CELLULAR DYNAMICS INTERNATIONAL, INC. - FORM 10-K

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EXCEL - IDEA: XBRL DOCUMENT - CELLULAR DYNAMICS INTERNATIONAL, INC.	Financial_Report.xls
EX-24.1 - EXHIBIT 24.1 - CELLULAR DYNAMICS INTERNATIONAL, INC.	exhibit241powerofattorney.htm
EX-10.29 - EXHIBIT 10.29 - CELLULAR DYNAMICS INTERNATIONAL, INC.	exhibit1029assignmentfromi.htm
EX-31.2 - EXHIBIT 31.2 - CELLULAR DYNAMICS INTERNATIONAL, INC.	exhibit312cfocertification.htm
EX-23.1 - EXHIBIT 23.1 - CELLULAR DYNAMICS INTERNATIONAL, INC.	exhibit231consentofdeloitt.htm
EX-32.1 - EXHIBIT 32.1 - CELLULAR DYNAMICS INTERNATIONAL, INC.	exhibit321ceocertification.htm
EX-32.2 - EXHIBIT 32.2 - CELLULAR DYNAMICS INTERNATIONAL, INC.	exhibit322cfocertification.htm
EX-31.1 - EXHIBIT 31.1 - CELLULAR DYNAMICS INTERNATIONAL, INC.	exhibit311ceocertification.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

FORM 10-K



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

For the fiscal year ended December 31, 2014



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

Commission File Number: 001-36021

____________________

CELLULAR DYNAMICS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

____________________



Wisconsin				26-1737267
(State or Other Jurisdiction of Incorporation or Organization)				(I.R.S. Employer Identification Number)

525 Science Drive Madison, Wisconsin 53711				(608) 310-5100
(Address of principal executive offices and zip code)				(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class				Name of each exchange on which registered
Common stock, $0.0001 par value				The NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See

definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



(Check one:)
Large accelerated filer	¨		Accelerated filer	x
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

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

As of June 30, 2014, the last business day of the registrant's most recently completed second quarter, the aggregate market value of voting stock held by non-affiliates of the registrant was approximately $197.4 million. The registrant's common stock began trading on The NASDAQ Global Market on July 25, 2013.

As of March 2, 2015, there were 15,814,008 shares of the registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its 2015 Annual Meeting of shareholders are incorporated by reference in Part III of this Annual Report on Form 10-K where indicated. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2014.

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Cellular Dynamics International, Inc.

Form 10-K

Table of contents



Part I

Item 1.	Business	3
Item 1A.	Risk factors	23
Item 1B.	Unresolved staff comments	41
Item 2.	Properties	41
Item 3.	Legal proceedings	41
Item 4.	Mine safety disclosures	41
	Executive officers of the registrant	42

Part II

Item 5.	Market for registrant's common equity, related stockholder matters and issuer purchase of equity securities	44
Item 6.	Selected financial data	47
Item 7.	Management's discussion and analysis of financial condition and results of operations	49
Item 7A.	Quantitative and qualitative disclosures about market risk	67
Item 8.	Financial statements and supplementary financial data	68
Item 9.	Changes in and disagreements with accountants on accounting and financial disclosure	92
Item 9A.	Controls and procedures	92
Item 9B.	Other information	92

Part III

Item 10.	Directors, executive officers and corporate governance	93
Item 11.	Executive compensation	93
Item 12.	Security ownership of certain beneficial owners and management and related stockholder matters	93
Item 13.	Certain relationships and related transactions, and director independence	94
Item 14.	Principal accountant fees and services	94

Part IV

Item 15.	Exhibits and financial statement schedules	95
	Signatures	100
	Exhibit index	102

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Part I

Item 1. Business

Overview

We develop and produce fully functioning human cells in industrial quantities to precise specifications. Our proprietary products include true human cells in multiple cell types (iCell products), human induced pluripotent stem cells (iPSCs) and custom iPSCs and iCell products (MyCell products). Our products provide standardized, easy-to-use, cost-effective access to the human cell, the smallest fully functioning operating unit of human biology. We market our products for use in life science in vitro research and development as well as applied product testing, stem cell banking and in vivo cellular therapeutics. We are also in the process of developing human cells as cellular therapeutics.

Our products are based on our iPSC technology. An iPSC is a cell that has the ability both to replicate indefinitely and to be transformed into any cell type in the human body. Our iPSCs are produced from ordinary blood or skin using proprietary techniques that expand upon those pioneered by our founder Dr. James A. Thomson. Once we produce an iPSC, it can be banked indefinitely and becomes a renewable source of starting material for our iCell and MyCell products.

Each of the in vitro, stem cell banking and in vivo cellular therapeutic markets requires cellular models that reproduce, rather than approximate, the operation of the fully functioning human cell. "Fully functioning" means a cell that functions much like a human cell of the same type in specified ways that are relevant to the product's intended uses. Our fully functioning human cells produced in industrial quantities are intended to displace the cells currently used in these markets which are based on models that are surrogates for true human cells. With our products, customers have the potential to improve their access to human biology and increase the productivity of their in vitro research and development; enable the pursuit of novel avenues of biological discovery; accelerate the regulatory analysis and market introduction of clinical products; improve quality control of manufactured clinical products; allow more precise applied and environmental testing; facilitate the development or augmentation of stem cell banks; and foster the development and commercialization of in vivo cellular therapeutics.

We believe we are a leader in the sales of iPSC derived human cells for use in life science in vitro research and development as well as applied product testing. We also believe that we are currently creating the largest iPSC stem cell bank in the world as part of our contracts with the California Institute of Regenerative Medicine (CIRM) and Coriell Institute for Medical Research (Coriell). We believe our leadership position in these two areas provides us significant momentum in our pursuit of opportunities in in vivo cellular therapeutics for conditions such as Parkinson's disease, myocardial infarction and age-related macular degeneration.

Limitations of existing models

Historically researchers have had limited access to fully functioning human cells. Therefore they have been forced to conduct their experiments on surrogate models that do not accurately represent the human biology they want to study. We believe that human biological and therapeutic investigation has been stifled by the lack of access to a diverse set of standardized human cells in sufficient quantity to perform their experiments.

In vitro uses in life science, biopharmaceutical research and applied testing

The market for in vitro drug discovery, toxicity testing and applied testing, including chemical safety, historically has employed models—such as primary cells derived from human cadavers or sacrificed animals, transformed (immortalized) cells and live animals—that act as surrogates for fully functioning

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human cells. Researchers attempt to understand and predict the behavior of human cells by exposing these surrogates to various drugs, compounds and molecules. These models, however, are only an imprecise and inaccurate substitute for the human biology in question and their use leads to the slower pace of drug discovery, higher costs for drug development and costly late-stage drug development failure. Despite the billions of dollars spent annually on preclinical development activities, 84% of all drug candidates fail in human trials, including for a lack of human therapeutic activity or for an unacceptably high human toxicity that were not identified by using these surrogate models.

Primary cells. Primary cells harvested from either sacrificed animals or human cadavers fail to adequately reproduce human biology and result in a fundamentally flawed technology platform as a basis for drug discovery and development.


•	Animal cells are fundamentally different from the human cells they are meant to approximate.


•	Human cadaver cells are highly variable in quality due to variation in donor genetics, donor lifestyle (smoking, alcohol, diet, exercise, chemical exposure, etc.) and the timing and condition of the organ at harvest.


•	Human cadaver cells also behave differently in test tubes than in the human body.

Transformed cell lines. Transformed cell lines are cells that have either been isolated from a tumor or genetically induced to become immortal. They tend to grow indefinitely in test tubes. As a class, they represent a very poor surrogate for human biology and a poor model system for research.


•	Transformed cells proliferate rapidly and therefore lose the inherent physiological characteristics of the donor organ and cease to replicate the biology of the source organ or individual.


•	Transformed cells tend to be genetically unstable and to routinely add, delete or swap chromosomes. These genetic changes tend to give the altered cell a selective growth advantage in vitro, often critically altering the cells' physiology.

Live animals. Live animals are often used as a surrogate for human biology to predict drug safety and activity in humans.


•	Animal models represent fundamentally different biology than that of humans and therefore poorly predict drug safety and activity in people.


•	The use of animal models is coming under increasing ethical pressures that in some markets, such as Europe, have taken the form of laws requiring companies to eliminate certain applications using animal research.

Stem cell banking

Traditional tissue and current iPSC banking. Traditional tissue banks face limitations in the sourcing, quality and quantity of samples. iPSC banking has the potential to overcome these limitations. However, the manufacture of these large banks of iPSCs is particularly challenging because it is difficult to maintain consistent quality over long periods of time without deep expertise and experience in "footprint-free" iPSC manufacturing and a sufficiently robust quality management system. In addition, the information handling requirements and intellectual property issues are significant. We expect that building the banks will require a unique combination of capabilities to meet the quality, quantity and purity of cells needed by researchers.

Multipotent cells and clinical stem cell banking. We also believe that current clinical banking efforts based on multipotent stem cells from umbilical cord blood are of only limited value. At birth, a newborn's umbilical cord blood can be saved and shipped to a facility that isolates and preserves the blood system stem cells found in the cord blood. Because cord blood stem cells are multipotent, not pluripotent, they have only a limited ability to replicate and are predisposed to differentiate only into cells of the blood

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system. These two limitations make cord blood cells only applicable to the treatment of a very narrow set of diseases, and we expect that they will not be useful for the vast majority of possible diseases the donor might encounter in the future. In addition, cells in these banks have generally been saved for use by the donor and are not available for research purposes or for wider clinical application.

In vivo cellular therapeutics

In vivo cellular therapeutics refers to cells, tissue or whole organs that are inserted into living persons to cure debilitating disorders or regenerate damaged organs. While the majority of in vivo cellular therapeutics today involves organ transplants, the scarcity of donor organs leaves many patients requiring a transplant without a suitable source. Cellular transplantation and artificial organs offer promising alternatives for research and clinical inquiry. One significant limitation to further development of cellular therapeutics of these types is the lack of available manufactured human cells for experimentation and clinical application. Current approaches require the removal of terminal cells from an individual and, where possible, expanding the sample for transplantation or research use. Expansion of terminal cells and scaling this approach has proven difficult, expensive and critically limited by the paucity of cell types available.

Our markets

Our largest customers today are in the life sciences and biopharmaceutical industry research markets (in vitro drug discovery, toxicity testing and chemical safety uses) and stem cell banking. As mentioned above, we are also targeting the markets for cell-based therapies (in vivo cellular therapeutic use). We believe that over time our products, our manufacturing capabilities, the technical know-how we have acquired in developing those proficiencies and our intellectual property position will offer significant opportunities for revenue growth. According to Adivo Associates, the total spent on these three areas in 2011 by all participants was approximately $17.1 billion and is projected to grow to $40.5 billion by 2020.

Cells for in vitro drug discovery, toxicity testing and chemical safety uses

Cells for in vitro use refers to cells studied under laboratory culture conditions for the purpose of drug discovery, toxicity testing and chemical safety analysis. According to Adivo Associates, the total spent on cell-based technologies for in vitro use was approximately $10.8 billion in 2011, of which $3.5 billion was spent on cells, and is projected to increase to $14.7 billion in 2020, of which $5.6 billion is expected to be spent on cells.

Currently biopharmaceutical industry and academic researchers use primary cells derived from human cadavers or sacrificed animals, transformed (immortalized) cells and live animals for both toxicological research and drug discovery. Because our iCell products are fully functioning human cells, we believe they are more predictive of actual human biology and, therefore better suited for use in biological and biopharmaceutical research than current surrogate models.

Stem cell banking

According to Adivo Associates, the stem cell banking market was approximately $1.3 billion in 2011 and is expected to grow to $4.4 billion in 2020. The National Heart, Lung, and Blood Institute, the California Institute for Regenerative Medicine (CIRM), the European Union's Innovative Medicines Initiative, other government entities, academic institutions and industry have requested proposals to build banks of dozens to thousands of cell lines derived from numerous backgrounds to reflect various forms of cell line diversity, including ethnic, racial, gender, genetic, disease and drug reaction. These banks will permit researchers to choose the iPSC background from which to make or have manufactured the desired human cells. The iPSCs in these banks can later be differentiated into human cells for both research and

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therapeutic applications. We believe that there is significant revenue potential in manufacturing and differentiating the iPSCs that will be placed into these banks.

In March 2013, CIRM awarded CDI a $16.0 million grant to derive three iPSC lines from each of 3,000 different individuals, as part of California's $32.3 million stem cell banking initiative. Upon creation, these iPSC lines will be owned by CIRM. Terms of the award were finalized in October 2013 in the Derivation Agreement and we received our first quarterly payment from CIRM in November 2013. In 2014, we recognized $2.5 million of revenue related to the CIRM award. Through December 31, 2014 we have collected $5.8 million on the CIRM award, $3.1 million of which is in Deferred revenue at year-end.

We are also the primary subcontractor on a $10.0 million grant the Coriell Institute for Medical Research (Coriell) received from CIRM to maintain a bank of the iPSCs derived by CDI under the terms of the Derivation Agreement. Among other things, CDI will expand, and create up to 3,300 distribution cell banks from the 3,000 iPSC lines derived by CDI and from up to 300 third-party pluripotent stem cell lines provided by California researchers. CIRM's agreement with Coriell and our subcontractor agreement with Coriell for $6.3 million were both finalized in late 2013. In 2014, we recognized $462,000 of revenue related to the Coriell subcontract. Through December 31, 2014 we have collected $651,000 on the Coriell subcontract award, $189,000 of which is in Deferred revenue at year-end.

We intend to continue to take advantage of our potential to produce the iPSCs and differentiated cells for additional iPSC banks. We are also positioned to augment the product offering of cord blood banks by creating iPSC lines for their existing and prospective customers. In January 2015, we announced a research collaboration with Cord Blood Registry (CBR) to reprogram newborn stem cells from both umbilical cord blood and umbilical cord tissue collected, processed and cryopreserved under CBR's protocols into induced pluripotent stem cells (iPSCs) using our proprietary methods. Through this research collaboration, CBR will provide to CDI multiple de-identified, research-donated and cryopreserved umbilical cord blood units as well as multiple de-identified units of mesenchymal stem cells (MSCs) isolated from previously cryopreserved cord tissue. CDI will reprogram the cells into iPSCs and confirm their pluripotent nature.

Cells for in vivo cellular therapeutics

According to Adivo Associates, the global human stem cell, tissue and organ therapy market was $5.0 billion in 2011 and is projected to increase to $21.4 billion in 2020. Current in vivo use and related research efforts generally involve the use of cells or organs harvested from animals, cadavers or living donors, with the limitations discussed above. The lack of available manufactured human tissue matching the tissue to be repaired or regenerated particularly hinders the research and development of in vivo cellular therapeutics. Our scalable iPSC-based manufacturing platform allows us to then produce fully functioning, carefully specified human cells in large volumes, thereby enabling the research that may lead to cell therapies that repair, replace or regenerate damaged tissue.

We believe that as the research and development phase of the cellular therapeutics field grows, demand for our cells will increase substantially.

Our products

iCell and MyCell products

Our iCell and MyCell products reproduce, rather than approximate, the operation of the fully functioning human cell. They are manufactured to precise specifications and exacting standards and are designed for ease-of-use and to address our customers' desire to have better access to human cell biology.

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Our iCell and MyCell products consist of:



Cell Types and Products	Product Description	Current Product Application
iCell Cardiomyocytes	Highly purified human heart cells comprised of a mixture of spontaneously electrically active atrial, nodal and ventricular-like cells	Model systems for pre-clinical drug discovery, toxicity testing, disease modeling and other life science research
iCell Neurons	Highly purified human neurons typical of the forebrain, comprised primarily of GABAergic and glutamatergic neurons
iCell DopaNeurons	Highly purified human midbrain dopaminergic neurons essential for controlling complex behaviors such as voluntary movement, reward processing, and working memory
iCell Endothelial Cells	Highly purified human interior surface blood vessel cells exhibiting characteristic endothelial cell functions, including tubular formation, acetylated LDL uptake, barrier function and wound healing
iCell Hepatocytes (1)	Highly purified human liver cells that exhibit hepatocyte morphology, characteristic gene and protein expression, toxin sensitivity, metabolic activity, glucose regulation, lipid regulation, transporter function and viral infectivity
MyCell	Human iPSCs reprogrammed from customer-sourced or customer-specified samples	Make iPSCs for stem cell banking and cell modeling of specific ethnic or disease populations and genetic engineering for in vitro research
MyCell	Human differentiated cells derived from MyCell iPSCs
Media and reprogramming kit	Combination of three reagents (Essential 8 Medium, Vitronectin and Episomal iPSC Reprogramming Vectors) used for reprogramming tissue into iPSCs	Making iPSCs for limited research use only
(1) In 2014, iCell Hepatocytes were considered prototypes and therefore, revenue was reported in Collaborations, partnerships and other revenues.

iCell Cardiomyocytes. Derived from iPSCs, our iCell Cardiomyocytes are highly purified human heart cells that beat in a dish and behave just like the heart cells found in the human body. These cells provide a biologically relevant model system for in vitro drug discovery, toxicity testing and drug safety, as well as in vivo cellular therapeutics research and development and stem cell banking. For instance, iCell Cardiomyocytes were shown in a study by Hoffmann-La Roche (published in the journal Toxicological Sciences) to be significantly better at detecting harmful cardiovascular drug-induced side effects. In a separate study (published in the journal Cell Reports), scientists used iCell Cardiomyocytes as a disease model to identify potential therapeutic approaches for diabetes-related heart problems.

iCell Cardiomyocytes have been ordered by our customers for a variety of purposes, including:


•	In vitro


◦	To determine that their compounds do not adversely affect critical electrical, biochemical or mechanical cardiomyocyte function.

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◦	As a toxicity test system in standard assay offerings.


◦	To examine their suitability to replace existing in vitro and animal-based tests for arrhythmia assessment and thorough QT studies in humans.


◦	To screen for compounds that could be cardioprotective against oxidative stress and hypoxia.


◦	To be used in drug discovery programs as disease models and screening material to discover therapeutic approaches for a variety of diseases including cardiac hypertrophy, diabetes-related complication, and contractile dysfunction.


•	In vivo


◦	To advance cell therapy research by making feasible the animal studies of cardiomyocyte patches that deliver healthy cells to the damaged area of the heart after a myocardial infarction.

MyCell Cardiomyocytes are the focus of our significant banking project with the NHLBI and Medical College of Wisconsin which involves the study of 250 different patients with a form of heart disease known as left ventricular hypertrophy. We are producing iPSCs from these patients and differentiating those iPSCs into a diversity panel of cardiomyocytes.

iCell Neurons. Derived from iPSCs, iCell Neurons are highly purified human neurons typical of the forebrain. iCell Neurons provide a biologically relevant in vitro model system for pre-clinical drug discovery, neurotoxicity testing and disease modeling for Alzheimer's disease, Parkinson's disease and Huntington's disease among others. For instance, as reported in Stem Cell Research, researchers at an affiliate of GlaxoSmithKline plc (GSK) utilized iCell Neurons to identify several small molecules as effective blockers of the toxicity caused by the abnormal protein deposits associated with Alzheimer's disease, suggesting new ways to develop medicines for Alzheimer's disease. This is the first demonstration in a peer-reviewed publication of a high-throughput toxicity screen using iPSC-derived neurons.

iCell Neurons have been ordered by our customers for a variety of purposes, including:


•	In vitro


◦	To model Alzheimer's disease for compound screening.


◦	To model infection and growth of clinically relevant strains of the virus that causes chicken-pox and shingles (Varicella Zoster).


◦	To study the genetic basis of epilepsy.


◦	To study the unique biology of autism spectrum disorders.


◦	For applied testing, to replace an existing animal test for botulinum neurotoxin potency, with a superior in vitro assay based on iCell Neurons.

iCell DopaNeurons. iCell DopaNeurons, derived from human iPSCs, are highly pure floor-plate derived midbrain dopaminergic neurons. The loss of midbrain dopaminergic neurons is associated with Parkinson’s disease, and highly altered levels of dopamine activity have been linked to various neuropsychiatric disorders. Dopaminergic neurons derived from the floor plate are the only human cell to have been shown to efficiently engraft and alleviate Parkinsonian symptoms in animals, making these cells a leading candidate for use in cellular therapeutics. We believe that iCell DopaNeurons exhibit relevant biology and functionality to advance research and preclinical studies for neurological disorders.

iCell DopaNeurons have been ordered by our customers for a variety of purposes, including:


•	In vitro


◦	To induce a disease phenotype to make in vitro human Parkinson's disease model.

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◦	To develop phenotypic assays modeling Parkinson's disease to better understand the disease's mechanisms.


◦	To model Gaucher disease, often a precursor to Parkinson's disease, to better understand disease origins and genetic risk factors.


•	In vivo


◦	To advance cell therapy research by making preclinical studies feasible whereby healthy human dopaminergic neurons are transplanted into the brains of animals induced to display Parkinson's disease.

iCell Endothelial Cells. Derived from iPSCs, iCell Endothelial Cells are interior surface blood vessel cells. iCell Endothelial Cells provide a biologically relevant in vitro model system for use in vascular biology research including angiogenesis, atherosclerosis, inflammation and other life science research.

iCell Endothelial Cells have been ordered by our customers for a variety of purposes, including:


•	In vitro


◦	For modeling viral infectivity.


◦	For modeling vascular disease and stroke.


◦	For bioengineering applications to generate vascular networks.


•	In vivo


◦	In preliminary regenerative medicine applications as a necessary co-culture along with other cells for tissue engineering studies for research into potential in vivo use.


◦	In preliminary regenerative medicine applications to vascularize three-dimensional matrices or decellularized organs for tissue engineering studies for research into potential in vivo use.

iCell Hepatocytes. Derived from iPSCs, iCell Hepatocytes are human liver cells that, as with our other products, are currently cryopreserved and sold frozen. These cells provide a biologically relevant in vitro model system for pre-clinical drug discovery, hepatotoxicity testing, disease modeling and other life science research.

iCell Hepatocytes have been ordered by our customers for a variety of purposes, including:


•	In vitro


◦	To perform drug screening for viral and malaria parasite infectivity.


◦	To study metabolism and glucose regulation to better understand disease mechanisms.


◦	To study viral infection and growth by clinically relevant strains of Hepatitis C virus and Hepatitis B virus.


◦	To model the interaction between immune cells and liver cells that cause liver inflammation and toxicity.


•	In vivo


◦	For research into potential in vivo use in the treatment of liver disease. Researchers are currently using iCell Hepatocytes as the cellular material for in vivo implantation in animal models, in bio-artificial liver devices and to repopulate decellularized livers.

MyCell products. MyCell products provide customers with iPSCs or differentiated cells made from customer-sourced or customer-specified samples. This product offering provides our customers with access to iPSCs and differentiated cell products produced from specific genetic, ethnic or disease populations. Our expertise in genetically engineering iPSCs also allows our customers to order iPSCs that have been engineered to repair a specific gene mutation or to express additional genes in a manner non-disruptive to the remainder of the genome. MyCell products leverage our industrial manufacturing

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platform to handle the parallel production of multiple iPSC lines and iCell products. We are capable of manufacturing billions of cells in this manner to high quality and purity standards. Our ability to derive multiple iPSC lines in parallel also positions us to manufacture for the stem cell banking market.

MyCell products have been ordered by our customers for a variety of purposes, including:


•	In vitro


◦	To produce iPSCs and iCell products from human donors to study diseases such as heart failure and Parkinson's disease and to investigate potential cures.


◦	To make hepatocytes derived from patients suffering from drug-induced liver injury (DILI) to study the genetic basis of this disease.


◦	To produce iPSCs and iCell Cardiomyocytes from congenital muscular dystrophy patients to promote research into cures for this disease.


◦	To produce genetically engineered iPSCs that can be used to produce differentiated cells on the industrial scale needed for drug screening.

Our MyCell offerings differ from our iCell offerings in that the iPSCs used in the differentiation are reprogrammed from specific genetic, ethnic or disease populations. The capability to produce iPSCs from specific individuals or populations is key to our stem cell banking business

Media and reprogramming. Our medium, Essential 8, and our substrate, Vitronectin, are optimized for the consistent, reproducible derivation, growth and maintenance of human iPSCs. The combination of Essential 8 Medium and Vitronectin provides a defined culture system for robust, cost-effective and scalable iPSC culture. We have selected Life Technologies Corporation to manufacture and distribute these products as well as our Episomal iPSC Reprogramming Vectors. The combination of these three components creates a “kit” for reprogramming tissue into iPSCs. The reprogramming vectors and kit, as currently sold, permit our customers to use the iPSCs for limited research use only.


•	Essential 8 Medium. Essential 8 Medium is a “feeder-free” medium comprised of eight well-characterized, highly consistent elements, unlike the BSA-based alternative media currently available.


•	Vitronectin. Vitronectin is a defined, human protein-based substrate for cell attachment and growth. It replaces the current use of an undefined matrix derived from mouse tumor cells.

•

Episomal iPSC Reprogramming Vectors. Episomal iPSC Reprogramming Vectors leverage non-viral, non-integrating technology to deliver seven genes to initiate the reprogramming of human somatic cells to iPSCs. We refer to this process as “footprint-free” reprogramming. "Footprint-free" reprogramming provides researchers with a means of ensuring that no foreign genetic material is incorporated into the original donor DNA. iPSCs made from these kits, as currently sold, are licensed for research purposes only.

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Additional product features

Cells for in vitro and in vivo use

We develop and produce human cells as both research tools and as potential raw materials for future cellular therapeutic products. We develop and produce human cells so that our customers can develop better, safer and more advanced drugs and cellular therapeutics. The standardized, easy-to-use and fully functioning human cells of our products include the following features:



Precise specifications	Our cells are manufactured to precise specifications and exacting standards from iPSCs we also produce.
Episomal iPSC reprogramming vectors	Today all of our iPSCs are derived in a “footprint-free” manner with negligible residue or damage left in the cell after the reprogramming process is complete. We accomplish this by using episomal vectors to deliver the reprogramming factors. We invented this method and have the exclusive right to practice it.
Cryopreserved	iCell and MyCell products are shipped to the customer cryopreserved, permitting us to inventory our products and allowing customers to store the cells and use them on their time schedule.
Pure	All iCell products are at least 90% pure. If the cells were less pure, contaminants could soon outgrow the target cells and much of the cellular response observed by a researcher could be a result of the contaminating cells.
Unit size scaled to fill a 96-well plate	We fill a standard 1.5ml cryovial with a sufficient quantity of cells to fill the bottom of every well of a 96-well plate with a layer of viable cells. The 96-well plate is a common format that researchers use to perform high throughput experiments.
User's guide and online videos	Each unit of our iCell products includes a user's guide detailing our recommended protocols for thawing, plating and maintaining our iCell products. In addition our website contains videos demonstrating our recommended protocols and techniques.
Customer support	We have a team of technical support scientists who answer customer questions and conduct onsite training in our recommended protocols and techniques.
Customer training	We offer iCertification Training Programs at our headquarters in Madison, Wisconsin. Attendees receive in-depth, interactive training on the handling and application of iCell products.
Validated on life science tool platforms	Our scientists have worked closely with other life science tool companies to validate protocols for utilizing our products on their cellular assays and automated instruments.
Protected by over 800 patents and patent applications	Our intellectual property strategy has included assembling a portfolio of patent rights and licenses intended to afford our customers and ourselves freedom to operate for all the products we sell, meaning that our products can be used without infringing on the valid intellectual property rights of others.
No use of Human Embryonic Stem Cells (hESC)	We use iPSCs, not hESCs, to manufacture our cells. We believe that the use of iPSCs eliminates ethical and moral concerns that have been raised by the fact that hESCs are derived by extracting pluripotent cells from the inner lining of a four-day old human blastocyst. Though scientifically useful, hESCs proved ethically divisive as the extraction method meant the destruction of the developing human embryo, making them particularly controversial as a basis for a therapeutic. In contrast to hESCs, we develop and manufacture our iPSCs from ordinary blood or skin provided by consenting adults.

