10-K

  UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

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

For the Fiscal Year Ended December 31, 2019

OR

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

For the transition period from _____ to _____

Commission File Number: 001-36498

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CELLULAR BIOMEDICINE GROUP, INC.

(Exact name of registrant as specified in its charter)

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

1345 Avenue of Americas, 15th Floor

New York, New York 10105

(Address of principal executive offices)

 (347) 905 5663

(Registrant’s telephone number)

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

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.001	CBMG	Nasdaq Global Select Market

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

None

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

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

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 ☑  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter – $200,634,545 as of June 30, 2019.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of February 24, 2020, there were 19,355,292 shares of common stock outstanding.

Documents Incorporated By Reference – Portions of the Registrant’s definitive Proxy Statement for its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

THE INFORMATION REQUIRED BY PART III OF THIS ANNUAL REPORT ON FORM 10-K, TO THE EXTENT NOT SET FORTH HEREIN, IS INCORPORATED BY REFERENCE FROM THE REGISTRANT’S DEFINITIVE PROXY STATEMENT RELATING TO THE ANNUAL MEETING OF STOCKHOLDERS, WHICH DEFINITIVE PROXY STATEMENT SHALL BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS AFTER THE END OF THE FISCAL YEAR TO WHICH THIS ANNUAL REPORT ON FORM 10-K RELATES.

CELLULAR BIOMEDICINE GROUP, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED December 31, 2019

TABLE OF CONTENTS

		Page
PART I
ITEM 1.	BUSINESS	4
ITEM 1A.	RISK FACTORS	25
ITEM 1B.	UNRESOLVED STAFF COMMENTS	53
ITEM 2.	PROPERTIES	53
ITEM 3.	LEGAL PROCEEDINGS	53
ITEM 4.	MINE SAFETY DISCLOSURES	53
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	54
ITEM 6.	SELECTED FINANCIAL DATA	59
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	60
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	75
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	77
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	77
ITEM 9A.	CONTROLS AND PROCEDURES	78
ITEM 9B.	OTHER INFORMATION	78
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	79
ITEM 11.	EXECUTIVE COMPENSATION	79
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	79
ITEM 13.	CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	79
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	79
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	80
ITEM 16	FORM 10-K SUMMARY	81
	SIGNATURES	82

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Cautionary Note Regarding Forward-Looking Statements and Risk Factors

This Annual Report on Form 10-K (“Annual Report”), may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act and the Private Securities Litigation Reform Act of 1995, which are subject to the “safe harbor” created by those sections. Our actual results could differ materially from those anticipated in these forward-looking statements. This annual report on Form 10-K of the Company may contain forward-looking statements which reflect the Company’s current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project” and similar expressions identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including plans, strategies and objectives of management for future operations; proposed new products, services, developments or industry rankings; future economic conditions or performance; belief; and assumptions underlying any of the foregoing. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Such “forward-looking statements” are subject to risks and uncertainties set forth from time to time in the Company’s SEC reports and include, among others, the Risk Factors set forth under Item 1A below.

The risks included herein are not exhaustive. This annual report on Form 10-K filed with the SEC includes additional factors which could impact the Company’s business and financial performance. Moreover, the Company operates in a rapidly changing and competitive environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors. Further, it is not possible to assess the impact of all risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements in this report include, but are not limited to, statements about:

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the success, cost and timing of our product development activities and clinical trials;

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our ability and the potential to successfully advance our technology platform to improve the safety and effectiveness of our existing product candidates;

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the potential for our identified research priorities to advance our cancer and degenerative disease technologies;

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our ability to obtain drug designation or breakthrough status for our product candidates and any other product candidates, or to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;

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public health crises, such as the coronavirus outbreak at the beginning of 2020;

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the ability to generate or license additional intellectual property relating to our product candidates;

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regulatory developments in China, the United States and other foreign countries;

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the potential of the technologies we are developing (each as defined below);

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fluctuations in the exchange rate between the U.S. dollar and the Chinese Yuan; and

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our plans to continue to develop our manufacturing facilities.

Readers are cautioned not to place undue reliance on such forward-looking statements as they speak only of the Company’s views as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 

Note Regarding Third-Party Information

This Annual Report includes data that we obtained from industry publications and third-party research, surveys and studies. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. This Annual Report also includes data based on our own internal estimates and research. Our internal estimates and research have not been verified by any independent source, and, while we believe the industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data. Such third-party data and our internal estimates and research are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in Item 1A—Risk Factors in this Annual Report. These and other factors could cause results to differ materially from those expressed in this Annual Report.

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PART I

ITEM 1. BUSINESS.

As used in this annual report, “we,” “us,” “our,” “CBMG,” “Company” or “our company” refers to Cellular Biomedicine Group, Inc. and, unless the context otherwise requires, all of its subsidiaries or deemed controlled companies.

Overview

We are a clinical-stage biopharmaceutical company committed to using our proprietary cell-based technologies to develop immunotherapies for the treatment of cancer and stem cell therapies for the treatment of degenerative diseases. We view ourselves as a leader in cell therapy industry through our diverse, multi-target, broad pipeline ranging from immuno-oncology, featuring CAR-T, TCR-T and TIL to regenerative medicine. Our focus is to bring our potentially best-in-class products to market while also aiming to reduce manufacturing cycle time and aggregate cost while striving to ensure quality products of cell therapies. We provide comprehensive and integrated research and manufacturing services throughout the discovery, development and manufacturing spectrum for cell-based technologies. We have two major components to our global strategy. First, we intend on developing our own internal pipeline, focusing on immune cell therapy, regenerative medicine, as well as other innovative biotechnology modalities that can leverage our infrastructure, human capital and intellectual property. Second, we plan to partner with leading companies to monetize our innovative technologies in markets where we do not currently have a presence and may also seek to bring their technologies to markets where we have infrastructure.

Our end-to-end platform enables discovery, development and manufacturing of cell-based therapies from concept to commercial manufacturing in a cost-efficient manner. The manufacturing and delivery of T cell therapies involve complex, integrated processes, comprised of isolating T-cells from patients, T cell enrichment, activation, viral vector transduction, expansion, harvest and fill-finish. Our in-house cell therapy manufacturing is comprised of a semi-automated, fully closed system and can manufacture high quality plasmids, and serum-free reagents as well as viral vectors for our immuno-oncology cell therapy products. Because we are vertically integrated, we are able to reduce the aggregate cost of cell therapies. We plan to build out our manufacturing capacity to scale for commercial supply at an economical cost. We hone our manufacturing process in our good manufacturing practice (GMP) facilities in China to achieve cycle time reduction, improve quality assurance and control and increase efficiency and early development to understand our therapies’ efficacy. Our other objective on institutionalizing our manufacturing process is portability and ease of tech transfer to other facilities and ease of deployment in future locations.

Our technologies include two major cell platforms:

A.Immune cell therapy for treatment of a broad range of cancer indications.

a. Hematological Cancer

i. Chimeric Antigen Receptor modified T-cells (CAR-T); and

b. Solid Tumors

i. T-cells with genetically modified, tumor antigen-specific T-Cell Receptors (TCRs); and

ii. Next-generation neoantigen-reactive, bio-markers based Tumor Infiltrating lymphocytes (TILs).

B.Regenerative Medicines using human adipose-derived mesenchymal progenitor cells (haMPC) for treatment of joint diseases.

a.Knee Osteoarthritis (Autologous & Allogeneic); and

b.Other degenerative and dermatologic diseases (assessing the feasibility).

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Our initial target market is China, where we believe that our cell-based therapies will be able to help patients with significant unmet medical needs. For hematological cancer we have:

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Finished enrolling patients for the second cohort in a Phase I dose escalation clinical study for our anti-B cell maturation antigen(“anti-BCMA”) CAR-T therapy for the treatment of multiple myeloma in China. Currently we are enrolling patients for the third cohort in China. The Phase Ia clinical study will enroll 22 patients in several stratified cohorts and has been expanded into multiple clinical sites. We have submitted our Investigational New Drug (IND) dossier to the New Medical Products Administration (NMPA) for approval for the Phase Ib study and are waiting for feedback.

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Initiated first-in-human non-Hodgkin lymphoma clinical trials in China for our CD19 and CD20 bi-specific CAR-T products.

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Achieved the first-in-human milestone and continued patient recruitment in China for our Phase I investigator initiated clinical trial of anti-CD20 CAR-T targeting anti-CD19 antibody or CAR-T treated, relapsed diffuse large B-cell lymphoma (DLBCL) and small B-cell lymphoma patients.

For solid tumors:

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The clinical trial of Alpha-fetoprotein T-cell receptor (AFP-TCR-T) targeting hepatocellular carcinoma (HCC) has been approved by Zhongshan Hospital in Shanghai and our first HCC patient has been infused with our AFP TCR-T-cells in December 2019; and

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We plan to launch non-small cell lung cancer (NSCLC) TIL clinical trials in the U.S. in the first half of 2021.

If the data from certain of our China-based, immuno-oncology clinical trials proves to be positive, we intend to submit IND applications with the U.S. FDA in order to conduct clinical trials in the United States.

On regenerative medicine development we have been approved by the NMPA in China to initiate a Phase II clinical trial of AlloJoin®, our allogenic haMPC therapy for the treatment of knee osteoarthritis, which is the first stem cell drug application approved by the NMPA for a Phase II clinical trial in knee osteoarthritis since the NMPA clarified its cell therapy regulations in December 2017. We launched our Phase II AlloJoin® clinical trial on September 12, 2019. Using data from our Phase IIb clinical studies before the NMPA clarified its cell therapy regulations, we have submitted our IND application with the NMPA for our autologous knee osteoarthritis. We have also been approved by the NMPA in China to initiate a Phase II clinical trial of ReJoin®, our autologous haMPC therapy for the treatment of knee osteoarthritis.

In addition to our own internal clinical pipelines, we have formed and plan to continue to seek partnerships with other cell therapy focused companies to expand their technology in the Chinese market. Our comprehensive capabilities have attracted inbound inquiries from global pharmaceutical companies seeking to improve the efficiency of their drug development process and/or to co-develop their therapeutic products by initially conducting investigator initiated trials in China, and upon verification on proof-of-concept (POC) to launch clinical trials in the U.S. and in China. We believe that we are positioned to capture opportunities from the rapid expansion of global pharmaceutical companies by leveraging our focus on cell manufacturing process improvement, which offers the benefits of improving product quality and creates cost savings. Positioned at the forefront of science, we believe our established clinical network in China will enable us to collaborate with these global firms as they seek to enter the Chinese market to develop in-house capabilities and infrastructure and to improve efficiency throughout the drug development process.

In September 2018, we executed a License and Collaboration Agreement (hereinafter Novartis LCA) with Novartis AG (Novartis) to manufacture and supply their U.S. FDA-approved CD19 CAR-T cell therapy product Kymriah® in China. Pursuant to the Novartis LCA agreement, we also granted Novartis a worldwide license to certain of our CAR-T intellectual property for the development, manufacture and commercialization of CAR-T products. We are entitled to an escalating single-digit percentage royalty of Kymriah®’s net sales in China. CBMG is responsible for the cost of bi-directional technology transfers between the two companies. We will receive collaboration payments equal to a single-digit escalating percentage of net sales of Kymriah® in China, subject to certain caps set forth under the Novartis LCA, for sales in diffuse large B-cell lymphoma and pediatric acute lymphoblastic leukemia indications and up to a maximum amount to be agreed upon for sales in other indications. We are also obligated to assist Novartis with the development of Kymriah® in China as Novartis may request and are responsible for a certain percentage of the total development cost for the development of Kymriah® in China for indications other than diffuse large B-cell lymphoma and pediatric acute lymphoblastic leukemia indications. As of December 31, 2019, we have achieved three major milestones on the technology transfer and collaboration with Novartis on commercialization of Kymriah®, specifically: process and analytical training, feasibility runs and an export license for feasibility/comparability.

On October 2, 2018, we executed a non-exclusive license agreement with the U.S. National Cancer Institute (“NCI”) for ten tumor infiltrating lymphocytes patents, pursuant to which we acquired rights to the worldwide development, manufacture and commercialization of autologous, tumor-reactive lymphocyte adoptive cell therapy products, isolated from tumor infiltrating lymphocytes for the treatment of non-small cell lung, stomach, esophagus, colorectal and head and neck cancer(s) in humans. We agreed to pay certain license fees for such license, including (i) an initial up-front cash payment; (ii) a de minimis non-refundable annual royalty that may be credited against any earned royalties due from net sales; (iii) a small single-digit percentage of net sales of the licensed products, payable on a semi-annual basis, which may be adjusted downward in the event that the Company must pay a license fee to a third party; (iv) an additional small single-digit sublicense fee on the fair market value of any consideration received for granting a sublicense; and (v) a milestone payment component tied to certain clinical and commercial developments. We have a unilateral right to terminate the license agreement. Th e NCI has the right to terminate the license agreement if CBMG (i) commits a material breach; (ii) fails to use commercially reasonable effort in developing the licensed products or processes; (iii) fails to achieve certain performance benchmarks; (iv) willfully makes a false statement; (v) is not keeping licensed products or processes reasonably available to the public after commercial use; (vi) cannot reasonably satisfy unmet health and safety needs; or (vii) cannot meet certain requirements by federal regulations. The license agreement will expire upon the expiration of the last to expire of the patent rights licensed pursuant thereto. Other than an initial upfront payment and a de minimis annual royalty payment, the Company has not paid any additional royalty under the license agreement as of December 31, 2019.

5

In order to expedite fulfillment of patient treatment, we have been actively developing technologies and products with strong intellectual property protection. CBMG’s worldwide exclusive license to the T Cell patent rights owned by Augusta University provides an opportunity to expand the application of CBMG’s cancer therapy-enabling technologies and to initiate clinical trials with leading cancer hospitals. On February 14, 2019, Augusta University granted us an exclusive, worldwide license with sublicense rights to its patent rights to Human Alpha Fetoprotein-Specific T Cell Receptor modified T-cells (AFP TCR-T). In consideration for the license granted, the Company agreed to pay the university a one-time, non-refundable, non-creditable license fee within 30 days of execution of the license agreement and a single-digit percent of running royalty on net sales of the licensed products. The Company also agreed to (a) use its commercially reasonable efforts to develop and conduct such research, development and validation studies as necessary or desirable to obtain all regulatory approvals to manufacture and market the licensed products in at least one country in certain major markets listed in the license agreement, and (b) upon receipt of such approvals, to use commercially reasonable efforts to market each licensed product in such country. The Company, at its sole expense, has the obligation to fund the costs of all research, development, preclinical and clinical trials, regulatory approval and commercialization of the licensed products. The license agreement will expire upon the termination of the Company’s obligation to pay royalty pursuant to the terms thereof. Upon expiration of the term, the license granted the Company will survive the expiration of the license agreement, and convert to a perpetual, fully paid up license. The Company may terminate the agreement, in its sole discretion, upon 30 days’ prior written notice to Augusta University and either party may terminate the license agreement upon or after the breach of a material provision of the agreement that is not cured within 45 days after notice thereof by the non-breaching party. The Company has not paid any royalty since there have not been any sales of licensed products as of the date of this report.

Corporate History

Headquartered in New York, the Company is a Delaware biopharmaceutical company focused on developing treatment for cancer and joint diseases for patients in China. The Company was formerly known as EastBridge Investment Group Corporation, originally incorporated in the State of Arizona on June 25, 2011, and reincorporated as Cellular Biomedicine Group, Inc. in the State of Delaware on January 18, 2013. The Company started its regenerative medicine business in China in 2009 and expanded to CAR-T therapies in 2014.

Recent Developments

On January 8, 2019, we initiated patient recruitment for CAR088 (anti-BCMA CAR-T) in China.

On January 17, 2019, our AlloJoin® Therapy for KOA got approved for Phase II trial in China.

On June 17, 2019, we initiated a Phase I clinical trial of CAR066 (anti-CD20 CAR-T) targeting previously anti-CD19 CAR-T treated, relapsed diffuse large B-cell lymphoma (DLBCL) and small B-cell lymphoma patients in China, and dosed the first CD19 CAR-T relapsed DLBCL patient.

On July 4, 2019, we submitted our autologous haMPC (ReJoin®) KOA Phase II IND filing with the NMPA under the new regulation.

On July 4, 2019, CD20-CD19 bi-specific CAR-Ts showed desired in vitro and in vivo anti-tumor activity. We plan to introduce an improved CAR-T manufacturing process with reduced manufacturing duration and better product quality controls for the bi-specific CD20-CD19 CAR-Ts targeting NHL, and the same development strategy is also utilized for our BCMA manufacturing platform. Based on scientific evidence known to the public, CD20-CD19 bi-specific CAR-Ts have shown reactivity against both single positive (CD20+ or CD19+) and double positive (CD20+CD19+) tumor targets.

On July 5, 2019, we filed a shelf registration statement on Form S-3 to offer and sell from time to time, in one or more series, any of the securities of the Company, for total gross proceeds up to $200,000,000, which was declared effective by the Securities and Exchange Commission on July 16, 2019.

On August 27, 2019, we entered into a Facility Improvement and Process Validation Agreement with Duke University. Pursuant to this agreement, the Company paid for improvement of Duke’s GMP facility, Duke University agreed to conduct and the Company agreed to fund a tumor infiltrating lymphocytes clinical trial.

On September 12, 2019, we launched our allogenic haMPC AlloJoin® KOA Phase II clinical trial.

As of September 30, 2019, CBMG had a total of 11 labs (suites) that were certified as Biosafety Level-2 (BSL-2) meeting the local regulatory requirements for the handling of biological materials.

On October 2, 2019, we entered into a lease agreement to build a 22,000 square foot facility in Rockville, Maryland to expand R&D and to support clinical development in the U.S.

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On December 7, 2019 we announced early data from our ongoing investigator initiated trial at an oral presentation titled “Novel Anti-BCMA CAR-T for Relapsed or Refractory Multiple Myeloma” at the 61st American Society of Hematology “ASH” annual meeting in Orlando, FL.

On December 23, 2019, we dosed our first patient in our clinical trial of AFP-TCR-T targeting HCC.

In the next 12 months, we aim to accomplish the following: 

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Bifurcate our markets and launch clinical studies in the U.S. upon establishing good POC from the clinical studies in China and transfer the clinical assets from Shanghai to the U.S., including our quick cycle-time, highly differentiated, proprietary manufacturing process comprised of short cycle-time, semi-automation and closed system;

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Advance our Rockville site’s research and development and manufacturing to support our clinical development in the U.S.;

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Assess the feasibility of expanding our stem cell platform to include dermatology;

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Execute clinical trial sponsorship with U.S.-based Principal Investigators (PI) to develop our clinical assets in the U.S.;

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Collaborate with Duke University on TIL process development to improve cycle time and institutionalized scalability;

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Explore the feasibility of establishing a new R&D and clinical manufacturing site in China to adapt to our rapid business expansion and explore the addition of Contract Development and Manufacturing Organization (CDMO) business to support certain specific market-oriented business strategies;

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Evaluate our strategy to further increase our enterprise value and expand our capital market strategy;

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Execute the technology transfer and align the manufacturing processes with the global CAR-T leader to support the development of the world’s first CAR-T therapy in China;

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Explore and introduce a gene therapy technology platform, product development and manufacturing for our current business to create synergy with our cell therapy pipelines;

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Bolster R&D resources to fortify our intellectual property portfolio and scientific development;

7

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Evaluate and implement a digital data tracking and storage technology system for research and development, material management, GMP production and integrated clinical data management;

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Evaluate emerging regenerative medicine technology platform for other indications and review recent developments in the competitive landscape;

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Strengthen our Quality Management System (QMS) centralized document control system and electronic batch recording system for quality assurance, and laboratory information management system (LMS) for quality control;

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Leverage our QMS system and our strong scientific expertise in both the U.S. and China;

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Collaborate with multinational pharmaceutical companies to co-develop cell therapy products in China and possibly in the U.S.; and

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Continue to implement International Organization for Standardization (ISO) 27001 standard to fortify our information assets security.

Key Anticipated 2020 Milestones

R&D Milestones

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Completing construction of the Rockville R&D site to support our continued effort for pipeline development

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Continued effort to support IIT and IND in China, and US IND for key CBMG clinical assets

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Continuing to build a dynamic clinical pipeline for cell therapy, including new assets for CAR-T and TCR-T, and allogeneic cell therapy products

 

Manufacturing Milestones

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Completing construction of the Rockville manufacturing site to support our clinical development in the U.S.

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Continuing to assess the feasibility of expanding manufacturing capacity at new site(s) in both the U.S. and China

Clinical Milestones

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Advancing haMPC Phase II trials in China for both AlloJoin® and ReJoin®

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Continue enrollment into I/O programs in China for CAR088, CAR188, CAR066, EXPO-039 and AFP TCR-T

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Advancing I/O programs in the U.S. for TIL Therapy (TIL1)

Regulatory Milestones

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Filing an IND in the U.S. for TIL Therapy CAR088 and EXPO-039

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Seeking additional INDs for other clinical programs in China

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Expand clinical research programs in the U.S.

Other Milestones

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Continuing collaboration with current and new clinical sites and 3A hospitals in China

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Continuing translation and clinical collaboration with Duke University on TIL Therapy

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Continuing collaboration with current partners in manufacturing and process development for next-generation cell therapies

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Evaluating co-development and/or strategic partnerships for both in-licensing and out-licensing with high quality, multinational partners

8

Our operating expenses for year ended December 31, 2019 were in line with management’s plans and expectations. We had an increase in total operating expenses of approximately $10.6 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018, which is primarily attributable to increased R&D expenses and clinical developments in 2019.

9

Corporate Structure

Our current corporate structure is illustrated in the following diagram:

 

Currently we have the following subsidiaries (including a controlled VIE entity):

Eastbridge Investment Corporation ("Eastbridge Sub"), a Delaware corporation, is a wholly owned subsidiary of the Company.

Cellular Biomedicine Group VAX, Inc. ("CBMG VAX"), a California corporation, is a wholly owned subsidiary of the Company.

Cellular Biomedicine Group HK Limited, a Hong Kong company limited by shares, is a holding company and wholly owned subsidiary of the Company.

Cellular Biomedicine Group Ltd. (Wuxi) (“CBMG Wuxi”) license number 320200400034410 (the “WFOE”) is a wholly foreign-owned entity that is 100% owned by Cellular Biomedicine Group HK Limited. This entity’s legal name in Chinese translates to “Xi Biman Biological Technology (Wuxi) Co. Ltd.” The WFOE controls and holds ownership rights in the business, assets and operations of Cellular Biomedicine Group Ltd. (Shanghai) (“CBMG Shanghai”) through variable interest entity (VIE) agreements. We conduct certain biopharmaceutical business activities through the WFOE, including research and development, technical support, technical service, technology transfer in the biomedical technology field, manufacturing of non-food, pharmaceutical polypeptides and medical devices (in vitro diagnostic reagents) extracted by biology; making foreign investments with its own funds; and cosmetics, sanitary products and biological agents wholesale and commission agents.

Cellular Biomedicine Group Ltd. (Shanghai) license number 310104000501869, is a PRC domestic corporation, which we control and hold ownership rights in, through the WFOE and the above-mentioned VIE agreements. This entity’s legal name in Chinese translates to “Xi Biman Biotech (Shanghai) Co., Ltd.” We conduct certain biopharmaceutical business activities through our controlled VIE entity, CBMG Shanghai, including clinical trials and certain other activities requiring a domestic license in the PRC. Chen Mingzhe and Lu Junfeng, together, are the record holders of all of the outstanding registered capital of CBMG Shanghai. Chen and Lu are also directors of CBMG Shanghai constituting the entire management of the same.

Beijing Agreen Biotechnology Co., Ltd. is a PRC domestic corporation and wholly owned subsidiary of CBMG Shanghai.

Wuxi Cellular Biopharmaceutical Group Ltd., established on January 17, 2017, is a PRC domestic corporation and wholly owned subsidiary of CBMG Shanghai.

 Shanghai Cellular Biopharmaceutical Group Ltd., established on January 18, 2017, is a PRC domestic corporation and wholly owned subsidiary of CBMG Shanghai.

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Variable Interest Entity (VIE) Agreements

Through our wholly foreign-owned entity and 100% subsidiary, Cellular Biomedicine Group Ltd. (Wuxi), we control and have ownership rights by means of a series of VIE agreements with CBMG Shanghai. The shareholders of record for CBMG Shanghai were Cao Wei and Chen Mingzhe, who together owned 100% of the equity interests in CBMG Shanghai before October 26, 2016. On October 26, 2016, Cao Wei, Chen Mingzhe and Lu Junfeng entered into an equity transfer agreement and a supplementary agreement pursuant to which Cao Wei transferred his equity interests in CBMG Shanghai to Chen Mingzhe and Lu Junfeng. As a result of the transfer, each of Chen and Lu now owns a 50% equity interest in CBMG Shanghai. On the same day, WFOE, CBMG Shanghai, Cao Wei and Chen Mingzhe entered into a termination agreement, pursuant to which the series of VIE agreements executed among the WFOE, CBMG Shanghai, Chen Mingzhe and Cao Wei were terminated and a new set of VIE agreements were executed. The following is a description of each of these VIE agreements:

Exclusive Business Cooperation Agreement. Through the WFOE, we are a party to an exclusive business cooperation agreement dated October 26, 2016 with CBMG Shanghai, which provides that (i) the WFOE shall exclusively provide CBMG Shanghai with complete technical support, business support and related consulting services; (ii) without prior written consent of the WFOE, CBMG Shanghai may not accept the same or similar consultancy and/or services from any third party, nor establish any similar cooperation relationship with any third party regarding same matters during the term of the agreement; (iii) CBMG Shanghai shall pay the WFOE service fees as calculated based on the time of service rendered by the WFOE multiplying the corresponding rate, plus an adjusted amount decided by the board of the WFOE; and (iv) CBMG Shanghai grants to the WFOE an irrevocable and exclusive option to purchase, at its sole discretion, any or all of CBMG Shanghai’s assets at the lowest purchase price permissible under PRC laws. The term of the agreement is 10 years, provided however the agreement may extended at the option of the WFOE. Since this agreement permits the WFOE to determine the service fee at its sole discretion, the agreement in effect provides the WFOE with rights to all earnings of the VIE.

Loan Agreement. Through the WFOE, we are a party to a loan agreement with CBMG Shanghai, Lu Junfeng and Chen Mingzhe dated October 26, 2016, in accordance with which the WFOE agreed to provide an interest-free loan to CBMG Shanghai. The term of the loan is 10 years, which may be extended upon written consent of the parties. The method of repayment of CBMG Shanghai shall be at the sole discretion of the WFOE, including but not limited to an acquisition of CBMG Shanghai in satisfaction of its loan obligations.

Exclusive Option Agreement with Lu Junfeng. Through the WFOE, we are a party to an option agreement with CBMG Shanghai and Lu Junfeng dated October 26, 2016, in accordance with which: (i) Lu Junfeng granted the WFOE an irrevocable and exclusive right to purchase, or designate another person to purchase the entire equity interest in CBMG Shanghai as then held by him, at an aggregate purchase price to be determined; and (ii) any proceeds obtained by Lu Junfeng through the above equity transfer in CBMG Shanghai shall be used for the payment of the loan provided by the WFOE under the aforementioned Loan Agreement.

Exclusive Option Agreement with Chen Mingzhe. Through the WFOE, we are a party to an exclusive option agreement with CBMG Shanghai and Chen Mingzhe dated October 26, 2016, under which: (i) Chen Mingzhe granted the WFOE an irrevocable and exclusive right to purchase, or designate another person to purchase the entire equity interest in CBMG Shanghai for an aggregate purchase price to be determined; and (ii) any proceeds obtained by Chen Mingzhe through the above equity transfer in CBMG Shanghai shall be used for the payment of the loan provided by the WFOE under the aforementioned Loan Agreement.

Power of Attorney from Lu Junfeng. Through the WFOE, we are the recipient of a power of attorney executed by Lu Junfeng on October 26, 2016, in accordance with which Lu Junfeng authorized the WFOE to act on his behalf as his exclusive agent with respect to all matters concerning his equity interest in CBMG Shanghai, including without limitation attending the shareholders’ meetings of CBMG Shanghai, exercising voting rights and designating and appointing senior executives of CBMG Shanghai.

Power of Attorney from Chen Mingzhe. Through the WFOE, we are the recipient of a power of attorney executed by Chen Mingzhe on October 26, 2016, in accordance with which Chen Mingzhe authorized the WFOE to act on his behalf as his exclusive agent with respect to all matters concerning his equity interest in CBMG Shanghai, including without limitation attending the shareholders’ meetings of CBMG Shanghai, exercising voting rights and designating and appointing senior executives of CBMG Shanghai.

Equity Interest Pledge Agreement with Lu Junfeng. Through the WFOE, we are a party to an equity interest pledge agreement with CBMG Shanghai and Lu Junfeng dated October 26, 2016, in accordance with which: (i) Lu Junfeng pledged to the WFOE the entire equity interest he holds in CBMG Shanghai as security for payment of the consulting and service fees by CBMG Shanghai under the Exclusive Business Cooperation Agreement; (ii) Lu Junfeng and CBMG Shanghai submitted all necessary documents to ensure the registration of the Pledge of the Equity Interest with the State Administration for Industry and Commerce (SAIC) and the pledge became effective on November 22, 2016; and (iii) on the occurrence of any event of default, unless it has been successfully resolved within 20 days after the delivery of a rectification notice by the WFOE, the WFOE may exercise its pledge rights at any time by a written notice to Lu Junfeng.

Equity Interest Pledge Agreement with Chen Mingzhe. Through the WFOE we are a party to an equity interest pledge agreement with CBMG Shanghai and Chen Mingzhe dated October 26, 2016, in accordance with which: (i) Chen Mingzhe pledged to the WFOE the entire equity interest he holds in CBMG Shanghai as security for payment of the consulting and service fees by CBMG Shanghai under the Exclusive Business Cooperation Agreement; (ii) Chen Mingzhe and CBMG Shanghai submitted all necessary documents to ensure the registration of the Pledge of the Equity Interest with SAIC, and the pledge became effective on November 22, 2016; and (iii) on the occurrence of any event of default, unless it has been successfully resolved within 20 days after the delivery of a rectification notice by the WFOE, the WFOE may exercise its pledge rights at any time by a written notice to Chen Mingzhe. 

Our relationship with our controlled VIE entity, CBMG Shanghai, through the VIE agreements, is subject to various operational and legal risks. Management believes that Chen and Lu, as record holders of the VIE’s registered capital, have no interest in acting contrary to the VIE agreements. However, if Chen and Lu as shareholders of the VIE entity were to reduce or eliminate their ownership of the registered capital of the VIE entity, their interests may diverge from that of CBMG and they may seek to act in a manner contrary to the VIE agreements (for example by controlling the VIE entity in such a way that is inconsistent with the directives of CBMG management and the board; or causing non-payment by the VIE entity of services fees). If such circumstances were to occur the WFOE would have to assert control rights through the powers of attorney and other VIE agreements, which would require legal action through the PRC judicial system. While we believe the VIE agreements are legally enforceable in the PRC, there is a risk that enforcement of these agreements may involve more extensive procedures and costs to enforce, in comparison to direct equity ownership of the VIE entity. We believe based on the advice of local counsel that the VIE agreements are valid and in compliance with PRC laws presently in effect. Notwithstanding the foregoing, if the applicable PRC laws were to change or are interpreted by authorities in the future in a manner which challenges or renders the VIE agreements ineffective, the WFOE’s ability to control and obtain all benefits (economic or otherwise) of ownership of the VIE entity could be impaired or eliminated. In the event of such future changes or new interpretations of PRC law, in an effort to substantially preserve our rights we may have to either amend our VIE agreements or enter into alternative arrangements which comply with PRC laws as interpreted and then in effect.

For further discussion of risks associated with the above, please see Item 1A – Risk Factors under the subheading “Risks Related to Our Structure.”

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BIOPHARMACEUTICAL BUSINESS

The biopharmaceutical business was founded in 2009 by a team of seasoned Chinese-American executives, scientists and doctors. In 2010, we established a facility designed and built to comply with China’s GMP standards in Wuxi, China, and in 2012, we established a U.S. FDA compliant manufacturing facility in Shanghai. In November 2017, we opened our Zhangjiang facility in Shanghai, of which 40,000 square feet, or 35% of the total facility, was designed and built to GMP standards and dedicated to advanced cell manufacturing. Our focus has been to serve the rapidly growing health care market initially in China by marketing and commercializing immune cell and stem cell therapeutics, related tools and products from our patent-protected homegrown and acquired cell technology, as well as by utilizing in-licensed and other acquired intellectual properties before shifting our attention to serve the mature and highly competitive health care market in the U.S. We continue to explore new products and gene therapies that may require the investment of a material amount of assets.

Our current treatment focal points are cancer and KOA.

Cancer. We are focusing our clinical development efforts on B-cell maturation antigen (BCMA)-specific, and CD20 CAR-T therapies, T-cells with genetically engineered T-cell receptor (TCR-Ts) and tumor infiltrating lymphocytes (TILs) technologies. As discussed above in Item 1 – Business, under the subheading “Overview,” we entered into the Novartis LCA in September of 2018. With the execution of the Novartis LCA, we have prioritized our efforts on working with Novartis to bring Kymriah® to patients in China as soon as practicable. In light of our collaboration with Novartis, we will no longer pursue our own ALL and DLBCL biologics license application submission with the NMPA. On the research and development side, we seek to bring our CD22 CAR-T, CD20 CAR-T for CD19 CAR-T Relapsing NHL, CD19-CD20 bispecific CAR-T product, BCMA CAR-T for Multiple Myeloma (MM), NKG2D CAR-T for acute myeloid leukemia (AML), AFP TCR-T for HCC and neoantigen reactive TIL on solid tumors, respectively, in first-in-human trial as soon as possible. We plan to continue leveraging our cutting-edge Chemistry, Manufacturing and Control (CMC) platform, as well as our Quality Management System and our strong scientific expertise in the U.S and in China, to collaborate with multinational pharmaceutical companies to co-develop cell therapies in China.

KOA. In 2013, we completed a Phase I/IIa clinical study, in China, for our KOA therapy named ReJoin®. The trial tested the safety and efficacy of intra-articular injections of autologous haMPCs in order to reduce inflammation and repair damaged joint cartilage. Since 2013, we have continued clinical studies on ReJoin® and our trial data has demonstrated positive results on the performance of ReJoin®. Our ReJoin® human adipose-derived mesenchymal progenitor cell (haMPC) therapy for KOA is an interventional therapy using our proprietary process, culture and medium.

Our process is distinguishable from sole Stromal Vascular Fraction (SVF) therapy. The immunophenotype of our haMPCs exhibited a homogenous population expressing multiple biomarkers such as CD73+, CD90+, CD105+, HLA-DR-, CD14-, CD34- and CD45-. In contrast, SVF is merely a heterogeneous fraction including preadipocytes, endothelial cells, smooth muscle cells, pericytes, macrophages, fibroblasts and adipose-derived stem cells.

In January 2016, we launched the Allogeneic KOA Phase I Trial in China to evaluate the safety and efficacy of AlloJoin®, an off-the-shelf allogeneic adipose derived progenitor cell (haMPC) therapy for the treatment of KOA. On August 5, 2016, we completed patient treatment for the Allogeneic KOA Phase I trial, and on December 9, 2016, we announced interim three-month safety data from the Allogenic KOA Phase I Trial in China. The interim analysis of the trial has demonstrated a preliminary safety and tolerability profile of AlloJoin® in the three doses tested, and no serious adverse events (SAE) have been observed. On March 16, 2018, we announced a positive 48-week AlloJoin® Phase I data in China, which demonstrated good safety and early efficacy for the slowing of cartilage deterioration. China finalized its cell therapy regulatory pathway in December 2017. Our AlloJoin® IND application to conduct a Phase II clinical trial with the NMPA was been approved in January 2019 and we launched our Phase II AlloJoin® clinical trial on September 12, 2019. On September 27, 2019, we received the ReJoin® therapy application acceptance for Phase II clinical trials by the NMPA.

We established adult adipose-derived progenitor cell and immuno-oncology cellular therapy platforms in treating specific medical conditions and diseases. Our Quality Management Systems (QMS) have been assessed and certified to meet the requirements of ISO 9001: 2015, and a quality manual based on GMP guidelines has been finalized. The facilities, utilities and equipment in both Zhangjiang and Wuxi Sites have been calibrated and/or qualified and in compliance with requirements of local health authorities. We installed an Enterprise Quality Management System (EQMS) in April 2019 to facilitate the quality activities. A document management system and Laboratory Information Management System (LIMS) will be installed and qualified in early 2020.

Our proprietary manufacturing processes and procedures include (i) banking of allogenic cellular product and intermediate product; (ii) manufacturing process of GMP-grade viral vectors; (iii) manufacturing process of GMP-grade cellular product; and (iv) analytical testing to ensure the safety, identity, purity and potency of cellular products.

Recent Developments in Adoptive Immune Cell Therapy (ACT)

The immune system plays an essential role in cancer development and growth. In the past decade, immune checkpoint blockade has demonstrated a major breakthrough in cancer treatment and has currently been approved for the treatment of multiple tumor types. Adoptive immune cell therapy (ACT) with tumor-infiltrating lymphocytes (TIL) or gene-modified T-cells expressing novel T cell receptors (TCR) or chimeric antigen receptors (CAR) is another strategy to modify the immune system to recognize tumor cells and thus carry out an anti-tumor effector function.

The TILs consist of tumor-resident T-cells which are isolated and expanded ex vivo after surgical resection of the tumor. Thereafter, the TILs are further expanded in a rapid expansion protocol (REP). Before intravenous adoptive transfer into the patient, the patient is treated with a lymphodepleting conditioning regimen. TCR gene therapy and CAR gene therapy are ACT with genetically modified peripheral blood T-cells. For both treatment modalities, peripheral blood T-cells are isolated via leukapheresis. These T-cells are then transduced by viral vectors to either express a specific TCR or CAR. These treatments have shown promising results in various tumor types.

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CAR-Ts

According to the U.S. National Cancer Institute’s 2013 cancer topics research update on CAR-T-Cells, excitement is growing for immunotherapy—therapies that harness the power of a patient’s immune system to combat their disease, or what some in the research community are calling the “fifth pillar” of cancer treatment.

One approach to immunotherapy involves engineering patients’ own immune cells to recognize and attack their tumors. This approach is called adoptive cell transfer (ACT). ACT’s building blocks are T cells, a type of immune cell collected from the patient’s own blood. One of the well-established ACT approaches is CAR-T cancer therapy. After collection, the T-cells are genetically engineered to produce special receptors on their surface called chimeric antigen receptors (CARs). CARs are proteins that allow the T-cells to recognize a specific protein (antigen) on tumor cells. These engineered CAR-T-cells are then grown until the number reaches dose level. The expanded population of CAR-T-cells is then infused into the patient. After the infusion, if all goes as planned, the T-cells multiply in the patient’s body and, with guidance from their engineered receptor, recognize and kill cancer cells that harbor the antigen on their surfaces. This process builds on a similar form of ACT pioneered from NCI’s Surgery Branch for patients with advanced melanoma. In 2013, NCI’s Pediatric Oncology Branch commented that the CAR-T-cells are much more potent than anything they can achieve with other immuno-based treatments being studied. Although investigators working in this field caution that there is still much to learn about CAR T-cell therapy, the early results from trials like these have generated considerable optimism.

CAR-T cell therapies, such as anti-CD19 CAR-T and anti-BCMA CAR-T, have been tested in several hematological indications on patients that are refractory/relapsing to chemotherapy, and many of them have relapsed after stem cell transplantation. All of these patients had limited treatment options prior to CAR-T therapy. CAR-T has shown encouraging clinical efficacy in many of these patients, and some of them have had durable clinical response for years. However, some adverse effects, such as cytokine release syndrome (CRS) and neurological toxicity, have been observed in patients treated with CAR-T-cells. For example, in July 2016, Juno Therapeutics, Inc. reported the death of patients enrolled in the U.S. Phase II clinical trial of JCAR015 (anti-CD19 CAR-T) for the treatment of relapsed or refractory B cell acute lymphoblastic leukemia (B-ALL). The U.S. FDA put the trial on hold and lifted the hold within a week after Juno provided a satisfactory explanation and solution. Juno attributed the cause of patient deaths to the use of Fludarabine preconditioning and they switched to use only cyclophosphamide pre-conditioning in subsequent enrollment.

In August 2017, the U.S. FDA approved Novartis’ Kymriah® (tisagenlecleucel) a CD19-targeted CAR-T therapy, for the treatment of patients up to 25 years old for relapsed or refractory (r/r) acute lymphoblastic leukemia (ALL), the most common cancer in children. Current treatments show a rate of 80% remission using intensive chemotherapy. However, there are almost no conventional treatments to help patients who have relapsed or are refractory to traditional treatment. Kymriah® has shown results of complete and long lasting remission, and was the first U.S. FDA-approved CAR-T therapy. In October 2017, the U.S. FDA approved Kite Pharmaceuticals’ (Gilead) CAR-T therapy for diffuse large B-cell lymphoma (DLBCL) the most common type of NHL in adults. The initial results of axicabtagene ciloleucel (Yescarta), the prognosis of high-grade chemo refractory NHL, is dismal with a medium survival time of a few weeks. Yescarta is a therapy for patients who have not responded to or who have relapsed after at least two other kinds of treatment.

In May 2018, the U.S. FDA approved Novartis’ Kymriah® for intravenous infusion for its second indication—the treatment of adult patients with relapsed or refractory (r/r) large B-cell lymphoma after two or more lines of systemic therapy including diffuse large B-cell lymphoma (DLBCL) not otherwise specified, high grade B-cell lymphoma and DLBCL arising from follicular lymphoma. Kymriah® is now the only CAR-T cell therapy to receive U.S. FDA approval for two distinct indications in non-Hodgkin lymphoma (NHL) and B-cell ALL. On September 25, 2018, we entered into the Novartis LCA with Novartis to manufacture and supply Kymriah® to Novartis in China.

Besides anti-CD19 CAR-T, anti-BCMA CAR-T has shown promising clinical efficacy in treatment of multiple myeloma. For example, bb2121, a CAR-T therapy targeting BCMA, has been developed by Bluebird bio, Inc. and Celgene for previously treated patients with multiple myeloma. Based on preliminary clinical data from the ongoing Phase I study CRB-401, bb2121 has been granted Breakthrough Therapy Designation by the U.S. FDA and PRIME eligibility by the European Medicines Agency (EMA) in November 2017. We plan to initiate our anti-BCMA CAR-T investigator initiated trial in the near future.

Recent progress in Universal Chimeric Antigen Receptor (UCAR) T-cells showed benefits such as ease of use, availability and the drug pricing challenge. Currently, most therapeutic UCAR products are being developed with gene editing platforms such as CRISPR or TALEN. For example, UCART19 is an allogeneic CAR T-cell product candidate developed by Cellectis for treatment of CD19-expressing hematological malignancies. UCART19 Phase I clinical trials started in adult and pediatric patients in Europe in June 2016 and in the U.S. in 2017. The use of UCAR may has the potential to overcome the limitation of the current autologous approach by providing an allogeneic, frozen, “off-the-shelf” T-cell product for cancer treatment.

TILs

While CAR-T cell therapy has proven successful in treatment of several hematological malignancies, other cell therapy approaches, including Tumor Infiltrating Lymphocytes (TIL) are being developed to treat solid tumors. For example, Iovance Biotherapeutics is focused on the development of autologous tumor-directed TILs for treatments of patients with various solid tumor indications. Iovance is conducting several Phase II clinical trials to assess the efficacy and safety of autologous TIL for treatment of patients with Metastatic Melanoma, Squamous Cell Carcinoma of the Head and Neck, Non-Small Cell Lung Cancer (NSCLC) and Cervical Cancer in the U.S. and Europe.

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TCRs

Adaptimmune is partnering with GlaxoSmithKline to develop TCR-T therapy targeting the NY-ESO-1 peptide, which is present across multiple cancer types. Their NY-ESO SPEAR T-cell has been used in multiple Phase I/II clinical trials in patients with solid tumors and haematological malignancies, including synovial sarcoma, myxoid round cell liposarcoma, multiple myeloma, melanoma, NSCLC and ovarian cancer. The initial data suggested positive clinical responses and evidence of tumor reduction in patients. NY-ESO SPEART T-cell has been granted breakthrough therapy designation by the U.S. FDA and PRIME regulatory access in Europe. Adaptimmune’s other TCR-T product, AFP SPEAR T-cell targeting AFP peptide, is aimed at the treatment of patients with hepatocellular carcinoma (HCC). AFP SPEAR T-cell is in a Phase I study and enrolling HCC patients in the U.S.

CBMG’s Adoptive Immune Cell Therapy (ACT) Programs

In December 2017, the Chinese government issued trial guidelines concerning the development and testing of cell therapy products in China. Although these trial guidelines are not yet codified as mandatory regulation, we believe they provide a measure of clarity and a preliminary regulatory pathway for our cell therapy operations in an uncertain regulatory environment. On April 18 and April 21, 2018, the Center for Drug Evaluation (CDE) posted on its website acceptance of the IND application for CAR-T cancer therapies in treating patients with NHL and adult ALL submitted by the Company’s wholly-owned subsidiaries, CBMG Shanghai and Shanghai Cellular Biopharmaceutical Group Ltd. On September 25, 2018 we entered into Novartis LCA to manufacture and supply Kymriah® in China. As part of the deal, Novartis took approximately a 9% equity stake in CBMG, and CBMG is discontinuing development of its own anti-CD19 CAR-T cell therapy. This collaboration with Novartis reflects our shared commitment to bringing the first marketed CAR-T cell therapy, Kymriah®, a transformative treatment option currently approved in the U.S., EU and Canada for two difficult-to-treat cancers, to China, where the number of patients in need remains the highest in the world. Together with Novartis, we plan to bring the first CAR-T cell therapy to patients in China as soon as possible. We continue to develop CAR-T therapies other than CD 19 on our own and Novartis has the first right of negotiation on these CAR-T developments. The CBMG oncology pipeline includes CAR-T targeting CD20-, CD22- and B-cell maturation antigen (BCMA), AFP TCR-T, which could specifically eradicate AFP positive HCC tumors and TIL technologies. Our current priority is to collaborate with Novartis to bring Kymriah® to China. At the same time, we remain committed to developing our existing pipeline of immunotherapy candidates for hematologic and solid tumor cancers to help deliver potential new treatment options for patients in China. We are striving to build a competitive research and development function, a translational medicine unit, along with a well-established cellular manufacturing capability and ample capacity, to support Kymriah® in China and our development of multiple assets in multiple indications. We believe that these efforts will allow us to boost the Company’s Immuno-Oncology presence. We initiated a clinical trial to evaluate anti-BCMA CAR-T therapy in Multiple Myeloma (“MM”) and started first in-human studies for multiple CAR-T and TCR-T programs in 2019. 

Market for Immune Cell Therapies

Our immune cell therapies involve the genetic engineering of T-cells to express either chimeric antigen receptors, or CARs, or T cell receptors, or TCRs and TIL. These T-cells are designed to recognize and attack cancer cells. Kymriah is a type of immune cell therapy that is made from a patient’s own white blood cells and is a prescription cancer treatment used in patients up to 25 years old who have acute lymphoblastic leukemia that is either relapsing or is refractory. It is also used in patients with non-Hodgkin lymphoma that has relapsed or is refractory after having at least two other kinds of treatment. On August 30, 2017, Kymriah was approved by the U.S. FDA for the treatment of children and young adults with ALL. By October 18, 2017, the U.S. FDA granted approval for Yescarta for treating patients with relapsed/refractory diffuse large B-cell lymphoma (r/rDLBCL) and other rare large B-cell lymphomas. On May 1, 2018, the U.S.FDA approved Kymriah for a second indication (diffuse large B-cell lymphoma). In August 2018, Kymriah and Yescarta secured European Union approval for the treatment of blood cancers, including B-cell acute lymphoblastic leukemia (ALL) and relapsed or refractory diffuse large B-cell lymphoma (DLBCL). Health Canada approved Kymriah as the first CAR-T therapy in Canada and the Therapeutic Goods Administration (TGA) approved it as the first CAR-T therapy in Australia.

In 2019, 1,762,450 new cancer cases and 606,880 cancer deaths are projected to occur in the U.S. According to a 2018 International Agency for Cancer publication, China, as the most populous country in the world with an estimated population of nearly 1.42 billion, is projected to have around 4.51 million cancer cases and 3.04 million cancer death by year 2020. A 2018 Global Cancer Statistics Cancer Communications report states that compared (the 2018 Global Cancer Statistics Report) to the U.S. and UK, China has a 30% and 40% higher cancer mortality among which 36.4% of the cancer-related deaths were from the digestive tract cancers (stomach, liver and esophagus cancer) and have relatively poorer prognoses.

The 2018 Global Cancer Statistics Report also reported that in 2018, lung cancer was the most diagnosed cancer type worldwide and in China with 2,093,8761 and 733,3002 new cases respectively. HCC is the 4th most common cancer in China and more than 50% of new HCC cases world-wide are in China. About 466,000 new liver cancer cases each year and the mortality is around 343,7003 annually in China. Chen et al. In 2018, it was estimated about 510,000 new case of Non Hopkins lymphoma (NHL) and 248,724 patients died from NHL worldwide.4 

Multiple myeloma accounts for 1% of all cancers and approximately 10% of all hematological malignancies.5 In 2016 there were about 138,509 incident cases worldwide. The United States had the most cases (about 24,407) and the most deaths (about 14,212), China was the second in both measures which incident cases were about 16,537 and deaths about 10,363. The global incidence of multiple myeloma rose by 126% from 1990 to 2016. East Asia (China, North Korea, and Taiwan) saw incident cases of multiple myeloma jump by 262%, which was the largest increase among any of the 21 global regions.6

1Chen et al. CA Cancer J Clin. 2016; 66:155-132

2Bray F et al. CA Cancer J Clin. 2018: 68:394-424

3Chen et al. CA Cancer J Clin. 2016; 66:155-132

4Bray F et al. CA Cancer J Clin. 2018: 68:394-424

5Moreau P et al., Annals of Oncol. 24 (Supplement 6): vi133–vi137, 2013)

6Cowan AJ et al., JAMA Oncol. 2018;4(9):1221-1227

  

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Market for Stem Cell-Based Therapies

The U.S. forecast is that shipments of treatments with stem cells, or instruments which concentrate stem cell preparations for injection into painful joints, will fuel an overall increase in the use of stem cell based treatments resulting in an increase to $5.7 billion in 2020, with key growth areas being Spinal Fusion, Sports Medicine and Osteoarthritis of the joints. Osteoarthritis (OA) is a chronic disease that is characterized by degeneration of the articular cartilage, hyperosteogeny and, ultimately, joint destruction that can affect all of the joints. According to a paper published by Dillon CF, Rasch EK, Gu Q et al.entitled, “Prevalence of knee osteoarthritis in the United States: Arthritis Data from the Third National Health and Nutrition Examination Survey,” the incidence of OA is 50% among people over age 60 and 90% among people over age 65. KOA accounts for the majority of total OA conditions and in adults, OA is the second leading cause of work disability and the disability incidence rate is high (53%). The costs of OA management has grown exponentially over recent decades, accounting for up to 1% to 2.5% of the gross national product of countries with aging populations, including the U.S., Canada, the UK, France and Australia. According to the American Academy of Orthopedic Surgeons (AAOS), the only pharmacologic therapies recommended for OA symptom management are non-steroidal anti-inflammatory drugs (NSAIDs) and tramadol (for patients with symptomatic osteoarthritis). Moreover, there is no approved disease modification therapy for OA in the world. Disease progression is a leading cause of hospitalization and ultimately requires joint replacement surgery. According to an article published by the Journal of the American Medical Association, approximately 505,000 hip replacements and 723,000 knee replacements were performed in the United States in 2014, collectively costing more than $20 billion. International regulatory guidelines on clinical investigation of medicinal products used in the treatment of OA were updated in 2015, and clinical benefits (or trial outcomes) of a disease modification therapy for KOA has been well defined and recommended. Medicinal products used in the treatment of osteoarthritis need to provide both a symptom relief effect for at least six months and a structure modification effect to slow cartilage degradation by at least 12 months. Symptom relief is generally measured by a composite questionnaire, the Western Ontario and McMaster Universities Osteoarthritis Index (WOMAC) score, and structure modification is measured by MRI, or radiographic image as accepted by international communities. The Company uses the WOMAC as the primary end point to demonstrate symptom relief, and MRI to assess structure and regeneration benefits as a secondary endpoint.

According to the Foundation for the National Institutes of Health, there are 27 million Americans with Osteoarthritis (OA), and symptomatic Knee Osteoarthritis (KOA) occurs in 13% of persons aged 60 and older. According to a nationwide population-based longitudinal survey among the Chinese retired population, approximately 8.1% of participants were found to suffer from symptomatic knee OA. Currently no treatment exists that can effectively preserve knee joint cartilage or slow the progression of KOA.

According to Alternative and Integrative Medicine, 53% of KOA patients will degenerate to the point of disability. Conventional treatment usually involves invasive surgery with painful recovery and physical therapy and replacement surgeries are typically only suggested and performed on patients in the late stage of KOA.

Our Global Strategy

CBMG is a drug development company focusing on developing cell therapies first in China, to take advantage of cost efficiencies, leveraging the expeditious Investigator Initiated Trials (“IIT”) process in China, publish and share our data in major conferences and scientific journals and then address the rest-of-the-world market after safety and efficacy of those programs are established. Our goal is to develop safe and effective cellular therapies for indications that represent a large unmet need in China. We intend to use our first-mover advantage in China, against a backdrop of enhanced regulation by the central government, to differentiate ourselves from the competition and establish a leading position in the China cell therapeutic market. We intend to invest and expand our clinical research capabilities by building drug development and manufacturing infrastructure in China and in the U.S., expanding our clinical research platform, hiring new talent and enhancing our existing coverage. We believe that few competitors in China are as well-equipped as we are in the areas of clinical trial development, internationally compliant manufacturing, quality assurance and control, as well as our dedication to regulatory compliance and process improvement.

 The key issues with cell therapy as modality are drug therapeutic index, institutionalized, scalable manufacturing and an affordable price for the patients. We believe our manufacturing platform is unique as we utilize a semiautomatic, fully closed system, which is expected to lead to economies of scale. Additionally, our focus on being a fully integrated cell therapy company has enabled us to be one of only a few companies that are able to manufacture clinical grade viral vectors in China to cater to the increasing global demand for cell and gene therapies.

 In China, Good Clinical Practice (GCP) only requires institutional review board (“IRB”) approval from the hospital and local NMPA approval for Investigator Initiated Trial (IIT), which is more expeditious than the traditional IND route. IITs can provide early evidence of POC for novel drugs which are more time and cost efficient than the traditional IND approach. IITs are also good ways to identify and develop novel platforms. Currently, we have our own drug development pipeline in CAR-T, AFP TCR-T, TIL and KOA. Our R&D team continues to identify additional platform cell therapy technologies to develop internally or acquire established technologies.

 In addition to the manufacturing of Novartis’ Kymriah® for patients in China as contemplated by the Novartis LCA and the Manufacture and Supply Agreement with Novartis, we are actively developing and evaluating other therapies comprised of other CAR-T, TCR-T and TIL therapies. We have also advanced our KOA AlloJoin® Phase II clinical trial and ReJoin® Phase II clinical trial with the NMPA.

 In addition to our drug development efforts, we are planning on evaluating co-development, strategic partnerships and both in-licensing and out-licensing opportunities with high quality, multinational partners. Such partnerships will enable us to take advantage of the technologies of our partners while leveraging our quality control and manufacturing infrastructure to further expand our pipelines.

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Our proprietary and patent-protected manufacturing processes enable us to produce, store and distribute ancillary media, viral vectors and cellular product. Our clinical protocols include medical assessment to qualify each patient for treatment, evaluation of each patient before and after a specific therapy, cell infusion methodologies including dosage, frequency and the use of adjunct therapies, handling potential adverse effects and their proper management. Applying our proprietary intellectual property, we plan to customize specialize formulations to address complex diseases and debilitating conditions.

Currently, we have a total of approximately 70,000 square feet of manufacturing space in three locations, the majority of which is in the new Shanghai facility. We operate our manufacturing facilities under the design of the standard GMP conditions as well ISO standards. We employ institutionalized and proprietary process and quality management system to optimize reproducibility and to hone our efficiency. Our Shanghai and Wuxi facilities are designed and built to meet GMP standards. With our integrated Plasmid, Viral Vectors platforms, our T-cells manufacturing capacities are highly distinguishable from other companies in the cellular therapy industry. We are currently assessing the feasibility of expanding manufacturing spaces in new sites in both China and the U.S.

 Most importantly, our seasoned cell therapy team members have decades of highly relevant experience in the U.S., China and the European Union. We believe that these are the primary factors that make CBMG a high-quality cell products manufacturer in China. We have been implementing significant human resources initiatives such as stock incentive programs, graduate school and continuing education sponsorship and a robust health insurance plan to attract and retain quality talent to support our rapid growth.

Our Targeted Indications and Potential Therapies

The chart below illustrates CBMG’s pipelines:

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Immuno-oncology (I/o)

Our CAR-T platform is built on lenti-virial vector and second-generation CAR design, which is used by most of the current trials and studies. We select the patient population for each asset and indication to allow the optimal path forward for potential regulatory approval. We integrate the state-of-the-art translational medicine effort into each clinical study to aid in dose selection, to investigate the mechanism of action and POC, and to attempt to identify the optimal targeting patient population. We plan to continue to grow our translational medicine team and engage key opinion leaders to support our development efforts.

We have developed a serial of CAR-Ts to treat hematological malignancies including CD20, CD22 and BCMA CAR-Ts, which have been proved to be potent and effective in treating hematology tumors in the early phase of clinical studies.

CD20 CAR

CD20 is broadly overexpressed in a serial of B cell malignant tumors. In the patients relapsed after CD19 CAR-T treatment, the expression of CD20 on target tumor cells is relatively stable. It is proven to be an optimal target for treating CD19 CAR-T relapsing patients. We have developed a novel CD20 CAR-Ts clinical lead product, which demonstrated strong anti-tumor activity in both in vitro assays and in vivo animal studies. We have filed a patent application in China and have initiated a first in human investigator initiated trial withCD19 CAR-T relapsed NHL patients.

CD22 CAR

CD22 is another surface marker highly expressed in B cell malignancies especially in hairy cell leukemia. It also expresses in the patients relapsed after CD19 CAR-T treatment. We have developed a novel CD22 CARs clinical lead, which displayed effective anti-tumor activity in in vitro cytotoxicity assays. We plan to initiate an investigator initiated trial with CD19 CAR-T relapsing ALL patients and hairy cell leukemia.

BCMA CAR

BCMA is a member of the TNF receptor superfamily, universally expressed in multiple myeloma (MM) cells. It is not detectable in normal tissues except plasma and mature B cells. It is a proven, effective and safer target for treating refractory MM patients in several clinical trials. We have developed unique BCMA CARs. Our BCMA CAR clinical lead exhibits potent anti-tumor activity both in vitro and in vivo. We have filed a patent for BCMA CAR in China and begun an investigator initiated trial in refractory MM patients in January 2019.

NKG2D CAR

Early studies on CAR-T therapy targeting NK cell signaling has shown promising clinical benefits. We are developing novel second generation CAR-Ts using NKG2D extracellular fragment as antigen binding domain. These CARs can recognize target tumor cells expressing NKG2D ligands. We plan to initiate a first in human investigator initiated trial with R/R AML patients.

Solid tumors pose more challenges than hematological cancers. The patients are more heterogeneous, making it difficult to have one drug to work effectively in the majority of the patients in any cancer indication. The duration of response is most likely shorter and patients are likely to relapse even after initial positive clinical response. We will continue our effort in developing cell-based therapies to target both hematological cancers and solid tumors.

AFP TCR

We license the AFP-TCR technology from Augusta University. We are continuing our evaluation on the efficacy and specificity of the AFP TCRs to identity the most appropriate candidate for a first time in human (FTIH) study. We plan to redirect Human T-cells with the AFP TCRs and evaluate their anti-tumor activity on in vitro cytokine release and cytotoxicity assays; and potential on/off-target toxicity including allo-reactivity as well as in vivo efficacy tests in animal models.

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TIL

Augmented by the U.S. National Cancer Institute (“NCI”) technology license, CBMG is developing neoantigen reactive TIL therapies to treat immunogenic cancers. In the early stages of cancer, lymphocytes infiltrate into the tumor, specifically recognizing the tumor targets and mediating anti-tumor response. These cells are known as TIL. TIL-based therapies have shown encouraging clinical results in early development. For example, in Phase-2 clinical studies in patients with metastatic melanoma performed by Dr. Rosenberg at NCI, TIL therapy demonstrated robust efficacy in patients with metastatic melanoma with objective response rates of 56% and complete response rates of 24%. We have started our development with NSCLC, and plan to expand into other cancer indications.

Knee Osteoarthritis (KOA)

We are currently pursuing two primary therapies for the treatment of KOA: ReJoin® therapy and AlloJoin® therapy.

We completed the Phase I/IIa clinical trial for the treatment of KOA. The trial tested the safety and efficacy of intra-articular injections of autologous haMPCs in order to reduce inflammation and repair damaged joint cartilage. The six-month follow-up clinical data showed ReJoin® therapy to be both safe and effective.

In the second quarter of 2014, we completed patient enrollment for the Phase IIb clinical trial of ReJoin® for KOA. The multi-center study has enrolled 53 patients to participate in a randomized, single blind trial. We published 48 weeks’ follow-up data of Phase I/IIa on December 5, 2014. The 48 weeks’ data indicated that patients have reported a decrease in pain and a significant improvement in mobility and flexibility, while the clinical data shows our ReJoin® regenerative medicine treatment to be safe. We announced positive Phase IIb 48-week follow-up data in January 2016, with statistical significant evidence that ReJoin® enhanced cartilage regeneration, which concluded the planned phase IIb trial.

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

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

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

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

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

In order to bring haMPC-based KOA therapy to market, our market strategy is to: (a) establish regional laboratories that comply with cGMP standards in Shanghai and Beijing that meet Chinese regulatory approval; (b) submit to the NMPA an IND package for Allojoin™ to treat patients with donor haMPC cells; and (c) file joint applications with Class AAA hospitals to use ReJoin® to treat patients with their own haMPC cells.

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

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

Based on current estimates, we expect to generate collaboration payment and revenues through our sale of Kymriah® products to Novartis within the next two years. We plan to systematically advance our own cell therapy pipeline and timely seek BLA opportunities to commercialize our products within the next three years although we cannot assure you that we will be successful at all or within the foregoing timeframe.

Competition

Many companies operate in the cellular biopharmaceutical field. We face competition based on several factors, including quality and breadth of services, ability to protect our intellectual property or other confidential information, timeliness of implementation, maintenance of quality standards, depth of collaboration partner relationships, price and geography. Currently there are several approved stem cell therapies on the market including Canada’s pediatric graft-versus-host disease and the European Commission’s approval in March 2018 for the treatment of complex perianal fistulas in adult Crohn’s disease. There are several public and private cellular biopharmaceutical-focused companies outside of China with varying phases of clinical trials addressing a variety of diseases. We compete with these companies in bringing cellular therapies to the market. However, our focus is to develop a core business in the China market, with plans to expand in the U.S. market. This difference in focus places us in a different competitive environment from other western companies with respect to fund raising, clinical trials, collaborative partnerships and the markets in which we compete.

In terms of entry barriers, cellular biopharmaceutical business generally requires high, upfront capital and other resources, significant financial and time commitment in recruiting experienced talents, a successful track record and solid reputation to build up synergies with business partners and emphasis on cost efficiency. Our core competitive edge is our strong capacity to cover the full research and development process of the full life cycle of a product, and to satisfy the increasing demand for timely realization and localization in China of key products already approved in foreign markets. We believe that we are able to maintain our competitiveness by leveraging our established position in the global research and development in the cellular biopharmaceutical market and capitalizing on the opportunities offered by the booming pharmaceutical market in China.

 To meet the overall social, economic and healthcare challenges in China, the PRC central government has a focused strategy to enable China to compete effectively in certain designated areas of biotechnology and the health sciences. Because of the aging population in China, China’s Ministry of Science and Technology (MOST) has targeted stem cell development as high priority field, and development in this field has been intense in the agencies under MOST. For example, the 973 Program has funded a number of stem cell research projects such as differentiation of human embryonic stem cells and the plasticity of adult stem cells. To the best of our knowledge, none of the companies in China are utilizing our proposed international manufacturing protocol and our unique technologies in conducting what we believe will be fully compliant NMPA-sanctioned clinical trials to commercialize cell therapies in China. Our management believes that it is difficult for most of these Chinese companies to turn their results into translational stem cell science or commercially successful therapeutic products using internationally acceptable standards.

We compete globally with respect to the discovery and development of new cell-based therapies, and we also compete within China to bring new therapies to market. In the biopharmaceutical specialty segment, namely in the areas of cell processing and manufacturing, clinical development of cellular therapies and cell collection, processing and storage, are characterized by rapidly evolving technology and intense competition. Our competitors worldwide include pharmaceutical, biopharmaceutical and biotechnology companies, as well as numerous academic and research institutions and government agencies engaged in drug discovery activities or funding, in the U.S., Europe and Asia. Many of these companies are well-established and possess technical, research and development, financial and sales and marketing resources significantly greater than ours. In addition, many of our smaller potential competitors have formed strategic collaborations, partnerships and other types of joint ventures with larger, well established industry competitors that afford these companies potential research and development and commercialization advantages in the technology and therapeutic areas currently being pursued by us. Academic institutions, governmental agencies and other public and private research organizations are also conducting and financing research activities which may produce products directly competitive to those being commercialized by us. Moreover, many of these competitors may be able to obtain patent protection, obtain government (e.g., the U.S. FDA) and other regulatory approvals and begin commercial sales of their products before us.

Our primary competitors in the field of cancer immune cell therapies include pharmaceutical, biotechnology companies such as Eureka Therapeutics, Inc., Iovance Biotherapeutics Inc., Juno Therapeutics, Inc. (acquired by Celgene), Kite Pharma, Inc. (acquired by Gilead), CARSgen, Sorrento Therapeutics, Inc. and others. Among our competitors, the ones based in and operating in Greater China are CARsgen, Hrain Biotechnology, Nanjing Legend Biotechnology Galaxy Biomed, Persongen, Anke Biotechnology, Shanghai Minju Biotechnology, Unicar Therapy (Cooperated with Terumo BCT), Wuxi Biologics, Junshi Pharma, BeiGene, Immuno China Biotech, Chongqing Precision Biotech, Innovative Cellular Therapeutics and China Oncology Focus Limited. Other companies in the cancer immune cell therapies space have made inroads in China by partnering with local companies. For example, in April, 2016, Seattle-based Juno Therapeutics, Inc. started a new company with WuXi AppTec in China named JW Biotechnology (Shanghai) Co., Ltd. In January 2017, Shanghai Fosun Pharmaceutical created a joint venture with Santa Monica-based Kite Pharma Inc. to develop, manufacture and commercialize CAR-T and TCR products in China. The NMPA has received IND applications for CD19 chimeric antigen receptor T-cells cancer therapies from many companies and have granted the initial phase of acceptance to several companies thus far.

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The osteoarthritis industry is highly competitive and subject to rapid and significant technological change. The large size and expanding scope of the pain market makes it an attractive therapeutic area for biopharmaceutical businesses. Our potential competitors include pharmaceutical, biotechnology, medical device and specialty pharmaceutical companies. Several of these companies have robust drug pipelines, readily available capital and established research and development organizations. We believe our success will be driven by our ability to develop and commercialize treatment options that make a meaningful difference for patients with KOA. Our primary competitors in the field of stem cell therapy for osteoarthritis and other indications include Mesoblast Ltd., Caladrius Biosciences, Inc. and others. On September 12, 2019, we launched allogenic haMPC KOA Phase II of the clinical trial across six leading hospitals in China with a plan to recruit 108 patients. We submitted our autologous adipose stem cell therapy (ReJoin®) KOA with IND filing with the CDE and the application was approved by NMPA. Additionally, in the general area of cell-based therapies for knee osteoarthritis ailments, we potentially compete with a variety of companies, from big pharma to specialty medical products or biotechnology companies. Some of these companies, such as Abbvie, Merck KGaA, Sanofi, Teva, GlaxosmithKline, Baxter, Johnson & Johnson, Sanumed, Medtronic and Miltenyi Biotech are well-established and have substantial technical and financial resources compared to ours. However, as cell-based products are only just recently emerging as viable medical therapies, many of our more direct competitors are smaller biotechnology and specialty medical products companies comprised of Vericel Corporation, Regeneus Ltd., Advanced Cell Technology, Inc., Nuo Therapeutics, Inc., ISTO technologies, Inc., Ember Therapeutics, Athersys, Inc., Bioheart, Inc., Mesoblast, Pluristem, Inc., Medipost Co. Ltd. and others. There are also several non-cell-based, small molecule and peptide clinical trials targeting knee osteoarthritis, and several other U.S. FDA-approved treatments for knee pain.

 Other companies have OA product candidates in advanced stages of clinical development. These product candidates include:

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Anika Therapeutics, Inc.’s Cingal®, which is a mixture of Anika’s Monovisc combined with a low dose of a commonly used immediate-release steroid. In February 2019, Anika announced that, based on their discussions with the FDA, they will need to conduct another Phase III clinical trial before they can potentially obtain approval for Cingal in the U.S.

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Kolon TissueGene, Inc.’s Invossa™, which is a combination of human allogeneic chondrocytes and TGF-b1 transfected allogeneic chondrocytes. In November 2018, Kolon TissueGene announced they enrolled the first patient in a pivotal U.S. Phase 3 trial. According to clinicaltrials.gov, the estimated primary completion date for the trial is April 2021.

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Ampio Pharmaceuticals, Inc.’s Ampion™, which is a derivative of human serum albumin, is described as having anti-inflammatory properties, and is formulated for immediate-release. Ampio stated that Ampion is in Phase 3 development but has not announced a timeline for potentially submitting a Biologics License Application, or BLA.

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Centrexion Therapeutics Corporation’s CNTX-4975, which is a synthetic, ultra-pure injection of trans-capsaicin. In December 2018, Centrexion announced completion of patient enrollment in its Phase 3 VICTORY-1 trial. Topline results are expected to be reported in the first quarter of 2020.

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A number of investigational nerve growth factor antibodies are in development. Regeneron’s fasinumab and Pfizer and Eli Lilly’s tanezumab are both in Phase 3 development. Initial results from Phase 3 clinical trials for each were announced in 2018. In January 2019, Pfizer and Lilly announced results from a second Phase 3 study showing that the tanezumab 5 mg treatment arm met all three co-primary endpoints at 24 weeks, however in the 2.5 mg treatment arm, patients’ overall assessment of their OA was not statistically different than placebo. Rapidly progressive OA was seen in 2.1% of tanezumab-treated patients and was not observed in the placebo arm.

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Servier and Galapagos NV’s S201086/GLPG1972, an ADAMTS-5 inhibitor, is currently in Phase II clinical development.

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Taiwan Liposome Company’s TLC599, which is a liposomal formulation of dexamethasone sodium phosphate. TLC599 is currently in Phase II clinical development.

Certain CBMG competitors also work with adipose-derived stem cells. To the best of our knowledge, none of these companies are currently utilizing the same technologies as ours to treat KOA, nor are we aware of any of these companies conducting government-approved clinical trials in China.

Some of our targeted disease applications may compete with drugs from traditional pharmaceutical or Traditional Chinese Medicine companies. We do not believe that our chosen targeted disease applications are in competition with the products and therapies offered by traditional pharmaceutical or Traditional Chinese Medicine companies.

We believe we have a strategic advantage over our competitors based on our outstanding quality management system and robust and efficient manufacturing capability, which we believe is possessed by few, if any, of our competitors in China, in an industry in which meeting exacting standards and achieving extremely high purity levels is crucial to success. In addition, in comparison to the broader range of cellular biopharmaceutical firms, we believe we have the advantages of cost and expediency, and a first mover advantage with respect to commercialization of cell therapy products and treatments in the China market.

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Intellectual Property

We have built our intellectual property portfolio with a view towards protecting our freedom of operation in China within our specialties in the cellular biopharmaceutical field. Our portfolio contains patents, trade secrets and know-how.

The production of stem cells for therapeutic use requires the ability to purify and isolate these cells to an extremely high level of purity. Accordingly, our portfolio is geared toward protecting our proprietary process of isolation, serum free-cell expansion, cell processing and related steps in stem cell production. The combination of our patents and trade secrets protects various aspects of our cell line production methods and methods of use, including methods of isolation, expansion, freezing, preservation, processing and use in treatment.

For our haMPC therapy:

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We believe our intellectual property portfolio for haMPC is well-built and abundant. It covers aspects of adipose stem cell medicine production, including acquisition of human adipose tissue, preservation and storage; tissue processing, stem cell purification, expansion and banking; formulation for administration and administration methods.

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Our portfolio also includes adipose derived cellular medicine formulations and their applications in the potential treatment of degenerative diseases and autoimmune diseases, including osteoarthritis, and rheumatoid arthritis, as well as potential applications with age-related illnesses and conditions.

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Our haMPC intellectual property portfolio:

o

provides coverage of all steps in the production process;

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enables achievement of high yields of Stromal Vascular Fraction (SVF), i.e., stem cells derived from adipose tissue extracted by liposuction;

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makes adipose tissue acquisition convenient and useful for purposes of cell banking; and

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employs preservation techniques enabling long distance shipment of finished cell medicine products.

For our CAR-T and Tcm cancer immune cell therapy:

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Our recent amalgamation of technologies from AG and PLAGH in the cancer cell therapy is comprehensive and well-rounded. It comprises T-cell clonality, Chimeric Antigen Receptor T cell (CAR-T) therapy, its recombinant expression vector CD19, CD20, CD30 and Human Epidermal Growth Factor Receptor’s (EGFR or HER1) Immunooncology patent applications, several preliminary clinical studies of various CAR-T constructs targeting CD19-positive acute lymphoblastic leukemia, CD20-positive lymphoma, CD30-positive Hodgkin’s lymphoma and EGFR-HER1-positive advanced lung cancer and Phase I/II clinical data of the aforementioned therapies and manufacturing knowledge.

In addition, our intellectual property portfolio covers various aspects of other therapeutic categories, including umbilical cord-derived huMPC therapy and bone marrow-derived hbMPC therapy.

Moreover, our clinical trial protocols are proprietary, and we rely upon trade secret laws for protection of these protocols.

We intend to continue to vigorously pursue patent protection of the technologies we develop, both in China and under the Patent Cooperation Treaty. Additionally, we require all of our employees to sign proprietary information and invention agreements, and compartmentalize our trade secrets in order to protect our confidential information.

