5. Noncontrolling Interests

On May 31, 2012, Bioprocess Capital Partners, LLC, or BCP, the noncontrolling interest holder in Incuron, contributed approximately 194.0 million Russian rubles (approximately $5.9 million) to Incuron, which increased its ownership percentage to 40.8% and decreased CBLI’s ownership percentage to 59.2%, which is the ownership percentage at December 31, 2013.

On January 20, 2011 and March 14, 2011, BCP contributed 68.0 million Russian Rubles (approximately $2.3 million) and 1.73 million Russian Rubles (approximately $0.1 million), respectively, to Incuron, increasing their ownership percentage from 16.1% to 24.2% and decreasing CBLI’s ownership percentage from 83.9% to 75.8%.

The following quantifies the effects of changes in CBLI’s ownership interest in Incuron, on CBLI’s equity for the years ending December 31, 2013, 2012 and 2011:


	For the Year Ending December 31,
	2013			2012			2011
Net loss attributable to CBLI	$	(17,262,877	)	$	(18,234,142	)	$	(4,013,670	)
Increase in CBLI’s additional paid-in capital due to the issuance of additional membership interests to the noncontrolling interest of Incuron		—			1,081,040			176,092

Change from net income attributable to CBLI and issuance of additional membership interests to the noncontrolling interest of Incuron	$	(17,262,877	)	$	(17,153,102	)	$	(3,837,578	)

On October 4, 2011, CBLI consummated the transactions contemplated by the Investment Agreement, dated as of September 19, 2011, or the Investment Agreement, with Open Joint Stock Company “Rusnano”, or Rusnano, to provide funding to Panacela to carry out a complete cycle of development, research, performance of clinical trials, production and sales of a line of pharmaceutical drugs for the treatment of oncological, infectious or other diseases.

Pursuant to the Investment Agreement, (i) CBLI invested $3.0 million in Panacela preferred shares and warrants, and, together with certain third-party owners, assigned and/or provided exclusive licenses, as applicable, to Panacela in respect of certain intellectual property in exchange for Panacela common shares, and (ii) Rusnano invested $9.0 million in Panacela preferred shares and warrants, with an additional $17.0 million available for investment. $1.5 million of the $17.0 million was invested in the form of a convertible loan, discussed in Note 6, “Debt,” leaving $15.5 million currently available to be invested at Rusnano’s option. At December 31, 2013, CBLI had an ownership stake of 54.6% in Panacela.

The Panacela preferred shares are convertible into common shares at any time following issuance. The conversion price is equal to the preferred share issuance price of $1,057 per share, subject to proportional adjustment for any stock split, stock dividend, reclassification or similar event with respect to the Panacela common shares. The preferred shares are automatically convertible into common shares upon the occurrence of a qualifying public offering of Panacela, carry no redemption rights and have the ability to vote and participate in dividends on a basis consistent with common shareholders.

The Panacela warrants provide CBLI and Rusnano with an option to increase their respective investments at two and four years following the initial investment. The warrants are exercisable into Panacela preferred shares at an exercise price equal to 20% or 40% above the preferred stock issuance price of $1,057 per share, subject to proportional adjustment for any stock split, stock dividend, reclassification or similar event with respect to the Panacela common shares. The warrants issued to CBLI and Rusnano that had an exercise price equal to 20% above the preferred stock issuance price expired in October 2013.

The preferred shares and warrant instruments have been classified as permanent equity instruments by Panacela. The value assigned to the preferred shares and warrants was based on their relative fair value at the date of issuance. The resultant embedded beneficial conversion feature relating to the preferred shares was considered a deemed dividend, and since Panacela had an accumulated deficit, had no impact on the Panacela statement of stockholders’ equity.