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Cells for stem cell banking

We believe that the same product features that provide our customers with a full product solution for their in vitro and in vivo cell needs make us uniquely capable to produce the quality, quantity and purity of cells needed for the manufacture of iPSCs that are placed into stem cell banks. In addition to the product features immediately above, we believe that a stem cell bank must be built on a rigorous quality management system (QMS) that is capable of overseeing the derivation of thousands of iPSC lines. We have such a system and believe that few other companies have or will be willing to spend the capital necessary to build the QMS required to ensure the consistency of manufacture needed to make the iPSCs deposited in the stem cell bank useful. In addition, we expect that a stem cell bank will require an information management system, like ours, that is capable of handling the information associated with the derivation of thousands of iPS lines and the management of associated raw materials, in-process materials and finished goods inventory.

Product development expertise and cell types under development

We have a deep expertise in stem cell biology. We currently employ scientists with a collective experience base of over 700 years in a field of human stem cell biology that is 16 years old. Our research and development is organized into three areas of expertise: cell biology, process sciences and genetic engineering. Cell biology is responsible for defining cell specifications, functions, assays and features. The process sciences group designs the most robust manufacturing system possible for each product, while reducing costs and variability and increasing scale and yield. The genetic engineering group is responsible for developing and improving methods of reprogramming as well as handling genetic engineering tasks. Our projects may involve resources from all three groups, with team members assigned based on their expertise.

In 2014, we continued to utilize our core iPSC technology in the development of new cell types, new iCell products based on those cell types, and extensions of existing iCell products. Currently we have several cell types under development including those below, many of which are in early-release testing with customers and generate revenue recorded as Collaborations, partnerships and other revenues.

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Cell type	Description	Applications
Nociceptors	Pain receptor neurons	Researchers are interested in understanding how nociceptors work to gain a better understanding of the biology of pain, to quantify it, and to find drugs to modulate it.
Astrocytes	Cells found in the brain that support neuronal function	These cells are synergistic with iCell Neurons. Customers frequently request astrocytes to build a more complete human neurological model. Astrocytes have also been implicated in multiple neurological disorders.
Cardiac progenitors	Cardiac precursor cells that, during human development, become all of the cell types in the human heart	Customers are interested in studying these cells to find compounds that may lead to cardiac repair or for use for therapeutic purposes.
Hematopoietic progenitors	Precursor cells for the human blood system	Researchers are interested in studying these cells to find compounds that will help repair the blood system or increase production of blood cells. In addition some researchers are interested in infusing or implanting these cells for therapeutic purposes.
Skeletal muscle cells	Skeletal myocytes are long, tubular cells that form the muscle fibers of the skeletal systems	Pure skeletal myocytes enable better understanding of the biology of various human diseases caused by mutations in genes critical and unique to muscle function (for example, dystrophin gene mutations that cause muscular dystrophy). In addition, the function of these cells is of interest to researchers studying general energy metabolism and metabolic disease.
Retinal pigmented epithelial cells (RPE)	RPE cells are the pigmented cell layer just outside the neurosensory retina, and provide nourishment and support to retinal visual cells	RPEs are useful for scientists wishing to study the mechanisms of normal retinal function, such as light absorption and water and material transport. They are also critical for the studying the pathology of cellular degeneration in age-related macular degeration and other degenerative eye disorders.
Macrophages	Macrophages are a type of white blood cell that engulfs and digests cellular debris, foreign substances, microbes, and cancer cells in a process called phagocytosis	Macrophages can be applied in a variety of applications including co-culture in tumor models, immune response, inflammation, toxicity testing, and infectious disease modeling. iPSC-derived macrophages may replace human Kupffer cells, primary animal tissue isolates, and on-demand cells differentiated from the buffy coat fraction of a blood sample, eliminating inter-donor variability and addressing the insufficiencies associated with using animal cells to model human biology.
Current Good Manufacturing Practices (cGMP) iPSC lines	Lines of episomally derived iPSCs manufactured under conditions compatible with full cGMP compliance	Therapeutics manufacturers and others will require cells derived to cGMP standards.

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Cellular therapeutics

CDI is increasing its efforts to develop our human cells into cellular therapeutics that might eventually be used in a clinical setting. In this endeavor we are able to integrate the knowledge and insights gained in our previous iCell and MyCell product development and manufacturing efforts. We have experience making the following cells and each is a candidate for further development as cellular therapeutics for the noted indications



Cell Type	Potential Therapeutic Indications
Dopaminergic Neurons	Parkinson’s disease
Cardiomyocytes Cardiac Progenitors	Myocardial infarction Heart failure Muscular dystrophy
Retinal Pigmented Epithelial Cells Photoreceptor Progenitors	Age-related macular degeneration Cone dystrophies Retinitis pigmentosa
Neurons	Stroke Alzheimer’s disease Epilepsy Autism Huntington’s disease
Astrocytes	Alzheimer’s disease Cerebral palsy
Hepatocytes	Acute & chronic liver failure Drug induced liver injury (DILI)
Hematopoietic Progenitors	Leukemia AIDS Sickle cell anemia
Endothelial Cells	Myocardial infarction Stroke Peripheral limb ischemia
Skeletal Myoblasts	Muscular dystrophy

CDI is working with academic or government collaborators in pre-investigational new drug (IND) animal studies in the following cell types:


•	Dopaminergic Neurons for Parkinson’s disease


•	Retinal pigmented epithelial cells for age-related macular degeneration


•	Cardiomyocytes for myocardial infarction therapy

In late 2014, we announced that the National Eye Institute (NEI), a division of the National Institutes of Health (NIH), awarded to us a $1.2 million contract to manufacture clinically compatible iPSCs and iPSC-derived human retinal pigment epithelial (RPE) cells. These cells will be manufactured from individuals suffering from dry age-related macular degeneration (AMD) and are intended for IND enabling studies. If the IND is approved, the same procedures are expected to be used to generate clinical-grade iPSC-derived RPE tissue for transplantation into AMD patients. We will use our expertise to reprogram skin and blood samples from individuals with AMD to create clinically compatible, autologous iPSCs, which are genetically identical to the individual. As a genetic match to the patient, these cells are intended to reduce the risk of transplant rejection. NEI researchers plan to use these cells as part of their pre-clinical process to develop the first autologous cell transplantation treatment for dry AMD.

In addition, in February 2015 we announced that we had manufactured, under current Good Manufacturing Practices (cGMP), stem cell lines from two HLA "superdonors." HLA superdonors are individuals whose genetic HLA (human leukocyte antigens) profiles make their cells or tissues more

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compatible for donation to unrelated patients - a concern that arises with organ or tissue transplantation and potential rejection. These two HLA superdonor cell lines provide a partial HLA match to approximately 19% of the U.S. population. These cell lines will enable a new area of cell therapy research using HLA matching.

Intellectual property

We have integrated intellectual property into our business strategy from our inception. Our intellectual property strategy has included assembling a portfolio of patent rights and licenses intended to afford our customers and ourselves freedom to operate for all the products we sell, meaning that our products can be used without infringing on the valid intellectual property rights of others. In addition, we have developed proprietary intellectual property and technical know-how that we maintain as trade secrets. We believe that our intellectual property portfolio will provide significant competitive advantages for future business operations.

We own or license a portfolio of patent rights that exceeds 800 patents and patent applications in the United States and around the world. All of our licenses include commercialization rights in at least research tools, and the right to deliver license rights to our customers for the products that we sell to them.

Episomal reprogramming patents and Thomson reprogramming patents

We own 48 U.S. and foreign patents and patent applications relating to episomal reprogramming, our "footprint-free" reprogramming technology, none of which will expire before 2029. Episomal reprogramming uses genetic elements from a virus, but no actual virus, to enable a plasmid to replicate in the cell being reprogrammed, which helps with reprogramming efficiency. The most significant application of this portfolio is the first filed patent application on the episomal method, U.S. Patent No. 8,546,140 issued in October 2013 on an application originally filed in 2008. The term of this patent will extend until 2029. Other U.S. patents on improvements on this method, U.S. Patent Nos. 8,692,574 and 8,741,648, issued in April and June of 2014. These patent rights cover the following: 1) some of our iPSCs from which we make our current MyCell products, 2) iPSCs made when performing our work for CIRM, and 3) iPSCs from which we make iCell products when made using episomal reprogramming.

Our license agreement with the Wisconsin Alumni Research Foundation (WARF) provides us with an exclusive, worldwide license to certain patents covering products for diagnostic, research and therapeutic purposes made using another patent position on episomal reprogramming. These licensed patent rights also cover iPSCs from which we make our MyCell products and cover iPSCs made when performing the work that we do for CIRM and iPSCs from which we make iCell products when made using episomal reprogramming. These licensed patents include nine U.S. and foreign patents and patent applications extending (when issued) to at least 2029, the most significant of which is U.S. Patent No. 8,268,620, which covers episomal reprogramming using certain genetic factors.

Our license agreement with WARF also provides us with a non-exclusive, worldwide license to certain patent rights covering products for research and therapeutic purposes made using certain genetic reprogramming factors, which we refer to as the Thomson reprogramming factors. These licensed patent rights cover iPSCs made using these factors. The license agreement also provides us with an exclusive, worldwide license to make and sell iPSC-derived materials made using these factors for both research and therapeutics uses. These licensed patents include another 18 U.S. and foreign patents and patent applications expiring no sooner than 2028 the most significant of which is U.S. Patent No. 8,183,038, which covers the four factors useful for reprogramming.

Under the license agreement, WARF retains the right to grant non-exclusive licenses covering the patents covering the Thomson reprogramming factors to third parties, limited to internal research use only, as well as the right to use, and grant to non-profit research institutions and governmental agencies non-exclusive

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licenses to, the licensed patent rights for noncommercial educational and research purposes. In addition, the U.S. government retains certain rights to inventions arising from federally supported research or development. Certain of our exclusive licenses under the license agreement may be converted into non-exclusive licenses in certain circumstances. WARF retains the right to prosecute licensed patent filings worldwide but at our expense we may require them to prosecute a foreign patent filing covering a U.S. patent exclusively licensed to us. We also are obligated to reimburse WARF for up to the entire cost and expense of prosecuting and maintaining certain of the licensed patents. WARF retains the right to initiate any infringement proceedings. We granted to WARF and certain of its affiliated institutions a non-exclusive, royalty-free, irrevocable, worldwide license for noncommercial research purposes to certain inventions developed by us using the licensed patents, iPSCs made under the license, and certain derivative materials, with the right to grant sublicenses to organizations associated with WARF or the University of Wisconsin for such purposes. We issued shares of our common stock to WARF and its affiliate, WiCell Research Institute, Inc., and we agreed to pay to WARF a license fee, royalties based on sales revenues of licensed products on a country-by-country basis including an aggregate minimum annual royalty, and we also may be required to pay up to an aggregate of $3.0 million in future milestone payments for therapeutics products the first of which potentially could become due starting in 2018 and the last of which potentially could become due starting in 2024. Since 2008 when we acquired our predecessor companies by merger, we have paid WARF approximately $1.6 million in license fees and royalties for these licenses and approximately $798,000 as reimbursement of WARF's related patent filing and prosecution costs and expenses. The license agreement will terminate as to each country and licensed product upon expiration of the last-to-expire patent covering licensed products in each country, and it is subject to early termination by WARF in the event of certain breaches by us of the license agreement.

Field patent family

Our license agreement with Indiana University Research and Technology Corporation (IURTC) provides us with an exclusive, worldwide license to the Field patent family, the most significant of which is U.S. Patent No. 5,733,727. This patent claims a lineage purification technique to make pure cultures of cardiomyocytes and expires on March 31, 2015. Under the license agreement, IURTC retains the right to use the licensed patent rights for noncommercial, educational and research purposes and they may permit other universities and non-profit research institutes to use the licensed patent rights under appropriate agreements for the same purposes. In addition, the United States government retains certain rights to inventions arising from federally supported research or development. IURTC retains the right to prosecute licensed patent filings worldwide. We are obligated to reimburse IURTC for up to the entire cost and expense of prosecuting and maintaining the licensed patents. With IURTC's consent, we may initiate infringement proceedings. To date we have paid IURTC approximately $664,000 in license fees and royalties and approximately $118,000 as reimbursement of their related patent filing and prosecution costs and expenses. The license agreement will terminate upon the expiration of the last to expire patent within the licensed patent rights, and it is subject to early termination by IURTC in the event of certain breaches by us of the license agreement. The protection afforded by this patent helped to enable us to develop our purification technique, know-how that we will continue to maintain as a trade secret following the expiration of this patent.

Yamanaka patent estate

Our license agreement with iPS Academia Japan (iPS AJ) provides us with a non-exclusive, worldwide, research use only license to basic patent rights filed by Yamanaka. This patent estate includes 98 U.S. and foreign patents and patent applications expiring between 2026 and 2029 the most significant of which so far is U.S. Patent No. 8,048,999, which covers the Yamanaka set of reprogramming factors. These licensed patents cover our MyCell products, the work that we do for CIRM and iCell products when made from iPSCs made using episomal reprogramming. We agreed to pay to iPS AJ a license fee and royalties including a minimum annual maintenance fee. To date we have paid iPS AJ approximately $650,000 in license fees and royalties. The license agreement will terminate upon the expiration of the last to expire

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patent within the licensed patents, and it is subject to early termination by iPS AJ in the event of certain breaches by us of the license agreement.

United States patent covering automated production of all human pluripotent stem cells

Patent No. 8,815,585, awarded to us in August 2014, covers the automated production of human pluripotent stem cells, including iPSCs. This patent has broad-reaching effects, covering research, cellular therapy development and stem cell banking. Large-scale applications, such as autologous

cellular therapeutic development as well as stem cell banking, require automation for parallel processing of samples from many donors. In addition, the patent broadly covers automated iPSC culturing without the use of feeder cells or the addition of serum to culture media, factors important to cellular therapy development in a cGMP environment.

Patents covering derivation of pluripotent stem cells from fresh or banked human blood samples

In July 2014, we announced that we had been awarded two patents on the reprogramming of human cells into pluripotent stem cells from human blood. We believe blood is the preferred tissue for the creation of human iPSCs because of the standardized and relatively non-invasive nature of blood collection. The patents cover reprogramming using freshly collected blood as well as samples stored in blood banks.

US Patent 8,691,574, issued April 8, 2014, covers the reprogramming of hematopoietic progenitor cells from blood into iPSCs using episomal vectors and under feeder-free conditions. An advantage of our method is that it requires only small volumes of blood, consistent with a standard doctor's office blood draw. The original method of iPS cell reprogramming uses viral vectors to insert four genes into the adult tissue cell's DNA. These genes integrate directly into the cell's genome. Concerns have arisen over the potential risks associated with this insertion of foreign DNA into the cell's genome, including insertion defects and errors that could lead to tumors. As discussed above, we own the patent covering iPSC episomal reprogramming, whereby episomal vectors drive adult tissue cells back to a stem cell state before exiting the cell. This non-integrating methodology alleviates major safety concerns over the potential use of iPS-derived cells as therapeutics and removes a significant barrier for applying the technology in a clinical setting. We have already performed episomal reprogramming to Good Manufacturing Practice (GMP) standards, a prerequisite for use of these cells in clinical applications.

US Patent 8,741,648, issued June 3, 2014, covers the reprogramming of CD34+ hematopoietic blood cells isolated from fresh blood samples into iPSCs. Other reprogramming methods utilize epidermal cells obtained from skin punch biopsies, which are often painful, typically require local anesthetic and may leave scars. Collection of blood is much less invasive.

Additional intellectual property considerations

In addition to our portfolio of patents and patent rights, we maintain many of our techniques, protocols and procedures as trade secrets. The documents embodying such techniques, protocols and procedures were all developed as a part of our QMS and new product introduction (NPI) system and are company trade secrets and are maintained as such. All manufacturing is performed using tested trade secret-protected manufacturing protocols. We take all appropriate measures to ensure that we maintain the protection of these materials as trade secrets.

Our manufacturing

We have established a commercial manufacturing pipeline that enables the large-scale creation of new iPSC lines and the differentiation of these lines into our iCell products at industrial scale.

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iPSC derivation

We have assembled deep expertise in the iPSC field, and this expertise has been brought to bear on the development of high-throughput methods to manufacture new iPSC lines to rigorous quality standards. Our proprietary method to derive new iPSC lines generates pristine “footprint-free” iPSC lines, and we believe has become one of the preferred reprogramming methods by the general stem cell community. We have optimized and automated this technique so that we can derive high-quality iPSC lines in high-throughput using a standard blood draw that can be collected at any doctor's office or clinic visit. Our overall method enables the derivation of literally thousands of iPSC lines in parallel per year, and is easily scalable.

In 2013 and 2014, we built out our dedicated manufacturing facility in Novato, CA, within the Buck Institute for Research on Aging. This facility is outfitted for the high throughput manufacture of iPSC lines and is currently in exclusive use for the 3-year, $16 million CIRM grant to manufacture 9,000 iPSC lines, and an associated 4-year, $6.3 million subcontract with Coriell for expansion and banking of these new cell lines and up to 300 other cell lines.

These 9,000 lines will be derived from 3,000 donors representing 11 different diseases and controls. All of the cell lines manufactured during this project are expected to be available as a bank of cells from which we could manufacture differentiated cell types for our customers through our MyCell product offering.

Quality management system

A critical component of our technology platform is the strength of our QMS. As a company that manufactures products for the research market, we chose to use concepts from the International Organization for Standardization (ISO) 9001 when developing our core quality system. We believe that the research market today will give rise to a robust and valuable cellular therapeutics market in the future. To manufacture products in that future market, a quality system which is capable of generating FDA cGMP compliant products will be required. Therefore, we also incorporated elements of cGMP in our core QMS. As a result, our QMS is an innovative blend of guidance from both ISO and cGMP that offers us the unique perspective of a tools manufacturer with an eye towards the future manufacture of clinical grade products.

New product introduction system

Our NPI system is a key component of our overall quality system, and a critical scientific and corporate control point for our activities. Our NPI system allows us to maintain a disciplined focus on our stated product development priorities, and to track the progress of these projects relative to time and budget. This organizing paradigm also offers a set of formulas, templates, Standard Operation Procedures (SOPs), guidelines and milestones that dramatically increase the likelihood that projects are completed as scheduled, and that the outcome of those projects meets the true market requirement for the new product. Each step of the process is carefully recorded in a requirements and specifications document that often exceeds 50 pages for a single product. We believe the structure and documentation of our processes and control environment provides a competitive advantage for our current products when compared to other offerings in the market. We also believe these current systems provide the base structure need for the more complex documentation and reporting that will be required in a therapeutic environment.

Manufacture of differentiated cells

To manufacture differentiated cells, we have built four dedicated manufacturing suites totaling approximately 3,900 square feet of space. Within these four suites, products are manufactured on a rotating schedule with priority determined by market forecast. The current capacity of the labs is

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approximately 70 billion iPSCs/month, as well as the simultaneous manufacturing of two of the following differentiated cell types at a given time: iCell Cardiomyocytes (30 billion/month), iCell Endothelial Cells (20 billion/month), iCell Neurons (30 billion/month), iCell DopaNeurons (10 billion/month) and iCell Hepatocytes (20 billion/month). Should market demand exceed our current capacity limits, the manufacturing productivity can be increased readily through the build-out of additional space or by improved manufacturing techniques that increase unit manufacturing output. We believe that the manufacturing capabilities we have developed and the readiness at which they can be expanded could provide a competitive advantage in the potential market for cellular therapeutics which could require numbers of cells well in excess of volumes needed for the current research markets.

Customers

We had 200 different customers in 2014. Our customers include biopharmaceutical companies, contract research organizations, academic researchers and government agencies. In 2014 we sold to 18 of the top 20 biopharmaceutical companies as ranked by their worldwide research and development spending.

In the last three years, four large biopharmaceutical customers and CIRM individually accounted for 10% or more of our total revenue in one or more years. CIRM accounted for 15% of total revenue in 2014. Eli Lilly and Company (Lilly) accounted for 18% of total revenue in 2012 and 2013 and 9% of total revenue in 2014. Hoffmann-La Roche Inc. (Roche) accounted for 8% of total revenue in 2013 and 10% of total revenue in 2014. GSK accounted for 11% of our total revenue in 2012. AstraZeneca UK Limited (AstraZeneca) accounted for 15% of our total revenue in 2013.

In November, 2013, we announced our receipt of a Notice of Grant Award (NGA) for $16 million from CIRM to create a human induced pluripotent stem cell biobank from 3,000 individuals. The agreement runs through October 31, 2016. In accounting for revenue over that time period we are using the Proportional Performance Method whereby revenue is recognized in proportion to the level of service, as measured by labor and materials cost, provided on a systematic and rational basis.

Under the terms of a 2012 Center of Excellence Agreement with Lilly, Lilly agreed to order a minimum number of units of iCell products each quarter through the fourth quarter of 2014 at a predetermined price for that year. Through December 31, 2014, we were also to reprogram a specified number of donor samples provided by Lilly, and invoice Lilly for these MyCell products according to predetermined pricing tiers. The agreement also included periodic payments related to joint steering committee meetings, milestone payments based on determinations of the joint steering committees and the custom development of two different cell types. As of December 31, 2014, the custom cell development portion of the agreement had been completed, however, a portion of the reprogramming work is being extended into 2015.

Under the terms of a 2012 Center of Excellence Agreement with AstraZeneca, AstraZeneca agreed to order a minimum number of units of commercial iCell products at a predetermined price, pay us for the reprogramming of certain donor samples and pay us upon the achievement of certain milestones related to our attempts to develop, manufacture and commercially release a custom cell type. The terms of the AstraZeneca agreement were substantially satisfied by December 31, 2013.

Our initial commercial sales of iCell Cardiomyocytes to Roche and certain of Roche's affiliates, were made under the terms of a supply agreement which established predetermined pricing tiers and was not subject to minimum purchase provisions. Sales of iCell Cardiomyocytes under this agreement were completed by August 31, 2012.

Our initial commercial sales of iCell Cardiomyocytes to GSK were made under the terms of a supply agreement that provided for predetermined pricing tiers and were not subject to minimum purchase provisions. Sales of iCell Cardiomyocytes under this agreement were completed by May 18, 2012.

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Following the completion of the contracts referenced above, these customers have continued to purchase our products.

Commercial sales and marketing

We are focused on developing and producing human cell-based products that meet our customers' needs. We have built a full service commercial team, including sales, marketing, technical support and application development, that is responsible for working closely with customers to determine their product needs, and that also works closely with our product development, process development and manufacturing teams to develop and deliver on those needs.

During 2014, we sponsored user group meetings in both the United States and Europe. These events included presentations by key opinion leaders and forums involving many users of our products.

Our commercial team also includes a business development team focused on pursuing opportunities in stem cell banking and therapeutic applications of our products.

Distribution channels

We cover our three core markets with a mixture of direct sales, business development efforts and third party distributors. We directly sell our current iCell products and MyCell products in the United States, Europe and the rest of the world except for Japan, where we use a distributor. In April 2011, we appointed iPS Academia Japan, Inc. (iPS AJ) to distribute and sell specified products in Japan, on a non-exclusive basis. In September 2014, with our permission, iPS AJ transferred its distributor agreement to iPS Portal, Inc. We provide iPS Portal with a predetermined pricing tier. Either party may terminate the agreement upon 30 days written notice to the other party. We continue to evaluate distributorship opportunities in other foreign markets.

In June 2012, we entered into a Supply and Distribution Agreement with Life Technologies Corporation (LTC). Under the agreement, Essential 8 Medium is manufactured and distributed by LTC under our semi-exclusive license to manufacture Essential 8 Medium from WARF. LTC is the primary supplier of Essential 8 Medium to us and is the exclusive distributor of Essential 8 Medium to customers throughout the world. The agreement terminates upon the later of 15 years from the effective date or the expiration of our license from WARF for the formulation of the Essential 8 Medium, and the agreement is subject to early termination by us in the event of certain breaches of the agreement by LTC.

Competitive landscape

Currently, our iCell and MyCell products face competition from “home-brew,” other pluripotent cell manufacturers and existing cell models.

Home-brew

Currently multiple government, academic and industrial research labs attempt to utilize iPSC technology to make their own stem cell lines and to differentiate them into terminal tissue cells. These labs tend to be small and have not invested in the personnel, industrial capacity, quality control and assurance systems, and intellectual property to permit production of standardized human cells in sufficient quantity, quality and purity.

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Other pluripotent cell manufacturers

Some other companies have either announced an interest in, or begun to market products based on, pluripotent stem cell technology. These companies include Axiogenesis AG, Takara Bio (Cellectis), General Electric Co., Life Technologies Corporation, Lonza Group Ltd., Reprocell, BioTime, Inc., Axol Bioscience and Sigma-Aldrich. These companies have either chosen to base their offerings on human embryonic stem cell technologies or have not manufactured cells in comparable quantity, quality or purity as us. We believe that to succeed in the markets for standardized human cells, a manufacturer must:


•	Demonstrate a track record of manufacturing one or more human cell types in large-scale volume and under tight industrial control;


•	Demonstrate a track record in developing and manufacturing iPSCs from easily obtainable human samples such as blood;


•	Build a product development organization which has a demonstrated track record of developing differentiated cell types from all three germ layers;


•	Build a product development organization which has skill in the genetic engineering of iPSCs; and


•	Assemble the intellectual property portfolio necessary provide to customers full freedom to operate when using the company's products.

We do not believe that any other company has made the investment in and executed on these key requirements. We are unaware of any competitor whose product offerings equal our iCell and MyCell products in quality, quantity and purity.

Existing cell models

Currently, donated human cells (both from cadavers and living donors), animal cells and immortalized cell lines are available for sale from various companies. This market is highly fragmented with multiple suppliers of each cell type. We believe that standardized human cells will rapidly replace these existing cell types.

Government regulation

We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including obligations to seek informed consent from donors for the use of their blood and other tissue. In the United States, human subjects research that is conducted, funded or otherwise supported by a federal department or agency is subject to laws and certain regulations that embody the Federal Policy for the Protection of Human Research Subjects. In addition, any federal department or agency which takes appropriate administrative action can also subject certain human subjects research to certain regulations that embody the Federal Policy for the Protection of Human Research Subjects. When we participate in human subjects research such as research involving our collection of donor tissue samples for reprogramming into iPSCs where the resulting information may allow for the identification of the donor and the research is supported by a federal department (for example, NIH funded research) or we participate in a research activity that is subject to the regulation of a particular federal agency (for example, Investigational New Drug requirements administered by the U.S. Food and Drug Administration (FDA)), the conduct of the research must comply with the relevant Federal Policy for the Protection of Human Research Subjects regulations, which require review and approval by an institutional review board (IRB) operating in accordance with the pertinent requirements of the regulations. We generally make efforts to not obtain private patient health or identifying information, for example about donors of sample materials which we reprogram to make iPSCs from which we make our iCell products. However, we may inadvertently receive such information, or we may decide in certain circumstances, for example in connection with our MyCell product, to receive donor-related information, that may also subject us to state and other privacy laws. Our collaborations with customers in the United Kingdom may involve research activities that are subject to the U.K. Human Tissue Act of 2004 (HTA)

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such that our customer may be required to be licensed under the HTA for such activities and/or any tissue samples must be collected by our customer in the United Kingdom under donor informed consent procedures and provided to us in accordance with the requirements of the HTA. U.S. federal and state and foreign laws and regulations are constantly evolving and can be subject to significant change. When we engage in business in markets in countries other than the United States, we may become subject to foreign laws and regulations relating to human subjects research and other laws and regulations that are often more restrictive than those in the United States.

Our iCell and MyCell products are currently labeled and sold to biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, contract research organizations and stem cell banks for research purposes only, and not for therapeutic procedures or any use in humans. As research use only products, they are not subject to regulation as biological products or drugs by the FDA or comparable agencies of other countries. However, if we change the labeling of our products in the future to include therapeutic applications, our products or related applications could be subject to the FDA's pre- and post-market regulations. For example, if we wish to label and market our products for use in performing cell therapy or regenerative medicine, such as tissue engineering or organ replacement, we would need to comply with relevant FDA regulations and might need to obtain FDA pre-market clearance or approval. See "Risk factors—Risks related to our business and strategy."

Employees

As of December 31, 2014, we had 155 full-time and part-time employees worldwide, of which 29 work in production, 75 work in research and development (including 14 in our California location), 35 work in sales and marketing and 16 work in general and administrative.

None of our employees are represented by a labor union or are subject to a collective bargaining agreement. We believe that our current relationship with our employees is good.