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Patents

The following is a brief list of our patents, patent applications and work in process as of December 31, 2019:

	China Patents	U.S. Patents	EU Patents	Rest of the World	Patent Cooperation Treaty (PCT)	Total
Work in Process	10	-	-	-	-	10
Patents Filed, Pending	27	5	4	7	5	48
Granted	29	3	1	2	-	35
Total	66	8	5	9	5	93

Generally, our patents cover technology, methods, design and composition of and relating to medical device kits used in collecting cell specimens, cryopreservation of cells, purification, use of stem cells in a range of potential therapies, adipose tissue extraction, cell preservation and transportation, preparation of chimeric antigen receptor, gene detection and quality control.

Manufacturing

We manufacture cells for our own research, testing and clinical trials. We are scaling up and optimizing our manufacturing capacity. Our facilities are operated by a manufacturing and technology team with decades of relevant experience in China, the EU and the U.S.

In any precision setting, it is vital that all controlled environment equipment meet certain design standards. We operate our manufacturing facilities under GMP conditions as well the ISO standards. We employ an institutionalized and proprietary process and quality management system to optimize reproducibility and to hone our efficiency. Three of our facilities designed and built to GMP in Shanghai and Wuxi, China meet international standards. Specifically, our Shanghai cleanroom facility underwent rigorous cleanroom certification since 2013.

The quality management systems of CBMG Shanghai have been assessed and certified as meeting the requirements of ISO 9001: 2015, including (i) the cleanrooms in our new facility have been inspected and certified to meet the requirements of ISO 14644 and in compliance with China’s GMP requirements (2010 edition); and (ii) the equipment, including critical ones like biological safety cabinets in the new Shanghai facility has been calibrated and qualified, and the biological safety cabinets were also qualified. The quality management systems of CBMG Wuxi were certified as meeting the requirements of ISO 9001: 2015, and the facility and equipment in Wuxi Site were also qualified.

With our integrated GMP level plasmid, viral vectors and CAR-T cell chemistry, manufacturing and controls processes, as well as planned capacity expansion, we believe that we are highly distinguishable with other companies in the cellular therapy industry.

In January 2017, we leased a 113,038-square foot building located in the “Pharma Valley” of Shanghai, the People’s Republic of China. We are establishing 43,000 square foot facilities there with 25 clean-rooms and equipped with 12 independent production lines to support clinical batch production and commercial scale manufacturing. With the above expansion, the Company could support up to thousands of patients with CAR-T therapy and thousands of KOA patients with the stem cell therapy per annum.

Employees

As of December 31, 2019, the total enrollment of full-time employees of the Company is 217. Among these 217 professionals, 136 have postgraduate and PhD degrees and 71 have undergraduate degrees. In other words, 95.4% of our employees have a germane educational background. As a biotech company, 182 out of our 217 employees have medical or biological scientific credentials and qualifications.

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Certain Tax Matters

Following the completion of our merger with EastBridge Investment Group Corporation (Delaware) on February 6, 2013, CBMG and its controlled subsidiaries (the “CBMG Entities”) became a Controlled Foreign Corporation (CFC) under U.S. Internal Revenue Code Section 957. As a result, the CBMG Entities are subject to anti-deferral provisions within the U.S. federal income tax system that were designed to limit deferral of taxable earnings otherwise achieved by putting profit in low taxed offshore entities. While the CBMG Entities are subject to review under such provisions, the CBMG Entities’ earnings are from an active business and should not be deemed to be distributions made to its U.S. parent company.

On December 22, 2017, the tax reform bill was passed (Tax Cut and Jobs Act (H.R.1)) and reduced the top corporate tax rate from 35% to 21% effective from January 1, 2018. Pursuant to this new Act, non-operating loss carry-back period is eliminated and the loss carry-forward period was expanded from 20 years to an indefinite period.

According to Guoshuihan 2009 No. 203, if an entity is certified as an “advanced and new technology enterprise,” it is entitled to a preferential income tax rate of 15%. CBMG Shanghai obtained the certificate of “advanced and new technology enterprise” dated October 30, 2015 with an effective period of three years and the provision for PRC corporate income tax for CBMG Shanghai is calculated by applying the income tax rate of 15% from 2015. CBMG Shanghai re-applied and Shanghai SBM applied for the certificate of “advanced and new technology enterprise” in 2018. Both of them received approval on November 27, 2018 with an effective period of three years.

BIOPHARMACEUTICAL REGULATION

PRC Regulations

Our cellular medicine business operates in a highly regulated environment. In China, aside from provincial and local licensing authorities, there are hospitals and their internal ethics and utilization committees, and a system of IRBs which in many cases have members appointed by provincial authorities. With respect to cell therapies, however, the Chinese regulatory infrastructure is less established. In December 2017, the Chinese government issued trial guidelines concerning development and testing of cell therapy products, including stem cell treatments and immune cell therapies such as CAR-T cell therapeutics. These trial guidelines are not mandatory regulation but provide some general principles and basic requirements for cell therapy products in the areas of pharmaceutical research, non-clinical research and clinical research. The cell therapy products provided in the trial guideline refer to the human-sourced living cell products which are used for human disease therapy, whose source, operation and clinical trial process are in line with ethics and whose research and registration application are in line with regulations on pharmaceutical administration. The competent authority of pharmaceutical administration is the NMPA. It is further clarified by the NMPA that the non-registered clinical trial data would be acceptable for drug registration on a case by case basis, pending on the consistency of the samples used for the clinical trial and the drug applied for registration, the generation process of the clinical trial data, whether the data is authentic, complete, accurate and traceable to the source and the inspection outcome of the NMPA on the clinical trial. Moreover, an applicant of the clinical trial of the said cell therapy products can propose the phases of the clinical trial and the trial plan by itself (generally the trial can be divided into early stage clinical trial phase and confirmatory clinical trial phase), instead of the application of the traditional phases I, II and III of a clinical trial. However, it remains unclear if any of our clinical trials will be offered U.S. FDA-like Fast Track designation as maintenance therapy in subjects with advanced cancer who have limited options following surgery and front-line platinum/taxane chemotherapy to improve their progression-free survival. By applying U.S. standards and protocols and following authorized treatment plans in China, we believe we are differentiated from our competition as we believe we have first mover’s advantage in an undeveloped industry. In addition, we have begun to review the feasibility of performing synergistic U.S. clinical studies.

PRC Operating Licenses

Our business operations in China are subject to customary regulation and licensing requirements under regulatory agencies including the local Administration for Industry and Commerce, General Administration of Quality Supervision, Inspection and Quarantine and the State Administration of Taxation, for each of our business locations. Additionally, our clean room facilities and the use of reagents is also regulated by local branches of the Ministry of Environmental Protection. We are in good standing with respect to each of our business operating licenses.

U.S. Government Regulation

The health care industry is one of the most highly regulated industries in the United States. The federal government and individual state and local governments, as well as private accreditation organizations, oversee and monitor the activities of individuals and businesses engaged in the development, manufacture and delivery of health care products and services. Federal laws and regulations seek to protect the health, safety and welfare of the citizens of the U.S., as well as to prevent fraud and abuse associated with the purchase of health care products and services with federal monies. The relevant state and local laws and regulations similarly seek to protect the health, safety and welfare of the states’ citizens and prevent fraud and abuse. Accreditation organizations help to establish and support industry standards and monitor new developments.

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HCT/P Regulations

Manufacturing facilities that produce cellular therapies are subject to extensive regulation by the U.S. FDA. In particular, U.S. FDA regulations set forth requirements pertaining to establishments that manufacture human cells, tissues and cellular and tissue-based products (“HCT/Ps”). Title 21, Code of Federal Regulations, Part 1271 (21 CFR Part 1271) provides for a unified registration and listing system, donor-eligibility, current Good Tissue Practices (“cGTP”) and other requirements that are intended to prevent the introduction, transmission and spread of communicable diseases by HCT/Ps. While we currently do not conduct these activities within the United States, these regulations may be relevant to us if in the future we become subject to them, or if parallel rules are imposed on our operations in China.

We currently collect, process, store and manufacture HCT/Ps, including manufacturing cellular therapy products. We also collect, process and store HCT/Ps. Accordingly, we comply with cGTP and cGMP guidelines that apply to biological products. Our management believes that certain other requirements pertaining to biological products, such as requirements pertaining to premarket approval, do not currently apply to us because we are not currently investigating, marketing or selling cellular therapy products in the United States. If we change our business operations in the future, the U.S. FDA requirements that apply to us may also change.

Certain state and local governments within the United States also regulate cell-processing facilities by requiring them to obtain other specific licenses. Certain states may also have enacted laws and regulations, or may be considering laws and regulations, regarding the use and marketing of stem cells or cell therapy products, such as those derived from human embryos. While these laws and regulations should not directly affect our business, they could affect our future business. Presently we are not subject to any of these state law requirements, because we do not conduct these regulated activities within the United States.

Pharmaceutical and Biological Products

In the United States, pharmaceutical and biological products, including cellular therapies, are subject to extensive pre- and post-market regulation by the U.S. FDA. The Federal Food, Drug, and Cosmetic Act (“FD&C Act”) and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling and import and export of pharmaceutical products. Biological products are approved for marketing under provisions of the Public Health Service Act, or PHS Act. However, because most biological products also meet the definition of “drugs” under the FD&C Act, they are also subject to regulation under FD&C Act provisions. The PHS Act requires the submission of a biologics license application (“BLA”) rather than a New Drug Application (“NDA”) for market authorization. However, the application process and requirements for approval of BLAs are similar to those for NDAs, and biologics are associated with similar approval risks and costs as drugs. Presently we are not subject to any of these requirements, because we do not conduct these regulated activities within the United States. However, these regulations may be relevant to us should we engage in these activities in the United States in the future.

AVAILABLE INFORMATION

You are advised to read this Form 10-K in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we file from time to time. We make available free of charge on our website, www.cellbiomedgroup.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

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ITEM 1A. RISK FACTORS

RISKS RELATED TO OUR COMPANY

Please carefully consider the following discussion of significant factors, events and uncertainties that make an investment in our securities risky. The events and consequences discussed in these risk factors could, in circumstances we may not be able to accurately predict, recognize or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results such as sales and profits), cash flows, liquidity and stock price. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations.

We have a limited operating history and expect significant operating losses for the next few years.

We are a company with a limited operating history and have incurred substantial losses and negative cash flow from operations through the year ended December 31, 2019. Our cash flow from operations has not and may continue to not be consistent from period to period, our biopharmaceutical business has not yet generated substantial revenue and we may continue to incur losses and negative cash flow in future periods, particularly within the next several years.

Our biopharmaceutical product development programs are based on novel technologies and are inherently risky.

We are subject to the risks of failure inherent in the development of products based on new biomedical technologies. The novel nature of these cell-based therapies creates significant challenges in regard to product development and optimization, manufacturing, government regulation, third-party reimbursement and market acceptance, including the challenges of:

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 Educating medical personnel regarding the application protocol;

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Sourcing clinical and commercial supplies for the materials used to manufacture and process our product candidates;

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Developing a consistent and reliable process, while limiting contamination risks regarding the application protocol;

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Conditioning patients with chemotherapy in conjunction with delivering immune cell therapy treatment, which may increase the risk of adverse side effects;

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Obtaining regulatory approval, as the NMPA, and other regulatory authorities have limited experience with commercial development of cell-based therapies, and therefore the pathway to regulatory approval may be more complex and require more time than we anticipate; and

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Establishing sales and marketing capabilities upon obtaining any regulatory approval to gain market acceptance of cell therapy.

 These challenges present difficulties in developing and commercializing products on a timely or profitable basis or at all.

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We face risks relating to the cell therapy industry, clinical development and commercialization.

Cell therapy is still a developing field and a significant global market for our services has yet to emerge. Our cellular therapy candidates are based on novel cell technologies that are inherently risky and may not be understood or accepted by the marketplace. The current market principally consists of providing manufacturing of cell- and tissue-based therapeutic products for clinical trials and processing of stem cell products for therapeutic programs. 

The degree of market acceptance of any future product candidates will depend on a number of factors, including:

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the clinical safety and effectiveness of the product candidates, the availability of alternative treatments and the perceived advantages of the particular product candidates over alternative treatments;

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the relative convenience and ease of administration of the product candidates;

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ethical concerns that may arise regarding our commercial use of stem cells, including adult stem cells, in the manufacture of the product candidates;

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the frequency and severity of adverse events or other undesirable side effects involving the product candidates or the products or product candidates of others that are cell-based; and

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the cost of the products, the reimbursement policies of government and third-party payors and our ability to obtain sufficient third-party coverage or reimbursement.

Laws and the regulatory infrastructure governing cellular biopharmaceuticals in China are relatively new and less established in comparison to the U.S. and other countries; accordingly, regulation can be less stable and predictable than desired, and regulatory changes may disrupt our commercialization process.

In December 2017, the Chinese government issued trial guidelines concerning development and testing of cell therapy products, including stem cell treatments and immune cell therapies such as CAR-T cell therapeutics. These trial guidelines are not mandatory regulation but provide some general principles and basic requirements for cell therapy products in the areas of pharmaceutical research, non-clinical research and clinical research. The cell therapy products provided in the trial guideline refer to the human-sourced living cell products which are used for human disease therapy, whose source, operation and clinical trial process are in line with ethics and whose research and registration application are in line with regulations on pharmaceutical administration. The competent authority of pharmaceutical administration is the NMPA. It is further clarified by the NMPA that the non-registered clinical trial data would be acceptable for drug registration on a case by case basis, pending on the consistency of the samples used for the clinical trial and the drug applied for registration, the generation process of the clinical trial data, whether the data is authentic, complete, accurate and traceable to the source and the inspection outcome of the NMPA on the clinical trial. Moreover, an applicant of the clinical trial of the said cell therapy products can propose the phases of the clinical trial and the trial plan by itself (generally the trial can be divided into early stage clinical trial phase and confirmatory clinical trial phase) instead of the application of the traditional phases I, II and III of a clinical trial. However, it remains unclear if any of our clinical trials will be offered U.S. FDA-like Fast Track designation as maintenance therapy in subjects with advanced cancer who have limited options following surgery and front-line platinum/taxane chemotherapy to improve their progression-free survival. We do not know if our animal studies documentation will be approved to support trials in humans. We also do not know if our cell lines will be accepted by the PRC health authorities. These factors could adversely affect the timing of the clinical trials, the timing of receipt and reporting of clinical data, the timing of Company-sponsored IND filings, and our ability to conduct future planned clinical trials, and any of the above could have a material adverse effect on our business.

NMPA’s regulations can limit our ability to develop, license, manufacture and market our products and services.

Some or all of our operations in China will be subject to oversight and regulation by the NMPA and MOH. Government regulations, among other things, cover the inspection of and controls over testing, manufacturing, safety and environmental considerations, efficacy, labeling, advertising, promotion, record keeping and sale and distribution of pharmaceutical products. Such government regulations may increase our costs and prevent or delay the licensing, manufacturing and marketing of any of our products or services. In the event we seek to license, manufacture, sell or distribute new products or services, we likely will need approvals from certain government agencies as the future growth and profitability of any operations in China would be contingent on obtaining the requisite approvals. There can be no assurance that we will obtain such approvals.

In 2003, the CFDA implemented new guidelines for the licensing of pharmaceutical products. All existing manufacturers with licenses were required to apply for the cGMP certifications. According to Good Manufacturing Practices for Pharmaceutical Products (revised edition 2010) or the New GMP Rules promulgated by the Ministry of Health of the PRC on January 17, 2011 which became effective on March 1, 2011, all the newly constructed manufacturing facilities of drug manufacture enterprises in China shall comply with the requirements of the New GMP Rules, which are stricter than the original GMP standards.

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In addition, delays, product recalls or failures to receive approval may be encountered based upon additional government regulation, legislative changes, administrative action or changes in governmental policy and interpretation applicable to the Chinese pharmaceutical industry. Our pharmaceutical activities also may subject us to government regulations with respect to product prices and other marketing and promotional-related activities. Government regulations may substantially increase our costs for developing, licensing, manufacturing and marketing any products or services, which could have a material adverse effect on our business, operating results and financial condition.

The NMPA and other regulatory authorities in China have implemented a series of new punitive and stringent measures regarding the pharmaceuticals industry to redress certain past misconducts in the industry and certain deficiencies in public health reform policies. Given the nature and extent of such new enforcement measures, the aggressive manner in which such enforcement is being conducted and the fact that newly-constituted local level branches are encouraged to issue such punishments and fines, there is the possibility of large scale and significant penalties being levied on manufacturers. These new measures may include fines, restriction and suspension of operations and marketing and other unspecified penalties. This new regulatory environment has added significantly to the risks of our businesses in China and may have a material adverse effect on our business, operating results and financial condition.

Our technology platforms, including our CAR-T, AFP-TCR and TIL, whether preclinical or clinical, are new approaches to cancer treatment that present significant challenges.

We have concentrated our research and development efforts on T cell immunotherapy technology, and our future success in cancer treatment is dependent on the successful development of T-cell immunotherapies in general and our CAR technologies and product candidates in particular. Our approach to cancer treatment aims to alter T-cells ex vivo through genetic modification using viruses designed to reengineer the T-cells to recognize specific proteins on the surface or inside cancer cells. Because this is a new approach to cancer immunotherapy and cancer treatment generally, developing and commercializing our product candidates subjects us to many challenges.

We cannot be sure that our T cell immunotherapy and will yield satisfactory products that are safe and effective, scalable or profitable. Additionally, because our technology involves the genetic modification of patient cells ex vivo using viral vector, we are subject to many of the challenges and risks that gene therapies face, including regulatory requirements governing gene and cell therapy products have evolved frequently.

Moreover, public perception of therapy safety issues, including adoption of new therapeutics or novel approaches to treatment, may adversely influence the willingness of subjects to participate in clinical trials, or if approved, of physicians to subscribe to the novel treatment mechanics. Physicians, hospitals and third-party payers often are slow to adopt new products, technologies and treatment practices that require additional upfront costs and training. Physicians may not be willing to undergo training to adopt this novel and personalized therapy, may decide the therapy is too complex to adopt without appropriate training and may choose not to administer the therapy. Based on these and other factors, hospitals and payers may decide that the benefits of this new therapy do not or will not outweigh its costs.

Our near-term ability to generate significant product revenue is dependent on the success of one or more of our CAR-T, AFP TCR-T and TIL product candidates, each of which are at an early-stage of development and will require significant additional clinical testing before we can seek regulatory approval and begin commercial sales.

Our near-term ability to generate significant product revenue is highly dependent on the POC results of our cell therapy assets, and our ability to obtain regulatory approval of and successfully commercialize these products. All of these products are in the early stages of development, and will require additional pre-clinical and clinical development, regulatory review and approval in each jurisdiction in which we intend to market the products, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies to demonstrate the safety, purity and potency of the product candidates in humans. We cannot be certain that any of our product candidates will be successful in clinical studies and they may not receive regulatory approval even if they are successful in clinical studies.

Developed products that encounter safety or efficacy problems, developmental delays, regulatory issues or other problems, could significantly harm our development plans and business. Further, competitors who are developing products with similar technology may experience problems with their products that could identify problems that would potentially harm our business.

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Our CAR-T, AFP TCR-T and TIL product candidates are biologics and the manufacture of our product candidates is complex and can lead to difficulties in production, particularly with respect to process development or scaling-out of our manufacturing capabilities. Such difficulties would likely impact our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, resulting in delays or stoppages or in inability to maintain a commercially viable cost structure.

Our immune cell CAR-T, AFP TCR-T and TIL product candidates are biologics and the process of manufacturing our products is complex, highly regulated and subject to multiple risks. The manufacture of our product candidates involves complex processes, including harvesting T-cells from patients, genetically modifying the T-cells ex vivo, multiplying the T-cells to obtain the desired dose and ultimately infusing the T-cells back into a patient’s body. As a result of the complexities, the cost to manufacture these biologics in general, and our genetically modified cell product candidates in particular, is generally higher than the adipose stem cell, and the manufacturing process is less reliable and is more difficult to reproduce. Our manufacturing process will be susceptible to product loss or failure due to logistical issues associated with the collection of white blood cells, or starting material, from the patient, shipping such material to the manufacturing site, shipping the final product back to the patient and infusing the patient with the product, manufacturing issues associated with the differences in patient starting materials, interruptions in the manufacturing process, contamination, equipment or reagent failure, improper installation or operation of equipment, vendor or operator error, inconsistency in cell growth and variability in product characteristics. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If for any reason we lose a patient’s starting material or later-developed product at any point in the process, the manufacturing process for that patient will need to be restarted and the resulting delay may adversely affect that patient’s outcome. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Because our product candidates are manufactured for each particular patient, we will be required to maintain a chain of identity with respect to materials as they move from the patient to the manufacturing facility, through the manufacturing process and back to the patient. Maintaining such a chain of identity is difficult and complex, and failure to do so could result in adverse patient outcomes, loss of product or regulatory action including withdrawal of our products from the market. Further, as product candidates are developed through preclinical to late stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials.

Although we continue to develop our own manufacturing facilities to support our clinical and commercial manufacturing activities, we may, in any event, never be successful in establishing our own manufacturing facilities. We have not yet caused our product candidates to be manufactured or processed on a commercial scale and may not be able to do so for any of our product candidates. Although our manufacturing and processing approach is based upon the current approach undertaken by our third-party research institution collaborators, we do not have experience in managing the clinical and commercial manufacturing process, and our process may be more difficult or expensive than the approaches currently in use. We will make changes as we work to optimize the manufacturing process, and we cannot be sure that even minor changes in the process will not result in significantly different CAR-T, AFP TCR-T, TIL or stem cells that may not be as safe and effective as the current products deployed by our third-party research institution collaborators. As a result of these challenges, we may experience delays in our clinical development and/or commercialization plans. The manufacturing risks could delay or prevent the completion of our clinical trials or the approval of any of our product candidates by the U.S. FDA, NMPA or other regulatory authorities, result in higher costs or adversely impact commercialization of our product candidates. In addition, we will rely on third parties to perform certain specification tests on our product candidates prior to delivery to patients. Inappropriately conducted tests and unreliable data could put patients at risk of serious harm and the U.S. FDA, NMPA or other regulatory authorities could require additional clinical trials or place significant restrictions on our company until deficiencies are remedied. We are not always able to reduce the cost of goods for our product candidates to levels that will allow for an attractive return on investment if and when those product candidates are commercialized.

We rely heavily on third parties to conduct clinical trials on our product candidates.

We presently are party to, and expect that we will be required to enter into, agreements with hospitals and other research partners to perform clinical trials for us and to engage in sales, marketing and distribution efforts for our products and product candidates we may acquire in the future. We are not always able to establish or maintain third-party relationships on a commercially reasonable basis. In addition, these third parties may have similar or more established relationships with our competitors or other larger customers. Moreover, the loss for any reason of one or more of these key partners could have a significant and adverse impact on our business. If we are unable to obtain or retain third-party sales and marketing vendors on commercially acceptable terms, we may not be able to commercialize our therapy products as planned and we may experience delays in or suspension of our marketing launch. Our dependence upon third parties can adversely affect our ability to generate profits or acceptable profit margins and our ability to develop and deliver such products on a timely and competitive basis.

Outside scientists and their third-party research institutions on whom we rely for research and development and early clinical testing of our product candidates may have other commitments or conflicts of interest, which could limit our access to their expertise and harm our ability to leverage our technology platform.

We currently have limited internal research and development capabilities in solid tumors. We therefore rely at present on our third-party research institution collaborators for both capabilities. 

The outside scientists who conduct the clinical testing of our current product candidates, and who conduct the research and development upon which our product candidate pipeline depends, are not our employees; rather they serve as either independent contractors or the primary investigators under collaboration that we have with their sponsoring academic or research institution. Such scientists and collaborators may have other commitments that would limit their availability to us. Although our scientific advisors generally agree not to do competing work, if an actual or potential conflict of interest between their work for us and their work for another entity arises, we may lose their services. We are currently evaluating the feasibility of conducting these trials ourselves or commencing the trial in the United States or elsewhere. These factors could adversely affect the timing of the clinical trials, the timing of receipt and reporting of clinical data, the timing of Company-sponsored IND filings and our ability to conduct future planned clinical trials. It is also possible that some of our valuable proprietary knowledge may become publicly known through these scientific advisors if they breach their confidentiality agreements with us, which would cause competitive harm to, and have a material adverse effect on our business.

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We are not always able to maintain our licenses, patents or other intellectual property and could lose important protections that are material to continuing our operations and our future prospects.

We operate in the highly technical field of development of regenerative and immune cellular therapies. In addition to patents, we rely in part on trademark, trade secret and protection to protect our intellectual properties comprised of proprietary know how, technology and processes. However, trade secrets are difficult to protect. We have entered and expect to continue to enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers, affiliates, other advisors and potential investors. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us. These agreements may also provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may be difficult to enforce, or can be breached and may not effectively protect our intellectual property rights.

In addition to contractual measures, we try to protect the confidential nature of our proprietary information by compartmentalizing our intellectual properties as well as using other security measures. Such physical and technology measures may not provide adequate protection for our proprietary information. For example, our security measures may not prevent an employee or consultant with authorized access from misappropriating our trade secrets and providing them to a competitor, and the recourse we have available against such misconduct may be inadequate to adequately protect our interests. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Furthermore, others may independently develop our proprietary information in a manner that could prevent legal recourse by us. If any of our confidential or proprietary information, including our trade secrets and know how, were to be disclosed or misappropriated, or if a competitor independently developed any such information, our competitive position could be harmed.

Failure to obtain or maintain patent protection for our products and product candidates could have a material adverse effect on our business.

Our commercial success will depend, in part, on obtaining and maintaining patent protection for new technologies, product candidates, products and processes and successfully defending such patents against third-party challenges. To that end, we file or acquire patent applications, and have been issued patents that are intended to cover certain methods and uses relating to stem cells and cancer immune cell therapies.

The patent positions of biotechnology companies can be highly uncertain and involve complex legal, scientific and factual questions and recent court decisions have introduced significant uncertainty regarding the strength of patents in the industry. Moreover, the legal systems of some countries do not favor the aggressive enforcement of patents and may not protect our intellectual property rights to the same extent as they would, for instance, under the laws of the United States. Any of the issued patents we own or license that are challenged by third parties and held to be invalid, unenforceable or with a narrower or different scope of coverage that what we currently believe, could effectively reduce or eliminate protection we believed we had against competitors with similar products or technologies. If we ultimately engage in and lose any such patent disputes, we could be subject to competition and/or significant liabilities, we could be required to enter into third-party licenses or we could be required to cease using the disputed technology or product. In addition, even if such licenses are available, the terms of any license requested by a third party could be unacceptable to us.

The claims of any current or future patents that may issue or be licensed to us may not contain claims that are sufficiently broad to prevent others from utilizing the covered technologies and thus may provide us with little commercial protection against competing products. Consequently, our competitors may independently develop competing products that do not infringe our patents or other intellectual property. To the extent a competitor can develop similar products using a different chemistry, our patents and patent applications may not prevent others from directly competing with us. Product development and approval timelines for certain products and therapies in our industry can require a significant amount of time (i.e., many years). As such, it is possible that any patents that may cover an approved product or therapy may have expired at the time of commercialization or only have a short remaining period of exclusivity, thereby reducing the commercial advantages of the patent. In such case, we would then rely solely on other forms of exclusivity which may provide less protection to our competitive position. 

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Litigation and other proceedings relating to intellectual property are expensive, time consuming and uncertain, and we are not always successful in our efforts to protect against infringement by third parties or defend ourselves against claims of infringement or otherwise.

To protect our intellectual property, we may initiate litigation or other proceedings. In general, intellectual property litigation is costly, time-consuming, diverts the attention of management and technical personnel and could result in substantial uncertainty regarding our future viability, even if we ultimately prevail. Some of our competitors may be able to sustain the costs of such litigation or other proceedings more effectively than we can because of their substantially greater financial resources. The loss or narrowing of our intellectual property protection, the inability to secure or enforce our intellectual property rights or a finding that we have infringed the intellectual property rights of a third party could limit our ability to develop or market our products and services in the future or adversely affect our revenues. Furthermore, any public announcements related to such litigation or regulatory proceedings could adversely affect the price of our common stock. Third parties may allege that the research, development and commercialization activities we conduct infringe patents or other proprietary rights owned by such parties. This may turn out to be the case even though we have conducted a search and analysis of third-party patent rights and have determined that certain aspects of our research and development and proposed products activities apparently do not infringe on any third-party Chinese patent rights. If we are found to have infringed the patents of a third party, we may be required to pay substantial damages; we also may be required to seek from such party a license, which may not be available on acceptable terms, if at all, to continue our activities. A judicial finding of infringement or the failure to obtain necessary licenses could prevent us from commercializing our products, which would have a material adverse effect on our business, operating results and financial condition.

We have in the past, and may in the future, need to initiate litigation or other proceedings to protect our intellectual property. Third parties have in the past, and may in the future, initiate proceedings to challenge our intellectual property rights. For instance, in April 2018, a company based in Hangzhou, China, submitted a petition with the PRC Trademark Office to challenge our ReJoin™ trademark on the basis of a lack of use. We collected evidence and timely submitted a response to refute the claim and the State Trademark Office accepted our response, overruling the Hangzhou company’s application for revoking ReJoin™. Although we are dedicated to protecting our intellectual property in such proceedings and believe that we have resources to do so, there is no assurance that we will successfully defend such notice in each of these matters. The loss or narrowing of our intellectual property protection, the inability to secure or enforce our intellectual property rights or a finding that we have infringed the intellectual property rights of a third party would likely limit our ability to develop or market our products and services in the future or adversely affect our revenues, which would have a material adverse effect on our business, operating results and financial condition.

We do not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.

Filing, prosecuting and defending patents on our product candidates in all countries and jurisdictions throughout the world would be impracticable and cost prohibitive, and our intellectual property rights in some countries could be less extensive than those in the People’s Republic of China or the United States, assuming that rights are obtained in these jurisdiction. In addition, the laws of some foreign countries may not protect all of our intellectual properties.

Failure to protect the confidentiality of trade secrets, our competitive position could be impaired.

A significant amount of our technology, particularly with respect to our proprietary manufacturing processes, is unpatented and is held in the form of trade secrets. Our efforts to protect these trade secrets are comprised of the use of confidentiality and proprietary information agreement, physically secured documentation and knowledge segmentation among our staff. Even so, improper use or disclosure of our confidential information could occur and in such cases adequate remedies may be insufficient to protect our competitive position or may not exist. The inadvertent disclosure of our trade secrets could also impair our competitive position.

PRC intellectual property law requires us to compensate our employees for the intellectual property that they may help to develop under certain situations.

We have entered and expect to continue to enter into confidentiality and intellectual property assignment agreements with most of our employees, consultants, outside scientific collaborators, sponsored researchers, affiliates and other advisors. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us. These agreements may also provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may be difficult to enforce, or can be breached and may not effectively protect our intellectual property rights.

The PRC laws codify a “reward/award” policy which entitles employees to certain levels of compensation and bonus from their service invention-creations for which their employers filed for and were granted patent protection. In the absence of any contractual understanding, the Implementing Regulations of the Patent Law of the PRC require a minimum compensation and bonus to such employees as: (a) bonuses for (i) each invention patent, a one-time reward of no less than 3,000 RMB, or (ii) each utility model or design patent, a one-time reward of no less than 1,000 RMB, and (b) compensation: (i) for each invention patent and utility model, at least 2% of annual operating profits derived from the use of the patent during its validity period (or a one-time compensation with reference to the such ratio), (ii) for each design patent, at least 0.2% of annual operating profits derived from the use of the design patent during its validity period (or a one-time compensation with reference to such ratio) and (iii) of at least 10% of royalties received from the licensing the patent to a third party.

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Although our bylaws allow us to issue bonuses to our employees, we have not contractually limited the amount of compensation that we may pay them for being granted patents for their ideas, developments, discoveries or inventions. As such, should any of our employees who have not contractually agreed otherwise seek to enforce these rights, we may be required to pay the statutorily mandated minimum to our employees as required by this law. Our product candidates are still in the clinical trial stage and as of the date of this annual report, we have not derived any revenue from our product-related patents. However, if and when we commercialize our product candidates or therapies, or if we are required to pay our employees any compensation for patents relating to our technical services, such compensation could be substantial and may harm our business prospects, financial condition and results of operations.

Our technologies are at early stages of discovery and development, and may not necessarily lead to any commercially acceptable or profitable products.

We have yet to develop any therapeutic products that have been approved for marketing, and we do not expect to become profitable within the next several years, but rather expect our biopharmaceutical business to incur additional and increasing operating losses. Before commercializing any therapeutic product in China, we may be required to obtain regulatory approval from the MOH, NMPA, local regulatory authorities and/or individual hospitals, and outside China from equivalent foreign agencies after conducting extensive preclinical studies and clinical trials that demonstrate that the product candidate is safe and effective.

We have in the past and may in the future elect to delay or discontinue studies or clinical trials based on unfavorable results. Any product developed from, or based on, cell technologies may fail to:

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survive and persist in the desired location;

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provide the intended therapeutic benefit;

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engraft or integrate into existing tissue in the desired manner; or

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achieve therapeutic benefits equal to, or better than, the standard of treatment at the time of testing.

In addition, our therapeutic products may cause undesirable side effects. Results of preclinical research in animals may not be indicative of future clinical results in humans.

Ultimately if regulatory authorities do not approve our products or if we fail to maintain regulatory compliance, we would be unable to commercialize our products, and our business and results of operations would be harmed. Even if we do succeed in developing products, we will face many potential obstacles such as the need to develop or obtain manufacturing, marketing and distribution capabilities. Furthermore, because transplantation of cells is a new form of therapy, the marketplace may not accept any products we may develop.

Most potential applications of our technology are pre-commercialization, which subjects us to development and marketing risks.

We are in a relatively early stage on the path to commercialization with many of our products. Successful development and market acceptance of our products is subject to developmental risks, including failure to achieve innovative solutions to problems during development, ineffectiveness, lack of safety, unreliability, failure to receive necessary regulatory clearances or approvals, approval by hospital ethics committees and other governing bodies, high commercial cost, preclusion or obsolescence resulting from third parties’ proprietary rights or superior or equivalent products, competition and general economic conditions affecting purchasing patterns. There is no assurance that we or our partners will successfully develop and commercialize our products, or that our competitors will not develop competing products, treatments or technologies that are less expensive or superior. Failure to successfully develop and market our products would have a substantial negative effect on our results of operations and financial condition.

Market acceptance of new technology such as ours can be difficult to obtain.

New and emerging cell therapy and cell banking technologies may have difficulty or encounter significant delays in obtaining market acceptance in some or all countries around the world due to the novelty of our cell therapy and cell banking technologies. Therefore, the market adoption of our cell therapy and cell banking technologies may be slow and lengthy with no assurances that the technology will be successfully adopted. The lack of market adoption or reduced or minimal market adoption of cell therapy and cell banking technologies may have a significant impact on our ability to successfully sell our future product(s) or therapies within China or in other countries. Our strategy depends in part on the adoption of the therapies we may develop by state-owned hospital systems in China, and the allocation of resources to new technologies and treatment methods is largely dependent upon ethics committees and governing bodies within the hospitals. Even if our clinical trials are successful, there can be no assurance that hospitals in China will adopt our technology and therapies as readily as we may anticipate.

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Future clinical trial results can differ significantly from our expectations.

While we have proceeded incrementally with our clinical trials in an effort to gauge the risks of proceeding with larger and more expensive trials, we cannot guarantee that we will not experience negative results with larger and much more expensive clinical trials than we have conducted to date. Poor results in our clinical trials could result in substantial delays in commercialization, substantial negative effects on the perception of our products and substantial additional costs. These risks are increased by our reliance on third parties in the performance of many of the clinical trial functions, including the clinical investigators, hospitals and other third-party service providers.

Failure of our clinical trials to demonstrate safety and efficacy to the satisfaction of the relevant regulatory authorities, including the PRC’s National Medicinal Product Administration and the Ministry of Health, or failure to otherwise produce positive results, subjects us to additional costs or delays in completing the development and commercialization of such product candidates.

Currently, a regulatory structure has not been established to standardize the approval process for products or therapies based on the technology that exists or that is being developed in our field. Therefore we must conduct, at our own expense, extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans, and then archive our results until such time as a new regulatory regime is put in place. If and when this new regulatory regime is adopted, it may be easier or more difficult to navigate than CBMG may anticipate, with the following potential barriers:

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regulators or institutional review boards may not authorize us or our investigators to commence clinical trials or conduct clinical trials at a prospective trial site;

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clinical trials of product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs that we expect to be pursuing;

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the number of patients required for clinical trials of product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we anticipate;

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third party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner or at all;

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we might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks;

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regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

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the cost of clinical trials of our product candidates may be greater than anticipated;

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we may be subject to a more complex regulatory process, since cell-based therapies are relatively new and regulatory agencies have less experience with them as compared to traditional pharmaceutical products;

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the supply or quality of our product candidates or other materials necessary to conduct clinical trials of these product candidates may be insufficient or inadequate; and

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our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators to halt or terminate the trials.

We may be unable to generate interest or meaningful revenue in out-licensing our intellectual property.

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The results of preclinical studies do not always correlate with the results of human clinical trials. In addition, early stage clinical trial results do not ensure success in later stage clinical trials, and interim trial results are not necessarily predictive of final trial results.

To date, we have not completed the development of any products through regulatory approval. The results of preclinical studies in animals may not be predictive of results in a clinical trial. Likewise, the outcomes of early clinical trials are not necessarily predictive of the success of later clinical trials. New information regarding the safety and efficacy of such product candidates can be less favorable than the data observed to date. AG’s budding technical service revenue in the Jilin Hospital should not be relied upon as evidence that later or larger-scale clinical trials will succeed. In addition, even if the trials are successfully completed, we cannot guarantee that the NMPA will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory to the NMPA or other foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.

If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of patients depends on many factors, including:

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the patient eligibility criteria defined in the protocol;

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the size of the patient population required for analysis of the trial’s primary endpoints;

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the proximity of patients to study sites;

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the design of the trial;

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our ability to recruit clinical trial investigators with the appropriate competencies and experience;

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our ability to obtain and maintain patient consents; and

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the risk that patients enrolled in clinical trials will drop out of the trials before completion.

In addition, our clinical trials may compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition may reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site. Moreover, because our product candidates represent a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy and or traditional Chinese medicine, rather than enroll patients in any future clinical trial.

Upon commencing clinical trials, delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.

We are exposed to general liability, nonclinical and clinical liability risks which could place a substantial financial burden upon us, should lawsuits be filed against us.

Our business exposes us to potential liability risks that are inherent in the testing, manufacturing and marketing of our therapies and product candidates. Such claims may be asserted against us at some point. In addition, the use in our clinical trials of our therapies and products and the subsequent sale of these therapies or product candidates by us or our potential collaborators may cause us to bear a portion of or all product liability risks. We currently have insurance coverage relating to inventory, property plant and equipment and office premises. The Company also purchased insurance covering personal injury, medical expenses and several clinical trials. However, any claim under such insurance policies may be subject to certain exceptions, and may not be honored fully, in part, in a timely manner, or at all, and may not cover the full extent of liability we may actually face. Therefore, a successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.

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We currently have no CAR-T, TCR-T, TIL or KOA product marketing and sales organization and have no experience in marketing such products. Failure to establish product marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates may result in less product revenue than expected.

We currently have no CAR-T, TCR-T, TIL or KOA product sales, marketing or distribution capabilities and have no experience in marketing products. We intend to develop an in-house product marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.

If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing of our products, however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates. There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product in China or overseas.

Coverage and reimbursement can be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our product candidates profitably.

Successful sales of our product candidates, if approved, depend on the availability of adequate coverage and reimbursement from third-party payers. In addition, because our product candidates represent new approaches to the treatment of cancer, we cannot accurately estimate the potential revenue from our product candidates.

Patients who are provided medical treatment for their conditions generally rely on third-party payers to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs and commercial payers are critical to new product acceptance. In China, government authorities decide which drugs and treatments they will cover and the amount of reimbursement. Obtaining coverage and reimbursement approval of a product from a government or other third-party payer is a time-consuming and costly process that could require us to provide to the payer supporting scientific, clinical and cost-effectiveness data for the use of our products. Even if we obtain coverage for a given product, the resulting reimbursement payment rates will not necessarily be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Patients are unlikely to use our product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates. Obtaining approval in one or more jurisdictions outside of China for our product candidates will subject us to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the EU, the pricing of biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payers for our product candidates and may be affected by existing and future health care reform measures. The continuing efforts of the government, insurance companies, managed care organizations and other payers of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

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the demand for our product candidates, if we obtain regulatory approval;

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our ability to set a price that we believe is fair for our products;

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our ability to generate revenue and achieve or maintain profitability;

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the level of taxes that we are required to pay; and

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the availability of capital.

Any reduction in reimbursement from any government programs may result in a similar reduction in payments from private payers, which may adversely affect our future profitability.

Our product candidates sometimes cause undesirable side effects or have other properties that could interrupt our clinical development, prevent or delay regulatory approval, and limit our commercial value or result in significant negative consequences.

Undesirable or unacceptable side effects caused by our product candidates could cause us or regulatory authorities to delay, suspend or stop clinical trials and could result in the delay or denial of regulatory approval by the regulatory authorities. Results of our trials could reveal unacceptable severe adverse effects or unexpected characteristics.

There have been reported patient deaths in immune cell therapies as a result of factors comprised of cytokine release syndrome and neurotoxicity. Immune Cell therapy treatment-related adverse side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential liability claims. In addition, these side effects may not be recognized or properly managed by the treating medical staff, as medical personnel do not normally encounter in the general patient population toxicities resulting from personalized immune cell therapy. We plan to conduct training for the medical personnel using immune cell therapy to understand the adverse side effect profile for our clinical trials and upon any commercialization of any immune cell product candidates. Inability of the medical personnel in recognizing or managing immune cell therapy’s potential adverse side effects could result in patient deaths. Any of these occurrences may harm our business, financial condition and prospects significantly.

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Our manufacturing facilities are subject to extensive government regulation, and existing or future regulations may adversely affect our current or future operations, increase our costs of operations, or require us to make additional capital expenditures.

Environmental advocacy groups and regulatory agencies in China have been focusing considerable attention on our industry’s potential role in climate change. Stringent government safety, environmental and biohazardous materials disposal regulations at the city, provincial and local level may have substantial impact on our business and our third-party service providers. A number of complex laws, rules, orders and interpretations govern environmental protection, health, safety, land use, zoning, transportation and related matters. The adoption of laws and regulations to implement controls of bio-hazardous material disposal and environmental compliance, including the imposition of fees or taxes, could adversely affect the operations with which we do business. Among other things, timeliness in navigating the compliance of these regulations may restrict our operations, our third-party service providers’ operations and adversely affect our financial condition, results of operations and cash flows by imposing conditions including, but not limited to new permits requirement, limitations or bans on disposal or transportation of certain biohazardous materials or certain categories of materials. The Company has completed the legal procedure of construction completion acceptance of environmental protection facilities for its new Zhangjiang facility for R&D and clinical status in January 2019. Subsequently, the Company has launched the Environment Impact Assessment (EIA) for its upcoming production, and the government approval of the EIA report is estimated to be obtained in February 2020. The Company has terminated its lease in the Beijing facility and is updating the environmental protection permits for its Shanghai facility.

Technological and medical developments or improvements in conventional therapies could render the use of cell therapy and our services and planned products obsolete.

Advances in other treatment methods or in disease prevention techniques could significantly reduce or entirely eliminate the need for our cell therapy services, planned products and therapeutic efforts. There is no assurance that cell therapies will achieve the degree of success envisioned by us in the treatment of disease. Nor is there any assurance that new technological improvements or techniques will not render obsolete the processes currently used by us, the need for our services or our planned products. Additionally, technological or medical developments may materially alter the commercial viability of our technology or services, and require us to incur significant costs to replace or modify equipment in which we have a substantial investment. We are focused on novel cell therapies, and if this field is substantially unsuccessful, this could jeopardize our success or future results. The occurrence of any of these factors may have a material adverse effect on our business, operating results and financial condition.

We face significant competition from other Chinese biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

There is intense competition and rapid innovation in the Chinese cell therapy industry, and in the cancer immunotherapy space in particular. Our competitors may be able to develop other herbal medicine, compounds or drugs that are able to achieve similar or better results. Our potential competitors are comprised of traditional Chinese medicine companies, major multinational pharmaceutical companies, established and new biotechnology companies, specialty pharmaceutical companies, state-owned enterprises, universities and other research institutions. Many of our competitors have substantially greater scientific, financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies or when they are well funded by venture capitals. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products. We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety, tolerability, reliability and convenience of use, price and reimbursement.

Even if we obtain regulatory approval of our product candidates, the availability and price of our competitors’ products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of doctors to switch from existing methods of treatment to our product candidates, or if doctors switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances.

We rely on our share-based compensation programs and other competitive benefits to attract or retain key employees for our business.

To be competitive, we must attract, retain and motivate executives and other key employees. Hiring and retaining qualified executives, scientists, technical staff and professional staff are critical to our business, and competition for experienced employees can be intense. To help attract, retain and motivate key employees, we use share-based and other performance-based incentive awards such as stock options, restricted stock units (RSUs) and cash bonuses. If our share-based or other compensation programs cease to be viewed as competitive and valuable benefits, our ability to attract, retain and motivate key employees could be weakened, which could harm our results of operations.

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There is a scarcity of experienced professionals in the field of cell therapy and we face risks related to retaining key officers or employees or hiring new key officers or employees needed to implement our business strategy and develop our products. Failure to retain or hire key officers or employees could prevent us from growing our biopharmaceutical business or implementing our business strategy, and may materially and adversely affect the Company.

Given the specialized nature of cell therapy and the fact that it is a young field, there is an inherent scarcity of experienced personnel in the field. The Company is substantially dependent on the skills and efforts of current senior management for their management, operations and the implementation of their business strategy. As a result of the difficulty in locating qualified new management, the loss or incapacity of existing members of management or unavailability of qualified management or as replacements for management who resign or are terminated could adversely affect the Company’s operations. The future success of the Company also depends upon our ability to attract and retain additional qualified personnel (including medical, scientific, technical, commercial, business and administrative personnel) necessary to support our anticipated growth, develop our business, perform our contractual obligations to third parties and maintain appropriate licensure, on acceptable terms. There can be no assurance that we will be successful in attracting or retaining personnel required by us to continue to grow our operations. The loss of a key employee, the failure of a key employee to perform in his or her current position or our inability to attract and retain skilled employees, as needed, could result in our inability to grow our biopharmaceutical business or implement our business strategy, or may have a material adverse effect on our business, financial condition and operating results.

Failure to successfully integrate our acquired businesses, operations and assets in the expected time frame may adversely affect the combined Company’s future results.

We believe that our immuno-oncology acquisitions will result in certain benefits, including certain manufacturing, sales and distribution and operational efficiencies. However, to realize these anticipated benefits, our existing business and the acquired technologies must be successfully combined. We are not always able to effectively integrate the acquired technologies into our organization, make the acquired technologies profitable, or succeed in managing the acquired technologies. The process of integration of acquired technologies subjects us to a number of risks, including:

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Failure to successfully manage relationships with hospitals, patients and suppliers;

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Demands on management related to the increase in complexity of the company after the acquisition;

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Diversion of management and scientists’ attention;

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Potential difficulties integrating and harmonizing large scale multi-site clinical trials;

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Difficulties in the assimilation and retention of employees;

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Exposure to legal claims for activities of the acquired technologies; and

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Incurrence of additional expenses in connection with the integration process.

If the acquired technologies are not successfully integrated into our company, our business, financial condition and results of operations could be materially adversely affected, as well as our professional reputation. Furthermore, failure to successfully integrate the acquired technologies, or delays in implementing clinical trials using the acquired technologies, may result in the anticipated benefits of the acquisition not being realized fully or at all or may take longer to realize than expected. Successful integration of the acquired technologies will depend on our ability to manage large scale cancer clinical trials and to realize opportunities in monetizing these technologies.

We will need to grow the size of our organization and face risks related to managing this growth.

As our development and commercialization plans and strategies develop, and as we continue to expand operation as a public company, we expect to grow our personnel needs in the managerial, operational, sales, marketing, financial and other departments. Future growth would impose significant added responsibilities on members of management, including:

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identifying, recruiting, integrating, maintaining and motivating additional employees;

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managing our internal development efforts effectively, including the clinical trials and NMPA review process for our product candidates, while complying with our contractual obligations to contractors and other third parties; and

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improving our operational, financial and management controls, reporting systems and procedures.

Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

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We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations such as contract research organizations and hospitals to provide certain services comprised of regulatory approval and clinical management. There can be no assurance that the services of independent organizations will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by the independent organizations is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. If we are not able to effectively expand our organization by hiring new employees, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.

We often form or seek strategic alliances or enter into licensing arrangements but do not always realize the benefits of such alliances or licensing arrangements.

We often form or seek strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties, including but not limited to our collaboration with Novartis, that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop. These relationships often require us to incur nonrecurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we are not always successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. When we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. We cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition and results of operations.

Among other challenges in connection with our strategic alliances and licensing transactions, our partnership with Novartis may not be successful or profitable. We face risks from unfavorable regulatory, technical or market developments. While our manufacturing capabilities on CAR-T products set us apart from many of our competitors, we have yet to commercialize any of our drug candidates and have yet to generate any revenue from the sale of our products, and there is no assurance that we will be able to generate revenue or net profit from our Kymriah® sale to Novartis. There is no assurance that we can successfully complete the transfer of Kymriah® to our manufacturing facility and receive regulatory approval to start commercial production. We cannot be assured that after a drug candidate is eventually made available for sale that it will gain market acceptance from physicians, patients, third-party payers and others in the medical community. Novartis has the right to unilaterally terminate our agreement for any reason or no reason. Market acceptance after the drug approval may cause us not be able to generate sufficient revenue to recuperate our investment in the partnership. Any unfavorable developments before or after Kymriah® is commercialized in China may have a material adverse effect on our business. Any unfavorable regulatory, technical or market development could render the partnership with Novartis untenable.

We, our strategic partners and our customers conduct business in a heavily regulated industry. Failure to comply with applicable current and future laws and government regulations could adversely affect our business and financial results could be adversely affected.

The healthcare industry is one of the most highly regulated industries. Federal governments, individual state and local governments and private accreditation organizations may oversee and monitor all the activities of individuals and businesses engaged in the delivery of health care products and services. Therefore, current laws, rules and regulations could directly or indirectly negatively affect our ability and the ability of our strategic partners and customers to operate each of their businesses.

 In addition, as we expand into other parts of the world, we will need to comply with the applicable laws and regulations in such foreign jurisdictions. We have not yet thoroughly explored the requirements or feasibility of such compliance. It is possible that we may not be permitted to expand our business into one or more foreign jurisdictions.

Although we intend to conduct our business in compliance with applicable laws and regulations, the laws and regulations affecting our business and relationships are complex, and many aspects of such relationships have not been the subject of judicial or regulatory interpretation. Furthermore, the cell therapy industry is the topic of significant government interest, and thus the laws and regulations applicable to us and our strategic partners and customers and to their business are subject to frequent change and/or reinterpretation and there can be no assurance that the laws and regulations applicable to us and our strategic partners and customers will not be amended or interpreted in a manner that adversely affects our business, financial condition or operating results.

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We anticipate that we will need substantial additional financing in the future to continue our operations; if we are unable to raise additional capital, as and when needed, or on acceptable terms, we may be forced to delay, reduce or eliminate one or more of our product or therapy development programs, cell therapy initiatives or commercialization efforts and our business will be harmed.

Our current operating plan will require significant levels of additional capital to fund, among other things, the continued development of our cell therapy product or therapy candidates and the operation and expansion of our manufacturing operations to our clinical development activities.

We plan to continue to launch several new Immune Oncology clinical trials and continue to advance our KOA clinical trials in China. We also plan to conduct solid tumor clinical trials in the United States. Successful trials will require significant additional investment capital over a multiyear period in order to conduct subsequent phases, gain approval for these therapies by the NMPA and the U.S. FDA, and commercialize these therapies. Subsequent phases may be larger and more expensive than the initial trials. In order to raise the necessary capital, we will need to raise additional money in the capital markets, enter into collaboration agreements with third parties or undertake some combination of these strategies. If we are unsuccessful in these efforts, we may have no choice but to delay or abandon the trials.

The amount and timing of our future capital requirements also will likely depend on many other factors, including:

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the scope, progress, results, costs, timing and outcomes of our other cell therapy product or therapy candidates;

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our ability to enter into, or continue, any collaboration agreements with third parties for our product or therapy candidates and the timing and terms of any such agreements;

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the timing of and the costs involved in obtaining regulatory approvals for our product or therapy candidates, a process which could be particularly lengthy or complex given the lack of precedent for cell therapy products in China; and

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the costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities.

To fund clinical studies and support our future operations, we would likely seek to raise capital through a variety of different public and/or private financings vehicles. This could include, but not be limited to, the use of loans or issuances of debt or equity securities in public or private financings. Raising capital through the sale of equity, or securities convertible into equity, would result in dilution to our then existing stockholders. Servicing the interest and principal repayment obligations under debt facilities could divert funds that would otherwise be available to support clinical or commercialization activities. In certain cases, we also may seek funding through collaborative arrangements, that would likely require us to relinquish certain rights to our technology or product or therapy candidates and share in the future revenues associated with the partnered product or therapy.

Ultimately, we may be unable to raise capital or enter into collaborative relationships on terms that are acceptable to us, if at all. Our inability to obtain necessary capital or financing to fund our future operating needs could adversely affect our business, results of operations and financial condition.

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Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results.

It may be time consuming, difficult and costly for us to develop and implement the additional internal controls, processes and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal auditing and other finance staff in order to develop and implement appropriate additional internal controls, processes and reporting procedures. 

If we fail to comply in a timely manner with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal controls over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common stock.

In connection with our ongoing assessment of the effectiveness of our internal control over financial reporting, we may discover “material weaknesses” in our internal controls as defined in standards established by the Public Company Accounting Oversight Board (“PCAOB”). A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The PCAOB defines “significant deficiency” as a deficiency that results in more than a remote likelihood that a misstatement of the financial statements that is more than inconsequential will not be prevented or detected.

During the year ended December 31, 2015, we made improvements in our internal control and have remediated the deficiencies identified in 2014. In the event that future material weaknesses are identified, we will attempt to employ qualified personnel and adopt and implement policies and procedures to address any material weaknesses we identify. However, the process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

Any failure to complete our assessment of our internal control over financial reporting, to remediate any material weaknesses that we may identify or to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material weaknesses that we may identify, would adversely affect the annual management reports regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

The Company’s revenue may become subject to tightened regulation that may affect the Company’s financial condition.

Currently we are not generating any meaningful revenue, which revenue is currently primarily comprised of technical services relating to the preparation of subset T-Cell and clonality assay platform technology for treatment of cancers. Nonetheless our revenue may be subject to the risk of progressive regulatory actions by the PRC government. From time to time there may also be adverse publicity relating to the practice of cell therapy treatments in China, which due to the sensitive and experimental nature of the treatment, may trigger further governmental scrutiny. Any progressive regulatory action in China arising out of such scrutiny may adversely affect the Company’s financial condition or cash flows.

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Our business activities for fiscal 2020 are expected to be adversely affected by the recent coronavirus outbreak in China.

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The Wuhan coronavirus, or 2019-nCoV, currently appears to be spreading at a fast rate, indicating its highly contagious nature. The number of confirmed cases in China has been steadily increasing, with the mortality rate around 2.1%. The coronavirus also displayed longer incubation period and is contagious before symptoms appear. In reaction towards the outbreak of this new contagious disease, an increasing number of countries imposed travel suspensions to/from China following the World Health Organization’s “public health emergency of international concern” (PHEIC) announcement on January 30, 2020. For the month after the outbreak of the coronavirus, domestic business activities in China had been disrupted by a series of emergency quarantine measures taken by the government.

Emergency quarantine measures and travel restrictions cause business disruptions across China, which we expect to seriously slow down our business operation, which would harm our financial condition and increase our costs and expenses. The evolution of quarantine measures and travel restrictions will likely result in negative consequences for our process development and clinical studies in China. Our business operations, and those of our third-party research institution collaborators, suppliers and other contractors, are subject to the business interruptions arising from these measures. Business disruptions across China would also negatively affect the sources and availability of raw material, which are essential to the operation of our business. Damage or extended periods of interruption to our corporate, development, research or manufacturing facilities due to this coronavirus outbreak will likely cause us to cease or delay process development or clinical studies of some or all of our pipeline drug candidates. In addition, our business is subject to risks associated with the global spread of the coronavirus as we operate in both China and the U.S. Our process development of drug candidates involves traveling of key personnel between China and the U.S. on a frequent and regular basis, which has been disrupted due to travel restrictions and cancellation of flights. Accordingly, our business and financial results in the future will likely be adversely affected due to significant adverse development of the coronavirus globally.

The extent to which the coronavirus negatively impacts our business results is highly uncertain and cannot be accurately predicted. We believe that the coronavirus outbreak and the measures taken to control it may have a large negative impact on economic activities in China. A majority part of our business operations is conducted in China and we have strategic partnership with Chinese partners or partners’ Chinese operations with regard to our supply chain, clinical development and pipeline projects, which are all expected to be negatively affected by the coronavirus outbreak. The magnitude of this negative effect on the continuity of our business operation and supply chains in China remains uncertain. These uncertainties impede our ability to conduct our daily operations and could materially and adversely affect our business, financial condition and results of operations.

Our clinical development activities for fiscal 2020 are expected to be adversely affected by the recent coronavirus outbreak in China.

Our investigator has initiated clinical trials on our drug candidates that have been negatively affected by the emergency quarantine measures adopted by the Chinese government, which include holiday extension, travel restrictions and cancellation of major events nationwide. Disruptions or restrictions on our ability to travel or to conduct clinical trials, as well as temporary closures of our facilities or the facilities of our clinical trials partners and their contract manufacturers, would negatively impact our clinical development activities in China. We have invested a significant portion of our efforts and financial resources in the development of clinical-stage drug candidates. We partially rely on our third-party institution collaborators, such as hospitals for conducting clinical trials of our drug candidates, which may be affected by the emergency measures. The timely completion of our clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. We may experience difficulties in patient enrollment due to government-imposed travel restrictions, limited access to public venues and patients’ unwillingness to visit hospitals for fear of attracting the coronavirus. Such difficulties would likely slow enrollment significantly in, and completion of, our clinical trials (which are mostly conducted on-site in hospitals), as well as completion of pre-clinical studies.

The duration of the business disruption, reduced patient enrollment and related operational impact cannot be reasonably estimated at this time but are expected to materially affect our clinical development activities. A significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economy and financial markets of China and may escalate globally, resulting in significant clinical trial or regulatory delays, which may also increase our development costs and could materially and adversely affect our clinical development activities. 

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RISKS RELATED TO OUR STRUCTURE

Our operations are subject to risks associated with emerging markets.

The Chinese economy is not well established and is only recently emerging and growing as a significant market for consumer goods and services. Accordingly, there is no assurance that the market will continue to grow. Perceived risks associated with investing in China, or a general disruption in the development of China’s markets could materially and adversely affect the business, operating results and financial condition of the Company.

Investors can face difficulty enforcing federal securities laws or other legal rights because some of our assets are currently located in the PRC.

A portion of our assets are located in the PRC. As a result, it can be difficult for investors in the U.S. to enforce their legal rights, to effect service of process upon certain of our directors or officers or to enforce judgments of U.S. courts predicated upon civil liabilities and criminal penalties against any of our directors and officers located outside of the U.S.

The PRC government has the ability to exercise significant influence and control over our operations in China.

In recent years, the PRC government has implemented measures for economic reform, the reduction of state ownership of productive assets and the establishment of corporate governance practices in business enterprises. However, many productive assets in China are still owned by the PRC government. In addition, the government continues to play a significant role in regulating industrial development by imposing business regulations. It also exercises significant control over the country’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

There can be no assurance that China’s economic, political or legal systems will not develop in a way that becomes detrimental to our business, results of operations and financial condition. Our activities may be materially and adversely affected by changes in China’s economic and social conditions and by changes in the policies of the government, such as measures to control inflation, changes in the rates or method of taxation and the imposition of additional restrictions on currency conversion.

Additional risks we face in connection with having operations in China that may adversely affect our business and results of operations include:

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our inability to enforce or obtain a remedy under any material agreements;

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PRC restrictions on foreign investment that could impair our ability to conduct our business or acquire or contract with other entities in the future;

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restrictions on currency exchange that may limit our ability to use cash flow most effectively or to repatriate our investment;

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fluctuations in currency values;

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cultural, language and managerial differences that may reduce our overall performance; and

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political instability in China.

Cultural, language and managerial differences can adversely affect our overall performance.

We have experienced difficulties in assimilating cultural, language and managerial differences with our subsidiaries in China. Personnel issues have developed in consolidating management teams from different cultural backgrounds. In addition, language translation issues from time to time have caused miscommunications. These factors make the management of our operations in China more difficult. Difficulties in coordinating the efforts of our U.S.-based management team with our China-based management team may cause our business, operating results and financial condition to be materially and adversely affected.

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We face risks related to enforcing our rights in China given certain features of its legal and judicial system.

China’s legal and judicial system can negatively impact foreign investors. The legal system in China is evolving rapidly, and enforcement of laws is inconsistent. Obtaining swift and equitable enforcement of laws or enforcement of the judgment of one court by a court of another jurisdiction is not always possible. China’s legal system is based on civil law or written statutes and a decision by one judge does not set a legal precedent that must be followed by judges in other cases. In addition, the interpretation of Chinese laws can vary to reflect domestic political changes.

Since a significant portion of our operations are presently based in China, service of process on our business and officers can be difficult to effect within the United States. Also, some of our assets are located outside the United States and a judgment obtained in the United States against us is not always enforceable outside the United States.

There are substantial uncertainties regarding the interpretation and application to our business of PRC laws and regulations, since many of the rules and regulations that companies face in China are not made public. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that apply to future businesses may be applied retroactively to existing businesses. We cannot predict what effect the interpretations of existing or new PRC laws or regulations may have on our business. 

The inability to utilize our assets in China can result in losses.

The Company’s Shanghai and Wuxi laboratory facilities were originally intended for stem cell research and development, but have been equipped to provide comprehensive cell manufacturing, collection, processing and storage capabilities to provide cells for clinical trials. If the Company does determines not to renew the lease due to limitations on its utility under the new regulatory initiatives in China or otherwise, the Company will be subject to certain expenses in connection with returning the premises to the landlord.

Restrictions on currency exchange can limit our ability to utilize our cash flow effectively.

Our interests in China will be subject to China’s rules and regulations on currency conversion. In particular, the initial capitalization and operating expenses of the VIE (CBMG Shanghai) are funded by our WFOE, Cellular Biomedicine Group Ltd. (Wuxi). In China, the State Administration for Foreign Exchange (the “SAFE”) regulates the conversion of the Chinese Renminbi into foreign currencies and the conversion of foreign currencies into Chinese Renminbi. Foreign investment enterprises are allowed to open currency accounts including a “basic account” and “capital account.” However, conversion of currency in the “capital account,” including capital items such as direct investments, loans and securities, require approval of the SAFE even though according to the Notice of the State Administration of Foreign Exchange on Reforming the Administration of the Settlement of Foreign Exchange Capital of Foreign-invested Enterprise promulgated on April 8, 2015, or the SAFE Notice 19, and Notice of the State Administration of Foreign Exchange on Reforming and Regulating the Policies for the Administration of Settlement of Foreign Exchange under Capital Accounts promulgated on June 9, 2016, or the SAFE Notice 16, foreign-invested enterprises are able to settle foreign exchange capital at their discretion, Chinese banks restricts foreign currency conversion for fear of “hot money” going into China and may continue to limit our ability to channel funds to the VIE entities for their operation. There can be no assurance that the PRC regulatory authorities will not impose further restrictions on the convertibility of the Chinese currency. Future restrictions on currency exchanges can limit our ability to use our cash flow for the distribution of dividends to our stockholders or to fund operations we may have outside of China, which could materially adversely affect our business and operating results.

Fluctuations in the value of the Renminbi relative to the U.S. dollar can affect our operating results. 

We prepare our financial statements in U.S. dollars, while our underlying businesses operate in two currencies, U.S. dollars and Chinese Renminbi. We anticipate our Chinese operations will conduct their operations primarily in Renminbi and our U.S. operations will conduct their operations in dollars. At the present time, we do not expect to have significant cross currency transactions that will be at risk to foreign currency exchange rates. Nevertheless, the conversion of financial information using a functional currency of Renminbi will be subject to risks related to foreign currency exchange rate fluctuations. The value of Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions and supply and demand in local markets. As we have significant operations in China, and will rely principally on revenues earned in China, any significant revaluation of the Renminbi can materially and adversely affect our financial results. For example, to the extent that we need to convert U.S. dollars we receive from an offering of our securities into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would likely have a material adverse effect on our business, financial condition and results of operations.

Future foreign investments in CBMG that are subject to review by the Committee on Foreign Investment in the United States (CFIUS) may prevent, delay, limit or otherwise adversely affect any proposed investment.

The Foreign Investment Risk Review Modernization Act (FIRRMA) enacted in August 2018, significantly expanded the jurisdiction of CFIUS, permitting CFIUS to review certain non-controlling investments by foreign persons in U.S. businesses. In November 2018, the U.S. Department of the Treasury initiated a pilot program to implement this new authority. Under the pilot program, CFIUS requires that it be given prior notice of and an opportunity to review certain proposed non-controlling foreign investments in companies engaged in biotechnology research and development that deal in “critical technologies.” Depending upon the results of its review, CFIUS could impose mitigation measures or block the investment. The term “critical technologies,” includes items subject to certain U.S. export controls and “emerging and foundational technologies.” U.S. regulators have yet to define “emerging and foundational technologies,” but have indicated that this category may be defined to include certain biotechnology.

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To date, CBMG has not identified any “critical technologies” that would subject future foreign investment in CBMG to CFIUS review. However, depending on the particulars of any future investments, how the concept of “critical technologies” is applied to CBMG’s existing business and any future developments thereto, and any relevant regulatory developments in the future, future foreign investment in CBMG could be subject to CFIUS review, which could prevent, delay, limit or otherwise adversely affect the contemplated financing, any of which could have a material adverse effect on CBMG’s business, financial condition and results of operations.

Trade controls and related legal risks can have a material adverse effect on our business.

We are subject to trade controls, including U.S. sanctions and export controls, which impose certain restrictions on our international operations. We are committed to conducting all of our operations around the globe ethically and in compliance with applicable laws and company policy, including these trade controls and, to date, we have not identified any instances of noncompliance. However, despite our compliance efforts, we cannot assure you that we will effectively prevent any and all future noncompliance, particularly given the uncertainties regarding the interpretation and implementation of these trade controls in each jurisdiction in which we have a presence.

New and changing trade protections, regulatory requirements and policies affecting trade and investment, trade disputes, regulations governing imports or exports, economic sanctions and enforcement activities present added and ever-changing risks for our global business. However, it is not possible to predict what types of new controls may be imposed or how existing controls will be administered, and therefore we cannot predict the effect such changes could have on our international operations. These changes could adversely affect our business, and failure to react and adapt and ultimately comply with any of the foregoing can lead to sanctions, fines, penalties and other government-imposed mandates that could have a material adverse effect on our business, financial condition and results of operations.

Some of the laws and regulations governing our business in China are vague and subject to risks of interpretation.

Some of the PRC laws and regulations governing our business operations in China are vague and their official interpretation and enforcement may involve substantial uncertainty. These include, but are not limited to, laws and regulations governing our business and the enforcement and performance of our contractual arrangements in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. Despite their uncertainty, we will be required to comply.

New laws and regulations that affect existing and proposed businesses may be applied retroactively. Accordingly, the effectiveness of newly enacted laws, regulations or amendments may not be clear. We cannot predict what effect the interpretation of existing or new PRC laws or regulations will have on our business.

The pharmaceutical industry in China is highly regulated, and such regulations are subject to change, which may affect approval and commercialization of our drugs.

The pharmaceutical industry in China is subject to comprehensive government regulation and supervision, encompassing the approval, registration, manufacturing, packaging, licensing and marketing of new drugs. In recent years, The NMPA and other regulatory authorities in China have implemented a series of new laws and regulations regarding the pharmaceuticals industry, including medical research and the stem cell industry, and we expect such significant changes will continue. In addition, there are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. For example, under the trial guidelines concerning development and testing of cell therapy products issued in December 2017, there remain uncertainties regarding the interpretation and application of PRC Laws on our clinical studies and these factors could adversely affect the timing of the clinical studies, the timing of receipt and reporting of clinical data, the timing of Company-sponsored IND filings, and our ability to conduct future planned clinical studies, and any of the above could have a material adverse effect on our business.

The NMPA’s recent reform of the drug and approval system may face implementation challenges. On August 26, 2019, the Standing Committee of the PRC National People’s Congress approved the new Drug Administration Law, which went into effect on December 1, 2019. The new Drug Administration Law incorporates many reform measures that have been introduced by various administrative notices in the past few years, such as the adoption of a nationwide MAH system, switch from an approval to a simpler filing process for institutions conducting clinical trials for new drugs, and the cancellation of the GMP and GSP certification procedure (though the relevant GMP and GSP rules are still applicable to the manufacturing and business activities.) The Drug Administration Law is positioned as the foundational law in the field of drug regulation and may also materially impact commercialization of Kymriah® and our pipeline drugs and increase our compliance costs. The full impact of such reforms is uncertain and could prevent us from commercializing our drug candidates in a timely manner.

The National Health Commission and other departments jointly issued the Implementation Plan for Cancer Prevention and Control (2019-2022) (the “Implementation Plan”) proposing to enhance the cancer prevention and control. Supported by the development of integration of the healthcare industry, education and research the National Health Commission intends to promote cancer prevention and treatment, covering a broad scope such as medical services, health management, health insurance, pharmaceutical equipment, rehabilitation nursing, etc. The Implementation Plan emphasized the improvement of the availability of anticancer drugs, acceleration on the registration and approval of new anticancer drugs the PRC and abroad, the promotion of the synchronous market listing in the PRC of new anticancer drugs already marketed abroad, and smooth the temporary import channels of anticancer drugs urgently needed in clinical trial medicine. Currently, it is not clear on the future impact of the Implementation Plan on our business and strategies.

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While we believe our strategies regarding pharmaceutical research, development, manufacturing and commercialization in China are aligned with the Chinese government’s policies, these policies may in the future diverge, such as the new Drug Administration Law, requiring a change in our strategies. Any such change can result in increased compliance costs on our business or cause delays in or prevent the successful research, development, manufacturing or commercialization of our drug candidates or drugs in China and reduce the current benefits we believe are available to us from developing and manufacturing drugs in China.

Our future capital needs are uncertain, which gives rise to a substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital or obtain loans from financial institutions and our operations could be curtailed if we are unable to obtain the required additional funding when needed. We are not always able to do so when necessary, and/or the terms of any financings will not necessarily be advantageous to us.

Our financial statements for the period ended December 31, 2019 have been prepared assuming we will continue to operate as a going concern. However, there can be no assurance that we will have the financial resources to satisfy our current liabilities and the capital expenditure needs in the next 12 months, and therefore, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is subject to our ability to obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, grants or other forms of financing. Our continued negative cash flow increases the difficulty in completing such sales or securing alternative sources of funding, and there can be no assurances that we will be able to obtain such funding on favorable terms or at all. Our inability to obtain sufficient financing from the sale of our securities or from alternative sources may require us to reduce, defer or discontinue certain of our research and development and operating activities or we may not be able to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of the uncertainty regarding our ability to continue as a going concern. If we cannot continue as a going concern, our shareholders may lose their entire investment in our ordinary shares. Future reports from our independent registered public accounting firm may also contain statements expressing doubt about our ability to continue as a going concern.

Changes and new proposed rulemaking in China regarding foreign investment can affect our operations in China.

Our operations in China are subject to government regulations that limit or prohibit direct foreign investment, which can limit our ability to control operations based in China. The PRC government has imposed regulations in various industries, including medical research and the stem cell industry, that limit foreign investors’ equity ownership or prohibit foreign investments altogether in companies that operate in such industries. We are currently structured as a U.S. corporation (Delaware) with subsidiaries and controlled entities in China. As a result of these regulations and the manner in which they may be applied or enforced, our ability to control our existing operations based in China may be limited or restricted.

If the relevant Chinese authorities find us or any business combination to be in violation of any laws or regulations, they would have broad discretion in dealing with such violation, including, without limitation: (i) levying fines; (ii) revoking our business and other licenses; (iii) requiring that we restructure our ownership or operations; and (iv) requiring that we discontinue any portion, or all, of our business.

China’s legal framework surrounding foreign investment entered into a new era after the new Foreign Investment Law goes into effect on January 1, 2020. The Foreign Investment Law is positioned as the foundational law in the field of foreign investment and will apply uniformly across all foreign investment in China. It replaces the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises, the Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures, and the Law of the People’s Republic of China on Sino-Foreign Cooperative Joint Ventures (the three previous foreign investment laws). It is expected that the relevant authorities will take this opportunity to systematically evaluate and revise the current foreign investment system and rules in order to form a unified legal system for foreign investment, which is comprised of:

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Pre-establishment national treatment and negative list system. Foreign investors and their investments will be granted treatment no less favorable than that granted to Chinese domestic investors and their investments at the entrance stage of the investment. Foreign investors may not invest in fields where a “negative list” prohibits foreign investment, unless the investor meets certain conditions stipulated in the list.

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Foreign investment information reporting system. Foreign investors or foreign-invested enterprises must submit investment information to the competent department of commerce through the enterprise registration system and the enterprise credit information publicity system.

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Foreign investment national security review system. This system is adopted to determine whether a foreign investment may affect national security. Subsequent legislation may clarify the scope, content, procedure, time limit and legal consequences of the review process.

The Foreign Investment Law is expected to affect foreign investors with regard to organizational structure and governance structure, transfer of monetary funds and intellectual property protection and technology transfer. If the relevant Chinese authorities find us or any business combination to be in violation of the Foreign Investment Law and its implementation rules, our current corporate governance practices and business operations may be materially affected and our compliance costs may increase significantly.

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Certain of our clinical studies are not registered with relevant authorities.

Under the trial guidelines concerning development and testing of cell therapy products issued in December 2017, an applicant of the clinical trial of the said cell therapy products can be divided into early clinical trials and confirmatory clinical trials, instead of the application of the traditional phases I, II and III of a clinical trial. Certain of our clinical studies initiated or sponsored or being initiated or being sponsored by our PRC subsidiaries have not been duly registered or filed by our clinical trial partners with, or have been issued the approval by, the NMPA or the National Health Commission of the PRC, or the NHC, in accordance with then-applicable PRC Law. All clinical studies on trials conducted in China will be required to be approved, registered or filed and conducted at hospitals accredited by the NMPA or by the NHC after the relevant implementing regulations are implemented within the allotted time and any failure of the hospitals to register or file the clinical studies with the NMPA may result in delays or interruptions to such clinical studies or trials. There remain uncertainties regarding the interpretation and application of PRC Laws on our clinical studies and these factors can adversely affect the timing of the clinical studies, the timing of receipt and reporting of clinical data, the timing of Company-sponsored IND filings and our ability to conduct future planned clinical studies, and any of the above could have a material adverse effect on our business.

