cellular Biomedicine Group, Inc. (a Delaware corporation) as a combined entity including each of its subsidiaries and controlled companies following the merger (formerly EastBridge Investment Group Corporation), unless the context otherwise requires. “EastBridge Sub” refers to the Company's wholly owned subsidiary EastBridge Investment Corp.

Recent Developments

On June 23, 2014, the board of directors of the Company determined to discontinue the Company’s legacy consulting business segment and to focus the Company’s operations exclusively on its biomedicine business, acquired in February 2013.

On June 18, 2014, Cellular Biomedicine Group, Inc. (the “Company”) closed a financing transaction (the “Financing”) pursuant to which it sold an aggregate of 1,492,537 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), to selected investors (the “Investors”) at $6.70 per share, for total gross proceeds of approximately $10,000,000. The Shares were sold pursuant to separate subscription agreements (the form of which is attached to the 8-K filed on June 23, 2014, as Exhibit 10.1) between the Company and each Investor. The Company also issued to a designee of the lead Investor in the Financing a three-year option to purchase up to 1,000,000 shares of common stock at $8.00 per share, subject to adjustment for stock splits, stock dividends, combinations of shares and similar recapitalization transactions. Pursuant to the terms of the option, if at any time after 18 months following the date of issuance, the daily volume-weighted average price of the Company’s common stock exceeds $12.00 for a consecutive 20 trading days, the Company shall have the right to require the holder to exercise the option in full.

In 2013, we completed Phase I/IIa clinical trials for our Knee Osteoarthritis (“KOA”) and Hepatocellular Carcinoma (“HCC”) therapies. We have received six-month MRI data for our KOA Phase IIa clinical trial on statistically relevant evidence of cartilage growth and have started patient enrollment for our Phase IIb KOA trial. We expect to have half of the requisite number of trial patients enrolled within the second quarter of 2014 and mid-point observation (48 patients and 12-month follow-up) published in the first half of 2015. We are continuing our observation of Phase I HCC Tumor Cell Targeted Dendritic Cell (“TC-DC”) therapy trial patients beyond the safety analysis and expect to have an update in late 2014. We have also launched pre-clinical study on human adipose derived mesenchymal progenitor cell (“haMPC”) therapy for Asthma.

With regard to our intellectual property portfolio, in the first quarter of 2014 we secured patents relating to the use of haMPC for the prevention, and treatment of Osteoarthritis and a patent for using allogeneic haMPCs or mesenchymal progenitor cells for the prevention and treatment of Rheumatoid Arthritis.

In the next 12 months, we aim to accomplish the following in our biomedicine business:

●	Complete the preclinical safety studies on Asthma.

●	Publish the KOA Phase IIa six and twelve months MRI data that demonstrates clear signs of efficacy.

●	Obtain approval for pending Patent Cooperation Treaty (“PCT”) patents.

●	Develop a strategy to launch Phase II clinical trials for HCC.

●	Develop IP on allogeneic HaMPC therapy for Asthma

For the three and six months ended June 30, 2014 we generated $118,069 and $179,120, respectively, in revenue from the sales of A-Stromal™ enzyme reagent kits. For the three and six months ended June 30, 2013, the biomedicine business did not generate revenue from the sales of enzyme reagent kits. We expect our biomedicine business to generate revenues primarly from the development of therapies for the treatment of KOA upon commecialization after completing the requisite clinical trials.

Our operating expenses for the three and six months ended June 30, 2014 were in line with management’s plans and expectations. We incurred an increase in total operating expenses of approximately $194,000 for the three ended June 30, 2014, and a decrease of approximately $2,530,000 for the six months ended June 30, 2014, as compared to the three and six months ended June 30, 2013, which is primarily attributable to costs incurred in 2013 in connection with our Merger and expenses related to being a public company.

In addition, for the six months ended June 30, 2013 we issued 342,360 shares of common stock, for which we recorded an expense of $1,694,682, based on the quoted market prices on the dates of issuance. These issuances were made to certain pre-merger private investors in CBMG BVI while it was a privately-held corporation. CBMG BVI agreed that if it did not achieve ten Phase II clinical trials by March 31, 2013 it would issue certain contingent shares to its private investors. This contingent share obligation to investors was assumed by the Company in the merger. On March 29, 2013 the Company issued the contingent shares to these pre-merger investors as required. No further agreements exist as of June 30, 2014.

Corporate History

Merger Between CBMG and EastBridge Investment Group Corporation

On November 13, 2012, EastBridge Investment Group Corporation (then an Arizona corporation) signed an agreement to merge with Cellular Biomedicine Group Limited (“CBMG BVI”), at that time a British Virgin Islands company. Under the merger agreement, EastBridge’s wholly-owned merger subsidiary agreed to merge with CBMG BVI, with CBMG BVI as the surviving entity. As a result of the merger, which was consummated on February 6, 2013, Cellular Biomedicine Group Ltd. became the wholly-owned subsidiary of EastBridge Investment Group Ltd. The transactions under the merger agreement as amended are referred to as the “Merger”.

Also in connection with the Merger, we created a new Delaware subsidiary called EastBridge Investment Corp. (“EastBridge Sub”). Pursuant to a Contribution Agreement by and between EastBridge and EastBridge Sub dated February 5, 2013 (the “Contribution Agreement”), EastBridge contributed all of its current assets and liabilities to a newly formed, wholly-owned subsidiary of EastBridge, named “EastBridge Investment Corp.,” which will continue the current business and operations of EastBridge. A copy of the agreement and plan of merger, and all related exhibits, were previously filed on Form 8-K filed on February 12, 2013. For additional information regarding our Merger, please refer to our current report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2013 as amended on April 24, 2013, including all subsequent amendments, which reports are incorporated by reference.