Corporate information

Cellular Dynamics International, Inc., incorporated in 2007, is the successor to a corporation of the same name founded in 2004. Our principal executive offices are located at 525 Science Drive, Madison, Wisconsin 53711, and our telephone number is (608) 310-5100. We completed our initial public offering (IPO) in July 2013 and our common stock is listed on the NASDAQ Global Market under the symbol “ICEL." Our corporate website is www.cellulardynamics.com. In the “Investors” section of our website we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports required to be filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after the filing of such reports with the Securities and Exchange Commission.

Financial information about foreign and domestic operations

We have a single operating segment. Information about segment and geographic revenue is set forth in Note 3 of our Notes to the financial statements included in Part II, Item 8 "Financial statements and supplementary data" of this Annual Report on Form 10-K.

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Item 1A. Risk factors

Certain factors may have a material adverse effect on our business, financial condition and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, perhaps significantly.

Risks related to our business and strategy

We have a limited operating history and have incurred significant losses since inception that we expect to continue for the foreseeable future.

We have a limited operating history and have incurred significant and increasing losses in each fiscal year since our inception, including net losses of $22.3 million in 2012, $25 million in 2013 and $30.6 million in 2014. As of December 31, 2014, we had an accumulated deficit of $137.6 million. These losses have resulted principally from costs incurred in our research and development programs and from our sales and marketing and general and administrative expenses. We expect to continue to incur operating and net losses and negative cash flow from operations, which may increase, for the foreseeable future due to research and development and sales and marketing activities. Additionally, when compared to quarters prior to the initial public offering (IPO) of our common stock, our general and administrative expenses have increased due to the annual incentive cash compensation plan, the non-employee director compensation plan, premiums for directors and officers insurance and additional operational and reporting costs associated with being a public company. We anticipate that our business will generate operating losses until we successfully implement our commercial development strategy and generate significant additional revenues to support our level of operating expenses. Because of the numerous risks and uncertainties associated with our commercialization efforts and future product development, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase our profitability.

If our products fail to achieve and sustain sufficient market acceptance, our revenue will be adversely affected.

Our success depends, in part, on our ability to develop and market products that are recognized and accepted as reproducing rather than approximating the operation of the fully functioning human cell. "Fully functioning" means that a cell functions much like a human cell of the same type in specified ways that are relevant to the product's intended uses. Most of our customers already use long-established models for research and testing in their laboratories and may be reluctant to replace those models. Market acceptance of our products will depend on many factors, including the price of our products relative to alternative models and our ability to convince potential customers that our products are an attractive alternative to existing models. Compared to most competing models, use of functional human cells in testing and research is relatively new, and most potential customers have limited knowledge of, or experience with, our products. Prior to adopting our products, our customers will need to devote significant time, effort and resources to testing and validating our cells. Further, we devote significant time, effort and resources to train and assist new and potential customers in becoming familiar with and adopting our products. Any failure of our products to meet customer benchmarks could result in customers choosing to retain their existing research and testing models or to purchase cells other than ours.

In addition, our customers have published and intend to publish the results of their experiments in scientific journals. Therefore, it is important that our products be perceived as reproducing the operation of the fully functioning human cell by the scientific and medical research community. Many factors influence the perception of our cells, including their use by leading biopharmaceutical companies and research groups and the publication of their results in well regarded journals. Historically, a significant part of our sales and marketing efforts have been directed at convincing industry leaders of the advantages of our products and encouraging such leaders to publish or present the results of their evaluation of our cells. If we are unable to

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continue to induce leading researchers to use our cells or if such researchers are unable to achieve and publish or present significant experimental results using our cells, acceptance and adoption of our cells will be slowed.

Our financial results may vary significantly from quarter-to-quarter due to a number of factors, which may lead to volatility in our stock price.

Our quarterly revenue and results of operations have varied in the past and may continue to vary significantly from quarter-to-quarter. This variability may lead to volatility in our stock price as research analysts and investors respond to these quarterly fluctuations. These fluctuations are due to numerous factors, including: fluctuations in demand for our products; changes in customer budget cycles; variations in customer purchasing strategies including bulk purchases; tendencies among some customers to defer purchase decisions to the end of a quarter or end of a year; changes in our pricing and sales policies or the pricing and sales policies of our competitors; timing of revenue recognition, which may be based on a variety of factors including milestone achievements and progress against experimental work plans; our ability to achieve milestones, progress against experimental work plans and meet other benchmarks under contracts with our customers; our ability to design, manufacture and deliver products to our customers in a timely and cost-effective manner; quality control or yield problems in our manufacturing operations; our ability to obtain in a timely manner adequate quantities of the components used in our products; product mix; new product introductions and enhancements by us and by our competitors; and unanticipated increases in costs or expenses. Between the first quarter of 2011 and the fourth quarter of 2014, we experienced percentage changes in consecutive quarterly revenues ranging from a decline of 29% to an increase of 139% as a result of one or more of the factors described above. The foregoing factors are difficult to forecast, and these, as well as other factors, could materially and adversely affect our quarterly and annual results of operations. Any failure to adjust spending quickly enough to compensate for a revenue shortfall or decision not to do so could magnify the adverse impact of such revenue shortfall on our results of operations.

Our revenue depends on production of a small group of products.

We generate revenue from sales of our proprietary products, which consist of the iCell products currently being marketed and sold, together with our MyCell products and media and reprogramming kits. We also generate revenue under collaboration agreements with our customers, which includes revenue from the sale of new products under development. There is no assurance that we will generate revenues from these products, or any products under development, in the future. Our success is highly dependent on market acceptance of our products, which is uncertain. Because we are dependent on a small group of products, factors such as changes in customer preferences and specifications and general market conditions in our industry may have a significant impact on us. If the demand for our products fails to grow, develops more slowly than expected, decreases in response to customer preferences or new specifications we are unable to satisfy, or becomes saturated with competing products, then our business, financial condition and results of operation will be materially adversely affected.

We currently rely on a relatively small number of customers to produce a significant amount of our total revenue.

During 2012, 2013 and 2014, four of our large biopharmaceutical customers and CIRM individually accounted for 10% or more of our total revenue in one or more of the years. Lilly accounted for 18% of total revenue in 2012 and 18% of total revenue in 2013. GSK accounted for 11% of our total revenue in 2012. AstraZeneca accounted for 15% of our total revenue in 2013. Roche accounted for 10% of total revenue in 2014. CIRM accounted for 15% of total revenue in 2014. Typically our customers, including those above, purchase our products pursuant to purchase orders, or purchase under contracts for specified periods of time and which may be terminated by our customer. A portion of the revenues attributable to Lilly during the periods described above were pursuant to minimum purchase requirements. If we lose one or more of our significant customers or any of our significant customers experiences financial difficulty, then our business and results of operations could be materially adversely affected.

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Our future success is dependent upon our ability to expand our customer base and introduce new products.

Our customer base is primarily composed of biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, contract research organizations and stem cell banks that use our products to perform analyses for research and commercial purposes. Our success will depend in part upon our ability to increase our sales to these core customers, attract additional customers outside of these markets and market new products to existing and new customers as we develop such products. Attracting new customers and introducing new products requires substantial time and expense. For example, it may be difficult to identify, engage and market to customers who are unfamiliar with our products. Any failure to expand sales to our existing customer base, attract new customers or launch new products would adversely affect our ability to increase our revenues.

Our sales cycles are lengthy and variable, which makes it difficult for us to forecast revenue and other operating results.

The lengthy and variable sales cycles for our products make it difficult for us to accurately forecast revenues in a given period, and may cause revenue and operating results to vary significantly from period to period.

Due in part to the novelty of our products and the implications for established research and testing models, potential customers for our products typically need to commit significant time and resources to evaluate our technology, and their decision to purchase our products may be further limited by budgetary constraints and several layers of internal review and approval, which are beyond our control. In addition, the novelty and complexity of our products often require us to spend substantial time and effort assisting potential customers in evaluating our products, including providing demonstrations and benchmarking our products against other available research and testing models. Even after initial approval by appropriate decision makers, the negotiation and documentation processes for a purchase can be lengthy. As a result of these factors, our sales cycle has varied widely and, in certain instances, has been longer than 12 months. The complexity and variability of our sales cycle has made it difficult for us to accurately project quarterly and annual revenues, and we have frequently failed to meet our internal quarterly and annual projections. We expect that our sales will continue to fluctuate on a quarterly basis and that our financial results for some periods may be below those projected by securities analysts. Such fluctuations could have a material adverse effect on our business and on the price of our common stock.

New market opportunities may not develop as quickly as we expect.

The application of human cell biology to drug and chemical safety and toxicology, drug discovery and disease research, cell therapy and stem cell banking are new market opportunities. We believe these opportunities will take several years to develop or mature, and we cannot be certain that these market opportunities will develop as we expect. Although we believe that there will be applications of our technologies in these markets, there can be no certainty of the technical or commercial success our technologies will achieve in such markets. Our success in these markets may depend to a large extent on our ability to successfully demonstrate the efficacy of our products relative to existing research and testing models.

We may decide to invest in new products for which there proves to be no demand.

To remain competitive and increase revenue, we must retain, increase and engage our customer base, which will depend heavily upon our ability to create successful, new products, both independently and in conjunction with third parties. We may introduce new and unproven products, including products with which we have little or no prior experience. If new or enhanced products fail to prove useful to customers or if we misinterpret trends, underestimate development costs and/or pursue the wrong products, we may fail to generate sufficient revenue, operating margin or other value to justify our investments, and our business may be adversely affected.

Our research and product development efforts may not result in commercially viable products within the timeline anticipated, if at all.

We intend to devote significant personnel and financial resources to research and development activities designed to expand our products. Our technology is new and complex and the time and resources necessary

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to develop new cell types are difficult to predict in advance. For example, one of our iCell products was in development for approximately 15 months whereas other products have been in development for two or more years. In the past, product development projects have been significantly delayed when we encountered unanticipated difficulties in differentiating iPSCs into new cell types. We may have similar delays in the future, and we may not obtain any benefits from our research and development activities. Any delay or failure by us to develop new products would have a substantial adverse effect on our business and results of operations.

Our products may not be meaningfully more predictive of the behavior of a human cell than existing products.

Our products may fail to provide a meaningful difference over existing or new models in predicting the behavior of the human cell in drug discovery, research and other applications and, as a result, may not meaningfully displace such models. Failure to achieve market acceptance would limit our ability to generate revenue and would have a material adverse effect on our business.

If we are unable to keep up with rapid technological changes in our field or compete effectively, we will be unable to operate profitably.

We are engaged in activities in the life sciences field, which is characterized by rapid technological changes, frequent new product introductions, changing customer needs and preferences, emerging competition, evolving industry standards and strong price competition. If we fail to anticipate or respond adequately to technological developments, demand for our products will not grow and may decline, and our business, revenue, financial condition and operating results could suffer materially. We cannot assure you that research and discoveries by other companies will not render our existing or potential products uneconomical or result in products superior to those we develop. We also cannot assure you that any technologies or products that we develop will be preferred to any existing or newly developed technologies or products.

We anticipate that we will face increased competition in the future as existing companies and competitors develop new or improved products and as new companies enter the market with new technologies. Competitors may have significant financial, manufacturing, sales and marketing resources and may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. In addition, our competitors may enter into collaborative relationships with our current or potential customers that may provide those competitors with access to greater financial and development resources than we have and opportunities to establish market leading positions. In light of these advantages, even if our technology is more effective than the product offerings of our competitors, current or potential customers might accept competitive products or develop their own products in lieu of purchasing our products. We may not be able to compete effectively against these organizations. Increased competition is likely to result in pricing pressures, which could harm our sales, profitability or market share. Our failure to compete effectively could materially and adversely affect our business, financial condition and results of operations.

We have limited experience in marketing, selling and distributing our products, and we need to expand our direct sales and marketing force and distribution capabilities for our products to gain market acceptance.

We have limited experience in marketing, selling and distributing our products. Our iCell Cardiomyocytes, iCell Endothelial Cells and iCell Neurons were first launched as products in December 2009, September 2011 and December 2011, respectively, and in 2012 we began selling iCell Hepatocytes under early access agreements to research collaborators. Our MyCell product was first offered for sale in June 2012. Our iCell DopaNeuron was launched as a product in the first quarter of 2014. We may not be able to market, sell and distribute our products effectively enough to support our planned growth.

We sell our products primarily through our own sales force and through a distributor in Japan. Our future sales will depend in large part on our ability to develop and substantially expand our direct sales force and to increase the scope of our marketing efforts. Our products are technically complex and used for highly specialized applications. As a result, we believe it is necessary to develop a direct sales force with specific scientific backgrounds and expertise and a marketing group with technical sophistication. Competition for such employees is intense. We may not be able to attract and retain personnel or be able to build an efficient and effective sales and marketing force, which could negatively impact sales of our products, and reduce our revenues and profitability.

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In addition, we may enlist one or more sales representatives and distributors to assist with sales, distribution and customer support globally or in certain regions of the world. If we do seek to enter into such arrangements, we may not be successful in attracting desirable sales representatives and distributors, or we may not be able to enter into such arrangements on favorable terms. If our sales and marketing efforts, or those of any third-party sales representatives and distributors, are not successful, our products may not gain market acceptance, which would materially impact our business operations.

We may experience difficulty in manufacturing our products.

Manufacturing iPSCs and the differentiation of iPSCs into cell types are technically complex processes. We have developed protocols and quality standards for the manufacture of iPSCs and differentiated cell types. We may encounter difficulties in manufacturing iPSCs from particular donor samples or differentiated cell types from particular iPSCs, even when following these protocols. These difficulties may result in delays in production and customer fulfillment, loss of revenue and reputational harm.

Due to heavy reliance on manufacturing and related operations to produce, package and distribute our products, our business could be adversely affected by disruptions of these operations.

We rely upon our manufacturing operations to produce products accounting for substantially all of our sales. Our quality control, packaging and distribution operations support all of our sales. Any significant disruption of those operations for any reason, such as labor unrest, power interruptions, fire or other events beyond our control, could adversely affect our sales and customer relationships and, therefore, adversely affect our business. While insurance coverage may reimburse us, in whole or in part, for profits lost from such disruptions, our ability to provide these products in the longer term may affect our sales growth expectations and results.

If we experience a significant disruption in our information technology systems or if we fail to implement new systems and software successfully, our business could be adversely affected.

We depend on information systems to control our manufacturing processes, process orders, manage inventory, process and bill shipments to and collect cash from our customers, respond to customer inquiries, contribute to our overall internal control processes, maintain records of our property, plant and equipment, and record and pay amounts due vendors and other creditors. Our systems could be subject to viruses, break-ins, sabotage, acts of terrorism, acts of vandalism, hacking, cyber-terrorism and similar misconduct. If we were to experience a prolonged disruption in our information systems that involve interactions with customers and suppliers, it could result in the loss of sales and customers and/or increased costs, which could adversely affect our business.

Our business depends on research and development spending levels of biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, contract research organizations and stem cell banks, and any reduction in such spending could limit our ability to sell our products.

We expect that our revenue in the foreseeable future will be derived from sales to biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, contract research organizations and stem cell banks in the United States, Europe and Japan. Our success will depend upon their demand for and use of our products. Accordingly, the spending policies of these customers could have a significant effect on the demand for our technology. These policies may be based on a wide variety of factors, including the resources available to make purchases, policies regarding spending during recessionary periods and changes in the political climate. In addition, academic, governmental and other research institutions that fund research and development activities may be subject to stringent budgetary constraints that could result in spending reductions, reduced allocations or budget cutbacks, which could jeopardize the ability of these customers to purchase our products. Our operating results may fluctuate substantially due to reductions and delays in research and development expenditures by these customers. For example, reductions in expenditures by these customers may result in lower than expected sales of our products. These reductions and delays may result from factors that are not within our control, such as:

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•	changes in economic conditions;


•	changes in government programs that provide funding to research institutions and companies;


•	changes in the regulatory environment affecting biopharmaceutical companies engaged in research and commercial activities;


•	differences in budget cycles across various governmental entities and industries;


•	market-driven pressures on companies to consolidate operations and reduce costs;


•	mergers and acquisitions in the biopharmaceutical and life sciences industries; and


•	other factors affecting research and development spending.

Any decrease in our customers' budgets or expenditures or in the size, scope or frequency of operating expenditures as a result of the foregoing or other factors could materially and adversely affect our operations or financial condition.

Some of our programs are partially supported by government grants, which may be reduced, withdrawn or delayed.

We have received and may continue to receive funds under research and economic development programs funded by state and federal governmental agencies. Funding by these governmental entities may be significantly reduced or eliminated in the future for a number of reasons. For example, some programs are subject to a yearly appropriations process in Congress. In addition, we may not receive funds under existing or future grants because of budgeting constraints of the agency administering the program. A restriction on the government funding available to us would reduce the resources that we would be able to devote to existing and future research and development efforts. Such a reduction could delay the introduction of new products and hurt our competitive position.

We may rely on strategic collaborations for research and development and commercialization purposes.

We have entered into and may continue to enter into strategic collaborations with biopharmaceutical companies, academic institutions and life science research institutions. For example, if we identify and enter into an agreement with a collaborative partner to develop one or more cellular therapeutic applications, such an arrangement is likely to be characterized as a strategic collaboration. If any of our strategic collaboration participants were to change their business strategies or development priorities, or encounter research and development obstacles, they may no longer be willing or able to participate in such strategic collaborations, which could have a material adverse effect on our product development. In addition, we may not control the strategic collaborations in which we participate. We may be required to relinquish or license important rights, including intellectual property rights, and relinquish or share control over the development of the products during the collaboration, or otherwise be subject to terms unfavorable to us.

Our agreements are subject to numerous conditions, contingencies, development challenges, milestones, indemnification obligations, termination rights and default provisions. There can be no assurance that these collaborations will lead to technology or products, that such technology or products will receive market acceptance, that we will realize any material revenue or other benefits from collaborations or that the benefits will exceed our costs.

We may require third party assistance for preclinical development of cellular therapeutic product candidates.

We may rely on third parties to assist us, including by providing financial assistance, with our preclinical development of cellular therapeutic product candidates. Also, we will need to rely on third parties, such as contract research organizations, data management companies, contract clinical research associates, medical institutions, clinical investigators and contract laboratories, to conduct any preclinical studies that we may undertake for any cellular therapeutic products that we develop.

If we collaborate with third parties to assist us with our preclinical development of our cellular therapeutic product candidates, our collaborative partner may fail to perform its product development activities including by failing to provide funding for our product development activities or may terminate its agreement with us with the

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result that our preclinical product development activities could be delayed, curtailed or terminated including because we may not have sufficient capabilities or financial resources to continue such development activities on our own. The terms on which we may obtain this assistance may require us to relinquish, license or otherwise share important rights over or with respect to any cellular therapeutic product that we develop, or may otherwise be unfavorable to us.

If we develop cellular therapeutic product candidates, we do not have the ability to independently conduct clinical trials required to obtain regulatory approvals for these products.

We will need to rely on third parties, such as contract research organizations, data management companies, contract clinical research associates, medical institutions, clinical investigators and contract laboratories, to conduct any clinical trials that we may undertake for any cellular therapeutic products that we develop.

If we rely on third parties to conduct clinical trials, we may be unable to directly control the timing, conduct and expense of our clinical trials. If we enlist third parties to conduct clinical trials and they fail to successfully carry out their contractual duties or regulatory obligations or fail to meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, then our clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. The terms on which we may obtain this assistance may require us to relinquish, license or otherwise share important rights over or with respect to any cellular therapeutic product that we develop, or may otherwise be unfavorable to us.

Our indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and expose us to interest rate risk.

We have a $12 million term loan credit agreement (the “Credit Agreement”) with Sixth Floor Investors LP, as administrative agent, and the other lenders party thereto (the “Lenders”). The indebtedness incurred in connection with the Credit Agreement is secured by a security interest in our assets, other than intellectual property. This indebtedness would be senior to the common stock in the event of our liquidation or the winding up of our business and affairs. We are obligated to make cash payments of interest on that indebtedness. We began making principal payments in February 2015.

Our indebtedness could have important consequences, including:


•	requiring a portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;


•	increasing our vulnerability to general economic, industry and competitive conditions;


•	increasing our cost of borrowing;


•	exposing us to the risk of increased interest rates;


•	restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;


•	limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; and


•	limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who may not be as highly leveraged.

In addition, Sixth Floor Investors LP, Tactics II-CDI Series B Investors, LLC, Tactics II-CDI Series B Investors II, LLC, Tactics II-CDI Series B Investors III, LLC and Nicholas J. Seay are each Lenders under the Credit Agreement. In the event of our liquidation or the winding up of our business and affairs, Sixth Floor Investors LP, Tactics II-CDI Series B Investors, LLC, Tactics II-CDI Series B Investors II, LLC, Tactics II-CDI Series B Investors III, LLC and Nicholas J. Seay would all rank senior to our other creditors and our shareholders with respect to the loans made under the Credit Agreement and the subject assets.

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Our future capital needs are uncertain and we may need to raise additional funds in the future.

We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, we may need to raise substantial additional capital to:


•	expand the commercialization of our products;


•	fund our operations; and


•	further our research and development.

Our future funding requirements will depend on many factors, including:


•	market acceptance of our products;


•	the cost of our research and development activities;


•	the cost of acquiring and maintaining the intellectual property necessary to preserve our freedom to operate in the stem cell industry;


•	the cost of defending, in litigation or otherwise, any claims that we infringe third-party patents or violate other intellectual property rights;


•	the cost and timing of regulatory clearances or approvals, if any;


•	the cost and timing of establishing additional sales, marketing and distribution capabilities;


•	the cost and timing of establishing additional technical support capabilities;


•	the effect of competing technological and market developments; and


•	the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity securities, our shareholders may experience dilution. Under our Credit Agreement, we are generally restricted from incurring additional debt, and any additional debt would therefore require an amendment to our Credit Agreement or the repayment of the current debt balance and incurrence of prepayment penalties. We cannot assure you that we would be able to obtain an amendment on acceptable terms, if at all. Even if we are able to obtain an amendment to our Credit Agreement, such additional debt financing may not be available on acceptable terms, or may involve covenants restricting our operations or our ability to incur additional debt. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or to our shareholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope of or eliminate some or all of our research and development programs.

If we do not have, or are not able to obtain, sufficient funds, we may have to delay research and development or commercialization of our products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have to reduce marketing, customer support or other resources devoted to our products or cease operations. Any of these factors could harm our operating results.

If we cannot provide quality technical support, we could lose customers and our operating results could suffer.

The adoption of our products by our customers and ongoing customer support can be complex. Accordingly, we need highly trained technical support personnel. Hiring technical support personnel is very competitive in our industry due to the limited number of people available with the necessary scientific background and ability to understand our products at a technical level. To effectively support potential new customers and the expanding needs of current customers, we will need to substantially expand our technical support staff. If we are unable to attract, train or retain the number of highly qualified technical services personnel that our business needs, our business and prospects will suffer.

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If we are unable to recruit and retain key executives and highly skilled employees, we may be unable to achieve our goals.

Our performance is substantially dependent on the performance of our senior management. We do not maintain fixed term employment contracts with any of our employees. The loss of the services of any member of our senior management might significantly delay or prevent the development of our products or achievement of other business objectives by diverting management's attention to transition matters and identification of suitable replacements, if any, and could have a material adverse effect on our business. We do not maintain significant key man life insurance on any of our employees.

In addition, our research and product development efforts could be delayed or curtailed if we are unable to attract, train and retain highly skilled employees, particularly senior scientists. To expand our research and product development efforts, we need additional people skilled in areas such as molecular and cellular biology and manufacturing. Competition for these people is intense. Because of the complex and technical nature of our system and the dynamic market in which we compete, any failure to attract and retain a sufficient number of qualified employees could materially harm our ability to develop and commercialize our technology.

Adverse conditions in the global economy and disruption of financial markets may significantly harm our revenue, profitability and results of operations.

The global economy may experience economic downturn, and global credit and capital markets may experience substantial volatility and disruption. Volatility and disruption of financial markets could limit our customers' ability to obtain adequate financing or credit to purchase and pay for our products in a timely manner or to maintain operations, which could result in a decrease in sales volume that could harm our results of operations. General concerns about the fundamental soundness of domestic and international economies may also cause our customers to reduce their purchases. Changes in governmental banking, monetary and fiscal policies to address liquidity and increase credit availability may not be effective. Significant government investment and allocation of resources to assist the economic recovery of sectors that do not include our customers may reduce the resources available for government grants and related funding for life science research and development. Continuation or further deterioration of these financial and macroeconomic conditions could significantly harm our sales, profitability and results of operations.

Our business is subject to complex and evolving laws and regulations regarding privacy and informed consent matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, increased cost of operations or otherwise harm our company.

We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including obligations to seek informed consent from donors for the use of their blood and other tissue as well as state and federal laws that protect the privacy of donors. U.S. federal and state and foreign laws and regulations are constantly evolving and can be subject to significant change. When we engage in business in markets in countries other than the United States, we may become subject to foreign laws and regulations relating to human subjects research and other laws and regulations that are often more restrictive than those in the United States. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. These laws and regulations can be costly to comply with and can delay or impede the development of new products, result in negative publicity, increase our operating costs, require significant management time and attention and subject us to claims or other remedies, including fines or demands that we modify or cease existing business practices.

Our business in markets outside of the United States may become subject to political, economic, legal and social risks, which could adversely affect our business.

For the year ended December 31, 2014, 33% of our revenues were generated outside of the United States. When we engage in business in countries other than the United States, we may become subject to the burden of complying with a wide variety of national and local laws, including multiple and possibly overlapping and conflicting laws. We may also experience difficulties adapting to new cultures, business customs and legal systems. Any sales and operations outside of the United States would be subject to political, economic and social uncertainties including, among others:

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•	changes and limits in import and export controls;


•	increases in custom duties and tariffs;


•	changes in currency exchange rates;


•	economic and political instability;


•	changes in government regulations and laws;


•	absence in some jurisdictions of effective laws to protect our intellectual property rights; and


•	currency transfer and other restrictions and regulations that may limit our ability to sell certain products or repatriate profits to the United States.

Any changes related to these and other factors could adversely affect our business in markets outside of the United States.

Demand for our technology could be reduced by legal, social and ethical concerns surrounding the manufacture of biological materials and use of genetic information.

Our products involve the use and manipulation of tissue and genetic information from humans. Our products and the information derived from our products could be used in a variety of applications, which may have underlying legal, social and ethical concerns, including the genetic engineering or modification of human cells, testing for genetic predisposition for certain medical conditions and stem cell banking. Governmental authorities could, for safety, social or other purposes, call for limits on or impose regulations on the use of genetic testing or the manufacture or use of certain biological materials. Such concerns or governmental restrictions could limit the use of our products, which could have a material adverse effect on our business, financial condition and results of operations.

Our products, although not currently subject to regulation by the U.S. Food and Drug Administration or other regulatory agencies as biological products or drugs, could become subject to regulation in the future.

Our products are currently labeled and sold to biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, medical research organizations and stem cell banks for research purposes only, and not therapeutic procedures. As research use only products, they are not subject to regulation as biological products or drugs by the FDA or comparable agencies of other countries. However, if we change the labeling of our products in the future to include therapeutic applications, our products or related applications could be subject to the FDA's pre- and post-market regulations. For example, if we wish to label and market our products for use in performing cell therapy or regenerative medicine, such as tissue engineering or organ replacement, we would first need to obtain FDA premarket clearance or approval. Obtaining FDA clearance or approval can be expensive and uncertain, generally takes several months to years to obtain and due to the novelty or complexity of cellular therapeutics potentially may take longer than for established therapeutic applications, and may require detailed and comprehensive scientific and clinical data. Notwithstanding the expense, these efforts may never result in FDA approval or clearance. Even if we were to obtain regulatory approval or clearance, it may not be for the uses that we believe are important or commercially attractive.

