Cellular Biomedicine Group, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Cellular Biomedicine Group, Inc.	Financial_Report.xls
EX-31.2 - CERTIFICATION - Cellular Biomedicine Group, Inc.	cbmg_ex312.htm
EX-31.1 - CERTIFICATION - Cellular Biomedicine Group, Inc.	cbmg_ex311.htm
EX-32.1 - CERTIFICATION - Cellular Biomedicine Group, Inc.	cbmg_ex321.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 September 30, 2014

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

Commission File Number 001-36498

CELLULAR BIOMEDICINE GROUP, INC.

(Exact name of registrant as specified in its charter)

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

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 November 10, 2014, there were 9,946,022 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)	3
	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	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	44

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

Item 5.	Other Information	61

Item 6.	Exhibits	61

SIGNATURES		62

CELLULAR BIOMEDICINE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	September 30,			December 31,
	2014			2013

Assets
Cash and cash equivalents	$	9,815,962		$	7,175,215
Accounts receivable		175,093			10,581
Other receivable		163,651			78,521
Inventory		347,796			119,119
Prepaid expenses		510,679			56,911
Other current assets		111,882			134,661
Total current assets		11,125,063			7,575,008

Investments		9,218,722			5,105,891
Property, plant and equipment, net		1,295,208			1,014,805
Goodwill		7,678,789			3,299,566
Intangibles, net		11,715,281			601,456
Long-term prepaid expenses and other assets		541,109			-
Total assets (1)	$	41,574,172		$	17,596,726

Liabilities and Stockholders' Equity

Liabilities:
Accounts payable	$	224,412		$	213,891
Accrued expenses		1,862,977			503,717
Advances payable to related party		34,531			67,999
Other current liabilities		2,773,303			1,416,046
Total current liabilities		4,895,223			2,201,653

Other non-current liabilities		422,592			-
Total liabilities (1)		5,317,815			2,201,653

Stockholders' equity:

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

Common stock, par value $.001, 300,000,000 shares authorized;
9,935,609 and 7,382,797 issued and outstanding
as of September 30, 2014 and December 31, 2013, respectively		9,936			7,383
Additional paid in capital		66,157,177			37,861,593
Accumulated deficit		(32,360,053	)		(22,415,979	)
Accumulated other comprehensive income (loss)		2,449,297			(57,924	)
Total stockholders' equity		36,256,357			15,395,073

Total liabilities and stockholders' equity	$	41,574,172		$	17,596,726

_______________

(1)

The Company’s consolidated assets as of September 30, 2014 and December 31, 2013 included $3,679,771 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 September 30, 2014 and December 31, 2013, respectively. These assets include cash and cash equivalents of $1,572,213 and $9,100; accounts receivable of $151,093 and -0-; other receivables of $144,554 and $50,383; inventory of $197,692 and $26,526; prepaid expenses of $326,769 and $33,015; other current assets of $110,518 and $84,661; property, plant and equipment, net, of $1,048,394 and $772,872; and intangibles of $45,484 and $54,793; long-term prepaid expenses of $83,054 and -0-. The Company’s consolidated liabilities as of September 30, 2014 and December 31, 2013 included $2,643,648 and $387,703, respectively, of liabilities of the VIEs whose creditors have no recourse to the Company. These liabilities include accounts payable of $72,157 and $24,868; other current liabilities of $1,988,562 and $268,301; payroll accrual of $160,337 and $74,384; tax payable of $-0- and $20,150 and other non current liabilities of $422,592 and $-0-. See further description in Note 6, Variable Interest Entity.

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

CELLULAR BIOMEDICINE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013

Net sales and revenue:
Biomedical	$	-		$	95,365		$	179,120		$	95,365

Total sales and revenue		-			95,365			179,120			95,365


Operating expenses:
Cost of sales		-			158,280			92,553			158,280
General and administrative		2,021,382			1,398,809			5,123,210			7,157,211
Selling and marketing		21,311			8,080			86,806			60,310
Research and development		737,754			196,524			1,878,731			1,316,305
Total operating expenses		2,780,447			1,761,693			7,181,300			8,692,106
Operating loss		(2,780,447	)		(1,666,328	)		(7,002,180	)		(8,596,741	)

Other income (expense):
Interest income		698			207			1,263			1,079
Other income (expense)		(260	)		(16,829	)		94,357			(289	)
Total other income (expense)		438			(16,622	)		95,620			790
Loss from continuing operations before taxes		(2,780,009	)		(1,682,950	)		(6,906,560	)		(8,595,951	)

Income tax provision		-			-			-			-

Loss from continuing operations		(2,780,009	)		(1,682,950	)		(6,906,560	)		(8,595,951	)

Income (loss) from discontinued Consulting segment		(43,271	)		2,646,337			(3,037,514	)		1,638,777
Income tax provision		-			(386,494	)		-			(386,494	)
Income (loss) on discontinued operations		(43,271	)		2,259,843			(3,037,514	)		1,252,283

Net income (loss)	$	(2,823,280	)	$	576,893		$	(9,944,074	)	$	(7,343,668	)
Other comprehensive income (loss):
Cumulative translation adjustment		(1,838	)		24,269			(8,673	)		56,228
Unrecognized gain (loss) on investments		(1,005,455	)		(210,420	)		2,515,894			(944,993	)

Comprehensive income (loss)	$	(3,830,573	)	$	390,742		$	(7,436,853	)	$	(8,232,433	)

Earnings (loss) per share for continuing operations:
Basic	$	(0.30	)	$	(0.27	)	$	(0.85	)	$	(1.56	)
Diluted	$	(0.30	)	$	(0.27	)	$	(0.85	)	$	(1.56	)

Earnings (loss) per share discontinued operations:
Basic	$	-		$	0.37		$	(0.37	)	$	0.23
Diluted	$	-		$	0.36		$	(0.37	)	$	0.23

