Quarterly Report (10-q)

As of September 30, 2020

Annual

interest rate

Fixed rate instruments

Financial liabilities- Short-term debt

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2020

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

Commission File Number 001-36498

CELLULAR BIOMEDICINE GROUP, INC.

(Exact name of registrant as specified in its charter)

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

209 Perry Parkway, Suite 13

Gaithersburg, MD 20877

(Address of principal executive offices)

(301) 825-5320

(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

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 ☑ No o

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 than the registrant was required to submit such files). Yes ☑ No o

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

Large accelerated filer	o	Accelerated filer	☑
Non-accelerated filer	o	Smaller reporting company	☑
		Emerging growth company	o

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. o

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

As of November 1, 2020, there were 19,459,490 shares of common stock, par value $.001 per share, outstanding.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets (unaudited)		3
	Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)		4
	Condensed Consolidated Statements of Cash Flows (unaudited)		5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)		6
	Condensed Notes to Consolidated Financial Statements (unaudited)		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		65

Item 4.	Controls and Procedures		68

PART II OTHER INFORMATION

Item 1.	Legal Proceedings		69

Item 1A.	Risk Factors		69

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		73

Item 3.	Defaults Upon Senior Securities		73

Item 4.	Mine Safety Disclosures		73

Item 5.	Other Information		73

Item 6.	Exhibits		74

SIGNATURES			75

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

CELLULAR BIOMEDICINE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

	September 30,			December 31,
	2020			2019

Assets
Cash and cash equivalents	$	26,028,897		$	15,443,649
Restricted cash		-			17,000,000
Accounts receivable		32,295			-
Other receivables		297,919			750,943
Prepaid expenses		1,512,172			835,048
Total current assets		27,871,283			34,029,640

Investments		-			240,000
Property, plant and equipment, net		24,686,304			21,434,414
Right of use		18,521,996			20,106,163
Goodwill		7,678,789			7,678,789
Intangibles, net		6,447,085			7,376,940
Long-term prepaid expenses and other assets		7,880,917			6,458,354
Total assets (1)	$	93,086,374		$	97,324,300

Liabilities and Stockholders' Equity

Liabilities:
Short-term debt	$	47,870,256		$	14,334,398
Accounts payable		2,747,583			2,039,686
Accrued expenses		1,726,200			1,904,829
Taxes payable		30,420			26,245
Other current liabilities		6,922,762			5,367,708
Total current liabilities		59,297,221			23,672,866

Other non-current liabilities		16,465,553			17,933,743
Total liabilities (1)		75,762,774			41,606,609

Commitments and Contingencies (note 12)

Stockholders' equity:

Preferred stock, par value $.001, 50,000,000 shares
authorized; none issued and outstanding as of
September 30, 2020 and December 31, 2019, respectively		-			-

Common stock, par value $.001, 300,000,000 shares authorized;
20,505,852 and 20,359,889 issued; and 19,450,353 and 19,304,390 outstanding,
as of September 30, 2020 and December 31, 2019, respectively		20,506			20,360
Treasury stock at cost; 1,055,499 shares of common stock		(14,992,694	)		(14,992,694	)
as of September 30, 2020 and December 31, 2019, respectively
Additional paid in capital		275,338,906			272,117,518
Accumulated deficit		(242,084,133	)		(199,966,543	)
Accumulated other comprehensive loss		(958,985	)		(1,460,950	)
Total stockholders' equity		17,323,600			55,717,691

Total liabilities and stockholders' equity	$	93,086,374		$	97,324,300

_______________

(1)

The Company’s consolidated assets as of September 30, 2020 and December 31, 2019 included $47,621,746 and $54,668,966, respectively, of assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. Each of the following amounts represent the balances as of September 30, 2020 and December 31, 2019, respectively. These assets include cash and cash equivalents of $6,539,981 and $13,424,425; other receivables of $219,280 and $201,532; prepaid expenses of $1,361,403 and $770,127; property, plant and equipment, net, of $20,935,059 and $20,762,271; right of use of $12,342,706 and $13,541,518; intangibles of $1,227,731 and $1,226,955; and long-term prepaid expenses and other assets of $4,995,586 and $4,742,138. The Company’s consolidated liabilities as of September 30, 2020 and December 31, 2019 included $19,682,029 and $32,865,763, respectively, of liabilities of the VIEs whose creditors have no recourse to the Company. These liabilities include short-term debt of $2,465,035 and $14,334,398; accounts payable of $883,306 and $1,324,792; other payables of $4,343,974 and $4,090,154; payroll accrual of $1,175,228 and $1,208,491, which mainly includes bonus accrual of $1,050,079 and $1,207,560; deferred income of nil and $10,994; and other non-current liabilities of $10,814,486 and $11,896,934. See further description in Note 3, Variable Interest Entities.

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

Table of Contents

CELLULAR BIOMEDICINE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019

Net sales and revenue	$	32,295		$	-		$	32,295		$	49,265

Operating expenses:
Cost of sales		7,618			-			7,618			8,087
General and administrative		5,100,189			3,326,630			11,812,062			9,955,073
Selling and marketing		-			38,267			-			121,779
Research and development		12,611,853			13,126,699			30,457,415			28,157,321
Impairment of investments		-			-			240,000			-
Total operating expenses		17,719,660			16,491,596			42,517,095			38,242,260
Operating loss		(17,687,365	)		(16,491,596	)		(42,484,800	)		(38,192,995	)

Other income
Interest income, net		2,774			352,935			38,343			631,986
Other income, net		646,587			274,430			330,642			267,043
Total other income		649,361			627,365			368,985			899,029
Loss before taxes		(17,038,004	)		(15,864,231	)		(42,115,815	)		(37,293,966	)

Income taxes credit (provision)		-			325			(1,775	)		(3,425	)

Net loss	$	(17,038,004	)	$	(15,863,906	)	$	(42,117,590	)	$	(37,297,391	)
Other comprehensive income (loss):
Cumulative translation adjustment		894,793			(303,821	)		501,965			(303,220	)
Total other comprehensive income (loss):		894,793			(303,821	)		501,965			(303,220	)

Comprehensive loss	$	(16,143,211	)	$	(16,167,727	)	$	(41,615,625	)	$	(37,600,611	)

Net loss per share:
Basic and diluted	$	(0.88	)	$	(0.82	)	$	(2.17	)	$	(1.98	)

Weighted average common shares outstanding:
Basic and diluted		19,433,988			19,256,129			19,390,235			18,881,266

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

Table of Contents

CELLULAR BIOMEDICINE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

	For the Nine Months Ended
	September 30,
	2020			2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(42,117,590	)	$	(37,297,391	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,850,349			4,099,029
Loss on disposal of assets		150			32,236
Stock based compensation expense		2,695,850			3,109,410
Other than temporary impairment on long-term investments		240,000			-
Changes in operating assets and liabilities:
Accounts receivable		(32,295	)		763
Other receivables		458,119			(491,974	)
Prepaid expenses		(658,723	)		55,519
Long-term prepaid expenses and other assets		(1,076,037	)		(1,920,077	)
Accounts payable		1,021,393			4,695,220
Accrued expenses		(207,542	)		(359,332	)
Other current liabilities		1,735,950			(297,512	)
Taxes payable		4,175			(325	)
Other non-current liabilities		(84,093	)		13,035
Net cash used in operating activities		(33,170,294	)		(28,361,399	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets		-			172,007
Purchases of intangibles		(175,632	)		(804,042	)
Purchases of assets		(7,057,292	)		(8,645,724	)
Net cash used in investing activities		(7,232,924	)		(9,277,759	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common stock		-			17,166,199
Proceeds from exercise of stock options		525,684			195,731
Proceeds from short-term debt		47,851,757			14,546,035
Repayment of short-term debt		(14,315,898	)		-
Repurchase of treasury stock		-			(1,039,028	)
Net cash provided by financing activities		34,061,543			30,868,937

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(73,077	)		(6,982	)

DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(6,414,752	)		(6,777,203	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD		32,443,649			52,812,880
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	26,028,897		$	46,035,677

SUPPLEMENTAL CASH FLOW INFORMATION

Income tax refund	$	3,200		$	-

Cash paid for income taxes	$	800		$	3,750

Interest expense paid	$	110,982		$	309,410

Interest income from pledged bank deposits received, netting off withholding tax	$	460,041		$	-

	September 30,			September 30,
	2020			2019
Reconciliation of cash, cash equivalents and restricted cash in condensed consolidated statements of cash flows:
Restricted cash	$	-		$	17,000,000
Cash and cash equivalents		26,028,897			29,035,677

Cash, cash equivalents and restricted cash	$	26,028,897		$	46,035,677

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

Table of Contents

CELLULAR BIOMEDICINE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

																				Accumulated Other
	Common Stock				Preferred Stock				Treasury Stock						Additional Paid in		Accumulated			Comprehensive Income
	Shares		Amount		Shares		Amount		Shares			Amount			Capital		Deficit			(Loss)			Total

Balance at June 30, 2020		20,481,791	$	20,482		-	$	-		(1,055,499	)	$	(14,992,694	)	$	274,404,670	$	(225,046,129	)	$	(1,853,778	)	$	32,532,551

Restricted stock grants		19,061		19		-		-		-			-			432,026		-			-			432,045
Accrual of share-based compensation costs		-		-		-		-		-			-			458,965		-			-			458,965
Exercise of stock options		5,000		5		-		-		-			-			43,245		-			-			43,250
Foreign currency translation		-		-		-		-		-			-			-		-			894,793			894,793
Net loss		-		-		-		-		-			-			-		(17,038,004	)		-			(17,038,004	)

Balance at September 30, 2020		20,505,852	$	20,506		-	$	-		(1,055,499	)	$	(14,992,694	)	$	275,338,906	$	(242,084,133	)	$	(958,985	)	$	17,323,600

																				Accumulated Other
	Common Stock				Preferred Stock				Treasury Stock						Additional Paid in		Accumulated			Comprehensive Income
	Shares		Amount		Shares		Amount		Shares			Amount			Capital		Deficit			(Loss)			Total

Balance at June 30, 2019		20,301,425	$	20,301		-	$	-		(1,055,499	)	$	(14,992,694	)	$	270,033,960	$	(171,415,974	)	$	(1,468,591	)	$	82,177,002

Restricted stock grants		20,217		21		-		-		-			-			450,092		-			-			450,113
Accrual of stock options		-		-		-		-		-			-			545,762		-			-			545,762
Exercise of stock options		6,080		6		-		-		-			-			44,938		-			-			44,944
Foreign currency translation		-		-		-		-		-			-			-		-			(303,821	)		(303,821	)
Net loss		-		-		-		-		-			-			-		(15,863,906	)		-			(15,863,906	)

Balance at September 30, 2019		20,327,722	$	20,328		-	$	-		(1,055,499	)	$	(14,992,694	)	$	271,074,752	$	(187,279,880	)	$	(1,772,412	)	$	67,050,094

Note: No dividend was declared for the three months ended September 30, 2020 and 2019.

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

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CELLULAR BIOMEDICINE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

																				Accumulated Other
	Common Stock				Preferred Stock				Treasury Stock						Additional Paid in		Accumulated			Comprehensive Income
	Shares		Amount		Shares		Amount		Shares			Amount			Capital		Deficit			(Loss)			Total

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

Restricted stock grants		93,608		94		-		-		-			-			1,291,453		-			-			1,291,547
Accrual of share-based compensation costs		-		-		-		-		-			-			1,404,303		-			-			1,404,303
Exercise of stock options		52,355		52		-		-		-			-			525,632		-			-			525,684
Foreign currency translation		-		-		-		-		-			-			-		-			501,965			501,965
Net loss		-		-		-		-		-			-			-		(42,117,590	)		-			(42,117,590	)

Balance at September 30, 2020		20,505,852	$	20,506		-	$	-		(1,055,499	)	$	(14,992,694	)	$	275,338,906	$	(242,084,133	)	$	(958,985	)	$	17,323,600

																				Accumulated Other
	Common Stock				Preferred Stock				Treasury Stock						Additional Paid in		Accumulated			Comprehensive Income
	Shares		Amount		Shares		Amount		Shares			Amount			Capital		Deficit			(Loss)			Total

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 public offering		1,106,961		1,107		-		-		-			-			17,165,092		-			-			17,166,199
Restricted stock grants		77,737		78		-		-		-			-			1,194,275		-			-			1,194,353
Accrual of stock options		-		-		-		-		-			-			1,915,057		-			-			1,915,057
Exercise of stock options		22,243		22		-		-		-			-			195,710		-			-			195,732
Treasury stock purchase		-		-		-		-		(54,000	)		(1,039,028	)		-		-			-			(1,039,028	)
Foreign currency translation		-		-		-		-		-			-			-		-			(303,220	)		(303,220	)
Net loss		-		-		-		-		-			-			-		(37,297,391	)		-			(37,297,391	)

Balance at September 30, 2019		20,327,722	$	20,328		-	$	-		(1,055,499	)	$	(14,992,694	)	$	271,074,752	$	(187,279,880	)	$	(1,772,412	)	$	67,050,094

Note: No dividend was declared for the nine months ended September 30, 2020 and 2019.