Finally, we may be required to proactively achieve compliance with certain FDA regulations as part of our contracts with customers or as part of our collaborations with third parties. In addition, we may voluntarily seek to conform our manufacturing operations to the FDA's current good manufacturing practices for biological and drug products, known as the Quality System Regulation (QSR) or FDA's Good Tissue Practices for human cell and tissue-based products. The QSR is a complex regulatory scheme that governs the methods and documentation covering the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of products. The FDA enforces the QSR through periodic unannounced inspections of registered manufacturing facilities. The failure to take satisfactory corrective action in response to an adverse QSR inspection could result in enforcement actions, including a public warning letter, a shutdown of manufacturing operations, a product recall, civil or criminal penalties or other sanctions, which could in turn cause our sales and business to suffer. FDA's Good Tissue Practices create regulatory requirements for establishments that manufacture human cells, tissues and cellular and tissue-based products (HCT/Ps) and to establish donor-eligibility, current good tissue practice and other procedures to prevent the introduction,

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transmission and spread of communicable diseases by HCT/Ps. The FDA has the authority to inspect such establishments and take enforcement action including ordering a manufacturing stoppage if it finds sufficient regulatory violations.

Bacterial or viral contamination of our production suites may damage our reputation and otherwise harm our business.

Laboratories that work with human tissue are subject to bacterial or viral contamination. If our procedures for preventing this type of contamination fail, one or more of our production suites may become contaminated. In that event, we would need to cease production in the affected suite to eliminate the contamination, during which time we would be required to rely on our inventory to fulfill customer orders and, if uncontaminated, our other production suites. If our inventories and remaining production capacity are not sufficient to satisfy customer demand, we may lose product orders, which would harm our results of operations. Furthermore, if our products become bacterially or virally contaminated and as a result contaminated products are shipped to our customers, those products may contaminate our customers' laboratories. Such contamination could harm our reputation among our customers and potential customers.

Our products could have unknown defects or errors, which may give rise to claims against us and adversely affect market adoption of our systems.

We use novel and complex technology to manufacture our cells and such cells may develop or contain undetected defects or errors. We cannot assure you that material performance problems, defects or errors will not arise, and as we expand the types of cells we manufacture, the populations from which we develop iPSCs and our ability to edit genes in the genome, these risks may increase. We provide limited express warranties that certain of our cells will meet certain specifications to foster continued customer adoption and use of our systems. The costs incurred in correcting any defects or errors may be substantial and could adversely affect our business.

If our products contain defects, we may experience:


•	a failure to achieve market acceptance or expansion of our product sales;


•	loss of customer orders and delay in order fulfillment;


•	damage to our brand reputation;


•	increased cost of our warranty program due to product replacement;


•	product recalls or replacements;


•	inability to attract new customers;


•	diversion of resources from our manufacturing and research and development into our customer services and support; and


•	legal claims against us, including product liability claims, which could be costly and time consuming to defend and result in substantial damages.

The occurrence of any one or more of the foregoing could negatively affect our business, financial condition and results of operations.

We may experience delays and increased costs in conversion from a manufacturing technology that uses viral reprogramming to one that uses episomal reprogramming and the conversion may not render the expected benefits.

We believe that manufacturing iPSCs using a "footprint-free" reprogramming method will be desirable for the research market and essential for the therapeutic market. The iPSCs we currently manufacture for direct sale are made by reprogramming blood using our episomal reprogramming technology, which is "footprint-free". However, the iPSC line we use in some of our current iCell products was made in 2008 using the only method then available, viral reprogramming of skin. Our viral reprogramming technology is not "footprint-free" and makes insertions into the genome of the resulting iPSCs. We expect that at some time in the future we will manufacture all of our iCell products from iPSCs made by reprogramming blood using our episomal reprogramming technology. Our efforts to execute this conversion have required and will continue to require

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significant expenditures of management and other personnel time. Our business could be materially harmed if we are unable to successfully execute the manufacture of our iCell products using this technology within the time frame or in the quantities demanded by our customers.

We believe that certain of our customers may desire to have consistent cells over time for their research and other uses. Following the conversion to the episomal reprogramming technology, our customers may desire to purchase iCell products manufactured from the iPSCs we derived from the viral reprogramming of skin cells from which our iCell products have been made to date. To meet this customer demand would require us to manufacture iCell products from both these iPSCs and from a new iPSC line reprogrammed from blood using our episomal reprogramming technology. By doing so we would experience additional costs associated with maintaining both manufacturing runs. Alternatively, we may lose revenues or customers if we fail to maintain both manufacturing runs.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements and relief from certain other significant obligations that are applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startup Act of 2012 (JOBS Act), but we have elected to irrevocably opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(B) of the JOBS Act. As an "emerging growth company," we take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, less extensive disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements to hold a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We may remain an “emerging growth company” for up to five years, although we could lose that status sooner if (1) our revenues exceed $1.0 billion, (2) we issue more than $1.0 billion in non-convertible debt in a three year period, or (3) (a) the market value of our common stock held by non-affiliates exceeds $700.0 million as of any June 30, (b) we have been required to file annual and quarterly reports under the Exchange Act, and (c) we have filed at least one annual report pursuant to the Exchange Act. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and stock price.

As a privately held company, we were not required to maintain internal control over financial reporting in a manner that met the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act of 2002, or Section 404(a). We are now required to meet these standards in the course of preparing our financial statements and our management is required to report on the effectiveness of our internal control over financial reporting for this year and future years. Additionally, once we are no longer an “emerging growth company,” our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting on an annual basis. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. In addition, we may encounter problems or delays in completing the implementation of any improvements in connection with our assessment or, in the future with the attestation provided by our independent registered public accounting firm. If we cannot favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls when required, investors could lose confidence in our financial information and the price of our common stock could decline.

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Our ability to use net operating losses to offset future taxable income is subject to certain limitations.

If we do not generate sufficient taxable income we may not be able to use a material portion, or any portion, of our existing net operating losses (NOLs). Furthermore, our existing NOLs are subject to limitations under Section 382 of the Internal Revenue Code of 1986, as amended, which in general provides that a corporation that undergoes an “ownership change” is limited in its ability to utilize its pre-change NOLs to offset future taxable income. Our existing NOLs are subject to limitations arising from previous ownership changes, and if we subsequently undergo an ownership change, our ability to utilize NOLs could be further limited by Section 382 of the Internal Revenue Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Internal Revenue Code.

Risks related to intellectual property

We utilize certain technologies that are licensed to us. If we are unable to maintain these licenses, our business could be adversely affected.

We currently use certain licensed technologies to make the products that are material to our business, including our core iPSC reprogramming technologies, and we may enter into additional license agreements in the future. Our rights to use such licensed technologies are subject to the negotiation of, continuation of and compliance with the terms of the applicable licenses, including payment of any royalties and diligence, insurance, indemnification and other obligations.

Our license rights are further subject to the validity of the owner's intellectual property rights. We cannot be certain that drafting and/or prosecution of the licensed patents and patent applications by the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. Legal action could be initiated by or against the owners of the intellectual property that we license. Even if we are not a party to these legal actions, an adverse outcome could harm our business because it might prevent these other companies or institutions from continuing to license intellectual property that we may need to operate our business. In some cases, we do not control the prosecution, maintenance or filing of the patents to which we hold licenses, or the enforcement of these patents against third parties.

Certain of our license agreements are subject to termination by the licensor in specific circumstances. Any such termination of these licenses could prevent us from producing, selling or marketing some or all of our products. Because of the complexity of our products and the patents we have licensed, determining the scope of the license and related royalty obligation can be difficult and can lead to disputes between us and the licensor. An unfavorable resolution of such a dispute could lead to an increase in the royalties payable pursuant to the license. If a licensor believed we were not paying the royalties due under the license or were otherwise not in compliance with the terms of the license, the licensor might attempt to revoke the license. If such an attempt were successful, our business could be adversely affected.

We engage in discussions regarding possible commercial, licensing and cross-licensing agreements with third parties from time to time. There can be no assurance that these discussions will lead to the execution of commercial license or cross-license agreements or that such agreements will be on terms that are favorable to us. If these discussions are successful, we could be obligated to pay license fees and royalties to such third parties. If these discussions do not lead to the execution of mutually acceptable agreements, we may be limited or prevented from producing and selling our existing products and developing new products. One or more of the parties involved in such discussions could resort to litigation to protect or enforce its patents and proprietary rights or to determine the scope, coverage and validity of the proprietary rights of others. In addition, if we enter into cross-licensing agreements, there is no assurance that we will be able to effectively compete against others who are licensed under our patents.

Our ability to protect our intellectual property and proprietary technology through patents and other means is uncertain.

Our commercial success depends in part on our ability to protect our intellectual property and proprietary technologies. We rely on patents, where appropriate and available, as well as a combination of copyright, trade secret and trademark laws, license agreements and nondisclosure, confidentiality and other contractual

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restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Pending patent applications of ours or our licensors may not issue as patents or may not issue in a form that will be sufficient to protect our proprietary technology and gain or maintain our competitive advantage. Any patents we have obtained or may obtain in the future, or the rights we have licensed, may be subject to re-examination, reissue, opposition or other administrative proceeding, or may be challenged in litigation, and such challenges could result in a determination that the patent is invalid or unenforceable. In addition, competitors may be able to design alternative methods or products that avoid infringement of these patents or technologies. To the extent our intellectual property, including licensed intellectual property, offers inadequate protection, or is found to be invalid or unenforceable, we are exposed to a greater risk of direct competition. If our intellectual property does not provide adequate protection against our competitors' products, our competitive position could be adversely affected, as could our business. Both the patent application process and the process of managing patent disputes can be time consuming and expensive.

The patent positions of companies in the life sciences industry can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. A number of life sciences, biopharmaceutical and other companies, universities and research institutions have filed patent applications or have been issued patents relating to cell therapy, stem cells, use of stem cells and other modified cells to treat disease, disorder or injury, and other technologies potentially relevant to or required by our existing and planned products. We cannot predict which, if any, of such pending applications will issue as patents or the claims that might be allowed. No consistent policy regarding the breadth of claims allowed in life sciences patents has emerged to date in the United States. The laws of some non-U.S. countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to prevent the infringement of our patents. Proceedings to enforce our intellectual property rights could result in substantial cost and divert our efforts and attention from other aspects of our business and we may not prevail. Changes in either the patent laws or in interpretations of patent laws in the United States or in other countries may diminish the value of our intellectual property. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. For example:


•	We or our licensors might not have been the first to make the inventions covered by each of our owned or licensed pending patent applications;


•	We or our licensors might not have been the first to file patent applications for these inventions;


•	Others may independently develop similar or alternative products and technologies or new methods that are outside the scope of our patents;


•	It is possible that none of our owned or licensed pending patent applications will result in issued patents, and even if they issue as patents, they may not provide a basis for commercially viable products, they may not provide us with any competitive advantages, or they may be challenged and invalidated by third parties;


•	We may not develop additional proprietary products and technologies that are patentable;


•	The patents of others may have an adverse effect on our business; and


•	We apply for patents or seek licenses covering our products and technologies and uses thereof, as we deem appropriate. However, we may fail to apply for patents or obtain licenses on important products and technologies in a timely fashion or at all.

Certain of our technology may not be eligible for patent protection, which leaves us vulnerable to theft of the technology we protect under trade secret law. We take steps to protect such intellectual property and proprietary technology, including by limiting access to the materials embodying such intellectual property and by entering into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, collaborators and, when needed, our advisors. Such agreements may not be enforceable or may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure. Monitoring unauthorized disclosure is difficult, and we cannot ensure that the steps we have taken to prevent such disclosure are, or will be, adequate. In addition, courts outside the United States may be less

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willing or unwilling to protect trade secrets. Further, others may independently discover or invent trade secrets and proprietary information similar to ours, and in such cases we could not assert any trade secret rights against such party.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The United States Patent Office recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

We may be involved in lawsuits to protect or enforce our patents and proprietary rights, to determine the scope, coverage and validity of others' proprietary rights or to defend against third party claims of intellectual property infringement, which in each case could require us to spend significant time and money and could prevent us from selling our products or impact our stock price.

Litigation or other proceedings may be necessary for us to enforce our patent and proprietary rights and/or to determine the scope, coverage and validity of others' proprietary rights. To determine the priority of inventions, which is determinative of patent rights, we may have to initiate and participate in interference proceedings declared by the U.S. Patent and Trademark Office that could result in substantial legal fees and could substantially affect the scope of our patent protection. Also, our intellectual property may be subject to significant administrative and litigation proceedings such as invalidity, unenforceability, re-examination or opposition proceedings against our patents; we cannot be certain that we do not and will not infringe on the intellectual property rights of others. The outcome of any litigation or other proceeding is inherently uncertain and might not be favorable to us, and we might not be able to obtain licenses to technology that we require. Even if such licenses are obtainable, they may not be available at a reasonable cost or on otherwise favorable terms. We could therefore incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our gross margins. Further, we could encounter delays in product introductions, or interruptions in product sales, as we develop alternative methods or products.

In addition, if we resort to legal proceedings to enforce our intellectual property rights or to determine the validity, scope and coverage of the intellectual property or other proprietary rights of others, the proceedings could be burdensome and expensive, even if we were to prevail.

Our commercial success may depend in part on our non-infringement of the patents or proprietary rights of third parties. Numerous significant intellectual property issues have been litigated, and will likely continue to be litigated, between existing and new participants in the stem cell market, and competitors may assert that our products infringe their intellectual property rights as part of a business strategy to impede our successful entry into those markets. Third parties may assert that we are employing their proprietary technology without authorization.

In addition, our competitors and others may have patents or may in the future obtain patents that broadly apply to the manufacture of human cells and their uses and claim that the manufacture or use of our products infringes these patents. As we move into new markets and applications for our products, incumbent participants in such markets may assert their patents and other proprietary rights against us as a means of slowing our entry into such markets or as a means to extract substantial license and royalty payments from us.

Patent infringement suits can be expensive, lengthy and disruptive to business operations. We could incur substantial costs and divert the attention of our management and technical personnel in prosecuting or defending against any claims, and these claims may harm our reputation. There can be no assurance that we will prevail in any suit. Furthermore, parties making claims against us may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize and sell products, and could result in the award

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of substantial damages against us, including treble damages and attorneys' fees and costs in the event that we are found to be a willful infringer of third party patents.

In the event of a successful claim of infringement against us, we may be required to obtain one or more licenses from third parties, which we may not be able to obtain at a reasonable cost or on otherwise favorable terms, if at all. In addition, we could encounter delays in product introductions while we attempt to develop alternative methods or products to avoid infringing third-party patents or proprietary rights. Defense of any lawsuit or failure to obtain any required licenses on favorable terms could prevent us from commercializing our products, and the risk of a prohibition on the sale of any of our products could adversely affect our ability to grow and gain market acceptance for our products.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

In addition, our agreements with some of our suppliers, distributors, customers and other entities with whom we do business may require us to defend or indemnify these parties to the extent they become involved in infringement claims against us, including the claims described above. We could also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine that it would be important to our business relationships. If we are required or agree to defend or indemnify any of these third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results or financial condition.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees' former employers.

Many of our employees were previously employed at biopharmaceutical companies, including potential competitors, and certain of these employees may have executed invention assignments, nondisclosure agreements and/or non-competition agreements in connection with such previous employment. Although no claims against us are currently pending, we may be subject to claims that we, or these employees, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property or personnel. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain potential products, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Risks related to our common stock

If there is not an active, liquid and orderly trading market for our common stock it may be difficult for holders of our common stock to sell their shares.

Our common stock currently is traded on the NASDAQ Global Market. If there is not an active trading market, holders of our common stock may have difficulty selling shares of our common stock. In addition, the trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. From our IPO date to December 31, 2014, our common stock traded between $4.72 and $24.11 per share. Factors affecting our stock price volatility include:


•	Actual or anticipated quarterly variation in our results of operations or the results of our competitors;


•	Announcements by us or our competitors of new commercial products, significant contracts, commercial relationships or capital commitments;


•	Financial projections we may provide to the public, any changes to those projections or our failure to meet those projections;


•	Issuance of new or changed securities analysts' reports or recommendations for our stock;

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•	Developments or disputes concerning our intellectual property or other proprietary rights;


•	Commencement of, or our involvement in, litigation;


•	Market conditions in the biopharmaceutical and life sciences sectors;


•	Failure to complete significant sales or to gain market acceptance of our products;


•	Changes in legislation and government regulation;


•	Public concern regarding the safety, efficacy or other aspects of our products;


•	Entering into, changing or terminating collaborative relationships;


•	Any shares of our common stock or other securities eligible for future sale;


•	Any major change to the composition of our board of directors or management; and


•	General economic conditions and slow or negative growth of our markets.

The stock market in general, and market prices for the securities of technology-based companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies.

These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In several recent situations where the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our shareholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and our business. Equity research analysts may elect not to provide research coverage of our common stock, and such lack of research coverage may adversely affect the market price of our common stock. In addition, we do not have any control over any potential equity research analyst coverage, the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

Our directors and executive officers have substantial control over us and could limit our current shareholders' ability to influence the outcome of key transactions, including changes of control.

As of March 2, 2015, our executive officers, directors and their affiliates beneficially owned or controlled approximately 26% of the outstanding shares of our common stock. Accordingly, these executive officers, directors and their affiliates, acting as a group, have substantial influence over the outcome of corporate actions requiring shareholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These shareholders may also delay or prevent a change of control of us, even if such a change of control would benefit our other shareholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors' perception that conflicts of interest may exist or arise.

Anti-takeover provisions in our charter documents and under Wisconsin law could make an acquisition of us, which may be beneficial to our shareholders, more difficult and may prevent attempts by our shareholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our articles of incorporation and bylaws, as amended and restated may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated articles

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of incorporation and amended and restated bylaws include provisions that:


•	authorize our board of directors to issue, without further action by the shareholders, up to 10,000,000 shares of undesignated preferred stock;


•	establish an advance notice procedure for shareholder approvals to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors;


•	establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three year terms;


•	provide that our directors may be removed only for cause;


•	provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;


•	specify that no shareholder is permitted to cumulate votes at any election of directors; and


•	require approval by 75% of our outstanding common stock to amend our articles of incorporation and approval by a majority of our board of directors or 75% of our outstanding common stock to amend our bylaws.

These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Wisconsin, the Wisconsin control share acquisition statute and Wisconsin's “fair price” and “business combination” provisions, in addition to other provisions of Wisconsin law, would apply and limit the ability of an acquiring person to engage in certain transactions or to exercise the full voting power of acquired shares under certain circumstances. As a result, offers to acquire us, which may represent a premium over the available market price of our common stock, may be withdrawn or otherwise fail to be realized.

We have broad discretion in the use of our cash and other corporate assets and may not use them effectively.

We have broad discretion in the application of our cash and the use of our corporate assets and may utilize such cash and assets in ways that do not improve our results of operations or enhance the value of our common stock. We intend to continue using our cash and assets to fund our operations; research and product development activities; sales and marketing activities and intellectual property; and for working capital and other general corporate purposes. We may also use a portion of cash to acquire or invest in complementary businesses or other assets; however, we currently have no agreements or commitments to complete any such transaction. We might not be able to yield a significant return, if any, on any investment of our cash and assets. Our failure to appropriately apply our cash and other assets, could effectively have a material adverse effect on our business, delay the development of our product candidates and cause the price of our common stock to decline.

We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.

We have paid no cash dividends on any of our classes of capital stock to date and currently intend to retain our future earnings to fund the development and growth of our business. In addition, our Credit Agreement restricts the payment of dividends on our capital stock. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for the foreseeable future.

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Item 1B. Unresolved staff comments

None.

Item 2. Properties

Our principal executive offices are located in Madison, Wisconsin, where we occupy approximately 29,000 square feet of office and lab space under a lease that expires in December 2018 and 1,400 square feet of lab space under a year to year lease that we renewed in March 2015. We also occupy approximately 4,300 square feet of office and lab space in Novato, California under a lease that expires in September 2017.

We believe that our properties are generally suitable to meet our needs for the foreseeable future. However, we expect that we will continue to seek additional space as needed to satisfy our growth.

Item 3. Legal proceedings

We are not currently a party to any material legal proceedings, but are subject to certain legal proceedings and claims from time to time that are incidental to our ordinary course of business.

Item 4. Mine safety disclosures

Not applicable.

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Executive officers of the registrant



Name of officer	Age	Office
Robert J. Palay	58	Founder, Chief Executive Officer and Chairman of the Board. Mr. Palay is one of our founders and has served as Chairman of the Board and as Chief Executive Officer since 2007. Mr. Palay previously served as chairman of the board and chief executive officer of each of our predecessors from their founding until 2008. He also co-founded NimbleGen Systems, Inc., a molecular biology tools company, and served as its chairman of the board from 1999 to 2007 and as its chief executive officer from 1999 to 2000. Since their inception, Mr. Palay has served as a manager of the general partner or manager of each of the various Tactics II entities, which are private investment vehicles and were among our principal shareholders prior to distributions made in 2014. He received a A.B., magna cum laude, from Harvard College, an M.M. from the J.L. Kellogg Graduate School of Management and a J.D. from the Northwestern University School of Law.

Thomas M. Palay, Ph.D.	61	Founder, President and Vice Chairman of the Board. Dr. Palay is one of our founders and has served as Vice Chairman of the Board and as President since 2007. Dr. Palay previously served as vice chairman of the board and president of each of our predecessors from their founding until 2008. He also co-founded NimbleGen Systems, Inc. and served as its vice chairman of the board, vice president and chief operating officer from 1999 to 2007. Since their inception, Dr. Palay has served as a manager of the general partner or manager of each of the Tactics II entities. Dr. Palay joined the faculty of the University of Wisconsin Law School in 1980. He retired as the Foley & Lardner-Bascom Professor of Law in 2010. Dr. Palay received a B.A., summa cum laude, from Tufts University, a J.D. from the University of Pennsylvania and a Ph.D. from the University of Pennsylvania.

Emile F. Nuwaysir, Ph.D.	46	Vice President and Chief Operating Officer. Dr. Nuwaysir has served as our Vice President with responsibility for research and development, manufacturing and quality systems and as the Chief Operating Officer since 2008. He is a founder and has served as director of Invenra, a Wisconsin-based early stage company developing technology for biopharmaceutical discovery, since its inception in 2011. He previously served as senior vice president of program management at Roche NimbleGen from 2007 to 2008. Prior to this, he was vice president of business development at NimbleGen Systems, Inc. from 2003 to 2007 and held various scientific and managerial roles at NimbleGen Systems, Inc. from 2000 to 2003, including molecular research and development group leader and senior manager of technical and client services. Prior to NimbleGen Systems, Inc., he held a Postdoctoral Fellowship with the National Institute of Environmental Health Sciences within the National Institutes of Health, a postdoctoral fellowship at the University of North Carolina-Chapel Hill and a research position at EI DuPont de Nemours Stine-Haskell Laboratory. He earned his B.A. from the University of Delaware and his Ph.D. in Molecular and Environmental Toxicology with a focus in Oncology from the University of Wisconsin-Madison in the McArdle Laboratory for Cancer Research.

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Christopher Parker	50	Vice President and Chief Commercial Officer. Mr. Parker has served as our Vice President with responsibility for sales, marketing and business development and our Chief Commercial Officer since 2008. He previously served as chief commercial officer of Stem Cell Products, Inc. from 2007 to 2009 and as vice president of Affymetrix, Inc. from 1998 to 2007, where he managed sales and marketing for the global pharmaceutical business unit. He also served on the drug discovery services team at Amersham Pharmacia Biotech Inc. and conducted research in molecular and cellular biology in the Department of Human Oncology at the University of Wisconsin-Madison for over a decade. He received a B.A. from the University of Wisconsin-Madison.

Nicholas J. Seay	64	Vice President and Chief Technology Officer. Mr. Seay has served as our Vice President and Chief Technology Officer since 2007. Representing WARF from 1985 to 2005, Mr. Seay successfully established its human embryonic stem cell intellectual property portfolio. Mr. Seay has served on the board of directors of Epic Systems Corporation since 1983 and BellBrook Laboratories LLC since 2001. Prior to joining our company, from 1989 to 2005, he advised biotechnology companies and worked on significant technologies at Quarles and Brady LLP, specializing in intellectual property law. Mr. Seay earned a B.S. from Cornell University and a J.D. from George Washington University Law School.

Timothy D. Daley	46	Vice President, Chief Financial Officer and Treasurer. Mr. Daley served as a consultant to the Company from 2009 until he was appointed Interim Chief Financial Officer, providing assistance to the Company with its preparation for its initial public offering in July, 2013 and with its financial reporting as a public company. From 2004 to 2014, he provided part-time and interim CFO/Controller and SEC reporting services to several organizations through his firm Timothy Daley CPA LLC of which he was the sole principal. From 1998 to 2004 he held various finance positions, including Treasurer and Controller, at Sonic Foundry, Inc. Mr. Daley began his career at Coopers and Lybrand where he practiced as a certified public accountant. Mr. Daley holds a Bachelor of Business Administration, Accountancy from the University of Notre Dame.

Anna M. Geyso	51	Senior Vice President, General Counsel and Secretary. Ms. Geyso has served as our Secretary since March 2011 and as our Senior Vice President and General Counsel since November 2013. From 1999 until she joined our company, she was a shareholder of Godfrey & Kahn, S.C. where she practiced in the corporate and securities law areas. Ms. Geyso received a B.B.A. in accounting with honors from the University of Wisconsin-Madison and a J.D. from the University of Michigan Law School.

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Part II

Item 5. Market for registrant's common equity, related stockholder matters and issuer purchases of equity securities

Market information

Our common stock has been listed on the NASDAQ Global Market under the symbol "ICEL" since July 25, 2013. Prior to that date, there was no public trading market for our common stock.

The following table sets forth for the periods indicated the high and low sales price per share of our common stock as reported on the NASDAQ Global Market for the periods indicated. On March 2, 2015, the last reported sale price of our common stock was $5.43 per share.



	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
2013 price range per share	N/A	N/A	$9.50 - $24.11	$13.88 - $20.69
2014 price range per share	$13.67 - $22.49	$10.78 - $15.38	$6.35 - $14.92	$4.72 - $8.03

Holders

As of March 2, 2015, we had 56 holders of record of our common stock.

Dividends

We have paid no cash dividends on our common stock to date and currently intend to retain our future earnings to fund the development and growth of our business. In addition, our Credit Agreement restricts the payment of dividends on our common stock.

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Performance graph

The following graph and table compare the change in Cellular Dynamics International, Inc.'s cumulative total shareholder return on its common shares with the NASDAQ Composite Index and the NASDAQ Biotechnology Index.



	Quarter Ending
Index	7/25/13		9/30/13		12/31/13		3/31/14		6/30/14		9/30/14		12/31/14
Cellular Dynamics International, Inc.	$	100	$	194	$	174	$	157	$	153	$	74	$	68
NASDAQ Composite	100		112		124		125		131		134		141
NASDAQ Biotechnology	100		121		132		137		149		164		176

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Use of proceeds from public offering of common stock

On July 30, 2013 we closed our IPO, in which we registered and sold 3,846,000 shares of common stock at a price of $12.00 per share. The aggregate offering price for shares sold in the offering was approximately $46.2 million. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-189049), which was declared effective by the SEC on July 24, 2013. J.P. Morgan Securities LLC, Cowen and Company LLC and Leerink Swann LLC acted as the underwriters. We raised approximately $40.8 million in net proceeds after deducting underwriting discounts and commissions of approximately $3.2 million and other offering expenses of approximately $2.2 million for total expenses of $5.4 million.

Through December 31, 2014, the net proceeds from our IPO have been applied as follows: $17.3 million for research and development activities, $7.5 million for sales and marketing activities, $3.1 million for property, plant and equipment and intellectual property, and $9.5 million for general corporate purposes. With regards to the remaining proceeds, there has been no material change in the planned use of proceeds from our IPO from that described in the final prospectus filed with the SEC pursuant to Rule 424(b).

Our Credit Agreement could restrict our ability to, among other things, sell certain assets, engage in a merger or change in control transaction, incur debt, pay cash dividends, enter into transactions with affiliates and make investments.

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Item 6. Selected financial data

The following selected historical financial data below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our financial statements, the related notes appearing in Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K to fully understand factors that may affect the comparability of the information presented below.