Earnings (loss) per share net loss:
Basic	$	(0.31	)	$	0.09		$	(1.22	)	$	(1.33	)
Diluted	$	(0.31	)	$	0.09		$	(1.22	)	$	(1.33	)

Weighted average common shares outstanding:
Basic		9,131,576			6,155,203			8,155,213			5,519,634
Diluted		9,131,576			6,229,825			8,155,213			5,519,634

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

CELLULAR BIOMEDICINE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Nine Months Ended
	September 30,
	2014			2013

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(9,944,074	)	$	(7,343,668	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		660,836			643,444
Loss on disposal of intangible assets		12,313			-
Stock based compensation expense		1,151,404			2,904,047
Amortization of deferred stock compensation		85,671
Impairment of goodwill		3,299,566			-
Third party services received in exchange for disposition of investment stock		-			83,334
Loss recognized in excess of cash received on disposition of investment stock		5,913			98,240
Value of stock received for services		(1,610,000	)		(3,000,000)
Deferred tax		-			(76,544	)
Changes in operating assets and liabilities:
Accounts receivables		(13,419	)		20,683
Investments		7,150			-
Other receivables		(53,332	)		(21,045	)
Inventory		(53,857	)		(2,738	)
Prepaid expenses and other assets		(439,437	)		(25,612	)
Other current assets		22,779			(76,810	)
Long-term prepaid expenses and other assets		(458,058	)		(26,858	)
Accounts payables		(36,988	)		(16,013	)
Other current liabilities		(1,135,151)			(264,635	)
Taxes payable		-			449,832
Accrued expenses		371,578			(378,949	)
Deferred revenue		-			(92,985	)
Net cash used in operating activities		(8,127,106	)		(7,126,277	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired		(190,698	)		2,568,995
Purchases of intangibles		(1,953	)		(5,801	)
Purchases of assets		(129,096	)		(139,900	)
Net cash (used in) provided by investing activities		(321,747	)		2,423,294

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock		11,121,956			4,005,071
Repayment of advances from affiliate		(33,468	)		(1,250	)
Advances from affiliate		-			(525	)
Net cash provided by (used in) financing activities		11,088,488			4,003,296

EFFECT OF EXCHANGE RATE CHANGES ON CASH		1,112			19,923

INCREASE (DECREASE) IN CASH		2,640,747			(679,764	)
CASH, BEGINNING OF PERIOD		7,175,215			4,144,896
CASH, END OF PERIOD	$	9,815,962		$	3,465,132

SUPPLEMENTAL CASH FLOW INFORMATION

Non cash financing and investing activities:
Issuance of company stock for acquisition of patent	$	1,442,850		$	-
Issuance of company stock for accrued liabilities and advances	$	-		$	149,475
Issuance of company stock for acquisition of business	$	14,496,256		$	-

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

CELLULAR BIOMEDICINE GROUP, INC.

FOR THE THREE MONTHS ENDED SEPTEMBER 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 a biomedicine company, principally engaged in the development of new treatments for cancerous and degenerative diseases utilizing proprietary cell-based technologies. Our technology includes two major cell platforms: (i) Immune Cell therapy for treatment of a broad range of cancers, (ii) haMPC (human adipose-derived mesenchymal progenitor cells) for treatment of joint and autoimmune diseases, with primary research facilities in China, while meeting dual standards.

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.

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.

On September 26, 2014, the Company completed its acquisition of Agreen Biotech Co. Ltb. ("AG") and the U.S. patent held by AG’s founder.

AG is a biotech company with operations in China, engaged in the development of treatments for cancerous diseases utilizing proprietary cell technologies, which include without limitation, preparation of subset T Cell and clonality assay platform technology for treatment of a broad range of cancers by AG’s primary hospital partner, Jilin Hospital.

NOTE 2 – 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 Company’s Biomedicine segment has incurred significant losses during the three and nine months ended September 30, 2014; and such losses are expected to continue through 2017, until we complete our clinical trials and commercialize our cell therapies. The Company has experienced negative cash flows from operations since the inception of the Company, and has been funded with capital raises. These circumstances result in substantial doubt as to the ability of the Company to continue as a going concern. Management plans to work diligently achieve milestones with respect to the development of revenue generating activities for its cell therapies upon completion of the necessary clinical trials. The Company will need to obtain additional funding in the future in order to finance its business strategy, operations and growth through the issuance of equity, debt or collaboration arrangements. 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 or will provide favorable value for the Company’s stockholders. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements of the Company and its subsidiaries, which are unaudited, include all normal and recurring adjustments considered necessary to present fairly the Company’s financial position as of September 30, 2014 and the results of its operations and its cash flows for the periods presented. The unaudited Condensed Consolidated Financial Statements herein should be read together with the historical consolidated financial statements of the Company for the years ended December 31, 2013 and 2012 included in our Annual Report on Form 10-K for the year ended December 31, 2013. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements reflect the accounts and operations of the Company and its majority or wholly-owned subsidiaries, beginning with the date of their respective acquisition. In accordance with the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Section 810, or ASC 810, Consolidation, the Company consolidates any variable interest entity, or VIE, of which it is the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as variable interest entities, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE in which it has a majority ownership interest when the Company is not considered the primary beneficiary. The Company has determined that it is the primary beneficiary in a VIE—refer to Note 6, Variable Interest Entity. The Company evaluates its relationships with the VIE on an ongoing basis to ensure that it continues to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.

These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. 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 recognizes 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 September 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 persuasive 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 business from our acquisition of Agreen Biotech Co. Ltd (see Note 4) to generate immediate revenues and the remainder of 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 September 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 September 30, 2014 and December 31, 2013, no allowance was determined to 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 nine months ended September 30, 2014 or 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 nine months ended September 30, 2014, depreciation expense was $137,071 and $400,731, respectively, while for the three and nine months ended September 30, 2013 depreciation expense was $122,173 and $375,173, 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 second quarter of 2014, the Company expensed approximately $3,300,000 which represented the remaining goodwill from the merger.