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

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CELLULAR BIOMEDICINE GROUP, INC.

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF BUSINESS

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

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 the cell therapy industry through our diverse, multi-target, broad pipeline comprised of immuno-oncology featuring Chimeric antigen receptor T-cell (CAR-T), T-cell receptor-engineered T-cell (TCR-T), tumor infiltrating lymphocytes (TILs), and regenerative medicine for Knee Osteoarthritis (KOA), acute respiratory distress syndrome (ARDS) and Alzheimer’s disease (AD). Our focus is to bring our clinical assets with potential to market. We also aim to reduce manufacturing cycle time and aggregate cost while ensuring quality products of cell therapies. We have two major approaches to our global strategy. First, we intend to develop our own internal pipeline, focusing on cancer cell therapy and regenerative medicine 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 or limited resources 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 in China and to provide sufficient capacity in our Rockville facility to support early U.S. clinical development on anti-CD20/CD19 bi-specific CAR for Non-Hodgkin Lymphoma (NHL) and TIL for Non-Small-Cell Lung Cancer (NSCLC). 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. After a slight delay due to the pandemic, our Rockville, Maryland GMP facility is scheduled to be completed in late Q4, 2020. We plan to transfer protocol from our China GMP facility to the Rockville site to support our U.S. FDA clinical development on (a) anti-CD20/CD19 bi-specific CAR for NHL, and (b) TIL for NSCLC. 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.

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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^® (tisagenlecleucel) 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 September 30, 2020, we have achieved several major milestones on the technology transfer and collaboration with Novartis on commercialization of Kymriah^®, comprised of process and analytical training, feasibility, export license for feasibility/comparability, and the majority of our manufacturing comparability run.

On October 2, 2018, we executed a nonexclusive 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 plan to use our Rockville, Maryland GMP facility to launch clinical development in the U.S. upon institutionalizing our process development.

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 development 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). We started the AFP TCR-T Investigator Initiated Trial (IIT) in October 2019. On June 22, 2020, we conducted a presentation entitled “Selecting Clinical Lead of TCRs Targeting Alpha-Fetoprotein-Positive Liver Cancer on Balance of Risk and Benefit” at the 2020 American Association for Cancer Research (AACR) annual meeting.

On June 29, 2020, we relocated our headquarters from New York City, New York to Gaithersburg, Maryland. We plan to move our headquarters to our new Rockville, Maryland facility in Q4 of this year.

The coronavirus disease 2019 (COVID-19) has spread globally and the World Health Organization (WHO) has declared it a global pandemic. While still evolving, the COVID-19 pandemic has caused significant worldwide economic and financial turmoil, and has fueled concerns that it will lead to a global recession. We have and continue to prioritize the safety and well-being of our employees and have implemented work-from-home policies for our U.S.- and China-based employees since the early stages of the COVID-19 pandemic. In early April 2020, our China-based employees returned to the office and are required to adhere to the Company’s COVID-19 prophylactic process and procedures. In July 2020, our U.S.-based employees also returned to the office in accordance with local rules and ordinances. Amid the COVID-19 pandemic, we are working with our clinical studies partners in China to mitigate risk to patients participating in our studies while taking into account regulatory, institutional, and government guidance and policies. We continue to evaluate enrollment trends in our studies as well as the impact of COVID-19 on our clinical programs. Patients enrolled on anti-BCMA CAR-T for Relapsed or Refractory Multiple Myeloma and anti-CD19/CD20 Bi-Specific CAR-T for Non-Hodgkin’s Lymphoma have continued treatment and study visits with limited disruption to date, and we are working closely with trial sites to support the continued treatment of patients in compliance with study protocols. An early phase clinical development using T cells transduced with AFP TCR-T targeting hepatocellular carcinoma (HCC) has been initiated and is ongoing. At the end of Q3, 2020, we suspended our autologous KOA clinical trial in China due to a shortage of participants caused by coronavirus anxiety in situations involving non-life-threatening physical ailments. Any potential further delays of our clinical studies cannot be predicted and may vary by clinical study and program depending on a variety of currently unknown factors. The Company remains committed to maintaining its development plans but acknowledges the potential impact on clinical studies amid the rapidly evolving pandemic environment.

The COVID-19 pandemic has disrupted and delayed our in-process developments and clinical studies for a number of our pipeline drug candidates during the first quarter of 2020, and a prolonged interruption to our corporate development, research or manufacturing facilities may result in a negative impact to our operations and further delay developments 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 COVID-19 as we operate in both China and the U.S. Our process development of drug candidates involves key personnel traveling between China and the U.S. on a frequent and regular basis, which has been disrupted due to travel restrictions and cancellation of flights. The magnitude of this negative effect on the continuity of our business operation and supply chains remains uncertain. The extent to which COVID-19 or any other health epidemic may impact the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. These uncertainties impede our ability to conduct our daily operations and could materially and adversely affect our business, financial condition and results of operations.

While the Company is currently implementing solutions designed to reduce the potential impact of COVID-19, there can be no assurance that our efforts will adequately mitigate the risks of business disruptions and interruptions. Further, events such as natural disasters and public health emergencies divert our attention away from normal operations and limited resources. During the second quarter of 2020, in compliance with the local restrictions our Gaithersburg site remained closed. On June 30, 2020, upon improved risk assessment and in compliance with COVID-19 related local, state and federal government requirements, employees were allowed to work on site. However, any subsequent waves or resurgence of the pandemic can disrupt the operations of our Maryland site, which can adversely affect our business, financial condition or results of operations in a material manner.

Our ability to bring in personnel to the U.S. for business and operations has been restricted as a result of the U.S. government’s suspension of the entry of L-1 visa intercompany transferees from June 24 to December 31, 2020. This travel ban will limit our ability to temporary transfer journeyman employees from China to Maryland to aid in the Rockville site ramp-up to support our U.S. clinical trial endeavor. We plan to hire new U.S. employees to augment our resources in Rockville. However, if we are unable to timely hire new experienced employee or overcome the integration of journeyman employees in China with the Maryland new hires, it can adversely affect our development efforts targeting certain solid tumor and other cancer indications in the United States.

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Corporate History

Headquartered in Maryland, the Company is a Delaware biopharmaceutical company focused on developing treatments for cancer and degenerative diseases for patients in China. On June 29, 2020, we relocated our headquarters from New York City, New York to Gaithersburg, Maryland. We are also preparing our development of 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 immunotherapies in 2014. On August 11, 2020, the Company entered into a definitive merger agreement that is expected to result in the Company going private upon completion.

NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements herein. The unaudited Condensed Consolidated Financial Statements herein should be read in conjunction with the historical consolidated financial statements of the Company for the year ended December 31, 2019 included in our Annual Report on Form 10-K for the year ended December 31, 2019. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Principles of Consolidation

Our unaudited condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. Such adjustments are of a normal recurring nature, unless otherwise noted. The balance sheet as of September 30, 2020 and the results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for any future period.

Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions that affect the reported amounts if assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe that the estimates, judgments and assumptions are reasonable, based on information available at the time they are made. Actual results could differ materially from those estimates.

Reclassification of Prior Period Presentation

Certain reclassifications have been made to conform the prior period date to the current presentation. These reclassifications had no material effect on the reported results.

Liquidity and Going Concern

The Company recorded accumulated deficit of $242,084,133, cash and cash equivalents of $26,028,897 as of September 30, 2020, compared with accumulated deficit of $199,966,543, cash and cash equivalents and restricted cash of $ as of December 31, 2019. 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.

Recent Accounting Pronouncements

Accounting pronouncements adopted during the nine months ended September 30, 2020

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. The Company adopted Topic 820 on January 1, 2020. The adoption of the ASU 2018-13 did not have a material impact on the Company’s 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 entities that meet the definition of an U.S. Securities and Exchange (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, should adopt the amendments in this Update for its annual or any interim goodwill impairment tests 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. The Company adopted ASU 2017-04 on January 1, 2020. The adoption of the ASU 2017-04 did not have a material impact on the Company’s consolidated financial statements.

Accounting pronouncements not yet effective to adopt

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. In October 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which defers the effective date for public filers that are considered small reporting companies as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is a smaller reporting company, implementation is not needed until January 1, 2023. Adoption of the standard requires using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align existing credit loss methodology with the new standard. The Company is evaluating the impact of this standard on its consolidated financial statements, including accounting policies, processes, and systems, and expects the standard will have a minor impact on its 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 2019-12 will have a material impact on our consolidated financial statements.

NOTE 3 – VARIABLE INTEREST ENTITIES

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. CBMG Shanghai acquired Beijing Agreen Biotechnology Co., Ltd. (“Agreen”) in September 2014. Agreen’s registered capital is 5 million RMB. 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 nine month periods ended September 30, 2020 and 2019, nil and 31% of the Company revenue is derived from VIEs respectively.

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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 condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019 are as follows:

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	September 30		December 31,
	2020		2019

Cash	$	6,539,981	$	13,424,425
Other receivables		219,280		201,532
Prepaid expenses		1,361,403		770,127
Total current assets		8,120,664		14,396,084

Property, plant and equipment, net		20,935,059		20,762,271
Right of use		12,342,706		13,541,518
Intangibles		1,227,731		1,226,955
Long-term prepaid expenses and other assets		4,995,586		4,742,138
Total assets	$	47,621,746	$	54,668,966

Liabilities
Short-term debt	$	2,465,035	$	14,334,398
Accounts payable		883,306		1,324,792
Other payables		4,343,974		4,090,154
Accrued payroll *		1,175,228		1,208,491
Deferred income		-		10,994
Total current liabilities	$	8,867,543	$	20,968,829

Other non-current liabilities		10,814,486		11,896,934
Total liabilities	$	19,682,029	$	32,865,763

* Accrued payroll mainly includes bonus accrual of $1,050,079 and $1,207,560 as of September 30, 2020 and December 31, 2019, respectively.

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NOTE 4 – RESTRICTED CASH AND SHORT-TERM DEBT

On April 30, 2020, our wholly-owned subsidiary, CBMG Wuxi, received approval from Nanjing Bank for a one-year line of credit (the “NJB Line”) of up to CNY 30 million (approximately $4.4million) for working capital and research and development activities. As of September 30, 2020, we have drawn 100% of the NJB Line at an annual interest rate of 5.4%.

On May 7, 2020, based on the condition that we remain as tenant in our landlord’s Wuxi Biotech Park for the next three years the landlord granted the Company an interest subsidy (the “Wuxi Interest Grant”) at a maximum of CNY 18 million in aggregate (approximately $2.6 million) applicable to all of our Chinese bank loans capped at an aggregate of CNY 100 million.

On August 10, 2020, the Company notified China Merchant Bank of its plan to draw from a one-year line of credit for working capital and research and development activities. This line of credit is capped at CNY 30 million (approximately $4.4 million) (the “CMB Line”). As of September 30, 2020, we have drawn approximately $2.5 million, or 57%, from the CMB Line at an annual interest rate of 4.35%.

Convertible Debt

On January 28, 2020, the Company executed a sixteen million dollars ($16,000,000) bridge loan with Winsor Capital Limited (the “Winsor Bridge Loan”), an affiliate of TF Capital Fund III L.P., a member of a buyer consortium that, following completion of the transactions contemplated by that certain Agreement and Plan of Merger, dated August 11, 2020, by and among the Company, CBMG Holdings and CBMG Merger Sub (the “Merger Agreement”), will beneficially own, in the aggregate, 100% of issued and outstanding shares of the Company’s stock. The Winsor Bridge Loan was funded in three tranches. The Company received with the first two tranches of $7 million each in January and March, 2020 and received the last tranche of $2 million on April 2, 2020. The term of the Winsor Bridge Loan called for repayment at the earliest of (i) the date falling nine months from the date of a convertible promissory note (the “Winsor Loan Note”) issued pursuant to the terms of the Winsor Bridge Loan, or (ii) the occurrence of an Event of Default (as described in Section 6 of the Winsor Loan Note) by converting and issuing to the account holder all (but not less than all) of the outstanding amount into the common stock of the Company at a conversion price equal to the lower of (A) $19.50 per share and (B) an amount representing a 15% discount to the volume weighted average price over the preceding 30 trading days prior to and including the maturity date. The Winsor Bridge Loan called for repayment of $7 million on each of November 1 and December 1 of 2020 and $2 million on January 1, 2021, plus accrued interest. If a consortium of investors acquires 100% of the shares of the Company or takes the Company private by way of merger or otherwise (the “Acquisition”), at the election of Winsor Capital Limited, all unpaid principal amount together with the unpaid and accrued interest payable under all tranches of the outstanding Winsor Bridge Loan may be converted into the common stock of the Company at a conversion price equal to the price per share payable in the Acquisition and issued to Winsor Capital Limited and Section 3 (Repayment) of the Note shall not apply.