Effective on March 5, 2013 we changed our corporate name to “Cellular Biomedicine Group, Inc.” As of the date of this report, our primary business is in the field of biomedicine.

BIOMEDICINE BUSINESS

Our biomedicine business was founded in 2009 as a newly formed specialty biomedicine company by a team of seasoned Chinese-American executives, scientists and doctors. In 2010 we established a GMP facility in Wuxi, and in 2012 we established a U.S. Food and Drug Administration (“FDA”) GMP standard protocol-compliant manufacturing facility in Shanghai. Our focus has been to monetize the rapidly growing health care market in China by marketing and commercializing stem cell and immune cell therapeutics, related tools and products from our patent-protected homegrown cell technology developed by our research and development team, as well as by utilizing exclusively in-licensed intellectual properties.

Our treatment focal points are cancer, neurodegenerative and other degenerative diseases comprised of KOA, Asthma medical Technology, Spinal Muscular Atrophy (“SMA”), and Amyotrophic Lateral Sclerosis (“ALS”).

In the cancer field, our in-licensed product candidate TC-DC has successfully completed a U.S. FDA Phase II clinical trial for the treatment of Metastatic Melanoma at the Hoag Medical Center in California. Under applicable international reciprocity procedures we are utilizing data generated in a U.S. Phase II clinical trial in an analogous China-based CFDA Phase I/II Clinical Trial for the treatment of HCC, a major type of Liver Cancer. Management believes we will be able to leverage skin cancer data produced in ongoing trials in the U.S., and apply it toward advancing our product candidate for the treatment of liver cancer and other cancer-related indications.

As the cancers that our potential therapies target all have relatively low survival rates, annual incidence (number of new cases) is roughly equivalent to the existing available market served. If a disease span is long, the number of patients will be accumulative and larger than new cases per year. There are 340,000 new cases of HCC per year in China. There are 80,000 new cases of Metastatic Melanoma, with those diagnosed to be Stage IV having a median survival time of 18 months.

According to International Journal of Rheumatic Diseases, 2011, there are over 57 million people with KOA in China. There are about 1,000 newborns with Spinal Muscular Atrophy Type I (“SMA-I”) disease in China annually. The median life span of these children is less than 6 months. Adult incidence is approximately 2 million in China.

In 2013, we completed a Phase I/IIa clinical trial for our Knee Osteoarthritis (“KOA”) therapy named ReJoinTM. The trial tested the safety and efficacy of intra-articular injections of autologous haMPCs in order to reduce inflammation and repair damaged joint cartilage. The 6-month follow-up clinical data showed ReJoinTM therapy to be both safe and effective.

In Q2 2014 we completed patient enrollment for the Phase IIb clinical trial of ReJoinTM for KOA. The multi-center study has enrolled 53 patients to participate in a randomized, single blind trial. We expect to publish interim observation of Phase IIb and 12 month follow-up data of Phase I/IIa by Q1 2015.

In Q1 of 2014 we began a pre-clinical study on human adipose derived mesenchymal progenitor cell (haMPC) therapy for asthma. The pre-clinical study, conducted by Shanghai First People’s Hospital, a leading teaching hospital affiliated with Shanghai Jiaotong University, will evaluate the safety and efficacy of haMPCs to treat severe asthma.

These methodologies enable us to conduct certain clinical trials and commercialization. Our TC-DC therapy utilizes dendritic cells that have been taught the unique "signature" of the patient's’ cancer, in order to trigger an effective immune response against cancer stem cells, the root cause of cancer metastasis and recurrence. We have a process to develop MNP and NP cells with high purity levels, validated by synapse formation, and have shown functional innervation with human muscle cells. These products enable us to conduct certain clinical trials and pursue commercialization for TC-DC, and explore the development of new therapies for a variety of neurodegenerative diseases. As of December 31, 2013, we have completed the HCC Phase I trial.

The four unique lines of TC-DC, adult adipose-derived, umbilical cells, and neural stem cells enable us to create multiple cell formulations in treating specific medical conditions and diseases, as well as applying single cell types in a specific treatment protocol. Management believes that our adult adipose-derived line will become commercially viable and market-ready within three to four years. Our facilities are certified to meet the international standards NSF/ANSI 49, ISO-14644 (or equivalent), ANSI/NCSL Z-540-1 and 10CFR21, as well as Chinese CFDA standards CNAS L0221. In addition to standard protocols, we use proprietary processes and procedures for manufacturing our cell lines, comprised of:

●	Banking processes that ensure cell preservation and viability;

●	DNA identification for stem cell origin chain of custody; and

●	Bio-safety testing at independently certified laboratories.

We are proud to have a share in an emerging field that has great potential for a significant positive impact on society. Our directors, scientists, doctors and employees share a sense of responsibility that ensures we maintain stringent international safety and quality control standards and focus on the patients and caregivers who will benefit the most from the application of breakthroughs in regenerative medicine.