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 September 30, 2014 based on estimates of recoverability. Management 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, 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 September 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 $2,449,297 and $(57,924) as of September 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 – BUSINESS COMBINATIONS

On September 26, 2014, the Company aquired all of the outstanding equity of Agreen Biotech Co. Ltd. ("AG") in exchange for cash of $3,240,000 and the issuance of 753,522 shares of its common stock. Based on the closing price of the common stock on September 26, 2014, the aggregate purchase price was $17,747,415. Of the cash consideration, $2,915,000 was unpaid as of September 30, 2014 and is reflected in accrued expenses in the accompanying condensed consolidated balance sheet, and of which $1,620,000 is contingent upon certain criteria such as the performance by both parties under certain agreed-upon employment agreements with three employees and the maintenance of an ongoing relationship with an existing customer. The Company has preliminarily accrued the maximum amount payable under the acquisition agreement as it further reviews the probability that all performance criteria will be met. As a result of the acquisition, AG became a wholly-owned subsidiary of CBMG Shanghai.

The acquisition was accounted for as a business purchase pursuant to ASC Topic 805, Business Combinations. Under this ASC, acquisition and integration costs are not included as components of consideration transferred, but are accounted for as expenses in the period in which the costs are incurred.

AG is a cancer-therapy-focused developmental stage company whose intellectual property (including the intellectual property of AG’s founder, which the Company also acquired) is comprised of T Cells Receptor ("TCR") clonality analysis technology and T Central Memory Cell ("Tcm") and Dendritic Cell ("DC") preparation methodologies.

The following table provides the initial allocation of purchase price based on the estimated fair values of the assets acquired (including intangible assets) and liabilities assumed in connection with the acquisition:

Cash	$	145,611
Accounts receivable		151,093
Other receivable		31,798
Inventory		174,820
Prepaid expenses		14,331
Property, plant and equipment, net		561,113
Intangible assets		9,942,000
Goodwill		7,678,789
Long-term prepaid expenses		83,051
Total assets acquired		18,782,606

Accounts payables		(47,509	)
Accrued expenses		(42,013	)
Other current liabilities		(523,077	)
Other non-current liabilities		(422,592	)
Total liabilities assumed		(1,035,191	)

Net assets acquired	$	17,747,415

The intangible assets acquired consist of developed technology in connection with AG’s core business, which are being amortized over an estimated life of ten years.

In connection with the AG acquisition, the Company acquired existing patents and intellectual property that were owned by AG’s primary shareholder in exchange for 75,000 shares with a fair value of approximately $1,442,850. These assets are also reflected as intangible assets in the accompanying consolidated balance sheet at September 30, 2014 and are being amortized over an estimated life of 10 years.

The purchase price allocation is preliminary and is subject to revision pending the receipt of additional information relating to the fair value of the considerations granted, assets acquired and liabilities assumed. Additional information related to the fair value of the consideration granted, assets acquired and liabilities assumed that is received during the measurement period may have a material impact on the determination and allocation of the purchase price.

The following unaudited pro forma consolidated results of operations has been prepared as if the acquisition of AG and related patents and intellectual property described above had occurred on January 1, 2013 and includes adjustments for the amortization of intangibles and the earnings-per-share impacts of the issuance of shares as part of the acquisition of AG and related patents and intellectual property:

	Three Months Ended September 30, 2014									Three Months Ended September 30, 2013
	CBMG			AG			Pro forma			CBMG		AG		Pro forma
	As stated			Pro forma Adjustment			Consolidated			As stated		Pro forma Adjustment		Consolidated
Net revenue	$	-		$	419,745		$	419,745		$	95,365	$	457,360	$	552,725
Net loss		(2,823,280	)		(116,764	)		(2,940,044	)		576,893		15,276		592,169

Weighted average shares
Basic		9,131,576			720,760			9,852,336			6,155,203		753,522		6,908,725
Diluted		9,131,576			720,760			9,852,336			6,229,825		753,522		6,983,347
Earnings per share
Basic	$	(0.31	)				$	(0.30	)	$	0.09			$	0.09
Diluted	$	(0.31	)				$	(0.30	)	$	0.09			$	0.08

	Nine Months Ended September 30, 2014									Nine Months Ended September 30, 2013
	CBMG			AG			Pro forma			CBMG			AG			Pro forma
	As stated			Pro forma Adjustment			Consolidated			As stated			Pro forma Adjustment			Consolidated
Net revenue	$	179,120		$	1,198,414		$	1,377,534		$	95,365		$	750,307		$	845,672
Net income (loss)		(9,944,074	)		(48,109	)		(9,992,183	)		(7,343,668	)		(259,246	)		(7,602,914	)

Weighted average shares
Basic		8,155,213			742,481			8,897,694			5,519,634			753,522			6,273,156
Diluted		8,155,213			742,481			8,897,694			5,519,634			753,522			6,273,156
Earnings per share
Basic	$	(1.22	)				$	(1.12	)	$	(1.33	)				$	(1.21	)
Diluted	$	(1.22	)				$	(1.12	)	$	(1.33	)				$	(1.21	)

NOTE 5 – DISCONTINUED OPERATIONS

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

As a result the Company’s activities for the Consulting segment at September 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. All of the operations of the Consulting segment and all significant obligations to pay or make provisions to satisfy all of its expenses and liabilities will be concluded as soon as practicable. The Company intends to retain a sufficient amount of assets to ensure it is able to pay or satisfy all of the Consulting segment’s remaining expenses and liabilities. 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 September 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 September 30, 2014, and December 31, 2013, and consist of the following:

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

Cash and cash equivalents	$	7,725	$	409,882
Accounts receivable		24,000		10,581
Other receivable		-		50,000
Total current assets		31,725		470,463

Goodwill		-		3,299,566
Total assets	$	31,725	$	3,770,029

Liabilities of discontinued segment:

Accounts payable	$	85,177	$	110,373
Accrued expenses		48		125,130
Advances payable to related party		-		30,590
Total liabilities	$	85,225	$	266,093