On August 11, 2020, the Company and Winsor Capital Limited, entered into an Amendment Letter (the “Amendment Letter”) in connection with the Winsor Bridge Loan. Pursuant to the Amendment Letter, the Company and Winsor Capital Limited have agreed to revise the terms of the previously announced bridge loan to provide for a new maturity date being the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as defined in the promissory note issued pursuant to the terms of the bridge loan agreement of the Winsor Bridge Loan) unless such event of default has been remedied by the end of the applicable grace period as set out therein.

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On August 11, 2020, the Company entered into a Bridge Loan Agreement (the “Yunfeng Bridge Loan Agreement 1”) with Yunfeng Capital Limited, an affiliate of Yunfeng Fund III, L.P., pursuant to which Yunfeng Capital Limited agreed to provide for an unsecured loan to the Company in an aggregate principal amount of $25 million at a simple interest rate of 6% per annum (the “Yunfeng Bridge Loan 1”). The Company is required to pay all unpaid principal of the Yunfeng Bridge Loan 1, together with accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as defined in the promissory note issued pursuant to the terms of the Yunfeng Bridge Loan Agreement 1 (the “Yunfeng Note 1”)) unless such event of default has been remedied by the end of the applicable grace period. Pursuant to the Yunfeng Note 1, Yunfeng Capital Limited has the right, at its option to convert all (but not part) of the unpaid principal amount of the Yunfeng Bridge Loan 1 together with the accrued but unpaid interest into common stock of the Company (i) on the close of business on the maturity date at a conversion price equal to the lower of (A) US$19.50 per share and (B) an amount representing a 15% discount to the volume weighted average price over the preceding 30 trading days prior to and including the maturity date subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Yunfeng Note 1 or (ii) immediately prior to (but subject to) the closing of certain acquisitions of the Company (including the proposed merger previously disclosed on August 12, 2020) prior to the maturity date, at a conversion price equal to the price per share of common stock payable (or deemed payable) in such acquisition.

Related interest payable of $778,521 was recorded in other current liabilities as of September 30, 2020.

The Company follows ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) in its evaluation of the accounting for a hybrid instrument. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception. (b) variations in something other than the fair value of the issuer’s equity shares. or (c) variations inversely related to changes in the fair value of the issuer’s equity shares.

The general measurement guidance in ASC 480 requires obligations that can be settled in shares with a fixed monetary value at settlement to be carried at fair value unless other accounting guidance specifies another measurement attribute. The Company has determined that ASC 835-30 is the appropriate accounting guidance for the share-settled debt using the effective interest method over the term of amended Winsor Loan Note and Yunfeng Note 1.

Notwithstanding the fact that the above instruments can be settled in shares, FASB concluded that equity classification is not appropriate because instruments with those characteristics do not expose the counterparty to risks and rewards similar to those of an owner and, therefore do not create a shareholder relationship. The Company is instead using its shares as the currency to settle its obligation.

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The details of the short-term debt as of September 30, 2020 and December 31, 2019 are as follows:

						As of September 30, 2020		As of December 31, 2019
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
Winsor Capital Limited	January 29, 2020 ~March 2, 2020	the earliest of (i) August 7, 2021, or (ii) the occurrence of an event of default for so long as such event of default has not been remedied by the end of the applicable grace period as set out in therein		6	%		16,000,000		-
Nanjing Bank	June 19, 2020 ~ June, 30, 2020	June 18, 2021 ~June, 29, 2021		5.4	%		4,405,221		-
Merchants Bank	August 12, 2020 ~ August 13, 2020	August 11, 2021 ~ August 12, 2021		4.35	%		2,465,035		-
Yunfeng Capital Limited	August 14, 2020	the earlier of (i) August 7, 2021, and (ii) the occurrence of an Event of Default (as defined in the promissory note issued pursuant to the terms of the Yunfeng Bridge Loan Agreement for so long as such Event of Default has not been remedied by the end of the applicable grace period as set out in the Note (the earlier date of which being the “Maturity Date”)		6	%		25,000,000		-

							47,870,256		14,334,398

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

As of September 30, 2020 and December 31, 2019, property, plant and equipment, carried at cost, consisted of the following:

	September 30, 2020			December 31, 2019

Office equipment	$	168,135		$	160,315
Manufacturing equipment		17,724,082			14,963,621
Computer equipment		825,532			576,499
Leasehold improvements		16,434,421			15,516,570
Construction work in process		3,558,913			196,240
		38,711,083			31,413,245
Less: accumulated depreciation		(14,024,779	)		(9,978,831	)
	$	24,686,304		$	21,434,414

Depreciation expense was $1,310,843and $3,715,650, for the three and nine months ended September 30, 2020, respectively, as compared to $1,078,614 and $3,017,685 for the three and nine months ended September 30, 2019, respectively.

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NOTE 6 – INVESTMENTS

The Company’s investments represent the investment in equity securities listed in Over-The-Counter (“OTC”) markets of the United States of America:

September 30, 2020	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	)	$	-


December 31, 2019	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 nine months period ended September 30, 2020 and 2019.

There were no unrealized holding gains or losses for the investments that were recognized in other comprehensive income for the nine months ended September 30, 2020 and 2019.

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 nine months period ended September 30, 2020 and 2019 was $240,000 and nil, respectively. In March 2020, the Company contacted certain brokers to handle our Arem Pacific Corporation (“ARPC”) restricted legend removal from the stock certificates to convert to free-trade shares. Because of ARPC’s non-filing status and illiquid nature of the stock, the brokers’ compliance department summarily rejected our request. In light of the illiquid nature of ARPC stock, we applied full impairment to our ARPC holdings in the first quarter of 2020.

NOTE 7 – 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.

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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 September 30, 2020, the carrying value of the Company’s short-term debts 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 September 30, 2020 and December 31, 2019.

Assets measured at fair value within Level 2 on a recurring basis as of September 30, 2020 and December 31, 2019 are summarized as follows:

As of December 31, 2019

Fair Value Measurements at Reporting Date Using:

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

Assets:

Equity position in ARPC

240,000

No shares were acquired in the nine months ended September 30, 2020 and 2019.

As of September 30, 2020 and December 31, 2019, the Company holds 8,000,000 shares in Arem Pacific Corporation, 2,942,350 shares in Alpha Lujo, Inc. (“ALEV”), and 2,057,131 shares in Wonder International Education and Investment Group Corporation (“Wonder”), respectively. Full impairment has been provided for shares of ALEV, Wonder and ARPC as of September 30, 2020. All available-for-sale investments held by the Company at December 31, 2019 have been valued based on level 2 inputs due to limited liquidity of these companies’ shares.

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NOTE 8 – 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 September 30, 2020, the intellectual properties acquired from the Agreen acquisition still account 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 September 30, 2020 and December 31, 2019, intangible assets, net consisted of the following:

Patents & knowhow & license
	September 30, 2020			December 31, 2019
Cost basis	$	15,310,038		$	15,265,211
Less: accumulated amortization		(9,377,705	)		(8,317,085	)

	$	5,932,333		$	6,948,126

Software
	September 30, 2019			December 31, 2018
Cost basis	$	802,901		$	612,679
Less: accumulated amortization		(288,149	)		(183,865	)
	$	514,752		$	428,814

Total intangibles, net	$	6,447,085		$	7,376,940

All software is provided by third-party vendors, is not internally developed, and has an estimated useful life of five years. Patents, knowhow, and licenses are amortized using an estimated useful life of five to ten years. Amortization expense for the three and nine months ended September 30, 2020 was $381,677 and $1,134,699, respectively, and amortization expense for the three and nine months ended September 30, 2019 was $361,377 and $1,081,344, respectively.

Estimated amortization expense for each of the ensuing years are as follows for the twelve months ending September 30:

Years ending September 30,	Amount
2021	$	1,529,520
2022		1,518,072
2023		1,511,965
2024		1,474,835
2025 and thereafter		412,693
	$	6,447,085

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NOTE 9 – 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 recognized an operating liability with a corresponding Right-of-Use (“ROU”) asset of the same amounts based on the present value of the minimum rental payments of such leases. Related liabilities were recorded in other current liabilities and other non-current liabilities. We applied the short-term lease practical expedient to all leases of one year or less.

Quantitative information regarding the Company’s leases is as follows:

The components of lease expense were as follows:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Lease cost
Operating lease cost		902,659		692,842		2,671,975		2,108,722
Short-term lease cost		52,326		57,672		157,433		159,054
Total lease cost		954,985		750,514		2,829,408		2,267,776

Supplemental balance sheet information related to leases was as follows:

	September 30, 2020			December 31, 2019

Operating lease right-of-use assets		18,521,996			20,106,163
Other current liabilities		2,314,295			2,506,413
Other non-current liabilities		16,207,701			17,599,750

Weighted Average Remaining Lease Term (in years): Operating leases		7.2			7.9

Weighted Average Discount Rate: Operating leases		5	%		5	%

Supplemental cash flow information related to leases was as follows:

For the Three Months Ended

For the Nine Months Ended

September 30,

2020

2019

2020

2019

Cash paid for the amounts included in the measurement of lease liabilities for operating leases:

Operating cashflows

1,401,512

261,665

2,754,392

2,792,648

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As of September 30, 2020, the Company has the following future minimum lease payments due under the foregoing lease agreements:

Years ending September 30,	Amount
2021	$	3,429,296
2022		3,277,222
2023		3,305,063
2024		3,142,594
2025 and thereafter		9,742,934

	$	22,897,109

NOTE 10 – RELATED PARTY TRANSACTIONS

The Company may advance petty cash to officers for business travel purpose. As of September 30, 2020 and December 31, 2019, other receivables due from officers for business travel purpose was nil.

NOTE 11 – 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.

During the three and nine months ended September 30, 2020, the Company expensed $458,965 and $1,404,303 associated with unvested option awards, respectively, and 432,045 and $1,291,547 associated with restricted common stock issuances, respectively. During the three and nine months ended September 30, 2019, the Company expensed $545,762 and $1,915,057 associated with unvested option awards, respectively, and $450,113 and $1,194,353 associated with restricted common stock issuances, respectively.

During the three and nine months ended September 30, 2020, options for 5,000 and 52,355 underlying shares were exercised on a cash basis, respectively, and accordingly, 5,000 and 52,355 shares of the Company’s common stock were issued, respectively. During the three and nine months ended September 30, 2019, options for 6,080 and 22,243 underlying shares were exercised on a cash basis, respectively, and accordingly, 6,080 and 22,243 shares of the Company’s common stock were issued, respectively.

During the three and nine months ended September 30, 2020, 19,061 and 93,608 of the Company’s restricted common stock were issued to directors, employees and advisors, respectively. During the three and nine months ended September 30, 2019, 20,217 and 77,737 of the Company’s restricted common stock were issued to directors, employees and advisors, respectively.

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On August 11, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CBMG Holdings, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”), and CBMG Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Parent and Merger Sub are newly-formed entities formed on behalf of a buyer consortium (the “Consortium”) consisting of (i) Bizuo (Tony) Liu (CEO of CBMG) and certain other members of CBMG management (Yihong Yao, Li (Helen) Zhang and Chengxiang (Chase) Dai) (collectively, the “Management Rollover Stockholders”), (ii) Dangdai International Group Co., Limited, Mission Right Limited, Wealth Map Holdings Limited, Earls Mill Limited, OPEA SRL, Maplebrook Limited, Full Moon Resources Limited, Viktor Pan and Zheng Zhou (together with the Management Rollover Stockholders, the “Consortium Rollover Stockholders”) and (iii) Yunfeng Fund III, L.P., TF Capital Fund III L.P., Velvet Investment Pte. Ltd., and Bizuo (Tony) Liu (in his capacity as an equity investor) (the “Equity Investors”).

Pursuant to the Merger Agreement, at the effective time of the Merger (“Effective Time”), each share of the Company’s common stock, par value $0.001 per share (“Company Common Stock”), issued and outstanding immediately prior to the Effective Time (other than (i) shares of Company Common Stock owned by Parent, Merger Sub or any other direct or indirect wholly-owned subsidiary of Parent and shares of common stock owned by the Company, (ii) certain shares of Company Common Stock owned by the Consortium Rollover Stockholders and Novartis Pharma AG (collectively, the “Rollover Stockholders”), and (iii) shares of Company Common Stock owned by stockholders who are entitled to appraisal rights pursuant to Section 262 of the DGCL) will be converted into the right to receive $19.75 in cash, without interest (the “Per Share Merger Consideration”).