The uncertainties surrounding the current healthcare reform measures in China can affect all material aspects of the research, development, manufacturing and commercialization of pharmaceutical products.

In recent years, the regulatory framework in China regarding the pharmaceutical industry has undergone significant changes, which we expect will continue. While we believe our strategies regarding pharmaceutical research, development, manufacturing and commercialization in China are aligned with the Chinese government’s policies, they may in the future diverge, requiring a change in our strategies. Any such change can result in increased compliance costs on our business or cause delays in or prevent the successful research, development, manufacturing or commercialization of our drug candidates or drugs in China and reduce the current benefits we believe are available to us from developing and manufacturing drugs in China.

We expect that healthcare reform measures by the MOH and NMPA may result in more rigorous coverage criteria and an additional downward pressure on the development and manufacturing of drugs. Legislative and regulatory proposals have been made to expand approval requirements and restrict clinical trial activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether MOH and NMPA regulations, guidance or interpretations will be changed, or what the impact of such changes on the regulatory approvals of our drug candidates, if any, may be. In particular, because these laws, rules and regulations are relatively new and often give the relevant regulator significant discretion in how to enforce them, and because of the limited number of published decisions and the nonbinding nature of such decisions, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. For example, we may need to amend clinical trial protocols submitted to applicable regulatory authorities to reflect changes in regulatory requirements and guidance. Resubmission may impact the costs, timing or successful completion of a clinical trial. Amendments may require us to resubmit clinical trial protocols to institutional review boards or ethics committees for reexamination, which may impact the costs, timing or successful completion of a clinical trial. Any delays in completing our clinical trials will increase our costs, slow down our drug candidate development and approval process and jeopardize our ability to commence product sales and generate related revenues for that candidate. Any of these occurrences may harm our business, financial condition and prospects significantly.

The PRC government does not permit direct foreign investment in stem cell research and development businesses. Accordingly, we operate these businesses through local companies with which we have contractual relationships but in which we do not have direct equity ownership.

PRC regulations prevent foreign companies from directly engaging in stem cell-related research, development and commercial applications in China. Therefore, to perform these activities, we conduct much of our biopharmaceutical business operations in China through a domestic variable interest entity, or VIE, a Chinese domestic company controlled by the Chinese employees of the Company. Our contractual arrangements may not be as effective in providing control over these entities as direct ownership. For example, the VIE could fail to take actions required for our business or fail to conduct business in the manner we desire despite their contractual obligation to do so. These companies are able to transact business with parties not affiliated with us. If these companies fail to perform under their agreements with us, we may have to rely on legal remedies under PRC law, which may not be effective. In addition, we cannot be certain that the individual equity owners of the VIE would always act in our best interests, especially if they have no other relationship with us.

Although other foreign companies have used VIE structures similar to ours and such arrangements are not uncommon in connection with business operations of foreign companies in China in industry sectors in which foreign direct investments are limited or prohibited, recently there has been greater scrutiny by the business community of the VIE structure and, additionally, the application of a VIE structure to control companies in a sector in which foreign direct investment is specifically prohibited carries increased risks.

In addition, the Ministry of Commerce (“MOFCOM”) promulgated the Rules of Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors in August 2011, or the MOFCOM Security Review Rules, to implement the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, or Circular No. 6. The MOFCOM Security Review Rules came into effect on September 1, 2011 and replaced the Interim Provisions of the Ministry of Commerce on Matters Relating to the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by MOFCOM in March 2011. According to these circulars and rules, a security review is required for mergers and acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign investors may acquire the “de facto control” of domestic enterprises having “national security” concerns. In addition, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review, the MOFCOM will look into the substance and actual impact of the transaction. The MOFCOM Security Review Rules further prohibit foreign investors from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating that our business falls into the scope subject to the security review, and there is no requirement for foreign investors in those mergers and acquisitions transactions already completed prior to the promulgation of Circular No. 6 to submit such transactions to MOFCOM for security review. The enactment of the MOFCOM National Security Review Rules specifically prohibits circumvention of the rules through VIE arrangement in the area of foreign investment in business of national security concern. Although we believe that our business, judging from its scale, should not cause any concern for national security review at its current state, there is no assurance that MOFCOM would not apply the same concept of anti-circumvention in the future to foreign investment in prohibited areas through VIE structure, the same way that our investment in China was structured.

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Our relationship with our controlled VIE entity, CBMG Shanghai, through the VIE agreements, is subject to various operational and legal risks.

Management believes the holders of the VIE’s registered capital, Chen Mingzhe and Lu Junfeng, have no interest in acting contrary to the VIE agreements. However, if Chen or Lu as shareholders of the VIE entity were to reduce or eliminate their ownership of the registered capital of the VIE entity, their interests may diverge from that of CBMG and they may seek to act in a manner contrary to the VIE agreements (for example by controlling the VIE entity in such a way that is inconsistent with the directives of CBMG management and the board; or causing nonpayment by the VIE entity of services fees). If such circumstances were to occur the WFOE would have to assert control rights through the powers of attorney, pledges and other VIE agreements, which would require legal action through the PRC judicial system. We believe based on the advice of local counsel that the VIE agreements are valid and in compliance with PRC laws presently in effect. However, there is a risk that the enforcement of these agreements may involve more extensive procedures and costs to enforce, in comparison to direct equity ownership of the VIE entity. Notwithstanding the foregoing, if the applicable PRC laws were to change or are interpreted by authorities in the future in a manner which challenges or renders the VIE agreements ineffective, the WFOE’s ability to control and obtain all benefits (economic or otherwise) of ownership of the VIE entity could be impaired or eliminated. In the event of such future changes or new interpretations of PRC law, in an effort to substantially preserve our rights, we may have to either amend our VIE agreements or enter into alternative arrangements which comply with PRC laws as interpreted and then in effect.

Failure to comply with the U.S. Foreign Corrupt Practices Act subjects us to penalties and other adverse consequences.

We are subject to the U.S. Foreign Corrupt Practices Act, which generally prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these prohibitions. Corruption, extortion, bribery, payoffs, theft and other fraudulent practices occur from time-to-time in the PRC. There can be no assurance, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we are subject to severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

Share compensation grants to persons who are PRC citizens may require registeration with SAFE. We also face regulatory uncertainties that could restrict our ability to adopt share compensation plans for our directors and employees and other parties under PRC laws.

On April 6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock Option Plan of An Overseas Listed Company,” also known as Circular 78. On February 15, 2012, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Administration for Domestic Individuals Participating in an Employees Share Incentive Plan of an Overseas-Listed Company, often known as Circular 7. Circular 7 has superseded Circular 78. Under Circular 7, PRC resident individuals who participate in a share incentive plan of an overseas listed company are required to register with SAFE and complete certain other procedures. All such participants need to retain a PRC agent through PRC subsidiary to handle issues like foreign exchange registration, account opening, funds transfer and remittance. Circular 7 further requires that an offshore agent should also be designated to handle matters in connection with the exercise or sale of share awards and proceeds transferring for the share incentive plan participants. We have obtained the SAFE approvals under Circular 7 for one PRC subsidiary. Failure to comply with these regulations subjects us or our PRC employees who have been granted stock options to fines and legal sanctions and we may no longer be able to grant share compensation to our PRC employees. In that case, our ability to compensate our employees and directors through share compensation would be hindered and our business operations may be adversely affected.

The Labor Contract Law and its implementation regulations can increase our operating expenses and materially and adversely affect our business, financial condition and results of operations.

Substantial uncertainty of the PRC Labor Contract Law, or Labor Contract Law, and the Implementation Regulation for the PRC Labor Contract Law, or Implementation Regulation, remains as to their potential impact on our business, financial condition and results of operations. The implementation of the Labor Contract Law and the Implementation Regulation can increase our operating expenses, in particular our human resources costs and our administrative expenses. In addition, as the interpretation and implementation of these regulations are still evolving, there can be no assurance that our employment practices will at all times be deemed to be in full compliance with the law. In the event that we decide to significantly modify our employment or labor policy or practice, or reduce the number of our sales professionals, the Labor Contract Law and the Implementation Regulation can limit our ability to effectuate the modifications or changes in the manner that we believe to be most cost-efficient or otherwise desirable, which could materially and adversely affect our business, financial condition and results of operations. Severe penalties or incur significant liabilities in connection with labor disputes or investigations can adversely affect our business and results of operations.

Relations between the United States and China impacts our stock price and can lead to difficulty accessing the U.S. capital markets.

At various times during recent years, the United States and China have had disagreements over trade, economic and other policy issues, leading to future controversies between these two countries. Any political or trade controversies between the U.S. and China can adversely affect the market price of our common stock and our and our clients’ ability to access U.S. capital markets.

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PRC regulations of loans to PRC entities and direct investment in PRC entities by offshore holding companies can delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary. 

We have in the past and may in the future transfer funds to our PRC subsidiary or finance our PRC subsidiary by means of shareholder loans or capital contributions. Any loans from us to our PRC subsidiary, which is a foreign-invested enterprise, is subject to a quota based on the statutory formulas and there are two alternative applicable quotas: the difference between the registered capital and total investment of the PRC subsidiary; certain times of the net asset value of PRC subsidiary (currently up to twice of the net assets value) and shall be registered with the State Administration of Foreign Exchange, or SAFE, or its local counterparts. Any capital contributions we make to our PRC subsidiary shall be approved by or registered with (as the case may be) the Ministry of Commerce or its local counterparts. We are not always able to obtain these government registrations or approvals on a timely basis, if at all. Failure to receive such registrations or approvals impacts our ability to provide loans or capital contributions to our PRC subsidiary in a timely manner may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business. 

In addition, registered capital of a foreign-invested company settled in RMB converted from foreign currencies may only be used within the business scope approved by the applicable governmental authority. Foreign-invested companies may not change how they use such capital without SAFE’s approval, and may not in any case use such capital to repay RMB loans if proceeds of such loans have not been utilized. Violations of these regulations may result in severe penalties. These regulations may significantly limit our ability to transfer the net proceeds from offshore offering and subsequent offerings or financings to our PRC subsidiary, which may adversely affect our liquidity and our ability to fund and expand our business in China.

We face risks relating to restrictions on our ability to inject capital into our PRC subsidiary and our PRC subsidiary’s ability to distribute profits to us in connection with PRC resident shareholders beneficial owners that fail to comply with relevant PRC foreign exchange rules. 

The Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Offshore Special Purpose Vehicles, often known as Circular 75, was issued by SAFE in 2005. Circular 75 requires PRC residents to register with the local SAFE branch in connection with their establishment or control of any offshore special purpose vehicle for the purpose of overseas equity financing involving a roundtrip investment whereby the offshore special purpose vehicle acquires or controls onshore assets or equity interests held by the PRC residents. On July 4, 2014, SAFE issued the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Outbound Investment and Financing and Inbound Investment via Special Purpose Vehicles, or Circular 37, which has superseded Circular 75. Under Circular 37 and other relevant foreign exchange regulations, PRC residents who make, or have made, prior to the implementation of these foreign exchange regulations, direct or indirect investments in offshore companies are required to register those investments with SAFE. In addition, any PRC resident who is a direct or indirect shareholder of an offshore company is also required to file or update the registration with SAFE, with respect to that offshore company for any material change involving its round-trip investment, capital variation, such as an increase or decrease in capital, transfer or swap of shares, merger, division, long-term equity or debt investment or the creation of any security interest. If any PRC shareholder fails to make the required registration or update the registration, the PRC subsidiary of that offshore company may be prohibited from distributing its profits and the proceeds from any reduction in capital, share transfer or liquidation to that offshore company, and that offshore company may also be prohibited from injecting additional capital into its PRC subsidiary. Moreover, failure to comply with the foreign exchange registration requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.

 We cannot provide any assurance that all of our shareholders and beneficial owners who are PRC residents have fully complied or will obtain or update any applicable registrations or have fully complied or will fully comply with other requirements required by Circular 37 or other related rules in a timely manner. The failure or inability of our shareholders resident in China to comply with the registration requirements set forth therein may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits and other proceeds to our company or otherwise adversely affect our business.

We and/or our Hong Kong subsidiary may be classified as a “PRC resident enterprise” for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment. 

The Enterprise Income Tax Law provides that an enterprise established outside China whose “de facto management body” is located in China is considered a “PRC resident enterprise” and will generally be subject to the uniform 25% enterprise income tax on its global income. Under the implementation rules of the Enterprise Income Tax Law, “de facto management body” is defined as “the organizational body which effectively manages and controls the production and business operation, personnel, accounting, properties and other aspects of operations of an enterprise.” 

Pursuant to the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, issued by the State Administration of Taxation in 2009, a foreign enterprise controlled by PRC enterprises or PRC enterprise groups is considered a PRC resident enterprise if all of the following conditions are met: (i) the senior management and core management departments in charge of daily operations are located mainly within the PRC; (ii) financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (iii) major assets, accounting books, company seals and minutes and files of board and shareholders’ meetings are located or kept within the PRC; and (iv) at least half of the enterprise’s directors with voting rights or senior management reside within the PRC. Although the notice states that these standards only apply to offshore enterprises that are controlled by PRC enterprises or PRC enterprise groups, such standards may reflect the general view of the State Administration of Taxation in determining the tax residence of foreign enterprises. 

We believe that neither our company nor our Hong Kong subsidiary is a PRC resident enterprise because neither our company nor our Hong Kong subsidiary meets all of the conditions enumerated. For example, board and shareholders’ resolutions of our company and our Hong Kong subsidiary are adopted in Hong Kong and the minutes and related files are kept in Hong Kong. However, if the PRC tax authorities were to disagree with our position, our company and/or our Hong Kong subsidiary may be subject to PRC enterprise income tax reporting obligations and to a 25% enterprise income tax on our global taxable income, except for our income from dividends received from our PRC subsidiary, which may be exempt from PRC tax. If we and/or our Hong Kong subsidiary are treated as a PRC resident enterprise, the 25% enterprise income tax may adversely affect our ability to satisfy any of our cash needs. 

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In addition, if we were to be classified as a PRC “resident enterprise” for PRC enterprise income tax purpose, dividends we pay to our non-PRC enterprise shareholders and gains derived by our non-PRC shareholders from the sale of our shares and ADSs may be become subject to a 10% PRC withholding tax. In addition, future guidance may extend the withholding tax to dividends we pay to our non-PRC individual shareholders and gains derived by such shareholders from transferring our shares and ADSs. In addition to the uncertainty in how the new “resident enterprise” classification could apply, it is also possible that the rules may change in the future, possibly with retroactive effect. If PRC income tax were imposed on gains realized through the transfer of our ADSs or ordinary shares or on dividends paid to our nonresident shareholders, the value of your investment in our ADSs or ordinary shares may be materially and adversely affected.

Any limitation on the ability of our PRC subsidiary to make payments to us, or the tax implications of making payments to us, can have a material adverse effect on our ability to conduct our business or our financial condition. 

We are a holding company, and we rely principally on dividends and other distributions from our PRC subsidiary for our cash needs, including the funds necessary to pay dividends to our shareholders or service any debt we may incur. Current PRC regulations permit our PRC subsidiary to pay dividends only out of its accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiary is required to set aside at least 10% of its after tax profits each year, if any, to fund certain statutory reserve funds until the aggregate amount of such reserve funds reaches 50% of its registered capital. Apart from these reserves, our PRC subsidiary may allocate a discretionary portion of its after-tax profits to staff welfare and bonus funds at its discretion. These reserves and funds are not distributable as cash dividends. Furthermore, if our PRC subsidiary incurs debt, the debt instruments may restrict its ability to pay dividends or make other payments to us. We cannot assure you that our PRC subsidiary will generate sufficient earnings and cash flows in the near future to pay dividends or otherwise distribute sufficient funds to enable us to meet our obligations, pay interest and expenses or declare dividends.

Distributions made by PRC companies to their offshore parents are generally subject to a 10% withholding tax under the Enterprise Income Tax Law. Pursuant to the Enterprise Income Tax Law and the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, the withholding tax rate on dividends paid by our PRC subsidiary to our Hong Kong subsidiary would generally be reduced to 5%, provided that our Hong Kong subsidiary is the beneficial owner of the PRC sourced income. Our PRC subsidiary has not obtained approval for a withholding tax rate of 5% from the local tax authority and does not plan to obtain such approval in the near future as we have not achieved profitability. However, the Notice on How to Understand and Determine the Beneficial Owners in a Tax Agreement, also known as Circular 601, promulgated by the State Administration of Taxation in 2009, provides guidance for determining whether a resident of a contracting state is the “beneficial owner” of an item of income under China’s tax treaties and similar arrangements. According to Circular 601, a beneficial owner generally must be engaged in substantive business activities. An agent or conduit company will not be regarded as a beneficial owner and, therefore, will not qualify for treaty benefits. For this purpose, a conduit company is a company that is set up for the purpose of avoiding or reducing taxes or transferring or accumulating profits. Although our PRC subsidiary is wholly owned by our Hong Kong subsidiary, we will not be able to enjoy the 5% withholding tax rate with respect to any dividends or distributions made by our PRC subsidiary to its parent company in Hong Kong if our Hong Kong subsidiary is regarded as a “conduit company.” 

In addition, if Cellular Biomedicine Group Ltd. (HK), a wholly owned subsidiary of the Company (“CBMG HK”) were deemed to be a PRC resident enterprise, then any dividends payable by CBMG HK to CBMG Delaware Corporation may become subject to PRC dividend withholding tax. 

A new China taxation rule about the “beneficial owner” in a tax agreement became effective on April 1, 2018 which superseded Circular 601 and could affect the determination of whether a resident of a contracting state is the “beneficial owner” of an item of income under China’s tax treaties and similar arrangements.

Restrictions on the remittance of RMB into and out of China and governmental control of currency conversion can limit our ability to pay dividends and other obligations, and affect the value of your investment. 

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and the remittance of currency out of China. We receive substantially all of our revenues in RMB and substantially all of our cash inflows and outflows are denominated in RMB. Under our current corporate structure, our revenues are primarily derived from dividend payments from our subsidiary in China after it receives payments from the VIE under various service and other contractual arrangements. We may convert a portion of our revenues into other currencies to meet our foreign currency obligations, such as payments of dividends declared in respect of our ordinary shares, if any. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiary to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy its foreign currency denominated obligations. 

Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiary is allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including the U.S. shareholders.

Our financial condition and results of operations can be materially and adversely affected if recent value added tax reforms in the PRC become unfavorable to our PRC subsidiary or VIE. 

Our PRC subsidiary and the VIE have been subject to a value added tax, or VAT, at a base rate of 6% since September 1, 2012. The VIE’s subsidiary has been subject to VAT at a base rate of 6% since July 1, 2013. Our financial condition and results of operations could be materially and adversely affected if the interpretation and enforcement of these tax rules become materially unfavorable to our PRC subsidiary and VIE.

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Failure to comply with PRC regulations regarding the registration requirements for stock ownership plans or stock option plans subjects PRC plan participants or us to fines and other legal or administrative sanctions. 

Under SAFE regulations, PRC residents who participate in an employee stock ownership plan or stock option plan in an overseas publicly listed company are required to register with SAFE or its local branch and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly listed company, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of these participants. Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise or sale of stock options. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. 

We and our PRC resident employees who participate in our share incentive plans are subject to these regulations as our company is publicly listed in the United States. We have obtained the SAFE approvals regarding our PRC resident employees participating in our share incentive plans. If we or any our PRC resident option grantees fail to follow the compliance with above regulations, we or our PRC resident option grantees may be subject to fines and other legal or administrative sanctions.

Fluctuation in the value of the RMB can have a material adverse effect on the value of the investment. 

The value of the RMB against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and China’s foreign exchange policies, among other things. On July 21, 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. The PRC government has allowed the RMB to appreciate slowly against the U.S. dollar again, and it has appreciated more than 10% since June 2010. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. In addition, there remains significant international pressure on the PRC government to adopt a substantial liberalization of its currency policy, which could result in further appreciation in the value of the RMB against the U.S. dollar. In 2015, due to the slow-down of China economic growth rate and environment, RMB depreciated against the U.S. dollar from the third quarter.

Our revenues and costs are mostly denominated in RMB, and a significant portion of our financial assets are also denominated in RMB, whereas our reporting currency is the U.S. dollar. Any significant depreciation of the RMB can materially and adversely affect our revenues, earnings and financial position as reported in U.S. dollars. To the extent that we need to convert U.S. dollars we received from this offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.

PRC laws and regulations establish more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China. 

A number of PRC laws and regulations, including the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors adopted by six PRC regulatory agencies in 2006, or the M&A Rules, the Anti-monopoly Law and the Rules of Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by the Ministry of Commerce in August 2011, or the Security Review Rules, have established procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time consuming and complex. These include requirements in some instances that the Ministry of Commerce be notified in advance of any change of control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from the Ministry of Commerce be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. PRC laws and regulations also require certain merger and acquisition transactions to be subject to merger control review or security review.

The Security Review Rules were formulated to implement the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, also known as Circular 6, which was promulgated in 2011. Under these rules, a security review is required for mergers and acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign investors may acquire the “de facto control” of domestic enterprises have “national security” concerns. In addition, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review, the Ministry of Commerce will look into the substance and actual impact of the transaction. The Security Review Rules further prohibits foreign investors from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. 

There is no requirement for foreign investors in those mergers and acquisitions transactions already completed prior to the promulgation of Circular 6 to submit such transactions to the Ministry of Commerce for security review. As we have already obtained the “de facto control” over our affiliated PRC entities prior to the effectiveness of these rules, we do not believe we are required to submit our existing contractual arrangements to the Ministry of Commerce for security review. 

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However, as these rules are relatively new and there is a lack of clear statutory interpretation on the implementation of the same, there is no assurance that the Ministry of Commerce will not apply these national security review-related rules to the acquisition of equity interest in our PRC subsidiary. If we are found to be in violation of the Security Review Rules and other PRC laws and regulations with respect to the merger and acquisition activities in China, or fail to obtain any of the required approvals, the relevant regulatory authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income, revoking our PRC subsidiary’s business or operating licenses, requiring us to restructure or unwind the relevant ownership structure or operations. Any of these actions could cause significant disruption to our business operations and may materially and adversely affect our business, financial condition and results of operations. Further, if the business of any target company that we plan to acquire falls into the ambit of security review, we may not be able to successfully acquire such company either by equity or asset acquisition, capital contribution or through any contractual arrangement. We may grow our business in part by acquiring other companies operating in our industry. Complying with the requirements of the relevant regulations to complete such transactions could be time consuming, and any required approval processes, including approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

On July 30, 2017, MOFCOM issued the Interim Measures on Filing Administration of Establishment and Changes of Foreign-Invested Enterprises (2017 Revision) which came into force as of July 30, 2017. It is stipulated in the Interim Measures that the transformation of a non-foreign invested enterprise into a foreign invested enterprise through M&A, merger by absorption, foreign investor’s strategic investment into non-foreign invested listed company, etc. would no longer be subject to MOFCOM approval, but instead would only need to undergo the simplified filing procedures with MOFCOM, in case the business of the target enterprise does not fall into the foreign investment negative list. But, if any business of the target enterprise falls into the foreign investment negative list, the complex procedures for an acquisition of the target enterprise by foreign investors would be still applicable.

The heightened scrutiny over acquisition transactions by the PRC tax authorities can have a negative impact on our business operations, our acquisition or restructuring strategy or the value of your investment in us. 

Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or Circular 698, issued by the State Administration of Taxation in December 2009 with retroactive effect from January 1, 2008, where a non-PRC resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas non-public holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate of less than 12.5% or (ii) does not impose income tax on foreign income of its residents, the non-PRC resident enterprise, being the transferor, must report to the competent tax authority of the PRC resident enterprise this Indirect Transfer and may be subject to PRC enterprise income tax of up to 10% of the gains derived from the Indirect Transfer in certain circumstances.

To clarify the issues related to Circular 698, the State Administration of Taxation released the Announcement of the State Administration of Taxation on Several Issues Relating to the Administration of Income Tax on Non-resident Enterprises in 2011, known as Notice 24, and the Announcement on Issues Related to Applications of Special Tax Treatment for Equity Transfer by Non-resident Enterprises in 2013.

On February 3, 2015, the State Administration of Taxation issued the Announcement on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfers by Non-PRC Resident Enterprises, or Notice 7. Notice 7 introduces a new tax regime that is significantly different from that under Circular 698. It superseded the previous tax rules in relation to the offshore indirect equity transfer, including those under Circular 698 as described above. It extends the tax jurisdiction of State Administration of Taxation to capture not only the Indirect Transfer but also the transactions involving indirect transfer of (i) real properties in China and (ii) assets of an “establishment or place” situated in China, by a non-PRC resident enterprise through a disposition of equity interests in an overseas holding company.

However, Notice 7 also brings uncertainties to the parties of the offshore indirect transfers as the transferee and the transferor have to make self-assessment on whether the transactions should be subject to the corporate income tax and file or withhold the corporate income tax accordingly. In addition, the PRC tax authorities have discretion under Notice 7 to adjust the taxable capital gains based on the difference between the fair value of the transferred equity interests and the investment cost. We may pursue acquisitions in the future that may involve complex corporate structures. If we are considered as a non-PRC resident enterprise under the EIT Law and if the PRC tax authorities make adjustments to the taxable income of the transactions under Notice 7, our income tax expenses associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.

We face risks relating to the real properties that we lease. 

We primarily lease office and manufacturing space from third parties for our operations in China. Any defects in lessors’ title to the leased properties can disrupt our use of our offices, which may in turn adversely affect our business operations. For example, certain buildings and the underlying land are not allowed to be used for industrial or commercial purposes without relevant authorities’ approval, and the lease of such buildings to companies like us may subject the lessor to pay premium fees to the PRC government. We cannot assure you that the lessor has obtained all or any of approvals from the relevant governmental authorities. In addition, some of our lessors have not provided us with documentation evidencing their title to the relevant leased properties. We cannot assure you that title to these properties we currently lease will not be challenged. In addition, we have not registered any of our lease agreements with relevant PRC governmental authorities as required by PRC law, and although failure to do so does not in itself invalidate the leases, we will not necessarily be successful in defending these leases against bona fide third parties. 

As of the date of this filing, we are not aware of any actions, claims or investigations being contemplated by government authorities with respect to the defects in our leased real properties or any challenges by third parties to our use of these properties. However, if third parties who purport to be property owners or beneficiaries of the mortgaged properties challenge our right to use the leased properties, we may not be able to protect our leasehold interest and may be ordered to vacate the affected premises, which could in turn materially and adversely affect our business and operating results.

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Our auditor, like other independent registered public accounting firms operating in China, is not permitted to be subject to inspection by Public Company Accounting Oversight Board, and consequently investors may be deprived of the benefits of such inspection. 

Our auditor, the independent registered public accounting firm that issued the audit reports included elsewhere in this report, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States) or PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and applicable professional standards. Our auditor is located in China and the PCAOB is currently unable to conduct inspections on auditors in China without the approval of the PRC authorities. Therefore, our auditor, like other independent registered public accounting firms operating in China, is currently not inspected by the PCAOB.

In May 2013, the PCAOB announced that it has entered into a Memorandum of Understanding (MOU) on Enforcement Cooperation with the China Securities Regulatory Commission (the CSRC) and the Ministry of Finance (the MOF). The MOU establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations in both countries’ respective jurisdictions. More specifically, it provides a mechanism for the parties to request and receive from each other assistance in obtaining documents and information in furtherance of their investigative duties. In addition to developing enforcement MOU, the PCAOB has been engaged in continuing discussions with the CSRC and MOF to permit joint inspections in China of audit firms that are registered with the PCAOB and audit Chinese companies that trade on U.S. exchanges.

Inspections of other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, and such deficiencies may be addressed as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct inspections of independent registered public accounting firms operating in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures, and to the extent that such inspections might have facilitated improvements in our auditor’s audit procedures and quality control procedures, investors may be deprived of such benefits. 

On November 18, 2016, the PCAOB issued its 2016 to 2020 Strategic Plan on improving the quality of the audit for the protection and benefits of investors, which revised the plan to update initiatives relating to the PCAOB’s new standard-setting process, planning for and adopting a permanent broker-dealer inspection program, inspecting firms located in China, audit quality indicators, monitoring and developing reports related to independence and the business model of the firms and business continuity. This may eventually improve PCAOB’s ability to conduct inspections of independent registered public accounting firms operating in China.

RISKS RELATED TO OUR COMMON STOCK

Failure to meet all applicable Nasdaq Global Market requirements can lead to Nasdaq delisting our common stock, which delisting could adversely affect the market liquidity of our common stock, impair the value of your investment, adversely affect our ability to raise needed funds and subject us to additional trading restrictions and regulations.

Our common stock trades on the Nasdaq Global Market. If we fail to satisfy the continued listing requirements of the Nasdaq Global Market, such as the corporate governance requirements or the minimum closing bid price requirement, the Nasdaq Stock Market (or Nasdaq) may take steps to de-list our common stock. Such a de-listing would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a de-listing, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future noncompliance with Nasdaq’s listing requirements.

If we fail to meet all applicable Nasdaq requirements and Nasdaq delists our securities from trading on its exchange, we expect our securities could be quoted on the Over-The-Counter Bulletin Board (OTCBB) or the “pink sheets.” If this were to occur, we face significant material adverse consequences, including:

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a limited availability of market quotations for our securities;

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reduced liquidity for our securities;

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a determination that our common stock is “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

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a limited amount of news and analyst coverage; and

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a decreased ability to issue additional securities or obtain additional financing in the future.

Furthermore, the National Securities Markets Improvement Act of 1996 (NSMIA) which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our common stock is listed on Nasdaq, they are covered securities for the purpose of NSMIA. If our securities were no longer listed on Nasdaq and therefore not “covered securities,” we would be subject to regulation in each state in which we offer our securities.

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We do not intend to pay cash dividends.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements and other factors our board of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are declared, there is no assurance with respect to the amount of any such dividend.

Our operating history and lack of profits can lead to wide fluctuations in our share price. The market price for our common shares is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float.

The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.

We received a preliminary nonbinding proposal from a consortium led by our Chief Executive Officer to acquire all of our outstanding equity securities, and uncertainty regarding the potential transaction and/or announcements related to the potential transaction can impact our business, financial condition, results of operations, and the market price of our common stock.

On November 11, 2019, the Company received a preliminary nonbinding proposal letter from a consortium led by our Chief Executive Officer, Mr. Bizuo (Tony) Liu, certain other senior management members of the Company, Hillhouse Bio Holdings, L.P., TF Capital Ranok Ltd., Dangdai International Group Co., Limited and Mission Right Limited to acquire all outstanding shares of common stock (each, a “Share,” collectively, the “Shares”) of the Company (other than those Shares held by members of the consortium that may be rolled over in connection with the proposed transaction) for U.S.$19.50 per Share in cash in a “going-private” transaction (the “Original Proposed Transaction”). Upon receipt of the letter, the Company’s Board of Directors (the “Board”) formed a special committee (the “Special Committee”) comprised of independent, disinterested directors to evaluate strategic alternatives with the assistance of its advisors, including the Original Proposed Transaction. The Special Committee consists of four members of the Board, Alan Au, Edward Schafer, Terry A. Belmont and Wen Tao (Steve) Liu, PhD, each of whom are independent, with Alan Au serving as chairperson.

On February 21, 2020, the Special Committee received a new preliminary non-binding proposal letter from a consortium led by Liu, certain other senior management members of the Company, Hillhouse Bio Holdings, L.P., TF Capital Ranok Ltd., Dangdai International Group Co., Limited, Mission Right Limited, Maplebrook Limited, Viktor Pan, Zheng Zhou, OPEA SRL, Wealth Map Holdings Limited, Earls Mill Limited (the “Consortium Members”) to acquire all outstanding Shares of the Company (other than those Shares held by members of the Consortium that may be rolled over in connection with the proposed transaction) for U.S.$19.50 per Share in cash in a “going-private” transaction (the “New Proposed Transaction”). The Special Committee will consider the New Proposed Transaction in connection with its evaluation of strategic alternatives.

The possibility of a “going-private” transaction, such as the Original Proposed Transaction or the New Proposed Transaction, or any other potential strategic alternative transaction, exposes us and our operations to a number of risks and uncertainties, including the potential failure to retain, attract or strengthen our relationships with key personnel, current and potential customers, suppliers, licensors and partners, which may cause them to terminate, or not to renew or enter into, arrangements with us; the potential incurrence of expenses associated with the retention of legal, financial and other advisors regardless of whether any transaction is consummated; distractions and disruptions in our business; and exposure to potential litigation in connection with this process and effecting any transaction, any of which could adversely affect our share price, business, financial condition and results of operations as well as the market price of our common stock. Moreover, there can be no assurance that any definitive offer in connection with the Original Proposed Transaction or the New Proposed Transaction will be made or executed, or that the Original Proposed Transaction, the New Proposed Transaction, or any other alternative transaction, will be approved or consummated. Announcements regarding developments relating to the Original Proposed Transaction or the New Proposed Transaction can cause the market price of our common stock to fluctuate significantly.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None. 

ITEM 2. PROPERTIES

Our corporate headquarters are located at 1345 Avenue of Americas, 15th Floor, New York, New York. On January 1, 2017, CBMG Shanghai entered into a 10-year lease agreement with Shanghai Chuangtong Industrial Development Co., Ltd., pursuant to which the Company leased a 10,501.6 square meter building located in the “Pharma Valley” of Shanghai, the People’s Republic of China for research and development, manufacturing and office space purposes. The term of the Lease is 10 years, starting from January 1, 2017 and ending on December 31, 2026 (the “Original Term”). During the Original Term, the monthly rent will increase by 6% every two years. We are establishing a 43,000 square foot facility in Shanghai that will house 25 clean-rooms and equipped with 12 independent production lines to support clinical batch production and commercial scale manufacturing.

We currently pay rent for a total of $316,000 per month for an aggregate of approximately 195,000 square feet of space to house our administration, research and manufacturing facilities in Maryland and in the cities of Wuxi and Shanghai in China. 

ITEM 3. LEGAL PROCEEDINGS

We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable. 

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PART II 

ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is quoted on the Nasdaq Global Market under the symbol “CBMG.” Our stock was formerly quoted under the symbol “EBIG.”

As of February 24, 2020, there were 20,410,791 shares and 19,355,292 shares of common stock of the Company issued and outstanding, respectively and there were approximately 1,700 stockholders of record of the Company’s common stock.

Effective January 18, 2013, the Company completed its reincorporation from the State of Arizona to the State of Delaware (the “Reincorporation”). In connection with the Reincorporation, shares of the former Arizona entity were exchanged into shares of the Delaware entity at a ratio of 100 Arizona shares for each 1 Delaware share, resulting in the same effect as a 1:100 reverse stock split. The Reincorporation became effective on January 31, 2013. Please refer to the Current Report on Form 8-K, filed by the Company on January 25, 2013. All values have been retroactively adjusted.

Equity Compensation Plans

2009 Stock Option Plan

During the first quarter of 2009, the Company’s Board of Directors approved and adopted the 2009 Stock Option Plan (the “2009 Plan”) and designated 100,000 of its common stock for issuance under the 2009 Plan to employees, directors or consultants for the Company through either the issuance of shares or stock option grants. Under the terms of the 2009 Plan, stock option grants shall be made with exercise prices not less than 100% of the fair market value of the shares of common stock on the grant date. As of December 31, 2019, there are 4,593 shares that have not been issued under this plan.

2011 Incentive Stock Option Plan (as amended)

During the last quarter of 2011, the Company’s Board of Directors approved and adopted the 2011 Incentive Plan (the “2011 Plan”) and designated 300,000 of its no par common stock for issuance under the 2011 Plan to employees, directors or consultants for the Company through either the issuance of shares or stock option grants. Under the terms of the 2011 Plan, stock option grants were authorized to be made with exercise prices not less than 100% of the fair market value of the shares of common stock on the grant date. On November 30, 2012, the Company’s Board of Directors approved the Amended and Restated 2011 Incentive Stock Option Plan (the “Restated 2011 Plan”), which amended and restated the 2011 Plan to provide for the issuance of up to 780,000 (increasing up to 1% per year) shares of common stock. The Restated 2011 Plan was approved by our stockholders on January 17, 2013. There are 2,231 shares available for issuance under this plan as of December 31, 2019.

2013 Stock Incentive Plan

On August 29, 2013, the Company’s Board of Directors adopted the Cellular Biomedicine Group, Inc. 2013 Stock Incentive Plan (the “2013 Plan”) to attract and retain the best available personnel, to provide additional incentive to employees, directors and consultants and to promote the success of the Company’s business. The 2013 Plan was approved by our stockholders on December 9, 2013. There are 90,011 shares available for issuance under this plan as of December 31, 2019.

The following summary describes the material features of the 2013 Plan. The summary, however, does not purport to be a complete description of all the provisions of the 2013 Plan. The following description is qualified in its entirety by reference to the Plan.

Description of the 2013 Plan

The purpose of the 2013 Plan is to attract and retain the best available personnel, to provide additional incentive to employees, directors and consultants and to promote the success of the Company’s business. The Company has reserved up to 1,000,000 of the authorized but unissued or reacquired shares of common stock of the Company. The Board or its appointed administrator has the power and authority to grant awards and act as administrator thereunder to establish the grant terms, including the grant price, vesting period and exercise date.

Each sale or award of shares under the 2013 Plan is made pursuant to the terms and conditions provided for in an award agreement (an “Award Agreement”) entered into by the Company and the individual recipient. The number of shares covered by each outstanding Award Agreement shall be proportionately adjusted for (a) any increase or decrease in the number of issued shares of common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the common stock or similar transaction affecting the common stock or (b) any other increase or decrease in the number of issued shares of common stock affected without receipt of consideration by the Company.

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Under the 2013 Plan, the Board or its administrator has the authority: (i) to select the employees, directors and consultants to whom awards may be granted from time to time hereunder; (ii) to determine whether and to what extent awards are granted; (iii) to determine the number of shares or the amount of other consideration to be covered by each award granted; (iv) to approve forms of Award Agreements for use under the 2013 Plan; (v) to determine the terms and conditions of any award granted; (vi) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford grantees favorable treatment under such rules or laws; provided, however, that no award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the 2013 Plan; (vii) to amend the terms of any outstanding award granted under the 2013 Plan; provided that any amendment that would adversely affect the grantee’s rights under an outstanding award shall not be made without the grantee’s written consent; (viii) to construe and interpret the terms of the 2013 Plan and awards, including without limitation, any notice of award or Award Agreement granted pursuant to the 2013 Plan; and (ix) to take such other action, not inconsistent with the terms of the 2013 Plan, as the administrator deems appropriate.

The awards under the 2013 Plan other than Incentive Stock Options may be granted to employees, directors and consultants. Incentive Stock Options may be granted only to employees of the Company, a parent or a subsidiary. An employee, director or consultant who has been granted an award may, if otherwise eligible, be granted additional awards. Awards may be granted to such employees, directors or consultants who are residing in foreign jurisdictions as the administrator may determine from time to time. Options granted under the 2013 Plan will be subject to the terms and conditions established by the administrator. Under the terms of the 2013 Plan, the exercise price of the options will not be less than the fair market value (as determined under the 2013 Plan) of our common stock at the time of grant. Options granted under the 2013 Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by the administrator and specified in the applicable award agreement. The maximum term of an option granted under the 2013 Plan will be ten years from the date of grant. Payment in respect of the exercise of an option may be made in cash, by certified or official bank check, by money order or with shares, pursuant to a “cashless” or “net issue” exercise, by a combination thereof or by such other method as the administrator may determine to be appropriate and has been included in the terms of the option.

The 2013 Plan may be amended, suspended or terminated by the Board, or an administrator appointed by the Board, at any time and for any reason.

2014 Stock Incentive Plan

On September 22, 2014, the Company’s Board of Directors adopted the Cellular Biomedicine Group, Inc. 2014 Stock Incentive Plan (the “2014 Plan”) covering 1,200,000 shares to attract and retain the best available personnel, to provide additional incentive to employees, directors and consultants and to promote the success of the Company’s business. The 2014 Plan was approved by our stockholders on November 7, 2014. In 2017, the Company’s Board of Directors approved the Amended and Restated 2014 Incentive Stock Option Plan (the “Restated 2014 Plan”), which amended and restated the 2014 Plan to increase the number of shares available for issuance by 1,000,000 shares. The Restated 2014 Plan was approved by our stockholders on April 28, 2017. There are 167,048 shares available for issuance under this plan as of December 31, 2019.

The following summary describes the material features of the 2014 Plan. The summary, however, does not purport to be a complete description of all the provisions of the 2014 Plan. The following description is qualified in its entirety by reference to the Plan.

Description of the 2014 Plan

The purpose of the 2014 Plan is to attract and retain the best available personnel, to provide additional incentive to employees, directors and consultants and to promote the success of the Company’s business. The Company has reserved up to 1,200,000 of the authorized but unissued or reacquired shares of common stock of the Company. The Board or its appointed administrator has the power and authority to grant awards and act as administrator thereunder to establish the grant terms, including the grant price, vesting period and exercise date.

Each sale or award of shares under the 2014 Plan is made pursuant to the terms and conditions provided for in an Award Agreement entered into by the Company and the individual recipient. The number of shares covered by each outstanding Award Agreement shall be proportionately adjusted for (a) any increase or decrease in the number of issued shares of common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the common stock or similar transaction affecting the common stock or (b) any other increase or decrease in the number of issued shares of common stock affected without receipt of consideration by the Company.

Under the 2014 Plan, the Board or its administrator has the authority: (i) to select the employees, directors and consultants to whom awards may be granted from time to time hereunder; (ii) to determine whether and to what extent awards are granted; (iii) to determine the number of shares or the amount of other consideration to be covered by each award granted; (iv) to approve forms of Award Agreements for use under the 2014 Plan; (v) to determine the terms and conditions of any award granted; (vi) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford grantees favorable treatment under such rules or laws; provided, however, that no award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the 2014 Plan; (vii) to amend the terms of any outstanding award granted under the 2014 Plan; provided that any amendment that would adversely affect the grantee’s rights under an outstanding award shall not be made without the grantee’s written consent; (viii) to construe and interpret the terms of the 2014 Plan and awards, including without limitation, any notice of award or Award Agreement granted pursuant to the 2014 Plan; and (ix) to take such other action, not inconsistent with the terms of the 2014 Plan, as the administrator deems appropriate.

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The awards under the 2014 Plan other than Incentive Stock Options may be granted to employees, directors and consultants. Incentive Stock Options may be granted only to employees of the Company, a parent or a subsidiary. An employee, director or consultant who has been granted an award may, if otherwise eligible, be granted additional awards. Awards may be granted to such employees, directors or consultants who are residing in foreign jurisdictions as the administrator may determine from time to time. Options granted under the 2014 Plan will be subject to the terms and conditions established by the administrator. Under the terms of the 2014 Plan, the exercise price of the options will not be less than the fair market value (as determined under the 2014 Plan) of our common stock at the time of grant. Options granted under the 2014 Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by the administrator and specified in the applicable award agreement. The maximum term of an option granted under the 2014 Plan will be ten years from the date of grant. Payment in respect of the exercise of an option may be made in cash, by certified or official bank check, by money order or with shares, pursuant to a “cashless” or “net issue” exercise, by a combination thereof or by such other method as the administrator may determine to be appropriate and has been included in the terms of the option.

 The 2014 Plan may be amended, suspended or terminated by the Board, or an administrator appointed by the Board, at any time and for any reason.

2019 Stock Incentive Plan

On July 1, 2019, the Company’s Board of Directors adopted the Cellular Biomedicine Group, Inc. 2019 Stock Incentive Plan (the “2019 Plan”) covering 1,500,000 shares to attract and retain the best available personnel, to provide additional incentive to employees, directors and consultants and to promote the success of the Company’s business. The 2019 Plan was approved by our stockholders on April 26, 2019. There are 1,418,370 shares available for issuance under this plan as of December 31, 2019.

The following summary describes the material features of the 2019 Plan. The summary, however, does not purport to be a complete description of all the provisions of the 2019 Plan. The following description is qualified in its entirety by reference to the Plan.

Description of the 2019 Plan

The purpose of the 2019 Plan is to attract and retain the best available personnel, to provide additional incentive to employees, directors and consultants and to promote the success of the Company’s business. The Company has reserved up to 1,500,000 of the authorized but unissued or reacquired shares of common stock of the Company. The Board or its appointed administrator has the power and authority to grant awards and act as administrator thereunder to establish the grant terms, including the grant price, vesting period and exercise date.

Each sale or award of shares under the 2019 Plan is made pursuant to the terms and conditions provided for in an Award Agreement entered into by the Company and the individual recipient. The number of shares covered by each outstanding Award Agreement shall be proportionately adjusted for (a) any increase or decrease in the number of issued shares of common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the common stock or similar transaction affecting the common stock or (b) any other increase or decrease in the number of issued shares of common stock affected without receipt of consideration by the Company.

Under the 2019 Plan, the Board or its administrator has the authority: (i) to select the employees, directors and consultants to whom awards may be granted from time to time hereunder; (ii) to determine whether and to what extent awards are granted; (iii) to determine the number of shares or the amount of other consideration to be covered by each award granted; (iv) to approve forms of Award Agreements for use under the 2014 Plan; (v) to determine the terms and conditions of any award granted; (vi) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford grantees favorable treatment under such rules or laws; provided, however, that no award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the 2019 Plan; (vii) to amend the terms of any outstanding award granted under the 2019 Plan; provided that any amendment that would adversely affect the grantee’s rights under an outstanding award shall not be made without the grantee’s written consent; (viii) to construe and interpret the terms of the 2019 Plan and awards, including without limitation, any notice of award or Award Agreement granted pursuant to the 2019 Plan; and (ix) to take such other action, not inconsistent with the terms of the 2019 Plan, as the administrator deems appropriate.

The awards under the 2019 Plan other than Incentive Stock Options may be granted to employees, directors and consultants. Incentive Stock Options may be granted only to employees of the Company, a parent or a subsidiary. An employee, director or consultant who has been granted an award may, if otherwise eligible, be granted additional awards. Awards may be granted to such employees, directors or consultants who are residing in foreign jurisdictions as the administrator may determine from time to time. Options granted under the 2019 Plan will be subject to the terms and conditions established by the administrator. Under the terms of the 2019 Plan, the exercise price of the options will not be less than the fair market value (as determined under the 2019 Plan) of our common stock at the time of grant. Options granted under the 2019 Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by the administrator and specified in the applicable award agreement. The maximum term of an option granted under the 2019 Plan will be ten years from the date of grant. Payment in respect of the exercise of an option may be made in cash, by certified or official bank check, by money order or with shares, pursuant to a “cashless” or “net issue” exercise, by a combination thereof or by such other method as the administrator may determine to be appropriate and has been included in the terms of the option.

 The 2019 Plan may be amended, suspended or terminated by the Board, or an administrator appointed by the Board, at any time and for any reason.

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Stock Performance Graph

The line graph that follows compares the cumulative total stockholder return on our shares of common stock with the cumulative total return of the Nasdaq Healthcare Index (^IXHC)* and the Russell 3000 Index (RUA)* Index for the five years ended December 31, 2019. The graph and table assume that $100 was invested on the last day of trading for the fiscal year 2014 in each of our shares of common stock, the Nasdaq Healthcare Index and the Russell 3000 Index, and that no dividends were paid. Cumulative total stockholder returns for our shares of common stock, Nasdaq Healthcare Index and the Russell 3000 Index are based on our fiscal year, which is the same as the calendar year.

 

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Dividends

We have not in the past and do not anticipate paying cash dividends on our common stock in the foreseeable future. The declaration, payment and amount of future dividends, if any, will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements and other factors our board of directors may consider relevant.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

As previously disclosed on a Current Report on Form 8-K filed on June 1, 2017, the Company authorized a share repurchase program (the “2017 Share Repurchase Program”) pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate purchase price not to exceed $10 million under which approximately $6.52 million in shares of common stock were repurchased. On October 10, 2018, the Company commenced a share repurchase program (the “2018 Share Repurchase Program”) pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate purchase price not to exceed approximately $8.48 million. We completed all of our repurchase plans on March 31, 2019 for a grand total of 1,055,499 shares for a total purchase price of $14.99 million. There were no shares of common stock repurchased by the Company during the three months period ended December 31, 2019.

Period	Total number of shares purchased	Average price paid per share
June 9, 2017 ~ June 30, 2017	170,169	$7.98
July 1, 2017 ~ September 30, 2017	114,156	$9.51
October 1, 2017 ~ December 31, 2017	142,469	$10.77
January 1, 2018 ~ March 31, 2018	37,462	$19.10
April 1, 2018 ~ June 30, 2018	96,512	$11.86
July 1, 2018 ~ September 30, 2018	-	$-
October 1, 2018 ~ December 31, 2018	440,731	$16.88
January 1, 2019 ~ March 31, 2019	54,000	$19.24
Total	1,055,499	$14.20

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ITEM 6. SELECTED FINANCIAL DATA

 The following tables set forth certain of our selected consolidated financial data as of the dates and for the years indicated. Historical results are not necessarily indicative of the results to be expected for any future period.

The following selected consolidated financial information was derived from our fiscal year end consolidated financial statements. The following information should be read in conjunction with those statements and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our summary consolidated statement of operations and comprehensive loss data for the fiscal years ended December 31, 2019, 2018 and 2017 and our summary consolidated balance sheet data as of December 31, 2019 and 2018, as set forth below, are derived from, and are qualified in their entirety by reference to, our audited consolidated financial statements, including the notes thereto, which are included in this Annual Report. The summary balance sheet data as of December 31, 2017, 2016 and 2015, and summary consolidated statement of operations and comprehensive loss data for the fiscal years ended December 31, 2016 and 2015, set forth below are derived from our audited consolidated financial statements which are not included herein.

Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States (“GAAP”).

	For the Year EndedDecember 31,
	2019	2018	2017	2016	2015
Summary Consolidated statement of operations and comprehensive loss data:
Net sales and revenue	$339,920	$224,403	$336,817	$627,930	$2,505,423
Operating expenses:
Cost of sales	62,378	135,761	162,218	860,417	1,880,331
General and administrative	13,458,151	13,220,757	12,780,483	11,670,506	13,068,255
Selling and marketing	141,597	308,830	360,766	425,040	709,151
Research and development	37,669,978	24,150,480	14,609,917	11,475,587	7,573,228
Impairment of non-current assets	-	2,914,320	-	4,611,714	123,428
Total operating expenses	51,332,104	40,730,148	27,913,384	29,043,264	23,354,393
Operating loss	(50,992,184)	(40,505,745)	(27,576,567)	(28,415,334)	(20,848,970)
Other income:
Interest income	809,785	392,328	133,621	78,943	42,220
Other income	199,390	1,172,879	1,955,086	132,108	630,428
Total other income	1,009,175	1,565,207	2,088,707	211,051	672,648
Loss before taxes	(49,983,009)	(38,940,538)	(25,487,860)	(28,204,283)	(20,176,322)
Income taxes credit (provision)	(1,045)	(4,954)	(2,450)	(4,093)	728,601
Net loss	$(49,984,054)	$(38,945,492)	$(25,490,310)	$(28,208,376)	$(19,447,721)
Other comprehensive income (loss):
Cumulative translation adjustment	8,242	(1,079,689)	967,189	(743,271)	(307,950)
Unrealized gain (loss) on investments, net of tax	-	-	(240,000)	5,300,633	(1,376,540)
Reclassification adjustments, net of tax, in connection with other-than-temporary impairment of investments	-	-	-	(5,557,939)	-
Total other comprehensive income (loss):	8,242	(1,079,689)	727,189	(1,000,577)	(1,684,490)
Comprehensive loss	$(49,975,812)	$(40,025,181)	$(24,763,121)	$(29,208,953)	$(21,132,211)
Net loss per share :
Basic and diluted	$(2.63)	$(2.20)	$(1.78)	$(2.09)	$(1.70)
Weighted average common shares outstanding:
Basic and diluted	18,983,206	17,741,104	14,345,604	13,507,408	11,472,306

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	As ofDecember 31,
	2019	2018	2017	2016	2015
Summary Consolidated balance sheet data:
Cash and cash equivalents	$15,443,649	$52,812,880	$21,568,422	$39,252,432	$14,884,597
Current working capital (1)	10,356,774	46,566,505	20,118,725	38,328,048	13,675,034
Total assets	97,324,300	107,581,349	61,162,296	68,628,467	49,460,422
Other non-current liabilities	17,933,743	14,321,751	183,649	370,477	76,229
Stockholders’ equity	55,717,691	85,218,392	57,302,526	65,893,954	46,364,936

(1)

Current working capital is the difference between total current assets and total current liabilities.

(2)

Current working capital, total assets and other non-current liabilities do not include the retrospective adjustments for adoption of ASU No. 2016-02 “Leases (Topic 842)” as of December 31, 2017, 2016 and 2015.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information included in Item 8 - Financial Statements and Supplemental Data of this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

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

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

Revenue Recognition

Revenues consist mainly of cell banking services as well as cell therapy technology services with customers. The Company evaluates the separate performance obligation(s) under each contract, allocates the transaction price to each performance obligation considering the estimated stand-alone selling prices of the services and recognizes revenue upon the satisfaction of such obligations over time or at a point in time dependent on the satisfaction of one of the following criteria: (1) the customer simultaneously receives and consumes the economic benefits provided by the vendor’s performance; (2) the vendor creates or enhances an asset controlled by the customer; or (3) the vendor’s performance does not create an asset for which the vendor has an alternative use, and the vendor has an enforceable right to payment for performance completed to date. Revenue from rendering of services is measured at the fair value of the consideration received or receivable under the contract or agreement. Revenue from cell therapy technology services is recognized in profit or loss at the point when customers simultaneously receive and consume the services. Revenue from cell banking storage is recognized in profit or loss on a straight-line basis over the storage period.

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Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets ranging from three to ten years and begins when the related assets are placed in service. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Repair and maintenance costs are charged to operating expense as incurred.

For the years ended December 31, 2019, 2018 and 2017, depreciation expense was $4,187,330, $3,360,517 and $1,195,705, respectively.

Goodwill and Other Intangibles

Goodwill represents the excess of the cost of assets acquired over the fair value of the net assets at the date of acquisition. Intangible assets represent the fair value of separately recognizable intangible assets acquired in connection with the Company’s business combinations. The Company evaluates its goodwill and other intangibles for impairment on an annual basis or whenever events or circumstances indicate that impairment may have occurred. The evaluation includes comparing the fair value of the reporting unit to the carrying value, including goodwill. If the fair value exceeds the carrying value, no impairment loss is recognized. However, if the carrying value of the reporting unit exceeds its fair value, the goodwill of the reporting unit may be impaired. Impairment is measured by comparing the implied fair value of the goodwill to its carrying value.

The carrying amount of the goodwill at December 31, 2019 and 2018 represents the cost arising from the business combinations in previous years and no impairment on goodwill was recognized for the years ended December 31, 2019 and 2018 as the Company continues to use the patents and knowhow acquired in the business combination in the Company’s current immune therapy R&D activities and there was no indication for impairment.

Government Grants

Government grants are recognized in the balance sheet initially when there is reasonable assurance that they will be received and that the enterprise will comply with the conditions attached to them. When the Company received the government grants but the conditions attached to the grants have not been fulfilled, such government grants are deferred and recorded as deferred income. The classification of short-term or long-term liabilities is depended on the management’s expectation of when the conditions attached to the grant can be fulfilled. Grants that compensate the Company for expenses incurred are recognized as other income in statement of income on a systematic basis in the same periods in which the expenses are incurred.

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For the years ended December 31, 2019, 2018 and 2017, the Company received government grants of $824,782, $1,105,272 and $1,905,213, respectively, for purposes of R&D and related capital expenditure. Government subsidies recognized as other income in the statement of income for the year ended December 31, 2019, 2018 and 2017 were $671,404, $1,119,827 and $2,077,486, respectively.

Valuation of Long-lived Asset

The Company reviews the carrying value of long-lived assets to be held and used, including other intangible assets subject to amortization, when events and circumstances warrants such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset and intangible assets. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets and intangible assets to be disposed are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

Income Taxes

Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance would be provided for those deferred tax assets if it is more likely than not that the related benefit will not be realized.

A full valuation allowance has been established against all net deferred tax assets as of December 31, 2019 and 2018 based on estimates of recoverability. While the Company has optimistic plans for its business strategy, we determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to the Company’s ability to generate sufficient profits from its business model.

Share-Based Compensation

The Company periodically uses stock-based awards, consisting of shares of common stock and stock options, to compensate certain officers and consultants. Shares are expensed on a straight-line basis over the requisite service period based on the grant date fair value, net of estimated forfeitures, if any. We currently use the Black-Scholes option-pricing model to estimate the fair value of our stock-based payment awards. This model requires the input of subjective assumptions, including the fair value of the underlying common stock, the expected volatility of the price of our common stock, risk-free interest rates, the expected term of the option and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. These assumptions are estimated as follows:

●

Fair Value of Our Common Stock — Our common stock is valued by reference to the publicly-traded price of our common stock.

●

Expected Volatility — Prior to the Eastbridge merger, we did not have a history of market prices for our common stock and since the merger, we do not have what we consider a sufficiently active and readily traded market for our common stock to use historical market prices for our common stock to estimate volatility. Accordingly, we estimate the expected stock price volatility for our common stock by taking the median historical stock price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of other public companies in the stem cell industry similar in size, stage of life cycle and financial leverage. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available.

●

Risk-Free Interest Rate — The risk-free interest rate assumption is based on observed interest rates appropriate for the expected terms of our awards. The risk-free interest rate assumption is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.

●

Expected Term — The expected term represents the period that our stock-based awards are expected to be outstanding. The expected terms of the awards are based on a simplified method which defines the life as the average of the contractual term of the options and the weighted-average vesting period for all open tranches.

●

Expected Dividend Yield — We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

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In addition to the assumptions used in the Black-Scholes option-pricing model, the amount of stock option expense we recognize in our consolidated statements of operations includes an estimate of stock option forfeitures. We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors. Changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in our consolidated financial statements.

Fair Value of Financial Instruments

Under authoritative guidance from the Financial Accounting Standards Board (“FASB”) on fair value measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. Level 3 valuations incorporate certain unobservable assumptions and projections in determining the fair value assigned to such assets.

All transfers between fair value hierarchy levels are recognized by the Company at the end of each reporting period. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risks associated with investment in those instruments.

The carrying amounts of other financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, income tax payable and related party payable approximate fair value due to their short maturities. The carrying value of the Company's borrowing from China Merchant Bank Shanghai Branch approximates fair value as the borrowing bears interest rates that are similar to existing market rates

Lease

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Investments

Equity investments, with or without readily determinable fair values, are measured at fair value with changes in the fair value recognized through other income (expense) net.

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Recent Accounting Pronouncements

Accounting pronouncements adopted during the year ended December 31, 2019

In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The adoption of the ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”) which provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2018-02 is permitted, including adoption in any interim period for the public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this ASU should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The adoption of the ASU 2018-02 did not have a material impact on the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“ASU 2017-11”) which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. The amendments in Part I of this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of the ASU 2017-11 did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The amendments in this update create Topic 842, Leases, and supersede the leases requirements in Topic 840, Leases. Topic 842 specifies the accounting for leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as operating leases under Topic 840. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Early application of the amendments in ASU 2016-02 is permitted. The adoption impact of the ASU 2016-02 on the Company’s consolidated financial statements is illustrated in notes of the accompanying consolidated financial statements.

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Accounting pronouncements not yet effective

In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820)” which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The modified standard eliminates the requirement to disclose changes in unrealized gains and losses included in earnings for recurring Level 3 fair value measurements and requires changes in unrealized gains and losses be included in other comprehensive income for recurring Level 3 fair value measurements of instruments. The standard also requires the disclosure of the range and weighted average used to develop significant unobservable inputs and how weighted average is calculated for recurring and nonrecurring Level 3 fair value measurements. The amendment is effective for fiscal years beginning after December 15, 2019 and interim periods within that fiscal year with early adoption permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”) which removes Step 2 from the goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. Public business entity that is a U.S. Securities and Exchange Commission filer should adopt the amendments in this ASU for its annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the standard to have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP; however, Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We do not expect the standard to have a material impact on our consolidated financial statements.

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Comparison of Year Ended December 31, 2019 to Years Ended December 31, 2018 and 2017

	For the Year Ended December 31,
	2019	2018	2017
Net sales and revenue	$339,920	$224,403	$336,817
Operating expenses:
Cost of sales *	62,378	135,761	162,218
General and administrative *	13,458,151	13,220,757	12,780,483
Selling and marketing *	141,597	308,830	360,766
Research and development *	37,669,978	24,150,480	14,609,917
Impairment of non-current assets	-	2,914,320	-
Total operating expenses	51,332,104	40,730,148	27,913,384
Operating loss	(50,992,184)	(40,505,745)	(27,576,567)
Other income
Interest income	809,785	392,328	133,621
Other income	199,390	1,172,879	1,955,086
Total other income	1,009,175	1,565,207	2,088,707
Loss before taxes	(49,983,009)	(38,940,538)	(25,487,860)
Income taxes provision	(1,045)	(4,954)	(2,450)
Net loss	$(49,984,054)	$(38,945,492)	$(25,490,310)
Other comprehensive income (loss):
Cumulative translation adjustment	8,242	(1,079,689)	967,189
Unrealized loss on investments, net of tax	-	-	(240,000)
Total other comprehensive income (loss):	8,242	(1,079,689)	727,189
Comprehensive loss	$(49,975,812)	$(40,025,181)	$(24,763,121)
Net loss per share:
Basic and diluted	$(2.63)	$(2.20)	$(1.78)
Weighted average common shares outstanding:
Basic and diluted	18,983,206	17,741,104	14,345,604

 * These line items include the following amounts of non-cash, stock-based compensation expense for the periods indicated:

	For the Year Ended December 31,
	2019	2018	2017
Cost of sales	-	-	51,288
General and administrative	1,885,653	2,307,191	2,935,798
Selling and marketing	10,225	79,845	52,984
Research and development	2,168,103	2,439,709	2,305,141
	4,063,981	4,826,745	5,345,211

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Segments

The Company is engaged in the development of new treatments for cancerous and degenerative diseases utilizing proprietary cell-based technologies, which have been organized as one reporting segment since they have similar nature and economic characteristics. The Company’s principle operating decision maker, the Chief Executive Officer, receives and reviews the results of the operations for all major cell platforms as a whole when making decisions about allocating resources and assessing performance of the Company. In accordance with FASB ASC 280-10, the Company is not required to report the segment information.

Results of Operations:

Revenues

				2019 versus 2018		2018 versus 2017
	2019	2018	2017	Change	Percent	Change	Percent
Year ended December 31,	$339,920	$224,403	$336,817	$115,517	51%	$(112,414)	(33)%

Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended December 31, 2018

Revenue for the year ended December 31, 2019 was mainly derived from technology development service whereas revenue for the year ended December 31, 2018 was mainly derived from both cell banking services and cell therapy technology service.

Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017

Revenue for the year ended December 31, 2018 was mainly derived from both cell banking services and cell therapy technology service whereas revenue for the year ended December 31, 2017 was solely derived from cell therapy technology service. In 2018, we determined to further deprioritize our cell therapy technology service, which was only partially offset by the introduction of our cell banking services.

Cost of Sales

				2019 versus 2018		2018 versus 2017
	2019	2018	2017	Change	Percent	Change	Percent
Year ended December 31,	$62,378	$135,761	$162,218	$(73,383)	(54)%	$(26,457)	(16)%

Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended December 31, 2018

The gross margin change was a result of the revenue mix change toward technology development services.

Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017

The gross margin change was a result of the revenue mix change toward adipose cell banking services.

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General and Administrative Expenses

				2019 versus 2018		2018 versus 2017
	2019	2018	2017	Change	Percent	Change	Percent
Year ended December 31,	$13,458,151	$13,220,757	$12,780,483	$237,394	2%	$440,274	3%

Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended December 31, 2018

No material change compared to the year ended December 31, 2018.

Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017

Change in G&A expenses was primarily additional costs related to advisory in financing, and professional fees in the Novartis transaction.

 Sales and Marketing Expenses

				2019 versus 2018		2018 versus 2017
	2019	2018	2017	Change	Percent	Change	Percent
Year ended December 31,	$141,597	$308,830	$360,766	$(167,233)	(54)%	$(51,936)	(14)%

Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended December 31, 2018

Decline in sales and marketing expenses was mainly attributed to the decrease in line with the sales team headcount as compared with the year ended December 31, 2018.

Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017

No material change compared to the year ended December 31, 2017.

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Research and Development Expenses

				2019 versus 2018		2018 versus 2017
	2019	2018	2017	Change	Percent	Change	Percent
Year ended December 31,	$37,669,978	$24,150,480	$14,609,917	$13,519,498	56%	$9,540,563	65%

Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended December 31, 2018

Research and development expenses increased by approximately $13,519,000 compared to the year ended December 31, 2018. The increase was primarily attributed to the increased spending in the growth of our pipeline in both liquid tumor and solid tumor development and expansion of our U.S. R&D operations based in Gaithersburg, Maryland. In the third quarter of 2019, the Company entered into a Facility Improvement and Process Validation Agreement with Duke University. Pursuant to the Agreement, Duke University and the Company agreed to collaborate on a clinical trial of tumor infiltrating lymphocytes (TIL cells) that will be performed at Duke and funded by CBMG. In consideration of Duke University’s performance of the project, the Company agreed to pay Duke University for improvement of Duke’s GMP facility, which resulted in higher research and development expenses in 2019.

Research and development expenses for the year ended December 31, 2019 are as follows:

	For the year ended December 31, 2019
Research and pre-clinical studies	$10,206,363
Development, clinical development and studies	27,463,615
Total	$37,669,978

Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017

Research and development expenses increased by approximately $9,541,000 compared to the year ended December 31, 2017. The increase was primarily attributed to increased spending in the growth of our pipeline in both liquid tumor and solid tumor development and expanding the U.S. research and development operations at Gaithersburg, Maryland.

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Impairment of Non-current Assets

				2019 versus 2018		2018 versus 2017
	2019	2018	2017	Change	Percent	Change	Percent
Year ended December 31,	$-	$2,914,320	$-	$(2,914,320)	(100)%	$2,914,320	N/A

Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended December 31, 2018 and 2017

The impairment of investments for the year ended December 31, 2018 is comprised of the recognition of other than temporary impairment on the value of shares in investments of $29,423 and impairment of $2,884,896 provided against the net book value of GVAX license. No such expense existed for the years ended December 31, 2019 and 2017.

The Company provided full impairment of $29,424 for shares of Alpha Lujo, Inc. (“ALEV”) for the year ended December 31, 2018 as ALEV filed Form 15 with the SEC and has not been traded in the market since 2018.

The Company reassessed the prioritization of our immuno-oncology assets, decided to terminate the development of GVAX technology and its license agreements with the University of South Florida (“USF”) and the Moffitt Cancer Center (“Moffitt”). As a result the Company made a full impairment of $2,884,896 for the USF and Moffitt licenses.

Operating Loss

				2019 versus 2018		2018 versus 2017
	2019	2018	2017	Change	Percent	Change	Percent
Year ended December 31,	$(50,992,184)	$(40,505,745)	$(27,576,567)	$(10,486,439)	26%	$(12,929,178)	47%

The increase in the operating loss for 2019 compared to 2018 and 2017 was primarily due to changes in research and development expenses and impairment of investments, each of which was described above.

Other Income

				2019 versus 2018		2018 versus 2017
	2019	2018	2017	Change	Percent	Change	Percent
Year ended December 31,	$1,009,175	$1,565,207	$2,088,707	$(556,032)	(36)%	$(523,500)	(25)%

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Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended December 31, 2018 and 2017

Other income, net for the year ended December 31, 2019 was primarily government subsidy of $671,000, interest income of $810,000, and netting of interest expense of $482,000.

Other income, net for the year ended December 31, 2018 was primarily government subsidy of $1,120,000, interest income of $392,000, and netting of the net foreign exchange gain of $74,000.

Other income, net for the year ended December 31, 2017 was primarily government subsidy of $2,077,000, interest income of $134,000, and netting of the net foreign exchange loss of $112,000.

Income Tax Provision

				2019 versus 2018		2018 versus 2017
	2019	2018	2017	Change	Percent	Change	Percent
Year ended December 31,	$(1,045)	$(4,954)	$(2,450)	$3,909	(79)%	$(2,504)	102%

Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended December 31, 2018 and 2017

While we have plans for growing and developing our business, we determined that a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to our ability to generate sufficient profits from our business model. Therefore, we established a valuation allowance for deferred tax assets other than the extent of the benefit from other comprehensive income. Income tax expenses for the year ended December 31, 2019 and 2017 all represent U.S. state tax. Income tax expense for the year ended December 31, 2018 was comprised of U.S. state tax of $2,475 and the withholding corporation income tax of $2,479 of our Hong Kong subsidiary for its royalty income derived from China.

Net Loss 

				2019 versus 2018		2018 versus 2017
	2019	2018	2017	Change	Percent	Change	Percent
Year ended December 31,	$(49,984,054)	$(38,945,492)	$(25,490,310)	$(11,038,562)	28%	$(13,455,182)	53%

Changes in net loss are primarily attributable to changes which are described above.

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Comprehensive Loss 

				2019 versus 2018		2018 versus 2017
	2019	2018	2017	Change	Percent	Change	Percent
Year ended December 31,	$(49,975,812)	$(40,025,181)	$(24,763,121)	$(9,950,631)	25%	$(15,262,060)	62%

Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended December 31, 2018

Comprehensive net loss for the years ended December 31, 2019 and 2018 include a currency translation net gain (loss) of approximately $8,000 and ($1,080,000), respectively, combined with the changes in net income.

Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017

Comprehensive net loss for 2017 includes unrealized loss on investments of approximately $240,000 and a currency translation net gain of approximately $967,000 combined with the changes in net loss. The unrealized loss on investments was attributed to the valuation change for the stock investment in Arem Pacific Corporation (“ARPC”).

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Share-Based Compensation

Share-based compensation totaled $4.1 million in 2019, $4.8 million in 2018 and $5.3 million in 2017. Share-based compensation was included in cost of sales and operating expenses.

As of December 31, 2019, unrecognized share-based compensation costs and the weighted average periods over which the costs are expected to be recognized were as follows:

	Shares	Unrecognized Share-Based Compensation Costs	Weighted Average Period
Non-vested stock options	263,822	$2,248,351	1.05 year
Non-vested restricted stock	235,822	$2,994,358	1.24 year

Non-vested restricted stock above does not include restricted stock awards (RS) linked to the stock price performance to be issued under long-term incentive plan.

LIQUIDITY AND CAPITAL RESOURCES

We had working capital of $10,356,774 as of December 31, 2019 compared to $46,566,505 as of December 31, 2018. Our cash position decreased to $32,443,649 at December 31, 2019 compared to $52,812,880 at December 31, 2018, as we had an increase in cash used in operating and investing activities partially offset by cash inflow generated from financing activities due to public offering financing in 2019 for aggregate net proceeds of approximately $17.0 million and short-term debt borrowed of $14.5 million.

Net cash provided by or used in operating, investing and financing activities from continuing operations were as follows:

Net cash used in operating activities was approximately $39,650,000, $25,113,000 and $18,593,000 for the years ended December 31, 2019, 2018 and 2017, respectively. The following table reconciles net loss to net cash used in operating activities:

				2019 versus 2018	2018 versus 2017
For year ended December 31,	2019	2018	2017	Change	Change
Net loss	$(49,984,054)	$(38,945,492)	$(25,490,310)	$(11,038,562)	$(13,455,182)
Income statement reconciliation items	9,722,993	12,704,688	8,331,491	(2,981,695)	4,373,197
Changes in operating assets, net	611,078	1,127,805	(1,434,573)	(516,727)	2,562,378
Net cash used in operating activities	$(39,649,983)	$(25,112,999)	$(18,593,392)	$(14,536,984)	$(6,519,607)

The 2018 change in non-cash transaction was primarily due to the increase in impairment on intangible assets of $2,885,000 as well as the increase in depreciation and amortization of $2,064,000 compared with same period in 2017. The 2019 change in non-cash transaction was primarily due to there was no impairment on intangible assets of $2,885,000 as compared with same period in 2018.

Net cash used in investing activities was approximately $11,396,000, $6,609,000 and $10,193,000 for the years ended December 31, 2019, 2018 and 2017, respectively. These amounts were the result of purchases of property, plant and equipment and intangible assets.

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Cash provided by financing activities was approximately $30,486,000, $63,114,000 and $10,826,000 for the years ended December 31, 2019, 2018 and 2017, respectively. These amounts were mainly attributable to the proceeds received from short-term debt, the issuance of common stock and exercise of stock options, netting of by the cash used in repurchase of treasury stock and interest payment.

Liquidity and Capital Requirements Outlook

We anticipate that the Company will require approximately $80 million in cash to operate in the coming 12 months. Of this amount, approximately $54 million will be used in operation, $14 million will be used to repay outstanding debt and $12 million will be used as capital expenditure, although we may revise these plans according to the catalysts and other business developments.

The Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. We expect to rely on current cash balances and additional dilutive financing to provide for these capital requirements. We do not intend to use and will not rely on our holdings in securities to fund our operations. Another stock we hold, Wonder International Education & Investment Group Corporation (“Wonder”), is no longer traded on any stock market. We do not know whether we can liquidate our 8,000,000 shares of Arem Pacific stock or the 2,057,131 shares of Wonder stock or any of our other portfolio securities, or if liquidated, whether the realized amount will be meaningful at all. As a result, we have written down above stocks to their fair value.

We may also pursue co-development of our clinical assets to defray operating expenses. We may further explore non-dilutive financing opportunities forging strategic partnerships with big pharma. As we continue to incur losses, achieving profitability is dependent upon the successful development of our cell therapy business and commercialization of our technology in the research and development phase, which is a number of years in the future. Once that occurs, we will have to achieve a level of revenues adequate to support our cost structure. We may never achieve profitability, and unless and until we do, we will continue to need to raise additional capital. Management intends to fund future operations through additional private or public debt or equity offerings, and may seek additional capital through arrangements with strategic partners or from other sources.

Our medium-to-long-term capital needs involve the further development of our biopharmaceutical business, and may include, at management’s discretion, new clinical trials for other indications, strategic partnerships, joint ventures, acquisition of licensing rights from new or current partners and/or expansion of our research and development programs. Furthermore, as our therapies pass through the clinical trial process and if they gain regulatory approval, we expect to expend significant resources on sales and marketing of our future products, services and therapies.