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

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
		2014			2013			2014			2013
Amounts reclassified:
Consulting revenue	$	-		$	3,092,985		$	1,636,746		$	3,204,419
Consulting operating expenses		(40,229	)		(422,490	)		(1,345,705	)		(1,160,811	)
Selling and marketing		(3,042	)		(15,122	)		(27,263	)		(70,545	)
Impairment expense		-			-			(3,299,566	)		-
Other income (expense)		-			(9,036	)		(1,726	)		(334,286	)
Total amount reclassified as discontinued operations	$	(43,271	)	$	2,646,337		$	(3,037,514	)	$	1,638,777

NOTE 6 – 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 September 30, 2014 and December 31, 2013, are as follows:

	September 30,		December 31,
	2014		2013
Assets
Cash	$	1,572,213	$	9,100
Accounts receivable		151,093		-
Other receivable		144,554		50,383
Inventory		197,692		26,526
Prepaid expenses		326,769		33,015
Other current assets		110,518		84,661
Total current assets		2,502,839		203,685

Property, plant and equipment, net		1,048,394		772,872
Intangibles		45,484		54,793
Long-term prepaid expenses and other assets		83,054		-
Total assets	$	3,679,771	$	1,031,350

Liabilities and Stockholders' Equity
Liabilities:
Accounts payable	$	72,157	$	24,868
Other payable		1,988,562		268,301
Payroll accrual		160,337		74,384
Tax payable		-		20,150
Other non-current liabilities		422,592		-
Total liabilities	$	2,643,648	$	387,703

NOTE 7 – 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 September 30, 2014 and December 31, 2013 the amounts of other receivables were $163,651 and $78,521, respectively.

NOTE 8 – INVENTORY

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


	September 30, 2014		December 31, 2013
Raw materials	$	160,687	$	27,979
Work in progress		51,628		-
Finished goods		135,481		91,140
	$	347,796	$	119,119

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

NOTE 9 – PROPERTY, PLANT AND EQUIPMENT

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

Fixed Asset Details
	September 30, 2014			December 31, 2013

Office equipment	$	18,418		$	17,100
Manufacturing equipment		1,363,295			775,449
Computer equipment		75,087			38,147
Leasehold improvements		1,393,182			1,049,889
Construction work in process		-			18,645
		2,849,982			1,899,230
Less: accumulated depreciation		(1,554,774	)		(884,425	)
	$	1,295,208		$	1,014,805

NOTE 10 – FAIR VALUE ACCOUNTING

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

	As of September 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.	$	323,659	$	323,659	$	-	$	-
Equity position in Arem Pacific Corporation		8,000,000		8,000,000		-		-
Equity position in Wonder International Education & Investment Group Corporation		895,063		895,063		-		-
	$	9,218,722	$	9,218,722	$	-	$	-

	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 nine months ended September 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 September 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 September 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 September 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 11 – GOODWILL & INTANGIBLE ASSETS

As of September 30, 2014, the Company determined that an impairment existed, related to the goodwill associated with the Company's Consulting segment as a result of the discontinuation of the Consulting segment. For the three and nine months ended September 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 nine months ended September 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 September 30, 2014 and December 31, 2013, intangible assets, net consisted of the following:

Patents	September 30, 2014			December 31, 2013
Cost basis	$	12,404,621		$	1,020,577
Less: accumulated amortization		(726,834	)		(475,381	)
	$	11,677,787		$	545,196

Software	September 30, 2014			December 31, 2013
Cost basis	$	58,467		$	57,031
Less: accumulated amortization		(20,973	)		(12,479	)
	$	37,494		$	44,552


Trademark	September 30, 2014		December 31, 2013
Cost basis	$	-	$	11,708
Less: accumulated amortization		-		-
	$	-	$	11,708

Total intangibles, net	$	11,715,281	$	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 ten years. Amortization expense for the three and nine months ended September 30, 2014 was $86,750 and $260,105, respectively, and amortization expense for the three and nine months ended September 30, 2013 was $95,628 and $268,206, 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	$	371,460
2015		1,359,638
2016		1,150,529
2017		1,148,880
2018 and thereafter		7,684,774
	$	11,715,281

NOTE 12 – LEASES

The Company leases its corporate offices in the U.S. and it's operating facilities in China, under various non cancellable operating leases.

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

Years ending December 31,	Amount
2014	$	133,942
2015	$	221,747
	$	355,689

NOTE 13 – RELATED PARTY TRANSACTIONS

The net balance due to related parties is $34,531 as of September 30, 2014, representing $4,316 for combined advances from the Company’s executives and $30,215 to a subsidiary of Global Health Investment Holdings Ltd. (“Global Health”). Prior to August 26, 2014, Global Health was the Company’s largest shareholder. On August 26, 2014 Global Health Investment Holdings Ltd. disseminated its CBMG shareholdings, on a pro rata basis, to its shareholders. The net balance due to related parties 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 for cell kits with cell processing and storage for the three and nine months ended September 30, 2014, of approximately $-0- and $179,000, respectively. The Biomedicine segment did not have revenue for the three and nine months ended September 30, 2013.

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

NOTE 14 – 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 September 2014, the Company entered into several agreements for the purchase of Agreen and patents as described in note 4. As a result of these transactions, the Company issued an aggregate of 828,522 shares of common stock, with a par value of $0.001, with a quoted price per share of $19.238 on the transaction for an aggregate price of approximately $15,939,000. As indicated in Note 4, the accounting for this acquisition is preliminary and is subject to revision pending the receipt of additional information relating to, among other things, the fair value of the consideration granted, including the fair value of the shares issued in connection with the acquisition. This information may have a material impact on the determination and allocation of the purchase price.

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 15 – 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 were 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 were to 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.