The following selected financial data should be read in conjunction with the consolidated financial statements and related notes thereto appearing elsewhere in this Form 10-K. We have derived the statement of operations data for the years ended December 31, 2012, 2013, and 2014 and balance sheet data as of December 31, 2013 and 2014 from audited financial statements included elsewhere in this Form 10-K. The statement of operations data for the year ended December 31, 2011 and the balance sheet data as of December 31, 2011 and 2012 were derived from audited financial statements that are not included in this Form 10-K. Our historical results are not necessarily indicative of the results to be expected in the future.



	Year ended December 31,
(Dollars in thousands, except per share data)		2011			2012			2013			2014

Statements of operations:
Revenues:
Product sales		$	1,460		$	5,178		$	7,998		$	8,077
Collaborations, partnerships and other revenues		1,137			1,404			3,886			8,615
Total revenues		2,597			6,582			11,884			16,692

Costs and expenses:
Cost of product sales		727			2,089			2,302			2,436
Research and development		13,660			14,301			16,622			22,435
Sales and marketing		3,031			4,398			6,516			8,324
General and administrative		6,482			8,024			10,707			12,750
Total costs and expenses		23,900			28,812			36,147			45,945

Loss from operations		(21,303		)	(22,230		)	(24,263		)	(29,253		)

Other (expense) income:
Interest expense		(44		)	(34		)	(716		)	(1,345		)
Other income		3			—			21			1
Total other expense		(41		)	(34		)	(695		)	(1,344		)

Net loss		$	(21,344	)	$	(22,264	)	$	(24,958	)	$	(30,597	)

Net loss per share of common stock, basic and diluted		$	(12.47	)	$	(12.89	)	$	(3.17	)	$	(1.94	)
Weighted average number of shares used in computing net loss per share of common stock, basic and diluted		1,711,567			1,727,086			7,878,060			15,774,814

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	December 31,
(Dollars in thousands)	2011			2012			2013			2014
Balance sheet data:
Cash and cash equivalents	$	36,729		$	33,900		$	62,029		$	34,408
Total current assets	40,717			39,601			70,195			44,201
Total assets	51,524			51,496			83,395			58,830
Total current liabilities	3,432			3,771			6,629			13,424
Long-term debt, less current portion	1,070			734			11,879			7,590
Accumulated deficit	(59,800		)	(82,064		)	(107,022		)	(137,619		)
Shareholders’ equity	47,022			46,991			64,887			37,816

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Item 7. Management's discussion and analysis of financial condition and results of operations

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Item 1A. Risk factors.”

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding our future results of operations, including growth in revenues, changes in gross margin or operating expenses, and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will”, “estimate,” “continue,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those referenced in Part I Item 1A “Risk factors” in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Unless expressly indicated or the context requires otherwise, the words “Cellular Dynamics,” “CDI,” “we,” the “Company,” “us” and “our” in this document refer to Cellular Dynamics International, Inc.

Overview

We develop and produce fully functioning human cells in industrial quantities to precise specifications. Our proprietary products include true human cells in multiple cell types (iCell products), human induced pluripotent stem cells (iPSCs) and custom iPSCs and iCell products (MyCell products). Our products provide standardized, easy-to-use, cost-effective access to the human cell, the smallest fully functioning operating unit of human biology. Customers use our products, among other purposes, for drug discovery and screening; to test the safety and efficacy of their small molecule and biologic drug candidates; for stem cell banking; and in research and development of cellular therapeutics.

We conduct our business through one operating segment and as a consequence our discussion below focuses on the Company as a whole.

We market our products for use in three principal end use markets: 1) in vitro research and development as well as applied product testing; 2) stem cell banking; and 3) in vivo cellular therapeutics research and development. Our customers include biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, clinical research organizations and stem cell banks. In 2012, we sold our products to 18 of the top 20 biopharmaceutical companies (based on worldwide revenue). We now believe that worldwide research and development spending is a more relevant metric

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of the sales potential to us of a given biopharmaceutical company. Based on this metric, in 2013 we sold to 19 of the top 20, and in 2014 to 18 of the top 20 biopharmaceutical companies.

The timing of our sales can be volatile and hard to predict because our products are a novel category and still relatively new to the marketplace. It is too early in our corporate life to make accurate predictions about the timing and product mix of future revenue. Volatility in quarterly Product sales arises because large orders from our biopharmaceutical customers are subject to the timing of and coordination with the customer's internal experimental work flow. Our revenue from Collaborations, partnerships and other revenues has historically been comprised of fewer customers but with larger arrangements than typically found in our revenue from Product sales. Those factors affecting the timing of revenue recognition, such as milestone achievements and varied progress against work plans, can have a large effect on period to period revenue.

In 2014 our Total revenues were $16.7 million, an increase of 40% over 2013. Product sales increased 1% from $8.0 million in 2013 to $8.1 million in 2014. Collaborations, partnerships and other revenues increased 122% from $3.9 million in 2013 to $8.6 million in 2014. Along with these percentage increases, we have experienced growth in both the number of our customers and in revenue from our top customers.

During 2012, 128 customers purchased from us. In 2013 that number grew to 150 and in 2014 increased to 200. Average revenue from our top 10 customers increased from $445,000 in 2012 to $830,000 in 2013 and to $1.1 million for the year ended December 31, 2014.

At December 31, 2014, our total backlog of revenue had grown to approximately $22.9 million. The backlog includes $13.3 million related to the CIRM agreement scheduled for completion in the fourth quarter of 2016 and $5.9 million related to our subcontractor agreement with Coriell scheduled for completion in 2017.

A large portion of our backlog is subject to contractual arrangements which require our performance of certain agreed upon work plans, the achievement of certain research milestones and/or other factors. In addition, certain of these contractual arrangements are terminable at our customers’ discretion. If our customers terminate these contractual arrangements or we are unable to perform or experience delays in performing our obligations, then the recognition of this backlog as revenue may be delayed or may not occur.

We hope to grow revenue in a number of ways. First, we expect to sell our existing products to new customers and in greater volume to current customers. Many of our customers have initially purchased small quantities of our products in order to perform functional product and technical qualification experiments and to perform high throughput assay development. Subsequent to these initial purchases, a number of our customers have then purchased in higher volumes. Secondly, as discussed elsewhere in this filing, we expect to continue to commercialize our existing cell types and further develop our applications. We expect that we will be able to sell these products to new and existing customers. Lastly, we may be able to enter new markets, such as cellular therapeutics.

Gross margins on product sales were 60% in 2012, 71% in 2013 and 70% in 2014. We anticipate that the gross margin from product sales in upcoming periods could be lower than that achieved throughout 2014. We expect that this decline would be driven principally by the categorization of new products, such as iCell Hepatocytes, as Product sales and the continued growth of our MyCell product line.

We intend to achieve profitability as a result of ongoing revenue growth in excess of the growth in operating expenses. Considered in the aggregate, Total costs and expenses (excluding Cost of product sales) grew 29% from 2013 to 2014. As further discussed below in "Results of Operations", this growth is largely attributable to increases in Research and development expenses related to our contract with the California Institute for Regenerative Medicine (CIRM) and the continued development and order fulfillment

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of our iCell Hepatocytes, which have not yet reached our internal specifications for characterization as Product sales and are offered on an early access basis to certain customers. Operating expenses also grew due to activity within Sales and marketing as well as increased compensation and other expenses related to our conduct as a public company included in General and administrative expenses. However, the growth rate of our Total costs and expenses (excluding Cost of product sales) continues to remain favorable when compared to our 40% growth in Total revenues over the same period.

We intend to continue our strategy of investing in product areas that we believe have long term growth potential and in commercializing our products for sale in our three principal end use markets, with an increased focus on cells for therapeutic use. Our strategy may negatively impact our ability to achieve profitability in the short term.

In 2015 we expect to continue recognizing significant revenue from CIRM and the related contract with Coriell. In 2015, among other sources of revenue growth, we also expect to generate additional revenues from our iCell Hepatocytes and other iCell products currently in development. We expect to continue captioning revenue from the sale of iCell Hepatocytes as Collaborations, partnerships and other revenues until they meet our criteria for caption as Product sales - which is currently expected to occur in the second quarter of 2015. Therefore, the costs incurred to produce iCell Hepatocytes will continue to be included in Research and development expense until the second quarter of 2015.

As a consequence of the aforementioned classification of the CIRM contract and of iCell Hepatocytes sales, we anticipate that 2015 Research and development expenses will be higher than in 2014. However, we do not anticipate expanding the Research and development expenses and staff that are devoted to new product development beyond that incurred in prior periods. We expect Sales and marketing expenses to continue growing to support our planned growth in revenue. The General and administrative expenses incurred in 2014 include the ongoing costs associated with our conduct as a public company and, we believe, are indicative of such costs in future periods.

On July 30, 2013, we closed our IPO of 3,846,000 shares of our common stock. The public offering price of the shares sold in the offering was $12.00 per share. The total gross proceeds from the offering were $46.2 million. After deducting underwriting discounts and commissions and offering expenses payable by us, we received aggregate net proceeds of approximately $40.8 million. As of December 31, 2014, we had $34.4 million of cash and cash equivalents.

We believe our cash balance is sufficient to meet the needs of the company in 2015. However, we may need to raise additional capital to expand the commercialization of our products, fund our operations and further our research and development activities. Our future funding requirements will depend on many factors, including market acceptance of our products, the cost of our research and development activities, the cost of filing and prosecuting patent applications, the cost of defending, in litigation or otherwise, any claims that we infringe third-party patents or violate other intellectual property rights, the cost and timing of regulatory clearances or approvals, if any, the cost and timing of establishing additional sales, marketing and distribution capabilities, the cost and timing of establishing additional technical support capabilities, the effect of competing technological and market developments and the extent to which we acquire or invest in businesses, products and technologies.

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Results of operations



	Year ended December 31,
(Dollars in thousands)	2012			2013			2014

Statements of operations:
Revenues:
Product sales	$	5,178		$	7,998		$	8,077
Collaborations, partnerships and other revenues	1,404			3,886			8,615
Total revenues	6,582			11,884			16,692

Costs and expenses:
Cost of product sales	2,089			2,302			2,436
Research and development	14,301			16,622			22,435
Sales and marketing	4,398			6,516			8,324
General and administrative	8,024			10,707			12,750
Total costs and expenses	28,812			36,147			45,945

Loss from operations	(22,230		)	(24,263		)	(29,253		)

Other (expense) income:
Interest expense	(34		)	(716		)	(1,345		)
Other income	—			21			1
Total other expense	(34		)	(695		)	(1,344		)

Net loss	$	(22,264	)	$	(24,958	)	$	(30,597	)

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Comparison of the years ended December 31, 2012, 2013 and 2014

Product sales:

Product sales represent the sale of our products for which there is a well-defined manufacturing and quality control protocol. Products so characterized are produced within our manufacturing organization and are subject to a rigorous set of quality control metrics and other industrial controls. Revenue from the sale of media and reprogramming kits are also captioned as Product sales but are manufactured to our specification by a third party. Our products are typically priced by the unit, and revenue is recognized upon delivery of the units.



	Year ended										Year ended
	December 31,										December 31,
(Dollars in thousands)	2012			2013			$ Change		% Change		2013			2014			$ Change		% Change
Product sales	$	5,178		$	7,998		$	2,820	54	%	$	7,998		$	8,077		$	79	1	%
Percentage of total revenue	79		%	67		%					67		%	48		%

The following table provides Product sales revenue by product:



(Dollars in thousands)	Year ended
	December 31,
	2012	2013	2014
iCell Cardiomyocytes	$2,610	$4,787	$3,175
iCell Neurons	2,256	2,428	3,317
MyCell	—	222	857
Other	312	561	728
Total	$5,178	$7,998	$8,077

The growth in Product sales for 2013 is primarily attributable to an increase in unit volume sales of our iCell Cardiomyocytes and, in 2014, to an increase in our sales of iCell Neurons, MyCell and media products which were partially offset by a decrease in the sale of our iCell Cardiomyocytes. In addition, our weighted average prices for iCell products increased 8% from 2012 to 2013 and 9% from 2013 to 2014.

Collaborations, partnerships and other revenues:

Collaborations, partnerships and other revenues consist of fees earned under early access and technology license arrangements, services rendered under work plans, grants and milestone payments received under license and collaboration agreements. Some of these agreements are characterized as multiple-element arrangements. Under this caption, we also report revenue associated with the sale of differentiated cells, such as iCell Hepatocytes, which have not yet met our requirements for characterization as Product sales.



	Year ended										Year ended
	December 31,										December 31,
(Dollars in thousands)	2012			2013			$ Change		% Change		2013			2014			$ Change		% Change
Collaborations, partnerships and other	$	1,404		$	3,886		$	2,482	177	%	$	3,886		$	8,615		$	4,729	122	%
Percentage of total revenue	21		%	33		%					33		%	52		%

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The following table provides Collaborations, partnerships and other revenues by significant agreement or type:



	Year ended
	December 31,
(Dollars in thousands)	2012		2013		2014
CIRM/Coriell	$	—	$	182	$	3,008
MCOW	440		533		1,144
Collaborative cell development	728		1,857		1,287
iCell Hepatocytes	127		808		1,796
Prototype cells	—		381		777
Other	109		125		603
Total	$	1,404	$	3,886	$	8,615

The amount and nature of arrangements in Collaborations, partnerships and other revenues has varied from year to year with the 2014 increase driven primarily by activity from our contracts with CIRM and Coriell, an increase in iCell Hepatocyte sales and an increase in revenue on our grant from the Medical College of Wisconsin (MCOW). These increases were partially offset by a decline in revenues from the research components of the Lilly and AstraZeneca agreements which have concluded.

The 2013 increase from 2012 was driven primarily by the research components of our center of excellence agreements with Lilly and AstraZeneca. Neither agreement resulted in revenue until the latter half of 2012.

As of December 31, 2014, we have collected $5.8 million from CIRM, of which $182,000 was recognized as revenue in 2013 and $2.5 million was recognized as revenue in 2014. We expect that 2015 revenue will be greater than in 2014; however, the timing of such revenue recognition remains dependent on the rate of collection of blood samples by third parties and our reprogramming of those samples.

During 2014 we also initiated our work on the $6.3 million subcontract on the $10.0 million grant Coriell received from CIRM. As of December 31, 2014 we invoiced $651,000 to Coriell, $462,000 of which was recognized as revenue in 2014.

Revenue from early access sales of our iCell Hepatocytes grew in 2014 from $808,000 in 2013 to $1.8 million in 2014.

The MCOW agreement relates to a grant awarded by the National Institute of Health – National Heart Lung and Blood Institute (NHLBI) to MCOW. This grant involves the derivation and use of iPSC-derived cardiomyocytes. The first two phases of this grant were completed as of June 2013. The third phase began at the end of 2013 and will continue until the end of the project period in 2016. During 2012, 2013 and 2014 we recognized $400,000, $533,000 and $1.1 million, respectively, of revenue related to the agreement. As of December 31, 2014, $1.3 million remained on the grant, but a portion of that amount is subject to annual funding determinations made by the NHLBI.

In 2012, 2013 and 2014 we recognized $318,000, $1.3 million and $1.0 million related to custom cell development and joint steering committee activity under the Lilly agreement, including $25,000, $100,000 and $225,000, respectively, of milestones achieved in those years. As of December 31, 2014 we had completed all collaborative cell development work under the Lilly agreement.

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In 2013, Collaborations, partnerships and other revenues also included $595,000 of revenue from the research component of the AstraZeneca agreement. In 2012, revenue from the AstraZeneca agreement did not begin until the final quarter and had only $10,000 included in Collaborations, partnerships and other revenues. As of December 31, 2013 we had completed all research work of the AstraZeneca agreement.

Cost of product sales:

Cost of product sales includes: (i) salaries and related personnel expenses of production related activity, including stock-based compensation; (ii) material, royalties and shipping and handling; and (iii) infrastructure and overhead. Cost of product sales also includes costs associated with quality assurance, scrap and production variances. Cost of product sales includes the costs associated with the sale of products which we report as Product sales. The costs associated with revenue from Collaborations, partnerships and other revenues are included in Research and development expenses.

We believe that the difference between Product sales and Cost of product sales (gross margin from product sales) is an important measurement of our performance. Our gross margin from product sales is likely to vary from period to period because of changes in product costs, product pricing and product mix. We expect product costs to fluctuate due to: (i) reductions in material costs as products are produced in higher volume; (ii) cost variances in material, labor and overhead attributable to the natural volatility of yield in biological manufacturing processes; (iii) systematic improvements in yield from increased scale and improving methods within our manufacturing processes; and (iv) technical innovation leading to product obsolescence. Gross margin may also be impacted by pricing pressure from competitors entering our market and by sales and promotion activities. Lastly, our product mix in each reporting period will impact our product gross margin. Our costs and pricing currently varies across our product portfolio. And, in addition, our future product portfolio will include new products, the costs and pricing for which are unknown.



	Year ended										Year ended
	December 31,										December 31,
(Dollars in thousands)	2012			2013			$ Change		% Change		2013			2014			$ Change		% Change
Cost of product sales	$	2,089		$	2,302		$	213	10	%	$	2,302		$	2,436		$	134	6	%
Gross margin of product sales	60		%	71		%					71		%	70		%

The 70% gross margin from product sales in the current year reflects a slight decrease in the margin due to a shift in product sales mix, primarily lower iCell Cardiomyocyte sales. In addition, in the fourth quarter of 2014 we recorded costs associated with iCell DopaNeuron units produced in that period that failed to meet our internal quality standards. The MyCell products introduced during 2013 also continued to have lower gross margins than our current iCell products.

Margins in 2012 were negatively impacted by a fourth quarter write off of $413,000 for specific units no longer held for sale. The write-off primarily related to cells manufactured in 2010 and 2011. During that time we manufactured iCell Cardiomyocytes using two alternative methods, each of which produced cells in full conformity with our quality control release specifications. However, due to emerging production efficiencies and customer preference we elected to standardize manufacturing on one method. In the fourth quarter of 2012 we determined that we no longer expected to sell those cells manufactured under the discontinued method and wrote off their value.

Royalty expense related to Product sales totaled $683,000 in 2012, $685,000 in 2013 and $542,000 in 2014 or 13%, 9% and 7% of Product sales in each of those years. The decrease in royalties as a percentage of Product sales over the past three years reflects the generally lower royalty obligation on our portfolio of iCell products, including a lower royalty obligation on our currently marketed version of

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iCell Cardiomyocytes. A portion of that reduction was due to the expiration in mid-2013, of an underlying patent licensed for use in the production of iCell Cardiomyocytes and iCell Neurons.

We anticipate that the gross margin from product sales in upcoming periods will likely be lower than that achieved throughout 2014. We expect that this decline will be driven principally by iCell Hepatocytes and the continued growth of our MyCell product line.

Research and development:

Research and development expenses include: (i) lab supplies, chemical reagents and finished goods internally consumed; (ii) salaries and related personnel expenses, including stock-based compensation, related to our research and development staffing; (iii) allocated and direct overhead and facilities expenses; and (iv) minimum royalties, royalties related to Collaborations, partnerships and other revenues, amortization of licenses and other license maintenance fees. Costs associated with delivering revenue identified as Collaborations, partnerships and other revenues are expensed as Research and development expense. We do not track research and development expenses by individual product, nor do we capitalize any research and development expenses.



	Year ended										Year ended
	December 31,										December 31,
(Dollars in thousands)	2012			2013			$ Change		% Change		2013			2014			$ Change		% Change
Research and development	$	14,301		$	16,622		$	2,321	16	%	$	16,622		$	22,435		$	5,813	35	%
Percentage of total revenue	217		%	140		%					140		%	134		%
Ending headcount	59			63							63			75

The principal components of Research and development expense were as follows:



	Year ended
	December 31,
(Dollars in thousands)	2012		2013		2014
Materials and supplies	49	%	52	%	55	%
Compensation and benefits	36	%	32	%	29	%
Overhead and facilities	11	%	10	%	10	%
Royalties and license amortization	4	%	6	%	6	%
Total Research and development	100	%	100	%	100	%

The increase in Research and development expense from 2012 to 2013 was principally related an increase in materials and supplies consumed in the development of our iCell Hepatocytes. The increase from 2013 to 2014 was related to the new California operations supporting the CIRM and Coriell contracts and to materials consumed in the continued development and order fulfillment of our iCell Hepatocytes.

Research and development compensation and benefits included $112,000, $114,000 and $112,000 of stock compensation in 2012, 2013 and 2014, respectively.

Research and development expenses also included royalties and the amortization of license agreements. Royalties related to Collaborations, partnerships and other revenues amounted to $303,000 for 2012, $502,000 for 2013 and $815,000 for 2014. Amortization expense increased from $347,000 in 2012 to $522,000 in 2013 and to $584,000 in 2014.

As mentioned above, we anticipate that 2015 Research and development expenses will be higher than in 2014 due to growth in CIRM and Coriell activities. However, we do not anticipate expanding the Research

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and development expenses and staff that are devoted to new product development beyond that incurred in prior periods.

Sales and marketing:

Our Sales and marketing expenses include: (i) salaries, commissions and related personnel expenses, including stock-based compensation, related to our sales, marketing and technical support and training staff; (ii) marketing programs, trade shows and associated professional fees; (iii) travel, lodging and other out-of-pocket expenses associated with our commercial activity; and (iv) other related overhead.



	Year ended										Year ended
	December 31,										December 31,
(Dollars in thousands)	2012			2013			$ Change		% Change		2013			2014			$ Change		% Change
Sales and marketing	$	4,398		$	6,516		$	2,118	48	%	$	6,516		$	8,324		$	1,808	28	%
Percentage of total revenue	67		%	55		%					55		%	50		%
Ending headcount	25			29							29			35

Compensation and benefits as a percentage of Sales and marketing expenses was 59% in 2012, 60% in 2013 and 62% in 2014. From 2012 to 2013 nearly 60% of the increase in sales and marketing expense related to headcount and salaries. The remaining increase from 2012 to 2013 primarily related to variable compensation to our sales force and an increase in advertising, public relations and trade shows.

A majority, 66%, of the increase in Sales and marketing expenses from 2013 to 2014 was due to growth in headcount and salaries. Variable compensation to our field sales force remained relatively unchanged from 2013 to 2014. Our advertising, public relations and trade shows efforts, including our annual user group conferences, increased by $200,000 from 2013 to 2014.

Sales and marketing compensation and benefits included $114,000, $206,000 and $376,000 of stock compensation in 2012, 2013 and 2014, respectively.

We anticipate modest growth in sales and marketing staff related expenses and other sales expenses as we pursue planned activity and growth initiatives in 2015.

General and administrative:

Our General and administrative expenses include: (i) salaries and related personnel expenses, including stock-based compensation, related to our executive, finance, human resource and information technology staffing; (ii) audit, legal, valuation and other professional services fees; and (iii) unallocated occupancy expenses. General and administrative includes the compensation of all executives other than the Chief Commercial Officer, whose compensation is included in Sales and marketing.



	Year ended										Year ended
	December 31,										December 31,
(Dollars in thousands)	2012			2013			$ Change		% Change		2013			2014			$ Change		% Change
General and administrative	$	8,024		$	10,707		$	2,683	33	%	$	10,707		$	12,750		$	2,043	19	%
Percentage of total revenue	122		%	90		%					90		%	76		%
Ending headcount	13			15							15			16

Compensation and benefits, excluding stock compensation discussed below, as a percentage of total General and administrative expenses was 34% for 2012, 37% for 2013 and 33% for 2014. Effective as of the IPO date, our Board approved an annual incentive cash compensation plan for executives. The

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periods covered under the plan was retroactive to the beginning of 2013. As a result, 2013 General and administrative expenses included an accrued expense of $1.0 million for the annual incentive cash compensation plan adopted in that year. There was no similar plan in 2012.

In 2014, General and administrative compensation and benefits included an accrued expense of $489,000 for the annual incentive cash compensation plan, but included higher base salaries for certain executives as well as the full year impact of additional staff.

Stock compensation as a percentage of General and administrative expenses was 11% for 2012, 12% for 2013 and 20% for 2014. Due to grants made at the time of the IPO and in March and May of 2014, stock compensation increased from $857,000 in 2012 to $1.3 million in 2013 and to $2.6 million in 2014. Approximately 63% of the General and administrative expense increase from 2013 to 2014 is related to the increase in stock compensation.

At the time of our IPO, our board also approved a non-employee director compensation policy. These director fees amounted to $334,000 in 2013 and $311,000 in 2014.

Additional increased costs related to our being a public company include non-employee director compensation and premiums for directors and officers insurance. Approximately 22% of the General and administrative expense increase from 2013 to 2014 is due to such costs.

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Quarterly results of operations data (unaudited)

The tables below present our unaudited quarterly statements of operations data for each of the eight quarters ended December 31, 2014. We have prepared the quarterly data on a basis consistent with the audited financial statements included in this Annual Report on Form 10-K. In the opinion of management, the financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. This information should be read in conjunction with the audited financial statements and related notes included in Item 8 of this Annual Report on Form 10-K. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.



	2013												2014
(Dollars in thousands)	Q1			Q2			Q3			Q4			Q1			Q2			Q3			Q4
Revenues:
Product sales	$	1,754		$	1,969		$	1,793		$	2,482		$	1,462		$	2,402		$	1,669		$	2,544
Collaborations, partnerships and other revenues	636			843			730			1,677			1,477			1,234			1,898			4,006
Total revenues	2,390			2,812			2,523			4,159			2,939			3,636			3,567			6,550

Operating expenses:
Cost of product sales	577			676			371			678			446			546			418			1,026
Research and development	3,856			3,911			3,906			4,949			4,916			5,578			5,716			6,225
Sales and marketing	1,527			1,504			1,679			1,806			1,934			2,060			2,069			2,261
General and administrative	2,109			1,778			3,727			3,093			3,456			3,672			3,172			2,450
Total operating expenses	8,069			7,869			9,683			10,526			10,752			11,856			11,375			11,962

Loss from operations	(5,679		)	(5,057		)	(7,160		)	(6,367		)	(7,813		)	(8,220		)	(7,808		)	(5,412		)

Other (expense) income:
Interest expense	(7		)	(4		)	(358		)	(347		)	(304		)	(339		)	(342		)	(360		)
Other income (expense)	—			—			20			1			—			—			—			1
Total other expense	(7		)	(4		)	(338		)	(346		)	(304		)	(339		)	(342		)	(359		)

Net loss	$	(5,686	)	$	(5,061	)	$	(7,498	)	$	(6,713	)	$	(8,117	)	$	(8,559	)	$	(8,150	)	$	(5,771	)

Net loss per share of common stock, basic and diluted (1)	$	(3.28	)	$	(2.92	)	$	(0.62	)	$	(0.43	)	$	(0.52	)	$	(0.54	)	$	(0.52	)	$	(0.36	)

(1) For quarters subsequent to 2013 Q2, net loss per share reflects the issuance of shares of common stock as of the IPO on July 25, 2013, as well as the conversion of preferred stock and the exercise of warrants as of that date.

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Liquidity and capital resources

Overview

As of December 31, 2014 we had $34.4 million of cash and cash equivalents. We are not profitable and we cannot provide any assurance that we will ever be profitable. As of December 31, 2014, we had an accumulated deficit of $137.6 million. We believe our cash balance is sufficient to meet the needs of the company in 2015.

We intend to use our cash and cash equivalents to fund: ongoing operations; research and product development activities; sales and marketing activities, including expansion of our sales force to support the ongoing commercialization of our products; acquisition of property, plant and equipment, acquisition or license of intellectual property; and for working capital and other general corporate purposes. We may also use a portion of our assets to acquire and invest in complementary products, technologies, businesses or other assets; however, we currently have no agreements or commitments to complete any such transaction.

The following table summarizes our cash flows for the periods presented:



	Year ended December 31,
(Dollars in thousands)	2012			2013			2014
Operating activities	$	(21,004	)	$	(21,300	)	$	(24,913	)
Investing activities	(2,527		)	(2,221		)	(3,035		)
Financing activities	20,702			51,650			327
(Decrease) increase in cash and cash equivalents	$	(2,829	)	$	28,129		$	(27,621	)

Operating activities

Our cash used in operating activities principally reflects our net losses of $22.3 million in 2012, $25.0 million in 2013 and $30.6 million in 2014.

In 2014, our operating losses and other uses of cash were partially offset by an increase in deferred revenue principally attributable to the $4.8 million of payments from CIRM. Payments from CIRM are expected to be received in advance of work being performed and revenue being recognized. As a consequence, we expect to remain in a deferred revenue position on the CIRM contract until it is complete.