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NOTE 12 – COMMITMENTS AND CONTINGENCIES

Capital commitments

As of September 30, 2020, the capital commitments of the Company are summarized as follows:

	September 30, 2020

Contracts for acquisition of plant and equipment being or to be executed	$	1,769,468
To be excecuted approved budget for Rockville facilities		1,150,194
	$	2,919,662

NOTE 13 – STOCK BASED COMPENSATION

Our stock-based compensation arrangements include grants of stock options and restricted stock awards under the Stock Option Plan (consisting of the 2009 Plan, 2011 Plan, 2013 Plan, 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 for the three and nine months ended September 30, 2020 was $458,965 and $1,404,303, respectively, and for the three and nine months ended September 30, 2019 was $545,762 and $1,915,057, respectively. The compensation cost that has been charged against income related to restricted stock awards for the three and nine months ended September 30, 2020 was $432,045 and $1,291,547, respectively, and for the three and nine months ended September 30, 2019 was $450,113 and $1,194,353, respectively.

As of September 30, 2020, there was $1,077,501 of unrecognized compensation cost related to an aggregate 142,997 of non-vested stock option awards and $1,629,189 related to an aggregate 132,426 of non-vested restricted stock awards. These costs are expected to be recognized over a weighted-average period of 0.6 years for the stock options awards and 1.1 years for the restricted stock awards.

During the nine months ended September 30, 2020, the Company issued options to purchase an aggregate of 36,546 shares of the Company’s common stock under the Stock Option Plan. The grant date fair value of these options was $383,561 using the Black-Scholes option valuation models with the following assumptions: exercise price is equal to the grant date stock price or average selling prices over the 30-business day period preceding the date of grant of $14.68, volatility of 86.92%, expected life of 6.0 years, and risk-free rate of 0.44%. The Company is expensing these options on a straight-line basis over the requisite service period.

During the three months ended September 30, 2019, the Company issued options to purchase an aggregate of 13,000 shares of the Company’s common stock under the Stock Option Plan. The grant date fair value of these options was $137,121 using Black-Scholes option valuation models with the following assumptions: exercise price equal to the grant date stock price or average selling prices over the 30-business day period preceding the date of grant ranging from $13.54 to $15.77, volatility ranging from 87.44% to 87.85%, expected life of 6.0 years, and risk-free rate ranging from 1.46% to 1.85%. The Company is expensing these options on a straight-line basis over the requisite service period.

During the nine months ended September 30, 2019, the Company issued options to purchase an aggregate of 53,907 shares of the Company’s common stock under the Stock Option Plan. The grant date fair value of these options was $625,039 using Black-Scholes option valuation models with the following assumptions: exercise price equal to the grant date stock price or average selling prices over the 30-business day period preceding the date of grant ranging from $13.54to $17.13, volatility ranging from 87.38% to 88.03%, expected life of 6.0 years, and risk-free rate ranging from 1.46% to 2.36%. The Company is expensing these options on a straight-line basis over the requisite service period.

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The following table summarizes stock option activity for the nine months ended September 30, 2020:

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

Outstanding at December 31, 2019		1,788,888		$	12.37		5.4	$	9,394,219
Grants		36,546
Forfeitures		(83,960	)
Exercises		(52,355	)
Outstanding at September 30, 2020		1,689,119		$	12.22		4.8	$	11,734,473

Vested and exercisable at September 30, 2020		1,546,122		$	11.91		4.5	$	11,302,062

Exercise	Number of Options
Price	Outstanding		Exercisable

$3.00 - $4.95		185,547		185,547
$5.00 - $9.19		411,184		411,184
$9.20- $15.00		519,047		440,620
$15.01- $20.00		446,341		386,171
$20.10+		127,000		122,600
		1,689,119		1,546,122

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 compensation arrangements for the three and nine months ended September 30, 2020 was $43,250 and $525,684, respectively, as compared to $44,944 and $195,732 for the three and nine months ended September 30, 2019, respectively.

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NOTE 14 – 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 Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019

Net loss	$	(17,038,004	)	$	(15,863,906	)	$	(42,117,590	)	$	(37,297,391	)

Weighted average shares of common stock		19,433,988			19,256,129			19,390,235			18,881,266
Dilutive effect of stock options		-			-			-			-
Restricted stock vested not issued		-			-			-			-
Common stock and common stock equivalents		19,433,988			19,256,129			19,390,235			18,881,266

Net loss per basic and diluted share	$	(0.88	)	$	(0.82	)	$	(2.17	)	$	(1.98	)

For the three and nine months ended September 30, 2020 and 2019, the effect of conversion and exercise of the Company’s outstanding options are excluded from the calculations of dilutive net loss per share as their effects would have been anti-dilutive since the Company had generated losses for the three and nine months ended September 30, 2020 and 2019.

NOTE 15 – INCOME TAXES

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2020		2019		2020			2019

Current income tax	$	-	$	325	$	(1,775	)	$	(3,425	)
Deferred income tax		-		-		-			-
Total income tax credit (provision)	$	-	$	325	$	(1,775	)	$	(3,425	)

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period during which such rates are enacted.

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The Company considers all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carry-forward periods), and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. Based on all available evidence, in particular our three-year historical cumulative losses, recent operating losses and U.S. pre-tax loss for the nine months ended September 30, 2020, we recorded a valuation allowance against our U.S. and China net deferred tax assets.

In each period since its 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).

Income tax credit (expense) for the three and nine months ended September 30, 2020 and 2019 all represent US state tax.

The Company’s effective tax rate differs from statutory rates of 21% for U.S. federal income tax purposes, 15% to 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 it 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 (“CIT”) 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 which received approval on November 27, 2018. On August 23, 2018, the 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 the Bulletin 45, an enterprise that obtains the both types of qualification in 2018, is allowed to carry forward all its prior year loss incurred between 2013 and 2017 to up to ten years instead of five years. The same requirement applies to the enterprise obtaining the qualification after 2018.

As of September 30, 2020, all of the deferred income tax expense is offset by changes in the valuation allowance pertaining to the Company’s existing net operating loss carryforwards due to the unpredictability of future profit streams prior to the expiration of the tax losses.

The Company deferred payment of the employer share of the Social Security tax pursuant to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Such tax payments beginning March 27, 2020 (the effective date of the CARES Act) through December 31, 2020 have been deferred. Deferred tax amounts are expected to be paid over two years, in equal amounts due on December 31, 2021 and December 31, 2022. As of September 30, 2020, the deferred Social Security tax of the Company was $69,074.

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NOTE 16 – 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 economic characteristic since they have similar nature and economic characteristics. The Company’s chief operating decision maker, the Chief Executive Officer, receives and reviews the result of the operation 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 segment information.

NOTE 17 – SUBSEQUENT EVENTS

On October 9, 2020, we filed a preliminary proxy statement relating to, among other things, the proposal to adopt the Merger Agreement (the “Merger Proposal”). Stockholders of the Company will be asked to vote on, among other things, the Merger Proposal at a special meeting of the stockholders, the date of which meeting is to be announced.

On October 12, 2020 we executed a lung resection tumor sample supply agreement with Duke University’s Institutional Review Board to support our TIL R&D development at the Rockville site.

On October 23, 2020, the Company entered into a Bridge Loan Agreement with TF I Ltd., an affiliate of TF Capital Fund III, L.P., a member of the Consortium (the “TF Bridge Loan Agreement”) pursuant to which TF I Ltd. agreed to provide an unsecured loan to the Company in an aggregate principal amount of $10 million at a simple interest rate of 6% per annum (the “TF Bridge Loan”). The Company is required to repay all unpaid principal of the TF Bridge Loan, together with the accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as specified in the convertible promissory note issued pursuant to the terms of the TF Bridge Loan Agreement (the “TF Note”)), unless any such event of default has been remedied by the end of the applicable grace period.

Pursuant to the TF Note, TF I Ltd. has the right, at its option, to convert all (but not part) of the unpaid principal amount of the TF Bridge Loan together with the accrued but unpaid interest into common stock of the Company (i) on the close of business on the maturity date at a conversion price equal to the lower of (A) $19.50 per share and (B) an amount representing a 15% discount to the volume weighted average price over the preceding 30 trading days prior to and including the maturity date, subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the TF Note or (ii) immediately prior to (but subject to) the closing of certain acquisitions of the Company (including the Merger) prior to the maturity date, at a conversion price equal to the price per share of common stock payable (or deemed payable) in such acquisition.

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The Company received proceeds of $10 million from the TF Bridge Loan on October 28, 2020.

On October 23, 2020, the Company entered into a Bridge Loan Agreement with Yunfeng Capital Limited, an affiliate of Yunfeng Fund III, L.P., a member of the Consortium (the “Yunfeng Bridge Loan Agreement 2”) pursuant to which Yunfeng Capital Limited agreed to provide an unsecured loan to the Company in an aggregate principal amount of $10 million at a simple interest rate of 6% per annum (the “Yunfeng Bridge Loan 2”). The Company is required to repay all unpaid principal of the Yunfeng Bridge Loan 2, together with the accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as specified in the convertible promissory note issued pursuant to the terms of the Yunfeng Bridge Loan Agreement 2 (the “Yunfeng Note 2”)), unless any such event of default has been remedied by the end of the applicable grace period.

Pursuant to the Yunfeng Note 2, Yunfeng Capital Limited has the right, at its option, to convert all (but not part) of the unpaid principal amount of the Yunfeng Bridge Loan 2 together with the accrued but unpaid interest into common stock of the Company (i) on the close of business on the maturity date at a conversion price equal to the lower of (A) $19.50 per share and (B) an amount representing a 15% discount to the volume weighted average price over the preceding 30 trading days prior to and including the maturity date, subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Yunfeng Note 2 or (ii) immediately prior to (but subject to) the closing of certain acquisitions of the Company (including the Merger) prior to the maturity date, at a conversion price equal to the price per share of common stock payable (or deemed payable) in such acquisition.

The Company received proceeds of $10 million from the Yunfeng Bridge Loan 2 on October 30, 2020.

On October 28, 2020, the Committee on Foreign Investment in the United States (“CFIUS”) accepted the joint voluntary notice (the “CFIUS Notice”) filed in connection with the transactions contemplated by the Merger Agreement. The CFIUS Notice review period began on October 29, 2020 and is expected to conclude no later than December 14, 2020.

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

The following is management’s discussion and analysis summarizing the significant factors affecting our results of operations, financial condition and liquidity position for the three and nine months ended September 30, 2020 and 2019, and should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this filing.

This report contains forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “could,” “expect,” “plans,” “intend,” “estimate,” “projects,” “presidents,” “potential,” “continue” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. These statements reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

A variety of factors, some of which are outside our control, may cause our operating results to fluctuate significantly. They include:

	·	the severity, magnitude, and duration of the COVID-19 pandemic, including impacts of the pandemic and of responses to the pandemic by governments, business, and individuals on our operations;

	·	our ability to timely complete and equip our Rockville, Maryland GMP facility amid the COVID-19 pandemic;

	·	our ability to mitigate the intracompany transferee visa travel ban in connection with the technical transfer of our institutionalized process from our Shanghai, China facility to the new Rockville site to support clinical trial in the U.S.;

	·	our anticipated cash needs and our estimates regarding our anticipated expenses, capital requirements and our needs for additional financings;

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

	·	our ability and the potential to successfully advance our technology platform to improve the safety and effectiveness of our existing product candidates; the potential for our identified research priorities to advance our cancer and degenerative disease technologies;

	·	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;

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

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

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	·	the potential of the technologies we are developing;

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

	·	our plans to equip our manufacturing facilities;

	·	the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;

	·	the inability to complete the proposed Merger due to the failure to obtain the required stockholder approvals or the failure to satisfy other conditions to the consummation of the proposed Merger;

	·	the parties may be unable to obtain CFIUS clearance, or CFIUS may delay the Merger or result in the imposition of conditions that could cause the parties to abandon the Merger;

	·	risks related to disruption of Company management’s attention from the Company’s ongoing business operations due to the Merger;

	·	the outcome of any legal proceedings, regulatory proceedings or enforcement matters that have been or may be instituted against the Company and others relating to the Merger;

	·	our announcement and pursuit of the Merger may disrupt our business and make it more difficult to maintain our business and operational relationships, and the restrictions imposed on us prior to the closing of the Merger or termination of the Merger Agreement may prevent us from growing our business or operating outside of the ordinary course of business without the consent of Parent and/or Merger Sub;

	·	the potential difficulties in employee retention as a result of the pendency of the Merger;

	·	the risk associated with the timing of the closing of the Merger, including the risk that the conditions to the Merger are not satisfied on a timely basis, or at all, and the failure of the Merger to close for any other reason;

	·	unanticipated difficulties or expenditures relating to the Merger, the response of business partners and retention as a result of the announcement and pendency of the Merger;

	·	the amount of the costs, fees, expenses and charges related to the Merger; and

	·	the additional risks, uncertainties, and other factors described in our SEC filings.

We discuss many of these risks in greater detail under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 28, 2020.