Effective July 31, 2014, in connection with the Company’s discontinuation of its consulting business, the Company terminated the Subsidiary Employment Agreements with Messrs. Klein and Wong. On the same date, the Company entered into severance agreements with Messrs. Klein and Wong. Pursuant to the terms of the severance agreements, the Company agreed to pay severance of $360,000 and $480,000 to Messrs. Klein and Wong, respectively, as well as an additional lump sum of $4,200 and $12,480, respectively, to cover the equivalent costs of retaining two years of medical coverage under the Company’s current medical plan for such individuals.

Deferred Compensation Arrangement with Former Officers

On February 5, 2013, the Company entered into a Deferred Compensation Agreement with Keith Wong and Norman Klein (the “Former Executives”), in which the Company agreed to: (i) pay its Former Executives certain accrued unpaid cash compensation consisting of $676,839 payable to Keith Wong and $459,300 payable to Norman Klein, plus aggregate accrued interest calculated at the simple rate of 12% per annum; and (ii) pay on August 31, 2013, a cash bonus payment of $204,723 to Mr. Wong and $152,577 to Mr. Klein. As of September 30, 2013, all such amounts were paid. 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 for severance in the nine months ended September 30, 2014.

Collaboration Agreement

Part of AG’s business (see Note 4) includes a collaboration agreement to establish and operate a biologic treatment center in the Jilin province of China. Under the terms of the agreement, AG’s collaborative partner funded the development of the center and provides certain ongoing services. In exchange, the partner receives preferred repayment of all funds that were invested in the development, 60% of the net profits until all of the invested funds are repaid, and 40% of the net profits thereafter, and the rights to the physical assets at the conclusion of the agreement. We are accounting for this transaction in accordance with ASC 808 Collaborative Arrangements and have reflected all assets and liabilities of the treatment center. While a liability exists for the amounts to be repaid to the partner for the initial funding, the Company has not yet recognized a liability for the partners rights to the assets upon the conclusion of the agreement. As described in Note 4, the Company is continuing to receive additional information to finalize its purchase accounting, including the accounting for the fair value, if any, of this liability.

NOTE 16 – 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 $22,153 and $85,671 associated with restricted stock awards during the three and nine months ended September 30, 2014 and $49,071 and $192,547 for the three and nine months ended September 30, 2013, respectively. As of September 30, 2014, there was $118,469 related to an aggregate of 13,726 of non-vested restricted stock awards. These costs are expected to be recognized over a weighted-average period of 1.01 years for the restricted stock awards.

During the three and nine months ended September 30, 2014, the Company issued stock options under the 2011 and 2013 Plans to purchase an aggregate of 767,500 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 $4,986,660 using Black-Scholes option valuation models with the following assumptions: exercise price equal to the grant date stock price of $5.00 to $28.49, volatility of 122% to 130%, expected life 6.0 years, and risk-free rate of 1.77 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 $377,870 and $990,492 associated with stock option awards during the three and nine months ended September 30, 2014 and $191,904 and $385,645 for the three and nine months ended September 30, 2013, respectively. As of September 30, 2014, there was $7,867,009 of total unrecognized compensation cost related to an aggregate of 1,104,091 of non-vested stock option awards. These costs are expected to be recognized over a weighted-average period of 2.06 years for the stock options awards.

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

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

Oustanding at December 31, 2013		705,073		$	4.19		9.2	$	735,132
Grants		767,500			10.96
Forfeitures		(68,750	)		5.28
Exercises		(2,900	)		5.34
Outstanding at September 30, 2014		1,400,923		$	7.22		9.1	$	11,113,268

Vested and exercisable at September 30, 2014		296,832		$	3.91		8.6	$	3,068,048

Exercise			Number of Shares
Price			Outstanding		Exercisable

$	3.00 - $4.95			350,883		182,827
$	5.00 - $9.19			800,740		111,105
$	14.50	+		249,300		-
				1,400,923		293,932

NOTE 17 – 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						Nine Months Ended
		September 30,						September 30,
		2014			2013			2014			2013

Loss from continuing operations		$	(2,780,009	)	$	(1,682,950	)	$	(6,906,560	)	$	(8,595,951	)

Income (loss) on discontinued operations		$	(43,271	)	$	2,259,843		$	(3,037,514	)	$	1,252,283

Net income (loss)		$	(2,823,280	)	$	576,893		$	(9,944,074	)	$	(7,343,668	)

Weighted average shares of common stock			9,131,576			6,155,203			8,155,213			5,519,634
Dilutive effect of stock options			-			63,961			-			-
Restricted stock vested not issued			-			10,661			-			-
Common stock and common stock equivalents			9,131,576			6,229,825			8,155,213			5,519,634

	Loss from continuing operations per basic share	$	(0.30	)	$	(0.27	)	$	(0.85	)	$	(1.56	)
	Loss from continuing operations per diluted share	$	(0.30	)	$	(0.27	)	$	(0.85	)	$	(1.56	)

	Income (loss) on discontinued operations per basic share	$	-		$	0.37		$	(0.37	)	$	0.23
	Income (loss) on discontinued operations per diluted share	$	-		$	0.36		$	(0.37	)	$	0.23

	Net income (loss) per basic share	$	(0.31	)	$	0.09		$	(1.22	)	$	(1.33	)
	Net income (loss) per diluted share	$	(0.31	)	$	0.09		$	(1.22	)	$	(1.33	)

NOTE 18 – 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 nine months ended September 30, 2014, income tax expense (benefit) was $0, as the Company applied a valuation allowance to the net tax benefit.

NOTE 19 – SEGMENT INFORMATION

As stated in Note 5, 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.

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 and nine months ended September 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.