Regenerative Medicine and Cell Therapy

Regenerative medicine is the “process of replacing or regenerating human cells, tissues or organs to restore or establish normal function”. Cell therapy as applied to regenerative medicine holds the promise of regenerating damaged tissues and organs in the body by rejuvenating damaged tissue and by stimulating the body’s own repair mechanisms to heal previously irreparable tissues and organs. Medical cell therapies are classified into two types: allogeneic (cells from a third-party donor) or autologous (cells from one’s own body), with each offering its own distinct advantages. Allogeneic cells are beneficial when the patient’s own cells, whether due to disease or degeneration, are not as viable as those from a healthy donor. Similarly, in cases such as cancer, where the disease is so unique to the individual, autologous cells can offer true personalized medicine.

Regenerative medicine can be categorized into major subfields as follows:

Cell Therapy. Cell therapy involves the use of cells, whether derived from adults, children or embryos, third party donors or patients, from various parts of the body, for the treatment of diseases or injuries. Therapeutic applications may include cancer vaccines, cell based immune-therapy, arthritis, heart disease, diabetes, Parkinson’s and Alzheimer’s diseases, vision impairments, orthopedic diseases and brain or spinal cord injuries. This subfield also includes the development of growth factors and serums and natural reagents that promote and guide cell development.

Tissue Engineering. This subfield involves using a combination of cells with biomaterials (also called “scaffolds”) to generate partially or fully functional tissues and organs, or using a mixture of technology in a bioprinting process. Some natural materials, like collagen, can be used as biomaterial, but advances in materials science have resulted in a variety of synthetic polymers with attributes that would make them uniquely attractive for certain applications. Therapeutic applications may include heart patch, bone re-growth, wound repair, replacement neo-urinary conduits, saphenous arterial grafts, inter-vertebral disc and spinal cord repair.

Diagnostics and Lab Services. This subfield involves the production and derivation of cell lines that may be used for the development of drugs and treatments for diseases or genetic defects. This sector also includes companies developing devices that are designed and optimized for regenerative medicine techniques, such as specialized catheters for the delivery of cells, tools for the extraction of stem cells and cell-based diagnostic tools.

All living complex organisms start as a single cell that replicates, differentiates (matures) and perpetuates in an adult through its lifetime. Cell therapy is aimed at tapping into the power of cells to prevent and treat disease, regenerate damaged or aged tissue and provide cosmetic applications. The most common type of cell therapy has been the replacement of mature, functioning cells such as through blood and platelet transfusions. Since the 1970s, bone marrow and then blood and umbilical cord-derived stem cells have been used to restore bone marrow and blood and immune system cells damaged by chemotherapy and radiation used to treat many cancers. These types of cell therapies have been approved for use world-wide and are typically reimbursed by insurance.

Over the past number of years, cell therapies have been in clinical development to attempt to treat an array of human diseases. The use of autologous (self-derived) cells to create vaccines directed against tumor cells in the body has been demonstrated to be effective and safe in clinical trials. Dendreon Corporation’s Provenge therapy for prostate cancer received FDA approval in early 2010. Researchers around the globe are evaluating the effectiveness of cell therapy as a form of replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are also being evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease and bone diseases. While no assurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improve human health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.

Market for Cell-Based Therapies

In 2013, U.S. sales of products which contain stem cells or progenitor cells or which are used to concentrate autologous blood, bone marrow or adipose tissues to yield concentrations of stem cells for therapeutic use were, conservatively, valued at $236 million at the hospital level. It is estimated that the orthopedics industry used approximately 92% of the stem cell products.

The forecast is that in the United States, shipments of treatments with stem cells or instruments which concentrate stem cell preparations for injection into painful joints will fuel an overall increase in the use of stem cell based treatments resulting in a 61% increase to $380 million in 2014, and an increase to $5.7 billion in 2020, with key growth areas being Spinal Fusion, Sports Medicine and Osteoarthritis of the joints.

According to data published in the executive summary of the 2014 New York stem cell summit Report, the U.S. specific addressable market in KOA is $83 million, estimated to grow to $1.84 billion by 2020. It is forecast that within the Orthopedic Stem Cell Market, in 2014 23% ($77 million) will be in the field of cartilage repair, rising to 56% ($1.7 billion) by 2020. According to International Journal of Rheumatic Diseases, 2011 there are over 57 million people with KOA in China.

China accounts for about 45% of cases and 40% of liver cancer deaths globally, and about 340,000 new cases of HCC (90% of liver cancer cases are HCC) per year. Aggressive surgical resection (surgical removal) of tumors is one of the primary treatment options for patients with HCC. However, post-surgery 2-year recurrence rate of HCC is still over 51%. There are an estimated 30,000 new cases of metastatic melanoma each year in China. In 2009, the global market for cell-based cancer therapies reached $2.7 billion, and was expected to reach $7.5 billion in 2013.

There over 30 million people in China suffering from asthma without effective therapies. Respiratory diseases account for 15% of deaths in China. China has the largest asthmatic population in the world and is one of the countries with the highest asthma mortality rate. (Source: Respirology 2013, Asian Pacific Society of Respirology)

Approved cell therapies have been appearing on the market in recent years. In 2011, however, the industry was dealt two setbacks when Geron Corporation discontinued its embryonic program, and when Sanofi-Aventis acquired Genzyme Corporation and did not acquire the product rights relating to the allogeneic cell technology of Osiris Therapeutics, Inc., a partner of Genzyme and a leader in the field. In both cases there were difficulties navigating the U.S. regulatory requirements for product approval. Inadequate trial designs were cited in the executive summary of the 2012 New York Stem Cell Summit Report as contributing to these failures.