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

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For additional information, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our 2019 Annual Report on Form 10-K.

OVERVIEW

The “Company”, “CBMG”, “we”, “us”, “our” and similar terms refer to Cellular Biomedicine Group, Inc. (a Delaware corporation) as a combined entity including each of its subsidiaries and controlled companies, unless the context otherwise requires.

Impact of COVID-19

The following guidance regarding the impact of the COVID-19 pandemic on our business operations is highly uncertain and subject to change. We cannot determine with certainty what the ultimate impact of the pandemic will be.

The COVID-19 pandemic has created new challenges for CBMG, the broader biotech community, and society as a whole. We have and continue to prioritize the safety and well-being of our employees and have implemented work-from-home policies for our U.S.- and China-based employees since the early stages of the COVID-19 pandemic. In early April 2020, our China-based employees returned to the office and are required to adhere to the Company’s COVID-19 prophylactic process and procedures. In July 2020, our U.S.-based employees also returned to the office in accordance with local rules and ordinances. Commensurate to impacts throughout the biopharma industry, we have observed some broad-based COVID-19 supply chain related issues and are continuing to mitigate its impact on our operations by implementing concrete measures to prioritize the safety and physical wellbeing of our employees. Amid the COVID-19 pandemic, we are working with our clinical studies partners in China to mitigate risk to patients participating in our studies while taking into account regulatory, institutional, and government guidance and policies. We continue to evaluate enrollment trends in our studies as well as the impact of COVID-19 on our clinical programs. Patients enrolled on anti-BCMA CAR-T for Relapsed or Refractory Multiple Myeloma and anti-CD19/CD20 Bi-Specific CAR-T for Non-Hodgkin’s Lymphoma have continued treatment and study visits with limited disruption to date, and we are working closely with trial sites to support the continued treatment of patients in compliance with study protocols. An early phase clinical trial using T cells transduced with AFP TCR-T targeting hepatocellular carcinoma (HCC) has been initiated and is ongoing. At the end of Q3, 2020, we suspended our autologous KOA clinical trial in China due to a shortage of participants, caused by the coronavirus anxiety in situations involving non-life-threatening physical ailments. Any potential further delays cannot be predicted and may vary by clinical study and program depending on a variety of currently unknown factors. The Company remains committed to maintaining its development plans but acknowledges the potential impact on clinical studies amid the rapidly evolving pandemic environment.

Recent Developments from Q3 and Subsequent Developments

On July 13, 2020, the Company hosted a virtual research and development showcase to present an overview and update on the current state of its clinical and pre-clinical programs.

On July 18, 2020, we began enrolling patients for our clinical study on human adipose mesenchymal stem cell exosomes (ahaMSCs-Exo) in the treatment of mild to moderate Alzheimer’s disease. Our clinical partner is Ruijin Hospital (affiliated to Shanghai Jiao Tong University School of Medicine). The study is expected to enroll 18 patients.

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On August 11, 2020, the Company entered into a Bridge Loan Agreement (the “Yunfeng Bridge Loan Agreement 1”) with Yunfeng Capital Limited, an affiliate of Yunfeng Fund III, L.P., pursuant to which Yunfeng Capital Limited agreed to provide for an unsecured loan to the Company in an aggregate principal amount of $25 million at a simple interest rate of 6% per annum (the “Yunfeng Bridge Loan 1”). The Company is required to paypay all unpaid principal amount of the Yunfeng Bridge Loan, together with accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as defined in the promissory note issued pursuant to the terms of the Yunfeng Bridge Loan Agreement 1, the “Yunfeng Note 1”) unless such event of default has been remedied by the end of the applicable grace period. Pursuant to the Yunfeng Note, Yunfeng Capital Limited has the right, at its option to convert all (but not part) of the unpaid principal amount of the Yunfeng Bridge Loan 1 together with the accrued but unpaid interest into common stock of the Company (i) on the close of business on the maturity date at a conversion price equal to the lower of (A) US$19.50 per share and (B) an amount representing a 15% discount to the volume weighted average price over the preceding 30 trading days prior to and including the maturity date, subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Yunfeng Note 1 or (ii) immediately prior to (but subject to) the closing of certain acquisitions of the Company (including the proposed merger previously disclosed on August 12, 2020) prior to the maturity date, at a conversion price equal to the price per share of common stock payable (or deemed payable) in such acquisition.

On August 11, 2020, the Company and Winsor Capital Limited, an affiliate of TF Capital Ranok Ltd., entered into an Amendment Letter (the “Amendment Letter”) in connection with the Winsor Bridge Loan. Pursuant to the Amendment Letter, the Company and Winsor Capital Limited have agreed to revise the terms of the previously announced bridge loan to provide for a new maturity date being the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as defined in the promissory note issued pursuant to the terms of the bridge loan agreement of the Winsor Bridge Loan) unless such event of default has been remedied by the end of the applicable grace period as set out therein.

On August 11, 2020, the Company entered into the Merger Agreement with CBMG Holdings, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”), and CBMG Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Parent and Merger Sub are newly-formed entities formed on behalf of the Consortium.

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On August 11, 2020, we executed a nonexclusive patent license agreement (the “AAV5 License Agreement”) with the U.S. Department of Health and Human Services, as represented by National Heart, Lung, and Blood Institute of the National Institutes for Health, for sixteen AAV5 vector patents (the “AAV5 Patents”), pursuant to which we acquired certain rights to the worldwide development, manufacture and commercialization of such licensed rights to introduce therapeutic genes to enhance the efficacy of T cell immunotherapy, and to produce CAR/TCR/TIL cells for the treatment of non-small cell lung cancer and multiple myeloma. The AAV5 patents expire in 2025.

On August 20, 2020, we initiated our participation in a multicenter, randomized, double-blind, clinical study targeting non-COVID 19 related ARDS by atomizing inhalation of allogeneic human mesenchymal stem cell exosomes (hMSC-Exos). Our clinical partners are Ruijin Hospital (affiliated to Shanghai Jiao Tong University School of Medicine), Zhongshan Hospital (affiliated to Fudan University), Shanghai First People’s Hospital, and East China Hospital (affiliated to Fudan University). We have started recruiting patients for the Phase I study.

On August 25, 2020, we submitted a declaration relating to the transactions contemplated by the Merger Agreement to CFIUS pursuant to 31 C.F.R. § 800.402 (the “CFIUS Declaration”).

On August 30, 2020, we presented our research and development pipeline at the 25th Annual Conference of the Chinese Biopharmaceutical Association-USA.

On September 21, 2020, we executed a sponsored collaborative research agreement with Duke University, pursuant to which both parties entered into a research collaboration to investigate NSCLC tumor specimens for pre-clinical development and manufacturing of a clinical TIL cell-therapy product.

On September 25, 2020 CFIUS requested that the Company file the CFIUS Notice regarding the Merger in accordance with 31 C.F.R. part 800, subpart E.

On October 23, 2020, the Company entered into a Bridge Loan Agreement with TF I Ltd., an affiliate of TF Capital Fund III L.P. (the “TF Bridge Loan Agreement”) pursuant to which TF I Ltd. agreed to provide an unsecured loan to the Company in an aggregate principal amount of $10 million at a simple interest rate of 6% per annum (the “TF Bridge Loan”). The TF Bridge Loan Agreement was approved by the Board of Directors (the “Board”) of the Company based on the recommendation of the Special Committee of the Board (the “Special Committee”) and its advisers. TF Capital Fund III L.P., an affiliate of TF I Ltd., is a member of the Consortium that, through certain newly formed entities, entered into the Merger Agreement with the Company on August 11, 2020 relating to the Merger. The TF Bridge Loan was funded on October 28, 2020. The Company is required to repay all unpaid principal of the TF Bridge Loan, together with the accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as specified in the convertible promissory note issued pursuant to the terms of the TF Bridge Loan Agreement (the “TF Note”), the form of which is attached as Exhibit A to the TF Bridge Loan Agreement), unless any such event of default has been remedied by the end of the applicable grace period. Pursuant to the TF Note, TF I Ltd. has the right, at its option, to convert all (but not part) of the unpaid principal amount of the TF Bridge Loan together with the accrued but unpaid interest into common stock of the Company (i) on the close of business on the maturity date at a conversion price equal to the lower of (A) $19.50 per share and (B) an amount representing a 15% discount to the volume weighted average price over the preceding 30 trading days prior to and including the maturity date, subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the TF Note or (ii) immediately prior to (but subject to) the closing of certain acquisitions of the Company (including the Merger) prior to the maturity date, at a conversion price equal to the price per share of common stock payable (or deemed payable) in such acquisition.

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On October 23, 2020, the Company entered into a Bridge Loan Agreement with Yunfeng Capital Limited (the “Yunfeng Bridge Loan Agreement 2”) pursuant to which Yunfeng Capital Limited agreed to provide an unsecured loan to the Company in an aggregate principal amount of $10 million at a simple interest rate of 6% per annum (the “Yunfeng Bridge Loan 2”). The Yunfeng Bridge Loan Agreement 2 was approved by the Board based on the recommendation of the Special Committee and its advisers. Yunfeng Fund III, L.P., an affiliate of Yunfeng Capital Limited, is a member of the Consortium that, through certain newly formed entities, entered into the Merger Agreement with the Company on August 11, 2020 relating to the Merger. The Yunfeng Bridge Loan 2 was funded on October 30, 2020. The Company is required to repay all unpaid principal of the Yunfeng Bridge Loan 2, together with the accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default (as specified in the convertible promissory note issued pursuant to the terms of the Yunfeng Bridge Loan Agreement 2 (the “Yunfeng Note 2”), the form of which is attached as Exhibit A to the Yunfeng Bridge Loan Agreement 2), unless any such event of default has been remedied by the end of the applicable grace period. Pursuant to the Yunfeng Note 2, Yunfeng Capital Limited has the right, at its option, to convert all (but not part) of the unpaid principal amount of the Yunfeng Bridge Loan 2 together with the accrued but unpaid interest into common stock of the Company (i) on the close of business on the maturity date at a conversion price equal to the lower of (A) $19.50 per share and (B) an amount representing a 15% discount to the volume weighted average price over the preceding 30 trading days prior to and including the maturity date, subject to ratable adjustment for any stock split, stock dividend, stock combination or other recapitalization occurring subsequent to the date of the Yunfeng Note 2 or (ii) immediately prior to (but subject to) the closing of certain acquisitions of the Company (including the Merger) prior to the maturity date, at a conversion price equal to the price per share of common stock payable (or deemed payable) in such acquisition.

On October 23, 2020, CBMG Holdings, as the Parent under the Merger Agreement, executed a consent letter to consent to (i) the execution of the TF Bridge Loan Agreement and the Yunfeng Bridge Loan Agreement 2 (together, the “Loan Agreements”) by the Company, the transactions contemplated thereunder and the TF Bridge Loan and Yunfeng Bridge Loan 2 (together, the “Loans”) to be incurred upon the execution of the Loan Agreements and (ii) acknowledge that the Loans do not constitute Indebtedness under Section 7.1(b)(vi)(A) of the Merger Agreement.

On October 28, 2020, CFIUS accepted the joint voluntary notice field in connection with the transactions contemplated by the Merger Agreement.

In the next 12 months, we aim to accomplish the following, though there can be no assurances that we will be able to accomplish any of these goals:

	·	Field answers to questions in the CFIUS Notice review and complete the proposed Merger transaction;

	·	Evaluate the potential of adding anti-Glypican 3 (GPC3) in our HCC research and development pipeline;

	·	Prepare and submit an IND application for C-CAR039 (anti-CD20/CD19 bi-specific CAR-T) for NHL to the U.S. FDA;

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	·	Launch a clinical study in the U.S. to evaluate the safety and clinical benefit of TIL in NSCLC (TIL051);

	·	File an IND application in China for C-TCR055 upon promising IIT proof of concept (POC) study results in China;

	·	Improve our capabilities and resources, including the manufacturing capabilities of our U.S. R&D center in Rockville, Maryland to support our clinical development in the U.S.;

	·	Continue to rationalize Novartis’ material specifications and reduce our cost on Kymriah®;

	·	Explore strategic drug development partnerships with large pharmaceutical companies by leveraging our vertically integrated infrastructure in China to execute the IIT expedited POC.