Recent Developments

On September 26, 2014 (the “Closing”), the Company completed the acquisition of Agreen Biotech Co. Ltd. (“AG”) and its founder’s U.S. patent for a total cash and equity consideration of $3.28 million in cash and an aggregate of 828,522 restricted shares of Company common stock. AG is a cancer-therapy-focused developmental stage company whose intellectual property is comprised of T Cells Receptor ("TCR") clonality analysis technology and T Central Memory Cell ("Tcm") and Dendritic Cell ("DC") preparation methodologies. The acquisition was structured as follows:


●	Cellular Biomedicine Group (Shanghai) Ltd (“CBMG Shanghai”), the Company’s variable interest entity, acquired 100% of the equity interest of AG

●	Cellular Biomedicine Group (HK) Ltd (“CBMG HK”) acquired 100% of the intellectual property of AG and the U.S. patent owned by AG’s founder

Pursuant to a framework agreement dated August 2, 2014 and a technology transfer agreement dated September 1, 2014, as consideration for the acquisition of AG, the Company agreed to pay the following: (i) $1,640,000 to the shareholders of AG (inclusive of the RMB2 million deposit already paid to the AG shareholders at the signing of the framework agreement), to be paid at Closing; (ii) $1,640,000 to Cellular Immunity Tech Ltd., a British Virgin Islands company that held the intellectual property of AG and is owned by the AG shareholders, to be paid within one year and one day of the Closing, provided, however, that within one year of Closing, (x) AG will have signed cooperative agreements with at least two new hospitals for the provision of AG’s technical services and (y) AG’s cooperative relationship with General Hospital of Jilin Chemical Group Corporation (“Jilin Hospital”) has not been materially adversely affected, resulting in a suspension or termination of such relationship for 60 days or more; and (iii) 753,522 shares of the Company’s common stock, par value $0.001 per share, to be delivered to the AG shareholders within five business days after Closing.

In connection with the acquisition, on September 26, 2014 the Company also entered into a patent purchase agreement with Zhong Chen Kou, the founder of AG, to acquire Kou’s U.S. Patent No. 7,375,211, “Method for Detection and Qualification of T-Cell Receptor Vβ Repertoire.” As consideration for the patent, the Company agreed to issue 75,000 restricted shares of Company common stock.

AG is focused on developing and marketing its technical service and test kits to hospitals that treat cancer patients who are undergoing immune cell therapy classified as 3rd Medical Technology by regulatory agencies in China. We have developed proprietary practical knowledge in the use of cell-based therapeutics that we believe could be used to help a great number of people suffering from cancer. Specifically, we provide technical services comprised of T Cell Receptors ("TCR") clonality analysis technology and T Central Memory Cell ("Tcm") and Dendritic Cell ("DC") preparation methodologies. The TCR clonality analysis technology is based on the use of the multiple sets of unique primers to amplify 22 regions of the TCR and thereby detect clonal expansions related to antigen stimulation of the immune system, which enables the assessment of tumor specific immunity with high accuracy and efficiency. Tcm cells are the subpopulation of T lymphocytes with key characteristics including high potency and long-term memory of specific immunity; and they are the key element of immunocellular fortification against tumors, infections and immune disorders. The Tcm cells are drawn from the cancer patient’s own blood and the therapy using these cells is classified in China as Medical Technology, which enables such therapy to be covered by medical insurance in more than ten provinces in China.

AG’s primary market is China. Jilin Hospital, AG’s primary hospital partner, currently uses AG’s technical services and test kits to treat patients who are undergoing cancer immune cell therapy in China. Based on AG’s results to date, AG believes that its TCR and Tcm services are safe and effective treatment options for cancer patients. The company believes that the results of AG’s proof-of-concept studies will support formal clinical trials with prominent hospitals in China, which can then be carried out through a network of authorized treatment centers throughout China.

On 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, the Company closed a financing transaction pursuant to which it sold an aggregate of 1,492,537 shares of the Company’s common stock to selected 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. In June 2014 we received six-month MRI data for our KOA Phase IIa clinical trial on statistically relevant evidence of cartilage growth and in September 2014 completed 12-month follow up. In June 2014 we also completed patient enrollment and treatment for our Phase IIb KOA trial. We expect to have 12-month follow-up for Phase I/IIa published in the fourth quarter of 2014. 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. In October 2014, we have also launched a pre-clinical study on human adipose derived mesenchymal progenitor cell (“haMPC”) therapy for Asthma, and Chronic Obstructive Pulmonary Disease (“COPD”) and clinical research studies in cartilage defect stem cell therapy.

With regard to our intellectual property portfolio, in the third quarter of 2014, in addition to,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, we secured other cancer-related intellectual property through the AG acquisition.

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

●	Complete the preclinical safety studies on Asthma, and COPD and clinical research studies in cartilage defect stem cell therapy.

●	Publish the KOA Phase IIa twelve month data including MRI data that demonstrates clear signs of efficacy.

●	Publish the KOA Phase IIb six month interim data including MRI data that demonstrates clear signs of efficacy

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

●	Launch cancer immune cell therapy clinical trials.

●	Develop IP on allogeneic HaMPC therapy for Asthma

For the three and nine months ended September 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 nine months ended September 30, 2013, the biomedicine business did not generate revenue from the sales of enzyme reagent kits. We expect our biomedicine business to generate revenues primarily from the development of therapies for the treatment of KOA in 2014 and HCC in 2015 or 2016.

Our operating expenses for the three and nine months ended September 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 September 30, 2014, and a decrease of approximately $2,530,000 for the nine months ended September 30, 2014, as compared to the three and nine months ended September 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, during the nine months ended September 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 September 30, 2014.

Corporate History

Merger Between CBMG and EastBridge Investment Group Corporation

On November 13, 2012, EastBridge Investment Group Corporation ("Eastbridge") (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 continued the current business and operations of EastBridge until June 30, 2014, when we discontinued the consulting segment of our business.

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 and other acquired intellectual properties.

Our current treatment focal points are cancer and other degenerative diseases such as KOA, Asthma, COPD and Cartilage Defects.