In order to finance our medium to long-term plans, we intend to rely upon external financing. This financing may be in the form of equity and or debt, in private placements and/or public offerings or arrangements with private lenders. Due to our short operating history and our early stage of development, particularly in our biopharmaceutical business, we may find it challenging to raise capital on terms that are acceptable to us, or at all. Furthermore, our negotiating position in the capital raising process may worsen as we consume our existing resources. Investor interest in a company such as ours is dependent on a wide array of factors, including the state of regulation of our industry in China (e.g. the policies of MOH and the NMPA), the U.S. and other countries, political headwinds affecting our industry, the investment climate for issuers involved in businesses located or conducted within China, the risks associated with our corporate structure, risks relating to our partners, licensed intellectual property, as well as the condition of the global economy and financial markets in general. Additional equity financing may be dilutive to our stockholders; debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate as a business; our stock price may not reach levels necessary to induce option or warrant exercises; and asset sales may not be possible on terms we consider acceptable. If we are unable to raise the capital necessary to meet our medium- and long-term liquidity needs, we may have to delay or discontinue certain clinical trials, the licensing, acquisition and/or development of cell therapy technologies and/or the expansion of our biopharmaceutical business; or we may have to raise funds on terms that we consider unfavorable.

Off-Balance Sheet Transactions

We do not have any off-balance sheet arrangements except the lease and capital commitment described in “Contractual Obligations” below.

Contractual Obligations

We have various contractual obligations that will affect our liquidity. The following table sets forth our contractual obligations as of December 31, 2019.

	Payments due by period
Contractual Obligations		Less than	2-3	4-5	More than
	Total	1 year	years	years	5 years
Bank Borrowings	$  14,334,398	$  14,334,398	$   -	$  -	$  -
Capital Commitment	1,177,975	1,177,975	-	-	-
Operating Lease Obligations	25,184,418	3,628,949	6,396,288	6,306,050	8,853,131
Total	$40,696,791	$19,141,322	$6,396,288	$6,306,050	$8,853,131

74

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Exposure to credit, liquidity, interest rate and currency risks arise in the normal course of the Company’s business. The Company’s exposure to these risks and the financial risk management policies and practices used by the Company to manage these risks are described below.

Credit Risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company’s credit risk is primarily attributable to cash at bank and receivables, etc. Exposure to these credit risks are monitored by management on an ongoing basis.

The Company’s cash is mainly held with well-known or state-owned financial institutions, such as HSBC, Bank of China, China CITIC Bank and China Merchant Bank. Management does not foresee any significant credit risks from these deposits and does not expect that these financial institutions may default and cause losses to the Company.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.

Liquidity Risk

Liquidity risk is the risk that an enterprise may encounter deficiency of funds in meeting obligations associated with financial liabilities. The Company and its individual subsidiaries are responsible for their own cash management, including short-term investment of cash surpluses and the raising of loans to cover expected cash demands. The Company’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash, readily realizable marketable investments and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.

The following tables show the remaining contractual maturities at the balance sheet date of the Company’s financial assets and financial liabilities, which are based on contractual cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the balance sheet date) and the earliest date the Group can be required to pay:

As of December 31, 2019

Contractual undiscounted cash flow

	Within 1 year or on demand	More than 1 year but less than 2 years	More than 2 year but less than 5 years	More than 5 years	Total	Carrying amount
Financial assets
Cash and cash equivalents	15,443,649	-	-	-	15,443,649	15,443,649
Restricted cash	17,000,000	-	-	-	17,000,000	17,000,000
Other receivables	750,943	-	-	-	750,943	750,943
Sub-total	33,194,592	-	-	-	33,194,592	33,194,592
Financial liabilities
Short-term debt	14,334,398	-	-	-	14,334,398	14,334,398
Accounts payable	2,039,686	-	-	-	2,039,686	2,039,686
Accrued expenses	1,904,829	-	-	-	1,904,829	1,904,829
Other current liabilities excluding operating lease liabilities with lease term over 12 months and deferred income	2,861,295	-	-	-	2,861,295	2,861,295
Operating lease liabilities (lease terms over 12 months)	3,536,188	3,149,434	9,552,904	8,853,131	25,091,657	20,106,163
Sub-total	24,676,396	3,149,434	9,552,904	8,853,131	46,231,865	41,246,371
Net amount	8,518,196	(3,149,434)	(9,552,904)	(8,853,131)	(13,037,273)	(8,051,779)

75

Interest Rate Risk

Interest-bearing financial instruments at variable rates and at fixed rates expose the Company to cash flow interest rate risk and fair value interest risk, respectively. The Company’s interest rate risk arises primarily from cash deposited at banks and short-term debt. The Company doesn’t have any interest-bearing long-term payable/ borrowing, therefore its exposure to interest rate risk is limited.

As of December 31, 2019, the Company held the following interest-bearing financial instruments:

	As of December 31, 2019
	Annual interest rate	USD
Fixed rate instruments
Financial assets
- Cash and cash equivalents	3.45% ~3.65%	11,467,561
- Restricted cash	3%	17,000,000
Financial liabilities
- Short-term debt	4.35% ~ 4.785%	14,334,398
		14,133,163

Currency Risk

The Company is exposed to currency risk primarily from sales and purchases which give rise to receivables, payables that are denominated in a foreign currency (mainly RMB). The Company has adopted USD as its functional currency, thus the fluctuation of exchange rates between RMB and USD exposes the Company to currency risk.

The following table details the Company’s exposure as of December 31, 2019 to currency risk arising from recognized assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate. For presentation purposes, the amounts of the exposure are shown in USD translated using the spot rate as of December 31, 2019. Differences resulting from the translation of the financial statements of entities into the Company’s presentation currency are excluded.

	Exposure to foreign currencies (Expressed in USD)
	As of December 31, 2019
	RMB	USD
Cash and cash equivalents	5,379	646
Net exposure arising from recognised assets and liabilities	5,379	646

76

The following table indicates the instantaneous change in the Company’s net loss that would arise if foreign exchange rates to which the Company has significant exposure at the end of the reporting period had changed at that date, assuming all other risk variables remained constant.

	As of December 31, 2019
	increase/(decrease) in foreign exchange rates	Effect on net loss (Expressed in USD)
RMB (against USD)	5%	237
	-5%	(237)

Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on each of the Company’s subsidiaries’ net loss measured in the respective functional currencies, translated into USD at the exchange rate ruling at the end of the reporting period for presentation purposes.

The sensitivity analysis assumes that the change in foreign exchange rates had been applied to remeasure those financial instruments held by the Company which expose the Company to foreign currency risk at the end of the reporting period, including inter-company payables and receivables within the Company which are denominated in a currency other than the functional currencies of the lender or the borrower. The analysis excludes differences that would result from the translation of the financial statements of subsidiaries into the Company’s presentation currency.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Attached hereto and filed as a part of this Annual Report on Form 10-K are our Consolidated Financial Statements, beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

77

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures  

We have established disclosure controls and procedures, as such term is defined in the Exchange Act Rules 13a - 15(e) and 15d - 15(e) under the Securities Exchange Act of 1934. Our disclosure controls and procedures are designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our principal executive officer and principal financial officer by others within our organization. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2019 to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2019.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2019. Our internal control over financial reporting as of December 31, 2019, has been audited and attested to by BDO China Shu Lun Pan Certified Public Accountants LLP, or BDO China, an independent registered public accounting firm, as stated in its report, which is included herein.

Changes in Internal Control over Financial Reporting

During the year ended December 31, 2019, there were no changes in our internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

 None.

78

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

We will file with the SEC a definitive Proxy Statement for our Annual Meeting of Stockholders (the “2020 Proxy Statement”) not later than 120 days after the fiscal year ended December 31, 2019. The information required by this item is incorporated herein by reference to the information contained in the 2020 Proxy Statement as set forth in Governance of the Company. We have adopted a Code of Business Conduct & Ethics that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Business Conduct & Ethics is posted on our website located at https://www.cellbiomedgroup.com/investor-relations/corporate-governance?lang=en. We intend to disclose future amendments to certain provisions of the Code of Business Conduct & Ethics, and waivers of the Code of Business Conduct & Ethics granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the information contained in the 2020 Proxy Statement as set forth in Executive Compensation and Related Information.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to the information contained in the 2020 Proxy Statement as set forth in Security Ownership of Certain Beneficial Owners and Management.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the information contained in the 2020 Proxy Statement as set forth in Certain Relationships and Related Transactions.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference to the information contained in the 2020 Proxy Statement as set forth in Proposal 2 - Ratification of Appointment of Independent Registered Public Accountant.

79

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) List of Documents Filed as a Part of This Report:

(1) Index to Consolidated Financial Statements:

Reports of Independent Registered Public Accounting Firm

Consolidated Financial Statements

Consolidated Balance Sheets at December 31, 2019 and 2018

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017

Notes to Consolidated Financial Statements

(2) Index to Financial Statement Schedules: All schedules have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or because it is not required.

(3) Index to Exhibits: See exhibits listed under Part (b) below.

(b) Exhibits:

Exhibit Number	Description
2.1	Plan of reorganization and exchange agreement (incorporated by reference to the Company’s Registration Statement on Form 10-SB, filed October 31, 2006).
2.2	Agreement and Plan of Merger, dated November 13, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K, filed November 20, 2012).
2.3	Amendment No. 1 to Agreement and Plan of Merger, dated January 15, 2013 (incorporated by reference to the Company’s Current Report Form 8-K, filed January 22, 2013).
2.4	Amendment No. 2 to Agreement and Plan of Merger, dated January 31, 2013 (incorporated by reference to the Company’s Current Report on Form 8-K, filed February 4, 2013).
2.5	Amendment No. 3 to Agreement and Plan of Merger, dated February 5, 2013 (incorporated by reference to the Company’s Current Report on Form 8-K, filed February 12, 2013).
3.1	Articles of Incorporation of Cellular Biomedicine Group, Inc. (incorporated by reference to the Company’s Current Report on Form 8-K, filed January 25, 2013).
3.2	Certificate of Ownership and Merger of Cellular Biomedicine Group, Inc. with and into Eastbridge Investment Group Corporation (incorporated by reference to the Company’s Current Report on Form 8-K, filed March 8, 2013)
3.3	Amended and Restated Bylaws of Cellular Biomedicine Group, Inc. (incorporated by reference to the Company’s Current Report on Form 8-K, filed September 21, 2016).
4.1	Description of Securities*
10.1	2009 Stock Option Plan (incorporated by reference to the Company's Registration Statement on Form S-8, filed April 15, 2009).†
10.2	2011 Incentive Stock Option Plan (incorporated by reference to the Company’s Registration Statement on Form S-8, filed March 7, 2012).†
10.3	Amended and Restated 2011 Incentive Stock Option Plan (incorporated by reference to the Company’s Annual Report on Form 10-K for the Year ended December 31, 2012).†
10.4	2013 Stock Incentive Plan (incorporated by reference to the Company’s Definitive Additional Materials on Schedule 14A, filed November 21, 2013).†
10.5	Technical Service Contract, dated September 22, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and National Engineering Research Center of Tissue Engineering (incorporated by reference to the Company’s Annual Report on Form 10-K for the Year ended December 31, 2013).
10.6	Clinical Trial Agreement, dated November 6, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and Renji Hospital (incorporated by reference to the Company’s Annual Report on Form 10-K for the Year ended December 31, 2013).
10.7	Clinical Trial Agreement, dated December 20, 2013, by and between Cellular Biomedicine Group (Shanghai) Ltd. and China Armed Police General Hospital (incorporated by reference to the Company’s Annual Report on Form 10-K for the Year ended December 31, 2013).
10.8	Form of Subscription Agreement (incorporated by reference to the Company’s Current Report on Form 8-K, filed December 16, 2013).
10.9	Employment Agreement with Bizuo (Tony) Liu, dated January 3, 2014 (incorporated by reference to the Company’s Current Report on Form 8-K, filed January 9, 2014).†
10.10	2014 Stock Incentive Plan (incorporated by reference to the Company’s Definitive Additional Materials on Schedule 14A, filed September 23, 2014).†
10.11	Amendment No. 1 to 2014 Stock Incentive Plan (incorporated by reference to the Company’s Revised Definitive Proxy Statement on Schedule 14A, filed March 23, 2017).†
10.12	Framework Agreement by and among the Company, Agreen Biotech Co. Ltd. and its Shareholders, dated August 02, 2014 (incorporated by reference to the Company’s Current Report on Form 8-K, filed October 2, 2014).
10.13	Technology Transfer Agreement by and between the Company and the General Hospital of the Chinese People’s Liberation Army, dated February 4, 2015 (incorporated by reference to the Company’s Annual Report on the Form 10-K for the Year ended December 31, 2015).
10.14	Asset Purchase Agreement, dated June 8, 2015, by and among the Company, Blackbird BioFinance, LLC, Scott Antonia and Sam Shrivastava (incorporated by reference to the Company’s Current Report on Form 8-K, filed July 2, 2015).
10.15	Patent Transfer Agreement, dated November 16, 2015, by and between CBMG Shanghai and China Pharmaceutical University (incorporated by reference to the Company’s Annual Report on the Form 10-K for the Year ended December 31, 2015).
10.16	Clinical Trial Agreement, dated December 15, 2015, by and between CBMG Shanghai and Renji Hospital (incorporated by reference to the Company’s Annual Report on the Form 10-K for the Year ended December 31, ).
10.17	Share Purchase Agreement, dated February 4, 2016, by and between the Company and Dangdai International Group Co., Limited (incorporated by reference to the Company’s Current Report on Form 8-K, filed February 10, 2016).
10.18	Lease Agreement, dated January 1, 2017, by and between CBMG Shanghai and Shanghai Chuangtong Industrial Development Co., Ltd. (incorporated by reference to the Company’s Annual Report on the Form 10-K for the Year ended December 31, 2016).

80

10.19	Consulting agreement with Wen Tao (Steve) Liu, dated February 7, 2016 (incorporated by reference to the Company’s Quarterly Report on the Form 10-Q for the Quarter ended March 31, 2016).
10.20	Agreement of Clinical Test, dated February 16, 2016, by and between CBMG Shanghai and Shanghai Tongji Hospital (incorporated by reference to the Company’s Quarterly Report on the Form 10-Q filed May 9, 2016).
10.21	Agreement on Termination of Cooperation with Jilin Luhong Real Estate Development Co., Ltd. (incorporated by reference to the Company’s Quarterly Report on the Form 10-Q for the Quarter ended June 30, 2016).
10.22	Lease agreement of office building located at Zone B, 2/F, Building No.7, Block C, Wuxi (Huishan) Life Science & Technology Industrial Park, 1699 Huishan Avenue, Wuxi, the P.R.C. (incorporated by reference to the Company’s Quarterly Report on the Form 10-Q for the Quarter ended June 30, 2016).
10.23	Letter Agreement, dated November 11, 2016, by and between the Company and Gang Ji (incorporated by reference to the Company’s Current Report on Form 8-K, filed November 15, 2016).†
10.24	Employment Agreement, dated March 3, 2017, by and between the Company and Bizuo (Tony) Liu (incorporated by reference to the Company’s Annual Report on the Form 10-K for the Year ended December 31, 2016).†
10.25	Employment Agreement, dated March 3, 2017, by and between the Company and Andrew Chan (incorporated by reference to the Company’s Annual Report on the Form 10-K for the Year ended December 31, 2016).†
10.26	Employment Agreement, dated March 3, 2017, by and between the Company and Yihong Yao (incorporated by reference to the Company’s Annual Report on the Form 10-K for the Year ended December 31, 2016).†
10.27	Lease Agreement, dated December 1, 2018, by and between CBMG Shanghai and Shanghai Guilin Industrial Co., Ltd.(incorporated by reference to Company’s Annual Report on Form 10-K for the Year ended December 31, 2018).
10.28	Share Purchase Agreement, dated December 15, 2017, by and among the Company and its executive officers (incorporated by reference to the Company’s Current Report on Form 8-K, filed December 21, 2017).
10.29	Share Purchase Agreement, dated December 26, 2017, by and among the Company and certain investors (incorporated by reference to the Company’s Current Report on Form 8-K, filed December 28, 2017).
10.30	Registration Rights Agreement, dated January 30, 2018, by and among the Company, Wealth Map Holdings Limited, Earls Mill Limited and Bosun S. Hau (incorporated by reference to the Company’s Current Report on Form 8-K, filed January 31, 2018).
10.31	Securities Purchase Agreement, dated January 30, 2018, by and among the Company, Wealth Map Holdings Limited, Earls Mill Limited and Bosun S. Hau (incorporated by reference to the Company’s Current Report on Form 8-K, filed January 31, 2018).
10.32	Amendment No. 1 to Registration Rights Agreement, dated February 5, 2018, by and among the Company, Wealth Map Holdings Limited, Earls Mill Limited, Bosun S. Hau and Rui Zhang (incorporated by reference to the Company’s Current Report on Form 8-K, filed February 7, 2018).
10.33	Amendment No. 1 to Securities Purchase Agreement, dated February 5, 2018, by and among the Company, Wealth Map Holdings Limited, Earls Mill Limited, Bosun S. Hau and Rui Zhang (incorporated by reference to the Company’s Current Report on Form 8-K, filed February 7, 2018).
10.34	Registration Rights Agreement, dated September 26, 2018, by and between the Company and Novartis Pharma AG (incorporated by reference to the Company’s Current Report on Form 8-K, filed September 27, 2018).
10.35	License and Collaboration Agreement, dated September 25, 2018, by and among the Company, Novartis Pharma AG and other parties thereto (incorporated by reference to the Company’s Current Report on Form 8-K, filed September 27, 2018).
10.36	Securities Purchase Agreement, dated September 25, 2018, by and among the Company, Novartis Pharma AG and Shanghai Cellular Biopharmaceutical Group Ltd. (incorporated by reference to the Company’s Current Report on Form 8-K, filed September 27, 2018).
10.37	License Agreement, dated October 2, 2018, by and among the Company and the U.S. Department of Health and Human Services, as represented by the National Cancer Institute, an Institute or Center of the National Institutes of Health (incorporated by reference to the Company’s Current Report on Form 8-K, filed October 9, 2018).
10.38	Toll Manufacturing and Supply Agreement, dated December 21, 2018, by and among the Company, Novartis Pharma AG and other parties thereto (incorporated by reference to the Company’s Current Report on Form 8-K, filed December 28, 2018).
10.39	License Agreement, dated as of February 14, 2019, by and between the Company and Augusta University Research Institute, Inc. (incorporated by reference to Company’s Annual Report on Form 10-K for the Year ended December 31, 2018).**
10.40	Facility Improvement and Process Validation Agreement, dated August 27, 2019, by and between the Company and Duke University (incorporated by reference to the Company’s Current Report on Form 8-K, filed August 29, 2019). **
10.41	Lease Agreement, dated as of October 1, 2019, by and between the Company and IPX Medical Center Drive Investors, LLC.*
10.42	Bridge Loan Agreement, dated January 28, 2020 (incorporated by reference to the Company’s Current Report on Form 8-K, filed January 29, 2020)
21	Subsidiaries of the Company (incorporated by reference to the section titled “Corporate Structure” in Part I, Item 1 of this Annual Report on the Form 10-K for the Year ended December 31, 2019).
23.1	Consent of BDO China Shu Lun Pan Certified Public Accountants LLP *
31	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer and Chief Financial Officer*
32	Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

*

Filed herewith.

**

Confidential treatment is requested for portions of this exhibit pursuant to 17 CFR Section 240.24b-2.

†

Management contract or compensatory plan or arrangement.

———————

ITEM 16. FORM 10-K SUMMARY

None.

81

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, there unto duly authorized.

Registrant	Cellular Biomedicine Group, Inc.
Date: February 28, 2020	By:	/s/ Bizou (Tony) Liu
		Bizuo (Tony) Liu
		Chief Executive Officer and Chief Financial Officer (principal executive officer and financial and accounting officer)

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

Signature	Title	Date
/s/ Terry A. Belmont	Chairman of the Board of Directors	February 28, 2020
Terry A. Belmont
/s/ Bizuo (Tony) Liu	Chief Executive Officer and Chief Financial Officer	February 28, 2020
Bizuo (Tony) Liu	(principal executive officer and financial and accounting officer)
/s/ Wen Tao (Steve) Liu	Director	February 28, 2020
Wen Tao (Steve) Liu
/s/ Hansheng Zhou	Director	February 28, 2020
Hansheng Zhou
/s/ Chun Kwok Alan Au	Director	February 28, 2020
Chun Kwok Alan Au
/s/ Gang Ji	Director	February 28, 2020
Gang Ji

/s/ Darren O’Brien	Director	February 28, 2020
Darren O’Brien
/s/ Edward Schafer	Director	February 28, 2020
Edward Schafer

82

CELLULAR BIOMEDICINE GROUP, INC.

TABLE OF CONTENTS

	Page
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS	F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 2019 and 2018	F-4
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2019, 2018 and 2017	F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017	F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017	F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Cellular Biomedicine Group, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Cellular Biomedicine Group, Inc. and its subsidiaries and variable interest entities (the “Company”) as of December 31, 2019 and 2018 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 28, 2020 expressed an unqualified opinion thereon.

Emphasis Matter Regarding Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases during the year ended December 31, 2019 due to the adoption of the Accounting Standards Codification (“ASC”) Leases (“ASC 842”).

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO China Shu Lun Pan Certified Public Accountants LLP

We have served as the Company’s auditor since 2015.

Shenzhen, the People’s Republic of China

February 28, 2020

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Cellular Biomedicine Group, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Cellular Biomedicine Group, Inc. and its subsidiaries and variable interest entities (the “Company”) as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated February 28, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Controls and Procedures, Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s 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 for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO China Shu Lun Pan Certified Public Accountants LLP

Shenzhen, the People’s Republic of China

February 28, 2020

F-3

CELLULAR BIOMEDICINE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,	December 31,
	2019	2018
Assets
Cash and cash equivalents	$15,443,649	$52,812,880
Restricted cash	17,000,000	-
Accounts receivable, less allowance for doubtful amounts of nil
and $94,868 as of December 31, 2019 and December 31, 2018, respectively	-	787
Other receivables	750,943	101,909
Prepaid expenses	835,048	1,692,135
Total current assets	34,029,640	54,607,711
Investments	240,000	240,000
Property, plant and equipment, net	21,434,414	15,193,761
Right of use	20,106,163	15,938,203
Goodwill	7,678,789	7,678,789
Intangibles, net	7,376,940	7,970,692
Long-term prepaid expenses and other assets	6,458,354	5,952,193
Total assets (1)	$97,324,300	$107,581,349
Liabilities and Stockholders' Equity
Liabilities:
Short-term debt	$14,334,398	$-
Accounts payable	2,039,686	422,752
Accrued expenses	1,904,829	1,878,926
Taxes payable	26,245	28,950
Other current liabilities	5,367,708	5,710,578
Total current liabilities	23,672,866	8,041,206
Other non-current liabilities	17,933,743	14,321,751
Total liabilities (1)	41,606,609	22,362,957
Commitments and Contingencies (note 12)
Preferred stock, par value $.001, 50,000,000 shares
authorized; none issued and outstanding as of
December 31, 2019 and 2018, respectively	-	-
Common stock, par value $.001, 300,000,000 shares authorized;
20,359,889 and 19,120,781 issued; and 19,304,390 and 18,119,282 outstanding,
as of December 31, 2019 and 2018, respectively	20,360	19,121
Treasury stock at cost; 1,055,499 and 1,001,499 shares of common stock	(14,992,694)	(13,953,666)
as of December 31, 2019 and December 31, 2018, respectively
Additional paid in capital	272,117,518	250,604,618
Accumulated deficit	(199,966,543)	(149,982,489)
Accumulated other comprehensive loss	(1,460,950)	(1,469,192)
Total stockholders' equity	55,717,691	85,218,392
Total liabilities and stockholders' equity	$97,324,300	$107,581,349

(1) The Company’s consolidated assets as of December 31, 2019 and 2018 included $54,668,966 and $40,254,691, respectively, of assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. Each of the following amounts represent the balances as of December 31, 2019 and 2018, respectively. These assets include cash and cash equivalents of $13,424,425and $2,376,974; other receivables of $201,532 and $61,722; prepaid expenses of $770,127 and $1,497,072; property, plant and equipment, net, of $20,762,271 and $14,280,949; right of use of $13,541,518 and $15,431,554; intangibles of $1,226,955 and $1,412,375; and long-term prepaid expenses and other assets of $4,742,138 and $5,194,045. The Company’s consolidated liabilities as of December 31, 2019 and 2018 included $32,865,763 and $20,548,793, respectively, of liabilities of the VIEs whose creditors have no recourse to the Company. These liabilities include short-term debt of $14,334,398 and nil; accounts payable of $1,324,792 and $359,980; other payables of $4,090,154 and $4,937,541; payroll accrual of $1,208,491 and $1,367,658, which mainly includes bonus accrual of $1,207,560 and $1,358,709; deferred income of $10,994 and $6,280; and other non-current liabilities of $11,896,934 and $13,877,334. See further description in Note 4, Variable Interest Entities.

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

F-4

CELLULAR BIOMEDICINE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

	For the Year EndedDecember 31,
	2019	2018	2017
Net sales and revenue	$339,920	$224,403	$336,817
Operating expenses:
Cost of sales	62,378	135,761	162,218
General and administrative	13,458,151	13,220,757	12,780,483
Selling and marketing	141,597	308,830	360,766
Research and development	37,669,978	24,150,480	14,609,917
Impairment of non-current assets	-	2,914,320	-
Total operating expenses	51,332,104	40,730,148	27,913,384
Operating loss	(50,992,184)	(40,505,745)	(27,576,567)
Other income:
Interest income	809,785	392,328	133,621
Other income	199,390	1,172,879	1,955,086
Total other income	1,009,175	1,565,207	2,088,707
Loss before taxes	(49,983,009)	(38,940,538)	(25,487,860)
Income taxes provision	(1,045)	(4,954)	(2,450)
Net loss	$(49,984,054)	$(38,945,492)	$(25,490,310)
Other comprehensive income (loss):
Cumulative translation adjustment	8,242	(1,079,689)	967,189
Unrealized loss on investments, net of tax	-	-	(240,000)
Total other comprehensive income (loss):	8,242	(1,079,689)	727,189
Comprehensive loss	$(49,975,812)	$(40,025,181)	$(24,763,121)
Net loss per share:
Basic and diluted	$(2.63)	$(2.20)	$(1.78)
Weighted average common shares outstanding:
Basic and diluted	18,983,206	17,741,104	14,345,604

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

F-5

CELLULAR BIOMEDICINE GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

									Accumulated Other
	Common Stock		Preferred Stock		Treasury Stock		Additional	Accumulated	Comprehensive
	Shares	Amount	Shares	Amount	Shares	Amount	Paid in Capital	Deficit	Income (Loss)	Total
Balance at December 31, 2016	14,281,378	14,281	-	-	-	-	152,543,052	(85,546,687)	(1,116,692)	65,893,954
Common stock issued with PPM	1,208,334	1,208	-	-	-	-	14,494,832	-	-	14,496,040
Restricted stock grants	68,446	69	-	-	-	-	832,950	-	-	833,019
Accrual of stock options	-	-	-	-	-	-	4,512,192	-	-	4,512,192
Exercise of stock options	57,400	58	-	-	-	-	308,313	-	-	308,371
Treasury stock purchase	-	-	-	-	(426,794)	(3,977,929)	-	-	-	(3,977,929)
Unrealized loss on investments, net of tax	-	-	-	-	-	-	-	-	(240,000)	(240,000)
Foreign currency translation	-	-	-	-	-	-	-	-	967,189	967,189
Net loss	-	-	-	-	-	-	-	(25,490,310)	-	(25,490,310)
Balance at December 31, 2017	15,615,558	15,616	-	-	(426,794)	(3,977,929)	172,691,339	(111,036,997)	(389,503)	57,302,526
Common stock issued with PPM	3,177,581	3,177	-	-	-	-	70,347,996	-	-	70,351,173
Restricted stock grants	91,713	92	-	-	-	-	1,642,228	-	-	1,642,320
Accrual of stock options	-	-	-	-	-	-	3,184,425	-	-	3,184,425
Exercise of stock options	235,929	236	-	-	-	-	2,738,630	-	-	2,738,866
Treasury stock purchase	-	-	-	-	(574,705)	(9,975,737)	-	-	-	(9,975,737)
Foreign currency translation	-	-	-	-	-	-	-	-	(1,079,689)	(1,079,689)
Net loss	-	-	-	-	-	-	-	(38,945,492)	-	(38,945,492)
Balance at December 31, 2018	19,120,781	$19,121	-	$-	(1,001,499)	$(13,953,666)	$250,604,618	$(149,982,489)	$(1,469,192)	$85,218,392
Common stock issued with PPM	1,106,961	1,107	-	-	-	-	17,165,092	-	-	17,166,199
Restricted stock grants	101,729	102	-	-	-	-	1,647,821	-	-	1,647,923
Accrual of stock options	-	-	-	-	-	-	2,416,058	-	-	2,416,058
Exercise of stock options	30,418	30	-	-	-	-	283,929	-	-	283,959
Treasury stock purchase	-	-	-	-	(54,000)	(1,039,028)	-	-	-	(1,039,028)
Foreign currency translation	-	-	-	-	-	-	-	-	8,242	8,242
Net loss	-	-	-	-	-	-	-	(49,984,054)	-	(49,984,054)
Balance at December 31, 2019	20,359,889	$20,360	-	$-	(1,055,499)	$(14,992,694)	$272,117,518	$(199,966,543)	$(1,460,950)	$55,717,691

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

F-6

CELLULAR BIOMEDICINE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended
	December 31,
	2019	2018	2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$(49,984,054)	$(38,945,492)	$(25,490,310)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization	5,638,303	5,049,523	2,985,963
Loss on disposal of assets	39,033	4,957	317
Stock based compensation expense	4,063,981	4,826,745	5,345,211
Other than temporary impairment on investments	-	29,424	-
Impairment on intangible assets	-	2,884,896	-
Interest income from six-month deposits with the banks	-	(175,479)	-
Interest income from pledged bank deposits	(500,219)	-	-
Interest expenses	481,895	-	-
Allowance for doubtful account	-	84,622	-
Changes in operating assets and liabilities:
Accounts receivable	774	107,263	(160,628)
Other receivables	(150,222)	66,108	(467,985)
Prepaid expenses	831,686	68,435	(812,675)
Long-term prepaid expenses and other assets	(1,324,924)	(538,349)	(1,005,029)
Accounts payable	1,170,688	133,740	(814)
Accrued expenses	48,762	816,936	(118,968)
Other current liabilities	(43,401)	390,181	1,339,866
Taxes payable	(2,705)	75	-
Other non-current liabilities	80,420	83,416	(208,340)
Net cash used in operating activities	(39,649,983)	(25,112,999)	(18,593,392)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets	148,393	1,625	-
Withdrawing six-month deposits with the banks	-	10,175,479	-
Putting six-month deposits with the banks	-	(10,000,000)	-
Purchases of intangible assets	(869,110)	(196,836)	(23,734)
Purchases of property, plant and equipment	(10,674,812)	(6,589,493)	(10,169,134)
Net cash used in investing activities	(11,395,529)	(6,609,225)	(10,192,868)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common stock	17,166,199	70,351,173	14,496,040
Proceeds from exercise of stock options	283,959	2,738,866	308,371
Proceeds from short-term debt	14,546,035	-	-
Interest paid	(470,901)	-	-
Repurchase of treasury stock	(1,039,028)	(9,975,737)	(3,977,929)
Net cash provided by financing activities	30,486,264	63,114,302	10,826,482
EFFECT OF EXCHANGE RATE CHANGES ON CASH	190,017	(147,620)	275,768
INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(20,369,231)	31,244,458	(17,684,010)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	52,812,880	21,568,422	39,252,432
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$32,443,649	$52,812,880	$21,568,422
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes	$3,750	$4,879	$2,450

	December 31,	December 31,	December 31,
	2019	2018	2017
Reconciliation of cash, cash equivalents and restricted cash in condensed consolidated statements of cash flows:
Restricted cash	$17,000,000	$-	$-
Cash and cash equivalents	15,443,649	52,812,880	21,568,422
Cash, cash equivalents and restricted cash	$32,443,649	$52,812,880	$21,568,422

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

F-7

NOTE 1 – DESCRIPTION OF BUSINESS

As used in this report, “we,” “us,” “our,” “CBMG,” “Company” or “our company” refers to Cellular Biomedicine Group, Inc. and, unless the context otherwise requires, all of its subsidiaries.

Overview

We are a clinical-stage biopharmaceutical company committed to using our proprietary cell-based technologies to develop immunotherapies for the treatment of cancer and stem cell therapies for the treatment of degenerative diseases. We view ourselves as a leader in cell therapy industry through our diverse, multi-target, broad pipeline ranging from immuno-oncology, featuring CAR-T, TCR-T and TIL to regenerative medicine. Our focus is to bring our potentially best-in-class products to market while also aiming to reduce manufacturing cycle time and aggregate cost while striving to ensure quality products of cell therapies. We provide comprehensive and integrated research and manufacturing services throughout the discovery, development and manufacturing spectrum for cell-based technologies. We have two major components to our global strategy. First, we intend on developing our own internal pipeline, focusing on immune cell therapy, regenerative medicine, as well as other innovative biotechnology modalities that can leverage our infrastructure, human capital and intellectual property. Second, we plan to partner with leading companies to monetize our innovative technologies in markets where we do not currently have a presence and may also seek to bring their technologies to markets where we have infrastructure.

Our end-to-end platform enables discovery, development and manufacturing of cell-based therapies from concept to commercial manufacturing in a cost-efficient manner. The manufacturing and delivery of T-cell therapies involve complex, integrated processes, comprised of isolating T-cells from patients, T-cell enrichment, activation, viral vector transduction, expansion, harvest and fill-finish. Our in-house cell therapy manufacturing is comprised of a semi-automated, fully closed system and can manufacture high quality plasmids, and serum-free reagents as well as viral vectors for our immuno-oncology cell therapy products. Because we are vertically integrated, we are able to reduce the aggregate cost of cell therapies. We plan to build out our manufacturing capacity to scale for commercial supply at an economical cost. We hone our manufacturing process in our good manufacturing practice (GMP) facilities in China to achieve cycle time reduction, improve quality assurance and control and increase efficiency and early development to understand our therapies’ efficacy. Our other objective on institutionalizing our manufacturing process is portability and ease of tech transfer to other facilities and ease of deployment in future locations.

In September 2018, we executed a License and Collaboration Agreement (hereinafter Novartis LCA) with Novartis AG (Novartis) to manufacture and supply their U.S. FDA-approved CD19 CAR-T cell therapy product Kymriah® in China. Pursuant to the Novartis LCA agreement, we also granted Novartis a worldwide license to certain of our CAR-T intellectual property for the development, manufacture and commercialization of CAR-T products. We are entitled to an escalating single-digit percentage royalty of Kymriah®’s net sales in China. CBMG is responsible for the cost of bi-directional technology transfers between the two companies. We will receive collaboration payments equal to a single-digit escalating percentage of net sales of Kymriah® in China, subject to certain caps set forth under the Novartis LCA, for sales in diffuse large B-cell lymphoma and pediatric acute lymphoblastic leukemia indications and up to a maximum amount to be agreed upon for sales in other indications. We are also obligated to assist Novartis with the development of Kymriah® in China as Novartis may request and we are responsible for a certain percentage of the total development cost for the development of Kymriah® in China for indications other than diffuse large B-cell lymphoma and pediatric acute lymphoblastic leukemia indications. As of December 31, 2019, we have achieved three major milestones on the technology transfer and collaboration with Novartis on commercialization of Kymriah®, specifically: process and analytical training, feasibility runs and an export license for feasibility/comparability.

On October 2, 2018, we executed a nonexclusive license agreement with the NCI for ten tumor infiltrating lymphocytes patents, pursuant to which we acquired rights to the worldwide development, manufacture and commercialization of autologous, tumor-reactive lymphocyte adoptive cell therapy products, isolated from tumor infiltrating lymphocytes for the treatment of non-small cell lung, stomach, esophagus, colorectal and head and neck cancer(s) in humans.

F-8

In order to expedite fulfillment of patient treatment, we have been actively developing technologies and products with strong intellectual property protection. CBMG’s worldwide exclusive license to the T Cell patent rights owned by Augusta University provides an opportunity to expand the application of CBMG’s cancer therapy-enabling technologies and to initiate clinical trials with leading cancer hospitals. On February 14, 2019, Augusta University granted us an exclusive, worldwide license with sublicense rights to its patent rights to Human Alpha Fetoprotein-Specific T Cell Receptor modified T-cells (AFP TCR-T).

Corporate History

Headquartered in New York, the Company is a Delaware biopharmaceutical company focused on developing treatment for cancer and orthopedic diseases for patients in China. We also plan to develop our products targeting certain solid tumor and other cancer indications in the United States. The Company started its regenerative medicine business in China in 2009 and expanded to CAR-T therapies in 2014.

NOTE 2 – BASIS OF PRESENTATION

The consolidated financial statements include the financial statements of the Company and all of its subsidiaries and variable interest entities. All significant intercompany transactions and balances are eliminated upon consolidation. The consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”).

The Company recorded accumulated deficit of $199,966,543, cash and cash equivalents and restricted cash of $32,443,649 as of December 31, 2019, compared with accumulated deficit of $149,982,489, cash and cash equivalents of $52,812,880 as of December 31, 2018. Although management believes it can secure financial resources to satisfy the Company’s current liabilities and the capital expenditure needs in the next 12 months, there are no guarantees that these financial resources will be secured. Therefore, there is a substantial doubt about the ability of the Company to continue as a going concern that it may be unable to realize its assets and discharge its liabilities in the normal course of business. In order to finance our operation, management intends to rely upon external financing. This financing may be in the form of equity and or debt, in private placements and/or public offerings or arrangements with private lenders. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies are as follows:

F-9

Principles of Consolidation

The consolidated financial statements have been prepared in conformity with GAAP, and reflect the accounts and operations of the Company and its subsidiaries, beginning with the date of their respective acquisition. In accordance with the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Topic 810, or ASC 810, Consolidation, the Company consolidates any variable interest entity, or VIE, of which it is the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as variable interest entities, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE in which it has a majority ownership interest when the Company is not considered the primary beneficiary. The Company has determined that it is the primary beneficiary in a VIE—refer to Note 4, Variable Interest Entity. The Company evaluates its relationships with the VIE on an ongoing basis to ensure that it continues to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

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

These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Significant accounting estimates reflected in the Company’s consolidated financial statements include useful lives of property, plant and equipment and acquired intangibles, the valuation allowance for deferred income tax assets, valuation of goodwill, valuation of long-lived assets and share-based compensation expense. Actual results could materially differ from those estimates.

Revenue Recognition

Revenues consist mainly of cell banking services as well as cell therapy technology services with customers. The Company evaluates the separate performance obligation(s) under each contract, allocates the transaction price to each performance obligation considering the estimated stand-alone selling prices of the services and recognizes revenue upon the satisfaction of such obligations over time or at a point in time dependent on the satisfaction of one of the following criteria: (1) the customer simultaneously receives and consumes the economic benefits provided by the vendor’s performance (2) the vendor creates or enhances an asset controlled by the customer (3) the vendor’s performance does not create an asset for which the vendor has an alternative use, and the vendor has an enforceable right to payment for performance completed to date. Revenue from rendering of services is measured at the fair value of the consideration received or receivable under the contract or agreement. Revenue from cell therapy technology services is recognized in profit or loss at the point when customers simultaneously receive and consume the services. Revenue from cell banking storage is recognized in profit or loss on a straight-line basis over the storage period.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At December 31, 2019 and 2018, respectively, cash and cash equivalents include cash on hand and cash in the bank. At times, cash deposits may exceed government-insured limits.

Restricted cash consists of collateral representing cash deposits for borrowings.

Accounts Receivable

Accounts receivable represent amounts earned but not collected in connection with the Company’s sales of goods or services as of December 31, 2019 and 2018. Account receivables are carried at their estimated collectible amounts.

The Company follows the allowance method of recognizing uncollectible accounts receivable. The Company recognizes bad debt expense based on specifically identified customers and invoices that are anticipated to be uncollectable. At December 31, 2019 and 2018, allowance of nil and $94,868, respectively, were provided for debtors of certain customers as those debts are unrecoverable from customers.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets ranging from three to ten years and begins when the related assets are placed in service. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Repair and maintenance costs are charged to operating expense as incurred.

F-10

For the years ended December 31, 2019, 2018 and 2017, depreciation expense was $4,187,330, $3,360,517 and $1,195,705, respectively.

Goodwill and Other Intangibles

Goodwill represents the excess of the cost of assets acquired over the fair value of the net assets at the date of acquisition. Intangible assets represent the fair value of separately recognizable intangible assets acquired in connection with the Company’s business combinations. The Company evaluates its goodwill and other intangibles for impairment on an annual basis or whenever events or circumstances indicate that impairment may have occurred. The evaluation includes comparing the fair value of the reporting unit to the carrying value, including goodwill. If the fair value exceeds the carrying value, no impairment loss is recognized. However, if the carrying value of the reporting unit exceeds its fair value, the goodwill of the reporting unit may be impaired. Impairment is measured by comparing the implied fair value of the goodwill to its carrying value.

The carrying amount of the goodwill as at December 31, 2019 and 2018 represents the cost arising from the business combinations in previous years and no impairment on goodwill was recognized for the years ended December 31, 2019 and 2018 as the Company continues to use the patents and knowhow acquired in the business combination in the Company’s current immune therapy R&D activities and there was no indication for impairment.

Treasury Stock

The treasury stock is recorded and carried at their repurchase cost. The Company recorded the entire purchase price of the treasury stock as a reduction of equity. A gain or loss will be determined when treasury stock is reissued or retired, and the original issue price and book value of the stock do not enter into the accounting. Additional paid-in capital from treasury stock is credited for gains and debited for losses when treasury stock is reissued at prices that differ from the repurchase cost.

Government Grants

Government grants are recognized in the balance sheet initially when there is reasonable assurance that they will be received and that the enterprise will comply with the conditions attached to them. When the Company received the government grants but the conditions attached to the grants have not been fulfilled, such government grants are deferred and recorded as deferred income. The classification of short-term or long-term liabilities is dependent on the management’s expectation of when the conditions attached to the grant can be fulfilled. Grants that compensate the Company for expenses incurred are recognized as other income in the statement of income on a systematic basis in the same periods in which the expenses are incurred.

For the year ended December 31, 2019, 2018 and 2017, the Company received government grants of $824,782, $1,105,272 and $1,905,213 for purposes of R&D and related capital expenditure, respectively. Government subsidies recognized as other income in the statement of income for the year ended December 31, 2019, 2018 and 2017 were $671,404, $1,119,827 and $2,077,486, respectively.

Valuation of long-lived asset

The Company reviews the carrying value of long-lived assets to be held and used, including other intangible assets subject to amortization, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset and intangible assets. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets and intangible assets to be disposed are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

F-11

Income Taxes

Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance would be provided for those deferred tax assets if it is more likely than not that the related benefit will not be realized.

A full valuation allowance has been established against all net deferred tax assets as of December 31, 2019 and 2018 based on estimates of recoverability. While the Company has optimistic plans for its business strategy, we determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to the Company’s ability to generate sufficient profits from its business model.

Share-Based Compensation

The Company periodically uses stock-based awards, consisting of shares of common stock and stock options, to compensate certain officers and consultants. Shares are expensed on a straight line basis over the requisite service period based on the grant date fair value, net of estimated forfeitures, if any. We currently use the Black-Scholes option-pricing model to estimate the fair value of our stock-based payment awards. This model requires the input of subjective assumptions, including the fair value of the underlying common stock, the expected volatility of the price of our common stock, risk-free interest rates, the expected term of the option and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. These assumptions are estimated as follows:

●

Fair Value of Our Common Stock — Our common stock is valued by reference to the publicly traded price of our common stock.

●

Expected Volatility — Prior to the Eastbridge merger, we did not have a history of market prices for our common stock and since the merger, we do not have what we consider a sufficiently active and readily traded market for our common stock to use historical market prices for our common stock to estimate volatility. Accordingly, we estimate the expected stock price volatility for our common stock by taking the median historical stock price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of other public companies in the stem cell industry similar in size, stage of life cycle and financial leverage. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available.

●

Risk-Free Interest Rate — The risk-free interest rate assumption is based on observed interest rates appropriate for the expected terms of our awards. The risk-free interest rate assumption is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.

●

Expected Term — The expected term represents the period that our stock-based awards are expected to be outstanding. The expected terms of the awards are based on a simplified method which defines the life as the average of the contractual term of the options and the weighted-average vesting period for all open tranches.

●

Expected Dividend Yield — We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

In addition to the assumptions used in the Black-Scholes option-pricing model, the amount of stock option expense we recognize in our consolidated statements of operations includes an estimate of stock option forfeitures. We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors. Changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in our consolidated financial statements.

F-12

Fair Value of Financial Instruments

Under the FASB’s authoritative guidance on fair value measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. Level 3 valuations incorporate certain unobservable assumptions and projections in determining the fair value assigned to such assets.

All transfers between fair value hierarchy levels are recognized by the Company at the end of each reporting period. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement in its entirety, requires judgment and considers factors specific to the investment. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risks associated with investment in those instruments.

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

Lease

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Investments

Equity investments with or without readily determinable fair values are measured at fair value with changes in the fair value recognized through other income (expense) net.

Basic and Diluted Net Loss Per Share

Basic income (loss) per share is computed based on the average number of common shares outstanding.

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

Foreign Currency Translation

The Company’s financial statements are presented in U.S. dollars ($), which is the Company’s reporting currency, while the Company’s China subsidiaries’ functional currency is Chinese Renminbi (RMB). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange ruling at the balance sheet date. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of operations and comprehensive income (loss) during the periods. Any differences are recorded as an unrealized gain or loss on foreign currency translation in the statements of operations and comprehensive loss. In accordance with ASC 830, Foreign Currency Matters, the Company translates the assets and liabilities into USD from RMB using the rate of exchange prevailing at the applicable balance sheet date and the statements of income and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded in shareholders’ equity as part of accumulated other comprehensive income. The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations.

Comprehensive Loss

We apply ASC No. 220, Comprehensive Income (ASC 220). ASC 220 establishes standards for the reporting and display of comprehensive income or loss, requiring its components to be reported in a financial statement that is displayed with the same prominence as other financial statements. Our comprehensive loss was $49,975,812, $40,025,181 and $24,763,121 for the years ended December 31, 2019, 2018 and 2017, respectively.

Segment Information

FASB ASC Topic 280, “Segment Reporting” establishes standards for reporting information about reportable segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group in deciding how to allocate resources and in assessing performance. Based on the analysis, we operate in a single reportable segment.

F-13

Recent Accounting Pronouncements

Accounting pronouncements adopted during the year ended December 31, 2019

In June 2018, the FASB issued ASU 2018-07, which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The adoption of the ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”) which provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2018-02 is permitted, including adoption in any interim period for the public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this ASU should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The adoption of the ASU 2018-02 did not have a material impact on the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“ASU 2017-11”) which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. The amendments in Part I of this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of the ASU 2017-11 did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” (“ASU 2016-02”). The amendments in this update create Topic 842, Leases, and supersede the leases requirements in Topic 840, Leases. Topic 842 specifies the accounting for leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as operating leases under Topic 840. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Early application of the amendments in ASU 2016-02 is permitted. The Company adopted the new standard on January 1, 2019 using a modified retrospective approach and elected the transition method that allows for application of the standard at the beginning of the earliest comparative period presented in the financial statements. The Company also elected available practical expedients. The adoption impact of the ASU 2016-02 on the Company’s consolidated financial statements is illustrated in Note 10.

Accounting pronouncements not yet effective

In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820)” which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The modified standard eliminates the requirement to disclose changes in unrealized gains and losses included in earnings for recurring Level 3 fair value measurements and requires changes in unrealized gains and losses be included in other comprehensive income for recurring Level 3 fair value measurements of instruments. The standard also requires the disclosure of the range and weighted average used to develop significant unobservable inputs and how weighted average is calculated for recurring and nonrecurring Level 3 fair value measurements. The amendment is effective for fiscal years beginning after December 15, 2019 and interim periods within that fiscal year with early adoption permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”) which removes Step 2 from the goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. Public business entity that is a U.S. Securities and Exchange Commission filer should adopt the amendments in this ASU for its annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the standard to have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” (“ASU 2016-13”). Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We do not expect the standard to have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. We do not expect that the requirements of ASU 2017-04 will have a material impact on our consolidated financial statements.

F-14

NOTE 4 – VARIABLE INTEREST ENTITY

VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the Company is the primary beneficiary of the entity. Cellular Biomedicine Group Ltd (Shanghai) (“CBMG Shanghai”) and its subsidiaries are variable interest entities (VIEs) through which the Company conducts stem cell and immune therapy research and clinical trials in China. The registered shareholders of CBMG Shanghai are Lu Junfeng and Chen Mingzhe, who together own 100% of the equity interests in CBMG Shanghai. The initial capitalization and operating expenses of CBMG Shanghai are funded by our wholly foreign-owned enterprise (“WFOE”), Cellular Biomedicine Group Ltd. (Wuxi) (“CBMG Wuxi”). The registered capital of CBMG Shanghai is 10 million RMB and was incorporated on October 19, 2011. Beijing Agreen Biotechnology Co., Ltd. (“AG”) was 100% acquired by CBMG Shanghai in September 2014. The registered capital of AG is 5 million RMB and was incorporated on April 27, 2011. In 2017, CBMG Shanghai established two subsidiaries in Wuxi and Shanghai. Wuxi Cellular Biopharmaceutical Group Ltd. was established on January 17, 2017 with registered capital of 20 million RMB and wholly owned by CBMG Shanghai. Shanghai Cellular Biopharmaceutical Group Ltd. (“SH SBM”) was established on January 18, 2017 with registered capital of 100 million RMB and wholly owned by CBMG Shanghai. For the years ended December 31, 2019, 2018 and 2017, 16%, 29% and 3% of the Company revenue is derived from VIEs respectively.

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

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

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

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

F-15

The Company has aggregated the financial information of CBMG Shanghai and its subsidiaries in the table below. The aggregate carrying value of assets and liabilities of CBMG Shanghai and its subsidiaries (after elimination of intercompany transactions and balances) in the Company’s consolidated balance sheets as of December 31, 2019 and 2018 are as follows:

	December 31,	December 31,
	2019	2018
Assets
Cash	$13,424,425	$2,376,974
Other receivables	201,532	61,722
Prepaid expenses	770,127	1,497,072
Total current assets	14,396,084	3,935,768
Property, plant and equipment, net	20,762,271	14,280,949
Right of use	13,541,518	15,431,554
Intangibles	1,226,955	1,412,375
Long-term prepaid expenses and other assets	4,742,138	5,194,045
Total assets	$54,668,966	$40,254,691
Liabilities
Short-term debt	$14,334,398	$-
Accounts payable	1,324,792	359,980
Other payables	4,090,154	4,937,541
Accrued payroll *	1,208,491	1,367,658
Deferred income	10,994	6,280
Total current liabilities	$20,968,829	$6,671,459
Other non-current liabilities	11,896,934	13,877,334
Total liabilities	$32,865,763	$20,548,793

* Accrued payroll mainly includes bonus accrual of $1,207,560 and $1,358,709 as of December 31, 2019 and December 31, 2018, respectively.

F-16

NOTE 5 – RESTRICTED CASH AND SHORT-TERM DEBT

On January 19, 2019, SH SBM, a wholly owned subsidiary of CBMG Shanghai, entered into a credit agreement (the “Credit Agreement”) with China Merchants Bank, Shanghai Branch (the “Merchants Bank”). Pursuant to the Credit Agreement, the Merchants Bank agreed to extend credit of up to 100 million RMB (approximately $14.5 million) to SH SBM via revolving and/or one-time credit lines. The types of credit available under the Credit Agreement, include, but are not limited to, working capital loans, trade financing, commercial draft acceptance, letters of guarantee and derivative transactions. The credit period under the Credit Agreement runs until December 30, 2019. As of December 31, 2019, all $14.3 million had been drawn down under the Credit Agreement. The Company subsequently repaid all the bank borrowings in February 2020.

Pursuant to the Credit Agreement, SH SBM will enter into a supplemental agreement with the Merchants Bank prior to the applicable drawdown that will set forth the terms of each borrowing thereunder (except for working capital loans) including principal, interest rate, term of loan and use of borrowing proceeds. With regard to working capital loans to be provided pursuant to the Credit Agreement, SH SBM shall submit a withdrawal application that includes the principal amount needed, purposes of the loan and a proposed quarterly interest rate and term of the loan for the Merchants Bank’s review and approval. The terms approved by the bank will govern such working capital loans. The bank has the right to adjust the interest rate for working capital loans from time to time based on changes in national policy, changes in interest rate published by the People’s Bank of China, credit market conditions and the bank’s credit policies. Upon SH SBM’s non-compliance with the agreed use of loan proceeds, the interest rate for the amount of loan proceeds improperly used will be the original rate plus 100% starting on the first day of such use. If SH SBM fails to pay a working capital loan on time, an extra 50% interest will be charged on the outstanding balances starting on the first day of such default.

Pursuant to a pledge agreement which became enforceable upon execution of the Credit Agreement, Cellular Biomedicine Group Ltd. (HK), a wholly owned subsidiary of the Company (“CBMG HK”), provided a guarantee of SH SBM’s obligations under the Credit Agreement. In connection with such guarantee, CBMG HK deposited $17 million into its account at the Merchants Bank for a 12-month period starting January 7, 2019 and also granted Merchants Bank a security interest in the cash deposited.

The details of the bank borrowings as of December 31, 2019 and December 31, 2018 are as follows:

				As of December 31, 2019	As of December 31, 2018
Lender	Inception date	Maturity date	Interest rate	USD	USD
Merchants Bank	January 21, 2019 ~ January 31, 2019	January 21, 2020 ~ January 31, 2020	4.785%	$3,496,361	$-
Merchants Bank	February 22, 2019 ~ June 24, 2019	February 22, 2020 ~ June 24, 2020	4.35%	10,838,037	-
				$14,334,398	$-

F-17

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

As of December 31, 2019 and 2018, property, plant and equipment, carried at cost, consisted of the following:

	December 31, 2019	December 31, 2018
Office equipment	$160,315	$101,608
Manufacturing equipment	14,963,621	7,636,905
Computer equipment	576,499	426,507
Leasehold improvements	15,516,570	12,861,186
Construction in progress	196,240	1,030,760
	31,413,245	22,056,966
Less: accumulated depreciation	(9,978,831)	(6,863,205)
	$21,434,414	$15,193,761

Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $4,187,330, $3,360,517 and $1,195,705, respectively.

NOTE 7 – INVESTMENTS

The Company’s investments represent the investment in equity securities listed in Over-The-Counter (“OTC”) markets of the United States of America:

December 31, 2019 and December 31, 2018	Cost	Gross Unrealized Gains/(losses)	Gross Unrealized Losses more than 12 months	Gross Unrealized Losses less than 12 months	Market or Fair Value
Equity position in Arem Pacific Corporation	$480,000	$-	$(240,000)	$-	$240,000

There were no sales of investments for the years ended December 31, 2019 and 2018.

The unrealized holding gain (loss) for the investments, net of tax, that were recognized in other comprehensive income (loss) for the year ended December 31, 2019 was nil, as compared to nil and $(240,000) for the years ended December 31, 2018 and 2017, respectively.

F-18

The Company tracks each investment with an unrealized loss and evaluates them on an individual basis for other-than-temporary impairments, including obtaining corroborating opinions from third-party sources, performing trend analyses and reviewing management’s future plans. When investments have declines determined by management to be other-than-temporary, the Company recognizes write downs through earnings. Other-than-temporary impairment of investments for the year ended December 31, 2019 was nil, compared with $29,424 and nil for the years ended December 31, 2018 and 2017, respectively. The Company provided full impairment of $29,424 for shares of Alpha Lujo, Inc. (“ALEV”) for the year ended December 31, 2018 as ALEV filed Form 15 (Certification and Notice of Termination of Registration under Section 12(g) of the Securities Exchange Act of 1934 or Suspension of Duty to File Reports) with the SEC and has not been traded in the market since 2018.

NOTE 8 – FAIR VALUE ACCOUNTING

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for determining that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The Company has adopted ASC Topic 820, Fair Value Measurement and Disclosure, which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value, and includes the following:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

The carrying value of financial items of the Company including cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued liabilities, approximate their fair values due to their short-term nature and are classified within Level 1 of the fair value hierarchy. As of December 31, 2019, the carrying value of the Company's borrowings from China Merchant Bank approximates fair value as the borrowing bears interest rates that are similar to existing market rates.

The Company’s investments are classified within Level 2 of the fair value hierarchy because of the insufficient volatility of the three stocks traded in OTC market. The Company did not have any Level 3 financial instruments as of December 31, 2019 and 2018.

Assets measured at fair value within Level 2 on a recurring basis as of December 31, 2019 and 2018 are summarized as follows:

	As of December 31, 2019 and December 31, 2018
	Fair Value Measurements at Reporting Date Using:
	Total	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Assets:
Equity position in Arem Pacific Corporation	$240,000	$-	$240,000	$-

No shares were acquired during the years ended December 31, 2019 and 2018.

As of December 31, 2019 and 2018, the Company holds 8,000,000 shares in Arem Pacific Corporation (“ARPC”), 2,942,350 shares in ALEV and 2,057,131 shares in Wonder International Education and Investment Group Corporation (“Wonder”). Full impairment has been provided for shares of Wonder and ALEV. All available-for-sale investments held by the Company at December 31, 2019 and December 31, 2018 have been valued based on Level 2 inputs due to the limited trading of these companies.

F-19

NOTE 9 – INTANGIBLE ASSETS

Most of our intellectual properties are developed internally. Because we do not capitalize our research and development expenses related to our home-grown intellectual properties, as of December 31, 2019, the intellectual properties acquired from the Agreen acquisition still accounted for the majority of the net book value of our intangible assets. We continue to apply the acquired Agreen intellectual properties in our immuno-oncology research and development activities. As such, there is no impairment on the continued use of the acquired Agreen intellectual properties.

As of December 31, 2019 and 2018, intangible assets consisted of the following:

Patents & knowhow & license	December 31, 2019	December 31, 2018
Cost basis	$15,265,211	$14,695,472
Less: accumulated amortization	(8,317,085)	(6,950,656)
	$6,948,126	$7,744,816

Software	December 31, 2019	December 31, 2018
Cost basis	$612,679	$340,918
Less: accumulated amortization	(183,865)	(115,042)
	$428,814	$225,876
Total intangibles, net	$7,376,940	$7,970,692

All software is provided by a third-party vendor, is not internally developed and has an estimated useful life of five years. Patents, knowhow and license are amortized using an estimated useful life of five to ten years.Amortization expense for the years ended December 31, 2019, 2018 and 2017 were $1,450,973, $1,689,006 and $1,790,258, respectively.

During the years ended December 31, 2019 and 2018, the Company provided impairment of nil and $2,884,896, respectively, for intangible assets. During 2018, the Company reassessed its return on investment to develop GVAX for cancer therapies in the current competitive market and decided to terminate its GVAX program and its license agreements with the University of South Florida (“USF”) and the Moffitt Cancer Center (“Moffitt”). As a result, the Company made a full impairment of $2,884,896 for the USF and Moffitt licenses. CD40LGVAX was licensed in 2015 with the intention of providing alternative treatment options for late stage non-small cell lung cancer (NSCLC) patients. Since then, the landscape of NSCLC has changed dramatically. Pembrolizumab has been approved as first-line treatment for patients with metastatic NSCLC with high PD-L1 expression, and for patients with metastatic NSCLC following disease progression on chemotherapy. In 2018, the U.S. FDA accepted a supplemental biologics license application for the combination of nivolumab plus ipilimumab for the frontline treatment of patients with advanced NSCLC with tumor mutational burden (TMB) ≥10 mutations per megabase (mut/Mb). In addition, the Company recently licensed TIL patents from NIH/NCI for multiple indications in solid tumors and decided that TIL technology platform has a higher potential to capture a broader solid tumors market. Hence, we decided to terminate the development of CD40LGVAX and focus our clinical development effort based on the TCR-T and TIL technologies for solid tumors.

 Estimated amortization expense for each of the fiscal years ending December 31 are as follows:

Years ending December 31,	Amount
2020	$1,490,985
2021	1,485,862
2022	1,474,146
2023	1,462,583
2024 and thereafter	1,463,364
	$7,376,940

F-20

NOTE 10 – LEASES

The Company leases facilities and equipment under non-cancellable operating lease agreements. These facilities and equipment are located in the United States, Hong Kong and China. The Company recognizes rental expense on a straight-line basis over the life of the lease period.

The Company adopted ASC 842 on January 1, 2019 using a modified retrospective approach and elected the transition method that allows for application of the standard at the beginning of the earliest comparative period presented in the financial statements. The Company also elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to carry forward the historical lease classification. We did not elect the practical expedient allowing the use of hindsight, which would require us to reassess the lease term of our leases based on all facts and circumstances through the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to our current contract portfolio. We applied the short-term lease exception to all leases of one year or less.

As a result of the adoption of ASC 842, the Company recognized an operating liability with a corresponding ROU asset of the same amounts based on the present value of the minimum rental payments of such leases. As of December 31, 2018, the ROU asset has a balance of $15,938,203 which is included in other non-current assets in the consolidated balance sheets and current liabilities and non-current liabilities relating to the ROU asset were $1,874,270 and $14,063,933, respectively, which are included in other current liabilities and other non-current liabilities in the consolidated balance sheets, respectively. The discount rate used for leases accounted under ASC 842 is the Company’s estimated borrowing rate of 5%.

Quantitative information regarding the Company’s leases is as follows:

The components of lease expense were as follows:

	For the Year Ended
	December 31,
	2019	2018
Lease cost
Operating lease cost	2,934,003	2,601,686
Short-term lease cost	159,054	620,687
Total lease cost	3,093,057	3,222,373

Supplemental cash flow information related to leases was as follows:

	For the Year Ended
	December 31,
	2019	2018
Cash paid for the amounts included in the measurement of lease liabilities for operating leases:
Operating cashflows	2,810,145	2,499,934

F-21

Supplemental balance sheet information related to leases was as follows:

	December 31, 2019	December 31, 2018
Operating lease right-of-use assets	20,106,163	15,938,203
Other current liabilities	2,506,413	1,874,270
Other non-current liabilities	17,599,750	14,063,933
Weighted Average Remaining Lease Term (in years): Operating leases	7.9	7.7
Weighted Average Discount Rate: Operating leases	5%	5%

As of December 31, 2019, the Company has the following future minimum lease payments due under the foregoing lease agreements:

Years ending December 31,	Amount
2020	$3,628,949
2021	3,149,434
2022	3,246,854
2023	3,246,854
2024 and thereafter	11,912,327
	$25,184,418

F-22

NOTE 11 – RELATED PARTY TRANSACTIONS

The Company advanced petty cash to officers for business travel purposes. As of December 31, 2019 and 2018, other receivables due from officers for business travel purposes were nil.

NOTE 12 – EQUITY

ASC Topic 505, “Equity,” paragraph 505-50-30-6 establishes that share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

On December 15, 2017, the Company entered into a Share Purchase Agreement with three of its executive officers, pursuant to which the Company agreed to sell, and the three executive officers agreed to purchase, an aggregate of 41,667 shares of the Company’s common stock, par value $0.001 per share, at $12.00 per share, for total gross proceeds of approximately $500,000. The transaction closed on December 22, 2017.

On December 26, 2017, the Company entered into a Share Purchase Agreement with two investors, pursuant to which the Company agreed to sell, and the two investors agreed to purchase from the Company, an aggregate of 1,166,667 shares of the Company’s common stock, par value $0.001 per share, at $12.00 per share, for total gross proceeds of approximately $14 million. The transaction closed on December 28, 2017. Together with a private placement with three of its executive officers on December 22, 2017, the Company raised an aggregate of approximately $14.5 million in the two private placements in December 2017.

On January 30, 2018 and February 5, 2018, the Company entered into securities purchase agreements with certain investors pursuant to which the Company agreed to sell, and the investors agreed to purchase from the Company, an aggregate of 1,719,324 shares of the Company’s common stock, par value $0.001 per share, at $17.80 per share, for total gross proceeds of approximately $30.6 million. The transaction closed on February 5, 2018.

On September 25, 2018, the Company entered into a share purchase agreement with Novartis Pharma AG (“Novartis”) pursuant to which the Company agreed to sell, and Novartis agreed to purchase from the Company, an aggregate of 1,458,257 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $27.43 per share, for total gross proceeds of approximately $40 million. The transaction closed on September 26, 2018.

On March 21, 2019, the Company entered into an underwriting agreement with Cantor Fitzgerald & Co. and Robert W. Baird & Co. Incorporated, as representatives of the several underwriters set forth therein (collectively, the “Underwriters”) relating to an underwritten public offering of 1,029,412 shares of the Company’s common stock, par value $0.001 per share, at an offering price to the public of $17.00 per share. Under the terms of the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to an additional 154,411 shares of Common Stock. The offering was closed on March 25, 2019 and the Company received net proceeds of approximately $16 million. On April 2, 2019, the underwriters partially exercised their option and purchased an additional 77,549 shares of Common Stock for net proceeds of approximately $1.2 million.

During the years ended December 31, 2019, 2018 and 2017, the Company expensed $2,416,058, $3,184,425 and $4,512,192 associated with unvested options awards and $1,647,923, $1,642,320 and $833,019 associated with restricted common stock issuances, respectively.

During the years ended December 31, 2019, 2018 and 2017, options for 30,418, 235,929 and 57,400 underlying shares were exercised, and 30,418, 235,929 and 57,400 shares of the Company’s common stock were issued accordingly.

During the years ended December 31, 2019, 2018 and 2017, 101,729, 91,713 and 68,446 shares of the Company’s restricted common stock were issued to directors, employees and advisors, respectively.

As previously disclosed on a Current Report on Form 8-K filed on June 1, 2017, the Company authorized a share repurchase program (the “2017 Share Repurchase Program”) pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate purchase price not to exceed $10 million under which approximately $6.52 million in shares of common stock were repurchased. On October 10, 2018, the Company commenced a share repurchase program (the “2018 Share Repurchase Program”) pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate purchase price not to exceed approximately $8.48 million. We completed all of our repurchase plans on March 31, 2019 for a grand total of 1,055,499 shares for a total purchase price of $14.99 million.

F-23

For the year ended December 31, 2019, the Company repurchased 54,000 shares of the Company’s common stock with the total cost of $1,039,028. Details are as follows:

	Total number of shares purchased	Average price paid per share
Treasury stock as of December 31, 2018	1,001,499	$13.93
Repurchased from January 1, 2019 to March 31, 2019	54,000	$19.24
Repurchased from April 1, 2019 to June 30, 2019	-	$-
Repurchased from July 1, 2019 to September 30, 2019	-	$-
Repurchased from October 1, 2019 to December 31, 2019	-	$-
Treasury stock as of December 31, 2019	1,055,499	$14.20

NOTE 13 – COMMITMENTS AND CONTINGENCIES

Capital commitments

As of December 31, 2019, the capital commitments of the Company are summarized as follows:

	December 31, 2019
Contracts for acquisition of plant and equipment being or to be executed	$1,177,975

NOTE 14 – STOCK BASED COMPENSATION

Our stock-based compensation arrangements include grants of stock options and restricted stock awards under the stock option plans (consisting of the 2009 Plan, 2011 Plan, 2013 Plan, the 2014 Plan and the 2019 Plan) and certain awards granted outside of these plans. The compensation cost that has been charged against income related to stock options (including shares issued for services and expense true-ups and reversals described in Note 12) for the years ended December 31, 2019, 2018 and 2017 was $2,416,058, $3,184,425 and $4,512,192, respectively. The compensation cost that has been charged against income related to restrict stock awards for the years ended December 31, 2019, 2018 and 2017 was $1,647,923, $1,642,320 and $833,019, respectively.

F-24

These expenses are included in overhead, general and administrative expense, selling and marketing expense as well as research and development expenses in our Consolidated Statements of Operations.

As of December 31, 2019, there was $2,248,351 all unrecognized compensation cost related to an aggregate of 263,822 of non-vested stock option awards and $2,994,358 related to an aggregate of 235,822 of non-vested restricted stock awards. Restricted stock awards under a long-term incentive plan is not accounted for as the attendant could chose to surrender part of the restricted stock awards for individual income tax payment purposes. These costs are expected to be recognized over a weighted-average period of 1.05 years for the stock options awards and 1.24 years for the restricted stock awards.

During the year ended December 31, 2019, the Company issued an aggregate of 65,341 options under the 2011 Plan, 2013 Plan, 2014 Plan and 2019 Plan to officers, directors, employees and advisors. The grant date fair value of these options was $751,523 using Black-Scholes option valuation models with the following assumptions: grant date strike price from $13.54 to $17.89, volatility 87.26% to 88.03%, expected life 6.0 years and risk-free rate of 1.43% to 2.36%. The Company is expensing these options on a straight-line basis over the requisite service period.

As of December 31, 2018, there was $4,215,079 all unrecognized compensation cost related to an aggregate of 492,340 of non-vested stock option awards and $2,904,245 related to an aggregate of 227,951 of non-vested restricted stock awards. Restricted stock awards under a long-term incentive plan is not accounted for as the attendant could chose to surrender part of the restricted stock awards for individual income tax payment purposes. These costs are expected to be recognized over a weighted-average period of 1.66 years for the stock options awards and 1.35 years for the restricted stock awards.

During the year ended December 31, 2018, the Company issued an aggregate of 244,682 options under the 2011 Plan, 2013 Plan and 2014 Plan to officers, directors, employees and advisors. The grant date fair value of these options was $3,528,715 using Black-Scholes option valuation models with the following assumptions: grant date strike price from $14.5 to $23.55, volatility 65.15% to 206.42%, expected life 6.0 years and risk-free rate of 2.33% to 3.11%. The Company is expensing these options on a straight-line basis over the requisite service period.

The following table summarizes stock option activity as of December 31, 2019 and 2018 and for the year ended December 31, 2019:

	Number of Options	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2017	1,892,189	$11.54	7.0	$4,909,194
Grants	244,682	18.68
Forfeitures	(72,076)	13.95
Exercises	(235,929)	7.01
Outstanding at December 31, 2018	1,828,866	$12.41	6.5	$11,496,058
Grants	65,341	16.17
Forfeitures	(74,901)	17.99
Exercises	(30,418)	7.30
Outstanding at December 31, 2019	1,788,888	$12.37	5.4	$9,394,219
Vested and exercisable at December 31, 2019	1,525,066	$11.91	4.9	$8,820,061

Exercise	Number of Options
Price	Outstanding	Exercisable
$3.00 - $4.95	185,547	185,547
$5.00 - $9.19	448,124	432,176
$9.20 - $15.00	518,504	404,203
$15.01 - $20.00	481,713	360,840
$20.10+	155,000	142,300
	1,788,888	1,525,066

The aggregate intrinsic value for stock options outstanding is defined as the positive difference between the fair market value of our common stock and the exercise price of the stock options.

Cash received from option exercises under all share-based payment arrangements for the years ended December 31, 2019, 2018 and 2017 was $283,959, $2,738,866 and $308,371, respectively.

The Company adopted ASU 2018-07 on January 1, 2019, and the stock-based compensation expense for grants before the adoption of ASU 2018-07 is based on the grant date fair value as of December 31, 2018, which was the last business day before the Company adopted ASU 2018-07, for all nonemployee awards that have not vested as of December 31, 2018. The cumulative-effect adjustment to retained earnings as of January 1, 2019 was immaterial to the financial statements as a whole. Accordingly, the Company did not record this adjustment as of January 1, 2019. Furthermore, for future nonemployee awards, compensation expense is based on the market value of the shares at the grant date.

F-25

NOTE 15 – NET LOSS PER SHARE

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

	For the Year Ended
	December 31,
	2019	2018	2017
Net loss	$(49,984,054)	$(38,945,492)	$(25,490,310)
Weighted average shares of common stock	18,983,206	17,741,104	14,345,604
Dilutive effect of stock options	-	-	-
Restricted stock vested not issued	-	-	-
Common stock and common stock equivalents	18,983,206	17,741,104	14,345,604
Net loss per basic and diluted share	$(2.63)	$(2.20)	$(1.78)

For the years ended December 31, 2019, 2018 and 2017, the effect of conversion and exercise of the Company’s outstanding options as well as the unvested restricted stocks are excluded from the calculations of dilutive net income (loss) per share as their effects would have been anti-dilutive since the Company had generated losses for the years ended December 31, 2019, 2018 and 2017.

NOTE 16 – INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period during which such rates are enacted.

The Company considers all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry-back and carry-forward periods) and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. Based on all available evidence, in particular our three-year historical cumulative losses, recent operating losses and U.S. pretax loss for the year ended December 31, 2019, we recorded a valuation allowance against our U.S. net deferred tax assets. In order to fully realize the U.S. deferred tax assets, we will need to generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code.

F-26

The following represent components of the income tax (expense) credit for the years ended December 31, 2019, 2018 and 2017:

	For the Year Ended
	December 31,
	2019	2018	2017
Current:
US federal	$-	$-	$-
US state	(1,045)	(2,475)	(2,450)
Foreign	-	(2,479)	-
Total current tax credit (expense)	$(1,045)	$(4,954)	$(2,450)
Deferred:
Federal	$-	$-	$-
State	-	-	-
Foreign	-	-	-
Total deferred tax expense	$-	$-	$-
Total income tax credit (expense)	$(1,045)	$(4,954)	$(2,450)

Tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets at December 31, 2019 and 2018 are presented below:

	December 31,	December 31,
	2019	2018
Deferred tax assets:
Net operating loss carry forwards (offshore)	$14,229,745	$10,124,478
Net operating loss carry forwards (US)	9,554,430	5,670,678
Accruals (offshore)	465,091	429,013
Accrued compensation (US)	180,455	128,207
Stock-based compensation (US)	4,286,546	3,665,226
Investments (US)	2,363,843	2,363,843
Credits (US)	644,580	395,112
Property and equipment	(46,186)	(19,675)
Goodwill & intangibles	754,248	827,994
Subtotal	32,432,752	23,584,876
Less: valuation allowance	(32,432,752)	(23,584,876)
Total deferred tax assets	-	-

F-27

In each period since inception, the Company has recorded a valuation allowance for the full amount of net deferred tax assets, as the realization of deferred tax assets is uncertain. As a result, the Company has not recorded any federal or state income tax benefit in the consolidated statements of operations and comprehensive income (loss).