	·	Explore bringing our proprietary virus manufacturing process from Shanghai to our Rockville site to enable U.S. clinical trials;

	·	Conduct clinical study on the treatment of Alzheimer’s disease;

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

	·	Continue to assess and explore third-party technologies to augment our IP portfolio;

	·	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 our Contract Development and Manufacturing Organization (CDMO) business to support certain specific market-oriented business strategies;

	·	Pursue additional capital funding to strengthen our balance sheet;

	·	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;

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

	·	Enrich our intellectual property portfolio globally;

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

	·	Continue our allogeneic KOA clinical trials in China;

	·	Continue our exosome ARDS clinical study in China;

	·	Assess the feasibility of starting an IIT on Universal Chimeric Antigen Receptor (UCAR) BCMA for MM in China;

	·	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 as well as leverage our QMS system and our strong scientific expertise in both the U.S. and China;

	·	Continue to field inbound inquiries and to explore opportunities to monetize our clinical assets;

	·	Collaborate with multinational pharmaceutical companies to co-develop cell therapy products in China and the U.S. by leveraging our existing leading clinical assets or research on new targets; and

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

Our operating expenses for the three months ended September 30, 2020 were in line with management’s plans and expectations. We had an increase in total operating expenses of approximately $1 million and $4 million for the three and nine months period ended September 30, 2020, as compared to the same periods ended September 30, 2019, which was primarily attributable to G&A expenses for the privatization and increased R&D expenses in 2020 excluding the impact of one-time expense incurred in connection with a research collaboration with Duke University in 2019.

Corporate History

Please refer to Note 1 of the unaudited condensed consolidated financial statements for the corporate history.

BIOPHARMACEUTICAL BUSINESS

Our 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. We are expanding our U.S. presence with a new 22,477 square foot Rockville, Maryland facility scheduled to be completed in late Q4 2020. The Rockville site is designed to house approximately 4,500 square feet of GMP manufacturing facility to support early stage U.S. clinical trials. 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, KOA and ARDS.

Cancer. We are focusing our clinical development efforts on assets such as C-CAR088, C-CAR039, TIL051, AFT-TCRT in China and/or U.S. 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 acute lymphoblastic leukemia (ALL) and diffuse large B-cell lymphoma (DLBCL) biologics license application submission with the NMPA. We plan to continue to leverage 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.

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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 human adipose-derived mesenchymal progenitor cells (haMPCs) in order to reduce inflammation, relieve pain, improve knee function and repair damaged joint cartilage. Our ReJoin^®haMPC therapy for KOA is an interventional therapy using our proprietary process, culture and medium. From 2013 to 2020, we conducted clinical studies on ReJoin^®and our trial data has demonstrated positive results on the performance of ReJoin^®. We have recently suspended our autologous ReJoin^®KOA clinical trial in China due to a shortage of participants caused by coronavirus anxiety in situations involving non-life-threatening physical ailments.

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 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) related to AlloJoin^® 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. This clinical trial is a randomized, double-blind and blank-controlled study of intra-articular injections conducted at seven hospitals in China, including Shanghai Renji Hospital, Shanghai Sixth People’s Hospital, Shanghai First People’s Hospital, Shanghai Huashan Hospital, China-Japan Friendship Hospital, the Second Affiliated Hospital of Medical College of Zhejiang University and Shanghai Ninth People’s Hospital. As of September 2020, we have enrolled 54 patients, 52 of whom have received the AlloJoin® therapy, and we have not yet observed any serious adverse effects.

We established adult adipose-derived progenitor cell and immuno-oncology cellular therapy platforms in treating specific medical conditions and diseases. Our 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 2021.

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.

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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. ACT with 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.

Chimeric antigen receptor T-cells (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. Adoptive cell transfer’s building blocks are T-cells, a type of immune cell collected from the patient’s own blood. One of the well-established adoptive cell transfer 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 adoptive cell transfer 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. We have begun an anti-BCMA CAR-T investigator-initiated trial in January 2019 and are continuing to enroll more patients. 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 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. We are optimistic on the prospect of this pipeline and will continue to seek partnerships on co-development.

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In August 2017, the U.S. FDA approved Novartis’ Kymriah^®, a CD19-targeted CAR-T therapy, for the treatment of patients up to 25 years old for relapsed or refractory (r/r) 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 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 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 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. Some companies have made progress in securing financing for development of this therapy.

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 have the potential to overcome the limitation of the current autologous approach by providing an allogeneic, frozen, “off-the-shelf” T-cell products for cancer treatment.

Tumor Infiltrating Lymphocytes (TILs)

While CAR-T cell therapy has proven successful in treatment of several hematological malignancies, other cell therapy approaches, including 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, NSCLC and Cervical Cancer in the U.S. and Europe.

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T-Cell Receptor-Engineered T-Cells (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-, CD 19 and 20 and BCMA, AFP TCR-T, which could specifically eradicate AFP positive HCC tumors and TIL technologies for solid tumors. 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 have initiated multiple clinical trials to evaluate C-CAR088 in MM, C-CAR039 in NHL, anti-CD20 CAR-T in NHL for patients that have relapsed after anti-CD19 CAR-T treatment, and AFP TCR-T in HCC.

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 DLBCL 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 ALL and relapsed or refractory 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.

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The American Cancer Society estimates there will be 1.8 million new cancer cases diagnosed and 606,520 cancer deaths in the U.S. in 2020. 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 (the 2018 Global Cancer Statistics Report) states that compared to the U.S. and UK, China has a 30% and 40%, respectively, 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. There are approximately 466,000 new liver cancer cases each year in China with the mortality around 343,700.³ In 2018, there were approximately 510,000 new cases of NHL worldwide with 248,724 patient deaths.⁴

Multiple myeloma accounts for 1% of all cancers and approximately 10% of all hematological malignancies.⁵ In 2016 there were 138,509 incident cases worldwide. The United States had the most cases (24,407) and the most deaths (14,212), China was the second in both measures with 16,537 incident cases and 10,363 deaths. 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

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. KOA accounts for approximately 85% of the burden of OA worldwide today. The incidence of radiographic KOA is 42% and 31%, respectively, among women and men over age 60 in North America.⁷ 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. 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.

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

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

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

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

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

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

⁷ David J Hunter et al., Lancet. 2019 Apr 27;393(10182):1745-1759.

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According to the Foundation for the National Institutes of Health, there are 27 million Americans with OA, and symptomatic 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 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 strategy outside of China to monetize our assets is to pursue the proof of concept (POC) acknowledgement bolstered by promising clinical trial data from IIT or early IND in the U.S.. After POC, our plan is to proactively seek strategic partnership to defray the prohibitive costs associated in achieving Biologics License Application (BLA) approval in the United States and the rest of the world.

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.

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In China, Good Clinical Practice (GCP) only requires institutional review board approval from the hospital and local NMPA approval for 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 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.

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.

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Our Targeted Indications and Potential Therapies

The chart below illustrates CBMG’s pipelines:

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 several CAR-Ts to treat hematological malignancies including anti-CD20, anti-CD20-19 bispecific CAR-T, and anti-BCMA CAR-Ts, and we have initiated clinical studies to evaluate the safety and efficacy of these assets. We are preparing investigational new drug (IND) gap analysis for our U.S. pre-IND and IND application for C-CAR039 anti-CD20/CD19 Bi-specific CAR for NHL, and TIL051 for NSCLC.

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C-CAR039

C-CAR039 is a novel 2^nd generation bispecific CAR-T, targeting both CD19 and CD20. C-CAR039 showed reactivity against both single positive and double positive tumor in vitro and in vivo, and has the potential to be the best-in-class of CAR-T cell therapies for B cell NHL as it addresses the CD19 antigen loss by co-targeting CD20. As of October 30, 2020, 18 of the 21 enrolled patients received single dose C-CAR039 intravenous infusion with a dose range of 1.0 x 10⁶ to 5.0 x 10⁶ CAR-T cells/kg of body weight. Seventeen patients, including 15 patients with DLBCL, 1 with follicular lymphoma (FL) and 1 with transformed follicular lymphoma (tFL), are evaluable for safety (evaluated by CTCAE V5.0), and 16 patients have one month or longer efficacy data utilizing the 2014 Lugano Classification for the assessment of lymphoma. The median age of evaluable, infused patients was 60 years (range: 28–71 years). The median number of lines of prior therapies was 3 (range: 1-5). 11 of the 17 patients were stage III or IV patients (64.7%). C-CAR039 treatment was well tolerated with no grade 3 or higher cytokine release syndrome (CRS) as evaluated by CTCAE V5.0 and ASTCT Consensus Grading for Cytokine Release Syndrome and Neurologic Toxicity Associated with Immune Effector Cells 2018 for safety and The Lugano Classification 2014 for efficacy, and one grade 1 neurotoxicity event. Reversible grade 1 or 2 CRS was observed in 15/17 (88.2%) of patients. At the one-month efficacy evaluation, 15/16 patients showed clinical improvement (ORR=94%). The best overall response (BOR) includes 14 CR (87.5%, 12 DLBCL, 1 FL and 1 tFL) and 1 partial response (PR). 12 patients have at least 3-month follow-up data. The overall survival (OS) at 3 months is 100%. 9/12 (75%) patients had on going responses beyond 3 months after C-CAR039 treatment. The median follow-up was 156 days (39-345 days), and the median duration of response (DOR) has not yet been reached. We also observed tumor regression and positive correlation between the expansion of C-CAR039 CAR-T cells in the treated patients’ peripheral blood. No Grade 3 or higher CRS was observed. No Grade 2 or higher neurotoxicity was observed. Cytopenia was mostly related to Cy/Flu lymphodepletion.

C-CAR088

BCMA is a member of the TNF receptor superfamily, universally expressed in 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. Our anti-BCMA CAR-T clinical lead (C-CAR088) exhibits potent anti-tumor activity both in vitro and in vivo. We initiated an IIT in refractory MM patients in January 2019. As of October 30, 2020, we have enrolled 28 patients and infused 26 patients. 23 patients had evaluable data for safety and clinical response. We observed 95.7% ORR in 23 patients. Best responses included 10 CR, 11 VGPR and 1 PR. No Grade 4 or higher CRS was observed in 23 patients. No Grade 2 or higher neurotoxicity and DLTs was observed. Cytopenia was mostly related to Cy/Flu lymphodepletion. The clinical safety was evaluated by CTCAE 5.0 and clinical efficacy was evaluated by IMWG 2016. Our abstract for this study has been accepted for an oral presentation on Saturday, December 5, 2020, 1:15pm at the 62nd American Society of Hematology (ASH) Annual Meeting and Exposition. We continue to evaluate the therapeutic index with more patients at 6×106 CAR+ cell/kg (high dose) and the duration of response.

AFP TCR

We license the AFP-TCR technology from Augusta University. C-TCR055 is CBMG’s proprietary clinical lead of TCR-T which specifically recognizes the HLA-A*02:01 restricted AFP_158-166 peptide that is highly expressed in HCC and other solid tumors. It was selected based on anti-tumor activity and a preclinical safety profile including on/off-target toxicity and allo-reactivity. We are currently conducting an IIT to evaluate the safety and clinical efficacy in China.

TIL

CBMG is developing multiple approaches for 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 melanoma, cervical cancer, and NSCLC. For example, in Phase-II clinical studies in patients with metastatic melanoma performed by Dr. Steven Rosenberg, 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 manufacture process development in both the U.S. and China and plan to sponsor and initiate a TIL trial in late 2021 in the U.S. to evaluate the safety and clinical efficacy of TIL in stage IIIB and IV NSCLC patients refractory to anti-PD1 therapy.

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CD20 CAR

CD20 is broadly overexpressed in a series of B-cell malignant tumors. In the patients that 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 asset, which has demonstrated strong anti-tumor activity in both in vitro assays and in vivo animal studies. Currently the program is in an IIT to evaluate the safety and clinical benefit in anti-CD19 CAR-T refractory DLBCL patients in China.

Knee Osteoarthritis (KOA)

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, relieve pain, improve knee function, 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 statistically 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. Conventional treatment usually involves invasive surgery with painful recovery and physical therapy. As drug-based methods of management are ineffective, about 18% of the KOA patients ultimately elected for knee replacement surgery.⁸

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 40 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.

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⁸ Malin Wetterholm, et al. Acta Orthop. 2016 Jun; 87(3): 245–251.

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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. The incidence of radiographic KOA is 42% and 31%, respectively, among women and men over age 60 in North America, and 43% and 22%, respectively, among women and men over age 60 in Asia. According to the Global Osteoarthritis Therapeutics Market report 1029-2024 Market, the osteoarthritis therapeutics market is projected to reach $10.1 billion by 2024 from $6.8 billion in 2019, at a CAGR of 8.1%.

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-50ml) of adipose tissue obtained via liposuction from the patient, which is cultured and re-injected into the patient. The injections are designed to induce the body’s secretion of growth factors promoting immune response and regulation, and regrowth of cartilage. The down-regulation of the patient’s immune response is aimed at reducing and controlling inflammation which is a central cause of KOA.

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

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.

Acute Respiratory Distress Syndrome (ARDS)

Atomization of allogeneic MSC-Exos for ARDS may alleviate acute lung injury, repair damaged lung tissue structure, shorten the course of disease and improve the survival rate and quality of life of patients. Our clinical study aims to develop treatment for patients with refractory respiratory critical illness, which is expected to deter and delay the progress of ARDS disease, improve patient prognosis and improve the survival rates. Our plan is to utilize atomized inhalation to administer allogeneic human mesenchymal stem cell exosomes (hMSC-Exos) and to explore its feasibility as a new treatment in moderate and severe ARDS.