The number of cell therapy companies that are currently in Phase 2 and Phase 3 trials has been gathering momentum, and we anticipate that new cellular therapy products will appear on the market within the next several years.

Cell Therapy Development for Chronic Diseases

Stem cells are very primitive and undifferentiated cells that have the unique ability to transform into many different cells, such as white blood cells, nerve cells or heart muscle cells. Adult stem cells are found in the bone marrow, in peripheral blood umbilical cord blood and other body organs. For over 40 years, physicians have been using adult stem cells to treat various blood cancers, and only recently has the promise of using adult stem cells to treat a myriad of other diseases begun to be realized.

Within the adult stem cell classification, the use of cells is either autologous (meaning donor and recipient/patient are the same) or allogeneic (donor and recipient are different people). The use of allogeneic stem cells will be appropriate for certain disease conditions while autologous will have its advantages depending on the indication and therapeutic goal.

Our Strategy

The majority of our biomedicine business is in the development stage. In 2013 we launched our A-StromalTM adipose stromal cell isolation kit on the China market and to date have sold a selective number of kits in the region. We intend to concentrate our business on the cell therapies and carrying our KOA clinical trial to commercialization.

We are developing our business in cell therapeutics and capitalizing on the increasing importance and promise that adult stem cells have in regenerative medicine. Our most advanced candidate involves adipose-derived mesenchymal stem cells to treat KOA. Based on current estimates we expect our biomedicine business to generate revenues primarily from the development of therapies for the treatment of KOA within the next three to four years and HCC within the next three to five years.

Presently we have two autologous cell therapy candidates undergoing clinical trials in China, for the treatment of HCC and KOA. If and when these therapies gain regulatory approval in the PRC, we will be able to market and offer them for clinical use. Although our biomedicine business was very recently organized, our technologies have been in development for decades, and our focus is on the latest translational stages of product development, principally from the pre-clinical trial stage to regulatory approval and commercialization of new therapies.

Our strategy is to develop safe and effective cellular medicine therapies for indications that represent a large unmet need in China, based on technologies developed both in-house and obtained through licensing and collaboration arrangements with other companies. Our near term objective is to pursue successful clinical trials in China for our KOA application, followed by our HCC therapy and Asthma therapy. We intend to utilize our comprehensive cell platform to support multiple cell lines to pursue multiple therapies, both allogeneic and autologous. We intend to apply U.S. Standard Operating Procedures (SOPs) and protocols while complying with Chinese regulations, while owning, developing and executing our own clinical trial protocols. We plan to establish domestic and international joint ventures or partnerships to set up cell laboratories and/or research facilities, in-license technology from outside of China, and build affiliations with hospitals, to develop a commercialization path for our therapies, once approved. We intend to use our first-mover advantage in China, against a backdrop of enhanced regulation by the central government, to differentiate ourselves from the competition and establish a leading position in the China cell therapeutic market. We also intend to out-license our technologies to interested parties.

CBMG initially plans to use its centralized manufacturing facility located in Shanghai to service multiple hospitals within 200 km of the facility. We aim to complete clinical trials for our KOA and HCC therapy candidates as soon as practicable. Our goal is to first obtain regulatory permission for commercial use of the therapies for the respective hospitals in which the trials are being conducted. CBMG plans to scale up its customer base by qualifying multiple additional hospitals for the post-trial use of therapies, once approved, by following regulatory guidelines. Based on current regulation and estimates we expect our biomedicine business to generate revenues primarily from the development of therapies for the treatment of KOA within the next three to four years and HCC within the next three to five years.

We believe that few competitors in China are as well-equipped as we are in the clinical trial development, diversified U.S. FDA protocol compliant manufacturing facilities, regulatory compliance and policy making participation, as well as a long-term presence in the U.S. with U.S.-based management and investor base.

We intend to continue our business development efforts by adding other proven domestic and international biotechnology partners to monetize the China health care market.

CBMG’s Cellular Biomedicine Technology Platforms

In order to expedite fulfillment of patient treatment CBMG has been actively developing technologies and products with a strong intellectual properties protection, including haMPC, derived from fat tissue, for the treatment of KOA, Asthma and other indications, and human umbilical cord derived mesenchymal progenitor cells (“huMPC”) for the treatment of Systemic Lupus Erythematosus (“SLE”) and other indications. CBMG has also been actively engaging with world leading scientists and companies, to develop TC-DC therapy for the treatment of HCC. In addition, through our cooperative arrangement with California Stem Cell, Inc. (“CSC”), CBMG has rights to develop cell therapies based on MNP and NP.

CBMG's proprietary and patent-protected production processes and clinical protocols enable us to produce raw material, manufacture cells, and conduct cell banking and distribution. Our proprietary cell lines (haMPC, huMPC, TC-DC, MNP, as further discussed below) provide us with the ability to customize specialize formulations to address complex diseases and debilitating conditions.

CBMG has been developing disease-specific clinical treatment protocols. These protocols are designed for each of these proprietary cell lines (haMPC, huMPC, TC-DC, MNP) to address patient-specific medical conditions. These protocols include medical assessment to qualify each patient for treatment, evaluation of each patient before and after a specific therapy, cell transplantation methodologies including dosage, frequency and the use of adjunct therapies, potential adverse effects and their proper management.

The protocols of haMPC therapy for KOA and TC-DC therapy for HCC have been approved by the Institutional Review Board of qualified hospitals for clinical trials. Once the trials are completed, the clinical data will be analyzed by a qualified third party statistician and reports will be filed by the hospitals to regulatory agencies for approval for use in treating patients.