On December 22, 2017, the U.S. President signed the tax reform bill (Tax Cut and Jobs Act (H.R.1)) and reduced the top corporate tax rate from 35% to 21% effective from January 1, 2018. Pursuant to this new Act, the non-operating loss carry-back period is eliminated and an indefinite carry-forward period is permitted. As of December 31, 2019, the Company had net operating loss carry-forwards of $36.4 million for U.S. federal purposes and $30.8 million for U.S. state purposes. These federal and state net operating loss carry-forwards will expire beginning in 2034 and 2034, respectively. Federal NOL generated from 2018 and after will not expire. At December 31, 2019 and 2018, the Company also has federal research and development tax credit carry-forwards of approximately $0.6 million and $0.3 million, respectively, and state research and development tax credit carry-forwards of approximately $0.3 million and $0.1 million, respectively. The federal tax credits begin to expire in 2025, and the state tax credits carry forward vary based on state.

 The Company’s effective tax rate differs from statutory rates of 21% for U.S. federal income tax purposes, 15% ~ 25% for Chinese income tax purpose and 16.5% for Hong Kong income tax purposes due to the effects of the valuation allowance and certain permanent differences as the Company's tax rate pertains to book-tax differences in the value of client shares received for services.

Pursuant to the Corporate Income Tax Law of the PRC, all of the Company’s PRC subsidiaries are liable to PRC Corporate Income Taxes at a rate of 25% except for CBMG Shanghai and Shanghai SBM.

According to Guoshuihan 2009 No. 203, if an entity is certified as an “advanced and new technology enterprise,” it is entitled to a preferential income tax rate of 15%. CBMG Shanghai obtained the certificate of “advanced and new technology enterprise” dated October 30, 2015 with an effective period of three years, and the provision for PRC corporate income tax for CBMG Shanghai is calculated by applying the income tax rate of 15% from 2015. CBMG Shanghai re-applied and Shanghai SBM applied for the certificate of “advanced and new technology enterprise” in 2018. Both of them received approval on November 27, 2018. On August 23, 2018, State Administration of Taxation issued a Bulletin on Enterprise Income Tax Issues Related to the Extension of Loss Carry-forward Period for Advanced and New Technology Enterprises and Small and Medium-sized Technology Enterprises (“Bulletin 45”). According to Bulletin 45, an enterprise that obtains the two types of qualification in 2018 is allowed to carry forward all its prior year losses incurred between 2013 and 2017 to up to ten years instead of five years. The same requirement applies to the enterprise obtaining the qualifications after 2018.

As of December 31, 2019, the Company had net operating loss carry-forwards of $43 million and $22 million for Chinese income tax purposes, which are set to expire in 2024 and 2029 for Chinese income tax purposes, respectively. All deferred income tax expense is offset by changes in the valuation allowance pertaining to the Company’s existing net operating loss carry-forwards due to the unpredictability of future profit streams prior to the expiration of the tax losses. 

Income tax expense for the years ended December 31, 2019, 2018 and 2017 differed from the amounts computed by applying the statutory federal income tax rate of 21% / 35% to pretax income (loss) as a result of the following:

	For the Year Ended	For the Year Ended	For the Year Ended
	December 31, 2019	December 31, 2018	December 31, 2017
Effective Tax Rate Reconciliation
Income tax provision at statutory rate	21%	21%	35%
State income taxes, net of federal benefit	0%	0%	0%
Rate deduction	(7)%	(3)%	(20)%
Foreign rate differential	2%	0%	(13)%
Other permanent difference	0%	(1)%	(2)%
Change in valuation allowance	(16)%	(17)%	0%
Total tax credit (expense)	0%	0%	0%

As of December 31, 2019, the Company had $0.6 million of total unrecognized tax benefits. The Company currently has a full valuation allowance against its net deferred tax assets which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the future. If the Company is able to eventually recognize these uncertain tax positions, none of the unrecognized benefit would reduce the Company's effective tax rate due to full valuation allowance of the Company's deferred tax assets. The Company's policy is to record interest and penalties related to unrecognized tax benefits as income tax expense. During the years ended December 31, 2019, the Company had immaterial amounts related to the accrual of interest and penalties.Ú reconciliation of the beginning and ending unrecognized tax benefit amount is as follows:

	December 31, 2019
	(in thousands)
Beginning balance	$462
Current year addition	106
Ending balance	$568

The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized tax benefits will increase or decrease within 12 months of the years ended December 31, 2019.

F-28

NOTE 17 – SEGMENT INFORMATION

The Company is engaged in the development of new treatments for cancerous and degenerative diseases utilizing proprietary cell-based technologies, which have been organized as one reporting segment as they have substantially similar nature and economic characteristics. The Company’s principle operating decision maker, the Chief Executive Officer, receives and reviews the results of the operations for all major cell platforms as a whole when making decisions about allocating resources and assessing performance of the Company. In accordance with FASB ASC 280-10, the Company is not required to report the segment information.

NOTE 18 – SUBSEQUENT EVENTS

 On January 28, 2020, the Board of Directors of the Company accepted the Special Committee of the Board and its advisers’ recommendation to arrange a bridge loan (the “Bridge Loan”) of $16 million in accordance with a Bridge Loan Agreement entered into with Winsor Capital Limited on January 28, 2020. TF Capital Ranok Ltd., an affiliate of Winsor Capital Limited, is a member of the consortium that submitted a non-binding going-private proposal to the Company on November 11, 2019. The Bridge Loan Agreement is not conditioned upon the consortium bid. The Company received $7 million of the Bridge Loan on January 29, 2020.

On February 19, 2020, the Company commenced as a collaborator with Ruijin Hospital on a pilot clinical study on inhalation of mesenchymal stem cells exosomes treating severe novel coronavirus pneumonia, other collaborators in this pilot clinical study are the Shanghai Public Health Clinical Center and the Wuhan Jinyintan Hospital.

On February 20, 2020, the Company repaid $14.3 million short-term borrowings from China Merchant Bank.

On February 20, 2020, Shanghai Cellular Biopharmaceutical Group Ltd. and Novartis entered into a Quality Agreement for external manufacturing, pursuant to which both parties specified the quality assurance roles and responsibilities of Novartis AG and CBMG Shanghai with regard to the manufacture and supply of Kymriah® to Novartis in China.

On February 21, 2020, the Special Committee of the Board of Directors of the Company received a new preliminary non-binding proposal letter, dated the same day, from the Consortium led by Mr. Bizuo (Tony) Liu, certain other senior management members of the Company, Hillhouse Bio Holdings, L.P., TF Capital Ranok Ltd., Dangdai International Group Co., Limited, Mission Right Limited, Maplebrook Limited, Viktor Pan, Zheng Zhou, OPEA SRL, Wealth Map Holdings Limited and Earls Mill Limited (the “Consortium Members”), to acquire all Shares of the Company (other than those Shares held by the Consortium Members that may be rolled over in connection with the transaction proposed in the Letter) for U.S.$19.50 per Share in cash in a going-private transaction. A consortium consisting of certain but not all of the Consortium Members submitted a preliminary non-binding proposal to acquire the Company in a going-private transaction on November 11, 2019.

F-29

NOTE 19 – UNAUDITED QUARTERLY FINANCIAL INFORMATION

	Year ended December 31, 2019
	Q4	Q3	Q2	Q1	Total
Selected Income Statement Data:
Net sales and revenue	$290,655	$-	$-	$49,265	$339,920
Gross Profit	236,364	-	-	41,178	277,542
Operating loss	(12,799,189)	(16,491,596)	(12,284,487)	(9,416,912)	(50,992,184)
Net loss	(12,686,663)	(15,863,906)	(12,096,697)	(9,336,788)	(49,984,054)
Net loss per share :
Basic and diluted	(0.66)	(0.82)	(0.63)	(0.51)	(2.63)

	Year ended December 31, 2018
	Q4	Q3	Q2	Q1	Total
Selected Income Statement Data:
Net sales and revenue	$25,698	$70,431	$77,313	$50,961	$224,403
Gross Profit	4,113	32,948	22,920	28,661	88,642
Operating loss	(9,811,604)	(12,797,834)	(9,387,635)	(8,508,672)	(40,505,745)
Net loss	(8,519,229)	(12,743,764)	(9,186,076)	(8,496,423)	(38,945,492)
Net loss per share :
Basic and diluted	(0.45)	(0.72)	(0.53)	(0.51)	(2.20)

F-30

EX-4.1

  Exhibit 4.1

DESCRIPTION OF THE REGISTRANT’S SECURITIES

REGISTERED PURSUANT TO SECTION 12 OF THE

SECURITIES EXCHANGE ACT OF 1934

Cellular Biomedicine Group, Inc. (“CBMG,” the “Company,” “we,” “us” or “our”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): our common stock, par value $0.001 per share (the “common stock”).

DESCRIPTION OF COMMON STOCK

General

Our authorized common stock consists of 300,000,000 shares of common stock and 50,000,000 shares of preferred stock, par value $0.001 per share.

Our common stock is listed on the Nasdaq Global Market under the symbol “CBMG.” All outstanding shares of common stock are of the same class and have equal rights and attributes.

The following description of the terms of our common stock is not complete and is qualified in its entirety by reference to our certificate of incorporation (“Certificate of Incorporation”), our amended and restated bylaws (“Bylaws”), each of which is incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this exhibit is a part.

Voting Rights

Holders of the common stock are entitled to one vote per share in all matters as to which holders of common stock are entitled to vote. Holders of not less than a majority of the outstanding shares of common stock entitled to vote at any meeting of stockholders constitute a quorum unless otherwise required by law. When a quorum is present at any meeting of the stockholders, any action by the stockholders on a matter except the election of directors, is approved if approved by the majority of the votes cast.

Election of Directors

 Our Board of Directors (“Board”) is divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. At any meeting for the election of directors at which a quorum is present, each nominee for director in an uncontested is elected by the majority of the votes cast with respect to that nominee’s election, and each nominee for director in a contested is elected by a plurality of the votes cast. The common stock has no cumulative voting rights, including with respect to the election of directors.

Dividend and Liquidation Rights

Holders of the common stock may receive dividends when, as and if declared by our Board of Directors out of the assets legally available for that purpose and subject to the preferential dividend rights of any other classes or series of stock of our Company. In the event of any liquidation, dissolution or winding up of the Company, holders of the common stock have the right to receive ratably and equally all of the assets remaining after payment of liabilities and liquidation preferences of any preferred stock then outstanding.

Other Rights

The common stock is not redeemable or convertible and does not have any sinking fund provisions. Holders of the common stock do not have preemptive rights. Our common stock is not liable to calls or to assessment or for liabilities imposed on our stockholders under state statutes.

Preferred Stock

The Board has the authority, without any further action by stockholders, to issue 50,000,000 shares of preferred stock in one or more series with voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as the Board may determine from time to time. Any preferred stock terms selected by the Board could decrease the amount of earnings and assets available for distribution to holders of our common stock or adversely affect the rights and power, including voting rights, of the holders of our common stock without any further vote or action by the stockholders. The rights of holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued by us in the future. The issuance of preferred stock could also have the effect of delaying or preventing a change in control of our company or make removal of management more difficult. There are no shares of preferred stock outstanding.

Anti-Takeover Provisions

Our Bylaws include a number of provisions that may have the effect of discouraging persons from pursuing non-negotiated takeover attempts. These provisions include:

●

a classified Board;

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a requirement that directors may only be removed for cause and only by an affirmative vote of the holders of 66 2/3 percent of the Company’s voting stock; and

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no authorization for cumulative voting;

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authorizing the Board, subject to certain exceptions, to alter, amend or repeal any bylaw;

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a requirement that special meetings may only be called by (i) the chairman of the Board or the chief executive officer, president or other executive officer of the Company, (ii) an action of the Board, or (iii) request in writing of the stockholders of record owning not less than 66 2/3 percent of the Company’s voting stock;

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in connection with stockholder meetings, an advanced written notice procedure with respect to stockholder nomination for directors and bringing other business; and

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allowing our directors to fill any vacancies on our Board, including newly created board seats resulting from an increase in the authorized number of directors and vacancies resulting from the death, resignation, or other cause.

EX-10.41

Exhibit 10.1

OFFICE LEASE

TABLE OF CONTENTS

ARTICLE		PAGE
1	DEFINITIONS.	1
2	TERM.	6
3	WORK AGREEMENT; DELIVERY OF PREMISES.	7
4	RENT.	8
5	ADDITIONAL RENT.	10
6	USE.	12
7	CARE OF PREMISES.	13
8	ALTERATIONS BY TENANT.	13
9	EQUIPMENT.	15
10	OWNERSHIP AND REMOVAL OF PROPERTY.	17
11	LANDLORD'S ACCESS TO PREMISES.	18
12	SERVICES AND UTILITIES.	19
13	RULES AND REGULATIONS.	21
14	REPAIR OF DAMAGE CAUSED BY TENANT: INDEMNIFICATION.	21
15	LIMITATION ON LANDLORD LIABILITY.	22
16	FIRE AND OTHER CASUALTY.	22
17	INSURANCE.	24
18	CONDEMNATION.	27
19	DEFAULT.	27
20	NO WAIVER.	32
21	HOLDING OVER.	32
22	SUBORDINATION.	32
23	ASSIGNMENT AND SUBLETTING.	33
24	TRANSFER BY LANDLORD.	37
25	INABILITY TO PERFORM.	37
26	ESTOPPEL CERTIFICATES.	37
27	COVENANT OF QUIET ENJOYMENT.	37
28	WAIVER OF JURY TRIAL.	38
29	BROKERS.	38
30	CERTAIN RIGHTS RESERVED BY LANDLORD.	38
31	NOTICES.	39
32	MISCELLANEOUS PROVISIONS.	40
A.	Benefit and Burden	40
B.	Governing Law	40
C.	No Partnership	40
D.	Delegation by Landlord	40
E.	Tenant Responsibility for Agents	40
F.	Invalidity of Particular Provisions	40
G.	Counterparts	40
H.	Entire Agreement	40
I.	Amendments	40
J.	Mortgagee's Performance	40
K.	Limitation on Interest	41
L.	Remedies Cumulative	41
M.	Annual Financial Statements	41
N.	Construction of Lease	41
O.	Time of the Essence	41
P.	Effect of Deletion of Language	41
Q.	Authority	41
R.	Qualified Leases	41
S.	Prohibited Persons and Transactions	42
T.	Confidentiality	42
33	LENDER APPROVAL.	42
34	PARKING.	42
35	SECURITY DEPOSIT.	44
36	HAZARDOUS MATERIALS.	45
37	[INTENTIONALLY OMITTED.]	47
38	NO RECORDATION.	47
39	SIGNS.	48
40	SURRENDER.	48
41	OPTION TO EXTEND.	49
42	ROOF RIGHTS; RISER SPACE.	51
SIGNATURES		56

Exhibit A	-	Premises Plan
Exhibit B	-	Declaration of Acceptance
Exhibit C	-	Work Agreement
Exhibit D	-	Building/Project Rules and Regulations
Exhibit E	-	Cleaning Specifications
Exhibit F	-	Location of Tenant’s Exterior Signage
Exhibit G	-	Work Rules and Regulations

OFFICE LEASE

THIS OFFICE LEASE (the "Lease") is made and entered into this day of , 2019 (the “Effective Date”), by and between IPX MEDICAL CENTER DRIVE INVESTORS, LLC, a Delaware limited liability company ("Landlord") and CELLULAR BIOMEDICINE GROUP, INC., a Delaware corporation ("Tenant").

In consideration of the Rent hereinafter reserved and the agreements hereinafter set forth, Landlord and Tenant mutually agree as follows:

1.DEFINITIONS.

Lease Specific

A.Building: A building containing approximately One Hundred Fifteen Thousand Six Hundred Ninety-One (115,691) square feet of total rentable area as of the date hereof and located at 9605 Medical Center Drive, Rockville, Maryland. Except as otherwise expressly provided in this Lease, the term “Building” shall include all portions of said building, including, but not limited to, the Premises, the Common Areas and the Parking Lot.

B.Premises: an agreed upon Twenty-Two Thousand Four Hundred Seventy-Seven (22,477) square feet of rentable area known as Suite 100 located on the first (1st) floor of the Building, as more particularly designated on Exhibit A. The rentable area in the Building and in the Premises has been determined by Landlord's architect in accordance with the Building Owners and Managers Association International Standard Method for Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1-1996 and agreed upon by Tenant.

C.[Intentionally Omitted.]

D.Term: Approximately one hundred twenty-nine (129) months, as more particularly defined in Section 2.A. hereof.

E.Anticipated Delivery Date: August 1, 2019. The actual Delivery Date shall be the date defined as such in Article 3 hereof and the Lease Commencement Date shall be the date defined as such in Section 2.A. hereof.

F.Base Rent: Seven Hundred Sixty-Four Thousand Two Hundred Eighteen and 00/100 Dollars ($764,218.00) for the first Lease Year, divided into twelve (12) equal monthly installments of Sixty-Three Thousand Six Hundred Eighty-Four and 83/100 Dollars ($63,684.83) each for the first Lease Year, and thereafter as increased by the Base Rent Annual Escalation Percentage, as set forth in Section 4.A hereof.

G.Base Rent Annual Escalation Percentage: two and one-half percent (2.5%).

H.[Intentionally omitted].

I.[Intentionally omitted].

J.Security Deposit: Two Hundred Fifty-Four Thousand Seven Hundred Thirty-Nine and 32/100 Dollars ($254,739.32).

K.Brokers: Cushman & Wakefield of Maryland, Inc., as agent for Landlord, and Scheer Partners, Inc., as agent for Tenant.

L.Tenant Notice Address: 209 Perry Parkway, Suite 13, Gaithersburg, Maryland 20877, until Tenant has commenced beneficial use of the Premises, and at the Premises, after Tenant has commenced beneficial use of the Premises with copies at all times to: Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas, 11th Floor, New York, New York 10105, Attention: Barry Grossman, Esq.

M.Landlord Notice Address: IPX Medical Center Drive Investors, LLC, c/o BPG Management Company, L.P., 301 Oxford Valley Road, Suite 1203A, Yardley, Pennsylvania 19067, Attention: Property Manager, with copies to: Greenstein DeLorme & Luchs, P.C., 1620 L Street, N.W., Suite 900, Washington, D.C. 20036, Attention: Jared S. Greenstein, Esq.

N.Landlord Payment Address: IPX Medical Center Drive Investors, LLC and delivered to IPX Medical Center Drive Investors LLC at c/o BPG Management Company, L.P., 301 Oxford Valley Road, Suite 1203A, Yardley, Pennsylvania 19067, Attention: Accounts Receivable; provided, however, that at Landlord’s sole option, following at least thirty (30) days written notice to Tenant, Tenant shall thereafter make all payments due and payable to Landlord under this Lease by means of electronic transfers of funds from Tenant’s financial institution to Landlord’s designated financial institution.

O.Building Hours: 8:00 a.m. to 6:00 p.m. on Monday through Friday (excluding Holidays) and 9:00 a.m. to 1:00 p.m. on Saturday (excluding Holidays), and such other hours, if any, as Landlord from time to time determines.

P.Guarantor(s): None.

Q.Parking Spaces: Seventy-Eight (78).

General

R.Alterations: Any improvements, alterations, fixed decorations or modifications, structural or otherwise, to the Premises, the Building or the Land, as defined below, including but not limited to the installation or modification of carpeting, partitions, counters, doors, air conditioning ducts, plumbing, piping, lighting fixtures, wiring, hardware, locks, ceilings and window and wall coverings.

S.Common Areas: Those areas of the Building and/or Land, as the case may be, made available by Landlord now or in the future for use by Tenant in common with Landlord, other tenants of the Building and the employees, agents and invitees of Landlord and of such other tenants.

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T.Default Rate: That rate of interest which is five (5) percentage points above the annual rate of interest which is publicly announced by Bank of America or its successor entity, if applicable ("Bank of America"), from time to time as its "prime" rate of interest, irrespective of whether such rate is the lowest rate of interest charged by Bank of America to commercial borrowers. In the event that Bank of America ceases to announce such a prime rate of interest, Landlord, in Landlord's reasonable discretion, shall designate the prime rate of interest by another bank located in the Washington, D.C. metropolitan area, which shall be the prime rate of interest used to calculate the default rate.

U.Ground Leases: All ground and other underlying leases from which Landlord's title to the Land and/or the Building is or may in the future be derived. "Ground Lessors" shall denote those persons and entities holding such ground or underlying leases.

V.Holidays: New Year's Day, Presidents' Day, Martin Luther King, Jr.'s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day and any other holidays designated by an executive order of the President of the United States or by Act of Congress; provided, however, that Landlord retains the right, in its sole discretion, to increase or to decrease the legal holidays which it observes.

W.Land: The real estate that supports the Building, and all associated easements.

X.Tenant's Work: All work to be performed by Landlord or Tenant, as applicable, under the Work Agreement, including Additional Tenant Work (as defined in Exhibit C).

Y.Lease Commencement Date: The date this Lease commences, as determined pursuant to Section 2.A. below.

Z.Lease Year: That period of twelve (12) consecutive calendar months that commences on the Lease Commencement Date, and each consecutive twelve (12) month period thereafter; provided, however, that (i) if the Lease Commencement Date is not the first day of a month, then the second Lease Year shall commence on the first day of the month following the month in which the first anniversary of the Lease Commencement Date occurs, and (ii) the eleventh (11th) Lease Year is for a period of nine (9) months. The earliest such twelve (12) month period shall be referred to as the "first Lease Year," and each of the following Lease Years shall similarly be numbered for identification purposes.

AA.Mortgages: All mortgages, deeds of trust and similar security instruments which may now or in the future encumber or otherwise affect the Building or the Land, including mortgages related to both construction and permanent financing. "Mortgagees" shall denote those persons and entities holding such mortgages, deeds of trust and similar security instruments.

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BB.Operating Expenses: All actual costs and expenses incurred by Landlord during any calendar year in managing, operating and maintaining the Building and the Land (as well), as determined by Landlord in accordance with an accounting system established and regularly applied by Landlord. Such costs and expenses shall include, but not be limited to, the cost of water, gas (only for the Common Areas), sanitary sewer, storm sewer, electricity (only for the Common Areas), and other utilities, trash removal, telephone services, insurance, janitorial and char services (only for the Common Areas), and supplies, security services, labor costs (including social security taxes and contributions and fringe benefits), charges under maintenance and service contracts (including, but not limited to, chillers, boilers, elevators, window and security services), central heating and air conditioning, management fees, business taxes, license fees, public space and vault rentals and charges, costs, charges and other assessments made by or for any entity operating a business improvement district in which the Building is located, condominium fees, assessments, dues, expenses, and other charges which are paid by Landlord as a result of the Building, the Land or part or all of both being part of a condominium, and the cost of any equipment or services provided by Landlord in connection with the servicing, operation, maintenance, repair and protection of the Building and the Land and related exterior appurtenances (whether or not provided on the Lease Commencement Date). Operating Expenses shall include the cost of capital improvements made by Landlord to manage, operate or maintain the Building, together with any financing charges incurred in connection therewith, provided that such costs shall be amortized over the useful life of the improvements and only the portion attributable to the calendar year shall be included in Operating Expenses for the calendar year; further provided, that capital expenditures shall be limited to (a) improvements or building elements added to the Building which in Landlord’s reasonable judgment will increase the efficiency of the Building (i.e., are reasonably anticipated by Landlord to reduce Operating Expenses as they relate to the item which is the subject of the capital expenditure or to reduce the rate of increase in the Operating Expense which relates to the item which is the subject of the capital expenditure from what it otherwise may have been reasonably anticipated to be in the absence of such capital expenditure), and (b) improvements or replacements which are required to comply with the requirements of any laws, regulations, or insurance or utility company requirements, except with respect to conditions existing in violation thereof on the Lease Commencement Date. Operating Expenses shall not include: (i) Real Estate Tax Expenses; (ii) payments of principal and interest on any Mortgages; (iii) leasing commissions; (iv) costs of preparing, improving or altering any space in preparation for occupancy of any new or renewal tenant; (v) capital expenditures, except as specified above; (vi) costs of electricity supplied to the individual premises of tenants of the Building and the costs of special services and utilities separately paid by particular tenants of the Building; (vii) costs which are reimbursed to Landlord by insurers or by governmental authorities in eminent domain proceedings; (viii) advertising for space in the Building; (ix) costs of any equipment , services or utilities which are provided solely to one or more retail tenants of the Building, (x) ground rent or other rental payments made under any ground lease or underlying lease except to the extent that the same constitutes real estate taxes, insurance premiums or the like; (xi) salaries, wages, or other compensation paid to officers or executives of Landlord (i.e., employees above the level of portfolio manager); (xii) salaries, wages, or other compensation or benefits paid to off-site employees or other employees of Landlord who are not assigned full-time to the operation, management, maintenance, or repair of the Building; provided however, Operating Expenses shall include Landlord's reasonable allocation of compensation paid for the wages, salary, or other compensation or benefits paid to the employees at or below the level of portfolio manager, if offsite, who are assigned part-time to the operation, management, maintenance, or repair of the Building (including, but not limited to, accountants and engineers); (xiii) any costs, fines or penalties incurred due to the violation by Landlord of any governmental rule or authority, if such violation existed as of the Lease Commencement Date; (xiv) costs incurred in connection with disputes with tenants, other occupants, or prospective tenants, or costs and expenses incurred in connection with negotiations or disputes with employees, consultants, management agents, leasing agents, purchasers or mortgagees of the Building; (xv) costs incurred in connection with the sale, financing, refinancing, mortgaging, selling or change of ownership of the Building; (xvi) costs arising from the presence of Hazardous Materials in or about or below the Land or the Building, including without limitation, hazardous substances in the groundwater or soil (unless introduced into, caused or exacerbated by Tenant); and (xvii) any amounts paid to any person, firm, or corporation related to or otherwise affiliated with Landlord or any general partner, officer or director of Landlord or any of its general partners to the extent they exceed arm’s-length competitive prices paid in Rockville, Maryland for similar services of comparable quality rendered by persons or entities of similar skill, competence and experience. In the event that, during any calendar year or portion thereof during the Term, Landlord shall furnish any utility or service which is included in the definition of Operating Expenses to less than one hundred percent (100%) of the rentable area of the Building because (i) less than all of the rentable area of the Building is occupied, (ii) any such utility or service is not desired or required by any tenant, or (iii) any tenant is itself obtaining or providing any such utility or service, then the Operating Expenses for such calendar year shall be increased to equal the total expenses that Landlord reasonably estimates it would have incurred if Landlord had provided all such utilities and services to one hundred percent (100%) of the rentable area of the Building for the entire calendar year. For example, if the average occupancy rate of the Building during a calendar year is eighty percent (80%), the janitorial contractor's charges are $1.00 per occupied rentable square foot per year, and the Building contains one hundred thousand (100,000) rentable square feet of space, then it would be reasonable for Landlord to estimate that, if the Building had been one hundred percent (100%) occupied during the entire calendar year, janitorial charges for such calendar year would have been One Hundred Thousand Dollars ($100,000) and to compute the Operating Expenses for such calendar year accordingly. In no event shall the provisions of this paragraph be used to enable Landlord to collect from the tenants of the Building more than one hundred percent (100%) of the costs and expenses incurred by Landlord in managing, operating and maintaining the Building and the Land.

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CC.Premises' Standard Electrical Capacity: The electrical capacity sufficient to support Tenant's balanced consumption of five (5.0) watts per square foot of rentable area for Tenant computer and receptacle loads and two (2.0) watts per square foot of rentable area for Tenant lighting.

DD.Real Estate Tax Expenses: All (1) real estate taxes, arena taxes, solid waste taxes and related charges, front foot benefit charges, special user fees, rates, and assessments (including general and special assessments, if any), ordinary and extraordinary, foreseen and unforeseen, which are imposed upon Landlord or assessed against the Building or the Land or Landlord's personal property used in connection therewith; (2) other present or future taxes or governmental charges that are imposed upon Landlord or assessed against the Building or the Land which are in the nature of or in substitution for real estate taxes, including any tax levied on or measured by the rents payable by tenants of the Building, all taxes and assessments for public improvements or any other purpose and any gross receipts or receipts or similar taxes; and (3) out of pocket expenses (including, without limitation, attorneys' and consultants' fees and court costs) reasonably incurred in reviewing, protesting or seeking a reduction of real estate taxes, whether or not such protest or reduction is ultimately successful. Subject to the foregoing, Real Estate Tax Expenses shall not include any inheritance, estate, gift, franchise, corporation, net income or net profits tax assessed against Landlord from the operation of the Building.

EE.Rent: All Base Rent and Additional Rent.

(1)Base Rent: The amount payable by Tenant pursuant to Section 4.A. below.

(2)Additional Rent: All sums of money payable by Tenant pursuant to this Lease other than Base Rent.

(3)Monthly Rent: A monthly installment of Base Rent and Additional Rent, if any, which shall equal one-twelfth (1/12th) of Base Rent and Additional Rent then in effect.

FF.Rent Commencement Date: As defined in Section 4.A. below.

GG.Tenant's Personal Property: All equipment, improvements, furnishings and/or other property now or hereafter installed or placed in or on the Premises by and at the sole expense of Tenant or with Tenant's permission (other than any property of Landlord), with respect to which Tenant has not been granted any credit or allowance by Landlord, and which: (i) is removable without damage to the Premises, the Building and the Land, and (ii) is not a replacement of any property of Landlord, whether such replacement is made at Tenant's expense or otherwise. Notwithstanding any other provision of this Lease, Tenant's Personal Property shall not include any improvements or other property installed or placed in or on the Premises as part of Tenant's Work, whether or not any such property was purchased or installed at Tenant's expense, except that certain laboratory installations, including, but not limited to, generators, switches, built-in plumbing, fume hoods, built-in warm and cold rooms, deionized water, glass washers, autoclaves, chillers and any related mechanical, electrical and plumbing equipment (collectively, “Installations”) shall be deemed Tenant’s Personal Property.

HH.Unavoidable Delay: Any delays due to strikes, labor disputes, shortages of material, labor or energy, acts of God, governmental restrictions, enemy action, civil commotion, fire, unavoidable casualty or any other causes beyond the control of Landlord.

II.Work Agreement: Exhibit C, the terms of which are hereby expressly incorporated in this Lease.

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2.TERM.

A.Term of Lease: The term of this Lease (the "Term") shall commence on a date (the "Lease Commencement Date"), as defined below, and shall terminate at Midnight on the last day of the one hundred twenty-ninth (129th) full calendar month of the Term, or such earlier date on which this Lease is terminated pursuant to the provisions hereof (the "Lease Expiration Date"). The Lease Commencement Date shall be the earlier of (i) the one hundred eighty-first (181st) day following the Delivery Date; or (ii) the date Tenant commences beneficial use of any part of the Premises for the conduct of its business operations therein. It is presently anticipated that the Premises will be delivered to Tenant on or about the Anticipated Delivery Date; provided, however, that if Landlord does not deliver possession of the Premises by such date, Landlord shall not have any liability whatsoever, and this Lease shall not be rendered void or voidable, as a result thereof; further provided, however, that, if the Delivery Date has not occurred as of the date which is thirty (30) days following the Effective Date hereof (the “Outside Commencement Date”) and the reason therefor is not an Unavoidable Delay or a delay caused by the act or omission of Tenant or its employees, agents or contractors (hereinafter, “Tenant Delay”), then, as Tenant’s sole and exclusive remedy,the Free Rent Period (defined in Section 4.A. hereof) shall be extended day-for-day for the period commencing on the day following the Outside Commencement Date until such time as the Delivery Date occurs. The Outside Commencement Date shall be extended for any period of delay caused by an Unavoidable or Tenant Delay. Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord for the Term.

B.Declarations: If requested by Landlord at any time during the Term, Tenant promptly will execute a declaration in the form attached hereto as Exhibit B.

C.Effective Date: The rights and obligations set forth in this Lease, except for the obligation to pay Rent and as otherwise specifically provided herein to the contrary, shall become effective on the date of final execution of this Lease.

3.WORK AGREEMENT; DELIVERY OF PREMISES.

Tenant agrees to improve the Premises in accordance with the Work Agreement. Except as hereinafter provided, Landlord shall have no obligation to make any other improvements or alterations to the Premises. The date on which Landlord delivers the Premises in its “as-is” condition shall be the “Delivery Date.” As of the Delivery Date, the base Building electrical, plumbing, sprinkler, fire alarm, heating, ventilation and air conditioning systems, as well as the Existing Generator (as hereinafter defined) will be in good working order. In the event that Tenant delivers notice to Landlord of a latent defect in the base Building systems during the three hundred sixty-five (365) day period following the Delivery Date, then Landlord shall, at Landlord’s sole cost and expense, promptly repair such latent defect and the costs of such repair shall not be included in Operating Expenses.

Following the Delivery Date, Landlord shall install a supplemental heating, ventilation and air conditioning unit (“HVAC Unit”) which shall serve the laboratory portion of the Premises. Landlord shall install the HVAC Unit not later than the Lease Commencement Date, subject to Unavoidable Delay and delays caused by Tenant or its agents, employees or contractors. The laboratory portions of the Premises shall be served by the HVAC Unit and the non-laboratory portions of the Premises shall be served by the Building HVAC system in accordance with the provisions of Section 12 hereof.

From and after the Delivery Date and continuing through the Lease Commencement Date (the “Buildout Period”), Tenant shall be permitted to perform the Tenant’s Work pursuant to the terms and conditions of the Work Agreement. During the Buildout Period, Tenant and its agents and contractors shall be deemed to be bound by all of the terms, covenants, provisions and conditions of this Lease, including, but not limited to, Section 14.B. regarding Tenant’s indemnification obligations, Section 14.A. regarding Tenant’s obligation to repair injury, loss or damage which may occur prior to the Commencement Date, Section 17 regarding insurance, and the Work Agreement, the same being installed and maintained solely at Tenant’s risk; (ii) all such entries prior to the Lease Commencement Date shall be coordinated in advance with Landlord; and (iii) Tenant shall not interfere with any work to be performed by Landlord at the Premises; provided, however, that during the Buildout Period, Tenant shall not be obligated to pay any Base Rent or Additional Rent pursuant to Section 5 of this Lease, other than the cost of utilities for the Premises that are separately metered or submetered, which costs Tenant shall pay to Landlord within ten (10) days following Landlord’s delivery to Tenant of an invoice therefor.

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4.RENT.

From and after the Lease Commencement Date, Tenant shall pay to Landlord Base Rent and Additional Rent as are set forth in this Section 4 and in Section 5 below.

A.Base Rent: Base Rent shall equal the following amounts:

Lease Year	Rate of Base RentPer Square FootPer Annum	Rate of Base RentPer Annum	Rate of MonthlyBase Rent
1	$34.00	$764,218.00	$63,684.83
2	$34.85	$783,323.45	$65,276.95
3	$35.72	$802,878.44	$66,906.54
4	$36.61	$822,882.97	$68,573.58
5	$37.53	$843,561.81	$70,296.82
6	$38.47	$864,690.19	$72,057.52
7	$39.43	$886,268.11	$73,855.68
8	$40.42	$908,520.34	$75,710.03
9	$41.43	$931,222.11	$77,601.84
10	$42.47	$954,598.19	$79,549.85
11*	$43.53	$978,423.81	$81,535.32

*a period of nine (9) months

Tenant shall pay Base Rent to Landlord in equal monthly installments ("Monthly Base Rent") in advance on the first day of each calendar month during the Term, without notice, except that the first monthly installment of Base Rent shall be paid upon execution of this Lease. If the Lease Commencement Date occurs on a date other than the first day of a calendar month, Tenant shall receive a credit equal to the Monthly Base Rent multiplied by the number of days in said calendar month prior to the Lease Commencement Date and divided by the number of days in such month, which credit shall be applied toward the installment of Monthly Base Rent next due hereunder.

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Notwithstanding the foregoing, Landlord shall grant to Tenant a “rent holiday” from the payment of the installments of Monthly Base Rent for the first nine (9) months following the Lease Commencement Date (the “Free Rent Period”). During such Free Rent Period, the Monthly Base Rent for the entire Premises shall be abated (such rental abatement being hereinafter referred to as the “Free Rent Allowance”); provided, however, that (i) the Free Rent Period and the granting of the Free Rent Allowance as provided hereunder shall not affect the Lease Commencement Date pursuant to Section 2.A. hereof or Tenant’s obligation to pay the first installment of Base Rent upon execution of this Lease as provided above, (ii) Tenant shall remain obligated during the Free Rent Period to perform all of Tenant’s obligations under this Lease except as expressly set forth above (including, but not limited to, the payment of all Additional Rent coming due under this Lease), and (iii) in the event of any termination of this Lease by Landlord based upon a Default hereunder by Tenant, the then unamortized portion of Base Rent which would have otherwise been due and payable hereunder during the Free Rent Period in the absence of the Free Rent Allowance shall immediately become due and payable and any remaining Free Rent Allowance hereunder shall be of no force or effect. If the first day following the last day of the Free Rent Period (such date being hereinafter referred to as the “Rent Commencement Date”) is a date other than the first day of a month, then Monthly Base Rent for the period commencing with and including the Rent Commencement Date and ending on and including the day prior to the first day of the following month shall be prorated at the rate of one-thirtieth (1/30th) of the Monthly Base Rent per day and shall be due and payable on the Rent Commencement Date and the first full payment of Monthly Base Rent shall be applied to the installment of Monthly Base Rent which is payable for the first full month immediately following the Rent Commencement Date.

B.Payment: All Base Rent and Additional Rent due and payable to Landlord under this Lease shall be paid to Landlord at the Landlord Payment Address. Payments of Rent (other than in cash), if initially dishonored, shall not be considered rendered until ultimately honored as cash by Landlord's depository. Except as expressly set forth otherwise in this Lease, Tenant will pay all Rent to Landlord without demand, deduction, set-off or counter-claim. If any sum payable by Tenant under this Lease is paid by check which is returned due to insufficient funds, stop payment order, or otherwise, then: (a) such event shall be treated as a failure to pay such sum when due; and (b) in addition to all other rights and remedies of Landlord hereunder, Landlord shall be entitled (i) to impose, as Additional Rent, a returned check charge of Fifty Dollars ($50.00) to cover Landlord's administrative expenses and overhead for processing, and (ii) to require that all future payments be remitted by wire transfer, money order, or cashier's or certified check.

C.Late Fee: If Tenant fails to make any payment of Rent on or before the date when payment is due, then Tenant also shall pay to Landlord a late fee equal to five percent (5%) of the amount that is past due for each month or part thereof until such Rent is fully paid. Said late fee shall be deemed reimbursement to Landlord for its costs of carrying and processing Tenant's delinquent account. Acceptance by Landlord of said late fee shall not waive or release any other rights or remedies to which Landlord may be entitled on account of such late payment.

D. REIT/UBTI: Landlord and Tenant agree that no rental or other payment for the use or occupancy of the Premises is or shall be based in whole or in part on the net income or profits derived by any person or entity from the Building or the Premises. Tenant further agrees that it will not enter into any sublease, license, concession or other agreement for any use or occupancy of the Premises which provides for a rental or other payment for such use or occupancy based in whole or in part on the net income or profits derived by any person or entity from the Premises so leased, used or occupied. Nothing in the foregoing sentence, however, shall be construed as permitting or constituting Landlord's approval of any sublease, license, concession, or other use or occupancy agreement not otherwise approved by Landlord in accordance with the provisions of Section 23 of this Lease.

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5.ADDITIONAL RENT.

A.Sales, Use or Other Taxes or Traffic Mitigation Charges: If during the Term any governmental authority having jurisdiction over the Building or the Land levies, assesses or imposes any traffic mitigation charge or any tax on Landlord, the Premises, the Building or the Land or the rents payable hereunder, in the nature of a sales tax, use tax or any tax except (i) taxes on Landlord's income, (ii) estate or inheritance taxes, or (iii) Real Estate Tax Expenses, then Tenant shall pay its proportionate share of any such tax or traffic mitigation charge to Landlord within fifteen (15) days after receipt by Tenant of notice of the amount of such tax or traffic mitigation charge.

B.To Cover Operating Expenses and Real Estate Tax Expenses:

(1)Definitions: As used herein, "Tenant's Share of Operating Expenses" shall be that percentage of Operating Expenses which is the equivalent of the number of square feet of rentable area in the Premises (22,477 on the Lease Commencement Date) divided by the number of square feet of rentable area in the Building (115,691 on the Lease Commencement Date). As used herein, "Tenant's Share of Real Estate Tax Expenses" shall be that percentage of Real Estate Tax Expenses which is equivalent to the number of square feet of rentable area in the Premises (22,477 on the Lease Commencement Date) divided by the number of square feet of rentable area in the Building (115,691 on the Lease Commencement Date). However, in no event shall any of the aforesaid sums be less than zero. Notwithstanding the foregoing provisions of this Subsection 5.B.(1), in determining Tenant’s Share of Operating Expenses for any calendar year, the portion of Operating Expenses for such calendar year which constitute Controllable Operating Expenses (as hereinafter defined) shall not exceed one hundred six percent (106%) of the amount of Controllable Operating Expenses (as hereinafter defined) for the immediately preceding calendar year (the “Controllable Operating Expenses Cap”); provided, however, that in the event that Controllable Operating Expenses exceed such Controllable Operating Expenses Cap in any calendar year, Landlord may include the portion of Controllable Operating Expenses from such calendar year which was in excess of the Controllable Operating Expenses Cap for such calendar year in Operating Expenses for any future calendar year(s) until fully charged, so long as such Controllable Operating Expenses for any such future calendar year(s) do not exceed the Controllable Operating Expenses Cap for that future calendar year. As used herein, “Controllable Operating Expenses” shall mean all Operating Expenses except for the following: (i) taxes, assessments or other similar governmental charges, (ii) insurance, (iii) utilities, (iv) costs of snow and ice removal, and (v) costs incurred to comply with laws and government regulations so long as the violation did not exist on the Delivery Date.

(2)Payment of Tenant's Share: In addition to all other Rent set forth herein, for each calendar year during the Term commencing on the Rent Commencement Date, Tenant shall pay to Landlord as Additional Rent an amount equal to Tenant's Share of Operating Expenses and an amount equal to Tenant's Share of Real Estate Tax Expenses; provided, however, that for the calendar years during which the Term begins and ends, Tenant's Share of Operating Expenses and Tenant’s Share of Real Estate Tax Expenses shall be prorated based upon the greater of: (i) the number of days during such calendar year that this Lease is in effect, or (ii) the number of days that Tenant actually occupies the Premises or any portion thereof.

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C.Statements: For each calendar year during the Term, Landlord shall deliver to Tenant a statement estimating Tenant's Share of Operating Expenses and Tenant’s Share of Real Estate Tax Expenses for such calendar year, which Tenant shall pay in equal monthly installments in advance on the first day of each calendar month during each calendar year. Tenant shall continue to pay such estimated Tenant’s Share of Operating and Tenant’s Share of Real Estate Tax Expenses until Tenant receives the next such statement from Landlord, at which time Tenant shall commence making monthly payments pursuant to Landlord's new statement. With the first payment of Additional Rent herein which is due at least thirty (30) days after Tenant's receipt of a statement from Landlord specifying Tenant's Share of estimated Operating and Tenant’s Share of estimated Real Estate Tax Expenses payable during the calendar year, Tenant shall pay the difference between Tenant’s monthly share of such sums for the preceding months of the calendar year and the monthly installments which Tenant has actually paid for said preceding months.

D.Retroactive Adjustments: After the end of each calendar year, Landlord shall determine the actual Operating Expenses and Real Estate Tax Expenses for such calendar year, Landlord shall calculate the foregoing sums and Landlord shall provide to Tenant a statement of Tenant's Share of Operating Expenses and Tenant’s Share of Real Estate Tax Expenses for the calendar year. Within thirty (30) days after delivery of any such statement, Tenant shall pay to Landlord (i) any deficiency between the amount shown as Tenant's Share of Operating Expenses for the calendar year and the estimated payments thereof made by Tenant and (ii) any deficiency between the amount shown as Tenant’s Share of Real Estate Tax Expenses for the calendar year and the estimated payments thereof made by Tenant. Tenant shall be credited with any excess estimated payments toward subsequent Rent payments by Tenant.

E.Change In or Contest of Taxes: In the event of any change by any taxing body in the period or manner in which any of the Real Estate Tax Expenses are levied, assessed or imposed, Landlord shall have the right, in its sole discretion, to make equitable adjustments with respect to computing increases in Real Estate Tax Expenses. Real Estate Tax Expenses which are being contested by Landlord shall be included in computing Tenant's Share of Real Estate Tax Expenses under this Section 5, but if Tenant shall have paid Rent on account of contested Real Estate Tax Expenses and Landlord thereafter receives a refund of such taxes, Tenant shall receive a credit toward subsequent Rent payments in an amount equal to Tenant's proportionate share of such refund.

F.Audit: Any statement provided to Tenant by Landlord pursuant to this Section 5 shall be conclusive and binding upon Tenant unless, within one hundred twenty (120) days after receipt thereof, Tenant notifies Landlord of the respects in which the statement is claimed to be incorrect. If Tenant timely notifies Landlord within said 120-day period, then within fifteen (15) days after such notice, Tenant shall have reasonable access during normal business hours and at Tenant's expense, to appropriate books and records of Landlord relating to the amount of expenses covered by the disputed statement, for the purpose of verifying the statement. Any such review shall be made only by Tenant's employees and/or by an auditor hired by Tenant who is a Certified Public Accountant and who is employed on other than a contingent fee basis. Unless otherwise mutually agreed, any dispute shall be determined by arbitration in the jurisdiction in which the Premises are located, in accordance with the then current commercial rules of the American Arbitration Association. The costs of the arbitration shall be divided equally between Landlord and Tenant, except that each party shall bear the cost of its own legal fees, unless the arbitration results in a determination that Landlord's statement contained a discrepancy of less than five percent (5%) in Landlord's favor, in which event Tenant shall bear all costs incurred in connection with such arbitration, including, without limitation, legal fees. Pending determination of any dispute, Tenant shall pay all amounts due pursuant to the disputed statement, but such payments shall be without prejudice to Tenant's position.

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6.USE.

A.Permitted Use: Tenant shall use and occupy the Premises solely for general (non-medical and non-governmental) office and laboratory purposes currently associated with virus vector, plasmid, cell and gene therapies research and development and commercialized GMP manufacturing, and other incidental uses such as a pantry or shower, consistent with the character of the Building and in accordance with all applicable Laws, and for no other purpose.

B.Legal and Other Restrictions of Tenant's Use: Tenant shall not use or occupy the Premises for any unlawful purpose, or in any manner that will violate the certificate of occupancy for the Premises or the Building or that will constitute waste, nuisance or unreasonable annoyance to Landlord or any other tenant or user of the Building, or in any manner that will increase the number of parking spaces required for the Building or its full occupancy as required by law. Tenant shall comply with all present and future laws (including, without limitation, the Americans with Disabilities Act (the "ADA") and the regulations promulgated thereunder, as the same may be amended from time to time), ordinances (including without limitation, zoning ordinances and land use requirements), regulations, orders and recommendations (including, without limitation, those made by any public or private agency having authority over insurance rates) (collectively, "Laws") concerning the use, occupancy and condition of the Premises and all machinery, equipment, furnishings, fixtures and improvements therein, all of which shall be complied with in a timely manner at Tenant's sole expense. If any such Law requires an occupancy or use permit or license for the Premises or the operation of the business conducted therein (including a certificate of occupancy or nonresidential use permit), then Tenant shall obtain and keep current such permit or license at Tenant's expense and shall promptly deliver a copy thereof to Landlord. Use of the Premises is subject to all covenants, conditions and restrictions of record. Tenant shall not use any space in the Building for the sale of goods to the public at large or for the sale at auction of goods or property of any kind. Tenant shall not conduct any operations, sales, promotions, advertising or special events in, on or about the Building outside of the Premises but may conduct wholly within the Premises seminars, promotional events or training sessions for its investors, customers or guests, subject to the other terms and provisions of this Lease. To the best of Landlord’s knowledge, general office use and general laboratory use are permitted uses of the Premises pursuant to the existing certificate of occupancy; provided, however, that Landlord makes no representations regarding Tenant’s particular intended use of the Premises for a use other than general office use or general laboratory use.

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7.CARE OF PREMISES.

A.Tenant’s Obligations: Tenant shall at its expense keep the Premises (including all improvements, fixtures and other property located therein) in a neat and clean condition and in good order and repair, and will suffer no waste or injury thereto. Tenant shall maintain all fixtures, furnishings and equipment located in, or exclusively serving, the Premises in clean, safe and sanitary condition, shall take good care thereof and make all required repairs and replacements thereto. Tenant shall give Landlord prompt written notice of any defects or damage to the structure of, or equipment or fixtures in, the Building or any part thereof. Tenant shall surrender the Premises at the end of the Term in as good order and condition in accordance with the terms and provisions of the Lease, ordinary wear and tear excepted.

B.Landlord’s Obligations: Landlord shall use commercially reasonable efforts to maintain the exterior and demising walls, the foundation, the roof and the Common Areas of the Building, and the base Building mechanical, electric, life safety, HVAC, plumbing systems, pipes and conduits, as well as the HVAC Unit, in good order, repair, and condition during the Term, and shall promptly make such repairs thereto as become necessary after obtaining actual knowledge of the need for such repairs, all costs of which shall be included in Operating Expenses to the extent permitted by Section 1.BB. hereof (except that the costs related to the HVAC Unit for which Tenant shall pay Tenant’s HVAC Unit Costs [as that term is defined in Section 12.A(2) hereof]), unless the need for any such maintenance or repair (including, maintenance and repair of the HVAC Unit) is brought about by any act or omission of Tenant, its agents, employees or invitees, in which event Tenant shall have the obligation to make, at its sole cost and expense, such repairs.

8.ALTERATIONS BY TENANT.

A.Making of Alterations; Landlord's Consent: Tenant shall not make or permit to be made any Alterations without the prior written consent of Landlord both as to whether the Alterations may be made and as to how and when they will be made. Notwithstanding the foregoing, Landlord shall not unreasonably withhold its consent to any non-structural Alteration which Tenant may desire to make to the Premises; provided, however, that Landlord shall retain sole and absolute discretion to withhold its consent to any Alteration, whether structural or non-structural, which may, in the sole and absolute judgment of Landlord (1) adversely affect the marketability of the Premises, (2) exceed the capacity of, hinder the effectiveness of, interfere with the electrical, mechanical, heating, ventilating, air conditioning, or plumbing systems of the Premises or the Building or which will be connected to any of such systems, or (3) be visible from outside the Premises. Notwithstanding the foregoing, Tenant shall have the right, after providing at least ten (10) days prior written notice to Landlord, but without the necessity of obtaining Landlord’s consent, to recarpet, repaint, or to make purely “cosmetic” or “decorative” nonstructural Alterations in and to the Premises that (I) do not fall within clauses (1) through (3) above, (II) do not require the issuance of a building permit, and (III) do not cost, when aggregated with all other Alterations made during the previous twelve (12) months, more than One Hundred Thousand Dollars ($100,000.00).

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Any Alterations shall be made at Tenant's expense, by its contractors, in a good, workmanlike and first-class manner, and subcontractors and in accordance with complete plans and specifications approved in advance in writing by Landlord, and only after Tenant: (i) has obtained all necessary permits from governmental authorities having jurisdiction and has furnished copies thereof to Landlord, (ii) has submitted to Landlord an architect's certificate that the Alterations will conform to all applicable Laws, and (iii) has complied with all other requirements reasonably imposed by Landlord, including, without limitation, any requirements due to the underwriting guidelines of Landlord's insurance carriers. Landlord's consent to any Alterations and approval of any plans and specifications constitutes approval of no more than the concept of these Alterations and not a representation or warranty with respect to the quality or functioning of such Alterations, plans and specifications. Tenant shall be and is solely responsible for the Alterations and for the proper integration thereof with the Building, the Building's systems and existing conditions. Landlord shall have the right, but not the obligation, to supervise the making of any Alterations. All Alterations involving structural, electrical, mechanical or plumbing work, lab equipment, furniture or fixtures, the heating, ventilation and air conditioning system of the Premises or the Building, and the roof of the Building, shall, at Landlord's election, be performed by Landlord's designated contractor or subcontractor at Tenant's expense at the same rates charged to Landlord by such contractor without markup, which rates shall be consistent with competitive costs for similar services of comparable quality rendered by persons or entities of similar skill, competence and experience provided in the same geographic area as the Building. With respect to future Alterations and not with respect to the Tenant’s Work, Tenant shall reimburse Landlord as Additional Rent for any actual sums paid by Landlord for third party examination of Tenant's plans and specifications for Alterations, plus a fee to Landlord’s property manager paid as Additional Rent (a) in the amount equal to one percent (1%) of the costs of such Alterations if Tenant manages the Alterations, or (b) in an amount equal to three percent (3%) of the cost of such work if Landlord, or any affiliate of Landlord, or Landlord’s property manager manages the Alterations.. If any Alterations which require Landlord’s approval are made without the prior written consent of Landlord, or which do not conform to plans and specifications approved by Landlord or to other conditions imposed by Landlord pursuant to this Section 8, Landlord may, in its sole discretion, correct or remove such Alterations at Tenant's expense. Following completion of any Alterations, except with respect to cosmetic or decorative nonstructural Alterations which do not require Landlord’s approval, at Landlord's request, Tenant either shall deliver to Landlord a complete set of "as built" plans showing the Alterations or shall reimburse Landlord for any expense incurred by Landlord in causing the Building plans to be modified to reflect the Alterations.

B.No Liens: Tenant shall take all necessary steps to ensure that no mechanic's or materialmen's liens are filed against the Premises, the Building or the Land as a result of any Alterations made by the Tenant. If any mechanic's lien is filed, Tenant shall discharge the lien within ten (10) business days thereafter, at Tenant's expense, by paying off or bonding the lien. If Landlord gives its consent to the making of any Alteration, such consent shall not be deemed to be an agreement or consent by Landlord to subject its interest in the Premises or the Building to any liens which may be filed in connection therewith, nor shall Landlord’s receipt of any fee in connection with any Alterations or Tenant’s Work or Landlord’s payment of any allowance to Tenant with respect to any work performed in or with respect to the Premises by or on behalf of Tenant be deemed to constitute a basis for Landlord’s interest in the Premises or the Building to be subjected to any lien. If Tenant shall lease or finance the acquisition of equipment, furnishings, or personal property of a removable nature utilized by Tenant in the operation of Tenant’s business, Tenant warrants that any Uniform Commercial Code Financing Statement filed as a matter of public record by any lessor or creditor of Tenant will upon its face or by exhibit thereto indicate that such Financing Statement is applicable only to removable personal property of Tenant located within the Premises. In no event shall the address of the Building be furnished on the statement without qualifying language as to the applicability of the lien only to removable personal property, located in an identified suite leased by Tenant. Following Tenant’s written request, Landlord will execute an agreement on Landlord’s standard form pursuant to which Landlord will agree with Tenant’s lender in the ordinary course to subordinate its interest, if any, in Tenant's inventory, trade fixtures, furnishings or equipment and other personal property in favor of such lender.

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9.EQUIPMENT.

A.Permitted Equipment: Tenant shall not install or operate in the Premises any equipment or other machinery that, in the aggregate, will cause Tenant to use more than the Premises' Standard Electrical Capacity, without: (i) obtaining the prior written consent of Landlord, who may condition its consent upon the payment by Tenant of Additional Rent for additional consumption of utilities, additional wiring or other expenses resulting therefrom, (ii) securing all necessary permits from governmental authorities and utility companies and furnishing copies thereof to Landlord, and (iii) complying with all other requirements reasonably imposed by Landlord. Tenant shall provide Landlord with a list of all equipment that Tenant intends to install or operate in the Premises which operate on more than one hundred twenty (120) volts, and Tenant shall provide Landlord with an updated list of such equipment prior to the installation or use of any additional equipment which operates on more than one hundred twenty (120) volts. Tenant shall not install any equipment or machinery which may necessitate any changes, replacements or additions to or material changes in the use of water, heating, plumbing, air conditioning or electrical systems of the Building without obtaining the prior written consent of Landlord, who may withhold or deny its consent in its absolute discretion.

B.Payment For Excess Utility Usage: If Tenant's equipment shall result in electrical demand in excess of the Premises' Standard Electrical Capacity, Landlord shall have the right, in its sole discretion, to install additional transformers, distribution panels, wiring and other applicable equipment at the expense of Tenant. None of the equipment so installed shall be deemed to be Tenant's Personal Property. If at any time during the Term, Tenant's connected electrical load from its use of equipment and fixtures (including incandescent lighting and power), as estimated by Landlord, exceeds the Premises' Standard Electrical Capacity, then Landlord may, at its option: (i) install separate electrical meter(s) for the Premises, or (ii) cause a survey to be made by an independent electrical engineer or consulting firm to determine the amount of electricity consumed by Tenant beyond the Premises' Standard Electrical Capacity. Tenant shall reimburse Landlord for the cost of the installation of said meter(s) or completion of said meter(s) or survey, and shall pay as Additional Rent the cost of any electricity in excess of an average of the Premises Standard Electrical Capacity, at the rate charged by the utility company providing such electricity, assuming continuous business hours, within ten (10) days after receipt of any bill therefor from Landlord. Tenant shall reimburse Landlord for the cost of any excess water, sewer and chiller usage in the Premises. Excess usage shall mean the excess of the estimated usage in the Premises (per square foot of rentable area) during any billing period over the average usage (per square foot of rentable area) during the same period for the entire Building, as reasonably calculated by Landlord.

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C.Noise; Vibration; Floor Load: Business machines and equipment belonging to Tenant, which cause noise or vibration that may be transmitted to any part of the Building to such a degree as to be reasonably objectionable to Landlord or to any tenant of the Building, shall be installed and maintained by Tenant at Tenant's expense on devices that eliminate the noise and vibration. Tenant shall not place any load upon the floor of the Premises which exceeds the per square foot load the floor was designed to carry (eighty (80) pounds per square foot for live loads and twenty (20) pounds per square foot for dead loads).

D.Separate Metering of Electricity and Gas: All electrical consumption (including, but not limited to, all costs of providing heating and air conditioning to the Premises) and all costs of consumption of gas within the Premises shall be separately metered by Tenant, at Tenant’s sole cost and expense, as part of Tenant’s Work, and Tenant shall timely pay the full amount of the costs of such consumption directly to the providers thereof as and when the same become due and payable. Tenant shall be responsible for the installation, maintenance, repair and, if applicable, replacement of the aforesaid meters, all of which shall be performed at Tenant’s sole cost and expense; provided, however, that in the event that the meters require maintenance, repair or replacement and Tenant does not perform same within ten (10) days following notice from Landlord, then Landlord shall have the right to perform such maintenance, repair or replacement, in which case Tenant shall reimburse Landlord as Additional Rent for the costs thereof, including, but not limited to, an administrative fee to Landlord, which reimbursement shall be made by Tenant to Landlord within ten (10) days following Landlord’s written demand therefor to Tenant. In the event that a failure or malfunction of the meters installed in the Premises prevents the rendering of accurate invoices to Tenant from the utility providers, Landlord shall have the right to prepare and issue to Tenant billings prepared by Landlord’s property manager, based upon its reasonable estimate of Tenant’s consumption of electricity and gas in the Premises, and Tenant shall pay the amount of such billings to Landlord as Additional Rent in lieu of charges based upon the measurement from the failed or malfunctioning meter(s).

E.Shared Backup Generator: Notwithstanding anything to the contrary contained in this Lease, Tenant shall have the right to use, in common with other tenants of the Building, the existing generator for the Building (the “Existing Generator”) in accordance with the terms and conditions of this Section 9.E; provided, however, that Tenant shall not connect more than four (4) watts of electricity per square foot of the Premises to the Existing Generator; and further provided, that Tenant shall be responsible for Tenant's proportionate share of all costs of utilities consumed by such Existing Generator based on Tenant’s actual usage of the Existing Generator versus the usage of the Existing Generator by other tenants of the Building (such costs being hereinafter referred to as “Tenant’s Generator Costs”). Tenant shall pay Tenant’s Generator Costs to Landlord as Additional Rent during the Term within thirty (30) days after Landlord renders an invoice therefor, which invoices may be rendered by Landlord from time to time during the Term. Tenant hereby accepts the Existing Generator in its “as-is” condition as of the Lease Commencement Date, and Tenant agrees that Landlord shall have no liability to Tenant or others based on any failure of the Existing Generator, due to Unavoidable Delays, repair or maintenance work or any other reason, and any such failure of the Existing Generator shall neither render Landlord liable for damages to either person or property, nor be construed as an eviction of Tenant, nor cause a diminution or abatement of Rent nor relieve Tenant of any of Tenant's obligations hereunder. Landlord agrees to maintain and repair the Existing Generator in accordance with manufacturer’s specifications, the costs of which shall be included in Operating Expenses.

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F.Tenant’s Generator: Landlord acknowledges that Tenant shall have the right, at Tenant's option and at Tenant’s sole cost and expense, to install, operate, repair, replace and maintain a supplemental battery operated generator (collectively, the “Generator”) in a location to be reasonably determined by Landlord and Tenant (the “Generator Space”); provided, however, that (i) Tenant shall be solely responsible for all costs of installation, maintenance, repair and replacement of the Generator, (ii) Tenant shall be responsible for all costs of operation of such Generator, and (iii) Tenant’s installation of the Generator shall be subject to Landlord’s prior written approval in accordance with the terms and conditions of Section 8.A. hereof. Notwithstanding anything contained in this Section 9.F. to the contrary, Landlord shall use good faith efforts to provide the Generator Space in a location which can accommodate the Generator and all Generator appurtenances at no additional rental cost to Tenant; provided, however, that if Landlord determines that the Generator or any portion thereof should be located in any space in the Building which comprises rentable space, then Tenant shall pay for Tenant's use of the rentable portion of the Generator Space, as Additional Rent hereunder, the then applicable market rent or parking fee for such rentable space, as applicable, as reasonably determined by Landlord. Tenant shall comply with Landlord's standard requirements regarding Tenant’s use, operation and maintenance of the Generator with respect to noise, vibration, screening and testing. Landlord shall have the right, in Landlord's reasonable judgment, by providing Tenant with not less than one hundred twenty (120) days’ prior written notice and paying the reasonable cost of relocation of the Generator, to relocate the Generator from the Generator Space to another area to be determined by Landlord. In addition, Landlord and Tenant acknowledge that the installation of the Generator shall include the costs of demising the Generator Space, if applicable, the costs of installation of connecting conduits, and all actual costs of installation, operation, maintenance, repair, replacement and removal of the Generator, all of which costs shall be paid solely by Tenant. The installation and placement of the Generator shall comply with all applicable Laws. Prior to the Lease Expiration Date, Tenant shall restore the Generator Space and any damage to the Land, the Building, the Premises or any combination thereof, to their condition immediately prior to the installation thereof, reasonable wear and tear, casualty and condemnation excepted.

10.OWNERSHIP AND REMOVAL OF PROPERTY.

A.Landlord's Property: Any Alterations and other improvements and any equipment, machinery, furnishings and other property, installed or located in the Premises, the Building or the Land by or on behalf of Landlord or Tenant, except for Tenant's Personal Property: (i) shall immediately become the property of Landlord, and (ii) shall be surrendered to Landlord with the Premises as a part thereof at the end of the Term; provided, however, that if Landlord requests Tenant to remove any Alterations installed by or on behalf of Tenant, Tenant shall cause the same to be removed at Tenant's expense on or before the Lease Expiration Date, or shall reimburse Landlord for the cost of such removal, as elected by Landlord (unless Landlord expressly waives in writing the right to require such removal at the time Landlord gives its consent to the making of such Alterations).

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B.Removal of Property At End of Term: Tenant shall remove all of Tenant's Personal Property, and all computer cabling and wiring installed by or on behalf of Tenant (irrespective of whether such cabling and wiring constitutes Tenant's Personal Property under the terms of this Lease, and at Tenant's expense, using a contractor approved in advance by Landlord in writing), from the Building and the Land on or before the Lease Expiration Date. Any personal property belonging to Tenant or to any other person or entity which is left in the Building or on the Land after the date this Lease is terminated for any reason shall be deemed to have been abandoned. In such event, Landlord shall have the right to store such property at Tenant's sole cost and/or to dispose of it in whatever manner Landlord considers appropriate, without waiving its right to claim from Tenant all expenses and damages caused by Tenant's failure to remove such property, and Tenant and any other person or entity shall have no right to compensation from or any other claim against Landlord as a result.

11.LANDLORD'S ACCESS TO PREMISES.

Landlord may at any reasonable time enter the Premises to examine them, to make alterations or repairs thereto or for any other purposes which Landlord considers necessary or advisable; however, in the case of any emergency, Landlord and its agents may enter the Premises at any time and in any manner. Tenant shall allow the Premises to be exhibited by Landlord: (i) at any reasonable time to representatives of lending institutions or to prospective purchasers of the Building, and (ii) at any reasonable time to persons who may be interested in leasing the Premises. Landlord reserves the right and shall be permitted reasonable access to the Premises to install facilities within and through the Premises and to install and service any systems deemed advisable by Landlord to provide services or utilities to any tenant of the Building. Tenant shall have the right to have a representative of Tenant accompany Landlord and its agents during any such entry (other than in the case of emergency) so long as Tenant makes such representative present at the time of Landlord’s entry on the Premises. Landlord shall use reasonable efforts to conduct such entries in a manner and at such times so as to minimize interference with Tenant's business operations within the Premises (provided that the foregoing shall not be deemed to require Landlord to incur overtime expense or to operate outside of Landlord's normal business hours).

Notwithstanding anything to the contrary contained in this Lease, Tenant shall be permitted to maintain “Secured Areas” (which shall mean certain special access areas and limited access areas as designated by Tenant to Landlord in advance, provided that such areas are clearly defined, self-contained facilities that have been so designated in writing by Tenant to Landlord in advance), in which case Landlord shall not enter such Secured Areas without being accompanied by a representative of Tenant, and, in consideration for such rights granted by Landlord, (a) Tenant hereby authorizes Landlord and any of its employees, agents and contractors to break any such locks and the doors and walls to which they are attached in the event of an emergency, (b) in the event of the need to perform any services or to make inspections, repairs, maintenance or improvements and Tenant’s refusal to provide access to such Secured Areas, Landlord shall have no responsibility for any such services, inspections, repairs, maintenance or improvements within said Secured Areas; provided, however, that if Tenant grants Landlord access into such Secured Areas, then Landlord shall again be responsible for such services, inspections, repairs, maintenance or improvements therein from and after the date on which such access is provided, and (c) Tenant hereby indemnifies Landlord (including its shareholders, members, partners, employees, agents and contractors) against and holds Landlord harmless from, any and all liabilities, losses, damages, causes of action, suits, claims, demands, judgments, costs and expenses of any kind (including court costs and reasonable attorneys’ fees) asserted against Landlord to the extent arising in connection with Tenant’s access rights and restrictions set forth in this paragraph.

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12.SERVICES AND UTILITIES.

A.Services Provided by Landlord: As long as Tenant is not in Default, as defined in Subsection 19.A. below, Landlord shall provide the following to Tenant, without additional charge, except as otherwise provided herein (including, but not limited to, as provided in Sections 5 and 1.BB. hereof):

(1)Elevator service for common use, subject to call at all times, including Sundays and Holidays.

(2)Central heating and air conditioning for the non-laboratory portions of the Premises and the Common Areas of the Building during Building Hours, exclusive of Holidays, during the seasons of the year and within the temperature ranges usually furnished in comparable office buildings in the city (or, if not a city, other local jurisdiction) in which the Building is located. Landlord shall provide heat and air conditioning at other times at Tenant's expense, provided that Tenant gives Landlord notice by 1:00 p.m. on weekdays for after-hour service on the next weekday, two (2) business days' notice before a Holiday for service on such Holiday and two (2) business days' notice for after-hour service on Saturday or Sunday. Landlord shall charge Tenant for such after-hour, Holiday and special weekend service at the prevailing rates then being charged by Landlord for such services.

HVAC services for the laboratory portions of the Premises shall be served by the HVAC Unit (defined in Section 3 of this Lease). The HVAC Unit will serve the laboratory portion of the Premises and a portion of the second floor of the Building. After the installation of the HVAC Unit by Landlord, Tenant shall be responsible for Tenant’s proportionate share of the costs of the operation, maintenance, repair and replacement of the HVAC Unit (“Tenant’s HVAC Unit Costs”), which proportionate share shall be a percentage which is the equivalent of the number of square feet of rentable area in the laboratory portion of Premises which is served by the HVAC Unit divided by the number of square feet of rentable area located on the first and second floors of the Building (including the laboratory portion of the Premises) served by the HVAC Unit, as reasonably determined by Landlord. Tenant shall pay Tenant’s HVAC Unit Costs to Landlord as Additional Rent within thirty (30) days after Landlord renders an invoice therefor, which invoices may be rendered by Landlord from time to time during the Term.

(3)Cleaning and char services for the non-laboratory portions of the Premises and Common Areas in a manner determined by Landlord.

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(4)Electrical facilities to furnish electricity to the Building up to the Premises' Standard Electrical Capacity (including the replacement of Building standard light bulbs in Building standard light fixtures, it being agreed that if Landlord replaces any other light bulbs in the Premises, Tenant shall pay Landlord the cost of such bulbs and all labor costs incurred by Landlord in connection therewith within fifteen (15) days after Landlord's written demand therefor), it being understood that electricity in the Premises will be provided and paid for by Tenant pursuant to Section 9.D. above.

(5)Common Area rest room facilities.

(6)Routine maintenance, painting and electrical lighting service for all Common Areas of the Building in such manner as Landlord deems reasonable.

(7)Reasonable access to the Premises at all times (twenty-four (24) hours a day, seven (7) days a week, three hundred sixty-five (365) days a year), subject to such access control procedures, restrictions and other regulations as Landlord may promulgate.

(8)Reasonable access and use of the Building’s the loading dock during Building Hours, subject to prior coordination with Landlord and the rights of other tenants of the Building.

(9)Access to the Building via an electronic perimeter access control system, which access control system shall be operated in a manner which is consistent with the types of systems used in comparable buildings of the same age and quality located in the same market area as the Building. On or prior to the Lease Commencement Date, Landlord shall provide to Tenant up to fifty (50) access cards or fobs for Tenant’s employees to access the Building and the Premises, and all additional or replacement access cards or fobs will be paid for by Tenant to Landlord at Landlord’s standard charge therefor from time to time.

B.Failure to Provide Services: Landlord shall have no liability to Tenant or others based on any failure by Landlord to furnish the foregoing, due to Unavoidable Delays, repair or maintenance work or any other reason, and such failure shall neither render Landlord liable for damages to either person or property, nor be construed as an eviction of Tenant, nor cause a diminution or abatement of Rent nor relieve Tenant of any of Tenant's obligations hereunder. Notwithstanding the foregoing, if any of the services described in Section 12.A. hereof are suspended and such suspension renders the Premises untenantable and continues for more than five (5) consecutive business days, if the reason for the suspension or the continuation of the suspension is anything other than an Unavoidable Delay, all Monthly Base Rent and all Additional Rent due pursuant to Section 5 hereof shall be abated for the period commencing on the sixth (6th) consecutive business day of such suspension and concluding on the date that the service has been restored.

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C.Conservation: Tenant hereby agrees to comply with all energy conservation procedures, controls and requirements instituted by Landlord pursuant to any government regulations or otherwise, including but not limited to controls on the permitted range of temperatures, the volume of energy consumption or the hours of operation of the Building. Institution by Landlord of such controls and requirements shall not entitle Tenant to terminate this Lease or to an abatement of any Rent payable hereunder.

D.Recycling: Without limiting the foregoing, Tenant covenants and agrees, at its sole cost and expense, to comply with all present and future Laws of the jurisdiction in which the Building is located and of the federal, municipal, and local governments, departments, commissions, agencies and boards having jurisdiction over the Building to the extent that any of them or this Lease impose on Tenant duties and responsibilities regarding the collection, sorting, separation, and recycling of trash. Tenant shall pay all costs, expenses, fines, penalties, or damages that may be imposed on Landlord or Tenant by reason of Tenant's failure to comply with the provisions of this Section 12.D., and, at Tenant's sole cost and expense, shall indemnify, defend and hold Landlord harmless (including legal fees and expenses) from and against any actions, claims, and suits arising from such noncompliance, using counsel reasonably satisfactory to Landlord.

E.Tenant’s Char and Cleaning Responsibilities:

(1)Laboratory Cleaning and Removal of Bio-Waste: Tenant shall contract separately to clean daily the laboratory portions of the Premises and to remove bio-waste daily (excluding weekends and Holidays) and as otherwise necessary from all portions of the Premises, including the rest room facilities, office and laboratory areas, floors, windows, fixtures and equipment, in a manner consistent with the nature of the Building and in accordance with Section 36 hereof.

(2)Janitorial Services: In addition to the foregoing, Tenant, at Tenant’s sole cost and expense, shall be responsible for providing char and janitorial services to the laboratory portions of the Premises in a manner consistent with the janitorial services provided in buildings comparable to the Building and in space comparable to the Premises, including, but not limited to, the removal and disposal of all trash from the laboratory portions of the Premises.

13.RULES AND REGULATIONS.

Tenant shall abide by and observe the rules and regulations attached hereto as Exhibit D and such other rules and regulations as may be made by Landlord from time to time, provided that such rules and regulations shall not be materially inconsistent with the provisions of this Lease. Nothing contained in this Lease or in any rules and regulations shall be interpreted to impose upon Landlord any obligations to enforce against any tenant its rules and regulations, or the provisions of any lease with any other tenant, and Landlord shall not be liable to Tenant or any other entity for any violation of said rules, regulations or lease provisions. Landlord shall use reasonable efforts not to enforce any rule or regulation in a manner which unreasonably discriminates among similarly situated tenants.

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14.REPAIR OF DAMAGE CAUSED BY TENANT: INDEMNIFICATION.

A.Repairs: Except as otherwise expressly provided in this Lease, all injury, breakage and damage to the Land, the Building or the Premises, caused by any act or omission of Tenant shall be repaired by and at the sole expense of Tenant, except Landlord shall have the right, at its option, to make such repairs and to charge Tenant for all costs and expenses incurred in connection therewith as Additional Rent payable within ten (10) days after the rendering of a bill therefor. Tenant shall notify Landlord promptly of any injury, breakage or damage to the Land, the Building, or the Premises caused by Tenant.

B.Indemnification: Tenant hereby agrees to indemnify and hold Landlord harmless from and against all costs, damages, claims, liabilities and expenses, including attorneys' fees, suffered by or claimed against Landlord, directly or indirectly, based on, arising out of or resulting from: (i) Tenant's use and occupancy of the Premises or the business conducted by Tenant therein or Tenant's presence in the Building or on the Land, (ii) the making by Tenant of any Alterations, (iii) any act or omission of Tenant or its employees, agents or invitees, and (iv) any breach or default by Tenant in the observance or performance of its covenants and obligations under this Lease. Notwithstanding anything to the contrary contained in this Lease, in no event shall Tenant be liable for consequential damages except those resulting from a breach of Tenant’s obligations under Sections 21 and 36 hereof.