During 2014, our operating assets and liabilities, excluding deferred revenue, decreased by $1.6 million. This decrease was impacted by the portion of our sales that remained in accounts receivable at December 31, 2014 as well as to an investment in inventory in anticipation of 2015 contractual and product demand.

Investing activities

Investing activities include expenditures for licenses and fixed assets.

In 2010, we purchased $1.5 million of property and equipment, primarily to equip labs at our Madison, Wisconsin location. Those purchases satisfied most of our infrastructure needs for 2011 and 2012 and, as such, property and equipment purchases in 2012 amounted to just $132,000.

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In late 2013, we began the build-out of our facility in California from which work is performed on the CIRM and Coriell contracts. To date, capital expenditures in California have totaled $2.6 million, $1.3 million of which occurred in 2014. We believe that capital spending related to these contracts is substantially complete.

Additional capital expenditures in 2013 and 2014 primarily related to the expansion of laboratory space in Madison, WI and to improvements in our information technology and network infrastructure.

During 2012, 2013 and 2014 we paid $2.4 million, $404,000 and $140,000, respectively, to acquire additional licenses.

Financing activities

On July 30, 2013, we closed our IPO of 3,846,000 shares of common stock. The public offering price of the shares sold in the offering was $12.00 per share. The total gross proceeds from the offering were $46.2 million. After deducting underwriting discounts and commissions and offering expenses the aggregate net proceeds totaled $40.8 million.

On June 27, 2013, we entered into the Credit Agreement. Under the Credit Agreement, we borrowed $12.0 million on June 28, 2013.

We used a portion of the proceeds to repay the remaining balances, approximately $875,000, due to the WEDC under two existing promissory notes. Please see Note 5 to the financial statements for additional information regarding the Credit Agreement.

During 2014, financing activities included the repayment of $18,000 of financed licenses included in long-term debt and $345,000 of proceeds from the exercise of stock options.

Actual cash interest paid was $36,000 in 2012, $545,000 in 2013 and $949,000 in 2014.

Off-balance sheet arrangements

We did not have any off balance sheet arrangements as of December 31, 2013 or December 31, 2014.

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Inflation

Our results from operations have not been, and we do not expect them to be, materially affected by inflation.

Contractual obligations and commitments

A summary of our contractual obligations and commitments as of December 31, 2014 follows:



			Less than 1						More than 5
(Dollars in thousands)	Total		Year		1-3 Years		3-5 Years		Years
Long-term debt (1)	$	13,958	$	5,196	$	8,762	$	—	$	—
Operating lease obligations	$	3,243	942		1,773		528		—
Purchase order and capital expenditure commitments	1,198		1,198		—		—		—
Total	$	18,399	$	7,336	$	10,535	$	528	$	—

(1) Includes interest payments.

The lease for our Madison, Wisconsin offices expires in December 2018. The lease for our Novato, California facility expires in September 2017.

We have entered into various license agreements under which we pay annual maintenance fees, nonrefundable license issuance fees and royalties as a percentage of net sales for the sale or sub-license of products using the licensed technology. If we elect to maintain these license agreements, we will pay, in aggregate, minimum annual fees of an average of approximately $511,000 per year through 2033. Maintenance fees, including fees to defend the licenses, are indeterminate, but will continue for the remainder of the license term.

Future payments related to these license agreements have not been included in the contractual obligations table above as the period of time over which the future license payments will be required to be made, and the amount of such payments are indeterminable.

Critical accounting policies, significant judgments and estimates

Our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in accounting estimates may occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our financial condition and results of operations. Our accounting policies are more fully described in Note 3 of the notes to our financial statements included elsewhere in this Annual Report on Form 10-K.

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Revenue recognition

We recognize revenue in accordance with Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, and Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605, Revenue Recognition.

Product sales – We recognize product sales revenue when the following four basic revenue criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured. Product returns and replacements historically have not been material and are not expected to be material.

In June 2012, we finalized a supply and distribution agreement with Life Technologies Corporation whereby they will manufacture certain cell media for us and serve as our sole distributor of these products to third parties. We are recognizing this revenue in accordance with ASC 605-45—Revenue Recognition—Principal Agent Consideration. ASC 605-45 specifies various indicators that support the reporting of revenue on a gross basis, including inventory risk, changes to the product and discretion in changing the supplier. We do not believe that this agreement includes these characteristics and therefore are recognizing the revenue on a net basis.

Collaborations, partnerships and other revenues—We recognize revenue from collaborations, services and other arrangements when our contractual services are performed, provided collectability is reasonably assured. Collaborations may include upfront non-refundable payments, development milestone payments and research and development funding. Principal costs under these agreements include our personnel conducting research and development, supplies consumed in that process and allocated overhead.

We recognize revenues from non-refundable up-front license fees received under collaboration agreements ratably over the estimated performance period of the collaboration agreement. The estimated performance period is typically based upon detailed project plans completed by the project managers, who establish in regular discussion and collaboration with a counterpart at the customer, key project activities, milestones and resources. If the estimated performance period is subsequently modified, we will modify the period over which the up-front license fee is recognized on a prospective basis.

We recognize revenue from milestone payments received under collaboration agreements when earned, provided that the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, we have no further performance obligations relating to the event and collectability is reasonably assured. If these criteria are not met, we recognize milestone payments ratably over the remaining period of the performance obligations under the collaboration agreement.

For a milestone to be considered substantive, the payment associated with its achievement must have all of the following characteristics:


•	relate solely to past performance;


•	be reasonable, relative to all of the elements and payment terms in the arrangement; and


•	be commensurate with either our effort required to achieve the milestone or the enhanced value of the delivered item(s) as a result of the milestone achievement.

As of December 31, 2014, we have recognized $350,000 of milestone related revenue in association with our contract with Lilly - see Multiple-element arrangements section below. In 2012, we sent invoices of $125,000 for milestones achieved. Of the achieved milestones, $25,000 was recognized as revenue in 2012 under the milestone method, while the remaining $100,000, which related to milestones that were not considered substantive, was deferred and accounted for ratably over the remaining period of our performance obligations under the contract. In 2013 and 2014 we recognized $100,000 and $225,000, respectively, of revenue under the milestone method.

Payments, such as grants or awards, received for the reimbursement of expenses for research and development activities are recorded as revenue at the gross amount of the reimbursement. Costs associated with these reimbursements are reflected as a component of research and development expenses.

In November, 2013, we announced that we had received a Notice of Grant Award (NGA) for $16 million from CIRM to create a human induced pluripotent stem cell biobank from 3,000 individuals. The agreement runs through October 31, 2016. Related to the CIRM grant, in December 2013, we announced that we had entered into a four year $6.3 million agreement with Coriell to produce distribution cell banks from the iPSCs produced for CIRM. In accounting for revenue for the agreements mentioned above, we will use the Proportional Performance Method whereby revenue will be recognized in proportion to the level of service, as measured by

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labor and materials cost, provided on a systematic and rational basis. As of December 31, 2014, we had received payments totaling $5.8 million from CIRM and had recognized $2.7 million as revenue, resulting in deferred revenue of $3.1 million. As of December 31, 2014, we had invoiced Coriell for $651,000 of which $462,000 was recognized as revenue.

Multiple-element arrangements – Arrangements with customers may include multiple deliverables, including collaborations or agreements that combine products, research and development, participation in joint steering committees and other deliverables. For our multiple-element arrangements, deliverables are separated into more than one unit of accounting when (i) the delivered element(s) have value to the customer on a stand-alone basis and (ii) delivery of the undelivered element(s) is probable and substantially in our control. Revenue is then allocated to each unit of accounting based on the relative selling price of each unit of accounting based first on Vendor Specific Objective Evidence (“VSOE”) if it exists, based next on Third Party Evidence (“TPE”) if VSOE does not exist, and, finally, if both VSOE and TPE do not exist, based on Best Estimated Selling Price (“BESP”).

VSOE—In many instances, products are sold separately in stand-alone arrangements. We determine VSOE based on our normal pricing and discounting practices for the specific product when sold separately.

TPE—When VSOE does not exist, we attempt to determine TPE based on competitor prices for similar deliverables when sold separately. Given the novel nature and early stage of our products, it is difficult to obtain the pricing of similar products with similar functionality sold by other companies on a stand-alone basis. Therefore, we are typically not able to determine TPE.

BESP—The objective of BESP is to determine the price at which we would transact a sale if the deliverable were sold on a stand-alone basis. When both VSOE and TPE do not exist, typically in the case of research and development and joint steering committee elements, we determine BESP by considering the cost of the activities required by the agreement and our rights and our customers to the resulting technology.

After separating the elements of an arrangement into the appropriate units of accounting, revenue is recognized for each separate unit of accounting based on the nature of the revenue as described above.

In accounting for the multiple-element arrangements, revenue is limited to the lesser of 1) the cumulative amount of payments received or invoiced; or 2) the cumulative amount of revenue earned, as determined using the pro-rata allocation and delivery status or progress of each element.

In June 2012, we finalized a $5 million multiple-element agreement with Lilly that was scheduled to run through December 2014. Under the terms of the agreement, Lilly would order a minimum number of units of iCell products each quarter through the fourth quarter of 2014 at a predetermined price for each year. If Lilly failed to order the minimum number of units, we could choose a commercial iCell type for the shortfall and invoice Lilly for the same. In addition, through December 31, 2014, we also reprogramed a specified number of donor samples provided by Lilly, and invoiced Lilly for these MyCell products according to predetermined pricing tiers. The agreement also included both periodic and milestone payments related to meetings and decisions of a joint steering committee and the custom development of two different cell types.

In December 2012, we finalized a one year $1.3 million multiple-element agreement with AstraZeneca UK Limited (AstraZeneca). Under the terms of the agreement, AstraZeneca agreed to order a minimum number of units of commercial iCell products, at a predetermined price, prior to December 31, 2013. During the term, we were to reprogram donor samples and invoice AstraZeneca for any such MyCell products. The last of our obligations under this agreement were substantially completed in early 2014. In addition, AstraZeneca agreed to provide us with payments upon the achievement of certain milestones related to its attempts to develop, manufacture and commercially release a custom cell type.

Changes in judgments and estimates regarding application of these revenue recognition guidelines as well as changes in facts and circumstances could result in a change in the timing or amount of revenue recognized in future periods. During 2012, 2013 and 2014, we did not have any significant changes in estimates related to the agreements discussed above.

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Stock-based compensation

We utilize the Black-Scholes option-pricing model to determine the fair value of option grants. When the option grants have the characteristics of a "plain-vanilla" grant the expected term is based on the simplified method as prescribed by Staff Accounting Bulletin ("SAB") No. 107 and SAB No. 110. In the event that the options do not have such characteristics we base the expected term on items such as expiration dates and other factors unique to the grantee. The risk-free interest rate assumptions are based on the U.S. Treasury bond rates appropriate for the expected term in effect at the time of grant. The expected volatility is based on calculated enterprise value volatilities for publicly traded companies in the same industry and general stage of development. The forfeiture rates are based on historical experience for similar classes of employees. The dividend yield is based on expected dividends at the time of grant. Prior to our IPO, the determinations of fair values were based on, among other things, valuation analyses, review of historical financial results, business milestones, financial forecasts and business outlook as of the grant dates. Total enterprise value ranges and the total equity value ranges were estimated utilizing both the income approach and the market approach guidelines. Upon completion of the IPO the common stock was valued by reference to our publicly traded price.

Assumptions used to value the most recent option grants were as follows:



	2012		2013		2014
Estimated expected term	6 years		6 to 8 years		1 to 8 years
Risk-free interest rate	0.98	%	1.70% to 2.22%		0.18% to 2.38%
Expected volatility assumption	66	%	64% to 68%		43% to 66%
Forfeiture rate	0% to 7%		0% to 7%		0% to 6%
Dividend yield assumption	—	%	—	%	—	%

Option awards to consultants, advisors or other independent contractors have been granted with an exercise price equal to the market price of our stock at the date of the grant, with 10-year contractual terms and vesting dependent upon whether the individual continues to provide services to the Company. The value of stock options to these parties is measured at the then-current market value as of financial reporting dates and compensation cost is recognized for the net change in the fair value of the options for the reporting period, until vesting terms are met. In determining the fair value of options granted to consultants, advisors and other independent contractors, we use the Black-Scholes valuation model in a manner consistent with its use in determining the fair value of options granted to employees and directors. The options that vest are adjusted, for the last time, to the then-current fair value and compensation cost is recognized accordingly.

Inventory valuation

Inventories are valued at the lower of cost or market using the weighted-average cost method. The weighted-average method examines total production volume and total labor and overhead over an appropriate historical period and establishes a weighted-average value of materials, overhead and labor to be assigned to each unit of finished goods inventory.

Inventory includes finished goods that may be used by our research and development, technical services and marketing groups. When such products are consumed internally they are expensed at their inventoried cost to the appropriate department.

Provisions, when required, for slow moving, excess and obsolete inventories are recorded to reduce inventory values from cost to their estimated net realizable values, based on product life cycle, development plans, product expiration and quality issues.

Goodwill

The entire balance of goodwill resulted from the 2008 acquisition of two companies and represents the purchase price in excess of identifiable assets and in-process research and development acquired in that transaction. Goodwill is not amortized. We have a single reporting unit and all goodwill relates to that unit.

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Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Goodwill is reviewed for impairment at least annually during the fourth quarter, or more frequently if an event occurs indicating the potential for impairment. We conduct an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we then conduct a two-part test for impairment of goodwill. The qualitative factors which we may assess during the qualitative approach include, but are not limited to, macroeconomic conditions, industry and market considerations, our overall financial performance and the excess of prior year estimates of fair value compared to carrying value.

Based on this qualitative assessment, we concluded that as of the 2014 annual impairment test date, it was more likely than not that the fair value of the reporting unit was greater than its carrying value, and no further testing was performed. We performed our annual assessment for goodwill impairment in the fourth quarters of 2013 and 2014, noting no impairment in either year. We have not recorded any impairment of goodwill since the amount was recorded in 2008. We believe that the fair value of the company is substantially in excess of the carrying value.

Recent accounting pronouncements

In August 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern "ASU No. 2014-15", which is included in Accounting Standards Codification 205, Presentation of Financial Statements. ASU No. 2014-15 requires management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. ASU No. 2014-15 will be effective starting in the first quarter of fiscal year 2017. Early application is permitted. We are currently evaluating the impact the adoption of ASU No. 2014-15 will have on its financial statements.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers "ASU No. 2014-09", which supersedes nearly all accounting standards for revenue recognition. ASU No. 2014-09 requires that an entity recognize revenue upon transferring promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 will be effective starting in the first quarter of fiscal year 2017. Early application is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. We are currently evaluating the impact the adoption of ASU No. 2014-09 will have on its financial statements.

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Item 7A. Quantitative and qualitative disclosures about market risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. We do not hold or issue financial instruments for trading purposes.

Foreign currency exchange risk

All cash and cash equivalents are maintained in U.S. dollars, and, to date, our revenue, including transactions with our Japanese distributor, has been denominated in U.S. dollars. Our expenses are typically incurred in the United States, although we have sales and marketing employees located in the United Kingdom and Germany whose salaries and activities are paid in the local currency. The accounts used for these foreign activities are funded on a periodic basis. The value of activity in these arrangement are not considered significant compared to overall sales and marketing activity. However, if funded in a similar manner, future foreign sales and marketing efforts may result in additional exchange risk.

Interest rate sensitivity

Cash and cash equivalents are held for working capital purposes. As of December 31, 2014 we had $24.6 million invested in a 100% U.S. Treasury Securities Money Market Fund and $1.9 million in a U.S. Government Money Market Fund. An investment in a money market fund is not insured or guaranteed. Our remaining cash was deposited with one major financial institution. These deposits exceed federally insured limits. We have not experienced any losses in such accounts and believe that we are not exposed to any significant risk on these balances.

Outstanding balances under the Credit Agreement bear interest at 6.5% per annum plus the greater of 2% or one month LIBOR. Currently, one-month LIBOR is below the 2% floor, therefore, we do not believe that near term changes in LIBOR would have a material impact on our financial condition.

Fair value of financial instruments

The carrying amounts of financial instruments, which include cash and cash equivalents, accounts receivable and accounts payable, approximate their respective fair values due to the relatively short-term nature of these instruments. Based upon interest rates currently available to us for debt with similar terms and lenders, we believe the carrying value of our long-term debt is also approximately equal to its fair value.

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Item 8. Financial statements and supplementary financial data

Index to financial statements



Report of independent registered public accounting firm	69
Balance sheets	70
Statements of operations	71
Statements of shareholders' equity	72
Statements of cash flows	73
Notes to financial statements	75

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Cellular Dynamics International, Inc.

Madison, Wisconsin

We have audited the accompanying balance sheets of Cellular Dynamics International, Inc. (the "Company") as of December 31, 2013 and 2014, and the related statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of Cellular Dynamics International, Inc. as of December 31, 2013 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Chicago, Illinois

March 5, 2015

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Cellular Dynamics International, Inc.
Balance sheets
(Dollars in thousands, except per share amounts)	December 31, 2013			December 31, 2014
Assets
Current assets:
Cash and cash equivalents	$	62,029		$	34,408
Accounts receivable	3,318			4,291
Inventories	3,884			4,456
Prepaid expenses and other assets	964			1,046
Total current assets	70,195			44,201
Property and equipment, net	2,052			3,832
Goodwill	6,817			6,817
Intangible assets, net	4,122			3,813
Debt issuance costs, net	199			150
Other assets	10			17
Total	$	83,395		$	58,830

Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	1,811		$	1,815
Accrued liabilities	3,361			3,150
Deferred revenue	1,439			3,918
Current maturities of long-term debt	18			4,541
Total current liabilities	6,629			13,424
Long-term debt, less current portion	11,879			7,590
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock, $0.01 par value — authorized 10,000,000 shares at December 31, 2013 and December 31, 2014; no shares issued and outstanding, at December 31, 2013 and December 31, 2014	—			—
Common stock, $0.0001 par value — authorized, 100,000,000 shares at December 31, 2013 and December 31, 2014; issued and outstanding, 15,757,725 shares at December 31, 2013 and 15,814,008 at December 31, 2014	2			2
Additional paid-in capital	171,907			175,433
Accumulated deficit	(107,022		)	(137,619		)
Total shareholders' equity	64,887			37,816
Total	$	83,395		$	58,830

See notes to financial statements.

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Cellular Dynamics International, Inc.
Statements of operations
	Year ended
	December 31,
(Dollars in thousands, except per share data)	2012			2013			2014
Revenues:
Product sales	$	5,178		$	7,998		$	8,077
Collaborations, partnerships and other revenues	1,404			3,886			8,615
Total revenues	6,582			11,884			16,692

Costs and expenses:
Cost of product sales	2,089			2,302			2,436
Research and development	14,301			16,622			22,435
Sales and marketing	4,398			6,516			8,324
General and administrative	8,024			10,707			12,750
Total costs and expenses	28,812			36,147			45,945

Loss from operations	(22,230		)	(24,263		)	(29,253		)

Other (expense) income:
Interest expense	(34		)	(716		)	(1,345		)
Other income	—			21			1
Total other expense	(34		)	(695		)	(1,344		)

Net loss	$	(22,264	)	$	(24,958	)	$	(30,597	)

Net loss per share of common stock, basic and diluted	$	(12.89	)	$	(3.17	)	$	(1.94	)
Weighted average number of shares used in computing net loss per share of common stock, basic and diluted	1,727,086			7,878,060			15,774,814

See notes to financial statements.

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Cellular Dynamics International, Inc.
Statements of shareholders' equity
For the years ended December 31, 2012, 2013 and 2014

														Additional					Total
(Dollars in thousands)	Preferred Series A					Preferred Series B					Common			Paid-In		Accumulated			Shareholders’
	Shares		Amount			Shares		Amount			Shares	Amount		Capital		Deficit			Equity
BALANCE — January 1, 2012	2,914,187		$	28,191		5,572,000		$	70,428		1,713,355	$	—	$	8,203	$	(59,800	)	$	47,022
Issuance of Series B						1,660,092		20,985											20,985
Issuance of stock options for intangible assets
Exercise of stock options											20,296			151					151
Stock-based compensation														1,097					1,097
Net loss																(22,264		)	(22,264		)
BALANCE — December 31, 2012	2,914,187		28,191			7,232,092		91,413			1,733,651	—		9,451		(82,064		)	46,991
Issuance of common stock upon initial public offering, net of offering costs											3,846,000	1		40,771					40,772
Conversion of Series A and Series B	(2,914,187	)	(28,191		)	(7,232,092	)	(91,413		)	10,146,279	1		119,603					—
Issuance of stock options for intangible assets														70					70
Warrants issued with long-term debt														241					241
Exercise of warrants											8,208			1					1
Exercise of stock options											23,587			155					155
Stock-based compensation														1,615					1,615
Net loss																(24,958		)	(24,958		)
BALANCE — December 31, 2013	—		—			—		—			15,757,725	2		171,907		(107,022		)	64,887
Issuance of stock options for intangible assets														120					120
Exercise of stock options											56,283			345					345
Stock-based compensation														3,061					3,061
Net loss																(30,597		)	(30,597		)
BALANCE — December 31, 2014	—		$	—		—		$	—		15,814,008	$	2	$	175,433	$	(137,619	)	$	37,816

See notes to financial statements.

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Cellular Dynamics International, Inc.
Statements of cash flows
	Year ended
	December 31,
(Dollars in thousands)	2012			2013			2014
Cash flows from operating activities:
Net loss	$	(22,264	)	$	(24,958	)	$	(30,597	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	1,086			800			1,103
Amortization of licenses, patents and other agreements	347			522			584
Amortization of debt issuance costs and debt discount	—			50			107
Stock-based compensation	1,097			1,615			3,061
Other	6			(20		)	(1		)
Changes in operating assets and liabilities:
Accounts receivable	(1,735		)	(660		)	(973		)
Inventories	344			(1,503		)	(572		)
Prepaid expenses and other current assets	(322		)	(302		)	(89		)
Accounts payable	(87		)	614			41
Accrued liabilities	288			1,558			(250		)
Accrued interest	—			115			194
Deferred revenue	236			869			2,479
Net cash used in operating activities	(21,004		)	(21,300		)	(24,913		)

Cash flows from investing activities:
Purchases of property and equipment	(132		)	(1,817		)	(2,907		)
Proceeds from sale of fixed assets	—			—			12
Payments to acquire licenses	(2,395		)	(404		)	(140		)
Net cash used in investing activities	(2,527		)	(2,221		)	(3,035		)

Cash flows from financing activities:
Repayments of debt	(434		)	(1,055		)	(18		)
Proceeds from debt	—			12,000			—
Payments of debt issuance costs	—			(222		)	—
Proceeds from exercise of stock options	151			155			345
Proceeds from issuance of preferred stock	20,985			—			—
Proceeds from issuance of common stock, net of offering costs	—			40,772			—
Net cash provided by financing activities	20,702			51,650			327
Net increase (decrease) in cash and cash equivalents	(2,829		)	28,129			(27,621		)

Cash and cash equivalents — Beginning of period	36,729			33,900			62,029

Cash and cash equivalents — End of period	$	33,900		$	62,029		$	34,408

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Supplemental disclosure of cash flow information —
Cash paid for interest	$	36	$	545	$	949

Supplemental information on noncash activities:
Issuance of stock options for intangible assets	—		70		120
Warrants issued with long-term debt	—		261		—
Property and equipment not yet paid	—		162		149
Licenses not yet paid	—		25		15
Accrued interest converted to principal	66		—		—

See notes to financial statements.

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Cellular Dynamics International, Inc.

Notes to financial statements

December 31, 2012, 2013 and 2014


1.	Description of business

Cellular Dynamics International, Inc. (the Company), was incorporated in Wisconsin in late 2007 under the name iPS Cells, Inc. (iPS). In July 2008, the Company acquired two companies—Cellular Dynamics International, Inc. (CDI) and Stem Cell Products, Inc. (SCP)—in a common stock merger transaction. Subsequent to the acquisitions, the combined entity was renamed Cellular Dynamics International, Inc.

The Company develops and produces fully functioning human cells in industrial quantities to precise specifications. Its proprietary products include true human cells in multiple cell types (iCell products), human induced pluripotent stem cells (iPSCs) and custom iPSCs and iCell products (MyCell products). Its products provide standardized, easy-to-use, cost-effective access to the human cell, the smallest fully functioning operating unit of human biology. Customers use the Company's products, among other purposes, for drug discovery and screening; to test the safety and efficacy of their small molecule and biologic drug candidates; for stem cell banking; and in the research and development of cellular therapeutics.

On June 27, 2013, the Company’s Board of Directors authorized a 1 for 9.75 reverse split of its Series A preferred stock, Series B preferred stock and common stock which was effective July 9, 2013. These financial statements give retroactive effect to the stock split.

2. Basis of presentation and use of estimates

Basis of presentation and use of estimates – The accompanying financial statements have been presented in conformity with accounting principles generally accepted in the United States of America (GAAP). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions include primarily those required in the valuation of inventory, patents, licenses, goodwill, intangible assets, and property and equipment; the timing of revenue recognition; and the calculation of stock-based compensation. Management bases its estimates on certain assumptions, which it believes are reasonable in the circumstances, and while actual results could differ from those estimates, management does not believe that any change in those assumptions in the near term would have a significant effect on the Company’s financial position, results of operations or cash flows.

3. Significant accounting policies and supplemental financial information

Cash and cash equivalents – The Company considers all highly liquid, short-term investments with original maturities of three months or less to be cash and cash equivalents.

Accounts receivable – The Company establishes an allowance for doubtful accounts based on a customer's ability and likelihood to pay. There was no allowance at either December 31, 2013 or December 31, 2014.

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The Company does not accrue interest on past due amounts. Past due accounts are determined based on customer terms, the policy for write-offs and collection efforts is based upon individual account circumstances.

Inventories – Inventories are valued at the lower of cost or market using the weighted-average cost method. The weighted-average method examines total production volume and total labor and overhead over an appropriate historical period and establishes a weighted-average value of materials, overhead and labor to be assigned to each unit of finished goods inventory.

Inventory includes finished goods that may be used by the Company’s research and development, technical services and marketing groups. When such products are consumed internally they are expensed at their inventoried cost to the appropriate department.

Inventories at December 31, 2013 and December 31, 2014, consisted of the following:



(Dollars in thousands)	December 31, 2013		December 31, 2014
Raw materials	$	1,658	$	1,598
Work in process	547		436
Finished goods	1,679		2,422
Total	$	3,884	$	4,456

Prepaid expenses and other current assets – Prepaid expenses and other current assets consist of insurance premiums, annual maintenance contracts and other miscellaneous payments and deposits.

Property and equipment – Property and equipment are recorded at cost and are depreciated using the straight-line method over the useful life of the assets, which is three to seven years. Leasehold improvements are depreciated over the shorter of their estimated useful life or the lease term.

Property and equipment at December 31, 2013 and December 31, 2014, consisted of the following:



(Dollars in thousands)	December 31, 2013			December 31, 2014
Leasehold improvements	$	451		$	835
Production and lab equipment	4,815			7,274
Office and computer equipment	546			1,354
Construction-in-progress	932			162
	6,744			9,625
Less accumulated depreciation and amortization	(4,692		)	(5,793		)
Total	$	2,052		$	3,832

Impairment of long-lived assets – The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. No impairment losses were recorded in either 2013 or 2014.

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Goodwill – The entire balance of goodwill resulted from the 2008 acquisition of two companies and represents the purchase price in excess of identifiable assets and in-process research and development acquired in that transaction. Goodwill is not amortized. The Company has a single reporting unit and all goodwill relates to that unit.

Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Goodwill is reviewed for impairment at least annually during the fourth quarter, or more frequently if an event occurs indicating the potential for impairment. The Company conducts an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that the fair value of its reporting unit is less than its carrying amount, it then conducts a two-part test for impairment of goodwill. The qualitative factors which the Company may assess during the qualitative approach include, but are not limited to, macroeconomic conditions, industry and market considerations, the overall financial performance of the Company, and the excess of prior year estimates of fair value compared to carrying value. Based on this qualitative assessment, management concluded that as of the 2014 annual impairment test date, it was more likely than not that the fair value of the reporting unit was greater than its carrying value, and no further testing was performed.