Cancer. In the cancer field, our in-licensed TC-DC therapy utilizes dendritic cells that have been taught the unique "signature" of the patient's’ cancer, in order to trigger an effective immune response against cancer stem cells, the root cause of cancer metastasis and recurrence. Our TC-DC product candidate has successfully completed a U.S. FDA Phase II clinical trial for the treatment of Metastatic Melanoma at the Hoag Medical Center in California. We have a process to develop MNP and NP cells with high purity levels, validated by synapse formation, and have shown functional innervation with human muscle cells. Under applicable international reciprocity procedures we are utilizing data generated in a U.S. Phase II clinical trial in an analogous China-based Phase I/II Clinical Trial for the treatment of Hepatocellular Carcinoma (“HCC”), a major type of Liver Cancer. Management believes we will be able to leverage skin cancer data produced in ongoing trials in the U.S., and apply it toward advancing our product candidate for the treatment of liver cancer and other cancer-related indications. As of December 31, 2013, we have completed the HCC Phase I trial.

KOA. 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 12 month follow-up data of Phase I/IIa in Q4, 2014; and interim observation of Phase IIb information by Q1 2015, and 12 month follow-up data in late 2015.

Asthma. 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.

COPD. COPD refers to a group of diseases that block airflow to the lungs and make it difficult to breathe. The two most common conditions that make up COPD are chronic bronchitis and emphysema, which gradually destroys the smallest air passages (bronchioles) in the lungs. Currently the common treatments for COPD, such as use of steroids, inhalers and bronchodilator drugs, aim to control the symptoms and minimize further damage, but do not reverse the tissue damage. The major risk factors for COPD in China are tobacco smoking, biomass fuel use and genetic susceptibility.

Our pre-clinical study is being conducted by Shanghai First People's Hospital, a leading teaching hospital affiliated with Shanghai Jiaotong University. Professor Zhou Xin, director of the hospital's respiratory department and chairperson of Respiratory Diseases Division of Shanghai Medical Association, will lead the study as Principal Investigator.

The unique lines of adult adipose-derived stem cells and the immune cell therapies enable us to create multiple cell formulations in treating specific medical conditions and diseases, as well as applying single cell types in a specific treatment protocol. Management believes that our adult adipose-derived line will become commercially viable and market-ready within three to four years, and will continue to grow the budding immune cell technical service revenue. 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.

We are focused on developing and marketing safe and effective cell-based therapies based on our cellular platforms, to treat serious chronic and degenerative diseases including cancers, orthopedic diseases including osteoarthritis and tissue damage, various inflammatory diseases and metabolic diseases. We have developed proprietary practical knowledge in the use of cell-based therapeutics that we believe could be used to help a great number of people suffering from cancer and serious chronic diseases. We have 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, and Chronic Obstructive Pulmonary Disease ("COPD") and clinical research studies in cartilage defect stem cell therapy.

Our primary target market is Greater China. Our first two therapy candidates are currently used to treat patients in research studies conducted in China. We are also engaged in a number of pre-clinical studies for other product or therapy candidates, which we believe have the potential to become safe and effective treatment options for a variety of degenerative and debilitating conditions. We believe that the results of our research studies will support expanded preclinical and clinical trials with a larger population of patients, which we expect to carry out through authorized treatment centers throughout Greater China. With the recent acquisition of AG, we added technical services revenue comprised of T Cells Receptor ("TCR") clonality analysis technology and T Central Memory Cell ("Tcm") and Dendritic Cell ("DC") preparation methodologies.

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. Researchers around the globe are evaluating the effectiveness of cell therapy as a form of replacement or regeneration of cells for the treatment of numerous organ diseases or injuries, including those of the brain and spinal cord. Cell therapies are also being evaluated for safety and effectiveness to treat heart disease, autoimmune diseases such as diabetes, inflammatory bowel disease, joint diseases and cancerous diseases. While no assurances can be given regarding future medical developments, we believe that the field of cell therapy is a subset of biotechnology that holds promise to improve human health, help eliminate disease and minimize or ameliorate the pain and suffering from many common degenerative diseases relating to aging.

Recent Developments in Cancer Cell Therapy

According to the U.S. National Cancer Institute, despite years of undulating steps, excitement is growing for immunotherapy—therapies that harness the power of a patient’s immune system to combat their disease, or what some in the research community are calling the “fifth pillar” of cancer treatment.

One approach to immunotherapy involves engineering patients’ own immune cells to recognize and attack their tumors. And although this approach, called adoptive cell transfer ("ACT"), has been restricted to small clinical trials so far, treatments using these engineered immune cells have generated some remarkable responses in patients with advanced cancer. For example, in several early-stage trials testing ACT in patients with advanced acute lymphoblastic leukemia ("ALL") who had few if any remaining treatment options, many patients’ cancers have disappeared entirely. Several of these patients have remained cancer free for extended periods.

Equally promising results have been reported in several small clinical trials involving patients with lymphoma. Although the lead investigators cautioned that much more research is needed, the results from the trials performed thus far are proofs of principle that researchers can successfully alter patients’ T cells so that they attack their cancer cells.

ACT’s building blocks are T cells, a type of immune cell collected from the patient’s own blood. After collection, the T cells are genetically engineered to produce special receptors on their surface called chimeric antigen receptors ("CARs"). CARs are proteins that allow the T cells to recognize a specific protein (antigen) on tumor cells. These engineered CAR T cells are then grown in the laboratory until they number in the billions. The expanded population of CAR T cells is then infused into the patient. After the infusion, if all goes as planned, the T cells multiply in the patient’s body and, with guidance from their engineered receptor, recognize and kill cancer cells that harbor the antigen on their surfaces. This process builds on a similar form of ACT pioneered from NCI’s Surgery Branch for patients with advanced melanoma. NCI’s Pediatric Oncology Branch commented that the CAR T cells are much more potent than anything they can achieve with other immune-based treatments being studied. Although investigators working in this field caution that there is still much to learn about CAR T-cell therapy, the early results from trials like these have generated considerable optimism. Researchers opined that CAR T-cell therapy eventually may become a standard therapy for some B-cell malignancies like ALL and chronic lymphocytic leukemia.