15.LIMITATION ON LANDLORD LIABILITY.

A.Liability Standard: Landlord shall not be liable to Tenant or any other individual or entity for any damage, loss or claim whatsoever, except damages, losses and claims that are the direct result of Landlord's gross negligence or willful misconduct; however, in no event shall Landlord be liable for consequential damages.

B.Limitation on Total Liability: Notwithstanding any other provision of this Lease, it is expressly understood and agreed that the total liability of Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant hereunder and/or Tenant's use of the Premises, shall be limited to the estate of Landlord in the Building. No other property or assets of Landlord or any partner or owner of Landlord shall be subject to levy, execution, or other enforcement proceedings or other judicial process for the satisfaction of any judgment or any other right or remedy of Tenant arising out of or in connection with this Lease, the relationship of Landlord and Tenant hereunder and/or Tenant's use of the Premises.

16.FIRE AND OTHER CASUALTY.

If the Premises shall be damaged by fire or other casualty, other than as a result of the negligence or misconduct of Tenant, this Lease shall not terminate and, upon adjustment of insurance claims, Landlord shall repair the damage to the condition existing on the Delivery Date, provided that Landlord shall have no obligation to repair damage to or replace Tenant's Personal Property or Installations (as defined above). No compensation or reduction of Rent shall be paid or allowed for inconvenience, annoyance or injury to Tenant or Tenant's business arising from any damage to or repair of the Premises or the Building.

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Tenant, at its expense, shall promptly perform, subject to delays arising from the collection of insurance proceeds, Unavoidable Delay or obtaining approval from any applicable governmental authority having jurisdiction over Hazardous Materials to restore the Premises (“Hazardous Material Clearances”), all repairs or restoration not required to be done by Landlord and shall promptly re-enter the Premises and commence doing business in accordance with this Lease. Provided Tenant fully and promptly cooperates with Landlord, following written or verbal notice to Tenant, with all reasonable procedures Landlord deems necessary for Landlord to obtain such Hazardous Materials Clearances, Rent shall be abated from the date of such casualty until the Premises are repaired and restored, in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises, unless Landlord provides Tenant with other space during the period of repair that is suitable for the temporary conduct of Tenant’s business. Such abatement shall be the sole remedy of Tenant and Tenant waives any right to terminate this Lease by reason of damage or casualty loss. If Tenant fails to cooperate as described herein, neither Base Rent nor Additional Rent shall be abated until the date upon which Landlord is able to obtain such Hazardous Materials Clearances.

Notwithstanding anything herein to the contrary, if (1) insurance proceeds are insufficient to pay the full cost of such repair and restoration, (2) the holder of any Mortgage fails or refuses to make insurance proceeds available for such repair and restoration, (3) zoning or other applicable Laws do not permit such repair and restoration, or (4) the Building is damaged by fire or casualty (whether or not the Premises has been damaged) to such an extent that Landlord decides, in its sole and absolute discretion, not to rebuild or reconstruct the Building, then Landlord, at its option, may give Tenant, within sixty (60) days after the casualty, written notice of termination of this Lease, and this Lease and the Term shall terminate (whether or not the Term has commenced) upon the expiration of thirty (30) days from the date of the notice, with the same effect as if the new expiration date had been the Lease Expiration Date, and all Base Rent and Additional Rent payable pursuant to Section 5 of this Lease shall be apportioned as of such date.

Notwithstanding anything herein to the contrary, if Landlord estimates that the restoration of the Premises and the Building cannot be completed by the two hundred seventieth (270th) day following the date of the casualty, and all or a substantial portion of the Premises will not be tenantable during such period, then Tenant may terminate this Lease by written notice to Landlord, which notice shall be given by Tenant, if at all, within ten (10) days following the date of such estimate. If the restoration of the Premises and the Building has not been completed by the two hundred seventieth (270th) day following the date of the casualty, and all or a substantial portion of the Premises is not tenantable as a result of the casualty, Tenant may terminate this Lease by written notice to Landlord, which notice shall be given by Tenant, if at all, within ten (10) days following such two hundred seventieth (270th) day, but in any event prior to Landlord’s delivery of the Premises to Tenant with the restoration of the Premises substantially complete.

If the Premises or the Building shall be damaged by fire or other casualty due to the negligence or misconduct of Tenant: (i) Tenant shall not be permitted to terminate this Lease pursuant to the immediately preceding paragraph, (ii) Landlord shall have no obligation to repair the Premises or the Building, (iii) this Lease shall, at Landlord's option, not terminate, (iv) Landlord may at Tenant's expense repair the damage, and (v) Landlord may pursue any legal and equitable remedies available to it.

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17.INSURANCE.

A.Tenant's Insurance:

(a)Throughout the Term, Tenant shall obtain and maintain the following:

(1) Commercial General Liability insurance (written on an ISO occurrence form or equivalent basis) including contractual liability coverage insuring the obligations assumed by Tenant under this Lease (including those set forth in Sections 14.B. and 36.B.), premises and operations coverage, broad form property damage coverage and independent contractors coverage, and personal injury with a minimum of Two Million Dollars ($2,000,000) each occurrence and Three Million Dollars ($3,000,000) general aggregate. If the policy is a blanket policy and also covers locations other than the Premises, the policy shall include a provision to the effect that the aggregate limit of Three Million Dollars ($3,000,000) shall apply separately at the Premises. The policy limits may be obtained through any combination of primary and excess insurance.

 (2) Property Insurance written on a “Special Cause of Loss” form covering Tenant’s business personal property, stock, and, if applicable, inventory, and leasehold improvements at 100% of the full replacement value written with a deductible of not more Five Thousand Dollars ($5,000). Such property insurance shall be in an amount not less than that required to replace all of the original tenant improvements installed in the Premises pursuant to Exhibit C attached hereto or Section 3 hereof, as applicable, and made a part hereof, all Alterations and all other contents of the Premises (including, without limitation, Tenant's trade fixtures, decorations, furnishings, equipment and personal property).

(3) Business interruption insurance, loss of income and extra expense insurance shall be in an amount equal to Tenant's gross earnings for the then most recently expired twelve (12) month period, but in no event shall any such insurance coverage be in an amount less than the Base Rent then in effect during any Lease Year.

(4) Comprehensive automobile liability insurance (covering automobiles owned by Tenant, if any and hired and non-owned automobiles). Such automobile liability insurance shall be in an amount not less than One Million Dollars ($1,000,000.00) bodily injury and property damage for each accident.

(5) worker's compensation insurance providing statutory limits as required by the jurisdiction in which the Building is located and employer's liability insurance with minimum limits of $500,000 each accident, $500,000 each employee-disease and $500,000 policy limit-disease. Such policy shall provide a waiver of subrogation in favor of Landlord.

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(b)All insurance carried by Tenant pursuant to Section 17.A.(a) hereof shall: (1) be issued by a company that is licensed to do business in the jurisdiction in which the Building is located, that has been approved in advance by Landlord and that has a rating equal to or exceeding A-X from Best's Insurance Guide; (2) name Landlord, the managing agent of the Building and the holder of any Mortgage as additional insureds/loss payees (as applicable, provided that such parties shall only be named as loss payees with respect to any improvements, alterations or betterments in the Premises which were paid for by Landlord or which will become the property of Landlord at the expiration or earlier termination of this Lease but this requirement shall not apply with respect to any of Tenant’s Personal Property) providing an Additional Insured – Managers or Lessors of Premises Endorsement (#CG-20-11-01-96 or equivalent); (3) contain an endorsement that such policy shall remain in full force and effect notwithstanding that the insured may have waived its right of action against any party prior to the occurrence of a loss (Tenant hereby waiving its right of action and recovery against and releasing Landlord and its employees and agents (including, but not limited to, Landlord’s managing agent) from any and all liabilities, claims and losses for which they may otherwise be liable to the extent Tenant is covered by insurance carried or would have been covered by insurance it is required to carry under this Lease); (4) provide that the insurer thereunder waives all right of recovery by way of subrogation against Landlord, its partners, agents (including, but not limited to, Landlord’s managing agent), employees, and representatives, in connection with any loss or damage covered by such policy; (5) be acceptable in form and content to Landlord; (6) be primary and non-contributory; (7) contain an endorsement for cross liability and severability of interests; and (8) contain an endorsement prohibiting cancellation, failure to renew, reduction of amount of insurance or change in coverage without the insurer first giving Landlord and any Mortgagee thirty (30) days' prior written notice (by certified or registered mail, return receipt requested) of such proposed action. No such policy shall contain any deductible provision except as otherwise approved in writing by Landlord, which approval shall not be unreasonably withheld. Landlord reserves the right from time to time, but not more than three (3) times during the initial Term of this Lease, to require Tenant to obtain higher minimum amounts or different types of insurance if it becomes customary for other landlords of first-class office buildings in the Washington, D.C., metropolitan area to require similar sized tenants in similar industries to carry insurance of such higher minimum amounts or of such different types of insurance. Tenant shall deliver a certificate (on Acord Form 27) of all such insurance and receipts evidencing payment therefor (and, upon request, copies of all required insurance policies, including endorsements and declarations) to Landlord concurrently with Tenant's execution of this Lease and at least annually thereafter. Tenant shall give Landlord immediate notice in case of fire, theft or accident in the Premises, and in the case of fire, theft or accident in the Building if involving Tenant, its agents, employees or Invitees. Neither the issuance of any insurance policy required under this Lease nor the minimum limits specified herein shall be deemed to limit or restrict in any way Tenant's liability arising under or out of this Lease.

Except for the indemnification contained in Section 36.B. hereof with respect to Hazardous Materials, neither Landlord nor Tenant shall be liable to the other or to any insurance company (by way of subrogation or otherwise) insuring the other party for any loss or damage to any building, structure or other tangible property, or any resulting loss of income, or losses under workers' compensation laws and benefits, even though such loss or damage might have been occasioned by the negligence of such party or its agents or employees. The provision of this Section 17.A.(b) shall not limit the indemnification for liability to third parties pursuant to Section 14 hereof. In the event of a permitted sublease or other occupancy agreement for all or a portion of the Premises, the subtenant or occupant shall expressly agree in writing to be bound by the provisions of this Section 17.A.(b) (as if such subtenant or occupant were Tenant hereunder) for the benefit of Landlord.

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B.Tenant's Contractor's Insurance

Tenant shall require any contractor of Tenant performing work on the Premises to carry and maintain at no expense to Landlord, a non-deductible:

(c)Commercial general liability insurance policy, including (but not limited to) contractor's liability coverage, contractual liability coverage, completed operations coverage, broad form property damage endorsement and contractor's protective liability coverage, to afford protection with respect to personal injury, death or property damage of not less than Three Million Dollars ($3,000,000) per occurrence combined single limit/Three Million Dollars ($3,000,000) general aggregate (but not less than $3,000,000 per location aggregate);

(d)Comprehensive automobile liability insurance policy with a combined single limit for each occurrence of not less than One Million Dollars ($1,000,000) with respect to personal injury or death and property damage; and

(e)Worker’s compensation insurance policy or similar insurance in form and amounts required by law. Such policy shall provide a waiver of subrogation in favor of Tenant and Landlord.

C.Landlord's Insurance: Landlord agrees to carry and maintain special cause of loss property insurance (with replacement cost coverage) covering the Building and Landlord's property therein in an amount required by its insurance company to avoid the application of any coinsurance provision and as Landlord, in its reasonable judgment, determines to be appropriate based upon coverages in force with respect to comparable office buildings in the North Rockville submarket of Montgomery County, Maryland. Landlord shall use reasonable efforts to secure a waiver of subrogation endorsement from its insurance carrier. Landlord also agrees to carry and maintain commercial general liability insurance in limits it reasonably deems appropriate.

D.Effect of Tenant's Activities on Insurance: Tenant shall not conduct or permit to be conducted any activity, or place any equipment in or about the Land, the Building or the Premises which will increase the rate of, or make void or voidable, any fire or other insurance maintained or required to be maintained by Landlord or any Mortgagee on the Building, the Land or the property kept thereon or therein, which will conflict with the provisions of any such insurance policy or which will make it impracticable for Landlord to obtain insurance covering any risks against which Landlord reasonably deems it advisable to obtain insurance. In the event any increases in the rates of such insurance are, in Landlord's reasonable judgment, due to Tenant's presence in the Building, to any activity conducted or property installed or placed by Tenant on or about the Land, the Building or the Premises or to Alterations installed by Tenant or at Tenant's request, Tenant shall reimburse Landlord for the amount of such increases promptly upon demand therefor. Statements by the applicable insurance company or insurance rating bureau that such increases are due to any of Tenant's activity, property or improvements shall be conclusive for the purposes of determining Tenant's liability hereunder.

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E.Termination Right: Landlord shall have the right to terminate this Lease upon thirty (30) days’ notice to Tenant in the event Landlord receives notice from any of Landlord's insurance carriers that such carrier intends to cancel its insurance on the Building, or to increase the cost of such insurance by more than one hundred percent (100%) above the premium payable by Landlord immediately prior to such notice, due to the activities of Tenant or the presence of Tenant in the Building. However, Landlord shall not terminate this Lease in the event Landlord is able, with good faith efforts, to obtain equivalent insurance from an insurance carrier satisfactory to Landlord at a premium not more than one hundred percent (100%) greater than the premium for the cancelled insurance; provided that Tenant shall reimburse Landlord for all additional premiums charged to Landlord by such new insurance carrier. It is expressly understood that Landlord shall not have the right to terminate this Lease pursuant to this Section 17.E. (i) if any cancellation or rate increase is due to factors generally applicable to the insurance or rental market, rather than to Tenant's activities or presence in the Building, or (ii) Tenant is conducting only the permitted use (as of the date of this Lease) pursuant to Section 6.A. of this Lease at the Premises, and such use is being conducted in accordance with all applicable Laws in accordance with the provisions of this Lease.

18.CONDEMNATION.

A.Landlord's Right to Terminate: If a substantial part of the Premises, the Building or the Land is taken or condemned by any governmental or quasi-governmental authority for any purpose or is granted to any authority in lieu of condemnation (collectively, a "taking"), Landlord shall have the right in its sole discretion to terminate this Lease by written notice to Tenant, and upon the giving of such notice, the Term shall terminate as of the date title vests in the authority, and Base Rent and Additional Rent payable pursuant to Section 5 hereof shall be abated as of that date. For purposes of this Section 18, a substantial part of the Premises, the Land or the Building shall be considered to have been taken if, in the sole opinion of Landlord, the taking shall render it commercially undesirable for Landlord to permit this Lease to continue or to continue operating the Building.

B.Adjustment of Rent: If a portion of the Premises is taken and Landlord does not elect to terminate this Lease pursuant to Section 18.A. hereof, then Base Rent and Additional Rent payable pursuant to Section 5 hereof shall be equitably adjusted as of the date title vests in the authority and this Lease shall otherwise continue in full force and effect.

C.Division of Award: Tenant shall have no claim against Landlord arising out of or related to any taking, or for any portion of the amount that may be awarded as a result, damages or compensation attributable to damage to the Premises, value of the unexpired portion of the Term, loss of profits or goodwill, leasehold improvements or severance damages, and Tenant hereby assigns to Landlord all its rights, title and interest in and to any such award; provided, however, that Tenant may assert any claim it may have against the authority for compensation for Tenant's Personal Property and for any relocation expenses compensable by statute, as long as such awards shall be made in addition to and stated separately from the award made for the Land, the Building and the Premises.

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19.DEFAULT.

A.Default of Tenant: The following events shall be a default by Tenant (a "Default") under this Lease:

(1)Failure of Tenant to pay Rent as and when due; provided, however, that with respect to the first two (2) such failures in any twelve (12) month period only, no Default shall be deemed to have occurred unless such failure continues for a period of three (3) days after written notice thereof from Landlord to Tenant.

(2)Failure of Tenant to comply with or perform any covenant or obligation of Tenant under this Lease, if the failure continues for thirty (30) days after notice from Landlord to Tenant specifying the failure, other than (i) those concerning the payment of Rent, (ii) those set forth in any of Sections 8.B., 17, 21, 22, 26, 35, 36 and 38 hereof, as to which a specific timeframe for the performance of such covenant or obligation is set forth therein, and (iii) any Default arising under subsections (3), (4), (5) or (6) of this Section 19.A.; provided, however, that if the failure on the part of Tenant is not capable of being cured within such 30-day period but Tenant expeditiously commences to cure same and diligently proceeds with such cure, Tenant’s time to cure such failure shall be extended for the time necessary to cure same, but in no event longer than sixty (60) days, inclusive of the original 30-day period.

(3)[Intentionally omitted].

(4)If Tenant, any Guarantor or, if Tenant is a partnership, any partner of Tenant ("Partner"), shall file a voluntary petition in bankruptcy or insolvency, shall be adjudicated bankrupt or insolvent or shall file a petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal, state or other Laws, or shall make an assignment for the benefit of creditors, or shall seek or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of any Guarantor or Partner or of all or any part of the property of Tenant or of such Guarantor or Partner.

(5)If, within ninety (90) days after the commencement of any proceeding against Tenant or any Guarantor or Partner, whether by the filing of a petition or otherwise, seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future applicable federal, state or other Laws, such proceeding shall not have been dismissed or if, within ninety (90) days after the appointment of any trustee, receiver or liquidator of Tenant or any Guarantor or Partner, or of all or any part of the property of Tenant or of any Guarantor or Partner, without the acquiescence of such individual or entity, such appointment shall not have been vacated or otherwise discharged, or if any execution or attachment shall have been issued against the property of Tenant or of any Guarantor or Partner, pursuant to which the Premises shall be taken or occupied or attempted to be taken or occupied.

(6)If Tenant fails to take possession of the Premises on the Lease Commencement Date or vacates, abandons or ceases to carry on its ordinary activities in the Premises prior to the Lease Expiration Date, with or without an intention of paying Rent; provided, however, that if (i) Tenant gives Landlord at least thirty (30) days prior written notice that it intends to vacate the Premises, (ii) Tenant pays the full amount of all Rent when due under this Lease while the Premises are vacant, and (iii) Tenant leaves the Premises in the condition required by this Lease and continues to maintain the Premises in the condition required by this Lease throughout the remainder of the Term, then, and in such event only, Tenant shall not be deemed to be in Default under this Section 19.A.(6).

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(7)Failure of Tenant to comply with or perform any covenant or obligation under Sections 8.B., 17, 21, 22, 26, 35, 36 or 38 hereof within the specific timeframe for the performance of such covenant or obligation set forth in the applicable Section.

B.Remedies Upon Default: Upon the occurrence of a Default, Landlord shall have the right, then or at any time thereafter:

(1)Without demand or notice, to reenter and take possession of all or any part of the Premises in accordance with applicable legal process, to expel Tenant and those claiming through Tenant and to remove any property therein, either by summary proceedings or by any other action at law, in equity or otherwise, with or without terminating this Lease, without being deemed guilty of trespass and without prejudice to any other remedies of Landlord for breach of this Lease, and/or

(2)To terminate this Lease by written notice to Tenant, whereupon this Lease shall terminate on the date specified in Landlord's notice, and Tenant's right to possession of the Premises shall cease as of such date.

If Landlord elects to terminate this Lease, everything contained in this Lease on the part of Landlord to be done shall cease, without prejudice to Landlord's right to recover from Tenant all Rent, as set forth in Sections 19.C. and 19.D. below. If Landlord elects to reenter pursuant to Section 19 above, Landlord may terminate this Lease, or, from time to time without terminating this Lease, may relet all or any part of the Premises as the agent of Tenant, for such term, at such rental and upon such other provisions as Landlord deems acceptable, with the right to make any alterations and repairs to the Premises that Landlord deems appropriate, including, but not limited to, restoring the Premises and Building to a condition necessary to comply with FDA regulations and any applicable Laws such that the Premises and Building may be relet to another tenant without delay due to inability to obtain a permit or certificate of occupancy, at Tenant's expense. No such reentry or taking of possession of the Premises shall be construed as an election to terminate this Lease, unless notice of such intention is given pursuant to Subsection B.(2) above, or unless termination be decreed by a court of competent jurisdiction at the instance of Landlord. Landlord shall in no event be under any obligation to relet any part of the Premises.

C.Liability of Tenant: If Landlord terminates this Lease or reenters the Premises (with or without terminating this Lease), Tenant shall remain liable (in addition to all other liabilities of Tenant accrued at the time of the Default) for the sum of (i) any unpaid Rent accrued prior to the time of termination and/or reentry, as the case may be, plus interest thereon from the due date at the Default Rate, (ii) all Base Rent and Additional Rent provided for in this Lease from the time of termination and/or reentry, as the case may be, until the date this Lease would have expired had a Default not occurred, plus interest thereon from the due date at the Default Rate, (iii) any and all expenses (including but not limited to reasonable attorneys' and brokerage fees) incurred by Landlord in reentering and repossessing the Premises, in correcting any default, in painting, altering or repairing the Premises in order to place the Premises in first-class rentable condition (whether or not the Premises are relet), in protecting and preserving the Premises and in reletting or attempting to relet the Premises, and (iv) any other amounts necessary to compensate Landlord for any other injury or detriment caused by the Default; minus the net proceeds (after deducting any rental abatements, tenant improvement allowances and other concessions and inducements) actually received by Landlord, if any, from any reletting to the extent attributable to the period prior to the date this Lease would have expired had a Default not occurred. Landlord shall have the option to recover any damages sustained by Landlord either at the time of reletting, if any, or in separate actions from time to time as said damages shall have been made more easily ascertainable by successive relettings or, at Landlord's option, to defer any such recovery until the date this Lease would have expired in the absence of a Default, in which event Tenant hereby agrees that the cause of action shall be deemed to have accrued on the aforesaid date. The provisions of this Section 19.C. shall be in addition to, and shall not prevent the enforcement of, any claim Landlord may have for anticipatory breach of this Lease.

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D.Liquidated Damages: In addition to Landlord's rights pursuant to Section 19.C. above, if Landlord terminates this Lease, Landlord shall have the right at any time, at its sole option, to require Tenant to pay to Landlord on demand, as liquidated damages, the sum of (i) the total of the Base Rent, Additional Rent and all other sums which would have been payable under this Lease from the date of Landlord's demand for liquidated damages ("Landlord's Demand") until the date this Lease would have terminated in the absence of the Default, discounted to present value at the rate of five percent (5%) per annum (the "Discount Rate"), (ii) all unpaid Rent accrued prior to the time of Landlord's Demand, plus interest thereon from the due date at the Default Rate, (iii) any and all expenses (including but not limited to reasonable attorneys' and brokerage fees) incurred by Landlord in reentering and repossessing the Premises, in correcting any default, in painting, altering or repairing the Premises in order to place the Premises in first-class rentable condition (whether or not the Premises are relet), in protecting and preserving the Premises and in reletting or attempting to relet the Premises, and (iv) any other amounts necessary to compensate Landlord for any other injury or detriment caused by the Default; minus the sum of (a) the net fair market rental value of the Premises for the period referred to in Section 19.D.(i) above, discounted to present value at the Discount Rate, and (b) any sums actually paid by Tenant to Landlord pursuant to Subsection C. above; provided, however, that if said damages shall be limited by law to a lesser amount, Landlord shall be entitled to recover the maximum amount permitted by law. The "net fair market rental value" referred to in Section 19.D.(a) above shall be the fair market rental value of the Premises at the time of Landlord's Demand, reduced by any rental abatements, tenant improvement allowances and other concessions and inducements generally provided by landlords seeking to lease comparable commercial property in the area of the Premises at the time of Landlord's Demand. If reletting is accomplished within a reasonable time after Lease termination, the "net fair market rental value" referred to in Section 19.D.(a) above shall be deemed prima facie to be the net rental income (after deducting any rental abatements, tenant improvement allowances and other concessions and inducements) realized upon such reletting.

E.Waiver: Tenant, on its own behalf and on behalf of all persons and entities claiming through Tenant, including but not limited to creditors of Tenant, hereby waives any and all rights and privileges which Tenant and such other persons and entities might otherwise have under any present or future Laws: (i) to redeem the Premises, (ii) to reenter or repossess the Premises, or (iii) to restore the operation of this Lease, with respect to any dispossession of Tenant by judgment or warrant of any court, any reentry by Landlord or any expiration or termination of this Lease, whether by operation of law or pursuant to the provisions of this Lease. Tenant hereby expressly waives receipt of any notice to quit.

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F.Lien on Personal Property: Landlord shall have a lien upon Tenant's Personal Property and other property brought onto the Premises by Tenant, as and for security for the Rent and other obligations of Tenant herein provided. Such lien shall be in addition to all rights of distraint and statutory liens available under applicable Laws. Within five (5) days after request from time to time, Tenant shall execute, acknowledge and deliver to Landlord a financing statement in recordable form and any other document evidencing or establishing such lien and security interest which may be requested by Landlord. During the Term, Tenant shall not sell, transfer or remove from the Premises any of Tenant's tangible property without Landlord's prior written consent. In order to further assure Tenant's performance of its obligations under this Lease, Tenant covenants that during the Term, it will not convey or otherwise transfer its assets or permit its assets to be encumbered or subject to financing.

Landlord may, at any time after a Default, seize and take possession of any and all such property. If Tenant fails to redeem the property so seized by payment of whatever sums may be due Landlord pursuant to this Lease, then Landlord shall have the right, after twenty (20) days written notice to Tenant to sell such personal property at public or private sale and upon such terms and conditions as Landlord may deem advantageous, and after the payment of all proper charges incident to such sale, apply the proceeds thereof to the payment of any balance due to Landlord hereunder and pay any remaining balance to Tenant. The exercise by Landlord of the foregoing remedy shall not discharge Tenant from any deficiency owed to Landlord, nor shall it preclude the exercise by Landlord of any other rights and remedies. Landlord shall not be liable to Tenant, or other owners of property seized, for damages, general or special, if Landlord reasonably believed it was acting lawfully in seizing property located in the Premises. Tenant hereby agrees to indemnify, protect, save and hold harmless Landlord and its successors, assigns and agents from any and all liabilities, obligations, losses, damages, claims, actions, suits, costs or expenses (including reasonable attorney's fees) of any kind or nature imposed on, incurred by or asserted against Landlord which in any way relate to or arise out of a breach of Tenant's obligations under this paragraph. In event of a termination of this Lease following a Default by Tenant hereunder, Tenant hereby assigns any guaranties or warranties with respect to any items of its furniture, fixtures and equipment to Landlord, it being agreed that Tenant shall give to Landlord any assignment or other assurance necessary to affect Landlord’s right of direct enforcement of any such warranty or guaranty.

G.Right of Distress: Landlord shall, to the extent permitted by law, have a right of distress for Rent.

H.Right of Landlord to Cure: If Tenant defaults in the making of any payment or in the doing of any act required to be made or done by Tenant under this Lease, then Landlord may, at its option, make such payment or do such act, and the expenses thereof, with interest thereon at the Default Rate, from the date paid by Landlord, shall constitute Additional Rent hereunder due and payable by Tenant with the next payment of Monthly Base Rent.

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I.Attorneys' Fees: In the event of any Default hereunder, Tenant shall pay to Landlord all reasonable attorneys' fees incurred by Landlord in connection with such Default or the enforcement of Landlord's rights or remedies arising in connection therewith, whether or not this Lease is terminated and whether or not Landlord institutes any lawsuit against Tenant as a result of such Default. In addition to the foregoing, whether or not this Lease is terminated, Tenant shall pay to Landlord all other costs incurred by Landlord with respect to any lawsuit instituted or action taken by Landlord to enforce the provisions of this Lease.

J.Survival: Tenant's liability pursuant to this Section 19 shall survive the termination of this Lease, the institution of summary proceedings and/or the issuance of a warrant thereunder.

20.NO WAIVER.

No failure or delay by Landlord in enforcing its right to strict performance by Tenant of every provision of this Lease or in exercising any right or remedy hereunder, and no acceptance by Landlord of full or partial rent during the continuance of any Default, shall constitute a waiver of the provision or the Default, and no provision shall be waived or modified except by a written instrument executed by Landlord. No payment by Tenant, or receipt by Landlord, of a lesser amount than the full Rent shall be deemed to be other than a payment on account, notwithstanding any endorsement or statement on any check or letter accompanying any payment of any Rent. No waiver of any Default or settlement of any proceeding instituted on account of any claimed Default shall affect or alter this Lease or constitute a waiver of any of Landlord's rights hereunder.

21.HOLDING OVER.

If Tenant shall be in possession of the Premises after termination of this Lease (whether by normal expiration of the Term or otherwise), at Landlord's option: (i) Landlord may deem Tenant to be occupying the Premises as a tenant from month-to-month, at the sum of one hundred fifty percent (150%) of the Monthly Base Rent in effect for the last full month of the Term, plus the monthly installment of Additional Rent which is then payable pursuant to Section 5. of this Lease, and subject to all of the other provisions of this Lease, as applicable to a month-to-month tenancy, and (ii) Landlord may exercise any or all remedies for Default and at law and in equity, including but not limited to an action against Tenant for wrongfully holding over; provided, however, Tenant shall only be liable for consequential damages if such holdover lasts for more than sixty (60) days following the date of the expiration or earlier termination of this Lease. Any such holdover shall be deemed to be a tenancy-at-sufferance and not a tenancy-at-will or tenancy from month-to-month. In no event shall any holdover be deemed a permitted extension or renewal of the Term, and nothing contained herein shall be construed to constitute Landlord's consent to any holdover or to give Tenant any right with respect thereto.

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22.SUBORDINATION.

LL.Lease Subordinate: This Lease shall be subject and subordinate to the lien of any and all Mortgages and to any Ground Leases, and any and all renewals, extensions, modifications, recastings and refinancings thereof. This clause shall be self-operative, without execution of any further instrument; but if requested by Landlord or any Mortgagee, Tenant shall promptly execute a certificate or other document evidencing and providing for such subordination. Landlord shall have the right to execute said document on behalf of Tenant if Tenant fails to do so within ten (10) business days after receipt of the request. Tenant agrees that, if any Mortgage is foreclosed or Ground Lease terminated, upon request by the purchaser at the foreclosure sale or Ground Lessor, as the case may be, Tenant shall attorn to and recognize the purchaser or Ground Lessor as the landlord under this Lease and shall make all payments required hereunder to such new landlord without any deduction or set-off of any kind whatsoever. Tenant waives the provisions of any Laws, now or hereafter in effect, which may give or purport to give Tenant any right to terminate or otherwise affect this Lease or the obligations of Tenant hereunder in the event that any such foreclosure, termination or other proceeding is filed, prosecuted or completed. Notwithstanding anything herein to the contrary, any Mortgagee may at any time subordinate the lien of its Mortgage to the operation and effect of this Lease without Tenant's consent, by giving Tenant written notice of such subordination, in which event this Lease shall be deemed to be senior to such Mortgage, and thereafter such Mortgagee shall have the same rights as it would have had if this Lease had been executed, delivered and recorded before said Mortgage.

MM.Modifications to Lease: If any of Landlord's insurance carriers or any Mortgagee requests modifications to this Lease, then Tenant shall execute a written amendment incorporating such requested modifications within thirty (30) days after the same has been submitted to Tenant by Landlord, provided that such modifications do not materially adversely affect Tenant's use of the Premises as herein permitted or increase the rentals and other sums payable by Tenant hereunder. In the event that Tenant refuses or fails to execute such amendment within thirty (30) days after Landlord’s delivery of same to Tenant, then Landlord shall have the right, at its sole option, in addition to Landlord's other remedies for Default, to terminate and cancel this Lease by written notice to Tenant specifying the date on which this Lease will terminate. From and after said termination date, both Landlord and Tenant shall be relieved of any and all further obligations hereunder, except liabilities arising prior to the date of termination.

NN.SNDA: Simultaneously with Landlord’s execution of this Lease, Landlord shall, at no cost to Tenant, deliver to Tenant a subordination, attornment and non-disturbance agreement for the benefit of Tenant from the current Mortgagee on such Mortgagee’s standard form (“SNDA”). Notwithstanding the foregoing or anything to the contrary contained herein, provided that no default exists under this Lease (or if a default then exists, it is cured within the applicable notice and cure period), Landlord shall use commercially reasonable efforts to deliver to Tenant a commercially reasonable SNDA from any future Mortgagees, at no cost to Tenant; provided, however, that in the event that Landlord does not obtain such SNDA, Landlord shall have no liability for such failure, and this Lease shall be and remain subject and subordinate to the lien of said Mortgage and to any and all renewals, extensions, modifications, recastings and refinancings thereof.

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23.ASSIGNMENT AND SUBLETTING.

A.No Transfer Without Consent: Tenant shall not, without the prior written consent of Landlord in each instance (which consent may be withheld in Landlord's sole and absolute discretion) (i) assign, mortgage or otherwise encumber this Lease or any of its rights hereunder; (ii) sublet the Premises or any part thereof or permit the occupancy or use of the Premises or any part thereof by any persons or entities other than Tenant; or (iii) permit the assignment of this Lease or any of Tenant's rights hereunder by operation of law. Any attempted assignment, mortgaging or encumbering of this Lease or any of Tenant's rights hereunder and any attempted subletting or grant of a right to use or occupy all or a portion of the Premises in violation of the foregoing sentence shall be void. If at any time during the Term Tenant desires to assign, sublet or mortgage all or part of this Lease or the Premises, then in connection with Tenant's request to Landlord for Landlord's consent thereto, Tenant shall give thirty (30) days’ notice prior to Landlord in writing ("Tenant's Request Notice") containing: the identity of the proposed assignee, subtenant or other party and a description of its business; the terms of the proposed assignment, subletting or other transaction; the commencement date of the proposed assignment, subletting or other transaction (the "Proposed Sublease or Assignment Commencement Date"); the area proposed to be assigned, sublet or otherwise encumbered (the "Proposed Sublet or Assignment Space"); the proposed use of the proposed assignee or subtenant, including the Hazardous Materials intended to be used, stored, handled, treated, generated, disposed or released from the Premises and related permits, reports and management, storage and installation plans; the most recent financial statement or other evidence of financial responsibility of such proposed assignee, subtenant or other party; and a certification executed by Tenant and such party stating whether or not any premium or other consideration is being paid for the assignment, sublease or other transaction. Notwithstanding the foregoing, Landlord agrees that it shall not unreasonably withhold, condition or delay its consent to a proposed subletting, provided that all of the following conditions are satisfied: (1) there shall be no default at the time of the proposed subletting, (2) the proposed subtenant shall be creditworthy, (3) the proposed subtenant shall not be a governmental entity or a person or entity enjoying sovereign or diplomatic immunity, (4) the use of the Premises by the proposed subtenant shall not attract a volume, frequency or type of visitor or employee to the Building which is not consistent with the standards of a high-quality office building, (5) the proposed subtenant shall specifically covenant and agree to perform the obligations of Tenant hereunder and to occupy the Premises subject to the provisions of this Lease, and (6) Tenant remains liable for the faithful performance of this Lease.

B.[Intentionally Omitted.]

C.Transfer of Ownership Interests: If Tenant is a partnership, then any event (whether voluntary, concurrent or related) resulting in a dissolution of Tenant, any withdrawal or change (whether voluntary, involuntary or by operation of law) of partners owning a controlling interest in Tenant (including each general partner), or any structural or other change having the effect of limiting the liability of the partners shall be deemed a voluntary assignment of this Lease subject to the provisions of this Section 23. If Tenant is a corporation (or a partnership with a corporate general partner), then any event (whether voluntary, concurrent or related) resulting in a dissolution, merger, consolidation or other reorganization of Tenant (or such corporate general partner), or the sale or transfer or relinquishment of the interest of shareholders who, as of the date of this Lease, own a controlling interest of the capital stock of Tenant (or such corporate general partner), shall be deemed a voluntary assignment of this Lease subject to the provisions of this Section 23; provided, however, that this sentence shall not apply to corporations whose stock is traded through a national or regional exchange or over-the-counter market. If Tenant is a limited liability company, then any dissolution of Tenant or a withdrawal or change, whether voluntary, involuntary or by operation of law, of members owning a controlling interest in Tenant shall be deemed a voluntary assignment of this Lease which is subject to the provisions of this Section 23. In addition, a transfer of all or substantially all of the assets of Tenant, either by merger, consolidation, or otherwise shall be deemed to be an assignment which is subject to the provisions of this Section 23. Whether Tenant is a partnership, corporation or any other type of entity, then at the option of Landlord, a sale of all or substantially all of Tenant's assets, a change in Tenant's name of which Landlord has not received prior notice, or a conversion into any other type of entity shall also be deemed a voluntary assignment of this Lease which is subject to the provisions of this Section 23.

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D.Expenses and Profits; Effect of Consent:

(1)In the event Landlord permits Tenant to assign or sublet all or a portion of the Premises to a third party, fifty percent (50%) of any sums that are paid by such third party for the right to occupy the Premises, in excess of the Rent then in effect, after Tenant has first deducted its actual and reasonable out-of-pocket third party costs incurred by Tenant in connection with a sublease or assignment for brokerage commissions, advertising fees, attorneys’ fees and tenant improvements, shall be paid by Tenant to Landlord on a monthly basis as Additional Rent.

(2)Tenant shall be responsible for all costs and expenses, including attorneys' fees, incurred by Landlord in connection with any proposed or purported assignment or sublease and an administrative fee of Two Thousand Five Hundred Dollars ($2,500.00).

(3)The consent by Landlord to any assignment or subletting shall neither be construed as a waiver or release of Tenant from any covenant or obligation of Tenant under this Lease, nor as relieving Tenant from giving Landlord the aforesaid thirty (30) days’ notice of, or from obtaining the consent of Landlord to, any further assignment or subletting. The collection or acceptance of Rent from any such assignee or subtenant shall not constitute a waiver or release of Tenant from any covenant or obligation of Tenant under this Lease, except as expressly agreed by Landlord in writing.

E.Conditions of Assignment or Sublease: All restrictions and obligations imposed pursuant to this Lease on Tenant shall be deemed to extend to any subtenant, assignee, licensee, concessionaire or other occupant or transferee, and Tenant shall cause such person to comply with such restrictions and obligations. Any assignee shall be deemed to have assumed obligations as if such assignee had originally executed this Lease and at Landlord's request shall execute promptly a document confirming such assumption. Each sublease is subject to the condition that if the Term is terminated or Landlord succeeds to Tenant's interest in the Premises by voluntary surrender or otherwise, at Landlord's sole option, the subtenant shall be bound to Landlord for the balance of the term of such sublease and shall attorn to and recognize Landlord as its landlord under the then executory terms of such sublease or, at Landlord's sole option, the subtenant shall execute a direct lease with Landlord on Landlord's then current standard form.

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F.Permitted Subleases and Assignments: Notwithstanding the foregoing provisions of this Article 23, Landlord agrees that so long as (a) no default is then continuing beyond any applicable cure period, (b) no circumstance shall have occurred which with the giving of notice, the passage of time, or both would constitute a Default by Tenant, and (c) the creditworthiness and liquidity factor of any entity into which Tenant shall merge are greater than or equal to the creditworthiness and liquidity factor of Tenant as of the date of execution of this Lease and such entity’s tangible net worth is equal to or greater than Eighty-Five Million Dollars ($85,000,000), the provisions of Sections 23.A., 23.B., 23.C., 23.D.(1) and 23.D.(2) shall not be applicable with regard to an assignment of this Lease or a subletting of all or any portion of the Premises to Tenant’s Affiliate (as hereinafter defined), so long as (1) Tenant originally named herein shall remain primarily liable under this Lease, notwithstanding any such assignment or subletting (unless Tenant has merged into such entity, in which case such surviving entity shall assume all of the obligations of Tenant under this Lease), (2) no other or further assignment or subletting to other than an Affiliate shall be permitted without Landlord’s prior written consent and (3) in the case of an assignment, the assignee executes an assignment and assumption agreement in Landlord’s then standard form with respect to the assumption by the assignee of all of Tenant’s then existing and future obligations under this Lease. An “Affiliate” shall be a person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Tenant, or which has succeeded to the ownership of Tenant or of substantially all of Tenant’s assets by merger or consolidation. “Control” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or entity, whether through ownership of voting securities, by contract, or otherwise. Notwithstanding the other provisions of this Section 23, in the event that Tenant is prevented from providing Landlord with prior notice of an assignment or other transfer of its interests under this Lease to an Affiliate as a result of laws and governmental regulations applicable to publicly traded companies prohibiting such disclosure, then, Tenant shall provide Landlord with written notice of such transfer as soon as reasonably practically thereafter, but in any event within ten (10) business days following the occurrence of the same.

G.Permitted Occupants: Notwithstanding anything contained in this Section 23 to the contrary (except Section 23.E above), if (1) there is no Default hereunder and no monetary default on the part of Tenant then exists hereunder and (2) CBG (as defined in Section 41.A. hereof), remains in occupancy of at least seventy-five percent (75%) of the Premises, then CBG may, without Landlord’s prior written consent and without being subject to Landlord’s rights and Tenant’s obligations set forth in Sections 23.A., 23.C., 23.D.(1) and 23.D.(2) above, grant short-term occupancy rights to third parties (of no longer than twelve (12) months); provided, however, that (a) such portions of the Premises so affected shall not be separately demised or segregated from the Premises by the construction of a partition wall or entrances and shall not be greater than twenty-five percent (25%) of the Premises in the aggregate of all such occupancy rights, (b) such arrangements shall be with entities whose use shall be substantially similar and harmonious to the use of the Premises by CBG, (c) Tenant shall not charge a fee or rent to any such occupant in excess of the Rent payable by Tenant under this Lease for the same space, (d) any such permitted occupant shall agree to indemnify Landlord, Landlord’s management agent and any Mortgagees and to hold them harmless from and against all costs, damages, claims, liabilities and expenses, including, but not limited to, reasonable attorneys' fees, directly or indirectly, based on, arising out of or resulting from: (i) such permitted occupant’s use and occupancy of the Premises or the business conducted by such permitted occupant therein or such permitted occupant’s presence in the Premises, (ii) any act or omission of such permitted occupant or its employees, agents or contractors, (iii) any breach or default by such permitted occupant in the observance or performance of Tenant’s covenants and obligations under this Lease (other than Tenant’s obligations to pay Base Rent and Additional Rent hereunder), and (e) Tenant shall notify Landlord of such arrangement at least ten (10) business days prior to such arrangement(s) commencing.

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24.TRANSFER BY LANDLORD.

Landlord (and any successor or affiliate of Landlord) may freely sell, assign or transfer all or any portion of its interest in this Lease or the Premises, the Building or the Land and, in the event of any such sale, assignment or transfer, shall be relieved of any and all obligations under this Lease from and after the date of the sale, assignment or transfer. From and after said date, Tenant shall be bound to such purchaser, assignee or other transferee, as the case may be, as though the latter had been the original Landlord hereunder, provided that the purchaser, assignee or transferee agrees to assume the obligations of Landlord hereunder.

25.INABILITY TO PERFORM.

This Lease and Tenant's obligation hereunder shall in no way be affected, impaired or excused, nor shall Tenant have any claim against Landlord for damages, because Landlord, due to Unavoidable Delays, is unable to fulfill any of its obligations under this Lease, including, but not limited to, any obligations to provide any services, repairs, replacements, alterations or decorations or to supply any improvements, equipment or fixtures.

26.ESTOPPEL CERTIFICATES.

Tenant shall, without charge, within ten (10) business days after receipt of any request therefor, execute and deliver to Landlord a certificate stating: (i) whether this Lease is unmodified and in full force and effect (or if there have been modifications, that the Lease is in full force and effect and setting forth all such modifications); (ii) whether there then exist any defenses against the enforcement of any right of Landlord hereunder (and, if so, specifying the same in detail); (iii) the dates to which rent and any other charges hereunder have been paid by Tenant; (iv) that Tenant has no knowledge of any then uncured defaults under this Lease (or, if Tenant has knowledge of any such defaults, specifying the same in detail); (v) that Tenant has no knowledge of any event that will or may result in the termination of this Lease (or if Tenant has such knowledge, specifying the same in detail); (vi) the address to which notices to Tenant are to be sent; and (vii) such other information as may be reasonably requested. It is understood that any such certificate may be relied upon by Landlord, any Mortgagee, prospective Mortgagee, Ground Lessor, prospective Ground Lessor, or purchaser or prospective purchaser of the Land or the Building. Not more than once a year, Tenant, at its sole cost, shall be entitled to obtain similar estoppel certificates from Landlord, upon which Tenant or its designee shall be entitled to rely.

27.COVENANT OF QUIET ENJOYMENT.

Landlord covenants that it has the right to make this Lease and that, if Tenant shall pay all Rent and perform all of Tenant's other obligations under this Lease, Tenant shall have the right, during the Term and subject to the provisions of this Lease, to quietly occupy and enjoy the Premises without hindrance by Landlord or its successors and assigns.

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28.WAIVER OF JURY TRIAL.

Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either of them against the other with respect to any matter arising out of or connected with this Lease.

29.BROKERS.

Landlord and Tenant each represents and warrants to the other that, except as hereinafter set forth, neither of them has employed any broker in procuring or carrying on any negotiations relating to this Lease. Landlord and Tenant shall indemnify and hold each other harmless from any loss, claim or damage relating to the breach of the foregoing representation and warranty. Landlord recognizes only the Broker(s) (as set forth in Section 1.K. hereof) as broker(s) with respect to this Lease and agrees to be responsible for the payment of any leasing commissions owed to said broker(s).

30.CERTAIN RIGHTS RESERVED BY LANDLORD.

Landlord shall have the following rights, exercisable without notice, without liability for damage or injury to property, person or business and without effecting an eviction, constructive or actual, or disturbance of Tenant's use or possession of the Premises or giving rise to any claim for set-off, abatement of Rent or otherwise:

A.To change the Building's name or street address.

B.To affix, maintain and remove any and all signs on the exterior and interior of the Building.

C.To designate and approve, prior to installation, all window shades, blinds, drapes, awnings, window ventilators, lighting and other similar equipment to be installed by Tenant that may be visible from the exterior of the Premises or the Building.

D.To decorate and make repairs, alterations, additions and improvements, whether structural or otherwise, in, to and about the Building and any part thereof, and for such purposes to enter the Premises, and, during the continuance of any such work, to close temporarily doors, entry ways, Common Areas in the Building and to interrupt or temporarily suspend Building services and facilities, all without affecting Tenant's obligations hereunder, as long as the Premises remain tenantable.

E.To grant to anyone the exclusive right to conduct any business or render any service in the Building, provided Tenant is not thereby excluded from uses expressly permitted herein.

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F.To alter, relocate, reconfigure and reduce the Common Areas of the Building, as long as the Premises remain reasonably accessible.

G.To alter, relocate, reconfigure, reduce and withdraw the Common Areas located outside the Building, including parking and access roads, as long as the Premises remain reasonably accessible.

H.To erect, use and maintain pipes and conduits in and through the Premises.

I.To construct improvements (including kiosks) on the Land and in the Common Areas of the Building.

J.To prohibit smoking in the entire Building or portions thereof (including the Premises) and on the Land, so long as such prohibitions are in accordance with applicable Laws.

K.If any excavation or other substructure work shall be made or authorized to be made upon land adjacent to the Building or the Land, to enter the Premises for the purpose of doing such work as is required to preserve the walls of the Building and to preserve the land from injury or damage and to support such walls and land by proper foundations.

L.Building Specific: Notwithstanding anything contained herein to the contrary, Landlord may at any time elect to alter, rehabilitate or renovate all or any portion of the Building so long as such construction does not substantially and unreasonably interfere with Tenant’s access to the Premises or substantially and unreasonably interfere with Tenant’s use of the Premises. Tenant acknowledges that Landlord has the right to undertake major renovations (including work with respect to the exterior façade of the Building) with respect to the Building and that Landlord may hereafter perform additional work, improvements and renovations with respect to the Building. In connection with any such work, improvements and renovations, the Landlord may erect scaffoldings, sidewalk bridges and other such appurtenances. Tenant agrees not to interfere with such work, improvements and renovations and further agrees that such work, improvements and renovations (and the construction appurtenances which Landlord may place at or near the Premises) shall not constitute an eviction or constructive eviction of Tenant, in whole or in part, and the Base Rent and all other items of Additional Rent hereunder shall not abate while such work, improvements and renovations are being made by reason of loss or interruption of the business of Tenant or otherwise, nor shall Tenant have any claims against Landlord by reason of such work.

31.NOTICES.

No notice, request, approval, waiver or other communication which may be or is required or permitted to be given under this Lease shall be effective unless the same is in writing and hand-delivered, sent by registered or certified mail, return receipt requested, first-class postage prepaid, or sent with charges prepaid by a nationally recognized air courier service, addressed to Landlord at the Landlord Notice Address or to Tenant at the Tenant Notice Address, as applicable, or at any other address of which either party shall notify the other in accordance with this Section 31. Such communications, if sent by registered or certified mail, shall be deemed to have been given two (2) days after the date of mailing, or if sent by a nationally recognized air courier service, shall be deemed to have been given one (1) business day after the date of deposit of the notice with such service. If any Mortgagee shall notify Tenant that it is the holder of a Mortgage affecting the Premises, no notice, request or demand thereafter sent by Tenant to Landlord shall be effective until a copy of same shall be sent to such Mortgagee in the manner prescribed in this Section 31 at such address as such Mortgagee shall designate.

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32.MISCELLANEOUS PROVISIONS.

A.Benefit and Burden»

: The provisions of this Lease shall be binding upon, and shall inure to the benefit of, the parties hereto and each of their respective successors and permitted assigns.

B.Governing Law»

: This Lease shall be construed and enforced in accordance with the Laws of the jurisdiction in which the Building is located.

C.No Partnership»

: Nothing contained in this Lease shall be deemed to create a partnership or joint venture between Landlord and Tenant, or to create any other relationship between the parties other than that of Landlord and Tenant.

D.Delegation by Landlord»

: Wherever Landlord has the authority to take any action under this Lease, Landlord shall have the right to delegate such authority to others, and Landlord shall be responsible for the authorized actions of such agents, employees and others, to the same extent as if Landlord had taken such action itself.

E.Tenant Responsibility for Agents»

: In any case where Tenant is responsible for performing or refraining from an act or for preventing an action or result from occurring, Tenant shall also be responsible for any actions taken or omitted by Tenant's agents, employees, business invitees, licensees, contractors, subtenants, family members, guests and any other individuals or entities present in the Building or on the Land at Tenant's invitation.

F.Invalidity of Particular Provisions»

: If any provision of this Lease or the application thereof to any person, entity or circumstance shall, to any extent, be held invalid or unenforceable, the remaining provisions and the application of such invalid or unenforceable provisions to persons, entities and circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby. Each provision of this Lease shall be valid and enforced to the fullest extent permitted by law.

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G.Counterparts»

: This Lease may be executed in several counterparts, all of which shall constitute one and the same document.

H.Entire Agreement»

: This Lease, and any exhibits and addenda attached hereto, embody the entire agreement of the parties hereto, and no representations, inducements or agreements, oral or otherwise, between the parties not contained in this Lease or in the exhibits or addenda shall be of any force or effect. No rights, privileges, easements or licenses are granted to Tenant hereby, except as expressly set forth herein.

I.Amendments»

: This Lease may not be modified in whole or in part in any manner other than by an agreement in writing.

J.Mortgagee's Performance»

: Tenant shall accept performance of any of Landlord's obligations hereunder by any Mortgagee.

K.Limitation on Interest»

: In any case where this Lease provides for a rate of interest that is higher than the maximum rate permitted by law, the rate specified herein shall be deemed to equal, and the party designated as recipient of such interest shall be entitled to receive, the maximum rate of interest permitted by law.

L.Remedies Cumulative»

: All rights and remedies of Landlord shall be cumulative and shall not be exclusive of any other rights or remedies of Landlord hereunder or now or hereafter existing at law or in equity.

M.Annual Financial Statements»

: Within ten (10) days after written request from Landlord and not more than once in any twelve (12) month period during the Term (except in the event of any Default hereunder, or a proposed or actual sale or financing of the Building, the Land or both) Tenant shall submit to Landlord an audited financial statement covering the preceding calendar year, which has been prepared in accordance with generally accepted accounting principles by an independent certified public accountant. Notwithstanding the foregoing, if Tenant is an entity that is domiciled in the United States of America, and whose securities are funded through a public securities exchange subject to regulation by the United States of America publicly traded over exchanges based in the United States and whose financial statements are readily available at no cost to Landlord, the terms of this Section 32.M. shall not apply.

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N.Construction of Lease»

: There shall be no presumption that this Lease be construed more strictly against the party who itself or through its agent prepared it. Landlord and Tenant hereby agree that all parties hereto have participated in the preparation of this Lease and that each party had the opportunity to consult legal counsel before the execution of this Lease.

O.Time of the Essence»

: Time is of the essence with respect to each of Tenant’s obligations hereunder.

P.Effect of Deletion of Language»

: The deletion of any printed, typed or other portion of this Lease shall not evidence the parties' intention to contradict such deleted portion. Such deleted portion shall be deemed not to have been inserted in this Lease.

Q.Authority»

: Tenant and the person executing and delivering this Lease on Tenant's behalf each represents and warrants that such person is duly authorized to so act; that Tenant is duly organized, is qualified to do business in the jurisdiction in which the Building is located, is in good standing under the Laws of the state of its organization and the Laws of the jurisdiction in which the Building is located, and has the power and authority to enter into this Lease; and that all action required to authorize Tenant and such person to enter into this Lease has been duly taken.

R.Qualified Leases»

: The parties intend that all payments made to Landlord under this Lease will qualify as rents from real property for purposes of Sections 512(b)(3) and 856(d) of the Internal Revenue Code of 1986, as amended (“Qualified Rents”). If Landlord, in its sole discretion, advises Tenant that there is any risk that all or part of any payments made under this Lease will not qualify as Qualified Rents, Tenant agrees (i) to cooperate with landlord to restructure this Lease in such manner as may be necessary to enable such payments to be treated as Qualified Rents, and (ii) to permit an assignment of this Lease, in each case provided such restructuring or assignment will not have a material economic impact on Tenant.

S.Prohibited Persons and Transactions

: Tenant represents and warrants that neither Tenant, nor any of its affiliates, partners, members, shareholders or other equity owners, and none of their respective employees, officers, directors, representatives or agents is, nor will they become, a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated Nationals and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action and is not and will not assign or otherwise transfer this Lease to, contract with or otherwise engage in any dealings or transactions or be otherwise associated with such persons or entities. Landlord represents and warrants that there exists no direct foreign ownership of the entity comprising Landlord as of the date of this Lease. Landlord represents that it will not lease space in, or sell the Property or any interest therein, to a person or entity with whom Landlord is restricted from doing business with under OFAC (including, but not limited to, those named on OFAC's Specially Designated and Blocked Persons list).

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T.Confidentiality

: The parties acknowledges that the terms and conditions of this Lease are to remain confidential for the benefit of both Landlord and Tenant, and may not be disclosed to anyone, by any manner or means, directly or indirectly, without the other party’s prior written consent; however, either party may disclose the terms and conditions of this Lease to its partners, attorneys, accountants, employees and existing or prospective lenders, financial partners, purchasers, or if required by Law or court order, provided all parties to whom such party is permitted hereunder to disclose such terms and conditions are advised by such party of the confidential nature of such terms and conditions and agree to maintain the confidentiality thereof (in each case, prior to disclosure).

33.LENDER APPROVAL.

If the Mortgagee fails to give its consent to this Lease, Landlord shall have the right, at its sole option, to terminate and cancel this Lease. Such option shall be exercisable by Landlord by written notice to Tenant of such termination, whereupon this Lease shall be deemed cancelled and terminated, and both Landlord and Tenant shall be relieved of any and all liabilities and obligations hereunder.

34.PARKING.

A.Use of Parking.

(1)During the Term, Tenant shall have the right to use (on a non-exclusive first-come, first-served basis) the Parking Spaces (as defined in Section 1.Q hereof) for the unreserved parking of passenger automobiles in the parking areas designated from time to time by Landlord for the use of tenants of the Building (the "Parking Lot"). Landlord reserves the right to institute either a valet parking system or a self-parking system. Tenant and its employees shall observe reasonable precautions in the use of the Parking Lot and shall at all times abide by all rules and regulations governing the use of the Parking Lot promulgated by Landlord or the operator of the Parking Lot (the “Parking Lot Operator”). The Parking Lot will remain open on Monday through Friday (excluding Holidays) and during the Building Hours. Landlord reserves the right to close the Parking Lot during periods of unusually inclement weather or for repairs. At all times when the Parking Lot is closed, monthly permit holders shall be afforded access to the Parking Lot by means of a magnetic card or other procedure provided by Landlord or the Parking Lot Operator. Tenant shall not use parking areas for repair of vehicles or for the overnight storage of vehicles. It is understood and agreed that Landlord assumes no responsibility, and shall not be held liable, for any damage or loss to any automobiles parked in the parking facilities or to any personal property located therein or for any injury sustained by any person in or about the parking facilities. In the event that Tenant uses less than the number of spaces provided for in this Lease at any time, Tenant’s right to use such spaces shall thereafter be decreased to the number of spaces Tenant is actually using. At Landlord’s election, Tenant shall access such Parking Lot by means of an electronic access gate currently operated by electronic access cards, and Tenant shall deposit with Landlord Twenty Dollars ($20.00) for each access card requested by Tenant; provided, however, that Tenant shall receive a number of such access cards in the same number of Parking Spaces then provided to Tenant under this Lease without charge at such time as Landlord implements such system, and thereafter Landlord shall charge Tenant the prevailing rates for any additional or replacement access cards. Landlord reserves the right to modify in any way Landlord deems appropriate the manner in which the Parking Lot is accessed during the Term.

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(2)Landlord’s granting of parking rights hereunder does not create a bailment between the parties, it being expressly agreed that the only relationship created between Landlord and Tenant hereby is that of right grantor and right grantee. All motor vehicles (including all contents thereof) shall be in the Parking Lot at the sole risk of their owners and Tenant, and Landlord is not responsible for the protection and security of such vehicles. Neither Landlord nor any agent, employee or contractor of Landlord shall have any liability for any property damage or personal injury arising out of or in connection with said motor vehicles, and Tenant shall indemnify and hold Landlord and any agent, employee or contractor of Landlord harmless from and against all demands, claims, damages, costs, expenses, liabilities, or causes of action arising out of or connected with use of the Parking Lot by Tenant or by any of Tenant's employees, agents, invitees, guests, assignees, subtenants, contractors or visitors (collectively, "Tenant's Invitees"), or any acts or omissions arising out of or in connection with said motor vehicles.

(3)In its use of the Parking Lot, Tenant will follow all terms of all applicable Rules and Regulations enacted by Landlord with respect to the Building and/or the Parking Lot, shall observe reasonable safety precautions in the use of the Parking Lot, and will cause Tenant’s Invitees to do the same. Any violation of said applicable Rules and Regulations or failure by Tenant to pay parking fees will constitute a Default hereunder. Upon any such Default, in addition to Landlord’s other rights and remedies, Landlord may terminate Tenant’s rights to lease parking spaces in the Parking Lot in accordance with the terms of Section 34.A.(1). above.

(4)If: (i) all or a portion of the Parking Lot is damaged by fire or other casualty or taken by power of eminent domain or purchased in lieu thereof by any governmental authority, (ii) the insurance proceeds payable as a result of a casualty to the Parking Lot are applied to a Mortgage, or (iii) there is any material uninsured loss to the Parking Lot, Landlord may terminate Tenant’s right to lease spaces in the Parking Lot in accordance with the terms of subsection (1) above. If Landlord does not so elect to terminate such rights of Tenant pursuant to the foregoing provisions of this Section 34.A.(4), then: (1) Landlord will either (a) proceed to restore the Parking Lot (and Landlord shall have no obligation to provide any alternative parking while such restoration is being performed), or (b) not restore the Parking Lot, but provide Tenant, at Tenant’s sole cost and expense, with alternate parking throughout the remainder of the Term (if such alternative parking is reasonably available under the circumstances).

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B.Rates: The Parking Spaces shall be provided to Tenant free of charge during the initial Term of the Lease.

C.No Transfers: Tenant shall not assign, sublet or transfer any Parking Spaces without Landlord’s prior written consent. Any attempted assignment, sublet, or transfer shall be void.

35.SECURITY DEPOSIT.

A.Amount and Uses: Landlord acknowledges receipt from Tenant of the Security Deposit, to be held by Landlord as security for the payment of all Rent payable by Tenant and for the faithful performance by Tenant of all other obligations of Tenant under this Lease. Said Security Deposit shall be repaid to Tenant after the termination of this Lease (or any renewal thereof), provided Tenant shall have made all such payments and performed all such obligations hereunder. Landlord shall not be required to maintain the Security Deposit in a separate account. The Security Deposit shall not be mortgaged, assigned, transferred or encumbered by Tenant without the prior written consent of Landlord, and any such act shall be void. Landlord may, at Landlord's option, appropriate and apply the entire Security Deposit, or so much thereof as Landlord believes may be necessary, to compensate Landlord for the payment of any past-due Rent and for loss or damage sustained by Landlord due to any Default. In the event Landlord appropriates or applies the Security Deposit in such a manner, Tenant, within five (5) days after notice thereof, shall pay to Landlord an amount sufficient to restore the Security Deposit to the original sum deposited. Tenant's failure to restore any such deficiency shall constitute a Default hereunder. In the event of bankruptcy or other debtor-creditor proceedings by or against Tenant, the Security Deposit shall be applied first to the payment of Rent due Landlord for all periods prior to the filing of such proceedings.

B.Transferability: In the event of a sale or transfer of Landlord's interest in the Building or of the interest of any successor or assign of Landlord, Landlord (or such successor or assign) shall have the right to transfer the Security Deposit to any vendee or transferee and shall thereupon be released automatically from any liability therefor. Tenant shall look solely to the transferee for the return of the Security Deposit. No Mortgagee or purchaser of any or all of the Building at any foreclosure proceeding shall (regardless of whether the Lease is at the time subordinated to the lien of said Mortgage) be liable to Tenant or any other person for any of the Security Deposit, or any other payment made by Tenant hereunder, unless Landlord has actually delivered said deposit or other such sum to such Mortgagee or purchaser. In the event of any rightful and permitted assignment of Tenant's interest in this Lease, the Security Deposit shall be deemed to be held by Landlord as a deposit made by the assignee, and Landlord shall have no liability to the assignor with respect to the return of the Security Deposit.

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36.HAZARDOUS MATERIALS.

A.Definition. As used in this Lease, the term "Hazardous Material" means any flammable items, explosives, radioactive materials, hazardous or toxic substances, material or waste or related materials, including any substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "infectious wastes", "hazardous materials" or "toxic substances" now or subsequently regulated under any state, local or federal Laws, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act and the Resource Conservation and Recovery Act (“Environmental Rules”). Such substances, materials and wastes may include, without limitation, oil, synthetic or natural gases, petroleum-based products, paints, solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other chemical products, asbestos, PCBs and similar compounds, and including any different products and materials which are subsequently found to have adverse effects on the environment or the health and safety of persons or animals under any Environmental Rules. As defined in Environmental Rules, Tenant is and shall be deemed to be the “operator” of Tenant’s “facility” and the “owner” of all Hazardous Materials brought on the Premises by Tenant or any of its agents, employees, licensees, guests or invitees, and the wastes, by-products, or residues generated, resulting, or produced therefrom.

B.General Prohibition. Tenant shall not cause or permit any Hazardous Material to be generated, produced, brought upon, used, stored, treated, discharged, released, spilled or disposed of on, in under or about the Premises, the Building, or the Land (hereinafter referred to collectively as the "Property") by Tenant or Tenant's Invitees upon full execution of this Lease, throughout the Term and following the expiration or earlier termination of this Lease. Tenant shall indemnify, defend and hold Landlord, Landlord's managing agent and all Mortgagees harmless from and against any and all actions (including, without limitation, remedial or enforcement actions of any kind, administrative or judicial proceedings, and orders or judgments arising out of or resulting therefrom), costs, claims, actual and consequential damages (including without limitation, attorneys', consultants', and experts' fees, court costs and amount paid in settlement of any claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage, or contamination of, or adverse effects upon, the environment, water tables or natural resources), liabilities or losses arising from a breach of this prohibition by Tenant or Tenant's Invitees.

C.Permitted Use. Landlord acknowledges that it is not the intent of this Article 36 to prohibit Tenant from using the Premises for the Permitted Use. Tenant may operate its business according to prudent industry practices so long as the use or presence of Hazardous Materials complies with, and is properly monitored according to, all then applicable Environmental Rules. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord prior to the Lease Commencement Date a list identifying each type of Hazardous Materials to be brought upon, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises and setting forth any and all governmental approvals or permits required in connection with the presence, use, storage, handling, treatment, generation, release or disposal of such Hazardous Materials on or from the Premises (“Hazardous Materials List”). Tenant shall deliver to Landlord an updated Hazardous Materials List at least once a year and shall also deliver an updated list before any new Hazardous Material is brought onto, treated, generated on, or released from, the Premises. Tenant is not required, however, to provide Landlord with any information on the Hazardous Materials List of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities. It is not the intent of this Section 36 to provide Landlord with information which could be detrimental to Tenant’s business should such information become possessed by Tenant’s competitors.

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D.Tenant’s Representation and Warranty. Tenant hereby represents and warrants to Landlord that (i) neither Tenant nor any of its legal predecessors has been required by any prior landlord, lender or any governmental authority at any time to take remedial action in connection with Hazardous Materials contaminating a property which contamination was permitted by Tenant or such predecessor or resulted from Tenant’s or such predecessor’s action or use of the property in question, and (ii) Tenant is not subject to any enforcement order issued by any governmental authority in connection with the use, storage, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required report to any governmental authority). If Landlord determines that this representation and warranty was false as of the date of this Lease, Tenant shall be deemed to be in Default hereunder and Landlord shall have the right to terminate this Lease in Landlord’s sole and absolute discretion and to pursue all applicable remedies for such Default set forth in Article 19 hereof.

E.Tests. Landlord shall have the right to conduct annual tests, or more frequently if Landlord reasonably deems it necessary, of the Premises to determine whether any contamination of the Premises or the Project has occurred as a result of Tenant’s use. If such testing determines a contamination of the Premises or the Project has occurred as a result of Tenant’s use, Tenant shall be required to pay the cost of each such test of the Premises. If Tenant conducts its own tests of the Premises using third party contractors and test procedures acceptable to Landlord which tests are certified to Landlord, Landlord shall accept such tests in lieu of the tests to be paid for by Tenant. In connection with such testing, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Premises by Tenant or any of its agents. Landlord shall provide Tenant, upon Tenant’s written request, with a copy of all third party, non-confidential reports and tests of the Premises concerning environmental contamination made by or on behalf of Landlord during the Term without representation or warranty and subject to a confidentiality agreement. Tenant shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions identified by such testing in accordance with all Environmental Rules. Landlord’s receipt of or satisfaction with any environmental assessment in no way waives any rights which Landlord may have against Tenant.

F.Waste Disposal. Tenant recognizes that the Building does not contain a lab waste system. Tenant also acknowledges that any violation by Tenant of the Washington Suburban Sanitary Commission (“WSSC”) rules and regulations governing illegal discharges would cause substantial harm to the Building and the Property, and that such violation would be unlawful and constitute a Default under this Lease. Therefore, Tenant shall be solely responsible for any improper discharge or disposal by Tenant or its agents, contractors, employees, guests or invitees during Tenant’s occupancy of the Premises or any of the aforementioned parties’ access of the Premises. Tenant shall, at its sole cost and expense, test such waste prior to discharging or disposing the same and cause such waste to be disposed or discharged in accordance with WSSC regulations and any other applicable Laws.

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G.Notice. In the event that Hazardous Materials are discovered upon, in, or under the Property, and any governmental agency or entity having jurisdiction over the Property requires the removal of such Hazardous Materials, Tenant shall be responsible for removing those Hazardous Materials arising out of or related to the use or occupancy of the Property by Tenant or Tenant's Invitees but not those of its predecessors. Notwithstanding the foregoing, Tenant shall not take any remedial action in or about the Property or any portion thereof without first notifying Landlord of Tenant's intention to do so and affording Landlord the opportunity to protect Landlord's interest with respect thereto. Tenant immediately shall notify Landlord in writing of: (i) any spill, release, discharge or disposal of any Hazardous Material in, on or under the Property or any portion thereof; (ii) any enforcement, cleanup, removal or other governmental or regulatory action instituted, contemplated, or threatened (if Tenant has notice thereof) pursuant to any laws respecting Hazardous Materials; (iii) any claim made or threatened by any person against Tenant or the Property or any portion thereof relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials; and (iv) any reports made to any governmental agency or entity arising out of or in connection with any Hazardous Materials in, on under or about or removed from the Property or any portion thereof, including any complaints, notices, warnings, reports or asserted violations in connection therewith. Tenant also shall supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant first receives or sends the same, copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises, the Property or Tenant's use or occupancy thereof.

H.Survival. The respective rights and obligations of Landlord and Tenant under this Section 36 shall survive the expiration or earlier termination of this Lease. During any period of time after the expiration or earlier termination of this Lease required by Tenant or Landlord to complete the removal from the Premises or the Building of any Hazardous Materials (including, without limitation, the release and termination of any licenses or permits restricting the use of the Premises), Tenant shall continue to pay the full Base Rent and Additional Rent in accordance with this Lease for any portion of the Premises not relet by Landlord in Landlord’s sole and absolute discretion, which Rent shall be prorated on a daily basis.

37.[INTENTIONALLY OMITTED.]

38.NO RECORDATION.

Tenant shall not record or attempt to record this Lease or any memorandum hereof in any public records without the prior written approval of Landlord, which may be denied in Landlord's sole and absolute discretion. In the event that Landlord grants its approval to record this Lease or a memorandum hereof, Tenant shall pay all recordation fees, taxes and charges in connection with such recordation.

39.SIGNS.

A.General Signage Rights: Landlord will, at Landlord’s cost, list Tenant's name in the Building directory, if any, and provide Building standard signage on one suite entry door of the Premises. Except as otherwise provided herein, no other sign, advertisement or notice shall be inscribed, painted, affixed or otherwise displayed on any part of the exterior or interior of the Building (including windows and doors) without the prior written approval of Landlord, which may be granted or withheld in Landlord's sole and absolute discretion. If any such item that has not been approved by Landlord is so displayed, then Landlord shall have the right to remove such item at Tenant's expense or to require Tenant to do the same. Landlord reserves the right to install and display signs, advertisements and notices on any part of the exterior or interior of the Building.

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VB Building Exterior Signage: So long as Tenant is leasing the entire Premises is not in default of this Lease, Tenant shall have the non-exclusive right to install its signage on the exterior of the Building in the location designated as Option 2 on Exhibit F attached hereto and made a part hereof (“Tenant’s Exterior Signage”), such specific location to be agreed upon by Landlord and Tenant, but only if such installation is permitted by applicable Laws. Tenant’s Exterior Signage shall not be installed unless (A) prior to the installation of any such Tenant’s Exterior Signage, Tenant shall submit to Landlord a written request for Landlord’s approval thereof, accompanied by plans depicting Tenant’s Exterior Signage, (B) Tenant’s Exterior Signage shall be of a type, style, size, color, design and method of fabrication approved by Landlord, (C) the exact location of Tenant’s Exterior Signage shall be approved by Landlord in its sole discretion, and (D) Tenant’s Exterior Signage shall comply with all applicable Laws and zoning and site plan requirements, including, but not limited to, Laws promulgated by Montgomery County, Maryland.

40.SURRENDER.

A.Surrender Plan. Upon the expiration of the Term or earlier termination of Tenant’s occupancy, Tenant shall surrender the Premises to Landlord in the same condition as the Premises were in on the Lease Commencement Date, subject to any Alterations or Installations permitted or required by Landlord to remain in the Premises, free of Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Premises and released of all Hazardous Materials Clearances, broom clean, ordinary wear and tear and casualty loss and condemnation covered in Sections 16 and 18 hereof excepted. At least ninety (90) days prior to the expiration of the Term or anticipated earlier termination or vacancy of the Premises by Tenant, Tenant shall deliver to Landlord a narrative description of the actions proposed (or required by any governmental authority) that Tenant plans to perform to surrender the Premises (including any Installations permitted by Landlord to remain in the Premises) at the expiration or earlier termination of this Lease or vacancy of the Premises, free from any residual impact from Hazardous Materials (the “Surrender Plan”). Such Surrender Plan shall be accompanied by a current listing of (i) all Hazardous Materials licenses and permits held by or on behalf of Tenant or its agents with respect to the Premises and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Premises, and shall be subject to the review and approval of Landlord or Landlord’s environmental consultant. In connection with the review and approval of the Surrender Plan, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such additional non-proprietary information concerning Tenant’s use of Hazardous Materials as Landlord shall request. On or before the date of such surrender, Tenant shall deliver to Landlord evidence that the approved Surrender Plan shall have been satisfactorily completed and Landlord shall have the right, subject to reimbursement at Tenant’s expense as set forth below, to cause Landlord’s environmental consultant to inspect the Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date of such surrender or early termination of this Lease, free from any residual impact from Tenant’s use of Hazardous Materials. Tenant shall reimburse Landlord, as Additional Rent, for the actual out-of-pocket expense incurred by Landlord for Landlord’s environmental consultant to review and approve the Surrender Plan and to visit the Premises and verify satisfactory completion of all actions described therein. Landlord shall have the unrestricted right to deliver such Surrender Plan and any report by Landlord’s environmental consultant with respect to the surrender of the Premises to third parties.

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B.Landlord’s Right to Act. If Tenant shall fail to prepare or submit a Surrender Plan approved by Landlord, or if Tenant shall fail to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Landlord, shall fail to adequately address any residual effect of Tenant’s use of Hazardous Materials in the Premises or the Property, Landlord shall have the right to take such actions as Landlord may deem reasonable or appropriate to assure that the Premises and the Project are surrendered free from any residual impact from Hazardous Materials, the cost of which actions shall be reimbursed by Tenant as Additional Rent, without regard to the limitation set forth in the first paragraph of this Section 40.

C.Other Terms Applicable to Surrender.Tenant shall immediately return to Landlord all keys and/or access cards to the parking area, the Building, restrooms and all or any portion of the Premises furnished to or otherwise procured by Tenant. If any such access card or key is lost, Tenant shall pay to Landlord, at Landlord’s election, within fifteen (15) days after Landlord’s demand therefor, either the cost of replacing such lost access card or key or the cost of reprogramming the access security system in which such access card was used or changing the lock or locks opened by such lost key. All obligations of Tenant hereunder not fully performed as of the expiration of the Term or earlier termination of this Lease shall survive the expiration of the Term or earlier termination of this Lease, including, without limitation, Tenant’s indemnity obligations, payment obligations with respect to Rent and obligations concerning the condition and repair of the Premises.

41.OPTION TO EXTEND.