Alzheimer’s Disease

Alzheimer’s disease, a progressive neurodegenerative illness, is a common form of dementia. We have initiated a study and hope to determine the responses to the pathological microenvironment of the brain using allogeneic human mesenchymal stem cell extracellular vesicles. The main clinical manifestations of Alzheimer’s disease include gradual loss of memory, cognitive dysfunction, behavioral abnormalities and social dysfunction. The incidence of Alzheimer’s disease increases sharply with age, with prevalence rates ranging from 1 to 5 percent among people over 65 years old to 20 to 40 percent among people over 85 years old. Alzheimer’s disease is characterized by high disability, high fatality rate, long course of disease, and heavy burden of medical treatment and care. We have begun enrolling patients for our IIT clinical study using human adipose mesenchymal stem cell extracellular vesicles to treat mild to moderate Alzheimer’s disease.

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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, the 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 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.

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Cancer Immune Cell Therapies

Our primary competitors in the field of cancer immune cell therapies are comprised of:

Lung Cancer

		§	Merck & Co., Inc., Astra AB Zeneca Group plc, Bristol Meyers Squibb Company, Genetech, Inc., Innovent Biologics, Inc., BeiGene Co. Ltd, Jiangsu Henrui Medicine Company Ltd, Shanghai Junshi Biosciences Co., Ltd (with approved immunotherapy); and

		§	Regeneron Pharmaceuticals, Inc., Iovance Biotherapeutics, Inc., Adaptimmune Therapeutics PLC and Cstone Pharmaceuticals Co., Ltd (in advanced stage of development).

o	*Liver Cancer*

	§	Moderna, Inc., Adaptimmune Therapeutics PLC, Oncorus, Inc., Translate Bio, Inc., Promethera Biosciences SA, Metacrine, Inc., Madrigal Pharmaceuticals, Inc., Enyo Pharma SA, Aurora Biopharma, Inc, Actavis Group, Inc., Alnylam Pharmaceuticals, Inc., ArQule, Inc., Bayer Schering Pharma AG, Bristol-Myers Squibb Company, Celsion Corp, Eli Lilly & Company, ImClone Systems Inc., F. Hoffmann–La Roche Ltd, Jennerex Biotherapeutics, Inc., Onyx Pharmaceuticals, Inc., Pfizer Inc., Progen Pharmaceuticals Ltd, Teva Pharmaceutical Industries Ltd, Eureka Therapeutics, Inc. and CARsgen Therapeutics Co., Ltd.

o	*Multiple Myeloma*

	§	GlaxoSmithKline, Inc., Amgen, Inc., Johnson & Johnson’s Legend Biotech USA Inc., bluebird bio, inc., Bristol-Myers Squibb Company (Celgene Corporation), Bellicum Pharmaceuticals, Inc., Active Biotech AB, Oncolytics Biotech, Inc., Karyopharm Therapeutics, Inc., Seattle Genetics, Inc., Janssen Pharmaceutical Companies, Genmab A/S, Adaptive Biotechnologies Corporation, AbbVie, Inc., Kite Pharma, a subsidiary of Gilead Sciences, Inc., CARsgen Therapeutics Co., Ltd and Jiangsu Henrui Medicine Company Ltd.

o	*Lymphoma/leukemia*

	§	There are over 280 Non-Hodgkin lymphoma (NHL) development in various stages of clinical trials, CAR-T for NHL has 78 clinical trials in progress.

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	The most notable, selected list of key competitors of the Company are:

	o	Kite Pharma, a subsidiary of Gilead Sciences, Inc. and Novartis International AG (approved immunotherapy)

	o	AbbVie Inc., Juno Therapeutics, Inc.(a Bristol Meyers Squibb Company), Celgene Corporation, Autous Therapeutics PLC, Beam Therapeutics, Fate Therapeutics, Oxford Biomedica PLC, Nektar Therapeutics, Fosun Kite Biotechnology Co. Ltd, JW Therapeutics Co. Ltd., and Jiangsu Henrui Medicine Company Ltd.

While approved CAR-Ts utilize an autologous harvest, many competitors such as Allogene Therapeutics, Inc., CRISPR Therapeutics AG, Atara Biotherapeutics, Inc., Precision Biosciences, Inc., Kuur Therapeutics, Celularity, Inc., Ceylad Oncology, Fate Therapeutics, Inc., Kaedi Biotech Co., Ltd, Pfizer Inc., Cellectics, and Servier Laboratories are developing an allogenic or “off-the -shelf” therapies. CBMG has yet to develop an advanced allogenic approach and has paused its autologous KOA clinical study in China due to a shortage of participants caused by coronavirus anxiety in situations involving non-life-threatening physical ailments.

Services

We also operate contract immune-oncology manufacturing services in China with Novartis AG as our sole customer to supply Kymriah, to treat NHL patients in China. We expect Novartis to obtain China regulatory approval to market Kymriah in China before 2023. We consider contract development and manufacturing organization (CDMO) such as Lonza Group AG, WuXi Advanced Therapies, Minaris Regenerative Medicine, a wholly-owned subsidiary of Hitachi Chemical Co., Ltd and Miltenyi Biotec competitors in the manufacturing service business.

KOA

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. We submitted our autologous adipose stem cell therapy (ReJoin^®) KOA with IND filing with the CDE and the application was approved by NMPA. We have paused our autologous KOA clinical study in China due to due to a shortage of participants caused by coronavirus anxiety in situations involving non-life-threatening physical ailments.

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.

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

	·	Anika Therapeutics, Inc.’s Cingal^®, which has been approved as a combination viscosupplement, is formulated to provide a cross-linked hyaluronic acid (HA) and a fast acting steroid to effectively treat the symptoms associated with OA.

	·	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 that it enrolled the first patient in a pivotal U.S. Phase-III trial. According to clinicaltrials.gov, the estimated primary completion date for the trial is October 2023.

	·	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-III development but has not announced a timeline for submitting a Biologics License Application (BLA).

	·	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-III VICTORY-1 trial.

	·	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-III development. Initial results from Phase-III clinical trials for each were announced in 2018. In January 2019, Pfizer and Lilly announced results from a second Phase-III 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 a placebo. Rapidly progressive OA was seen in 2.1% of tanezumab-treated patients and was not observed in the placebo arm.

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

	·	Flexion Therapeutics, Inc.’s extended-release corticosteroid was approved in 2017 to manage osteoarthritis knee pain.

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

Certain CBMG competitors also work with adipose-derived stem cells. To 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.

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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.

ARDS

Respiratory diseases, especially ARDS, pose a risk of great harm to human health and has a high mortality rate. Treatment of such diseases faces new challenges. Currently, there are few clinical therapeutic studies using mesenchymal stem cell exosomes. Athersys Inc. received the Regenerative Medicine Advanced Therapy (RMAT) designation for MultiStem^® in ARDS, and is making progress in the MACOVIA (MultiStem^® Administration for COVID-19 Induced ARDS) trial. Mesoblast Limited’s randomized controlled Phase 3 trial of remestemcel-L, on top of maximal care in ventilator-dependent patients with ARDS due to COVID-19 infection has surpassed 50% enrollment.

Alzheimer’s Disease

The FDA has approved the Phase 1/2 trial of Hope Biosciences’ autologous, adipose-derived mesenchymal stem cells (HB-adMSCs) designed for the treatment of Alzheimer’s disease. And there are many clinical trials using stem cells like those in cord tissue to treat Alzheimer’s disease. The main clinical manifestations of Alzheimer’s disease include gradual loss of memory, cognitive dysfunction, behavioral abnormalities and social dysfunction. The incidence of Alzheimer’s disease increases sharply with age, with prevalence rates ranging from 1 to 5 percent among people over 65 years old to 20 to 40 percent among people over 85 years old. Alzheimer’s disease is characterized by high disability, high fatality rate, long course of disease, and heavy burden of medical treatment and care. We have begun enrolling patients for our IIT clinical study using human adipose mesenchymal stem cell extracellular vesicles to treat mild to moderate Alzheimer’s disease.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, our management evaluates the estimates, including those related to revenue recognition, accounts receivable, long-lived assets, goodwill and other intangibles, investments, stock-based compensation, and income taxes. Of the accounting estimates we routinely make relating to our critical accounting policies, those estimates made in the process of determining the valuation of accounts receivable, long-lived assets, and goodwill and other intangibles, measuring share-based compensation expense, preparing investment valuations, and establishing income tax valuation allowances and liabilities are the estimates most likely to have a material impact on our financial position and results of operations. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. However, because these estimates inherently involve judgments and uncertainties, there can be no assurance that actual results will not differ materially from those estimates.

During the three and nine months ended September 30, 2020, we believe that there have been no significant changes to the items that we disclosed as our critical accounting policies and estimates in the “Critical Accounting Policies and Estimates” section of Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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Results of Operations

Below is a discussion of the results of our operations for the three and nine months ended September 30, 2020 and 2019. These results are not necessarily indicative of result that may be expected in any future period. Our prospects should be considered in light of the risks, expenses and difficulties that we may encounter. We may not be successful in addressing these risks and difficulties.

Comparison of Three Months Ended September 30, 2020 to Three Months Ended September 30, 2019

The descriptions in the results of operations below reflect our operating results as set forth in our Condensed Consolidated Statement of Operations filed herewith.

	Three Months Ended September 30, 2020			Three Months Ended September 30, 2019

Net sales and revenue	$	32,295		$	-

Operating expenses:
Cost of sales		7,618			-
General and administrative		5,100,189			3,326,630
Selling and marketing		-			38,267
Research and development		12,611,853			13,126,699
Total operating expenses		17,719,660			16,491,596
Operating loss		(17,687,365	)		(16,491,596	)

Other income
Interest income, net		2,774			352,935
Other income, net		646,587			274,430
Total other income		649,361			627,365
Loss before taxes		(17,038,004	)		(15,864,231	)

Income taxes credit		-			325

Net loss	$	(17,038,004	)	$	(15,863,906	)
Other comprehensive income (loss):
Cumulative translation adjustment		894,793			(303,821	)
Total other comprehensive income (loss):		894,793			(303,821	)
Comprehensive loss	$	(16,143,211	)	$	(16,167,727	)

Net loss per share:
Basic and diluted	$	(0.88	)	$	(0.82	)

Weighted average common shares outstanding:
Basic and diluted		19,433,988			19,256,129

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

	Three Months Ended September 30, 2020		Three Months Ended September 30, 2019

General and administrative		408,376		435,123
Selling and marketing		-		6,457
Research and development		482,634		554,295
		891,010		995,875

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Results of Operations

Net sales and revenue

	2020		2019		Change		Percent

For the three months ended September 30,	$	32,295	$	-	$	32,295		N/A

We are a clinical stage company, and currently have no material revenues with similar effect.

Cost of Sales

	2020		2019		Change		Percent

For the three months ended September 30,	$	7,618	$	-	$	7,618		N/A

The gross margin change was immaterial as currently we have no material revenues.

General and Administrative Expenses

	2020		2019		Change		Percent

For the three months ended September 30,	$	5,100,189	$	3,326,630	$	1,773,559		53	%

The increase in general and administrative expenses in 2020 primarily relates to financial advisor consulting fees in connection with the Merger.

Selling and Marketing Expenses

	2020		2019		Change			Percent

For the three months ended September 30,	$	-	$	38,267	$	(38,267	)		(100	)%

We did not have a sales force in 2020 and therefore, no expense has been incurred in 2020.

Research and Development Expenses

	2020		2019		Change			Percent

For the three months ended September 30,	$	12,611,853	$	13,126,699	$	(514,846	)		(4	)%

Research and development costs decreased by approximately $515,000 in the three months ended September 30, 2020 as compared to the three months ended September 30, 2019, primarily as a result of a one-time expense incurred in the third quarter of 2019 in connection with a research collaboration with Duke University, which was not incurred in the third quarter of 2020, partially offset by the increased spending in the growth of our pipeline in both liquid tumor and solid tumor development and expanding the U.S. R&D operations at Maryland.

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R&D expenses for the three months ended September 30, 2020 and 2019 are as follows:

	For the Three Months Ended
	September 30,
	2020		2019


Research and pre-clinical studies	$	1,578,685	$	5,447,378
Development, clinical development and studies		11,033,168		7,679,321

Total	$	12,611,853	$	13,126,699

Operating Loss

	2020			2019			Change			Percent

For the three months ended September 30,	$	(17,687,365	)	$	(16,491,596	)	$	(1,195,769	)		7	%

The increase in the operating loss for the three months ended September 30, 2020 as compared to the same period in 2019 is primarily due to changes in general and administrative expenses, which is described above.