The Company performed its annual assessment for goodwill impairment in the fourth quarters of 2013 and 2014, noting no impairment in either year. The Company has not recorded any impairment of goodwill since the amount was recorded in 2008.

Intangible assets – Intangible assets consist of licenses, patents, trade name and a noncompetition agreement with a scientific founder.

The Company expenses patent related costs as incurred because, even though the Company believes the patents and underlying processes have continuing value, the amount of future benefits to be derived therefrom is uncertain. Purchased patents and licenses are capitalized and amortized on a straight-line basis over the useful life of the patent or license, which range from one to twenty years. When patents reach a mature stage, any associated legal, defense and maintenance costs are expensed as incurred.

Accrued liabilities – Accrued expenses include accrued payroll, accrued vacation, accrued incentive compensation, accrued royalties, sales and use taxes payable and other various unpaid expenses.

Accrued liabilities at December 31, 2013 and December 31, 2014, consisted of the following:



(Dollars in thousands)	December 31, 2013		December 31, 2014
Accrued payroll, vacation and employee-related expenses	$	1,024	$	1,173
Accrued incentive compensation	1,229		612
Accrued royalties	584		721
Accrued incentives for sales staff	202		224
Other	322		420
Total	$	3,361	$	3,150

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Deferred revenue – Deferred revenue represents payments received, but not yet earned.

Deferred revenue at December 31, 2013 and December 31, 2014, consisted of the following:



(Dollars in thousands)	December 31, 2013		December 31, 2014

CIRM	$	924	$	3,142
Coriell	—		189
Lilly	280		258
Other	235		329
Total	$	1,439	$	3,918

Debt discounts – The Company recorded the fair value of the warrants issued in connection with the Credit Agreement, see Note 5, as a debt discount. The debt discount is amortized to interest expense over a period ending on the earlier of the maturity date of the notes or the date on which the notes are repaid.

Revenue recognition – The Company recognizes revenue in accordance with Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, and Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605, Revenue Recognition.

Product sales – The Company recognizes product sales revenue when the following four basic revenue criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured. Product returns and replacements historically have not been material and are not expected to be material.

In June 2012, the Company finalized a supply and distribution agreement with Life Technologies Corporation whereby they will manufacture certain cell media for the Company and serve as its sole distributor of these products to third parties. The Company is recognizing this revenue in accordance with ASC 605-45—Revenue Recognition—Principal Agent Consideration. ASC 605-45 specifies various indicators that support the reporting of revenue on a gross basis, including inventory risk, changes to the product and discretion in changing the supplier. The Company does not believe that this agreement includes these characteristics and therefore is recognizing the revenue on a net basis.

Collaborations, partnerships and other revenues—The Company recognizes revenue from collaborations, services and other arrangements when its contractual services are performed, provided collectability is reasonably assured. Collaborations may include upfront non-refundable payments, development milestone payments and research and development funding. Principal costs under these agreements include the Company’s personnel conducting research and development, supplies consumed in that process and allocated overhead.

The Company recognizes revenues from non-refundable up-front license fees received under collaboration agreements ratably over the estimated performance period of the collaboration agreement. The estimated performance period is typically based upon detailed project plans completed by the project managers, who establish in regular discussion and collaboration with a counterpart at the customer, key project activities, milestones and resources. If the estimated performance period is subsequently modified, the Company will modify the period over which the up-front license fee is recognized on a prospective basis.

The Company recognizes revenue from milestone payments received under collaboration agreements when earned, provided that the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, the Company has no further performance obligations relating to the event and collectability is reasonably assured. If these criteria are not met, the Company

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recognizes milestone payments ratably over the remaining period of its performance obligations under the collaboration agreement.

For a milestone to be considered substantive, the payment associated with its achievement must have all of the following characteristics:


•	relate solely to past performance;


•	be reasonable, relative to all of the elements and payment terms in the arrangement; and


•	be commensurate with either the Company’s effort required to achieve the milestone or the enhanced value of the delivered item(s) as a result of the milestone achievement.

As of December 31, 2014, the Company has recognized $350,000 of milestone related revenue in association with its contract with Lilly - see Multiple-element arrangements section below. In 2012, the Company sent invoices of $125,000 for milestones achieved. Of the achieved milestones, $25,000 was recognized as revenue in 2012 under the milestone method, while the remaining $100,000, which related to milestones that were not considered substantive, was deferred and accounted for ratably over the remaining period of the Company’s performance obligations under the contract. In 2013 and 2014 the Company recognized $100,000 and $225,000, respectively, of revenue under the milestone method.

In November, 2013, the Company announced that it had received a Notice of Grant Award (NGA) for $16 million from CIRM to create a human induced pluripotent stem cell biobank from 3,000 individuals. The agreement runs through October 31, 2016. Related to the CIRM grant, in December 2013, the Company announced that it had entered into a four year $6.3 million agreement with Coriell to produce distribution cell banks from the iPSCs produced for CIRM. In accounting for revenue for the agreements mentioned above, the Company will use the Proportional Performance Method whereby revenue will be recognized in proportion to the level of service, as measured by labor and materials cost, provided on a systematic and rational basis. As of December 31, 2014, the Company has received payments totaling $5.8 million from CIRM and has recognized $2.7 million as revenue, resulting in deferred revenue of $3.1 million. As of December 31, 2014, the Company has invoiced Coriell for $651,000 of which $462,000 was recognized as revenue.

Multiple-element arrangements – Arrangements with customers may include multiple deliverables, including collaborations or agreements that combine products, research and development, participation in joint steering committees and other deliverables. For the Company’s multiple-element arrangements, deliverables are separated into more than one unit of accounting when (i) the delivered element(s) have value to the customer on a stand-alone basis and (ii) delivery of the undelivered element(s) is probable and substantially in the control of the Company. Revenue is then allocated to each unit of accounting based on the relative selling price of each unit of accounting based first on Vendor Specific Objective Evidence (“VSOE”) if it exists, based next on Third Party Evidence (“TPE”) if VSOE does not exist, and, finally, if both VSOE and TPE do not exist, based on Best Estimated Selling Price (“BESP”).

VSOE—In many instances, products are sold separately in stand-alone arrangements. The Company determines VSOE based on its normal pricing and discounting practices for the specific product when sold separately.

TPE—When VSOE does not exist, the Company attempts to determine TPE based on competitor prices for similar deliverables when sold separately. Given the novel nature and early stage of the Company’s products, it is difficult to obtain the pricing of similar products with similar functionality sold by other companies on a stand-alone basis. Therefore, the Company is typically not able to determine TPE.

BESP—The objective of BESP is to determine the price at which the Company would transact a sale if the deliverable were sold on a stand-alone basis. When both VSOE and TPE do not exist, typically in the case of research and development and joint steering committee elements, the Company determines

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BESP by considering the cost of the activities required by the agreement and the rights of the Company and its customers to the resulting technology.

In June 2012, the Company finalized a $5 million multiple-element agreement with Lilly that was scheduled to run through December 2014. Under the terms of the agreement, Lilly would order a minimum number of units of iCell products each quarter through the fourth quarter of 2014 at a predetermined price for each year. If Lilly failed to order the minimum number of units, the Company could choose a commercial iCell type for the shortfall and invoice Lilly for the same. In addition, through December 31, 2014, the Company also reprogramed a specified number of donor samples provided by Lilly, and invoiced Lilly for these MyCell products according to predetermined pricing tiers. The agreement also included both periodic and milestone payments related to meetings and decisions of a joint steering committee and the custom development of two different cell types.

In December 2012, the Company finalized a one year $1.3 million multiple-element agreement with AstraZeneca UK Limited (AstraZeneca). Under the terms of the agreement, AstraZeneca agreed to order a minimum number of units of commercial iCell products, at a predetermined price, prior to December 31, 2013. During the term, the Company was to reprogram donor samples and invoice AstraZeneca for any such MyCell products. The last of the Company's obligations under this agreement were substantially completed in early 2014. In addition, AstraZeneca agreed to provide the Company with payments upon the achievement of certain milestones related to its attempts to develop, manufacture and commercially release a custom cell type.

Changes in judgments and estimates regarding application of these revenue recognition guidelines as well as changes in facts and circumstances could result in a change in the timing or amount of revenue recognized in future periods. During 2012, 2013 and 2014, the Company did not have any significant changes in estimates related to the agreements discussed above.

Research and development – Research and development costs are expensed as incurred. Research and development costs primarily consist of salaries and other personnel costs, supplies, amortization of patents and licenses, minimum royalties and royalty payments related to Collaborations, partnerships and other revenues and miscellaneous other expenses for facilities and occupancy costs. Other research and development expenses include fees paid to consultants and outside service providers and finished goods used in research and development.

Advertising costs – The Company expenses advertising costs as incurred. The Company incurred advertising costs of $110,000 in 2012, $220,000 in 2013 and $212,000 in 2014.

Stock-based compensation – All share-based payment awards made to employees, consultants (including science advisors) and directors are measured and recognized based on estimated fair values.

Net loss per share of common stock – The Company’s basic net loss per share of common stock is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share of common stock is computed by dividing the net loss by the weighted-average number of potential common shares outstanding for the period determined using the treasury-stock method. For purposes of this calculation, the following potential common shares were excluded because including them would have been anti-dilutive:

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	December 31,
	2012	2013	2014
Preferred series A	2,914,187	—	—
Preferred series B	7,232,092	—	—
Common stock warrants	8,208	28,406	28,406
Common stock options	1,617,875	2,388,394	2,759,770
	11,772,362	2,416,800	2,788,176

Comprehensive loss – Comprehensive loss is equal to net loss as presented in the accompanying statements of operations.

Segment reporting – ASC 280, “Segment Reporting” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company determined it has one operating segment. Disaggregation of the Company’s operating results is impracticable, because the Company’s research and development activities and its assets overlap, and management reviews its business as a single operating segment. Thus, discrete financial information is not available by more than one operating segment.

Product information – The following table provides Product sales revenue by product:



	Year ended
	December 31,
(Dollars in thousands)	2012	2013	2014
iCell Cardiomyocytes	$2,610	$4,787	$3,175
iCell Neurons	2,256	2,428	3,317
MyCell	—	222	857
Other	312	561	728
Total	$5,178	$7,998	$8,077

Collaborations, partnerships and other revenue information - The following table provides Collaborations, partnerships and other revenues by significant agreement or type:



	Year ended
	December 31,
(Dollars in thousands)	2012		2013		2014
CIRM/Coriell	$	—	$	182	$	3,008
MCOW	440		533		1,144
Collaborative cell development	728		1,857		1,287
iCell Hepatocytes	127		808		1,796
Prototype cells	—		381		777
Other	109		125		603
Total	$	1,404	$	3,886	$	8,615

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Geographical information – The following table provides percentage of total revenues by region, based on shipping locations or, in the case of CIRM, the customer location:



	Year ended
	December 31,
	2012		2013		2014
United States of America	66	%	56	%	67	%
Europe	24	%	38	%	28	%
Japan	5	%	5	%	4	%
Other	5	%	1	%	1	%
Total	100	%	100	%	100	%

In 2012 outside of the United States of America, no country accounted for over 10% of revenues. In 2013, sales to customers in the United Kingdom accounted for 12% of total revenue, while sales to customers in Switzerland accounted for 11% of total revenue. In 2014, sales to customers in Switzerland accounted for 15% of total revenue.

Major customers – During 2012, 2013 and 2014, the Company had several large biopharmaceutical customers that individually accounted for greater than 10% of its total revenue in one or more of the periods. Lilly accounted for 18% and 18% of total revenue for both 2012 and 2013. GlaxoSmithKline plc accounted for 11% of total revenue in 2012. AstraZeneca accounted for 15% of total revenue in 2013. Hoffman-La Roche Inc. (Roche) and CIRM accounted for 10% and 15%, respectively, of total revenue in 2014.

As of December 31, 2013, receivables from Lilly, AstraZeneca and Roche accounted for 21%, 17% and 11%, respectively, of total accounts receivable. As of December 31, 2014, receivables from Lilly, Roche and the Medical College of Wisconsin (MCOW) accounted for 16%, 15% and 13%, respectively, of total accounts receivable.

Concentration of credit risk and other risks and uncertainties – As of December 31, 2014 the Company had $24.6 million invested in a 100% U.S. Treasury Securities Money Market Fund and $1.9 million in a U.S. Government Money Market Fund. An investment in a money market fund is not insured or guaranteed. The Company's remaining cash was deposited with one major financial institution. These deposits exceed federally insured limits. The Company has not experienced any losses in such accounts and believes that the Company is not exposed to any significant risk on these balances.

The Company is currently not profitable and no assurance can be provided that it will ever be profitable. The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, dependence on key personnel, dependence on key suppliers, protection of proprietary technology, the validity of and continued access to its owned and licensed intellectual property, compliance with government regulations, uncertainty of widespread market acceptance of products and the need to obtain additional financing. The Company's products include materials subject to rapid technological change. Certain materials used in manufacturing have relatively few alternative sources of supply and establishing additional or replacement suppliers for such materials cannot be accomplished quickly. While the Company has ongoing programs to minimize the adverse effect of such uncertainty, and the Company considers technological change in estimating allowances, uncertainty continues to exist.

The Company believes its cash balance is sufficient to meet its needs in 2015. However, it may need to raise additional capital to expand the commercialization of its products, fund its operations and further its research and development activities.

Fair value of financial instruments – The carrying amounts of financial instruments, which include cash and cash equivalents, accounts receivable and accounts payable, approximate their respective fair values due to the relatively short-term nature of these instruments. The Company believes the carrying value of long-term debt as of December 31, 2014 is also approximately equal to its fair value.

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ASC Topic 820, Fair Value Measurement, establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include Level 1, defined as observable inputs, such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions. The Company uses the market approach and Level 1 inputs to value its cash equivalents.

Recent accounting pronouncements – In August 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern "ASU No. 2014-15", which is included in Accounting Standards Codification 205, Presentation of Financial Statements. ASU No. 2014-15 requires management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. ASU No. 2014-15 will be effective for the Company starting in the first quarter of fiscal year 2017. Early application is permitted. The Company is currently evaluating the impact the adoption of ASU No. 2014-15 will have on its financial statements.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers "ASU No. 2014-09", which supersedes nearly all accounting standards for revenue recognition. ASU No. 2014-09 requires that an entity recognize revenue upon transferring promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 will be effective for the Company starting in the first quarter of fiscal year 2017. Early application is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact the adoption of ASU No. 2014-09 will have on its financial statements.


4.	Intangible assets

Intangible assets and accumulated amortization balances at December 31, 2013 and December 31, 2014, are as follows:



(dollars in thousands)	December 31, 2013			December 31, 2014
Trade name	$	13		$	13
Licenses and patents	4,578			4,722
Non-competition agreements	641			761
	5,232			5,496
Less accumulated amortization:
Trade name	(13		)	(13		)
Licenses and patents	(746		)	(1,152		)
Non-competition agreements	(351		)	(518		)
	(1,110		)	(1,683		)
Total, net	$	4,122		$	3,813

As of December 31, 2013 and 2014, the trade name was fully amortized. The remaining weighted-average useful lives of the other intangible assets as of December 31, 2014 are as follows:



Licenses and patents	11.8 years
Non-competition agreements	5.2 years

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The future amortization of intangible assets recorded as of December 31, 2014 is as follows:



(Dollars in thousands)
Years ending December 31,	Amount
2015	$	564
2016	428
2017	385
2018	333
2019	330
Thereafter	1,773
	$	3,813

Amortization expense was $347,000, $522,000 and $584,000 for 2012, 2013 and 2014, respectively.

A portion of the July 30, 2013 stock option grant to a scientific founder of the Company was issued in exchange for extending his non-competition agreement from December of 2015 to July of 2016. As of the grant date, the Company increased the value of the non-competition agreement by $70,000 and began amortizing that amount through July of 2016. A portion of a March 2014 stock option grant made to the same scientific founder of the Company was issued in exchange for extending his non-competition agreement from July 2016 to July 2017. As of the grant date, the Company increased the value of the non-competition agreement by $120,000 and began amortizing that amount through July 2017.


5.	Long-term debt

Long-term debt at December 31, 2013 and 2014, consists of the following:



(Dollars in thousands)	December 31, 2013			December 31, 2014
Term loan credit agreement, net of debt discount	$	11,879		$	12,131
License agreements	18			—
	11,897			12,131
Less current portion	(18		)	(4,541		)
Total	$	11,879		$	7,590

On June 27, 2013, the Company entered into a term loan credit agreement (the “Credit Agreement”) with Sixth Floor Investors LP ("Sixth Floor"), as administrative agent, and the other lenders party thereto (the “Lenders”). Under the Credit Agreement, on June 28, 2013, the Company borrowed $12.0 million.

The term of the Credit Agreement is four years. Outstanding balances bear interest at 6.5% per annum plus the greater of 2% or one-month LIBOR. Interest payments are made monthly in arrears. Principal will be payable in 30 monthly installments, beginning in February 2015. The Credit Agreement provides for an exit fee of 5.0% of the total amount borrowed under the facility, due upon final repayment; a 0.5% facility fee, which was paid upon execution of the Credit Agreement; a quarterly administrative fee of $2,500; and the reimbursement of certain fees and expenses of the Lenders. In the event of prepayment, other than regularly scheduled installments and mandatory prepayments, a premium of 1.0% to 2.0% of the then-outstanding balance, dependent upon the timing of the prepayment, would be incurred.

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The Credit Agreement does not allow the Company to incur or permit to exist additional debt, except for liabilities arising with respect to customary indemnification contracts entered into in the ordinary course of business. The Company used a portion of the proceeds of the loan to repay the remaining balances due to the Wisconsin Economic Development Corporation under two promissory notes.

The Credit Agreement contains customary affirmative and negative covenants and events of default, but does not include financial covenants. The Credit Agreement restricts the Company’s ability to, among other things, sell certain assets, engage in a merger or change in control transaction, incur debt, pay cash dividends, enter into transactions with affiliates and make investments. The Credit Agreement also contains events of default that are customary for credit facilities of this type, including payment defaults, covenant defaults, defaults related to insolvency and events of default relating to liens, judgments, material misrepresentations and the occurrence of certain material adverse events.

In connection with the loan, the Lenders were issued detachable warrants to purchase shares of our Series B preferred stock. The warrants have since been converted to warrants to purchase shares of common stock, see Note 6. A total of 28,406 warrants were issued in respect of the loan, each with an exercise price per share equal to the initial public offering ("IPO") price per share in the Company's initial public offering or $12.68 if an offering was not completed before August 1, 2013. As of the date of our IPO, the strike price on these warrants was established at the IPO price per share of $12.00.

The warrants have a 10 year term. The warrants contain no mandatory redemption features and no repurchase obligations requiring the transferring of assets and, once issued, will relate to a fixed number of shares, except for customary anti-dilution adjustments.

At the time of issuance, the relative fair value of the warrants was estimated at $261,000 using the Black- Scholes method and recorded as a debt discount against the notes. The warrants had a strike price that would have been adjusted if the Company had not completed its initial public offering prior to August 1, 2013. Due to this initial variability in exercise price, the warrants were accounted for as a liability when issued. As of the IPO date, when the exercise price was no longer variable, the Company revalued the warrants and reclassified the remaining value to equity. The revaluation resulted in a $20,000 gain that was recorded to Other income in the statements of operations.


6.	Shareholders' equity

On July 30, 2013, the Company closed its IPO of 3,846,000 shares of its common stock. The public offering price of the shares sold in the offering was $12.00 per share. The total gross proceeds from the offering to the Company were $46.2 million. After deducting underwriting discounts and commissions and offering expenses payable by the Company, the aggregate net proceeds received by the Company totaled approximately $40.8 million.

Immediately prior to the consummation of the IPO, all outstanding shares of Series A and Series B preferred stock were converted into shares of common stock on a one-for-one basis, and warrants to purchase Series B preferred stock were converted into warrants to purchase shares of common stock on a one-for-one basis. In addition, in connection with the IPO, warrants to purchase 8,208 shares of common stock were exercised at a strike price of $0.10 per share.

In connection with the IPO, the Company amended and restated its articles of incorporation to authorize 100,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of December 31, 2014, no shares of preferred stock have been issued.

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7. Stock options and restricted common stock

The Company's board of directors adopted and its shareholders approved the 2013 Equity Incentive Plan (the “2013 Plan”), under which the Company approved option grants to its directors and executive officers. The 2013 Plan and these option grants became effective on the closing of the IPO. As of that same date, the Company discontinued the granting of options under the 2008 Equity Incentive Plan (the "2008 Plan").

The options are contingent on the participants' continued employment or other service and are subject to forfeiture if employment terminates for any reason. To date, the Company has granted both incentive stock options and non-qualified stock options. The 2008 Plan and 2013 Plan also provide certain employees accelerated vesting in the event of changes in control.

The Company utilizes the Black-Scholes option-pricing model to determine the fair value of option grants. When the option grants have the characteristics of a "plain-vanilla" grant the expected term is based on the simplified method as prescribed by Staff Accounting Bulletin ("SAB") No. 107 and SAB No. 110. In the event that the options do not have such characteristics the Company bases the expected term on items such as expiration dates and other factors unique to the grantee. The risk-free interest rate assumptions are based on the U.S. Treasury bond rates appropriate for the expected term in effect at the time of grant. The expected volatility is based on calculated enterprise value volatilities for publicly traded companies in the same industry and general stage of development. The forfeiture rates are based on historical experience for similar classes of employees. The dividend yield is based on expected dividends at the time of grant. Prior to the Company's IPO, the determinations of fair values were based on, among other things, valuation analyses, review of historical financial results, business milestones, financial forecasts and business outlook as of the grant dates. Total enterprise value ranges and the total equity value ranges were estimated utilizing both the income approach and the market approach guidelines. Upon completion of the IPO the common stock was valued by reference to the Company's publicly traded price.

Assumptions used to value the most recent option grants were as follows:



	2012		2013		2014
Estimated expected term	6 years		6 to 8 years		1 to 8 years
Risk-free interest rate	0.98	%	1.70% to 2.22%		0.18% to 2.38%
Expected volatility assumption	66	%	64% to 68%		43% to 66%
Forfeiture rate	0% to 7%		0% to 7%		0% to 6%
Dividend yield assumption	—	%	—	%	—	%

Option awards to consultants, advisors or other independent contractors have been granted with an exercise price equal to the market price of the Company’s stock at the date of the grant, with 10-year contractual terms and vesting dependent upon whether the individual continues to provide services to the Company. The value of stock options to these parties is measured at the then-current market value as of financial reporting dates and compensation cost is recognized for the net change in the fair value of the options for the reporting period, until vesting terms are met. In determining the fair value of options granted to consultants, advisors and other independent contractors, the Company uses the Black-Scholes valuation model in a manner consistent with its use in determining the fair value of options granted to employees and directors. The options that vest are adjusted, for the last time, to the then-current fair value and compensation cost is recognized accordingly.

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The number of shares available for grant under the Company's Equity Incentive Plans, as amended (the "Plans") were as follows:



	2008 Plan		2013 Plan		Total
Available for grant — January 1, 2012	243,665		—		243,665
Plan amendment	262,256		—		262,256
Grants	(99,187	)	—		(99,187	)
Forfeitures	6,954		—		6,954
Available for grant — December 31, 2012	413,688		—		413,688
Plan adjustments and amendments	(421,371	)	831,659		410,288
Grants	—		(812,116	)	(812,116	)
Forfeitures	7,683		10,327		18,010
Available for grant — December 31, 2013	—		29,870		29,870
Plan adjustments and amendments	(84,494	)	630,309		545,815
Grants	—		(599,311	)	(599,311	)
Forfeitures	84,494		87,158		171,652
Available for grant — December 31, 2014	—		148,026		148,026

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A summary of option activity under the Plans as of December 31, 2014 and changes during the period then ended were as follows:



	Options		Weighted- average exercise price		Weighted- average remaining contractual term
Outstanding — January 1, 2012	1,545,938		$	8.09	8.42
Granted	99,187		12.68
Exercised	(20,296	)	7.41
Forfeited	(6,954	)	12.19
Outstanding — December 31, 2012	1,617,875		8.39		7.63
Granted	812,116		12.31
Exercised	(23,587	)	6.55
Forfeited	(18,010	)	11.34
Outstanding — December 31, 2013	2,388,394		9.70		7.63
Granted	599,311		14.54
Exercised	(56,283	)	6.14
Forfeited	(171,652	)	11.33
Outstanding — December 31, 2014	2,759,770		$	10.72	7.14

Vested as of December 31, 2014	1,641,991		$	8.86	6.14

Vested or expected to vest as of December 31, 2014	2,746,571		$	10.71	7.13

Exercisable as of December 31, 2014	1,779,870		$	9.16	6.23

Under the terms of the 2008 Plan, option grants are immediately exercisable. If a participant exercises unvested options, the shares received from the exercise are considered restricted shares and the participant's rights thereto remain subject to the original vesting schedule of the options. At December, 31, 2012, 2013 and 2014 there were no such restricted shares. Under the terms of the 2013 Plan, options are not exercisable until vested.

The weighted-average grant-date fair value of stock options granted during 2012, 2013 and 2014 was $4.10, $8.31 and $9.65 per share, respectively. The aggregate intrinsic value of outstanding stock options was $70,000 as of December 31, 2014. At December 31, 2014 total compensation cost not yet recognized that related to nonvested awards was $7.1 million, which was expected to be recognized over a weighted-average period of 2.77 years. That amount excludes options issued in exchange for and accounted as intangible assets. See Note 4.

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8. Income Taxes

The Company recognizes deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. Deferred tax balances primarily relate to net operating losses. The Company also established a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization of deferred tax assets, including those related to the U.S. net operating loss carryforwards, are dependent upon future earnings, if any, of which the timing and amount are uncertain.

As of December 31, 2014, the Company has net operating loss carryforwards for tax purposes of approximately $130.0 million for federal and $97.0 million for state. These federal net operating losses begin to expire in 2024 and the state net operating losses begin to expire in 2019. The carryforwards are subject to the Internal Revenue Code Section 382, which places a limitation on the amount of taxable income that can be offset by net operating losses after a change in ownership. In addition, the Company has federal tax credit carryforwards of $3.3 million and state tax credits of $4.5 million. The credits begin to expire in 2025 and 2016, respectively.

The components of the net deferred tax asset with the approximate income tax effect of each type of carryforward, credit and temporary differences are as follows.



(Dollars in thousands)	December 31, 2013			December 31, 2014
Deferred tax assets
Operating loss carryforwards	$	41,141		$	50,387
Tax credit carryforwards	5,529			6,290
Other temporary differences	2,327			3,599
Tax assets before valuation allowance	48,997			60,276
Less: valuation allowance	(48,997		)	(60,276		)
Net deferred taxes	$	—		$	—

A valuation allowance to reduce the deferred tax assets is reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has incurred significant losses since its inception and due to the uncertainty of the amount and timing of future taxable income, management has determined that a $49.0 million and $60.3 million valuation allowance at December 31, 2013 and 2014, respectively, is necessary to reduce the tax assets to the amount that is more likely than not to be realized.

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The effective tax rate differs from the statutory tax rate due to the following:



	Year ended December 31,
	2012		2013		2014
U.S. Federal statutory rate	35.0	%	35.0	%	35.0	%
State taxes	5.0		5.0		1.3
Research credits	—		13.3		2.5
Stock-based compensation	(0.5	)	(0.5	)	(0.1	)
Other	(0.2	)	(0.1	)	(0.2	)
Valuation allowance	(39.3	)	(52.7	)	(38.5	)
	—	%	—	%	—	%

The Company has evaluated uncertain tax positions as of December 31, 2013 and 2014 and determined a reserve for such positions and any associated interest and penalties is not necessary.

All of the Company's tax years are subject to examination by the U.S. and state tax authorities due to the carryforward of unutilized net operating losses.

The Company does not expect there will be a change in the unrecognized tax benefits within the 12 months following December 31, 2014.

9. 401(k) savings plan

The Company has established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code (the plan). The plan covers substantially all employees. Under the plan, employees may make elective salary deferrals. In 2012, 2013 and 2014 the Company matched $48,000, $53,000 and $63,000, respectively, of employee contributions.