CBMG has two cGMP facilities in Shanghai and Wuxi, China that meet international standards and have been certified by the CFDA. In any precision setting, it is vital that all controlled-environment equipment meet certain design standards. To achieve this goal, our Shanghai cleanroom facility underwent an ISO-14644 cleanroom certification. Additionally, our facilities have been certified to meet the ISO-9001 Quality Management standard by SGS Group, and accredited by the American National Bureau of Accreditation (“ANBA”). These cGMP facilities make CBMG one of the few companies in China with facilities that have been certified by US- and European-based, FDA authorized ISO accreditation institutions.

In total, our cGMP facilities have over 13,000 sq. ft. of cleanroom space with the capacity for eight independent cell production lines and a manufacturing capability for over 5,000 patients for autologous cell therapies per year. In addition, CBMG has two cell banks located in Shanghai and Wuxi facilities with a storage capacity to host more than 200,000 individual cell sources. There is also a 400 sq. ft. CFDA-standard products quality control center and an 800 sq. ft. laboratory with state of the art equipment. Our cell banking services include collection, processing and storage of cells from patients. This enables healthy individuals to donate and store their stem cells for future personal therapeutic use.

Most importantly, CBMG has a manufacturing and technology team with more than 30 years of relevant experience in China, EU, and the United States. All of these factors make CBMG a high quality cell products manufacturer in China.

Human Adipose-Derived Mesenchymal Progenitor Cells (haMPC)

Adult mesenchymal stem cells can currently be isolated from a variety of adult human sources, such as liver, bone marrow, and adipose (fat) tissue. The advantages in using adipose tissue (as opposed to bone marrow or blood) are that it is one of the richest sources of pluripotent cells in the body, the easy and repeatable access to fat via liposuction, and the simple cell isolation procedures that can begin to take place even on-site with minor equipment needs. The procedure we are testing for KOA involves extracting a very small amount of fat using a minimally invasive extraction process which takes up to 20 minutes, and leaves no scarring. The haMPC cells are then processed and isolated on site, and injected intra articularly into the knee joint with ultrasound guidance.

These haMPC cells are capable of differentiating into bone, cartilage, tendon, skeletal muscle, and fat under the right conditions. As such, haMPCs are an attractive focus for medical research and clinical development. Importantly, we believe both allogeneic and autologously sourced haMPCs may be used in the treatment of disease. Numerous studies have provided preclinical data that support the safety and efficacy of allogeneic and autologously derived haMPC, offering a choice for those where factors such as donor age and health are an issue.

Additionally, certain disease treatment plans call for an initial infusion of these cells in the form of SVF, an initial form of cell isolation that can be completed and injected within ninety minutes of receiving lipoaspirate. The therapeutic potential conferred by the cocktail of ingredients present in the SVF is also evident, as it is a rich source for preadipocytes, mesenchymal stem cells, endothelial progenitor cells, T regulatory cells and anti-inflammatory macrophages.

Human Umbilical Cord Derived Mesenchymal Progenitor Cells (huMPC)

CBMG has developed a stem cell line called human umbilical cord derived mesenchymal progenitor cells. These huMPCs have a tremendous capacity for self-renewal whilst also maintaining their multipotent ability to differentiate into osteoblasts, adipocytes, and chondrocytes as well as myocytes and neurons.

The youngest, most potent huMPCs are obtained from umbilical cord tissue, called Wharton’s jelly, which is normally discarded as medical waste after the birth of a newborn. This tissue contains a much higher concentration of huMPCs compared to cord blood. Researchers have shown that allogeneic huMPCs have potential therapeutic effects in cerebral palsy, Autism, cardiovascular diseases, spinal cord injury, autoimmune diseases, cartilage damage, Alzheimer’s, Parkinson’s, and many other degenerative diseases. CBMG has built a huMPC line with a high safety profile and preliminary evidence suggests therapeutic use in systemic lupus erythematosus (“SLE”) and cerebral palsy.

Tumor Cell Specific Dendritic Cells (TC-DC)

Recent scientific findings indicate the presence of special cells in tumors that are responsible for cancer metastases and relapse. Referred to as “cancer stem cells”, these cells make up only a small portion of the tumor mass. The central concept behind TC-DC therapy is to immunize against these cells. TC-DC therapy takes a sample of the patient’s own purified and irradiated cancer cells and combines them with specialized immune cells, thereby ‘educating’ the immune cells to destroy the cancer stem cells from which tumors arise. We believe the selective targeting of cells that drive tumor growth would allow for effective cancer treatment without the risks and side effects of current therapies that also destroy healthy cells in the body.

Motor Neuron Precursor Cells (MNP) and Neuronal Precursor Cells (NP)

Through our arrangement with CSC we have rights originating from CSC to produce clinical-quality motor neuron and neuronal progenitor cells from human embryonic stem cells (“ES”). These stem cell-derived motor neurons have potential applications in treating amyotrophic lateral sclerosis (motor neuron disease, also known as Lou Gehrig’s disease), a condition caused by a debilitating rapid progressive weakness, muscle atrophy and loss of motor function; and SMA, a group of debilitating disorders characterized by degeneration of lower motor neurons situated in the lower spinal cord, causing atrophy of various muscle groups in the body. Presently none of these conditions or disorders have any known cure.