A.Option to Extend: Provided that Cellular Biomedicine Group, Inc., a Delaware corporation (“CBG”) is not then in default (or if a default then exists, it is cured within the applicable notice and cure period), and has not been in Default more than once during the immediately preceding two (2) year period, in each case both at the time of exercise of the Renewal Option (as hereinafter defined), and at the commencement of the Renewal Period (as hereinafter defined), and is then in occupancy of the Premises at the time of exercise of the Renewal Option, and at the time of the commencement of the Renewal Period, CBG shall have one (1) option (the “Renewal Option”) to extend the Term of this Lease for one (1) additional five (5) year period (the “Renewal Period”) after the expiration of the initial Term. The Renewal Option shall be exercisable only by written notice given by CBG to Landlord not later than nine (9) months, nor earlier than fifteen (15) months, prior to the expiration of the initial Term. In the event that CBG does not timely exercise said Renewal Option, said Renewal Option shall be null and void and of no further force or effect, time being of the essence in the exercise of said Renewal Option and it being acknowledged and agreed by CBG that Landlord shall be entitled to rely on any failure by CBG to give written notice of its exercise of its Renewal Option by the date set forth herein for such exercise thereof.

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B.Renewal Option Terms. All terms and conditions of this Lease shall be applicable during the Renewal Period, except that (i) there shall be no further option to renew the Term of this Lease pursuant to this Article 40, (ii) Landlord shall not be required to furnish any materials or perform any work to prepare the Premises for Tenant’s occupancy, and Landlord shall not be required to make any tenant allowance or reimburse Tenant for any Alterations made or to be made by Tenant, or grant to Tenant any rent concession, except to the extent established pursuant to the determination of Prevailing Market Rent (as hereinafter defined), and (iii) the amount Base Rent charged for the Renewal Period shall be the then “Prevailing Market Rent”, which shall be the rent for comparable office and laboratory space being leased to renewal tenants in buildings which are of a size, class and location comparable to those of the Building in the North Rockville submarket of Montgomery County, Maryland, taking into account such market concessions, if any, as are then being offered to renewal tenants leasing office and laboratory space of a comparable size to the Premises in buildings which are of a size, class and location comparable to those of the Building in the North Rockville submarket of Montgomery County, Maryland; provided, however, that in no event shall the Prevailing Market Rent determined as aforesaid be deemed to be less than the Base Rent payable under this Lease during the Lease Year immediately preceding the first Lease Year of the Renewal Period. If within thirty (30) days following delivery of CBG’s notice, Landlord and CBG have not mutually agreed on the Prevailing Market Rent for the Renewal Period, then the parties shall use the following method to determine the Prevailing: within ten (10) business days after the expiration of such thirty-day period, each party shall give written notice to the other setting forth the name and address of a Broker (as hereinafter defined) selected by such party who has agreed to act in such capacity, to determine the Prevailing Market Rent. If either party has failed to select a Broker as aforesaid, the Prevailing Market Rent shall be determined by the Broker selected by the other party. Each Broker shall thereupon independently make his determination of the Prevailing Market Rent within twenty (20) days after the appointment of the second Broker. If the two Brokers’ determinations are not the same, but the higher of such two values is not more than one hundred five percent (105%) of the lower of them, then the Prevailing Market Rent shall be deemed to be the average of the two values. If the higher of such two values is more than one hundred five percent (105%) of the lower of them, then the two Brokers shall jointly appoint a third Broker within ten (10) days after the second of the two determinations described above has been rendered. The third Broker shall independently make his determination of the Prevailing Market Rent within twenty (20) days after his appointment. The highest and the lowest determinations of value among the three Brokers shall be disregarded and the remaining determination shall be deemed to be the Prevailing Market Rent.

C.Amendment. Within thirty (30) days (subject to written extension by Landlord) after the determination of the Prevailing Market Rent as set forth above, Landlord and CBG shall execute an amendment to this Lease setting forth the terms as to the Renewal Period. If CBG shall fail to execute said amendment within such thirty (30) day period (as the same may be extended as aforesaid), then Landlord shall have the right, at Landlord’s option exercisable by written notice to CBG: (a) to cancel the exercise by CBG of its option and to offer to lease and to lease the Premises to others upon such terms and conditions as shall be acceptable to Landlord, or (b) to not cancel the exercise by CBG of its option, in which case CBG shall remain bound by the exercise thereof and CBG shall be deemed to be in default of this Lease.

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D.Definition of Broker: For the purposes of this Article 41, “Broker” shall mean a real estate broker or salesperson licensed in the State of Maryland, who has been regularly engaged in such capacity in the business of commercial office and laboratory leasing in the North Rockville submarket of Montgomery County, Maryland for at least ten (10) years immediately preceding such person’s appointment hereunder. Each party shall pay for the cost of its Broker and one-half of the cost of the third Broker.

42.ROOF RIGHTS; RISER SPACE.

DD.Roof-top Equipment:

(1)Subject to the satisfaction of all the conditions in this Section 42, Tenant shall have the right to install and maintain on a proportionate share of space designated for use by tenants of the Building by Landlord on the roof of the Building (the "Rooftop Equipment Area"), without charge for use of the Rooftop Equipment Area, at a location determined by Landlord, (a) not more than one (1) satellite dish antenna, the dimensions of which shall be subject to Landlord’s reasonable approval, together with the cables extending therefrom to the Premises and (b) such items of equipment required for Tenant’s permitted use, including, but not limited to, exhaust fans, a back-up generator, and supplemental HVAC equipment, as Landlord approves pursuant to this Section 42 and Exhibit C attached hereto and subject to the limits of the Rooftop Equipment Area (collectively, the "Equipment"). Landlord shall use commercially reasonable efforts to accommodate Tenant’s request to place Equipment on the roof of the Building, provided, however, notwithstanding the inclusion of examples of the type of equipment Tenant may desire to place on the roof set forth in the preceding sentence, nothing herein shall obligate Landlord to approve such equipment or to allow Tenant to use space on the roof in excess of the Rooftop Equipment Area and Tenant’s inability to place equipment on the roof of the Building shall not create any liability on the part of Landlord whatsoever, and this Lease shall not be rendered void or voidable, as a result thereof. Tenant shall not be permitted to install any additional equipment on the roof of the Building without Landlord’s prior written consent, which shall not be unreasonably withheld, subject to the other terms and conditions of this Section. The location, size, weight, height and all other features and specifications of the Equipment and the manner of the installment of the same shall be subject to Landlord's prior written approval, which approval may be granted or withheld in Landlord's sole and absolute discretion. Notwithstanding the foregoing, Tenant shall not be entitled to install any such Equipment (i) if such installation or manner thereof would adversely affect any warranty with respect to the roof of the Building, (ii) if such installation or manner thereof would adversely affect the structure or any of the building systems of the Building, (iii) if such installation or manner thereof would require any structural alteration to the Building, (iv) if such installation would disturb the roof membrane or make any other penetration on the roof or the exterior facade of the Building other than through then-existing conduit or risers unless Landlord in its sole and absolute discretion approves in writing such structural alteration, (v) if such installation or manner thereof would violate any covenant, condition, or restriction of record affecting the Building or any applicable federal, state or local law, rule or regulation, (vi) unless Tenant has obtained and maintains at Tenant's expense, and has submitted to Landlord copies of, all permits and approvals relating to such Equipment and such installation and maintenance (including, without limitation, any permit required if a crane is necessary to place such Equipment on the roof) and timely pays all taxes and fees related thereto, (vii) unless such Equipment is white or of a beige or lighter color (or otherwise appropriately screened), (viii) unless such Equipment is installed, at Tenant's sole cost and expense, by a qualified contractor chosen by Tenant and approved in advance by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, (ix) if the installation or operation of the equipment would interfere with or disrupt the use or operation of any other equipment on the roof of the Building, (x) unless Tenant obtains Landlord's prior consent, to the manner and time in which such installation work is to be done, which consent shall not be unreasonably withheld, conditioned or delayed as to the time of such installation, (xi) unless sufficient room therefor exists on the roof, as determined by Landlord in its reasonable discretion, at the time of the proposed installation, (xii) unless screened from view from the grounds adjacent to the Building in a manner and with materials acceptable to Landlord in its reasonable discretion, or (xiii) unless all required approvals and consents of all holders of Mortgages encumbering the Building are obtained. Notwithstanding the foregoing, Tenant shall not be entitled to change the location, line of sight or method of operation of any items of the Equipment if such change results in any interference with any other antenna on the roof of the Building.

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(2)Prior to installation of the Equipment, Tenant shall deliver plans and specifications concerning such installation to Landlord for Landlord's prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed, and, following Tenant’s initial installation of the Equipment, Tenant shall reimburse Landlord's actual out of pocket expenses reasonably incurred in such review. All installations, and the method of making repairs and materials to be used in connection therewith, required after the installation of the Equipment also shall be subject to Landlord's prior written approval.

(3)Tenant shall not have access to any such Equipment without Landlord's prior consent (which may be requested and given verbally by the property manager or the Building engineer in the event of an emergency), which consent shall be granted to the extent necessary for Tenant to perform its maintenance obligations hereunder and only if Tenant is accompanied by Landlord's representative (if Landlord so requests). Any such access by Tenant shall be subject to rules and regulations relating thereto established from time to time by Landlord, including, without limitation, rules and regulations prohibiting such access unless Tenant is accompanied by Landlord's representative. Landlord shall provide Tenant with such rules and regulations prior to enforcement of such rules and regulations with respect to Tenant.

(4)At all times during the Term, Tenant shall (i) maintain the Equipment in clean, good and safe condition and in a manner that avoids interference with or disruption to Landlord and other tenants of the Building and (ii) comply with all Laws and with the requirements of all public authorities and insurance companies which shall impose any order or duty upon Landlord with respect to or affecting the Equipment or wiring out of Tenant's use or manner of use thereof. During the Term of the Lease and any subsequent renewals thereof, Tenant shall pay and discharge all costs and expenses incurred by Landlord in connection with the furnishing, installation, maintenance, operation and removal of the Equipment within thirty (30) days after written demand. All repairs to the Building made necessary by reason of the furnishing, installation, maintenance, operation or removal of the Equipment or any replacements thereof (including, without limitation, any invalidation of the roof warranty due to the Equipment or Tenant's actions) shall be at Tenant's sole cost. Such maintenance shall be performed by a qualified contractor approved by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed.

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(5)At the expiration or earlier termination of the Term, at Landlord’s election, Tenant shall surrender all or a portion of such Equipment to Landlord together with the Premises, or Tenant shall remove any such Equipment as Landlord shall designate from the Building and surrender the Rooftop Equipment Area in good condition, ordinary wear and tear and casualty excepted. Notwithstanding the foregoing, Tenant, upon submitting its request for Landlord’s consent to the installation of any such Equipment pursuant to Section 42.A.(2) hereof, shall have the right to request therein that Landlord specify whether and to what extent Landlord will require Tenant to remove the Equipment in question at the end of the Term. If Tenant submits its request for such information in accordance with the foregoing provision and Landlord consents to the installation of such Equipment requested, Landlord shall, together with its consent, specify in writing whether and to what extent it will require Tenant to remove the Equipment in question at the end of the Term, and if Landlord fails so to specify, Tenant shall have no further obligation to remove such Equipment which was the subject of Tenant’s request.

(6)[Intentionally Omitted].

(7)It is expressly understood that by granting Tenant the right hereunder, Landlord makes no representation as to the legality of the Equipment or its installation. In the event that any federal, state, county, regulatory or other authority requires the removal or relocation of any items of the Equipment, Tenant shall remove or relocate such items at Tenant's sole cost and expense, and Landlord shall under no circumstances be liable to Tenant therefor.

(8)The Equipment may be used by Tenant only in the conduct of Tenant's customary business at the Premises. No assignee or subtenant shall have any rights pursuant to this Section 42, except that Tenant shall have the right to permit the use of such Equipment by its subtenants and assignees permitted pursuant to Section 23 of this Lease in accordance with the terms and provisions of this Section 42.A.

(9)Tenant shall maintain such insurance as is appropriate with respect to the installation, operation and maintenance of the Equipment. Landlord shall have no liability on account of any damage to or interference with the operation of the Equipment and Landlord expressly makes no representations or warranties with respect to the capacity for any items of the Equipment placed on the roof of the Building to receive or transmit signals. The operation of the Equipment shall be at Tenant's sole and absolute risk.

B.Risers. Tenant and its contractor shall be permitted non-exclusive access equal to space in the Building risers and telecommunications closets, except such risers or closets being utilized exclusively by Landlord or other users or occupants of the Building (collectively, the “Risers”), at no additional charge therefor, for the sole purpose of installing, inspecting, maintaining, repairing and replacing telecommunications cabling therein; provided, however, that Tenant’s contractor is subject to Landlord’s prior written approval. In furtherance of the foregoing, Landlord and Tenant agree as follows:

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(1)Tenant shall submit to Landlord for Landlord’s review and prior written approval reasonably detailed plans and specifications showing the locations within the Risers where such cabling and equipment will be installed.

(2)Tenant shall appropriately mark and/or tag all such cabling and equipment as are required by Landlord to identify the owner and user thereof. If any such cabling and equipment are installed without Landlord’s prior written approval or without such appropriate identification, and Tenant fails to remove same within thirty (30) days after written notice from Landlord to do so, then Landlord shall have the right to remove and correct such improvements and restore the Risers to their condition immediately prior thereto, and Tenant shall be liable for all expenses incurred by Landlord in connection therewith.

(3)Tenant shall not be entitled to use or occupy a disproportionate amount of the available space in the Risers, based upon the proportion of the rentable area then comprising the Premises to the aggregate rentable office area in the Building. Landlord makes no representation or warranty that the Risers will be adequate to satisfy Tenant’s needs.

(4)Tenant and its contractor(s) shall coordinate any access to the Risers with Landlord’s property manager for the Building.

(5)If Tenant requests Landlord or its employees to provide after hours or non-standard services, Tenant shall pay to Landlord, as Additional Rent, all actual, out-of-pocket costs and expenses incurred by Landlord in connection therewith (at Tenant’s request, Landlord shall notify Tenant whether any particular service is non-standard prior to the commencement of such work by Landlord).

(6)Tenant and its contractor(s) shall conduct their work in a manner that minimizes disruption and inconvenience to other tenants and occupants of the Building.

(7)During the installation, maintenance, repair, replacement, and removal of such cabling and equipment, Tenant shall keep all public areas of the Building where such work is being performed neat and clean at all times and Tenant shall remove or cause all debris to be removed from the Building at the end of each workday.

(8)Tenant shall promptly repair, at its sole cost and expense, any damage done to the Building or to the premises of any other tenant in the Building or to any electrical, mechanical, HVAC, sprinkler, life safety and other operating system serving the Building or other Common Areas that are caused by or arise out of any work performed by Tenant or its contractor pursuant to this Section 42.

(9)Any contractor performing such work shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed (it being agreed that it shall be reasonable for Landlord to withhold or deny its approval if such contractor is not properly licensed or insured, is subject to any bankruptcy proceeding, or is not a telecommunications provider which provides services to office buildings in Rockville, Maryland on a general basis).

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(10)In performing such work, Tenant and its contractor shall observe Landlord’s rules and regulations regarding the construction, installation, and removal of Tenant improvements in the Building, which rules and regulations, together with any modifications thereto, shall be provided to Tenant, in writing, prior to enforcement.

(11)Tenant shall be solely responsible at its sole cost and expense to correct and to repair any work or materials installed by Tenant or Tenant’s contractor. Landlord shall have no liability to Tenant whatsoever on account of any work performed or material provided by Tenant or its contractor.

(12)Tenant shall not be required to remove any cabling and equipment installed by or on behalf of Tenant in the Risers in compliance with this Section 42.B. (whether on or after the date hereof) from the Building upon the expiration or earlier termination of this Lease.

(13)Landlord’s representative shall have the right to inspect any work performed by Tenant or its contractor at any time.

(14)All work done and materials furnished by Tenant and/or its contractor shall be of good quality and shall be performed in a good and workmanlike manner and in accordance and compliance with all applicable Laws and the other applicable provisions of this Lease.

(15)Any casualty or other damage to all or any portion of the Risers shall not affect Tenant’s obligations, duties, or responsibilities under this Lease.

C.Indemnification. Tenant agrees that, in addition to any indemnification provided to Landlord in this Lease, Tenant shall indemnify and hold Landlord, Landlord’s mortgagees, Landlord’s managing agent, and their employees, shareholders, partners, officers and directors, harmless from and against all costs, damages, claims, liabilities and expenses (including, but not limited to, reasonable attorneys’ fees and any costs of litigation) suffered by or claimed against Landlord, directly or indirectly, based on, arising out of or resulting from Tenant’s use of the Equipment or the Risers or the cabling and telecommunications equipment located therein (said use shall include, without limitation, any installation or removal of the cabling and telecommunications equipment), except to the extent caused by Landlord's gross negligence or willful misconduct. In addition, Tenant shall be liable to Landlord for any actual damages suffered by Landlord or any other tenant or occupant of the Building for any cessation or shortages of electrical power or any other systems failure arising from Tenant’s use of the Equipment or the Risers or the cabling and telecommunications equipment located therein.

[Signatures appear on the following page.]

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal as of the day and year first above written.

WITNESS:	LANDLORD:
	IPX MEDICAL CENTER DRIVE INVESTORS, LLC, a Delaware limited liability company
By:	By:
Name:	Name:
	Its:
ATTEST:	TENANT:
[Corporate Seal]	CELLULAR BIOMEDICINE GROUP, INC., a Delaware corporation
By:	By:
Name:	Name:
Title:	Its:

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EXHIBIT A

PREMISES PLAN SHOWING LOCATION ON FIRST FLOOR

A-1

EXHIBIT B

DECLARATION BY LANDLORD AND TENANT

AS TO DATE OF DELIVERY AND ACCEPTANCE OF

POSSESSION, LEASE COMMENCEMENT DATE, ETC.

THIS DECLARATION made this ______ day of ________________, 20__ is hereby attached to and made a part of the Lease dated the _____ day of _______________, 20___ (the “Lease”), entered into by and between IPX MEDICAL CENTER DRIVE INVESTORS, LLC, a Delaware limited liability company, as Landlord, and CELLULAR BIOMEDICINE GROUP, INC., a Delaware corporation, as Tenant. All terms used in this Declaration have the same meaning as they have in the Lease.

(i)Landlord and Tenant do hereby declare that Tenant accepted possession of the Premises on the ____  day of _____________________, 20__;

(ii)As of the date hereof, the Lease is in full force and effect, and Landlord has fulfilled all of its obligations under the Lease required to be fulfilled by Landlord on or prior to said date;

(iii)The Lease Commencement Date is hereby established to be _____________________, 20__;

(iv)The Rent Commencement Date is hereby established to be _____________; and

(v)The Lease Expiration Date is hereby established to be __________________________, unless the Lease is sooner terminated pursuant to any provision thereof.

WITNESS:	LANDLORD:
	IPX MEDICAL CENTER DRIVE INVESTORS, LLC, a Delaware limited liability company
By:	By:
Name:	Name:
	Its:
ATTEST:	TENANT:
[Corporate Seal]	CELLULAR BIOMEDICINE GROUP, INC., a Delaware corporation
By:	By:
Name:	Name:
Title:	Its:

[NOTE: NOT TO BE EXECUTED AT TIME OF EXECUTION OF LEASE]

B-1

EXHIBIT C

WORK AGREEMENT

THIS WORK AGREEMENT is hereby attached to and made part of the Office Lease dated , 2019, entered into by and between IPX MEDICAL CENTER DRIVE INVESTORS, LLC, a Delaware limited liability company, as Landlord, and CELLULAR BIOMEDICINE GROUP, INC., a Delaware corporation, as Tenant (the "Lease"). All terms used in this Work Agreement have the same meaning as they have in the Lease.

1.ARCHITECTURAL DESIGN SERVICES.

Tenant shall provide a space plan and completed, finished and detailed architectural drawings and specifications for all work to be provided by Tenant under Paragraph 4 hereof (the "Architectural Drawings and Specifications"), which Architectural Drawings and Specifications shall be completed at Tenant's sole cost and expense, which shall be payable out of the Tenant Allowance (as hereinafter defined) to the extent that funds are available therefrom for such purpose. All such Architectural Plans and Specifications are expressly subject to Landlord's review and written approval, which approval shall not be unreasonably withheld, conditioned or delayed with respect to any proposed work which does not affect any of the structural components of the Building or any of the Building's heating, ventilating, air conditioning, electrical, mechanical, plumbing, fire and life safety or other systems. Landlord shall grant or deny such approval in writing within ten (10) business days following Landlord's receipt of the proposed Architectural Drawings and Specifications.

2.ENGINEERING DESIGN SERVICES.

Tenant, at Tenant's sole cost and expense, which shall be payable out of the Tenant Allowance (as hereinafter defined) to the extent that funds are available therefrom for that purpose, shall provide the design services of a licensed professional engineer, to prepare complete mechanical and electrical plans and specifications, as necessary for Tenant's Work (as hereinafter defined) to be performed pursuant to Paragraph 3 hereof (the "Engineering Plans and Specifications"). Any and all such Engineering Plans and Specifications are expressly subject to Landlord's review and written approval, which approval shall not be unreasonably withheld, conditioned or delayed with respect to any proposed work which does not affect any of the structural components of the Building or any of the Building's heating, ventilating, air conditioning, electrical, mechanical, plumbing, fire and life safety or other systems. Landlord shall grant or deny such approval in writing within ten (10) business days following Landlord's receipt of the proposed Engineering Plans and Specifications.

C-1

3.TENANT'S WORK.

The Architectural Drawings and Specifications and the Engineering Plans and Specifications, as approved by Landlord, shall thereupon collectively constitute the "Tenant's Plans". Tenant shall improve the Premises in accordance with the Tenant’s Plans. The work set forth in the Tenant’s Plans is hereinafter referred to as “Tenant’s Work”. From and after the date of Landlord’s approval of the Tenant’s Plans, any changes to the Tenant’s Plans shall not be binding unless approved in writing by both Landlord and Tenant. Landlord’s approval of the Tenant’s Plans shall constitute approval of Tenant’s design concept only and shall in no event be deemed a representation or warranty by Landlord as to whether the Tenant’s Plans comply with any and all legal requirements applicable to the Tenant’s Plans and Tenant’s Work.

In the performance of Tenant’s Work, Tenant shall comply with all applicable laws, codes and regulations. Tenant shall obtain all permits, certificates and other governmental approvals from all governmental entities having jurisdiction thereover which are necessary for the prosecution and completion of Tenant’s Work. Tenant’s Work shall include, but not be limited to, the cost of all permits and governmental inspections, all architectural and engineering fees, the preparation and delivery to Landlord of a complete set of “as-built” plans showing Tenant’s Work, in hard copy and an electronic version thereof which is acceptable to Landlord (the "As-Built Plans") (which As-Built Plans shall be delivered to Landlord not later than the tenth (10th) day following the substantial completion of Tenant’s Work).

Prior to commencing Tenant’s Work, Tenant shall provide to Landlord the name and address of each contractor and subcontractor which Tenant intends to employ to perform Tenant’s Work, the use of which subcontractors and contractors shall be subject to Landlord’s prior written approval, which shall not be unreasonably withheld, conditioned or delayed if (1) the contractor or subcontractor is properly licensed, (2) Landlord has had no prior experience with such contractor or subcontractor which was unsatisfactory to Landlord and (3) Landlord knows of no prior unsatisfactory experience that a third party has had with such contractor or subcontractor. Prior to the commencement of any of Tenant’s Work, Tenant shall deliver to Landlord, with respect to each contractor and subcontractor which Tenant intends to employ to perform any of Tenant’s Work, a certificate of insurance from each such contractor or subcontractor specifying Landlord as a named insured and evidencing that each such contractor or subcontractor has obtained the insurance coverages described in Section 17.B. of the Lease. Tenant shall not be obligated to use union labor in connection with Tenant’s Work.

Said contractors and subcontractors shall also comply with other reasonable industry requirements of Landlord. Tenant shall pay to Landlord a coordination fee in an amount equal to one percent (1%) of the cost of the Tenant Allowance (as hereinafter defined) (the "Coordination Fee"), which Coordination Fee shall be deducted from the Tenant Allowance to the extent that funds are available therefrom for such purpose or otherwise paid directly by Tenant to Landlord upon the substantial completion of Tenant’s Work.

4.TENANT ALLOWANCE.

Landlord shall make available for the performance of Tenant's Work, and for the other purposes hereinafter specified, an allowance (the "Tenant Allowance") in an amount equal to the product of (i) One Hundred Thirty Dollars ($130.00) multiplied by (ii) the number of rentable square feet comprising the Premises. Tenant shall perform Tenant’s Work and shall pay directly to its general contractor and other service providers and vendors the cost of performing all improvements shown and contemplated by the Tenant's Plans, including, but not limited to, the cost of all permits and governmental inspections, all architectural and engineering fees, the preparation and delivery to Landlord of the As-Built Plans, as provided in Paragraph 3 of this Work Agreement, and the Coordination Fee, all of which costs shall be payable out of the Tenant Allowance to the extent that the Tenant Allowance is sufficient for that purpose, and any excess amount of which costs shall be paid directly by Tenant; provided, however, that (i) the portion of the Tenant Allowance which may be used for cabling, moving-related costs, furniture, fixtures and equipment, consultant fees and any other soft costs shall not in the aggregate exceed an amount equal to Twelve Dollars ($12.00) multiplied by (ii) the number of rentable square feet comprising the Premises (the “Permitted Soft Costs Portion”).

C-2

Landlord shall pay the Tenant Allowance to Tenant in installments not more than once in any thirty (30) day period following Tenant’s completion of portions of Tenant’s Work and Landlord’s receipt from Tenant of (i) invoices reasonably evidencing work or services performed with respect to the portion of Tenant’s Work for which Tenant is seeking payment, (ii) receipted bills or other evidence that the aforesaid invoices have been paid in full, (iii) waivers or releases of liens from each of Tenant’s contractors, subcontractors and suppliers in connection with the work performed or materials supplied as evidenced by the aforesaid invoices, (iv) an architect’s certification that the portion of Tenant’s Work for which reimbursement has been requested has been finally completed, including (with respect to the last application for payment only) any punch-list items, on the appropriate AIA form or another form approved by Landlord, and (v) with respect only to the payment of the final ten percent (10%) of the Tenant Allowance, the delivery of the As-Built Plans, and copies of all final inspectional sign-offs for the Tenant’s Work performed by applicable governmental authorities. Landlord shall have the right to retain ten percent (10%) of the amount of the hard costs of Tenant’s Work contained in each such request until completion of Tenant’s Work. All of the retained amounts shall be paid to Tenant upon completion of Tenant’s Work and satisfaction of the other requirements of this Exhibit C. Notwithstanding the foregoing, in the event that Tenant is retaining amounts which are at least equal to those required by the immediately preceding sentence from Tenant’s general contractor and Tenant’s payment request reflects such retainage, then Landlord shall not impose an additional retainage upon such payment request. The portion of the Tenant’s Work which shall be payable out of the Tenant Allowance for each disbursement shall be an amount equal to the portion of the Tenant’s Work which has been completed multiplied by a fraction, the numerator of which is the amount of the Tenant Allowance and the denominator of which is the total cost of Tenant’s Work as set forth in the Tenant’s contract with its general contractor for Tenant’s Work, including any change orders in determining such total amount of Tenant’s Work, and Tenant shall be obligated to pay from another source of funds the remaining costs for such portion of Tenant’s Work which are not paid for from the Tenant Allowance (in accordance with the remaining provisions of this paragraph). For example, if the total cost of Tenant’s Work is estimated to be an amount equal to One Hundred Dollars ($100.00) per square foot of rentable area comprising the Premises, and the Tenant Allowance is an amount equal to Eighty Dollars ($80.00) per square foot of rentable area comprising the Premises, then, for each disbursement of the Tenant Allowance, Landlord shall pay from the Tenant Allowance (to the extent available for such purpose), eighty percent (80%) of such costs and Tenant shall pay from another source of funds the remaining twenty percent (20%) of such costs. Prior to Landlord's disbursing any portion of the Tenant Allowance to Tenant or Tenant’s general contractor, in addition to the other requirements for disbursement set forth herein, Tenant shall provide to Landlord evidence reasonably acceptable to Landlord that all furniture, fixtures and equipment that will be incorporated into the Premises for use in the operation of the business from the Premises is being paid for from Tenant's own source of funds, is lien free and is not subject to any encumbrances or other rights of third parties whatsoever. Once Tenant has provided such evidence to Landlord of Tenant’s ownership interests in all furniture, fixtures and equipment as required by this paragraph, and provided that Tenant has obtained and delivered to Landlord lien waivers for such work together with other evidence reasonably satisfactory to Landlord that such funds have been expended by Tenant's own source of funds and not from financing from any third party, and otherwise satisfied Landlord’s reasonable requirements with respect to all Tenant’s Work as set forth herein, Landlord shall disburse the Tenant Allowance, in accordance with, and subject to, the requirements set forth herein. All Tenant's Work (including any furniture, fixtures and equipment installed as part of Tenant's Work) shall be subject to Landlord's rights as set forth in Section 19.F of the Lease. Any portion of the Tenant Allowance as to which disbursement has not been properly requested prior to the first anniversary of the Lease Commencement Date shall be deemed to have been forfeited by Tenant and shall no longer be available to Tenant. Tenant shall have no right to receive any portion of the Tenant Allowance at any time that Tenant is in default under the Lease.

C-3

5.DEMOLITION ALLOWANCE.

Tenant, as part of Tenant’s Work, shall be responsible for the demolition of certain existing improvements currently located in the Premises in accordance with Tenant’s Plans (the “Demolition Work”). The Demolition Work shall be performed by Tenant, at Tenant’s cost and expense, the cost of which may be paid from the Tenant Allowance to the extent available for such purpose; provided, however, that Landlord shall also provide Tenant with an additional allowance (the “Demolition Allowance”) in the amount of Four Dollars ($4.00) per rentable square foot in the Premises, which shall be added to the Tenant Allowance and paid subject to the same terms as are applicable to the Tenant Allowance.

6.CHANGES IN TENANT'S WORK.

Tenant shall not have the right to order extra work or change orders with respect to the construction of Tenant’s Work without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Tenant shall pay for any and all increases in the actual cost of constructing Tenant’s Work occasioned by a change to the Tenant's Plans requested by Tenant.

7.VERTICAL CHASES; MONITORING PORTS FOR LAB DRAIN LINES; EMERGENCY BACK-UP PANEL.

Landlord shall provide Tenant with non-exclusive access to its proportionate share of those existing vertical chases in the Building designated by Landlord for the installation by Tenant of Tenant’s outside air and exhaust systems to be installed by Tenant as part of Tenant’s Work in accordance with this Work Agreement, which installation shall be at Tenant’s sole cost and expense, subject to reimbursement from the Tenant Allowance to the extent available for such purpose. Landlord shall expand the existing vertical chases and/or provide new vertical chases, at Landlord’s sole cost and expense, to the extent necessary to accommodate Tenant’s outside air and exhaust systems, as determined by Landlord in connection with its approval of Tenant’s Plans.

C-4

As part of Tenant’s Work, Tenant shall be permitted to connect its lab drain lines to the existing monitoring port for the Building on a non-exclusive basis, at Tenant’s sole cost and expense, subject to reimbursement from the Tenant Allowance to the extent available for such purpose. If Tenant is required by a regulatory agency to install a specific monitoring port for Tenant’s lab drain lines, such monitoring port shall be installed by Tenant, as Tenant’s sole cost and expense, subject to reimbursement from the Tenant Allowance to the extent available for such purpose, as part of Tenant’s Work in accordance with the provision of this Work Agreement.

Landlord shall provide, at Landlord’s sole cost and expense, an emergency back-up panel to service the Premises at not less than four (4) watts per square foot of space in the Premises (the “Emergency Back-Up Panel”). The Emergency Back-Up Panel shall be (i) installed and connected to by Tenant as part of Tenant’s Work, at Tenant’s sole cost and expense, subject to reimbursement from the Tenant Allowance to the extent available for such purpose, and (ii) operated (including the cost of all utilities), repaired, maintained and replaced by Tenant, at Tenant’s sole cost and expense, in accordance with Section 7.A. of the Lease.

8.LANDLORD’S LOADING AREA WORK.

On or before the Lease Commencement Date, Landlord, at its sole cost and expense, shall install LVT or other similar flooring in the Common Area hallway leading from the loading dock for the Building to the Premises and install protective corner guards through such hallway and protective kickplates on all doors leading to the Premises which are located in the Common Area hallway leading from the loading dock to the Premises. The scope of such work and the materials to be used in connection therewith shall be determined by Landlord, in its sole discretion.

[Signatures Appear on Following Page.]

C-5

IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Agreement under seal as of the day and year first above written.

WITNESS:	LANDLORD:
	IPX MEDICAL CENTER DRIVE, LLC, a Delaware limited liability company
By:	By:                                                                                                                                 Name:                                                                 Its:

ATTEST:	TENANT:
[Corporate Seal]	CELLULAR BIOMEDICINE GROUP, INC., a Delaware corporation
By:                                                    Name:                                               Its:	By:                                                    Name:                                               Its:

C-6

EXHIBIT D

BUILDING/PROJECT RULES AND REGULATIONS

1.

No sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the exterior of the Project or interior common areas of the Building without the prior written consent of Landlord. Landlord shall have the right to remove, at Tenant’s expense and without notice, any sign installed or displayed in violation of this rule. All approved sings or lettering on doors and walls, shall be printed, painted, affixed or inscribed at the expense of Tenant by a person chosen by Landlord.

2.

No awning shall be permitted on any part of the Premises. Tenant shall not place anything against, near or on any glass partitions, doors, windows or window sills which may appear unsightly from outside the Premises and Tenant is specifically prohibited from sitting or placing anything on the window sills of the Premises. Tenant shall not obstruct any windows, doors, partitions or lights within the Premises which admit or reflect light into the hallways or other common areas of the Building. Tenant shall not attach or hand any curtains, blinds, shades, or screens used in connection with any window or door of the Premises without first obtaining the written consent of Landlord. Said curtains, blinds or shades must be of a quality, type, design and color and attached in a manner approved by Landlord.

3.

Landlord shall retain the right to control and prevent access to the Building of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Building and its tenants; provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. No tenant and no employee or invitee of any tenant shall go upon the roof of the Building.

4.

All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord, and except as provided in the Lease or otherwise with the written consent of Landlord, no person or persons other than those approved by Landlord shall be employed by Tenant or permitted to enter the Building for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. Landlord shall not in any way be responsible to any Tenant for any loss of property on the Premises, however occurring, or for any damage to any Tenant’s property by the janitor or any other employee or any other person.

5.

Landlord shall furnish Tenant, free of charge, a key to each door lock in the Premises. Landlord may charge an additional amount $2 per key for additional keys requested by Tenant. Tenant shall not alter any lock or install a new additional lock or bolt in the entrance door of its Premises without written consent of Landlord. Tenant upon termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor.

D-1

6.

If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain, and comply with, Landlord’s instructions in their installation.

7.

Any freight elevator shall be available for use by all tenants in the Building, subject to such reasonable scheduling as Landlord in its discretion shall deem appropriate. No equipment, furniture or other bulky property will be received in the Building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord.

8.

Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry as provided in the Lease and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to objectionable to Landlord or to any tenants in the Building, shall be placed and maintained by Tenant, at Tenant’s expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant.

9.

Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, mot shall Tenant bring into or keep in or about the Premises any birds or animals.

10.

Unless otherwise agreed to within the Lease, Tenant shall not use any method of heating or air-conditioning other than that supplied by Landlord.

11.

Tenant shall cooperate fully with Landlord to assure the most effective operation of the Building’s heating and air-conditioning and to comply with any government energy-saving rules, laws or regulations of which Tenant has actual notice, and shall refrain from attempting to adjust controls other than room thermostats installed for Tenant’s use. Tenant shall use reasonable efforts to keep corridor doors closed, and shall close window coverings at the end of each business day.

D-2

12.

Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 8 a.m. the following day, or such other hours as may be established from time to time by Landlord, and on Sundays and Building Holidays, any person unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission or exclusion from the Building of any person. Landlord reserves the right to prevent access to the Building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate actions.

13.

Tenant shall use reasonable efforts to close and lock the doors of the Premises and entirely shut off all water faucets or other water apparatus, and electricity, gas, or air outlets before tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule.

14.

The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown thereto. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees shall have caused it.

15.

Tenant shall not sell or permit the sale at retail, of newspapers, magazines, periodicals, theatre tickets or any other goods or merchandise to the general public (except for Tenant’s members) in or on the Premises. Tenant shall not make any room-to-room solicitation of business from other tenants in the Building; provided, Tenant may make sales in response to telephone, telefax or internet orders received by Tenant at the Premises.

16.

Tenant shall not install any radio or television antenna, loudspeaker or other device on the roof or exterior walls of the Building, except as otherwise provided in the Lease. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere.

17.

Tenant shall not in any way deface the Premises or any part thereof. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes for wire. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule.

18.

Except as permitted in the Lease, Tenant shall not install, maintain or operate upon the Premises any vending machine without the written consent of Landlord.

19.

Canvassing, soliciting and distribution of handbills or any other written material and peddling in the Building are prohibited, and each tenant shall cooperate to prevent same.

D-3

20.

Landlord reserves the right to exclude or expel from the Building any person who, in Landlord’s judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Building.

21.

Tenant shall store all its trash and garbage within the Premises. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with direction issued from time to time by Landlord.

22.

The Premise shall not be used for the storage of merchandise held for sale to the general public, except for publications or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectionable purpose. No cooking shall be done or permitted by any tenant on the Premises, except that use by Tenant of Underwriters’ Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages or use of a microwave oven shall be permitted provided that such equipment and use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations.

23.

Tenant shall not use in any space or in public halls of the Building any hand trucks except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicle of any kind into the Building.

24.

Without the written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant’s address.

25.

Tenant shall comply with all safety fire protection and evacuation procedures and regulations established by Landlord or any government agency.

26.

Tenant assumes any and all responsibilities for protecting the Premises from theft, robbery and pilferage.

27.

The requirements of Tenants will be attended to only upon written application to the office of the Building Manager by an authorized individual.

28.

Tenant shall not park its vehicles in any parking areas designated by Landlord as areas for parking by visitors to the Building or the Project.

29.

Any single delivery or shipment to the loading docks that would exceed thirty (30) minutes shall be scheduled in advance with Landlord.

D-4

EXHIBIT E

CLEANING SPECIFICATIONS

E-1

E-2

EXHIBIT F

LOCATION OF TENANT’S EXTERIOR SIGNAGE

F-1

EXHIBIT G

WORK RULES AND REGULATIONS

1.

GENERAL

A.

No work is permitted to be performed until the Construction Supervisor has received two (2) sets of the Final Plans.

B.

All modifications to the Building or to any Building systems and equipment must be compliant with Laws and approved in writing by Landlord in accordance with the Lease.

C.

Impairments to fire/life safety systems and hot work conducted during the project will be conducted in accordance with the requirements of the Landlord’s insurance loss control programs as stated in these Work Rules and Regulations.

D.

Mechanical fastening is not permitted to the existing curtain wall and or window systems.

E.

Building standard soffit is to be installed at perimeters and any areas with windows and curtain wall.

F.

In the event a window/curtain wall is removed or a penetration in the roof/walls is completed, a mold inspection/certification report will be required to be completed by the General Contractor and copies provided to Landlord.

G.

Prior to the work commencing, a building permit, and all other required trade permits must be obtained and displayed, a certificate of insurance from the General Contractor must be furnished to Landlord evidencing the insurance required by the Lease and the General Contractor has filed with Landlord its written safety plan complying with these Work Rules and Regulations. During the performance of the Tenant’s Work all inspections must be performed to satisfy permit requirements.

H.

No later than sixty (60) days after the completion of the Tenant’s Work, the General Contractor shall furnish Landlord with one set of reproducible and two (2) sets of blue-line prints showing the final as-built construction work performed together with an AutoCAD Computer Assisted Drafting and Design System (or other compatible system or medium) using naming conventions issued by the American Institute of Architects in June 1990 (or other reasonable naming convention) and magnetic computer media of such record drawings and specifications, translated into DXF format or another format acceptable to Landlord.

G-1

I.

The Construction Supervisor must be notified by the General Contractor of all work scheduled and shall be provided with a list of all personnel working on the Premises.

J.

No work is permitted to be performed between 8:00 a.m. and 6:00 p.m. which will materially disturb or materially inconvenience other tenants in the Building (e.g. core drilling, shooting track, noxious odors, etc.), except so long as there are no other tenant occupying the Building. The Construction Supervisor must pre-approve, in its reasonable judgment, any work that entails significant noise or vibration. Construction operations requiring curing of compounds that emits noxious odors must include work plan ventilation, stand-by and security as required by building operations.

K.

Before any new electrical or mechanical equipment is installed in the Building, the General Contractor must submit a copy of the manufacturer’s data sheet to the Construction Supervisor. Any structural modifications or design modifications shall be performed at Tenant’s sole cost and expense and should be included as part of the Final Plans.

L.

All carts must be furnished with pneumatic tires.

M.

Smoking is not allowed in the Building.

N.

Intentionally omitted.

O.

The General Contractor must furnish the Construction Supervisor with a list of all sub-contractors, including emergency phone and/or pager numbers prior to commencing the work.

P.

The General Contractor must provide an on-site project superintendent at all times during which construction work is in progress. This supervisor must be knowledgeable of the project’s scope of work and have adequate on-site reference materials such as plans and specifications.

Q.

All workers must be dressed appropriately when working in an occupied building. Shirts must be worn at all times.

R.

Any work that requires access to another tenant’s space must be first coordinated through the Construction Supervisor. All cost associated with security or building engineer services shall be charged to the General Contractor.

S.

Any roof related work must be performed by Landlord’s designated contractor and details for penetration of the roof must be submitted for approval in accordance with the terms of the Lease and these Work Rules and Regulations. All details will conform with manufacturer’s recommendations and be performed in a workmanlike manner so as not to void or interrupt the roof warranty.

G-2

T.

Dumping of construction debris into any portion of the Building or the Land not specifically designated for same is strictly prohibited. All rubbish refuse and debris is to be removed by a licensed hauler to regulated/licensed landfills or recovery stations.

U.

Prior to starting work, the Tenant is to provide an emergency call list to Landlord.

V.

Door and hardware specifications match the base Building standards.

W.

Tenant to provide details of fire-safe penetrations through the rated walls and floors for Landlord review and comment.

X.

The Architect and or Engineer to provide specifications for the low VOC materials to be used in the Tenant’s Work (adhesives, paints, carpet, wall covering, etc.).

Y.

Tenant to turn over the Landlord any base Building devices such as unit heaters, fire alarm, and such which are removed and not intended for re-use during the fit-out.

Z.

Utility shut downs shall be coordinated at least 14 days in advance with the Construction Supervisor.

AA.

Tenant is to coordinate and provide master keying compatible with the Building locks. This is to be submitted and approved by Landlord prior to installation of any locks.

BB.

The General Contractor shall comply with Landlord’s Mold Operation and Maintenance Plan for Contractors, a copy of which has been provided to Tenant.

CC.

The General Contractor shall comply with Landlord’s standards for low of no VOCs products, a copy of which has been provided to Tenant.

2.

LIFE SAFETY

A.

The General Contractors shall not disconnect, tamper with, delete, obstruct, relocate, or expand any life safety equipment except as indicated on approved Final Plans.

B.

The General Contractors will take necessary precautions to prevent accidental fire alarms. Any unit or device temporarily incapacitated will be red-tagged “Out of Service” and the Construction Supervisor will be alerted prior to the temporary outage.

C.

All tenant installed special fire extinguisher /alarm detection systems shall be monitored by the base Building fire alarm system.

G-3

D.

Tenant installed fire alarm initiation and notification devices operating directly from the base Building fire alarm system shall be specified by the Landlord.

E.

All connections to the Building’s existing fire alarm system are to be made only by the subcontractor specified by the Construction Supervisor.

F.

Fire alarm testing will be scheduled, if possible, at least twenty-four (24) hours in advance with the Construction Supervisor and any required governmental agent.

G.

Combustible and hazardous materials are not allowed to be stored in the Building or anywhere else on the Project without prior approval of the Construction Supervisor. Material safety data sheets on all other materials to be stored in the Building must be kept onsite and a copy submitted to the Construction Supervisor.

H.

Dust protection of smoke detectors must be installed and removed on a daily basis. Dust protection is required during construction to avoid false fire alarm. Filter media must be installed over all return air paths to any equipment rooms prior to demolition. The media must be maintained during construction and removed at substantial completion.

I.

All of the Premises is to be fully protected by automatic sprinkler systems.

J.

All systems and equipment are to be designed and installed in accordance with the current standards of the National Fire Protection Association.

K.

Any sprinkler work shall be permitted by the local municipality authority.

L.

All equipment, devices and materials used in the installation should be listed by UL and FM Approved.

M.

Connection to the base Building sprinkler/standpipe riser shall be provided with a control valve and water flow alarm device. Sprinkler systems control valves shall be UL Listed and FM Approved, clockwise closing, indicating valves with supervisory switches.

N.

The entire system shall be designed and installed in accordance with NFPA Pamphlet No. 13, 231 and 231C latest issues and local codes.

O.

The General Contractor shall comply with Landlord’s indoor air quality management plan, a copy of which has been provided to Tenant.

3.

PARKING – LOADING DOCK

A.

Neither the General Contractor nor its personnel will use loading dock area for daytime parking without first obtaining permission from the Construction Supervisor forty-eight (48) hours in advance to better assure dock availability. Unauthorized vehicle will be ticked and towed.

G-4

B.

Use of the loading dock for deliveries/trash removal must be scheduled through the Construction Supervisor.

4.

UTILITIES

A.

Utilities (i.e. electric, gas, water, telephone/cable) will not be cut off or interrupted without permission of the Construction Supervisor and affected tenants and at least forty-eight (48) hours prior notice.

5.

SECURITY

A.

When it is deemed necessary by the Construction Supervisor to temporarily issue any keys to the General Contractor, the General Contractor will be responsible for controlling possession and use of the key(s) and will return them daily to the person that issued them. Failure to return keys may result in re-keying and costs associated with re-keying will be borne by the General Contractor.

The General Contractor will be responsible for locking any area made available to the General Contractor whenever that area is unattended.

G-5

EX-23.1

  Exhibit 23.1

EX-31.1

Exhibit 31

CERTIFICATION

Pursuant to 18 U.S.C. Section 1350

As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Bizuo (Tony) Liu, certify that:

1.I have reviewed this annual report on Form 10-K of Cellular Biomedicine Group, Inc. (the "registrant");

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: February 28, 2020	By:	/s/ Bizuo (Tony) Liu
		Bizuo (Tony) Liu
		Chief Executive Officer and Chief Financial Officer
		(principal executive officer and financial and accounting officer)

EX-32.1

Exhibit 32

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Cellular Biomedicine Group, Inc., a Delaware corporation (the "Company"), does hereby certify, to such officer's knowledge, that:

The Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the "Form 10-K") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 28, 2020	By:	/s/ Bizuo (Tony) Liu
		Bizuo (Tony) Liu
		Chief Executive Officer and Chief Financial Officer
		(principal executive officer and financial and accounting officer)

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of Form 10-K or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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7. INVESTMENTS (Details) - Equity position in Arem Pacific Corporation - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Cost	$ 480,000	$ 480,000
Gross unrealized gains/(losses)	0	0
Gross unrealized losses more than 12 months	(240,000)	(240,000)
Gross unrealized losses less than 12 months	0	0
Market or fair value	$ 240,000	$ 240,000

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4. VARIABLE INTEREST ENTITY (Details) - USD ($)		Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Assets
Cash		$ 15,443,649	$ 52,812,880	$ 21,568,422
Other receivable		750,943	101,909
Total current assets		34,029,640	54,607,711
Property, plant and equipment, net		21,434,414	15,193,761
Right of use		20,106,163	15,938,203
Intangibles		7,376,940	7,970,692
Total assets	[1]	97,324,300	107,581,349
Liabilities:
Short-term debt		14,334,398	0
Accounts payable		2,039,686	422,752
Other payables		1,904,829	1,878,926
Total current liabilities		23,672,866	8,041,206
Other non-current liabilities		17,933,743	14,321,751
Total liabilities	[1]	41,606,609	22,362,957
CBMG Shanghai
Assets
Cash		13,424,425	2,376,974
Other receivable		201,532	61,722
Prepaid expenses		770,127	1,497,072
Total current assets		14,396,084	3,935,768
Property, plant and equipment, net		20,762,271	14,280,949
Right of use		13,541,518	15,431,554
Intangibles		1,226,955	1,412,375
Long-term prepaid expenses and other assets		4,742,138	5,194,045
Total assets		54,668,966	40,254,691
Liabilities:
Short-term debt		14,334,398	0
Accounts payable		1,324,792	359,980
Other payables		4,090,154	4,937,541
Accrued payroll	[2]	1,208,491	1,367,658
Deferred income		10,994	6,280
Total current liabilities		20,968,829	6,671,459
Other non-current liabilities		11,896,934	13,877,334
Total liabilities		$ 32,865,763	$ 20,548,793

[1] The Company's consolidated assets as of December 31, 2019 and 2018 included $54,668,966 and $40,254,691, respectively, of assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. Each of the following amounts represent the balances as of December 31, 2019 and 2018, respectively. These assets include cash and cash equivalents of $13,424,425and $2,376,974; other receivables of $201,532 and $61,722; prepaid expenses of $770,127 and $1,497,072; property, plant and equipment, net, of $20,762,271 and $14,280,949; right of use of $13,541,518 and $15,431,554; intangibles of $1,226,955 and $1,412,375; and long-term prepaid expenses and other assets of $4,742,138 and $5,194,045. The Company's consolidated liabilities as of December 31, 2019 and 2018 included $32,865,763 and $20,548,793, respectively, of liabilities of the VIEs whose creditors have no recourse to the Company. These liabilities include short-term debt of $14,334,398 and nil; accounts payable of $1,324,792 and $359,980; other payables of $4,090,154 and $4,937,541; payroll accrual of $1,208,491 and $1,367,658, which mainly includes bonus accrual of $1,207,560 and $1,358,709; deferred income of $10,994 and $6,280; and other non-current liabilities of $11,896,934 and $13,877,334. See further description in Note 4, Variable Interest Entities.

[2] Accrued payroll mainly includes bonus accrual of $1,207,560 and $1,358,709 as of December 31, 2019 and December 31, 2018, respectively.

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9. INTANGIBLE ASSETS (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Total intangibles, net	$ 7,376,940	$ 7,970,692
Patents, Knowhow & License
Cost basis	18,150,107	17,580,368
Less: accumulated amortization	(8,317,085)	(6,950,656)
Intangible assets, gross	6,948,126	7,744,816
Software
Cost basis	612,679	340,918
Less: accumulated amortization	(183,865)	(115,042)
Intangible assets, gross	$ 428,814	$ 225,876

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14. STOCK BASED COMPENSATION (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Stock-based compensation	$ 2,416,058	$ 3,184,425	$ 4,512,192
Compensation cost related to restricted stock grants	1,647,923	$ 1,642,320	$ 833,019
Unrecognized compensation cost related to non-vested stock option awards	$ 2,248,351
Non-vested stock option awards	263,822
Unrecognized compensation cost related to non-vested restricted stock awards	$ 2,994,358
Non-vested restricted stock	235,822
Weighted-average period for the stock option awards	1 year 18 days
Weighted-average period for the restricted stock awards	1 year 2 months 26 days
Shares issued under 2011, 2013 and 2014 Incentive Plan	65,341	244,682	547,793
Grant date fair value of the options	$ 751,523	$ 3,528,715	$ 4,600,926
Minimum expected volatility	87.26%	65.15%	85.41%
Maximum expected volatility	88.03%	206.42%	89.62%
Expected lives	6 years	6 years	6 years
Minimum risk-free interest rate	1.43%	2.33%	1.86%
Maximum risk-free interest rate	2.36%	3.11%	2.29%
Cash received from option exercises under share-based payment	$ 283,959	$ 2,738,866	$ 308,371
Minimum
Stock exercise price	$ 13.54	$ 14.50	$ 5.30
Maximum
Stock exercise price	$ 17.89	$ 23.55	$ 13.20

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16. INCOME TAXES (Details 2)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Effective Tax Rate Reconciliation
Income tax provision at statutory rate	21.00%	21.00%	35.00%
State income taxes, net of federal benefit	0.00%	0.00%	0.00%
Rate deduction	(7.00%)	(3.00%)	(20.00%)
Foreign rate differential	2.00%	0.00%	(13.00%)
Other permanent difference	0.00%	(1.00%)	(2.00%)
Change in valuation allowance	(16.00%)	(17.00%)	0.00%
Total tax credit (expense)	0.00%	0.00%	0.00%

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5. RESTRICTED CASH AND SHORT-TERM DEBT (Tables)

12 Months Ended

Dec. 31, 2019

Restricted Cash [Abstract]

Details of the bank borrowings

						As of December 31, 2019		As of December 31, 2018
Lender	Inception date	Maturity date	Interest rate			USD		USD
Merchants Bank	January 21, 2019 ~ January 31, 2019	January 21, 2020 ~ January 31, 2020		4.785	%	$	3,496,361	$	-
Merchants Bank	February 22, 2019 ~ June 24, 2019	February 22, 2020 ~ June 24, 2020		4.35	%		10,838,037		-
						$	14,334,398	$	-

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14. STOCK BASED COMPENSATION

12 Months Ended

Dec. 31, 2019

Employee Benefit and Share-based Payment Arrangement, Noncash Expense [Abstract]

14. STOCK BASED COMPENSATION

Our stock-based compensation arrangements include grants of stock options and restricted stock awards under the stock option plans (consisting of the 2009 Plan, 2011 Plan, 2013 Plan, the 2014 Plan and the 2019 Plan) and certain awards granted outside of these plans. The compensation cost that has been charged against income related to stock options (including shares issued for services and expense true-ups and reversals described in Note 12) for the years ended December 31, 2019, 2018 and 2017 was $2,416,058, $3,184,425 and $4,512,192, respectively. The compensation cost that has been charged against income related to restrict stock awards for the years ended December 31, 2019, 2018 and 2017 was $1,647,923, $1,642,320 and $833,019, respectively.

These expenses are included in overhead, general and administrative expense, selling and marketing expense as well as research and development expenses in our Consolidated Statements of Operations.

As of December 31, 2019, there was $2,248,351 all unrecognized compensation cost related to an aggregate of 263,822 of non-vested stock option awards and $2,994,358 related to an aggregate of 235,822 of non-vested restricted stock awards. Restricted stock awards under a long-term incentive plan is not accounted for as the attendant could chose to surrender part of the restricted stock awards for individual income tax payment purposes. These costs are expected to be recognized over a weighted-average period of 1.05 years for the stock options awards and 1.24 years for the restricted stock awards.

During the year ended December 31, 2019, the Company issued an aggregate of 65,341 options under the 2011 Plan, 2013 Plan, 2014 Plan and 2019 Plan to officers, directors, employees and advisors. The grant date fair value of these options was $751,523 using Black-Scholes option valuation models with the following assumptions: grant date strike price from $13.54 to $17.89, volatility 87.26% to 88.03%, expected life 6.0 years and risk-free rate of 1.43% to 2.36%. The Company is expensing these options on a straight-line basis over the requisite service period.

As of December 31, 2018, there was $4,215,079 all unrecognized compensation cost related to an aggregate of 492,340 of non-vested stock option awards and $2,904,245 related to an aggregate of 227,951 of non-vested restricted stock awards. Restricted stock awards under a long-term incentive plan is not accounted for as the attendant could chose to surrender part of the restricted stock awards for individual income tax payment purposes. These costs are expected to be recognized over a weighted-average period of 1.66 years for the stock options awards and 1.35 years for the restricted stock awards.

During the year ended December 31, 2018, the Company issued an aggregate of 244,682 options under the 2011 Plan, 2013 Plan and 2014 Plan to officers, directors, employees and advisors. The grant date fair value of these options was $3,528,715 using Black-Scholes option valuation models with the following assumptions: grant date strike price from $14.5 to $23.55, volatility 65.15% to 206.42%, expected life 6.0 years and risk-free rate of 2.33% to 3.11%. The Company is expensing these options on a straight-line basis over the requisite service period.

The following table summarizes stock option activity as of December 31, 2019 and 2018 and for the year ended December 31, 2019:

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2017		1,892,189		$	11.54		7.0	$	4,909,194
Grants		244,682			18.68
Forfeitures		(72,076	)		13.95
Exercises		(235,929	)		7.01
Outstanding at December 31, 2018		1,828,866		$	12.41		6.5	$	11,496,058
Grants		65,341			16.17
Forfeitures		(74,901	)		17.99
Exercises		(30,418	)		7.30
Outstanding at December 31, 2019		1,788,888		$	12.37		5.4	$	9,394,219
Vested and exercisable at December 31, 2019		1,525,066		$	11.91		4.9	$	8,820,061

Exercise			Number of Options
Price			Outstanding		Exercisable
$	3.00 - $4.95			185,547		185,547
$	5.00 - $9.19			448,124		432,176
$	9.20 - $15.00			518,504		404,203
$	15.01 - $20.00			481,713		360,840
$	20.10	+		155,000		142,300
				1,788,888		1,525,066

The aggregate intrinsic value for stock options outstanding is defined as the positive difference between the fair market value of our common stock and the exercise price of the stock options.

Cash received from option exercises under all share-based payment arrangements for the years ended December 31, 2019, 2018 and 2017 was $283,959, $2,738,866 and $308,371, respectively.

The Company adopted ASU 2018-07 on January 1, 2019, and the stock-based compensation expense for grants before the adoption of ASU 2018-07 is based on the grant date fair value as of December 31, 2018, which was the last business day before the Company adopted ASU 2018-07, for all nonemployee awards that have not vested as of December 31, 2018. The cumulative-effect adjustment to retained earnings as of January 1, 2019 was immaterial to the financial statements as a whole. Accordingly, the Company did not record this adjustment as of January 1, 2019. Furthermore, for future nonemployee awards, compensation expense is based on the market value of the shares at the grant date.

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18. SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2019

Subsequent Events [Abstract]

18. SUBSEQUENT EVENTS

 On January 28, 2020, the Board of Directors of the Company accepted the Special Committee of the Board and its advisers’ recommendation to arrange a bridge loan (the “Bridge Loan”) of $16 million in accordance with a Bridge Loan Agreement entered into with Winsor Capital Limited on January 28, 2020. TF Capital Ranok Ltd., an affiliate of Winsor Capital Limited, is a member of the consortium that submitted a non-binding going-private proposal to the Company on November 11, 2019. The Bridge Loan Agreement is not conditioned upon the consortium bid. The Company received $7 million of the Bridge Loan on January 29, 2020.

On February 19, 2020, the Company commenced as a collaborator with Ruijin Hospital on a pilot clinical study on inhalation of mesenchymal stem cells exosomes treating severe novel coronavirus pneumonia, other collaborators in this pilot clinical study are the Shanghai Public Health Clinical Center and the Wuhan Jinyintan Hospital.

On February 20, 2020, the Company repaid $14.3 million short-term borrowings from China Merchant Bank. 

 On February 20, 2020, Shanghai Cellular Biopharmaceutical Group Ltd. and Novartis entered into a Quality Agreement for external manufacturing, pursuant to which both parties specified the quality assurance roles and responsibilities of Novartis AG and CBMG Shanghai with regard to the manufacture and supply of Kymriah® to Novartis in China.

On February 21, 2020, the Special Committee of the Board of Directors of the Company received a new preliminary non-binding proposal letter, dated the same day, from the Consortium led by Mr. Bizuo (Tony) Liu, certain other senior management members of the Company, Hillhouse Bio Holdings, L.P., TF Capital Ranok Ltd., Dangdai International Group Co., Limited, Mission Right Limited, Maplebrook Limited, Viktor Pan, Zheng Zhou, OPEA SRL, Wealth Map Holdings Limited and Earls Mill Limited (the “Consortium Members”), to acquire all Shares of the Company (other than those Shares held by the Consortium Members that may be rolled over in connection with the transaction proposed in the Letter) for U.S.$19.50 per Share in cash in a going-private transaction. A consortium consisting of certain but not all of the Consortium Members submitted a preliminary non-binding proposal to acquire the Company in a going-private transaction on November 11, 2019.

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6. PROPERTY, PLANT AND EQUIPMENT

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

6. PROPERTY, PLANT AND EQUIPMENT

As of December 31, 2019 and 2018, property, plant and equipment, carried at cost, consisted of the following:

	December 31, 2019			December 31, 2018
Office equipment	$	160,315		$	101,608
Manufacturing equipment		14,963,621			7,636,905
Computer equipment		576,499			426,507
Leasehold improvements		15,516,570			12,861,186
Construction in progress		196,240			1,030,760
		31,413,245			22,056,966
Less: accumulated depreciation		(9,978,831	)		(6,863,205	)
	$	21,434,414		$	15,193,761

Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $4,187,330, $3,360,517 and $1,195,705, respectively.

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10. LEASES

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

10. LEASES

The Company leases facilities and equipment under non-cancellable operating lease agreements. These facilities and equipment are located in the United States, Hong Kong and China. The Company recognizes rental expense on a straight-line basis over the life of the lease period.

The Company adopted ASC 842 on January 1, 2019 using a modified retrospective approach and elected the transition method that allows for application of the standard at the beginning of the earliest comparative period presented in the financial statements. The Company also elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to carry forward the historical lease classification. We did not elect the practical expedient allowing the use of hindsight, which would require us to reassess the lease term of our leases based on all facts and circumstances through the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to our current contract portfolio. We applied the short-term lease exception to all leases of one year or less. As a result of the adoption of ASC 842, the Company recognized an operating liability with a corresponding ROU asset of the same amounts based on the present value of the minimum rental payments of such leases. As of December 31, 2018, the ROU asset has a balance of $15,938,203 which is included in other non-current assets in the consolidated balance sheets and current liabilities and non-current liabilities relating to the ROU asset were $1,874,270 and $14,063,933, respectively, which are included in other current liabilities and other non-current liabilities in the consolidated balance sheets, respectively. The discount rate used for leases accounted under ASC 842 is the Company’s estimated borrowing rate of 5%.

Quantitative information regarding the Company’s leases is as follows:

The components of lease expense were as follows:

	For the Year Ended
	December 31,
	2019		2018
Lease cost
Operating lease cost		2,934,003		2,601,686
Short-term lease cost		159,054		620,687
Total lease cost		3,093,057		3,222,373

Supplemental cash flow information related to leases was as follows:

	For the Year Ended
	December 31,
	2019		2018
Cash paid for the amounts included in the measurement of lease liabilities for operating leases:
Operating cashflows		2,810,145		2,499,934

Supplemental balance sheet information related to leases was as follows:

	December 31, 2019			December 31, 2018
Operating lease right-of-use assets		20,106,163			15,938,203
Other current liabilities		2,506,413			1,874,270
Other non-current liabilities		17,599,750			14,063,933
Weighted Average Remaining Lease Term (in years): Operating leases		7.9			7.7
Weighted Average Discount Rate: Operating leases		5	%		5	%

As of December 31, 2019, the Company has the following future minimum lease payments due under the foregoing lease agreements:

Years ending December 31,	Amount
2020	$	3,628,949
2021		3,149,434
2022		3,246,854
2023		3,246,854
2024 and thereafter		11,912,327
	$	25,184,418

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13. COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Capital commitments

	December 31, 2019
Contracts for acquisition of plant and equipment being or to be executed	$	1,177,975

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8. FAIR VALUE ACCOUNTING (Tables)

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Assets measured at fair value on a recurring basis

	As of December 31, 2019 and December 31, 2018
	Fair Value Measurements at Reporting Date Using:
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Equity position in Arem Pacific Corporation	$	240,000	$	-	$	240,000	$	-

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19. UNAUDITED QUARTERLY FINANCIAL INFORMATION (Tables)

12 Months Ended

Dec. 31, 2019

Quarterly Financial Data [Abstract]

Schedule of quarterly financial information

	Year ended December 31, 2019
		Q4			Q3			Q2			Q1		Total
Selected Income Statement Data:
Net sales and revenue	$	290,655		$	-		$	-		$	49,265		$	339,920
Gross Profit		236,364			-			-			41,178			277,542
Operating loss		(12,799,189	)		(16,491,596	)		(12,284,487	)		(9,416,912	)		(50,992,184	)
Net loss		(12,686,663	)		(15,863,906	)		(12,096,697	)		(9,336,788	)		(49,984,054	)
Net loss per share:
Basic and diluted		(0.66	)		(0.82	)		(0.63	)		(0.51	)		(2.63	)

	Year ended December 31, 2018
		Q4			Q3			Q2			Q1		Total
Selected Income Statement Data:
Net sales and revenue	$	25,698		$	70,431		$	77,313		$	50,961		$	224,403
Gross Profit		4,113			32,948			22,920			28,661			88,642
Operating loss		(9,811,604	)		(12,797,834	)		(9,387,635	)		(8,508,672	)		(40,505,745	)
Net loss		(8,519,229	)		(12,743,764	)		(9,186,076	)		(8,496,423	)		(38,945,492	)
Net loss per share:
Basic and diluted		(0.45	)		(0.72	)		(0.53	)		(0.51	)		(2.20	)

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12. EQUITY (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Equity [Abstract]
Expense associated with stock options awards	$ 2,416,058	$ 3,184,425	$ 4,512,192
Restricted common stock issuances	$ 1,647,923	$ 1,642,320	$ 833,019
Underlying exercised shares	30,418	235,929	57,400
Restricted common stock issued to directors	101,729	91,713	68,446
Treasury stock purchase	54,000	574,705	426,794
Treasury stock purchase, amount	$ 1,039,028	$ 9,975,737	$ 3,977,929

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9. INTANGIBLE ASSETS (Details 1) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Finite-Lived Intangible Assets, Net [Abstract]
2020	$ 1,490,985
2021	1,485,862
2022	1,474,146
2023	1,462,583
2024 and thereafter	1,463,364
Intangibles, net	$ 7,376,940	$ 7,970,692

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10. LEASES (Details 2)	Dec. 31, 2019 USD ($)
Leases [Abstract]
2020	$ 3,628,949
2021	3,149,434
2022	3,246,854
2023	3,246,854
2024 and thereafter	11,912,327
Total	$ 25,184,418

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Statement of Comprehensive Income [Abstract]
Net sales and revenue	$ 339,920	$ 224,403	$ 336,817
Operating expenses:
Cost of sales	62,378	135,761	162,218
General and administrative	13,458,151	13,220,757	12,780,483
Selling and marketing	141,597	308,830	360,766
Research and development	37,669,978	24,150,480	14,609,917
Impairment on non-current assets	0	2,914,320	0
Total operating expenses	51,332,104	40,730,148	27,913,384
Operating loss	(50,992,184)	(40,505,745)	(27,576,567)
Other income:
Interest income	809,785	392,328	133,621
Other income	199,390	1,172,879	1,955,086
Total other income	1,009,175	1,565,207	2,088,707
Loss before taxes	(49,983,009)	(38,940,538)	(25,487,860)
Income taxes provision	(1,045)	(4,954)	(2,450)
Net loss	(49,984,054)	(38,945,492)	(25,490,310)
Other comprehensive income (loss):
Cumulative translation adjustment	8,242	(1,079,689)	967,189
Unrealized loss on investments, net of tax	0	0	(240,000)
Total other comprehensive income (loss)	8,242	(1,079,689)	727,189
Comprehensive loss	$ (49,975,812)	$ (40,025,181)	$ (24,763,121)
Net loss per share :
Basic and diluted	$ (2.63)	$ (2.20)	$ (1.78)
Weighted average common shares outstanding:
Basic and diluted	18,983,206	17,741,104	14,345,604

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2. BASIS OF PRESENTATION

12 Months Ended

Dec. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

2. BASIS OF PRESENTATION

The consolidated financial statements include the financial statements of the Company and all of its subsidiaries and variable interest entities. All significant intercompany transactions and balances are eliminated upon consolidation. The consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”).

The Company recorded accumulated deficit of $199,966,543, cash and cash equivalents and restricted cash of $32,443,649 as of December 31, 2019, compared with accumulated deficit of $149,982,489, cash and cash equivalents of $52,812,880 as of December 31, 2018. Although management believes it can secure financial resources to satisfy the Company’s current liabilities and the capital expenditure needs in the next 12 months, there are no guarantees that these financial resources will be secured. Therefore, there is a substantial doubt about the ability of the Company to continue as a going concern that it may be unable to realize its assets and discharge its liabilities in the normal course of business. In order to finance our operation, management intends to rely upon external financing. This financing may be in the form of equity and or debt, in private placements and/or public offerings or arrangements with private lenders. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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7. INVESTMENTS

12 Months Ended

Dec. 31, 2019

Investments [Abstract]

7. INVESTMENTS

The Company’s investments represent the investment in equity securities listed in Over-The-Counter (“OTC”) markets of the United States of America:

December 31, 2019 and December 31, 2018	Cost		Gross Unrealized Gains/(losses)		Gross Unrealized Losses more than 12 months			Gross Unrealized Losses less than 12 months		Market or Fair Value
Equity position in Arem Pacific Corporation	$	480,000	$	-	$	(240,000	)	$	-	$	240,000

There were no sales of investments for the years ended December 31, 2019 and 2018.

The unrealized holding gain (loss) for the investments, net of tax, that were recognized in other comprehensive income (loss) for the year ended December 31, 2019 was nil, as compared to nil and $(240,000) for the years ended December 31, 2018 and 2017, respectively.

The Company tracks each investment with an unrealized loss and evaluates them on an individual basis for other-than-temporary impairments, including obtaining corroborating opinions from third-party sources, performing trend analyses and reviewing management’s future plans. When investments have declines determined by management to be other-than-temporary, the Company recognizes write downs through earnings. Other-than-temporary impairment of investments for the year ended December 31, 2019 was nil, compared with $29,424 and nil for the years ended December 31, 2018 and 2017, respectively. The Company provided full impairment of $29,424 for shares of Alpha Lujo, Inc. (“ALEV”) for the year ended December 31, 2018 as ALEV filed Form 15 (Certification and Notice of Termination of Registration under Section 12(g) of the Securities Exchange Act of 1934 or Suspension of Duty to File Reports) with the SEC and has not been traded in the market since 2018.

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11. RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2019

Related Party Transactions [Abstract]

11. RELATED PARTY TRANSACTIONS

The Company advanced petty cash to officers for business travel purposes. As of December 31, 2019 and 2018, other receivables due from officers for business travel purposes were nil.

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16. INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Schedule of components of the current tax expense

	For the Year Ended
	December 31,
	2019			2018			2017
Current:
US federal	$	-		$	-		$	-
US state		(1,045	)		(2,475	)		(2,450	)
Foreign		-			(2,479	)		-
Total current tax credit (expense)	$	(1,045	)	$	(4,954	)	$	(2,450	)
Deferred:
Federal	$	-		$	-		$	-
State		-			-			-
Foreign		-			-			-
Total deferred tax expense	$	-		$	-		$	-
Total income tax credit (expense)	$	(1,045	)	$	(4,954	)	$	(2,450	)

Schedule of components of net deferred tax assets

	December 31,			December 31,
	2019			2018
Deferred tax assets:
Net operating loss carry forwards (offshore)	$	14,229,745		$	10,124,478
Net operating loss carry forwards (US)		9,554,430			5,670,678
Accruals (offshore)		465,091			429,013
Accrued compensation (US)		180,455			128,207
Stock-based compensation (US)		4,286,546			3,665,226
Investments (US)		2,363,843			2,363,843
Credits (US)		644,580			395,112
Property and equipment		(46,186	)		(19,675	)
Goodwill & intangibles		754,248			827,994
Subtotal		32,432,752			23,584,876
Less: valuation allowance		(32,432,752	)		(23,584,876	)
Total deferred tax assets		-			-

Schedule of reconciliation of income tax expense (benefit)

	For the Year Ended			For the Year Ended			For the Year Ended
	December 31, 2019			December 31, 2018			December 31, 2017
Effective Tax Rate Reconciliation
Income tax provision at statutory rate		21	%		21	%		35	%
State income taxes, net of federal benefit		0	%		0	%		0	%
Rate deduction		(7	)%		(3	)%		(20	)%
Foreign rate differential		2	%		0	%		(13	)%
Other permanent difference		0	%		(1	)%		(2	)%
Change in valuation allowance		(16	)%		(17	)%		0	%
Total tax credit (expense)		0	%		0	%		0	%

Schedule of unrecognized tax benefit

	December 31, 2019 (in thousands)
Beginning balance		462
Current year addition		106
Ending balance		568

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12. EQUITY (Tables)

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

Stock purchases

	Total number of shares purchased		Average price paid per share
Treasury stock as of December 31, 2018		1,001,499	$	13.93
Repurchased from January 1, 2019 to March 31, 2019		54,000	$	19.24
Repurchased from April 1, 2019 to June 30, 2019		-	$	-
Repurchased from July 1, 2019 to September 30, 2019		-	$	-
Repurchased from October 1, 2019 to December 31, 2019		-	$	-
Treasury stock as of December 31, 2019		1,055,499	$	14.20

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7. INVESTMENTS (Tables)

12 Months Ended

Dec. 31, 2019

Investments [Abstract]

Assets measured at fair value on a recurring basis

December 31, 2019 and December 31, 2018	Cost		Gross Unrealized Gains/(losses)		Gross Unrealized Losses more than 12 months			Gross Unrealized Losses less than 12 months		Market or Fair Value
Equity position in Arem Pacific Corporation	$	480,000	$	-	$	(240,000	)	$	-	$	240,000

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9. INTANGIBLE ASSETS (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Amortization expense	$ 1,450,973	$ 1,689,006	$ 1,790,258
Software
Intangible assets estimated useful life	5 years
Patents, Knowhow & License | Minimum
Intangible assets estimated useful life	5 years
Patents, Knowhow & License | Maximum
Intangible assets estimated useful life	10 years

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10. LEASES (Details Narrative) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Leases [Abstract]
Operating lease right-of-use assets	$ 20,106,163	$ 15,938,203
Other current liabilities	2,506,413	1,874,270
Other non-current liabilities	$ 17,599,750	$ 14,063,933

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13. COMMITMENTS AND CONTINGENCIES (Details)	Dec. 31, 2019 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Contracts for acquisition of plant and equipment being or to be executed	$ 1,177,975

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies are as follows:

Principles of Consolidation

The consolidated financial statements have been prepared in conformity with GAAP, and reflect the accounts and operations of the Company and its subsidiaries, beginning with the date of their respective acquisition. In accordance with the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Topic 810, or ASC 810, Consolidation, the Company consolidates any variable interest entity, or VIE, of which it is the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as variable interest entities, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE in which it has a majority ownership interest when the Company is not considered the primary beneficiary. The Company has determined that it is the primary beneficiary in a VIE—refer to Note 4, Variable Interest Entity. The Company evaluates its relationships with the VIE on an ongoing basis to ensure that it continues to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

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

These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Significant accounting estimates reflected in the Company’s consolidated financial statements include useful lives of property, plant and equipment and acquired intangibles, the valuation allowance for deferred income tax assets, valuation of goodwill, valuation of long-lived assets and share-based compensation expense. Actual results could materially differ from those estimates.