10. Commitments and contingencies

Operating leases – The Company leases corporate office space, office equipment and production facilities under operating leases. Total rent payments were $577,000 for 2012, $823,000 for 2013 and $949,000 for 2014.

Future minimum lease payments at December 31, 2014, under operating leases with initial or remaining terms in excess of one year were as follows:



(Dollars in thousands)
Years ending December 31,
2015	$	942
2016	932
2017	841
2018	512
2019	16
Thereafter	—
	$	3,243

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Contingencies – From time to time, the Company may be subject to various legal proceedings and claims arising in the ordinary course of business. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No such amounts were accrued at December 31, 2013 or December 31, 2014.


11.	Related-party transactions

The Company has consulting agreements with scientific advisors who are also shareholders. The total expense recorded to general and administrative expenses for these agreements was $302,000 for 2012, 2013 and 2014.

In July 2013 and in March 2014, the Company granted stock options in exchange for future services and amendments to consulting and non-competition agreements with a scientific founder of the Company who also serves on the board of directors. See Note 4 for additional information.

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Item 9. Changes in and disagreements with accountants on accounting and financial disclosures

None.

Item 9A. Controls and procedures

Evaluation of disclosure controls and procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in internal control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Annual Report on Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management's report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a- 15(f) under the Securities Exchange Act of 1934). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Our management does not expect that the Company's internal controls will prevent or detect all errors or fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues have been detected. Also, any evaluation of effectiveness in future periods are subject to the risk that controls may become inadequate because of changes in business conditions

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organization of the Treadway Commission (2013 framework). Based on such evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2014. Our auditors will not be required to formally opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an "emerging growth company" as defined in the JOBS Act as we have taken advantage of the exemptions available to us through the JOBS Act.

Item 9B. Other information

None.

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Part III

Item 10. Directors, executive officers and corporate governance

The information required by this Item concerning our directors, audit committee, and audit committee financial experts, code of ethics and compliance with Section 16(a) of the Exchange Act is incorporated by reference to information under the captions “Proposal One: Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for our 2015 annual meeting of shareholders to be held on May 7, 2015 (the "Proxy Statement"). It is anticipated that our Proxy Statement will be filed with the Securities and Exchange Commission on or about March 27, 2015.

We have adopted a code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller. We have posted the code of business conduct and ethics on our website at http://investors.cellulardynamics.com/governance.cfm.

Our code of business conduct and ethics is available in print for any shareholder who requests it by writing to Ms. Anna M. Geyso, Secretary, Cellular Dynamics International Inc., 525 Science Drive, Madison, Wisconsin, 53711. We are not including the information available on or through our website as part of, or incorporating such information by reference into, this Annual Report on Form 10-K.

Pursuant to General Instruction G(3), certain information with respect to our executive officers is set forth under the caption “Executive Officers of the Registrant" in Item 1 of this Annual Report on Form 10-K.

Item 11. Executive compensation

Information required by this Item is incorporated by reference to the sections of the Proxy Statement entitled "Executive Compensation," “Director Compensation,” and “Compensation Committee Interlocks and Insider Participation.”

Item 12. Security ownership of certain beneficial owners and management and related stockholder matters

Information required by this Item is incorporated by reference to the sections of the Proxy Statement entitled “Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management.”

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Securities authorized for issuance under equity compensation plans

The following table sets forth certain information as of December 31, 2014 regarding shares outstanding and available for issuance under our existing equity compensation plans, each listed below:


•	2008 Equity Incentive Plan; and


•	2013 Equity Incentive Plan.



Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)	Weighted- average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) (2) (3)
Equity compensation plans approved by security holders		2,759,770	$10.72	148,026
Equity compensation plans not approved by security holders		—	—	—
Total		2,759,770	$10.72	148,026

(1)	Prior to our initial public offering, we granted awards under our 2008 Equity Incentive Plan. Following our initial public offering, we granted awards under our 2013 Equity Incentive Plan.
(2)	No further equity awards are authorized under our 2008 Equity Incentive Plan.
(3)	In accordance with the terms of our 2013 Equity Incentive Plan, the number of shares authorized for issuance under the plan increased by 632,560 shares on January 1, 2015.

Item 13. Certain relationships and related transactions, and director independence

Information required by this Item is incorporated by reference to the sections of the Proxy Statement entitled “Transactions and Relationships-Related Party Transactions” and "Proposal One: Election of Directors."

Item 14. Principal accountant fees and services

Information required by this Item is incorporated by reference to the section of the Proxy Statement entitled “Audit Committee Report - Auditors' Fees and Services.”

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Part IV

Item 15. Exhibits and financial statement schedules

(a) The following documents are filed as part of this report:

1. Financial Statements

See Index to Financial Statements at Item 8 herein.

2. Financial Statement Schedules

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes herein.

3. Exhibits

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Exhibit Number	Description of Exhibit	Incorporated by reference from Form	Incorporated by Reference from Exhibit Number	Date Filed
3.1	Amended and Restated Articles of Incorporation of Registrant.	10-Q	3.1	August 29, 2013
3.2	Amended and Restated Bylaws of Registrant.	10-Q	3.2	August 29, 2013
4.1	Form of Registrant’s common stock certificate.	S-1	4.1	June 3, 2013
4.2	Fourth Amended and Restated Registration Rights Agreement, dated November 1, 2012, by and among Registrant and certain security holders of Registrant.	S-1	4.2	June 3, 2013
4.3	First Amendment to Fourth Amended and Restated Registration Rights Agreement by and among Registrant and certain security holders of Registrant.	10-Q	4.3	November 12, 2013
4.4	Form of Articles of Amendment Regarding Designation and Authorization of Series Preferred Stock.	S-3	4.5	September 2, 2014
4.5	Form of Preferred Stock Certificate.	S-3	4.6	September 2, 2014
4.6	Form of Tranche 1 warrant to purchase shares of Series B preferred stock (included in Exhibit 10.55).	S-1	4.6	June 3, 2013
4.7	Form of Note (included in Exhibit 10.55).	S-1	4.7	June 3, 2013
4.8	Form of Warrant.	S-3	4.7	September 2, 2014
4.9	Form of Senior Indenture.	S-3	4.8	September 2, 2014
4.10	Form of Subordinated Indenture.	S-3	4.9	September 2, 2014
5.1	Opinion of Godfrey & Kahn, S.C.	S-3	5.1	September 2, 2014
5.2	Opinion of Godfrey & Kahn, S.C. regarding legality of the Common Stock being registered	S-8	5.1	January 14, 2015
10.1#	Form of Executive Officer Stock Option Agreements (2008 Equity Incentive Plan).	S-1	10.1	June 3, 2013
10.2#	Form of Director Stock Option Agreements (2008 Equity Incentive Plan).	S-1	10.2	June 3, 2013
10.3	Form of Consultant Stock Option Agreements (2008 Equity Incentive Plan).	S-1	10.3	June 3, 2013
10.4#	Form of Employee Stock Option Agreements (2008 Equity Incentive Plan).	S-1	10.4	June 3, 2013
10.5#	2008 Equity Incentive Plan.	S-1	10.5	June 3, 2013
10.6#	2013 Equity Incentive Plan.	S-1	10.6	June 3, 2013
10.7#	Consulting Agreement dated December 19, 2008 by and between Registrant and James A. Thomson.	S-1	10.7	June 3, 2013
10.8#	Consulting Agreement dated December 19, 2008 by and between Registrant and Dr. Craig T. January.	S-1	10.8	June 3, 2013
10.9#	Amendment to Letter Agreement and Consulting Agreement between Registrant and James A. Thomson dated March 4, 2014.	10-Q	10.48.1	May 5, 2014
10.10	Amendment dated May 30, 2014 to the Master Laboratory Services Agreement dated November 22, 2010 by and between Cellular Dynamics International, Inc. and Eli Lilly and Company.	8-K	10.1	June 4, 2014
10.11#	Employment Agreement dated December 12, 2008 by and between Registrant and Christopher Parker.	S-1	10.11	June 3, 2013
10.12#	Employment Agreement dated December 19, 2008 by and between Registrant and Dr. Emile F. Nuwaysir.	S-1	10.12	June 3, 2013
10.13	Form of Indemnification Agreement by and between Registrant and each of its directors.	S-1	10.13	June 3, 2013
10.14#	Employment Agreement dated as of July 10, 2014 between Cellular Dynamics International, Inc. and Timothy D. Daley.	8-K	10.1	July 15, 2014

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10.15#	Stock Option Agreement dated as of July 10, 2014 between Cellular Dynamics International, Inc. and Timothy D. Daley.	8-K	10.2	July 15, 2014
10.16	Lease Agreement dated April 25, 2006 by and between Registrant and University Research Park, Incorporated.	S-1	10.16	June 3, 2013
10.17	Amendment to Lease dated April 25, 2006 by and between Registrant and University Research Park, Incorporated.	S-1	10.17	June 3, 2013
10.18	Amendment to Lease dated August 1, 2006 by and between Registrant and University Research Park, Incorporated.	S-1	10.18	June 3, 2013
10.19	Amendment to Lease dated June 1, 2007 by and between Registrant and University Research Park, Incorporated.	S-1	10.19	June 3, 2013
10.20	Amendment to Lease dated June 1, 2008 by and between Registrant and University Research Park, Incorporated.	S-1	10.20	June 3, 2013
10.21	Amendment to Lease dated May 15, 2010 by and between Registrant and University Research Park, Incorporated.	S-1	10.21	June 3, 2013
10.22	License and Services Agreement dated September 27, 2012 by and between Registrant and The Buck Institute for Research on Aging.	S-1	10.22	June 3, 2013
10.23†	Supply Agreement effective as of May 18, 2010 by and between Registrant and SmithKline Beecham d/b/a GlaxoSmithKline.	S-1	10.23	June 3, 2013
10.24†	Supply Agreement effective as of July 6, 2010 by and between Registrant and Hoffmann-La Roche Inc.	S-1	10.24	June 3, 2013
10.25(a)	First Amendment to Supply Agreement dated June 13, 2012 by and between Registrant and Hoffmann-La Roche Inc.	S-1	10.25(a)	June 3, 2013
10.25(b)†	Second Amendment to Supply Agreement dated April 24, 2013 by and between Registrant and Hoffmann-La Roche Inc.	S-1	10.25(b)	June 3, 2013
10.26†	Distributor Agreement dated April 29, 2011 by and between Registrant and iPS Academia Japan, Inc.	S-1	10.26	June 3, 2013
10.27†	First Amendment to Distributor Agreement dated April 29, 2011 by and between Registrant and iPS Academia Japan, Inc.	S-1	10.27	June 3, 2013
10.28#	Employment Agreement dated as of January 9, 2015 between Cellular Dynamics International, Inc. and Timothy D. Daley.	8-K	10.1.1	January 13, 2015
10.29	Assignment from iPS Academia to iPS Portal.	Filed herewith
10.30	Reserved.
10.31#	Nonstatutory Stock Option Agreement dated October 18, 2010 by and between Registrant and James Thomson.	S-1	10.31	June 3, 2013
10.32#	Letter Agreement dated October 18, 2010 by and between Registrant and James A. Thomson.	S-1	10.32	June 3, 2013
10.33#	Employment Agreement dated October 18, 2010 by and between Registrant and James A. Thomson.	S-1	10.33	June 3, 2013
10.34#	Patent Assignment dated October 18, 2010 by and between Registrant and James A. Thomson.	S-1	10.34	June 3, 2013
10.35#	Nonstatutory Stock Option Agreement dated December 20, 2011 by and between Registrant and James Thomson.	S-1	10.35	June 3, 2013
10.36#	Amendment to Letter Agreement dated December 20, 2011 by and between Registrant and James A. Thomson.	S-1	10.36	June 3, 2013
10.37†	Supply and Distribution Agreement dated June 12, 2012 by and between Registrant and Life Technologies Corporation.	S-1	10.37	June 3, 2013
10.38†	First Amendment to Supply and Distribution Agreement dated February 27, 2013 by and between Registrant and Life Technologies Corporation.	S-1	10.38	June 3, 2013
10.39†	Non-Exclusive License Agreement dated May 6, 2010 by and between Registrant and iPS Academia Japan, Inc.	S-1	10.39	June 3, 2013
10.40†	Exclusive License Agreement dated March 23, 2009 by and between Registrant and Indiana University Research and Technology Corporation.	S-1	10.40	June 3, 2013
10.41†	License Agreement dated June 6, 2012 by and between Registrant and Wisconsin Alumni Research Foundation.	S-1	10.41	June 3, 2013

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10.42†	Master Laboratory Services Agreement dated November 22, 2010 by and between Registrant and Eli Lilly and Company.	S-1	10.42	June 3, 2013
10.43†	Addendum to Master Laboratory Services Agreement dated June 21, 2012 by and between Registrant and Eli Lilly and Company.	S-1	10.43	June 3, 2013
10.44†	Hepatocyte Collaborative Research Agreement dated May 16, 2011 by and between Registrant and Hoffmann-La Roche Inc.	S-1	10.44	June 3, 2013
10.45†	Centre of Excellence Agreement dated December 3, 2012 by and between Registrant and AstraZeneca UK Limited.	S-1	10.45	June 3, 2013
10.46#	Annual Incentive Cash Compensation Plan.	S-1	10.46	June 3, 2013
10.47#	Non-employee Director Compensation Policy.	S-1	10.47	June 3, 2013
10.48#	Form of Amendment to Letter Agreement and Consulting Agreement between Registrant and James A. Thomson dated May 7, 2013.	S-1	10.48	June 3, 2013
10.49.1#	Employment Agreement by and between Registrant and Robert J. Palay.	10-Q	10.49.1	November 12, 2013
10.49.2#	Employment Agreement by and between Registrant and Thomas M. Palay.	10-Q	10.49.2	November 12, 2013
10.50#	Form of Stock Option Agreement between Registrant and Chief Executive Officer and Chairman and President and Vice Chairman (2013 Equity Incentive Plan).	S-1	10.50	June 3, 2013
10.51#	Form of Executive Officer Stock Option Agreement (2013 Equity Incentive Plan).	S-1	10.51	June 3, 2013
10.52#	Form of Director Stock Option Agreement (2013 Equity Incentive Plan).	S-1	10.52	June 3, 2013
10.53#	Form of Stock Option Agreement between Registrant and James A. Thomson (2013 Equity Incentive Plan).	S-1	10.53	June 3, 2013
10.54	Amendment to Lease dated May 6, 2013 by and between Registrant and University Research Park, Incorporated.	S-1	10.54	June 3, 2013
10.55	Credit Agreement dated as of June 27, 2013 among Cellular Dynamics International, Inc., as the Company, the various lenders party thereto, as Lenders, and Sixth Floor Investors LP, as the Administrative Agent.	S-1/A	10.55	July 1, 2013
10.56	Reserved.
10.57†	iPSC Derivation Agreement dated as of October 25, 2013 by and between the California Institute for Regenerative Medicine and Cellular Dynamics International, Inc.	8-K	10.1	November 4, 2013
10.58†	Notice Of Grant Award dated as of October 25, 2013 by and between the California Institute for Regenerative Medicine and Cellular Dynamics International, Inc.	8-K	10.2	November 4, 2013
10.59††	Services Agreement dated as of December 1, 2013 by and between Cellular Dynamics International, Inc. and Coriell Institute for Medical Research	10-K/A	1.59	March 11, 2014
10.60	Reserved.
23.1	Consent of Deloitte & Touche LLP	Filed herewith
24.1	Power of Attorney	Filed herewith
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Furnished herewith
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Furnished herewith

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101**	The following materials from Cellular Dynamics International, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Balance Sheets, (ii) the Statements of operations, (iii) the Statements of shareholders' equity, (iv) the Statements of cash flows, and (v) Notes to financial statements, tagged as blocks of text.	Filed herewith

#	Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
*	The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates them by reference.
**	Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Cellular Dynamics International, Inc.

By:/s/ Robert J. Palay

Robert J. Palay,

Chairman of Board and Chief Executive Officer

Date: March 5, 2015

100

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Name	Title	Date

/s/ Robert J. Palay	Chairman of the Board, Chief Executive Officer (Principal Executive Officer), and Director	March 5, 2015
Robert J. Palay		March 5, 2015

/s/ Timothy D. Daley	Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)	March 5, 2015
Timothy D. Daley		March 5, 2015

*	Director	March 5, 2015
Thomas M. Palay	Director	March 5, 2015

*	Director	March 5, 2015
Kenneth C. Hunt	Director	March 5, 2015

*	Director	March 5, 2015
Craig T. January	Director	March 5, 2015

*	Director	March 5, 2015
Stanley D. Rose	Director	March 5, 2015

*	Director	March 5, 2015
Sheli Z. Rosenberg	Director	March 5, 2015

*	Director	March 5, 2015
James A. Thomson	Director	March 5, 2015

*	Director	March 5, 2015
Michael J. Van Handel	Director	March 5, 2015

*	Director	March 5, 2015
Susan A. Willetts	Director	March 5, 2015

* - By: /s/ Timothy D. Daley

Timothy D. Daley

Attorney-in-fact (1)

Date: March 5, 2015

(1) - Pursuant to authority granted by powers of attorney, copies of which are filed herewith.

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Exhibit Index



Exhibit Number	Description of Exhibit	Incorporated by reference from Form	Incorporated by Reference from Exhibit Number	Date Filed
3.1	Amended and Restated Articles of Incorporation of Registrant.	10-Q	3.1	August 29, 2013
3.2	Amended and Restated Bylaws of Registrant.	10-Q	3.2	August 29, 2013
4.1	Form of Registrant’s common stock certificate.	S-1	4.1	June 3, 2013
4.2	Fourth Amended and Restated Registration Rights Agreement, dated November 1, 2012, by and among Registrant and certain security holders of Registrant.	S-1	4.2	June 3, 2013
4.3	First Amendment to Fourth Amended and Restated Registration Rights Agreement by and among Registrant and certain security holders of Registrant.	10-Q	4.3	November 12, 2013
4.4	Form of Articles of Amendment Regarding Designation and Authorization of Series Preferred Stock.	S-3	4.5	September 2, 2014
4.5	Form of Preferred Stock Certificate.	S-3	4.6	September 2, 2014
4.6	Form of Tranche 1 warrant to purchase shares of Series B preferred stock (included in Exhibit 10.55).	S-1	4.6	June 3, 2013
4.7	Form of Note (included in Exhibit 10.55).	S-1	4.7	June 3, 2013
4.8	Form of Warrant.	S-3	4.7	September 2, 2014
4.9	Form of Senior Indenture.	S-3	4.8	September 2, 2014
4.10	Form of Subordinated Indenture.	S-3	4.9	September 2, 2014
5.1	Opinion of Godfrey & Kahn, S.C.	S-3	5.1	September 2, 2014
5.2	Opinion of Godfrey & Kahn, S.C. regarding legality of the Common Stock being registered	S-8	5.1	January 14, 2015
10.1#	Form of Executive Officer Stock Option Agreements (2008 Equity Incentive Plan).	S-1	10.1	June 3, 2013
10.2#	Form of Director Stock Option Agreements (2008 Equity Incentive Plan).	S-1	10.2	June 3, 2013
10.3	Form of Consultant Stock Option Agreements (2008 Equity Incentive Plan).	S-1	10.3	June 3, 2013
10.4#	Form of Employee Stock Option Agreements (2008 Equity Incentive Plan).	S-1	10.4	June 3, 2013
10.5#	2008 Equity Incentive Plan.	S-1	10.5	June 3, 2013
10.6#	2013 Equity Incentive Plan.	S-1	10.6	June 3, 2013
10.7#	Consulting Agreement dated December 19, 2008 by and between Registrant and James A. Thomson.	S-1	10.7	June 3, 2013
10.8#	Consulting Agreement dated December 19, 2008 by and between Registrant and Dr. Craig T. January.	S-1	10.8	June 3, 2013
10.9#	Amendment to Letter Agreement and Consulting Agreement between Registrant and James A. Thomson dated March 4, 2014.	10-Q	10.48.1	May 5, 2014
10.10	Amendment dated May 30, 2014 to the Master Laboratory Services Agreement dated November 22, 2010 by and between Cellular Dynamics International, Inc. and Eli Lilly and Company.	8-K	10.1	June 4, 2014
10.11#	Employment Agreement dated December 12, 2008 by and between Registrant and Christopher Parker.	S-1	10.11	June 3, 2013
10.12#	Employment Agreement dated December 19, 2008 by and between Registrant and Dr. Emile F. Nuwaysir.	S-1	10.12	June 3, 2013
10.13	Form of Indemnification Agreement by and between Registrant and each of its directors.	S-1	10.13	June 3, 2013
10.14#	Employment Agreement dated as of July 10, 2014 between Cellular Dynamics International, Inc. and Timothy D. Daley.	8-K	10.1	July 15, 2014

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10.15#	Stock Option Agreement dated as of July 10, 2014 between Cellular Dynamics International, Inc. and Timothy D. Daley.	8-K	10.2	July 15, 2014
10.16	Lease Agreement dated April 25, 2006 by and between Registrant and University Research Park, Incorporated.	S-1	10.16	June 3, 2013
10.17	Amendment to Lease dated April 25, 2006 by and between Registrant and University Research Park, Incorporated.	S-1	10.17	June 3, 2013
10.18	Amendment to Lease dated August 1, 2006 by and between Registrant and University Research Park, Incorporated.	S-1	10.18	June 3, 2013
10.19	Amendment to Lease dated June 1, 2007 by and between Registrant and University Research Park, Incorporated.	S-1	10.19	June 3, 2013
10.20	Amendment to Lease dated June 1, 2008 by and between Registrant and University Research Park, Incorporated.	S-1	10.20	June 3, 2013
10.21	Amendment to Lease dated May 15, 2010 by and between Registrant and University Research Park, Incorporated.	S-1	10.21	June 3, 2013
10.22	License and Services Agreement dated September 27, 2012 by and between Registrant and The Buck Institute for Research on Aging.	S-1	10.22	June 3, 2013
10.23†	Supply Agreement effective as of May 18, 2010 by and between Registrant and SmithKline Beecham d/b/a GlaxoSmithKline.	S-1	10.23	June 3, 2013
10.24†	Supply Agreement effective as of July 6, 2010 by and between Registrant and Hoffmann-La Roche Inc.	S-1	10.24	June 3, 2013
10.25(a)	First Amendment to Supply Agreement dated June 13, 2012 by and between Registrant and Hoffmann-La Roche Inc.	S-1	10.25(a)	June 3, 2013
10.25(b)†	Second Amendment to Supply Agreement dated April 24, 2013 by and between Registrant and Hoffmann-La Roche Inc.	S-1	10.25(b)	June 3, 2013
10.26†	Distributor Agreement dated April 29, 2011 by and between Registrant and iPS Academia Japan, Inc.	S-1	10.26	June 3, 2013
10.27†	First Amendment to Distributor Agreement dated April 29, 2011 by and between Registrant and iPS Academia Japan, Inc.	S-1	10.27	June 3, 2013
10.28#	Employment Agreement dated as of January 9, 2015 between Cellular Dynamics International, Inc. and Timothy D. Daley.	8-K	10.1.1	January 13, 2015
10.29	Assignment from iPS Academia to iPS Portal.	Filed herewith
10.30	Reserved.
10.31#	Nonstatutory Stock Option Agreement dated October 18, 2010 by and between Registrant and James Thomson.	S-1	10.31	June 3, 2013
10.32#	Letter Agreement dated October 18, 2010 by and between Registrant and James A. Thomson.	S-1	10.32	June 3, 2013
10.33#	Employment Agreement dated October 18, 2010 by and between Registrant and James A. Thomson.	S-1	10.33	June 3, 2013
10.34#	Patent Assignment dated October 18, 2010 by and between Registrant and James A. Thomson.	S-1	10.34	June 3, 2013
10.35#	Nonstatutory Stock Option Agreement dated December 20, 2011 by and between Registrant and James Thomson.	S-1	10.35	June 3, 2013
10.36#	Amendment to Letter Agreement dated December 20, 2011 by and between Registrant and James A. Thomson.	S-1	10.36	June 3, 2013
10.37†	Supply and Distribution Agreement dated June 12, 2012 by and between Registrant and Life Technologies Corporation.	S-1	10.37	June 3, 2013
10.38†	First Amendment to Supply and Distribution Agreement dated February 27, 2013 by and between Registrant and Life Technologies Corporation.	S-1	10.38	June 3, 2013
10.39†	Non-Exclusive License Agreement dated May 6, 2010 by and between Registrant and iPS Academia Japan, Inc.	S-1	10.39	June 3, 2013
10.40†	Exclusive License Agreement dated March 23, 2009 by and between Registrant and Indiana University Research and Technology Corporation.	S-1	10.40	June 3, 2013
10.41†	License Agreement dated June 6, 2012 by and between Registrant and Wisconsin Alumni Research Foundation.	S-1	10.41	June 3, 2013

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10.42†	Master Laboratory Services Agreement dated November 22, 2010 by and between Registrant and Eli Lilly and Company.	S-1	10.42	June 3, 2013
10.43†	Addendum to Master Laboratory Services Agreement dated June 21, 2012 by and between Registrant and Eli Lilly and Company.	S-1	10.43	June 3, 2013
10.44†	Hepatocyte Collaborative Research Agreement dated May 16, 2011 by and between Registrant and Hoffmann-La Roche Inc.	S-1	10.44	June 3, 2013
10.45†	Centre of Excellence Agreement dated December 3, 2012 by and between Registrant and AstraZeneca UK Limited.	S-1	10.45	June 3, 2013
10.46#	Annual Incentive Cash Compensation Plan.	S-1	10.46	June 3, 2013
10.47#	Non-employee Director Compensation Policy.	S-1	10.47	June 3, 2013
10.48#	Form of Amendment to Letter Agreement and Consulting Agreement between Registrant and James A. Thomson dated May 7, 2013.	S-1	10.48	June 3, 2013
10.49.1#	Employment Agreement by and between Registrant and Robert J. Palay.	10-Q	10.49.1	November 12, 2013
10.49.2#	Employment Agreement by and between Registrant and Thomas M. Palay.	10-Q	10.49.2	November 12, 2013
10.50#	Form of Stock Option Agreement between Registrant and Chief Executive Officer and Chairman and President and Vice Chairman (2013 Equity Incentive Plan).	S-1	10.50	June 3, 2013
10.51#	Form of Executive Officer Stock Option Agreement (2013 Equity Incentive Plan).	S-1	10.51	June 3, 2013
10.52#	Form of Director Stock Option Agreement (2013 Equity Incentive Plan).	S-1	10.52	June 3, 2013
10.53#	Form of Stock Option Agreement between Registrant and James A. Thomson (2013 Equity Incentive Plan).	S-1	10.53	June 3, 2013
10.54	Amendment to Lease dated May 6, 2013 by and between Registrant and University Research Park, Incorporated.	S-1	10.54	June 3, 2013
10.55	Credit Agreement dated as of June 27, 2013 among Cellular Dynamics International, Inc., as the Company, the various lenders party thereto, as Lenders, and Sixth Floor Investors LP, as the Administrative Agent.	S-1/A	10.55	July 1, 2013
10.56	Reserved.
10.57†	iPSC Derivation Agreement dated as of October 25, 2013 by and between the California Institute for Regenerative Medicine and Cellular Dynamics International, Inc.	8-K	10.1	November 4, 2013
10.58†	Notice Of Grant Award dated as of October 25, 2013 by and between the California Institute for Regenerative Medicine and Cellular Dynamics International, Inc.	8-K	10.2	November 4, 2013
10.59††	Services Agreement dated as of December 1, 2013 by and between Cellular Dynamics International, Inc. and Coriell Institute for Medical Research	10-K/A
10.60	Reserved.
23.1	Consent of Deloitte & Touche LLP	Filed herewith
24.1	Power of Attorney	Filed herewith
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Furnished herewith
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Furnished herewith

104

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101**	The following materials from Cellular Dynamics International, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Balance Sheets, (ii) the Statements of operations, (iii) the Statements of shareholders' equity, (iv) the Statements of cash flows, and (v) Notes to financial statements, tagged as blocks of text.	Filed herewith

#	Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
*	The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates them by reference.
**	Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

105

Attached files

CELLULAR DYNAMICS INTERNATIONAL, INC. Reports

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