Market for Cell-Based Therapies

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

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

According to data published in the executive summary of the 2014 New York Stem Cell Summit Report, the U.S. specific addressable market in KOA is $83 million, estimated to grow to $1.84 billion by 2020. It is forecast that within the Orthopedic Stem Cell Market, in 2014 23% ($77 million) will be in the field of cartilage repair, rising to 56% ($1.7 billion) by 2020. According to International Journal of Rheumatic Diseases, 2011 there are over 57 million people with KOA in China. There are about 1,000 newborns with Spinal Muscular Atrophy Type I (“SMA-I”) disease in China annually. The median life span of these children is less than 6 months. Adult incidence is approximately 2 million in China.

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

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

According to Respirology 2013, Asian Pacific Society of Respirology, COPD account for 15% of deaths in China and poses a high economic and social burden on families and communities in China, due to the expense of prescription drugs and the impact on quality of life, with many patients deteriorating to the point of being unable to work and a shortened life span. Based on estimates by World Health Organization (WHO) of 2.5% prevalence of COPD in China. Over 32 million people in China suffer from COPD, so the need for innovative solutions is pressing as this disease represents a significant unmet medical need.

The current data on CAR T-cell therapies, presented from various institutions including MSKCC, University of Pennsylvania, National Cancer Institute, and Fred Hutchinson Cancer Center, has been extremely positive. Recently, T cell checkpoint manipulation has brought hope to the struggling battle against cancer using immune cell therapy technologies. Merck has received fast approval for its PD-1 antibody therapy for Melanoma. Novartis CAR-T technology has made breakthroughs in treating B cell lymphoma using genetically modified T cell technology.

Management believes the remaining risk in monetizing cancer immune cell therapies is concentrated in late stage clinical studies, speed-to-approval, manufacturing and process optimization.

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.

Our Strategy

The majority of our biomedicine business is in the development stage. We intend to concentrate our business on cell therapies and in the near-term, carrying our KOA stem cell therapy and cancer immune cell therapies to commercialization.

We are developing our business in cell therapeutics and capitalizing on the increasing importance and promise that adult stem cells have in regenerative medicine. Our most advanced candidate involves adipose-derived mesenchymal stem cells to treat KOA. Based on current estimates 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, acquire technology or in-license technology from outside of China, and build affiliations with hospitals, to develop a commercialization path for our therapies, once approved. We intend to use our first-mover advantage in China, against a backdrop of enhanced regulation by the central government, to differentiate ourselves from the competition and establish a leading position in the China cell therapeutic market. We also intend to out-license our technologies to interested parties.

CBMG initially plans to use its centralized manufacturing facility located in Shanghai to service multiple hospitals within 200 km of the facility. We aim to complete clinical trials for our KOA and 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.

With the AG acquisition we intend to monetize AG’s U.S. and Chinese intellectual property for immune cell therapy preparation methodologies and patient immunity assessment by engaging with prominent hospitals to conduct pre-clinical and clinical studies in specific cancer indications. The T Cell clonality analysis technology patent, together with AG’ other know-how for immunity analysis, will enable the Company to establish an immunoassay platform that is crucial for immunity evaluation of patients with immune disorders as well as cancerous diseases that are undergoing therapy.

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

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

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, COPD 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. With the AG acquisition, we will continue to seek to empower hospitals' existing and new immune cell cancer therapy development programs that may help patients improve their quality of life and improve their survival rate. CBMG’s acquisition of AG provides AG with an enlarged opportunity to expand the application of its cancer therapy-enabling technologies and to initiate clinical trials with leading cancer hospitals.

CBMG's proprietary and patent-protected production processes and clinical protocols enable us to produce raw material, manufacture cells, and conduct cell banking and distribution. Applying our proprietary intellectual property, we will be able to customize specialize formulations to address complex diseases and debilitating conditions.

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

The 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.

Immune Cell Therapy, Adoptive T cell

Adoptive T cell therapy for cancer is a form of transfusion therapy consisting of the infusion of various mature T cell subsets with the goal of eliminating a tumor and preventing its recurrence. In cases such as cancer, where the disease is unique to the individual, the adoptive T cell therapy is a personalized treatment.

We believe that an increasing portion of healthcare spending both in China and worldwide will be directed to immune cell therapies, driven by an aging population, and because immune cell therapy treatments could become a safe, effective, and cost-effective method for treating millions of cancer patients.

Cancer diseases are major threats to public health and the solvency of health systems worldwide. Current treatments for these diseases cannot meet medical needs. Immune cell therapy is a new technology that has the potential to alleviate much of the burden of these chronic and degenerative diseases in a cost-effective manner.

Tumor Cell Specific Dendritic Cells (TC-DC)

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

Our 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.

Adoptive T-Cell

Our strategy is for CBMG, through AG, to become an immune cell business leader in the China cancer therapy market and specialty pharmaceutical market by utilizing CBMG’s NASDAQ listing platform to consolidate key China immune cell technology leaders with fortified intellectual property and ramp up revenue with first mover’s advantage in a safe and efficient manner. The Company plans to accelerate cancer trials by using the knowledge and experience gained from the Company’s ongoing KOA trials. China has a bifurcated cell regulatory pathway, which is different than the singular path in the United States. Immune cell therapy is treated as Class III medical technology and requires a smaller-scale trial and shorter trial period. By applying U.S. SOP and protocols and following authorized treatment plans in China, we believe we are differentiated from our competition as we believe we have first mover’s advantage and a fortified barrier to entry.

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 of the Company's business. As of September 30, 2014, the majority of the consulting segment has been concluded. We will wait to liquidate the client shares still held until such future time that it is beneficial.

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 nine months ended September 30, 2014 was $377,870 and $990,492, respectively, while for the three and nine months ended September 30, 2013 expense was $191,904 and $385,645, respectively, and is included in general and administrative expense in our Condensed Consolidated Statements of Operations. As of September 30, 2014, there was $7,867,009 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 2.06 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 nine months ended September 30, 2014 was $22,153 and $85,671, respectively, while for the three and nine months ended September 30, 2013 expense was $180,084 and $1,159,986, respectively, and is included

Cellular Biomedicine Group, Inc. - FORM 10-Q - November 19, 2014

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