Our Targeted Indications and Potential Therapies

Knee Osteoarthritis (KOA)

We have completed the Phase I/IIa clinical trial for the treatment of KOA. Three-month Phase I/IIa follow up data revealed statistically significant improvement in KOA from the baseline in clinical scores for WOMAC, NRS-11, SF-36, and KSCRS knee osteoarthritis indices, showing significantly reduced knee pain, improved knee mobility, and prolonged walking distance. MRI examination revealed an increase in cartilage thickness as early as three months after the therapy. Data of three patients who have completed six-month follow-up has confirmed the three-month findings. With the last patient treated in Q4 2013, analysis of the full six-month follow-up data has revealed that patients have reported a significant improvement in mobility, flexibility and a decrease in pain. Additional studies are being carried out to confirm the cartilage regrowth. Enrollment of 48 patients required for our Phase IIb clinical trial was completed in June, 2014.

Osteoarthritis is a degenerative disease of the joints. KOA is one of the most common types of osteoarthritis. Pathological manifestation of osteoarthritis is primarily local inflammation caused by immune response and subsequent damage of joints. Restoration of immune response and joint tissues are the objective of therapies.

According to International Journal of Rheumatic Diseases, 2011, 53% of KOA patients will degenerate to the point of disability. Conventional treatment usually involves invasive surgery with painful recovery and physical therapy. As drug-based methods of management are ineffective, the same journal estimates that some 1.5 million patients with this disability will degenerate to the point of requiring artificial joint replacement surgery every year. However, only 40,000 patients will actually be able to undergo replacement surgery, leaving the majority of patients to suffer from a life-long disability due to lack of effective treatment.

haMPCs are currently being considered as a new and effective treatment for osteoarthritis, with a huge potential market. Osteoarthritis is one of the ten most disabling diseases in developed countries. Worldwide estimates are that 9.6% of men and 18.0% of women aged over 60 years have symptomatic osteoarthritis. It is estimated that the global OA therapeutics market was worth $4.4 billion in 2010 and is forecast to grow at a compound annual growth rate (“CAGR”) of 3.8% to reach $5.9 billion by 2018.

In order to bring haMPC-based KOA therapy to market, our market strategy is to: (a) establish regional laboratories that comply with cGMP standards in Shanghai and Beijing that meet Chinese regulatory approval; and (b) file joint applications with Class AAA hospitals to use haMPCs to treat KOA in a clinical trial setting.

Our competitors are pursuing treatments for osteoarthritis with knee cartilage implants. However, unlike their approach, our KOA therapy is not surgically invasive – it uses a small amount (30ml) of adipose tissue obtained via liposuction from the patient, which is cultured and re-injected into the patient. The injections are designed to induce the body’s secretion of growth factors promoting immune response and regulation, and regrowth of cartilage. The down-regulation of the patient’s immune response is aimed at reducing and controlling inflammation which is a central cause of KOA.

We believe our proprietary method, subsequent haMPC proliferation and processing know-how will enable haMPC therapy to be a low cost and relatively safe and effective treatment for KOA. Additionally, banked haMPCs can continue to be stored for additional use in the future.

Hepatocellular Carcinoma (HCC)

In January 2013, we commenced a Phase I clinical trial with PLA 85 hospital in Shanghai, for HCC therapy. Treatment for all the patients was completed in 2013 and the study revealed the TC-DC therapy to be safe. The purpose of this trial was to evaluate the safety of an autologous immune cell therapy in primary HCC patients following resection (surgical tumor removal) and Transarterial Chemo Embolization (“TACE”) Therapy, a type of localized chemotherapy technique.

Recent scientific findings indicate that tumors contain specialized cells that allow for the generation of new tumors. Named cancer stem cells, these cells are responsible for both tumor metastases and recurrence. The central concept behind CBMG’s technology is to immunize against these cancer stem cells.

A number of our competitors are developing cancer treatment therapies, such as Promethera Biosciences of Belgium, and Shenzhen Beike Biotechnology Co. Ltd. However unlike our competitors, the therapies we are researching utilize the liver cancer stem cells as antigen source – these proliferating, self-renewing liver cancer stem cells provide comprehensive source of tumor antigens, without contamination from extraneous cells. The patient’s immune cells are isolated and trained to recognize, attack and eliminate the cancer cells.

TC-DC therapy was developed by Dr. Robert Dillman through more than 20 years of clinical research at the Hoag Cancer Center, California. The core idea of the TC-DC technique is to activate a patient’s immune system by exposure of cancer stem cell antigens to the key antigen presenting cells, dendritic cells. In order to expose cancer stem cell antigens effectively, cancer tissue from patients is digested and its cancer stem cell is expanded and co-cultured with the patient’s own dendritic cells in vitro. Together with GM-CSF the patient’s dendritic cells are loaded with fixed cancer stem cells and are administered back to the patient in order to boost the patient’s immune system to recognize cancer stem cell antigens and then effectively eliminate them.

The safety and efficacy profiles of TC-DC are outstanding based on Phase II clinical trials of TC-DC therapy for metastatic melanoma (see Dillman, R.O., et al. 2009. Phase II Trial of Dendritic Cells Loaded with Antigens from Self-Renewing, Proliferating Autologous Tumor Cells as Patient-Specific Antitumor Vaccines in Patients with Metastatic Melanoma: Final Report. Cancer Biotherapy and Radiopharmaceuticals, Volume 24 Number 3.) The most recent Phase II clinical trial of metastatic melanoma has shown five-year survival rate of 54%, and this therapy has been shown to significantly reduce the rate of tumor recurrence and metastasis, improve patient longevity and quality of life. CSC has filed, and the FDA has accepted, its Phase III clinical trial of Metastatic Melanoma using TC-DC technology. In addition, CSC has received U.S. FDA approval of Phase II TC-DC Clinical Trial for Ovarian Cancer.