Revenue Recognition

Revenues consist mainly of cell banking services as well as cell therapy technology services with customers. The Company evaluates the separate performance obligation(s) under each contract, allocates the transaction price to each performance obligation considering the estimated stand-alone selling prices of the services and recognizes revenue upon the satisfaction of such obligations over time or at a point in time dependent on the satisfaction of one of the following criteria: (1) the customer simultaneously receives and consumes the economic benefits provided by the vendor’s performance (2) the vendor creates or enhances an asset controlled by the customer (3) the vendor’s performance does not create an asset for which the vendor has an alternative use, and the vendor has an enforceable right to payment for performance completed to date. Revenue from rendering of services is measured at the fair value of the consideration received or receivable under the contract or agreement. Revenue from cell therapy technology services is recognized in profit or loss at the point when customers simultaneously receive and consume the services. Revenue from cell banking storage is recognized in profit or loss on a straight-line basis over the storage period.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At December 31, 2019 and 2018, respectively, cash and cash equivalents include cash on hand and cash in the bank. At times, cash deposits may exceed government-insured limits.

Restricted cash consists of collateral representing cash deposits for borrowings. 

Accounts Receivable

Accounts receivable represent amounts earned but not collected in connection with the Company’s sales of goods or services as of December 31, 2019 and 2018. Account receivables are carried at their estimated collectible amounts.

The Company follows the allowance method of recognizing uncollectible accounts receivable. The Company recognizes bad debt expense based on specifically identified customers and invoices that are anticipated to be uncollectable. At December 31, 2019 and 2018, allowance of nil and $94,868, respectively, were provided for debtors of certain customers as those debts are unrecoverable from customers.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets ranging from three to ten years and begins when the related assets are placed in service. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Repair and maintenance costs are charged to operating expense as incurred.

For the years ended December 31, 2019, 2018 and 2017, depreciation expense was $4,187,330, $3,360,517 and $1,195,705, respectively.

Goodwill and Other Intangibles

Goodwill represents the excess of the cost of assets acquired over the fair value of the net assets at the date of acquisition. Intangible assets represent the fair value of separately recognizable intangible assets acquired in connection with the Company’s business combinations. The Company evaluates its goodwill and other intangibles for impairment on an annual basis or whenever events or circumstances indicate that impairment may have occurred. The evaluation includes comparing the fair value of the reporting unit to the carrying value, including goodwill. If the fair value exceeds the carrying value, no impairment loss is recognized. However, if the carrying value of the reporting unit exceeds its fair value, the goodwill of the reporting unit may be impaired. Impairment is measured by comparing the implied fair value of the goodwill to its carrying value.

The carrying amount of the goodwill as at December 31, 2019 and 2018 represents the cost arising from the business combinations in previous years and no impairment on goodwill was recognized for the years ended December 31, 2019 and 2018 as the Company continues to use the patents and knowhow acquired in the business combination in the Company’s current immune therapy R&D activities and there was no indication for impairment.

Treasury Stock

The treasury stock is recorded and carried at their repurchase cost. The Company recorded the entire purchase price of the treasury stock as a reduction of equity. A gain or loss will be determined when treasury stock is reissued or retired, and the original issue price and book value of the stock do not enter into the accounting. Additional paid-in capital from treasury stock is credited for gains and debited for losses when treasury stock is reissued at prices that differ from the repurchase cost.

Government Grants

Government grants are recognized in the balance sheet initially when there is reasonable assurance that they will be received and that the enterprise will comply with the conditions attached to them. When the Company received the government grants but the conditions attached to the grants have not been fulfilled, such government grants are deferred and recorded as deferred income. The classification of short-term or long-term liabilities is dependent on the management’s expectation of when the conditions attached to the grant can be fulfilled. Grants that compensate the Company for expenses incurred are recognized as other income in the statement of income on a systematic basis in the same periods in which the expenses are incurred.

For the year ended December 31, 2019, 2018 and 2017, the Company received government grants of $824,782, $1,105,272 and $1,905,213 for purposes of R&D and related capital expenditure, respectively. Government subsidies recognized as other income in the statement of income for the year ended December 31, 2019, 2018 and 2017 were $671,404, $1,119,827 and $2,077,486, respectively.

Valuation of long-lived asset

The Company reviews the carrying value of long-lived assets to be held and used, including other intangible assets subject to amortization, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset and intangible assets. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets and intangible assets to be disposed are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

Income Taxes

Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance would be provided for those deferred tax assets if it is more likely than not that the related benefit will not be realized.

A full valuation allowance has been established against all net deferred tax assets as of December 31, 2019 and 2018 based on estimates of recoverability. While the Company has optimistic plans for its business strategy, we determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to the Company’s ability to generate sufficient profits from its business model.

Share-Based Compensation

The Company periodically uses stock-based awards, consisting of shares of common stock and stock options, to compensate certain officers and consultants. Shares are expensed on a straight line basis over the requisite service period based on the grant date fair value, net of estimated forfeitures, if any. We currently use the Black-Scholes option-pricing model to estimate the fair value of our stock-based payment awards. This model requires the input of subjective assumptions, including the fair value of the underlying common stock, the expected volatility of the price of our common stock, risk-free interest rates, the expected term of the option and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. These assumptions are estimated as follows:

● Fair Value of Our Common Stock — Our common stock is valued by reference to the publicly traded price of our common stock.

● Expected Volatility — Prior to the Eastbridge merger, we did not have a history of market prices for our common stock and since the merger, we do not have what we consider a sufficiently active and readily traded market for our common stock to use historical market prices for our common stock to estimate volatility. Accordingly, we estimate the expected stock price volatility for our common stock by taking the median historical stock price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of other public companies in the stem cell industry similar in size, stage of life cycle and financial leverage. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available.

● Risk-Free Interest Rate — The risk-free interest rate assumption is based on observed interest rates appropriate for the expected terms of our awards. The risk-free interest rate assumption is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.

● Expected Term — The expected term represents the period that our stock-based awards are expected to be outstanding. The expected terms of the awards are based on a simplified method which defines the life as the average of the contractual term of the options and the weighted-average vesting period for all open tranches.

● Expected Dividend Yield — We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

In addition to the assumptions used in the Black-Scholes option-pricing model, the amount of stock option expense we recognize in our consolidated statements of operations includes an estimate of stock option forfeitures. We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors. Changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in our consolidated financial statements.

Fair Value of Financial Instruments

Under the FASB’s authoritative guidance on fair value measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. Level 3 valuations incorporate certain unobservable assumptions and projections in determining the fair value assigned to such assets.

All transfers between fair value hierarchy levels are recognized by the Company at the end of each reporting period. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement in its entirety, requires judgment and considers factors specific to the investment. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risks associated with investment in those instruments.

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

Lease

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Investments

Equity investments with or without readily determinable fair values are measured at fair value with changes in the fair value recognized through other income (expense) net.

Basic and Diluted Net Loss Per Share

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

Foreign Currency Translation

The Company’s financial statements are presented in U.S. dollars ($), which is the Company’s reporting currency, while the Company’s China subsidiaries’ functional currency is Chinese Renminbi (RMB). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange ruling at the balance sheet date. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of operations and comprehensive income (loss) during the periods. Any differences are recorded as an unrealized gain or loss on foreign currency translation in the statements of operations and comprehensive loss. In accordance with ASC 830, Foreign Currency Matters, the Company translates the assets and liabilities into USD from RMB using the rate of exchange prevailing at the applicable balance sheet date and the statements of income and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded in shareholders’ equity as part of accumulated other comprehensive income. The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations.

Comprehensive Loss

We apply ASC No. 220, Comprehensive Income (ASC 220). ASC 220 establishes standards for the reporting and display of comprehensive income or loss, requiring its components to be reported in a financial statement that is displayed with the same prominence as other financial statements. Our comprehensive loss was $49,975,812, $40,025,181 and $24,763,121 for the years ended December 31, 2019, 2018 and 2017, respectively.

Segment Information

FASB ASC Topic 280, “Segment Reporting” establishes standards for reporting information about reportable segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group in deciding how to allocate resources and in assessing performance. Based on the analysis, we operate in a single reportable segment.

Recent Accounting Pronouncements

Accounting pronouncements adopted during the year ended December 31, 2019

In June 2018, the FASB issued ASU 2018-07, which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The adoption of the ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”) which provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2018-02 is permitted, including adoption in any interim period for the public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this ASU should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The adoption of the ASU 2018-02 did not have a material impact on the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“ASU 2017-11”) which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. The amendments in Part I of this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of the ASU 2017-11 did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” (“ASU 2016-02”). The amendments in this update create Topic 842, Leases, and supersede the leases requirements in Topic 840, Leases. Topic 842 specifies the accounting for leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as operating leases under Topic 840. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Early application of the amendments in ASU 2016-02 is permitted. The Company adopted the new standard on January 1, 2019 using a modified retrospective approach and elected the transition method that allows for application of the standard at the beginning of the earliest comparative period presented in the financial statements. The Company also elected available practical expedients. The adoption impact of the ASU 2016-02 on the Company’s consolidated financial statements is illustrated in Note 10.

Accounting pronouncements not yet effective

In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820)” which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The modified standard eliminates the requirement to disclose changes in unrealized gains and losses included in earnings for recurring Level 3 fair value measurements and requires changes in unrealized gains and losses be included in other comprehensive income for recurring Level 3 fair value measurements of instruments. The standard also requires the disclosure of the range and weighted average used to develop significant unobservable inputs and how weighted average is calculated for recurring and nonrecurring Level 3 fair value measurements. The amendment is effective for fiscal years beginning after December 15, 2019 and interim periods within that fiscal year with early adoption permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”) which removes Step 2 from the goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. Public business entity that is a U.S. Securities and Exchange Commission filer should adopt the amendments in this ASU for its annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the standard to have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” (“ASU 2016-13”). Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We do not expect the standard to have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. We do not expect that the requirements of ASU 2017-04 will have a material impact on our consolidated financial statements. 

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)	Common Stock	Preferred Stock	Treasury Stock	Additional Paid In Capital	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)	Total
Beginning balance, shares at Dec. 31, 2016	14,281,378	0	0
Beginning balance, amount at Dec. 31, 2016	$ 14,281	$ 0	$ 0	$ 152,543,052	$ (85,546,687)	$ (1,116,692)	$ 65,893,954
Common stock issued with PPM, shares	1,208,334
Common stock issued with PPM, amount	$ 1,208			14,494,832			14,496,040
Restricted stock grants, shares	68,446
Restricted stock grants, amount	$ 69			832,950			833,019
Accrual of stock options				4,512,192			4,512,192
Exercise of stock options, shares	57,400
Exercise of stock options, amount	$ 58			308,313			308,371
Treasury stock purchase, shares			(426,794)
Treasury stock purchase, amount			$ (3,977,929)				(3,977,929)
Unrecognized loss on investments, net of tax						(240,000)	(240,000)
Foreign currency translation						967,189	967,189
Net loss					(25,490,310)		(25,490,310)
Ending balance, shares at Dec. 31, 2017	15,615,558	0	(426,794)
Ending balance, amount at Dec. 31, 2017	$ 15,616	$ 0	$ (3,977,929)	172,691,339	(111,036,997)	(389,503)	57,302,526
Common stock issued with PPM, shares	3,177,581
Common stock issued with PPM, amount	$ 3,177			70,347,996			70,351,173
Restricted stock grants, shares	91,713
Restricted stock grants, amount	$ 92			1,642,228			1,642,320
Accrual of stock options				3,184,425			3,184,425
Exercise of stock options, shares	235,929
Exercise of stock options, amount	$ 236			2,738,630			2,738,866
Treasury stock purchase, shares			(574,705)
Treasury stock purchase, amount			$ (9,975,737)				(9,975,737)
Foreign currency translation						(1,079,689)	(1,079,689)
Net loss					(38,945,492)		(38,945,492)
Ending balance, shares at Dec. 31, 2018	19,120,781	0	(1,001,499)
Ending balance, amount at Dec. 31, 2018	$ 19,121	$ 0	$ (13,953,666)	250,604,618	(149,982,489)	(1,469,192)	85,218,392
Common stock issued with PPM, shares	1,106,961
Common stock issued with PPM, amount	$ 1,107			17,165,092			17,166,199
Restricted stock grants, shares	101,729
Restricted stock grants, amount	$ 102			1,647,821			1,647,923
Accrual of stock options				2,416,058			2,416,058
Exercise of stock options, shares	30,418
Exercise of stock options, amount	$ 30			283,929			283,959
Treasury stock purchase, shares			(54,000)
Treasury stock purchase, amount			$ (1,039,028)				(1,039,028)
Foreign currency translation						8,242	8,242
Net loss					(49,984,054)		(49,984,054)
Ending balance, shares at Dec. 31, 2019	20,359,889	0	(1,055,499)
Ending balance, amount at Dec. 31, 2019	$ 20,360	$ 0	$ (14,992,694)	$ 272,117,518	$ (199,966,543)	$ (1,460,950)	$ 55,717,691

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Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2019	Feb. 24, 2020	Jun. 30, 2019
Document And Entity Information
Entity Registrant Name	Cellular Biomedicine Group, Inc.
Entity Central Index Key	0001378624
Document Type	10-K
Document Period End Date	Dec. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Shell Company	false
Entity Public Float			$ 200,634,545
Entity Common Stock, Shares Outstanding		19,355,292
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2019

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8. FAIR VALUE ACCOUNTING (Details Narrative) - shares	Dec. 31, 2019	Dec. 31, 2018
Equity position in Arem Pacific Corporation Member
Shares held by the company	8,000,000	8,000,000
Equity position in Alpha Lujo, Inc.
Shares held by the company	2,942,350	2,942,350
Equity position in Wonder International Education and Investment Group Corporation
Shares held by the company	2,057,131	2,057,131

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6. PROPERTY, PLANT AND EQUIPMENT (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 4,187,330	$ 3,360,517	$ 1,195,705

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Accounting Policies [Abstract]
Allowance for doubtful amounts	$ 0	$ 94,868	$ 10,789
Depreciation expense	4,187,330	3,360,517	1,195,705
Goodwill impairment	0	0	0
Government grants received	824,782	1,105,272	1,905,213
Government subsidies	671,404	1,119,827	2,077,486
Comprehensive loss	$ (49,975,812)	$ (40,025,181)	$ (24,763,121)

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15. NET LOSS PER SHARE (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Earnings Per Share [Abstract]
Net loss	$ (12,686,663)	$ (15,863,906)	$ (12,096,697)	$ (9,336,788)	$ (8,519,229)	$ (12,743,764)	$ (9,186,079)	$ (8,496,423)	$ (49,984,054)	$ (38,945,492)	$ (25,490,310)
Weighted average shares of common stock									18,983,206	17,741,104	14,345,604
Dilutive effect of stock options									0	0	0
Restricted stock vested not issued									0	0	0
Common stock and common stock equivalents									18,983,206	17,741,104	14,345,604
Net loss per basic and diluted share	$ (0.66)	$ (0.82)	$ (0.63)	$ (0.51)	$ (0.45)	$ (0.72)	$ (0.53)	$ (0.51)	$ (2.63)	$ (2.20)	$ (1.78)

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16. INCOME TAXES (Details 3) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)
Income Tax Disclosure [Abstract]
Unrecognized tax benefits, beginning	$ 462
Current year addition	106
Unrecognized tax benefits, ending	$ 568

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15. NET LOSS PER SHARE

12 Months Ended

Dec. 31, 2019

Earnings Per Share [Abstract]

15. NET LOSS PER SHARE

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

	For the Year Ended
	December 31,
	2019			2018			2017
Net loss	$	(49,984,054	)	$	(38,945,492	)	$	(25,490,310	)
Weighted average shares of common stock		18,983,206			17,741,104			14,345,604
Dilutive effect of stock options		-			-			-
Restricted stock vested not issued		-			-			-
Common stock and common stock equivalents		18,983,206			17,741,104			14,345,604
Net loss per basic and diluted share	$	(2.63	)	$	(2.20	)	$	(1.78	)

For the years ended December 31, 2019, 2018 and 2017, the effect of conversion and exercise of the Company’s outstanding options as well as the unvested restricted stocks are excluded from the calculations of dilutive net income (loss) per share as their effects would have been anti-dilutive since the Company had generated losses for the years ended December 31, 2019, 2018 and 2017.

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19. UNAUDITED QUARTERLY FINANCIAL INFORMATION

12 Months Ended

Dec. 31, 2019

Quarterly Financial Data [Abstract]

19. UNAUDITED QUARTERLY FINANCIAL INFORMATION

	Year ended December 31, 2019
		Q4			Q3			Q2			Q1		Total
Selected Income Statement Data:
Net sales and revenue	$	290,655		$	-		$	-		$	49,265		$	339,920
Gross Profit		236,364			-			-			41,178			277,542
Operating loss		(12,799,189	)		(16,491,596	)		(12,284,487	)		(9,416,912	)		(50,992,184	)
Net loss		(12,686,663	)		(15,863,906	)		(12,096,697	)		(9,336,788	)		(49,984,054	)
Net loss per share:
Basic and diluted		(0.66	)		(0.82	)		(0.63	)		(0.51	)		(2.63	)

	Year ended December 31, 2018
		Q4			Q3			Q2			Q1		Total
Selected Income Statement Data:
Net sales and revenue	$	25,698		$	70,431		$	77,313		$	50,961		$	224,403
Gross Profit		4,113			32,948			22,920			28,661			88,642
Operating loss		(9,811,604	)		(12,797,834	)		(9,387,635	)		(8,508,672	)		(40,505,745	)
Net loss		(8,519,229	)		(12,743,764	)		(9,186,076	)		(8,496,423	)		(38,945,492	)
Net loss per share:
Basic and diluted		(0.45	)		(0.72	)		(0.53	)		(0.51	)		(2.20	)

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6. PROPERTY, PLANT AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

Property, plant and equipment, carried at cost

	December 31, 2019			December 31, 2018
Office equipment	$	160,315		$	101,608
Manufacturing equipment		14,963,621			7,636,905
Computer equipment		576,499			426,507
Leasehold improvements		15,516,570			12,861,186
Construction in progress		196,240			1,030,760
		31,413,245			22,056,966
Less: accumulated depreciation		(9,978,831	)		(6,863,205	)
	$	21,434,414		$	15,193,761

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14. STOCK BASED COMPENSATION (Tables)

12 Months Ended

Dec. 31, 2019

Employee Benefit and Share-based Payment Arrangement, Noncash Expense [Abstract]

Stock option activity

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2017		1,892,189		$	11.54		7.0	$	4,909,194
Grants		244,682			18.68
Forfeitures		(72,076	)		13.95
Exercises		(235,929	)		7.01
Outstanding at December 31, 2018		1,828,866		$	12.41		6.5	$	11,496,058
Grants		65,341			16.17
Forfeitures		(74,901	)		17.99
Exercises		(30,418	)		7.30
Outstanding at December 31, 2019		1,788,888		$	12.37		5.4	$	9,394,219
Vested and exercisable at December 31, 2019		1,525,066		$	11.91		4.9	$	8,820,061

Outstanding stock options

Exercise			Number of Options
Price			Outstanding		Exercisable
$	3.00 - $4.95			185,547		185,547
$	5.00 - $9.19			448,124		432,176
$	9.20 - $15.00			518,504		404,203
$	15.01 - $20.00			481,713		360,840
$	20.10	+		155,000		142,300
				1,788,888		1,525,066

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9. INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2019

Finite-Lived Intangible Assets, Net [Abstract]

Intangible assets at cost

Patents & knowhow & license	December 31, 2019			December 31, 2018
Cost basis	$	15,265,211		$	14,695,472
Less: accumulated amortization		(8,317,085	)		(6,950,656	)
	$	6,948,126		$	7,744,816

Software	December 31, 2019			December 31, 2018
Cost basis	$	612,679		$	340,918
Less: accumulated amortization		(183,865	)		(115,042	)
	$	428,814		$	225,876
Total intangibles, net	$	7,376,940		$	7,970,692

Estimated amortization expenses

Years ending December 31,	Amount
2020	$	1,490,985
2021		1,485,862
2022		1,474,146
2023		1,462,583
2024 and thereafter		1,463,364
	$	7,376,940

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13. COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

13. COMMITMENTS AND CONTINGENCIES

Capital commitments

As of December 31, 2019, the capital commitments of the Company are summarized as follows:

	December 31, 2019
Contracts for acquisition of plant and equipment being or to be executed	$	1,177,975

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5. RESTRICTED CASH AND SHORT-TERM DEBT

12 Months Ended

Dec. 31, 2019

Restricted Cash [Abstract]

5. RESTRICTED CASH AND SHORT-TERM DEBT

On January 19, 2019, SH SBM, a wholly owned subsidiary of CBMG Shanghai, entered into a credit agreement (the “Credit Agreement”) with China Merchants Bank, Shanghai Branch (the “Merchants Bank”). Pursuant to the Credit Agreement, the Merchants Bank agreed to extend credit of up to 100 million RMB (approximately $14.5 million) to SH SBM via revolving and/or one-time credit lines. The types of credit available under the Credit Agreement, include, but are not limited to, working capital loans, trade financing, commercial draft acceptance, letters of guarantee and derivative transactions. The credit period under the Credit Agreement runs until December 30, 2019. As of December 31, 2019, all $14.3 million had been drawn down under the Credit Agreement. The Company subsequently repaid all the bank borrowings in February 2020.

Pursuant to the Credit Agreement, SH SBM will enter into a supplemental agreement with the Merchants Bank prior to the applicable drawdown that will set forth the terms of each borrowing thereunder (except for working capital loans) including principal, interest rate, term of loan and use of borrowing proceeds. With regard to working capital loans to be provided pursuant to the Credit Agreement, SH SBM shall submit a withdrawal application that includes the principal amount needed, purposes of the loan and a proposed quarterly interest rate and term of the loan for the Merchants Bank’s review and approval. The terms approved by the bank will govern such working capital loans. The bank has the right to adjust the interest rate for working capital loans from time to time based on changes in national policy, changes in interest rate published by the People’s Bank of China, credit market conditions and the bank’s credit policies. Upon SH SBM’s non-compliance with the agreed use of loan proceeds, the interest rate for the amount of loan proceeds improperly used will be the original rate plus 100% starting on the first day of such use. If SH SBM fails to pay a working capital loan on time, an extra 50% interest will be charged on the outstanding balances starting on the first day of such default.

Pursuant to a pledge agreement which became enforceable upon execution of the Credit Agreement, Cellular Biomedicine Group Ltd. (HK), a wholly owned subsidiary of the Company (“CBMG HK”), provided a guarantee of SH SBM’s obligations under the Credit Agreement. In connection with such guarantee, CBMG HK deposited $17 million into its account at the Merchants Bank for a 12-month period starting January 7, 2019 and also granted Merchants Bank a security interest in the cash deposited.

The details of the bank borrowings as of December 31, 2019 and December 31, 2018 are as follows:

						As of December 31, 2019		As of December 31, 2018
Lender	Inception date	Maturity date	Interest rate			USD		USD
Merchants Bank	January 21, 2019 ~ January 31, 2019	January 21, 2020 ~ January 31, 2020		4.785	%	$	3,496,361	$	-
Merchants Bank	February 22, 2019 ~ June 24, 2019	February 22, 2020 ~ June 24, 2020		4.35	%		10,838,037		-
						$	14,334,398	$	-

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9. INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2019

Finite-Lived Intangible Assets, Net [Abstract]

9. INTANGIBLE ASSETS

Most of our intellectual properties are developed internally. Because we do not capitalize our research and development expenses related to our home-grown intellectual properties, as of December 31, 2019, the intellectual properties acquired from the Agreen acquisition still accounted for the majority of the net book value of our intangible assets. We continue to apply the acquired Agreen intellectual properties in our immuno-oncology research and development activities. As such, there is no impairment on the continued use of the acquired Agreen intellectual properties.

As of December 31, 2019 and 2018, intangible assets consisted of the following:

Patents & knowhow & license	December 31, 2019			December 31, 2018
Cost basis	$	15,265,211		$	14,695,472
Less: accumulated amortization		(8,317,085	)		(6,950,656	)
	$	6,948,126		$	7,744,816

Software	December 31, 2019			December 31, 2018
Cost basis	$	612,679		$	340,918
Less: accumulated amortization		(183,865	)		(115,042	)
	$	428,814		$	225,876
Total intangibles, net	$	7,376,940		$	7,970,692

All software is provided by a third-party vendor, is not internally developed and has an estimated useful life of five years. Patents, knowhow and license are amortized using an estimated useful life of five to ten years. Amortization expense for the years ended December 31, 2019, 2018 and 2017 were $1,450,973, $1,689,006 and $1,790,258, respectively.

During the years ended December 31, 2019 and 2018, the Company provided impairment of nil and $2,884,896, respectively, for intangible assets. During 2018, the Company reassessed its return on investment to develop GVAX for cancer therapies in the current competitive market and decided to terminate its GVAX program and its license agreements with the University of South Florida (“USF”) and the Moffitt Cancer Center (“Moffitt”). As a result, the Company made a full impairment of $2,884,896 for the USF and Moffitt licenses. CD40LGVAX was licensed in 2015 with the intention of providing alternative treatment options for late stage non-small cell lung cancer (NSCLC) patients. Since then, the landscape of NSCLC has changed dramatically. Pembrolizumab has been approved as first-line treatment for patients with metastatic NSCLC with high PD-L1 expression, and for patients with metastatic NSCLC following disease progression on chemotherapy. In 2018, the U.S. FDA accepted a supplemental biologics license application for the combination of nivolumab plus ipilimumab for the frontline treatment of patients with advanced NSCLC with tumor mutational burden (TMB) ≥10 mutations per megabase (mut/Mb). In addition, the Company recently licensed TIL patents from NIH/NCI for multiple indications in solid tumors and decided that TIL technology platform has a higher potential to capture a broader solid tumors market. Hence, we decided to terminate the development of CD40LGVAX and focus our clinical development effort based on the TCR-T and TIL technologies for solid tumors.

 Estimated amortization expense for each of the fiscal years ending December 31 are as follows:

Years ending December 31,	Amount
2020	$	1,490,985
2021		1,485,862
2022		1,474,146
2023		1,462,583
2024 and thereafter		1,463,364
	$	7,376,940

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1. DESCRIPTION OF BUSINESS

12 Months Ended

Dec. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

1. DESCRIPTION OF BUSINESS

As used in this report, “we,” “us,” “our,” “CBMG,” “Company” or “our company” refers to Cellular Biomedicine Group, Inc. and, unless the context otherwise requires, all of its subsidiaries.

Overview

We are a clinical-stage biopharmaceutical company committed to using our proprietary cell-based technologies to develop immunotherapies for the treatment of cancer and stem cell therapies for the treatment of degenerative diseases. We view ourselves as a leader in cell therapy industry through our diverse, multi-target, broad pipeline ranging from immuno-oncology, featuring CAR-T, TCR-T and TIL to regenerative medicine. Our focus is to bring our potentially best-in-class products to market while also aiming to reduce manufacturing cycle time and aggregate cost while striving to ensure quality products of cell therapies. We provide comprehensive and integrated research and manufacturing services throughout the discovery, development and manufacturing spectrum for cell-based technologies. We have two major components to our global strategy. First, we intend on developing our own internal pipeline, focusing on immune cell therapy, regenerative medicine, as well as other innovative biotechnology modalities that can leverage our infrastructure, human capital and intellectual property. Second, we plan to partner with leading companies to monetize our innovative technologies in markets where we do not currently have a presence and may also seek to bring their technologies to markets where we have infrastructure.

Our end-to-end platform enables discovery, development and manufacturing of cell-based therapies from concept to commercial manufacturing in a cost-efficient manner. The manufacturing and delivery of T-cell therapies involve complex, integrated processes, comprised of isolating T-cells from patients, T-cell enrichment, activation, viral vector transduction, expansion, harvest and fill-finish. Our in-house cell therapy manufacturing is comprised of a semi-automated, fully closed system and can manufacture high quality plasmids, and serum-free reagents as well as viral vectors for our immuno-oncology cell therapy products. Because we are vertically integrated, we are able to reduce the aggregate cost of cell therapies. We plan to build out our manufacturing capacity to scale for commercial supply at an economical cost. We hone our manufacturing process in our good manufacturing practice (GMP) facilities in China to achieve cycle time reduction, improve quality assurance and control and increase efficiency and early development to understand our therapies’ efficacy. Our other objective on institutionalizing our manufacturing process is portability and ease of tech transfer to other facilities and ease of deployment in future locations.

In September 2018, we executed a License and Collaboration Agreement (hereinafter Novartis LCA) with Novartis AG (Novartis) to manufacture and supply their U.S. FDA-approved CD19 CAR-T cell therapy product Kymriah® in China. Pursuant to the Novartis LCA agreement, we also granted Novartis a worldwide license to certain of our CAR-T intellectual property for the development, manufacture and commercialization of CAR-T products. We are entitled to an escalating single-digit percentage royalty of Kymriah®’s net sales in China. CBMG is responsible for the cost of bi-directional technology transfers between the two companies. We will receive collaboration payments equal to a single-digit escalating percentage of net sales of Kymriah® in China, subject to certain caps set forth under the Novartis LCA, for sales in diffuse large B-cell lymphoma and pediatric acute lymphoblastic leukemia indications and up to a maximum amount to be agreed upon for sales in other indications. We are also obligated to assist Novartis with the development of Kymriah® in China as Novartis may request and we are responsible for a certain percentage of the total development cost for the development of Kymriah® in China for indications other than diffuse large B-cell lymphoma and pediatric acute lymphoblastic leukemia indications. As of December 31, 2019, we have achieved three major milestones on the technology transfer and collaboration with Novartis on commercialization of Kymriah®, specifically: process and analytical training, feasibility runs and an export license for feasibility/comparability.

On October 2, 2018, we executed a nonexclusive license agreement with the NCI for ten tumor infiltrating lymphocytes patents, pursuant to which we acquired rights to the worldwide development, manufacture and commercialization of autologous, tumor-reactive lymphocyte adoptive cell therapy products, isolated from tumor infiltrating lymphocytes for the treatment of non-small cell lung, stomach, esophagus, colorectal and head and neck cancer(s) in humans.

In order to expedite fulfillment of patient treatment, we have been actively developing technologies and products with strong intellectual property protection. CBMG’s worldwide exclusive license to the T Cell patent rights owned by Augusta University provides an opportunity to expand the application of CBMG’s cancer therapy-enabling technologies and to initiate clinical trials with leading cancer hospitals. On February 14, 2019, Augusta University granted us an exclusive, worldwide license with sublicense rights to its patent rights to Human Alpha Fetoprotein-Specific T Cell Receptor modified T-cells (AFP TCR-T).

Corporate History

Headquartered in New York, the Company is a Delaware biopharmaceutical company focused on developing treatment for cancer and orthopedic diseases for patients in China. We also plan to develop our products targeting certain solid tumor and other cancer indications in the United States. The Company started its regenerative medicine business in China in 2009 and expanded to CAR-T therapies in 2014.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Allowance for doubtful amounts	$ 0	$ 94,868
Stockholders' equity:
Preferred stock par value	$ 0.001	$ 0.001
Preferred stock, authorized	50,000,000	50,000,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized	300,000,000	300,000,000
Common stock, issued	20,359,889	19,120,781
Common stock, outstanding	19,304,390	18,119,282
Treasury stock	1,055,499	1,001,499

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10. LEASES (Details 1) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Leases [Abstract]
Operating cashflows	$ 2,810,145	$ 2,499,934
Operating lease right-of-use assets	20,106,163	15,938,203
Other current liabilities	2,506,413	1,874,270
Other non-current liabilities	$ 17,599,750	$ 14,063,933
Weighted average remaining lease term (in years): operating leases	7 years 10 months 24 days	7 years 8 months 12 days
Weighted average discount rate: operating leases	5.00%	5.00%

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12. EQUITY (Details) - $ / shares	Dec. 31, 2019	Dec. 31, 2018
Total number of shares purchased	1,055,499	1,001,499
Average price paid per share	$ 14.20	$ 13.93
January 1, 2019 to March 31, 2019
Total number of shares purchased	54,000
Average price paid per share	$ 19.24
April 1, 2019 to June 30, 2019
Total number of shares purchased	0
Average price paid per share	$ .00
July 1, 2019 to September 30, 2019
Total number of shares purchased	0
Average price paid per share	$ .00
October 1, 2019 to December 31, 2019
Total number of shares purchased	0.
Average price paid per share	$ .00

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19. UNAUDITED QUARTERLY FINANCIAL INFORMATION (Details) - USD ($)	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Quarterly Financial Data [Abstract]
Net sales and revenue	$ 290,655	$ 0	$ 0	$ 49,265	$ 25,698	$ 70,431	$ 77,313	$ 50,961	$ 339,920	$ 224,403	$ 336,817
Gross profit	236,364	0	0	41,178	4,113	32,948	22,920	28,661	277,542	88,642
Operating loss	(12,799,189)	(16,491,596)	(12,284,487)	(9,416,912)	(9,811,604)	(12,797,834)	(9,387,635)	(8,508,672)	(50,992,184)	(40,505,745)	(27,576,567)
Net loss	$ (12,686,663)	$ (15,863,906)	$ (12,096,697)	$ (9,336,788)	$ (8,519,229)	$ (12,743,764)	$ (9,186,079)	$ (8,496,423)	$ (49,984,054)	$ (38,945,492)	$ (25,490,310)
Net loss per share :
Basic and diluted	$ (0.66)	$ (0.82)	$ (0.63)	$ (0.51)	$ (0.45)	$ (0.72)	$ (0.53)	$ (0.51)	$ (2.63)	$ (2.20)	$ (1.78)

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14. STOCK BASED COMPENSATION (Details 1)	Dec. 31, 2019 shares
Number of shares outstanding	1,788,888
Outstanding stock options, exerciseable	1,525,066
$3.00 - $4.95
Number of shares outstanding	185,547
Outstanding stock options, exerciseable	185,547
$5.00 - $9.19
Number of shares outstanding	448,124
Outstanding stock options, exerciseable	432,176
$9.20 - $15.00
Number of shares outstanding	518,504
Outstanding stock options, exerciseable	404,203
$15.01 - $20.00
Number of shares outstanding	481,713
Outstanding stock options, exerciseable	360,840
$20.10+
Number of shares outstanding	155,000
Outstanding stock options, exerciseable	142,300

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16. INCOME TAXES (Details 1) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Deferred tax assets:
Net operating loss carry forwards (offshore)	$ 14,229,745	$ 10,124,478
Net operating loss carry forwards (US)	9,554,430	5,670,678
Accruals (offshore)	465,091	429,013
Accrued compensation (US)	180,455	128,207
Stock-based compensation (US)	4,286,546	3,665,226
Investments (US)	2,363,843	2,363,843
Credits (US)	644,580	395,112
Property and equipment	(46,186)	(19,675)
Goodwill & intangibles	754,248	827,994
Subtotal	32,432,752	23,584,876
Less: valuation allowance	(32,432,752)	(23,584,876)
Total deferred tax assets	$ 0	$ 0

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7. INVESTMENTS (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Investments [Abstract]
Net proceeds from sale of investments	$ 0	$ 0	$ 0
Unrecognized gain (loss) on investments	0	0	(240,000)
Impairment of investments	$ 0	$ 2,914,320	$ 0

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5. RESTRICTED CASH AND SHORT-TERM DEBT (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Bank borrowings	$ 14,334,398	$ 0
Merchants Bank
Interest rate	4.785%
Bank borrowings	$ 3,496,361	0
Merchants Bank | Minimum
Inception date	Jan. 21, 2019
Maturity date	Jan. 21, 2020
Merchants Bank | Maximum
Inception date	Jan. 31, 2019
Maturity date	Jan. 31, 2020
Merchants Bank
Interest rate	4.35%
Bank borrowings	$ 10,838,037	$ 0
Merchants Bank | Minimum
Inception date	Feb. 22, 2019
Maturity date	Feb. 22, 2020
Merchants Bank | Maximum
Inception date	Jun. 24, 2019
Maturity date	Jun. 24, 2020

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17. SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2019

Segment Reporting [Abstract]

17. SEGMENT INFORMATION

The Company is engaged in the development of new treatments for cancerous and degenerative diseases utilizing proprietary cell-based technologies, which have been organized as one reporting segment as they have substantially similar nature and economic characteristics. The Company’s principle operating decision maker, the Chief Executive Officer, receives and reviews the results of the operations for all major cell platforms as a whole when making decisions about allocating resources and assessing performance of the Company. In accordance with FASB ASC 280-10, the Company is not required to report the segment information.

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4. VARIABLE INTEREST ENTITY (Tables)

12 Months Ended

Dec. 31, 2019

Variable Interest Entity

Aggregate carrying value of assets and liability

	December 31,		December 31,
	2019		2018
Assets
Cash	$	13,424,425	$	2,376,974
Other receivables		201,532		61,722
Prepaid expenses		770,127		1,497,072
Total current assets		14,396,084		3,935,768
Property, plant and equipment, net		20,762,271		14,280,949
Right of use		13,541,518		15,431,554
Intangibles		1,226,955		1,412,375
Long-term prepaid expenses and other assets		4,742,138		5,194,045
Total assets	$	54,668,966	$	40,254,691
Liabilities
Short-term debt	$	14,334,398	$	-
Accounts payable		1,324,792		359,980
Other payables		4,090,154		4,937,541
Accrued payroll *		1,208,491		1,367,658
Deferred income		10,994		6,280
Total current liabilities	$	20,968,829	$	6,671,459
Other non-current liabilities		11,896,934		13,877,334
Total liabilities	$	32,865,763	$	20,548,793

* Accrued payroll mainly includes bonus accrual of $1,207,560 and $1,358,709 as of December 31, 2019 and December 31, 2018, respectively.

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14. STOCK BASED COMPENSATION (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Ending balance	1,788,888
Equity Option
Beginning balance	1,828,866	1,892,189	1,607,815
Granted	65,341	244,682	547,793
Forfeited	(74,901)	(72,076)	(206,019)
Exercised	(30,418)	(235,929)	(57,400)
Ending balance	1,788,888	1,828,866	1,892,189
Vested and exercisable	1,525,066
Weighted average exercise price, outstanding begining balance	$ 12.41	$ 11.54	$ 12.59
Weighted average exercise price, granted	16.17	18.68	11.34
Weighted average exercise price, forfeited	17.99	13.95	20.68
Weighted average exercise price, exercised	7.30	7.01	5.37
Weighted average exercise price, outstanding ending balance	12.37	$ 12.41	$ 11.54
Weighted average exercise price, vested and exercisable	$ 11.91
Weighted-average remaining contractual term, outstanding	5 years 4 months 24 days	6 years 6 months	7 years
Weighted-average remaining contractual term, vested and exercisable	4 years 10 months 24 days
Aggregate intrinsic value, outstanding	$ 9,394,219	$ 11,496,058	$ 4,909,194
Aggregate intrinsic value, vested and exercisable	$ 8,820,061

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16. INCOME TAXES (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Current:
US federal	$ 0	$ 0	$ 0
US state	(1,045)	(2,475)	(2,450)
Foreign	0	(2,479)	0
Total current tax credit (expense)	(1,045)	(4,954)	(2,450)
Deferred:
Federal	0	0	0
State	0	0	0
Foreign	0	0	0
Total deferred tax expense	0	0	0
Total income tax credit (expense)	$ (1,045)	$ (4,954)	$ (2,450)

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16. INCOME TAXES (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Effective tax rate	0.00%	0.00%	0.00%
U.S Federal
Net operating loss carryforwards	$ 36,400,000
Effective tax rate	21.00%
U.S. State
Net operating loss carryforwards	$ 30,800,000
Chinese
Net operating loss carryforwards	$ 22,000,000
Chinese | Minimum
Losses expiration period	Dec. 31, 2023
Effective tax rate	15.00%
Chinese | Maximum
Losses expiration period	Dec. 31, 2028
Effective tax rate	25.00%
Hong Kong
Effective tax rate	16.50%

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8. FAIR VALUE ACCOUNTING (Details) - Equity position in Arem Pacific Corporation Member - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Equity position	$ 240,000	$ 240,000
Level 1
Equity position	0	0
Level 2
Equity position	240,000	240,000
Level 3
Equity position	$ 0	$ 0

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6. PROPERTY, PLANT AND EQUIPMENT (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Gross property plant and equipment	$ 31,413,245	$ 22,056,966
Less: accumulated depreciation	(9,978,831)	(6,863,205)
Net property plant and equipment	21,434,414	15,193,761
Office equipment
Gross property plant and equipment	160,315	101,608
Manufacturing equipment
Gross property plant and equipment	14,963,621	7,636,905
Computer equipment
Gross property plant and equipment	576,499	426,507
Leasehold improvements
Gross property plant and equipment	15,516,570	12,861,186
Construction in progress
Gross property plant and equipment	$ 196,240	$ 1,030,760

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16. INCOME TAXES

12 Months Ended

Dec. 31, 2019

Shares held by the company

16. INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period during which such rates are enacted.

The Company considers all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry-back and carry-forward periods) and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. Based on all available evidence, in particular our three-year historical cumulative losses, recent operating losses and U.S. pretax loss for the year ended December 31, 2019, we recorded a valuation allowance against our U.S. net deferred tax assets. In order to fully realize the U.S. deferred tax assets, we will need to generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code.

The following represent components of the income tax (expense) credit for the years ended December 31, 2019, 2018 and 2017:

	For the Year Ended
	December 31,
	2019			2018			2017
Current:
US federal	$	-		$	-		$	-
US state		(1,045	)		(2,475	)		(2,450	)
Foreign		-			(2,479	)		-
Total current tax credit (expense)	$	(1,045	)	$	(4,954	)	$	(2,450	)
Deferred:
Federal	$	-		$	-		$	-
State		-			-			-
Foreign		-			-			-
Total deferred tax expense	$	-		$	-		$	-
Total income tax credit (expense)	$	(1,045	)	$	(4,954	)	$	(2,450	)

Tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets at December 31, 2019 and 2018 are presented below:

	December 31,			December 31,
	2019			2018
Deferred tax assets:
Net operating loss carry forwards (offshore)	$	14,229,745		$	10,124,478
Net operating loss carry forwards (US)		9,554,430			5,670,678
Accruals (offshore)		465,091			429,013
Accrued compensation (US)		180,455			128,207
Stock-based compensation (US)		4,286,546			3,665,226
Investments (US)		2,363,843			2,363,843
Credits (US)		644,580			395,112
Property and equipment		(46,186	)		(19,675	)
Goodwill & intangibles		754,248			827,994
Subtotal		32,432,752			23,584,876
Less: valuation allowance		(32,432,752	)		(23,584,876	)
Total deferred tax assets		-			-

In each period since inception, the Company has recorded a valuation allowance for the full amount of net deferred tax assets, as the realization of deferred tax assets is uncertain. As a result, the Company has not recorded any federal or state income tax benefit in the consolidated statements of operations and comprehensive income (loss).

On December 22, 2017, the U.S. President signed the tax reform bill (Tax Cut and Jobs Act (H.R.1)) and reduced the top corporate tax rate from 35% to 21% effective from January 1, 2018. Pursuant to this new Act, the non-operating loss carry-back period is eliminated and an indefinite carry-forward period is permitted. As of December 31, 2019, the Company had net operating loss carry-forwards of $36.4 million for U.S. federal purposes and $30.8 million for U.S. state purposes. These federal and state net operating loss carry-forwards will expire beginning in 2034 and 2034, respectively. Federal NOL generated from 2018 and after will not expire. At December 31, 2019 and 2018, the Company also has federal research and development tax credit carry-forwards of approximately $0.6 million and $0.3 million, respectively, and state research and development tax credit carry-forwards of approximately $0.3 million and $0.1 million, respectively. The federal tax credits begin to expire in 2025, and the state tax credits carry forward vary based on state.

 The Company’s effective tax rate differs from statutory rates of 21% for U.S. federal income tax purposes, 15% ~ 25% for Chinese income tax purpose and 16.5% for Hong Kong income tax purposes due to the effects of the valuation allowance and certain permanent differences as the Company’s tax rate pertains to book-tax differences in the value of client shares received for services.

Pursuant to the Corporate Income Tax Law of the PRC, all of the Company’s PRC subsidiaries are liable to PRC Corporate Income Taxes at a rate of 25% except for CBMG Shanghai and Shanghai SBM.

According to Guoshuihan 2009 No. 203, if an entity is certified as an “advanced and new technology enterprise,” it is entitled to a preferential income tax rate of 15%. CBMG Shanghai obtained the certificate of “advanced and new technology enterprise” dated October 30, 2015 with an effective period of three years, and the provision for PRC corporate income tax for CBMG Shanghai is calculated by applying the income tax rate of 15% from 2015. CBMG Shanghai re-applied and Shanghai SBM applied for the certificate of “advanced and new technology enterprise” in 2018. Both of them received approval on November 27, 2018. On August 23, 2018, State Administration of Taxation issued a Bulletin on Enterprise Income Tax Issues Related to the Extension of Loss Carry-forward Period for Advanced and New Technology Enterprises and Small and Medium-sized Technology Enterprises (“Bulletin 45”). According to Bulletin 45, an enterprise that obtains the two types of qualification in 2018 is allowed to carry forward all its prior year losses incurred between 2013 and 2017 to up to ten years instead of five years. The same requirement applies to the enterprise obtaining the qualifications after 2018.

As of December 31, 2019, the Company had net operating loss carry-forwards of $43 million and $22 million for Chinese income tax purposes, which are set to expire in 2024 and 2029 for Chinese income tax purposes, respectively. All deferred income tax expense is offset by changes in the valuation allowance pertaining to the Company’s existing net operating loss carry-forwards due to the unpredictability of future profit streams prior to the expiration of the tax losses. 

Income tax expense for the years ended December 31, 2019, 2018 and 2017 differed from the amounts computed by applying the statutory federal income tax rate of 21% / 35% to pretax income (loss) as a result of the following:

	For the Year Ended			For the Year Ended			For the Year Ended
	December 31, 2019			December 31, 2018			December 31, 2017
Effective Tax Rate Reconciliation
Income tax provision at statutory rate		21	%		21	%		35	%
State income taxes, net of federal benefit		0	%		0	%		0	%
Rate deduction		(7	)%		(3	)%		(20	)%
Foreign rate differential		2	%		0	%		(13	)%
Other permanent difference		0	%		(1	)%		(2	)%
Change in valuation allowance		(16	)%		(17	)%		0	%
Total tax credit (expense)		0	%		0	%		0	%

As of December 31, 2019, the Company had $0.6 million of total unrecognized tax benefits. The Company currently has a full valuation allowance against its net deferred tax assets which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the future. If the Company is able to eventually recognize these uncertain tax positions, none of the unrecognized benefit would reduce the Company's effective tax rate due to full valuation allowance of the Company's deferred tax assets. The Company's policy is to record interest and penalties related to unrecognized tax benefits as income tax expense. During the years ended December 31, 2019, the Company had immaterial amounts related to the accrual of interest and penalties.

A reconciliation of the beginning and ending unrecognized tax benefit amount is as follows:  

	December 31, 2019 (in thousands)
Beginning balance		462
Current year addition		106
Ending balance		568

The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized tax benefits will increase or decrease within 12 months of the years ended December 31, 2019. 

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Principles of Consolidation

The consolidated financial statements have been prepared in conformity with GAAP, and reflect the accounts and operations of the Company and its subsidiaries, beginning with the date of their respective acquisition. In accordance with the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Topic 810, or ASC 810, Consolidation, the Company consolidates any variable interest entity, or VIE, of which it is the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as variable interest entities, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE in which it has a majority ownership interest when the Company is not considered the primary beneficiary. The Company has determined that it is the primary beneficiary in a VIE—refer to Note 4, Variable Interest Entity. The Company evaluates its relationships with the VIE on an ongoing basis to ensure that it continues to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

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

These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Significant accounting estimates reflected in the Company’s consolidated financial statements include useful lives of property, plant and equipment and acquired intangibles, the valuation allowance for deferred income tax assets, valuation of goodwill, valuation of long-lived assets and share-based compensation expense. Actual results could materially differ from those estimates.

Revenue Recognition

Revenues consist mainly of cell banking services as well as cell therapy technology services with customers. The Company evaluates the separate performance obligation(s) under each contract, allocates the transaction price to each performance obligation considering the estimated stand-alone selling prices of the services and recognizes revenue upon the satisfaction of such obligations over time or at a point in time dependent on the satisfaction of one of the following criteria: (1) the customer simultaneously receives and consumes the economic benefits provided by the vendor’s performance (2) the vendor creates or enhances an asset controlled by the customer (3) the vendor’s performance does not create an asset for which the vendor has an alternative use, and the vendor has an enforceable right to payment for performance completed to date. Revenue from rendering of services is measured at the fair value of the consideration received or receivable under the contract or agreement. Revenue from cell therapy technology services is recognized in profit or loss at the point when customers simultaneously receive and consume the services. Revenue from cell banking storage is recognized in profit or loss on a straight-line basis over the storage period.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At December 31, 2019 and 2018, respectively, cash and cash equivalents include cash on hand and cash in the bank. At times, cash deposits may exceed government-insured limits.

Restricted cash consists of collateral representing cash deposits for borrowings. 

Accounts Receivable

Accounts receivable represent amounts earned but not collected in connection with the Company’s sales of goods or services as of December 31, 2019 and 2018. Account receivables are carried at their estimated collectible amounts.

The Company follows the allowance method of recognizing uncollectible accounts receivable. The Company recognizes bad debt expense based on specifically identified customers and invoices that are anticipated to be uncollectable. At December 31, 2019 and 2018, allowance of nil and $94,868, respectively, were provided for debtors of certain customers as those debts are unrecoverable from customers.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets ranging from three to ten years and begins when the related assets are placed in service. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flow is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Repair and maintenance costs are charged to operating expense as incurred.

For the years ended December 31, 2019, 2018 and 2017, depreciation expense was $4,187,330, $3,360,517 and $1,195,705, respectively.

Goodwill and Other Intangibles

Goodwill represents the excess of the cost of assets acquired over the fair value of the net assets at the date of acquisition. Intangible assets represent the fair value of separately recognizable intangible assets acquired in connection with the Company’s business combinations. The Company evaluates its goodwill and other intangibles for impairment on an annual basis or whenever events or circumstances indicate that impairment may have occurred. The evaluation includes comparing the fair value of the reporting unit to the carrying value, including goodwill. If the fair value exceeds the carrying value, no impairment loss is recognized. However, if the carrying value of the reporting unit exceeds its fair value, the goodwill of the reporting unit may be impaired. Impairment is measured by comparing the implied fair value of the goodwill to its carrying value.

The carrying amount of the goodwill as at December 31, 2019 and 2018 represents the cost arising from the business combinations in previous years and no impairment on goodwill was recognized for the years ended December 31, 2019 and 2018 as the Company continues to use the patents and knowhow acquired in the business combination in the Company’s current immune therapy R&D activities and there was no indication for impairment.

Treasury Stock

The treasury stock is recorded and carried at their repurchase cost. The Company recorded the entire purchase price of the treasury stock as a reduction of equity. A gain or loss will be determined when treasury stock is reissued or retired, and the original issue price and book value of the stock do not enter into the accounting. Additional paid-in capital from treasury stock is credited for gains and debited for losses when treasury stock is reissued at prices that differ from the repurchase cost.

Government Grants

Government grants are recognized in the balance sheet initially when there is reasonable assurance that they will be received and that the enterprise will comply with the conditions attached to them. When the Company received the government grants but the conditions attached to the grants have not been fulfilled, such government grants are deferred and recorded as deferred income. The classification of short-term or long-term liabilities is dependent on the management’s expectation of when the conditions attached to the grant can be fulfilled. Grants that compensate the Company for expenses incurred are recognized as other income in the statement of income on a systematic basis in the same periods in which the expenses are incurred.

For the year ended December 31, 2019, 2018 and 2017, the Company received government grants of $824,782, $1,105,272 and $1,905,213 for purposes of R&D and related capital expenditure, respectively. Government subsidies recognized as other income in the statement of income for the year ended December 31, 2019, 2018 and 2017 were $671,404, $1,119,827 and $2,077,486, respectively.

Valuation of Long-lived Asset

The Company reviews the carrying value of long-lived assets to be held and used, including other intangible assets subject to amortization, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset and intangible assets. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets and intangible assets to be disposed are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

Income Taxes

recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance would be provided for those deferred tax assets if it is more likely than not that the related benefit will not be realized.

A full valuation allowance has been established against all net deferred tax assets as of December 31, 2019 and 2018 based on estimates of recoverability. While the Company has optimistic plans for its business strategy, we determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to the Company’s ability to generate sufficient profits from its business model.

Share-Based Compensation

The Company periodically uses stock-based awards, consisting of shares of common stock and stock options, to compensate certain officers and consultants. Shares are expensed on a straight line basis over the requisite service period based on the grant date fair value, net of estimated forfeitures, if any. We currently use the Black-Scholes option-pricing model to estimate the fair value of our stock-based payment awards. This model requires the input of subjective assumptions, including the fair value of the underlying common stock, the expected volatility of the price of our common stock, risk-free interest rates, the expected term of the option and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. These assumptions are estimated as follows:

● Fair Value of Our Common Stock — Our common stock is valued by reference to the publicly traded price of our common stock.

● Expected Volatility — Prior to the Eastbridge merger, we did not have a history of market prices for our common stock and since the merger, we do not have what we consider a sufficiently active and readily traded market for our common stock to use historical market prices for our common stock to estimate volatility. Accordingly, we estimate the expected stock price volatility for our common stock by taking the median historical stock price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of other public companies in the stem cell industry similar in size, stage of life cycle and financial leverage. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available.

● Risk-Free Interest Rate — The risk-free interest rate assumption is based on observed interest rates appropriate for the expected terms of our awards. The risk-free interest rate assumption is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.

● Expected Term — The expected term represents the period that our stock-based awards are expected to be outstanding. The expected terms of the awards are based on a simplified method which defines the life as the average of the contractual term of the options and the weighted-average vesting period for all open tranches.

● Expected Dividend Yield — We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

In addition to the assumptions used in the Black-Scholes option-pricing model, the amount of stock option expense we recognize in our consolidated statements of operations includes an estimate of stock option forfeitures. We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors. Changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in our consolidated financial statements.

Fair Value of Financial Instruments

Under the FASB’s authoritative guidance on fair value measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. Level 3 valuations incorporate certain unobservable assumptions and projections in determining the fair value assigned to such assets.

All transfers between fair value hierarchy levels are recognized by the Company at the end of each reporting period. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement in its entirety, requires judgment and considers factors specific to the investment. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risks associated with investment in those instruments.

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

Lease

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Investments

Equity investments with or without readily determinable fair values are measured at fair value with changes in the fair value recognized through other income (expense) net.

Basic and Diluted Net Loss Per Share

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

Foreign Currency Translation

The Company’s financial statements are presented in U.S. dollars ($), which is the Company’s reporting currency, while the Company’s China subsidiaries’ functional currency is Chinese Renminbi (RMB). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange ruling at the balance sheet date. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of operations and comprehensive income (loss) during the periods. Any differences are recorded as an unrealized gain or loss on foreign currency translation in the statements of operations and comprehensive loss. In accordance with ASC 830, Foreign Currency Matters, the Company translates the assets and liabilities into USD from RMB using the rate of exchange prevailing at the applicable balance sheet date and the statements of income and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded in shareholders’ equity as part of accumulated other comprehensive income. The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations.

Comprehensive Loss

We apply ASC No. 220, Comprehensive Income (ASC 220). ASC 220 establishes standards for the reporting and display of comprehensive income or loss, requiring its components to be reported in a financial statement that is displayed with the same prominence as other financial statements. Our comprehensive loss was $49,975,812, $40,025,181 and $24,763,121 for the years ended December 31, 2019, 2018 and 2017, respectively.

Segment Information

FASB ASC Topic 280, “Segment Reporting” establishes standards for reporting information about reportable segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group in deciding how to allocate resources and in assessing performance. Based on the analysis, we operate in a single reportable segment.

Recent Accounting Pronouncements

Accounting pronouncements adopted during the year ended December 31, 2019

In June 2018, the FASB issued ASU 2018-07, which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Some of the areas for simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The adoption of the ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”) which provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2018-02 is permitted, including adoption in any interim period for the public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this ASU should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The adoption of the ASU 2018-02 did not have a material impact on the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“ASU 2017-11”) which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. The amendments in Part I of this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of the ASU 2017-11 did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” (“ASU 2016-02”). The amendments in this update create Topic 842, Leases, and supersede the leases requirements in Topic 840, Leases. Topic 842 specifies the accounting for leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as operating leases under Topic 840. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Early application of the amendments in ASU 2016-02 is permitted. The Company adopted the new standard on January 1, 2019 using a modified retrospective approach and elected the transition method that allows for application of the standard at the beginning of the earliest comparative period presented in the financial statements. The Company also elected available practical expedients. The adoption impact of the ASU 2016-02 on the Company’s consolidated financial statements is illustrated in Note 10.

Accounting pronouncements not yet effective

In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820)” which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The modified standard eliminates the requirement to disclose changes in unrealized gains and losses included in earnings for recurring Level 3 fair value measurements and requires changes in unrealized gains and losses be included in other comprehensive income for recurring Level 3 fair value measurements of instruments. The standard also requires the disclosure of the range and weighted average used to develop significant unobservable inputs and how weighted average is calculated for recurring and nonrecurring Level 3 fair value measurements. The amendment is effective for fiscal years beginning after December 15, 2019 and interim periods within that fiscal year with early adoption permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”) which removes Step 2 from the goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. Public business entity that is a U.S. Securities and Exchange Commission filer should adopt the amendments in this ASU for its annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the standard to have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” (“ASU 2016-13”). Financial Instruments—Credit Losses (Topic 326) amends guideline on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We do not expect the standard to have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. We do not expect that the requirements of ASU 2017-04 will have a material impact on our consolidated financial statements. 

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15. NET LOSS PER SHARE (Tables)

12 Months Ended

Dec. 31, 2019

Earnings Per Share [Abstract]

Schedule of basic and diluted earning per share

	For the Year Ended
	December 31,
	2019			2018			2017
Net loss	$	(49,984,054	)	$	(38,945,492	)	$	(25,490,310	)
Weighted average shares of common stock		18,983,206			17,741,104			14,345,604
Dilutive effect of stock options		-			-			-
Restricted stock vested not issued		-			-			-
Common stock and common stock equivalents		18,983,206			17,741,104			14,345,604
Net loss per basic and diluted share	$	(2.63	)	$	(2.20	)	$	(1.78	)

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10. LEASES (Tables)

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Lease expense

	For the Year Ended
	December 31,
	2019		2018
Lease cost
Operating lease cost		2,934,003		2,601,686
Short-term lease cost		159,054		620,687
Total lease cost		3,093,057		3,222,373

Supplemental information regarding the Company's leases

Supplemental cash flow information related to leases was as follows:

	For the Year Ended
	December 31,
	2019		2018
Cash paid for the amounts included in the measurement of lease liabilities for operating leases:
Operating cashflows		2,810,145		2,499,934

Supplemental balance sheet information related to leases was as follows:

	December 31, 2019			December 31, 2018
Operating lease right-of-use assets		20,106,163			15,938,203
Other current liabilities		2,506,413			1,874,270
Other non-current liabilities		17,599,750			14,063,933
Weighted Average Remaining Lease Term (in years): Operating leases		7.9			7.7
Weighted Average Discount Rate: Operating leases		5	%		5	%

Future minimum lease payments due

Years ending December 31,	Amount
2020	$	3,628,949
2021		3,149,434
2022		3,246,854
2023		3,246,854
2024 and thereafter		11,912,327
	$	25,184,418

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4. VARIABLE INTEREST ENTITY

12 Months Ended

Dec. 31, 2019

Variable Interest Entity

4. VARIABLE INTEREST ENTITY

VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the Company is the primary beneficiary of the entity. Cellular Biomedicine Group Ltd (Shanghai) (“CBMG Shanghai”) and its subsidiaries are variable interest entities (VIEs) through which the Company conducts stem cell and immune therapy research and clinical trials in China. The registered shareholders of CBMG Shanghai are Lu Junfeng and Chen Mingzhe, who together own 100% of the equity interests in CBMG Shanghai. The initial capitalization and operating expenses of CBMG Shanghai are funded by our wholly foreign-owned enterprise (“WFOE”), Cellular Biomedicine Group Ltd. (Wuxi) (“CBMG Wuxi”). The registered capital of CBMG Shanghai is 10 million RMB and was incorporated on October 19, 2011. Beijing Agreen Biotechnology Co., Ltd. (“AG”) was 100% acquired by CBMG Shanghai in September 2014. The registered capital of AG is 5 million RMB and was incorporated on April 27, 2011. In 2017, CBMG Shanghai established two subsidiaries in Wuxi and Shanghai. Wuxi Cellular Biopharmaceutical Group Ltd. was established on January 17, 2017 with registered capital of 20 million RMB and wholly owned by CBMG Shanghai. Shanghai Cellular Biopharmaceutical Group Ltd. (“SH SBM”) was established on January 18, 2017 with registered capital of 100 million RMB and wholly owned by CBMG Shanghai. For the years ended December 31, 2019, 2018 and 2017, 16%, 29% and 3% of the Company revenue is derived from VIEs respectively.

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

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

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

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

The Company has aggregated the financial information of CBMG Shanghai and its subsidiaries in the table below. The aggregate carrying value of assets and liabilities of CBMG Shanghai and its subsidiaries (after elimination of intercompany transactions and balances) in the Company’s consolidated balance sheets as of December 31, 2019 and 2018 are as follows:

	December 31,		December 31,
	2019		2018
Assets
Cash	$	13,424,425	$	2,376,974
Other receivables		201,532		61,722
Prepaid expenses		770,127		1,497,072
Total current assets		14,396,084		3,935,768
Property, plant and equipment, net		20,762,271		14,280,949
Right of use		13,541,518		15,431,554
Intangibles		1,226,955		1,412,375
Long-term prepaid expenses and other assets		4,742,138		5,194,045
Total assets	$	54,668,966	$	40,254,691
Liabilities
Short-term debt	$	14,334,398	$	-
Accounts payable		1,324,792		359,980
Other payables		4,090,154		4,937,541
Accrued payroll *		1,208,491		1,367,658
Deferred income		10,994		6,280
Total current liabilities	$	20,968,829	$	6,671,459
Other non-current liabilities		11,896,934		13,877,334
Total liabilities	$	32,865,763	$	20,548,793

* Accrued payroll mainly includes bonus accrual of $1,207,560 and $1,358,709 as of December 31, 2019 and December 31, 2018, respectively.

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8. FAIR VALUE ACCOUNTING

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

8. FAIR VALUE ACCOUNTING

 Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for determining that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The Company has adopted ASC Topic 820, Fair Value Measurement and Disclosure, which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value, and includes the following:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

The carrying value of financial items of the Company including cash and cash equivalents, accounts receivable, other receivables, accounts payable and accrued liabilities, approximate their fair values due to their short-term nature and are classified within Level 1 of the fair value hierarchy. As of December 31, 2019, the carrying value of the Company’s borrowings from China Merchant Bank approximates fair value as the borrowing bears interest rates that are similar to existing market rates.

The Company’s investments are classified within Level 2 of the fair value hierarchy because of the insufficient volatility of the three stocks traded in OTC market. The Company did not have any Level 3 financial instruments as of December 31, 2019 and 2018.

Assets measured at fair value within Level 2 on a recurring basis as of December 31, 2019 and 2018 are summarized as follows:

	As of December 31, 2019 and December 31, 2018
	Fair Value Measurements at Reporting Date Using:
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Equity position in Arem Pacific Corporation	$	240,000	$	-	$	240,000	$	-

No shares were acquired during the years ended December 31, 2019 and 2018.

As of December 31, 2019 and 2018, the Company holds 8,000,000 shares in Arem Pacific Corporation (“ARPC”), 2,942,350 shares in ALEV and 2,057,131 shares in Wonder International Education and Investment Group Corporation (“Wonder”). Full impairment has been provided for shares of Wonder and ALEV. All available-for-sale investments held by the Company at December 31, 2019 and December 31, 2018 have been valued based on Level 2 inputs due to the limited trading of these companies.

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12. EQUITY

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

12. EQUITY

ASC Topic 505, “Equity,” paragraph 505-50-30-6 establishes that share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

On December 15, 2017, the Company entered into a Share Purchase Agreement with three of its executive officers, pursuant to which the Company agreed to sell, and the three executive officers agreed to purchase, an aggregate of 41,667 shares of the Company’s common stock, par value $0.001 per share, at $12.00 per share, for total gross proceeds of approximately $500,000. The transaction closed on December 22, 2017.

On December 26, 2017, the Company entered into a Share Purchase Agreement with two investors, pursuant to which the Company agreed to sell, and the two investors agreed to purchase from the Company, an aggregate of 1,166,667 shares of the Company’s common stock, par value $0.001 per share, at $12.00 per share, for total gross proceeds of approximately $14 million. The transaction closed on December 28, 2017. Together with a private placement with three of its executive officers on December 22, 2017, the Company raised an aggregate of approximately $14.5 million in the two private placements in December 2017.

On January 30, 2018 and February 5, 2018, the Company entered into securities purchase agreements with certain investors pursuant to which the Company agreed to sell, and the investors agreed to purchase from the Company, an aggregate of 1,719,324 shares of the Company’s common stock, par value $0.001 per share, at $17.80 per share, for total gross proceeds of approximately $30.6 million. The transaction closed on February 5, 2018.

On September 25, 2018, the Company entered into a share purchase agreement with Novartis Pharma AG (“Novartis”) pursuant to which the Company agreed to sell, and Novartis agreed to purchase from the Company, an aggregate of 1,458,257 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $27.43 per share, for total gross proceeds of approximately $40 million. The transaction closed on September 26, 2018.

On March 21, 2019, the Company entered into an underwriting agreement with Cantor Fitzgerald & Co. and Robert W. Baird & Co. Incorporated, as representatives of the several underwriters set forth therein (collectively, the “Underwriters”) relating to an underwritten public offering of 1,029,412 shares of the Company’s common stock, par value $0.001 per share, at an offering price to the public of $17.00 per share. Under the terms of the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to an additional 154,411 shares of Common Stock. The offering was closed on March 25, 2019 and the Company received net proceeds of approximately $16 million. On April 2, 2019, the underwriters partially exercised their option and purchased an additional 77,549 shares of Common Stock for net proceeds of approximately $1.2 million.

During the years ended December 31, 2019, 2018 and 2017, the Company expensed $2,416,058, $3,184,425 and $4,512,192 associated with unvested options awards and $1,647,923, $1,642,320 and $833,019 associated with restricted common stock issuances, respectively.

During the years ended December 31, 2019, 2018 and 2017, options for 30,418, 235,929 and 57,400 underlying shares were exercised, and 30,418, 235,929 and 57,400 shares of the Company’s common stock were issued accordingly.

During the years ended December 31, 2019, 2018 and 2017, 101,729, 91,713 and 68,446 shares of the Company’s restricted common stock were issued to directors, employees and advisors, respectively.

As previously disclosed on a Current Report on Form 8-K filed on June 1, 2017, the Company authorized a share repurchase program (the “2017 Share Repurchase Program”) pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate purchase price not to exceed $10 million under which approximately $6.52 million in shares of common stock were repurchased. On October 10, 2018, the Company commenced a share repurchase program (the “2018 Share Repurchase Program”) pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate purchase price not to exceed approximately $8.48 million. We completed all of our repurchase plans on March 31, 2019 for a grand total of 1,055,499 shares for a total purchase price of $14.99 million.

For the year ended December 31, 2019, the Company repurchased 54,000 shares of the Company’s common stock with the total cost of $1,039,028. Details are as follows:

	Total number of shares purchased		Average price paid per share
Treasury stock as of December 31, 2018		1,001,499	$	13.93
Repurchased from January 1, 2019 to March 31, 2019		54,000	$	19.24
Repurchased from April 1, 2019 to June 30, 2019		-	$	-
Repurchased from July 1, 2019 to September 30, 2019		-	$	-
Repurchased from October 1, 2019 to December 31, 2019		-	$	-
Treasury stock as of December 31, 2019		1,055,499	$	14.20

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (49,984,054)	$ (38,945,492)	$ (25,490,310)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	5,638,303	5,049,523	2,985,963
Loss on disposal of assets	39,033	4,957	317
Stock based compensation expense	4,063,981	4,826,745	5,345,211
Other than temporary impairment on investments	0	29,424	0
Impairment on intangible assets	0	2,884,896	0
Interest income from six-month deposits with the banks	0	(175,479)	0
Interest income from pledged bank deposits	(500,219)	0	0
Interest expense	481,895	0	0
Allowance for doubtful account	0	84,622	0
Changes in operating assets and liabilities:
Accounts receivable	774	107,263	(160,628)
Other receivables	(150,222)	66,108	(467,985)
Prepaid expenses	831,686	68,435	(812,675)
Long-term prepaid expenses and other assets	(1,324,924)	(538,349)	(1,005,029)
Accounts payable	1,170,688	133,740	(814)
Accrued expenses	48,762	816,936	(118,968)
Other current liabilities	(43,401)	390,181	1,339,866
Taxes payable	(2,705)	75	0
Other non-current liabilities	80,420	83,416	(208,340)
Net cash used in operating activities	(39,649,983)	(25,112,999)	(18,593,392)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets	148,393	1,625	0
Withdrawing six-month deposits with the banks	0	10,175,479	0
Putting six-month deposits with the banks	0	(10,000,000)	0
Purchases of intangible assets	(869,110)	(196,836)	(23,734)
Purchases of property, plant and equipment	(10,674,812)	(6,589,493)	(10,169,134)
Net cash used in investing activities	(11,395,529)	(6,609,225)	(10,192,868)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common stock	17,166,199	70,351,173	14,496,040
Proceeds from exercise of stock options	283,959	2,738,866	308,371
Proceeds from short-term debt	14,546,035	0	0
Interest paid	(470,901)	0	0
Repurchase of treasury stock	(1,039,028)	(9,975,737)	(3,977,929)
Net cash provided by financing activities	30,486,264	63,114,302	10,826,482
EFFECT OF EXCHANGE RATE CHANGES ON CASH	190,017	(147,620)	275,768
INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(20,369,231)	31,244,458	(17,684,010)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	52,812,880	21,568,422	39,252,432
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	32,443,649	52,812,880	21,568,422
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes	3,750	4,879	2,450
Reconciliation of cash, cash equivalents and restricted cash in condensed consolidated statements of cash flows:
Cash, cash equivalents and restricted cash	$ 52,812,880	$ 21,568,422	$ 21,568,422

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CONSOLIDATED BALANCE SHEETS - USD ($)		Dec. 31, 2019	Dec. 31, 2018
Assets
Cash and cash equivalents		$ 15,443,649	$ 52,812,880
Restricted cash		17,000,000	0
Accounts receivable, less allowance for doubtful amounts of nil and $94,868 as of December 31, 2019 and December 31, 2018, respectively		0	787
Other receivables		750,943	101,909
Prepaid expenses		835,048	1,692,135
Total current assets		34,029,640	54,607,711
Investments		240,000	240,000
Property, plant and equipment, net		21,434,414	15,193,761
Right of use		20,106,163	15,938,203
Goodwill		7,678,789	7,678,789
Intangibles, net		7,376,940	7,970,692
Long-term prepaid expenses and other assets		6,458,354	5,952,193
Total assets	[1]	97,324,300	107,581,349
Liabilities:
Short-term debt		14,334,398	0
Accounts payable		2,039,686	422,752
Accrued expenses		1,904,829	1,878,926
Taxes payable		26,245	28,950
Other current liabilities		5,367,708	5,710,578
Total current liabilities		23,672,866	8,041,206
Other non-current liabilities		17,933,743	14,321,751
Total liabilities	[1]	41,606,609	22,362,957
Commitments and Contingencies (note 12)
Stockholders' equity:
Preferred stock, par value $.001, 50,000,000 shares authorized; none issued and outstanding as of December 31, 2019 and 2018, respectively		0	0
Common stock, par value $.001, 300,000,000 shares authorized; 20,359,889 and 19,120,781 issued; and 19,304,390 and 18,119,282 outstanding, as of December 31, 2019 and 2018, respectively		20,360	19,121
Treasury stock at cost; 1,055,499 and 1,001,499 shares of common stock as of December 31, 2019 and December 31, 2018, respectively		(14,992,694)	(13,953,666)
Additional paid in capital		272,117,518	250,604,618
Accumulated deficit		(199,966,543)	(149,982,489)
Accumulated other comprehensive loss		(1,460,950)	(1,469,192)
Total stockholders' equity		55,717,691	85,218,392
Total liabilities and stockholders' equity		$ 97,324,300	$ 107,581,349

[1] The Company's consolidated assets as of December 31, 2019 and 2018 included $54,668,966 and $40,254,691, respectively, of assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. Each of the following amounts represent the balances as of December 31, 2019 and 2018, respectively. These assets include cash and cash equivalents of $13,424,425and $2,376,974; other receivables of $201,532 and $61,722; prepaid expenses of $770,127 and $1,497,072; property, plant and equipment, net, of $20,762,271 and $14,280,949; right of use of $13,541,518 and $15,431,554; intangibles of $1,226,955 and $1,412,375; and long-term prepaid expenses and other assets of $4,742,138 and $5,194,045. The Company's consolidated liabilities as of December 31, 2019 and 2018 included $32,865,763 and $20,548,793, respectively, of liabilities of the VIEs whose creditors have no recourse to the Company. These liabilities include short-term debt of $14,334,398 and nil; accounts payable of $1,324,792 and $359,980; other payables of $4,090,154 and $4,937,541; payroll accrual of $1,208,491 and $1,367,658, which mainly includes bonus accrual of $1,207,560 and $1,358,709; deferred income of $10,994 and $6,280; and other non-current liabilities of $11,896,934 and $13,877,334. See further description in Note 4, Variable Interest Entities.

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Label	Element	Value
Restricted Cash	us-gaap_RestrictedCash	$ 17,000,000
Restricted Cash	us-gaap_RestrictedCash	0
Restricted Cash	us-gaap_RestrictedCash	$ 0

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10. LEASES (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Leases [Abstract]
Operating lease cost	$ 2,934,003	$ 2,601,686
Short-term lease cost	159,054	620,687
Total lease cost	$ 3,093,057	$ 3,222,373

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11. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	Dec. 31, 2019	Dec. 31, 2018
Related Party Transactions [Abstract]
Due from officers	$ 0	$ 0