According to existing laws in the PRC, TC-DC therapy is considered a Category III medical technology, which must be managed and approved by the PRC’s Ministry of Health (“MOH”). The current market strategy is for CBMG to partner with Class-AAA hospitals to set up either on-site or localized cGMP standard cell biology laboratories, and apply to MOH for Phase I/II clinical trials to use TC-DC therapy for liver cancer. Upon completion of these clinical trials, partnered Class-AAA hospitals will jointly file applications to MOH for a license to treat liver cancer using TC-DC technology. For hospitals that have received a license, CBMG will provide liver cancer targeted DC cells, with the hospital charging appropriate cell therapy fees to the patient as determined by local government guidelines. We expect to derive revenues from service fees to hospitals.

One of the primary difficulties in administering effective cancer therapy is in the uniqueness of the disease – no two cancers are the same. Importantly, CBMG sources both immune and cancer cells directly from the patient, and our completely autologous approach to cancer therapy means that each dose is specific to each individual, an ultimate personalized therapeutic approach.

After receiving resected tumor tissue at our lab, the first step is to perform an enzyme digest that breaks down the solid tumor into individual cells. These cells then enter a process and purification stage, where contaminating cells are eliminated. The next step is to establish a cell line in the expansion phase, which typically takes 6 weeks, depending on the quality and proliferation rate of the sample. Also during this stage, the patient undergoes a leukapheresis procedure in which circulating white blood cells are extracted, and further processed into dendritic cells in the lab. In the last step, the patient’s dendritic cells are combined with irradiated cancer stem cells and thus learn the particular cancer’s “signature”, and finally these dendritic cells are delivered over a series of subcutaneous injections.

CONSULTING SERVICES BUSINESS

Cellular Biomedicine Group, Inc., a Delaware corporation (formerly known as EastBridge Investment Group Corporation), was originally incorporated in the State of Arizona on June 25, 2001 under the name ATC Technology Corporation. ATC Technology Corporation changed its corporate name to EastBridge Investment Group Corporation in September 2005 and shifted its business to providing finance-related services in Asia, with a focus on China. On February 5, 2013, the Company formed a new Delaware subsidiary named EastBridge Investment Corp. (“EastBridge Sub”). Pursuant to a Contribution Agreement by and between the Company and EastBridge Sub dated February 5, 2013, the Company contributed all assets and liabilities related to its consulting services business, and all related business and operations, to its newly formed subsidiary, EastBridge Investment Corp.

On June 23, 2014, our management with Board of Directors approval, agreed to discontinue the Consulting segment, with winding down activities expected to be completed during the third quarter of 2014.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

The following summarizes critical estimates made by management in the preparation of the consolidated financial statements.

Stock-Based Compensation

We periodically use stock-based awards, consisting of shares of common stock or stock options, to compensate certain officers 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.

Options - The compensation cost that has been charged against income related to stock-based compensation for the three and six months ended June 30, 2014 was $333,177 and $612,622, respectively, while for the three and six months ended June 30, 2013 expense was $144,046 and $193,740, respectively, and is included in general and administrative expense in our Condensed Consolidated Statements of Operations. As of June 30, 2014, there was $2,921,364 of total unrecognized compensation cost related to non-vested stock option awards. That cost is expected to be recognized over a weighted-average period of 2.3 years for the stock option awards.

Restricted shares – The compensation expense that has been charged against income related to stock-based compensation for the three and six months ended June 30, 2014 was $28,160 and $63,518, respectively, while for the three and six months ended June 30, 2013 expense was $67,992 and $143,476, respectively, and is included in general and administrative expense in our Condensed Consolidated Statement of Operations and Comprehensive Loss. As of June 30, 2014, a total of 16,273 restricted shares awards have been granted that remain unearned. As of June 30, 2014, total unrecognized compensation cost related to unvested awards was $140,622 for which the weighted average period over which such compensation cost is to be recognized is 1.25 years.

Revenue Recognition

We utilize the guidance set forth in the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 104, regarding the recognition, presentation and disclosure of revenue in financial statements.

We engage in listing contracts with our clients which provide for the payment of fees, either in cash or equity, upon the achievement of certain milestones by our clients with our assistance, including the successful completion of a financial statement audit, the successful listing on a national stock exchange and the maintenance of ongoing Exchange Act registration requirements with the Securities and Exchange Commission. In some instances, payment may be made in advance of performance; however, such payment is often refundable in the event that milestones are not reached. We recognize revenue on a systematic basis as milestones are reached in accordance with FASB’s ASC 605 Revenue Recognition Update No. 2009-13. Such guidance stipulates that revenue be recognized for individual elements in a multiple deliverable arrangement using the relative selling price method. We rely on internal estimates of the relative selling price of each element as objective third-party evidence is unattainable.

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.

A full valuation allowance has been established against the majority of net deferred tax assets as of June 30, 2014 based on estimates of recoverability. While we have optimistic plans for our 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 our ability to generate sufficient profits from our business model.

Results of Operations

Below is a discussion of the results of our operations for the three months ended June 30, 2014 and 2013. These results are not necessarily indicative of result that may be expected in any future period. Our prospects should be considered in light of the risks, expenses and difficulties that we may encounter. We may not be successful in addressing these risks and difficulties.

Comparison of Three Months Ended June 30, 2014 to Three Months Ended June 30, 2013

Although the descriptions in the results of operations below reflect our operating results as set forth in our Condensed Consolidated Statement of Operations and Comprehensive Loss filed herewith, prior periods being presented are reflective of the reclassifications as required for discontinued operations.

	Three Months			Three Months
	Ended June 30,			Ended June 30,
	2014			2013
Net sales and revenue
Biomedical	$	118,069		$	-
Total sales and revenue		118,069			-

Operating expenses:
Cost of sales		51,953			-
General and administrative		1,719,316			1,578,653
Selling and marketing		44,136			46,552
Research and development		642,830			639,276
Total operating expenses		2,458,235			2,264,481
Operating loss		(2,340,166	)		(2,264,481	)

Other income (expense)
Interest income		341			560
Other expense		74,480			22,611
Total other income (expense)		74,821			23,171
Loss from continuing operations before taxes		(2,265,345	)		(2,241,310	)

Income tax provision		-			-
Loss from Continuing operations		(2,265,345	)		(2,241,310	)

Loss from discontinued Consulting segement		(4,408,918	)		(263,204	)
Income tax benefit		-			-
Loss on discontiued operations		(4,408,918	)		(263,204	)
Net loss	$	(6,674,263	)	$	(2,504,514	)
Other comprehensive loss:
Cumulative translation adjustment		4,978			31,959
Unrecognized loss on investments		4,042,797			(112,253	)
Comprehensive net loss	$	(2,626,488	)	$	(2,584,808	)

Results of Operations

Net Revenues

	Net Revenues
	2014		2013		Change		Percent

Three months ended June 30,	$	118,069	$	-	$	118,069		0	%

In the three months ended June 30, 2014, we sold units of the A-StromalTM kits at approximately $3,250 USD with the exchange rate on June 30, 2014. No such revenue was recorded for the three months ended June 30, 2013. Based on current estimates we expect our biomedicine business to generate revenues primarily from the development of therapies for the treatment of KOA after we successfully complete all of the requisite clinical trials.

Cost of Sales

	Cost of Sales
	2014		2013		Change		Percent

Three months ended June 30,	$	51,953	$	-	$	51,953		0	%

The increase in cost of sales was attributable to the A-StromalTM kits sold. The Biomedicine segment is still in the development phase.

General and Administrative Expenses

	General & Administrative Expenses
	2014		2013		Change		Percent

Three months ended June 30,	$	1,719,316	$	1,578,653	$	140,663		9	%

General and administrative expenses increased due primarily to the following:

Increased expenses in 2014 associated with increased corporate activities related the management and the development of our biomedicine business, including:

o	An increase in stock-based compensation expense of $149,000;

o	An increase in payroll expenses of $119,000;

o	An increase in depreciation expense of $84,000;

o	An increase in other expenses of $84,000;

o	An increase in travel expense of $73,000;

o	An increase in investor relations expense of $24,000; partially offset by

o	A decrease in legal, professional and accounting services of $393,000;

Sales and Marketing Expenses

	Sales & Marketing Expenses
	2014		2013		Change			Percent

Three months ended June 30,	$	44,136	$	46,552	$	(2,416	)		(5	)%

Sales and marketing expenses decreased by approximately $2,000 in the three months ended June 30, 2014 as compared to the three months ended June 30, 2013, as a result of an decrease in payroll expenses by approximately $25,000 partially offset by an increase in travel, promotion, insurance and entertainment expenses of approximately $23,000.

Research and Development Expenses

	Research and Development Expenses
	2014		2013		Change		Percent

Three months ended June 30,	$	642,830	$	639,276	$	3,554		1	%

Research and development costs increased by approximately $4,000 in the three months ended June 30, 2014 as compared to the three months ended June 30, 2013 due primarily to an increase in experiment fees and partially offset by other research and development costs. In 2014 we have undertaken significant activities surrounding the development of our biomedicine intellectual property, including the implementation of Phase IIb clinical trials for KOA, which began recruiting patients in the first quarter of 2014.

Operating Loss

	Operating Loss
	2014			2013			Change			Percent

Three months ended June 30,	$	(2,340,166	)	$	(2,264,481	)	$	(75,685	)		3	%

The decrease in the operating loss for the three months ended June 30, 2014 as compared to the same period in 2013 is primarily due to changes in revenues, sales and marketing expenses and general and administrative expenses, each of which is described above.

Total Other Income

	Total Other Income
	2014		2013		Change		Percent

Three months ended June 30,	$	74,821	$	23,171	$	51,650		223	%

Other income (expense) consists primarily of rental subsidy income and foreign exchange gains and losses on transactions in our biomedicine segment.

Income Tax Benefit (Provision)

	Income Tax Benefit (Provision)
	2014		2013		Change		Percent

Three months ended June 30,	$	-	$	-	$	-		0	%

While we have prudent plans for our business strategy, we determined that a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to our ability to generate sufficient profits from our business model. Therefore, we established a valuation allowance for all deferred tax assets and we incurred no tax benefit for the three months ended June 30, 2014 and 2013.

Loss from Continuing Operations

2014

2013

Cellular Biomedicine Group, Inc. - FORM 10-Q - August 14, 2014

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