Total Other Income

	2020		2019		Change		Percent

For the three months ended September 30,	$	649,361	$	627,365	$	21,996		4	%

Other expense for the three months ended September 30, 2020 was primarily subsidy income of $1,144,000, offset by interest expense of $447,000. Other income for the three months ended September 30, 2019 was primarily government subsidy of $577,237, interest income of $352,935, as partially offset by interest expense of $162,279.

Income Taxes Credit

	2020		2019		Change			Percent

For the three months ended September 30,	$	-	$	325	$	(325	)		(100	)%

While we have optimistic plans for our business strategy, we determined that a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to our ability to generate sufficient profits from our business model. Therefore, we established a valuation allowance for deferred tax assets other than the extent of the benefit from other comprehensive income. Income tax expense for the three months ended September 30, 2019 all represent US state tax.

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Net Loss

	2020			2019			Change			Percent

For the three months ended September 30,	$	(17,038,004	)	$	(15,863,906	)	$	(1,174,098	)		7	%

The increase in net loss for the three months ended September 30, 2020 as compared to the same period in 2019 is primarily attributable to changes in operations which are described above.

Comprehensive Loss

	2020			2019			Change		Percent

For the three months ended September 30,	$	(16,143,211	)	$	(16,167,727	)	$	24,516		0	%

Comprehensive loss for the three months ended September 30, 2020 and 2019 includes a currency translation net gain (loss) of approximately $895,000 and ($304,000) combined with the changes in net loss, respectively.

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Comparison of Nine Months Ended September 30, 2020 to Nine Months Ended September 30, 2019

The descriptions in the results of operations below reflect our operating results as set forth in our Condensed Consolidated Statement of Operations filed herewith.

	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019

Net sales and revenue	$	32,295		$	49,265

Operating expenses:
Cost of sales		7,618			8,087
General and administrative		11,812,062			9,955,073
Selling and marketing		-			121,779
Research and development		30,457,415			28,157,321
Impairment of non-current assets		240,000			-
Total operating expenses		42,517,095			38,242,260
Operating loss		(42,484,800	)		(38,192,995	)

Other income
Interest income, net		38,343			631,986
Other income, net		330,642			267,043
Total other income		368,985			899,029
Loss before taxes		(42,115,815	)		(37,293,966	)

Income taxes provision		(1,775	)		(3,425	)

Net loss	$	(42,117,590	)	$	(37,297,391	)
Other comprehensive income (loss):
Cumulative translation adjustment		501,965			(303,220	)
Total other comprehensive income (loss):		501,965			(303,220	)
Comprehensive loss	$	(41,615,625	)	$	(37,600,611	)

Net loss per share:
Basic and diluted	$	(2.17	)	$	(1.98	)

Weighted average common shares outstanding:
Basic and diluted		19,390,235			18,881,266

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

	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019

General and administrative		1,330,314		1,461,868
Selling and marketing		-		23,980
Research and development		1,365,536		1,623,562
		2,695,850		3,109,410

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Results of Operations

Net sales and revenue

	2020		2019		Change			Percent

For the nine months ended September 30,	$	32,295	$	49,265	$	(16,970	)		(34	)%

We are a clinical stage company, and currently have no material revenues or other income with similar effect.

Cost of Sales

	2020		2019		Change			Percent

For the nine months ended September 30,	$	7,618	$	8,087	$	(469	)		(6	)%

The change in gross margin was immaterial as currently we have no material revenues.

General and Administrative Expenses

	2020		2019		Change		Percent

For the nine months ended September 30,	$	11,812,062	$	9,955,073	$	1,856,989		19	%

The increase in general and administrative expenses in 2020 primarily relates to financial advisor consulting fees in connection with the Merger.

Selling and Marketing Expenses

	2020		2019		Change			Percent

For the nine months ended September 30,	$	-	$	121,779	$	(121,779	)		(100	)%

We did not have a sales force in 2020 and therefore, no expense has been incurred in 2020.

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Research and Development Expenses

	2020		2019		Change		Percent

For the nine months ended September 30,	$	30,457,415	$	28,157,321	$	2,300,094		8	%

Research and development costs increased by approximately $2,300,000 in the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, primarily as a result of the increase in the staff costs of $1,704,000, clinical trial expenses of $2,316,000, depreciation and amortization of $810,000 and raw material consumption of $672,000, as well as the increased spending in the growth of our pipeline in both liquid tumor and solid tumor development and expanding the U.S. R&D operations at Maryland, partially offset by a one-time expense incurred in the third quarter of 2019 in connection with a research collaboration with Duke University, which was not incurred in the third quarter of 2020.

R&D expenses for the nine months ended September 30, 2020 and 2019 are as follows:

	For the Nine Months Ended
	September 30,
	2020		2019


Research and pre-clinical studies	$	5,304,907	$	8,452,005
Development, clinical development and studies		25,152,508		19,705,316

Total	$	30,457,415	$	28,157,321

Impairment of Investments

	2020		2019		Change		Percent

For the nine months ended September 30,	$	240,000	$	-	$	240,000		N/A

The impairment of investments for the nine months ended September 30, 2020 resulted from the recognition of other-than-temporary impairment on the value of shares in investments of $240,000. No such expense existed for the period ended September 30, 2019. In 2020, the Company contacted certain brokers to handle our ARPC restricted legend removal from the stock certificates to convert to free-trade shares. Because of ARPC’s non-filing status and illiquid nature of the stock, the brokers’ compliance department summarily rejected our request. In light of the illiquid nature of the ARPC stock, we applied full impairment to our ARPC holdings in the first quarter of 2020.

Operating Loss

	2020			2019			Change			Percent

For the nine months ended September 30,	$	(42,484,800	)	$	(38,192,995	)	$	(4,291,805	)		11	%

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The increase in the operating loss for the nine months ended September 30, 2020 as compared to the same period in 2019 is primarily due to changes in general and administrative expenses and research and development expenses, which is described above.

Total Other Income

	2020		2019		Change			Percent

For the nine months ended September 30,	$	368,985	$	899,029	$	(530,044	)		(59	)%

Other expense for the nine months ended September 30, 2020 was primarily subsidy income of $1,306,000 offset by net interest expense of $879,000 and foreign currency exchange loss of $97,000. Other income for the nine months ended September 30, 2019 was primarily net interest income of $632,000 and subsidy income of $590,000 offset by the net interest expense of $321,000.

Income Taxes Provision

	2020			2019			Change		Percent

For the nine months ended September 30,	$	(1,775	)	$	(3,425	)	$	1,650		(48	)%

While we have optimistic plans for our business strategy, we determined that a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to our ability to generate sufficient profits from our business model. Therefore, we established a valuation allowance for deferred tax assets other than the extent of the benefit from other comprehensive income. Income tax expense for the nine months ended September 30, 2020 and 2019 all represent US state tax.

Net Loss

	2020			2019			Change			Percent

For the nine months ended September 30,	$	(42,117,590	)	$	(37,297,391	)	$	(4,820,199	)		13	%

The increase in net loss for the nine months ended September 30, 2020 as compared to the same period in 2019 is primarily attributable to changes in operations which are described above.

Comprehensive Loss

	2020			2019			Change			Percent

For the nine months ended September 30,	$	(41,615,625	)	$	(37,600,611	)	$	(4,015,014	)		11	%

Comprehensive loss for the nine months ended September 30, 2020 and 2019 includes a currency translation net gain (loss) of approximately $502,000 and ($303,000) combined with the changes in net loss, respectively.

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Liquidity and Capital Resources

We had negative working capital of ($31,425,938) as of September 30, 2020 compared to $10,356,774 as of December 31, 2019. Our cash, cash equivalents and restricted cash decreased to $26,028,897 at September 30, 2020 compared to $32,443,649 at December 31, 2019, as we had an increase in cash used in operating partially offset by cash inflow generated from proceeds from debt borrowing and option exercise.

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

Net cash used in operating activities was approximately $33,170,000 and $28,361,000 for the nine months ended September 30, 2020 and 2019, respectively. The following table reconciles net loss to net cash used in operating activities:

For the nine months ended September 30,	2020			2019			Change
Net loss	$	(42,117,590	)	$	(37,297,391	)	$	(4,820,199	)
Non cash transactions		7,786,349			7,240,675			545,674
Changes in operating assets, net		1,160,947			1,695,317			(534,370	)
Net cash used in operating activities	$	(33,170,294	)	$	(28,361,399	)	$	(4,808,895	)

The change in non-cash transaction was primarily due to the increase in depreciation and amortization of $751,000 compared with same period in 2019.

Net cash used in investing activities was approximately $7,233,000 and $9,278,000 in the nine months ended September 30, 2020 and 2019, respectively. The decrease was primarily the result of less new equipment purchase and facility improvement.

Cash provided by financing activities was approximately $34,062,000 and $30,869,000 in the nine months ended September 30, 2020 and 2019, respectively. Net cash inflow in financing activities in 2020 was mainly attributed to the net cash in from short-term debt. Net cash inflow in financing activities in 2019 was mainly attributed to the proceeds of $17 million received from the issuance of common stock and debt borrowings of $15 million netting of the repurchase of the Company’s common stock of $1 million.

Liquidity and Capital Requirements Outlook

We anticipate that the Company will require approximately $63 million in cash to operate as planned in the coming 12 months excluding repayment of convertible bonds and other borrowings. Of this amount, approximately $53 million will be used for operations and approximately $10 million will be used for capital expenditures, although we may revise these plans depending on the changing circumstances of our biopharmaceutical business. The Company’s plans can also be adjusted by management depending on the availability of funding.

The Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. In order to finance our operations, management intends to rely upon external financing. This financing may be in the form of equity and or debt, private placements and/or public offerings or arrangements with private lenders.

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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 companies. 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.

On October 23, 2020, the Company entered into a Bridge Loan Agreement with TF I Ltd. for an unsecured loan to the Company in an aggregate principal amount of $10 million at a simple interest rate of 6% per annum. The Company is required to repay all unpaid principal of the TF Bridge Loan, together with the accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default.

On October 23, 2020, the Company entered into a Bridge Loan Agreement with Yunfeng Capital Limited for an unsecured loan to the Company in an aggregate principal amount of $10 million at a simple interest rate of 6% per annum. The Company is required to repay all unpaid principal of the Yunfeng Bridge Loan 2, together with the accrued but unpaid interest thereon, on the maturity date, which is the earlier of (i) August 7, 2021, and (ii) the occurrence of an event of default.

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, acquisitions 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. While we do not currently expect the COVID-19 pandemic to materially impact our ability to secure financial resources or satisfy our liquidity needs, given the rapidly evolving global situation the actual impact cannot be predicted and may depend on a variety of currently unknown factors.

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Off Balance Sheet Transactions

CBMG does not have any off-balance sheet arrangements except the lease and capital commitment disclosed in the unaudited condensed consolidated financial statements.

Contractual Obligations

We have various contractual obligations that will affect our liquidity. The following table sets forth our contractual obligations as of September 30, 2020.

	Payments due by period
Contractual Obligations			Less than		2-3		4-5		More than
	Total		1 year		years		years		5 years
Borrowings and interest payables	$	48,648,777	$	48,648,777	$	-	$	-	$	-
Capital commitment		2,919,662		2,919,662		-		-		-
Operating lease obligations		22,897,109		3,429,296		6,582,285		6,257,347		6,628,181
Total	$	74,465,548	$	54,997,735	$	6,582,285	$	6,257,347	$	6,628,181

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Exposure to credit, liquidity, interest rate and currency risks arises 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, Nanjing 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 maintain sufficient reserves of cash, readily realisable marketable investments and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.

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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 September 30, 2020

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		26,028,897			-			-			-			26,028,897			26,028,897
Accounts receivable		32,295			-			-			-			32,295			32,295
Other receivables		297,919			-			-			-			297,919			297,919

Sub-total		26,359,111			-			-			-			26,359,111			26,359,111

Financial liabilities
Short-term debt		47,870,256			-			-			-			47,870,256			47,870,256
Accounts payable		2,747,583			-			-			-			2,747,583			2,747,583
Accrued expenses		1,726,200			-			-			-			1,726,200			1,726,200
Other current liabilities excluding operating lease liabilities with lease term over 12 months and deferred income		4,608,467			-			-			-			4,608,467			4,608,467
Operating lease liabilities(lease terms over 12 months)		3,288,869			3,277,222			9,562,410			6,628,181			22,756,682			18,521,996

Sub-total		60,241,375			3,277,222			9,562,410			6,628,181			79,709,188			75,474,502

Net amount		(33,882,264	)		(3,277,222	)		(9,562,410	)		(6,628,181	)		(53,350,077	)		(49,115,391	)

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 at September 30, 2020, the Company held the following interest-bearing financial instruments:

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.

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The following table details the Company’s exposure as of September 30, 2020 to currency risk arising from recognised 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 September 30, 2020. 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 September 30, 2020
	RMB		USD
Cash and cash equivalents		5,836		100

Net exposure arising from recognised assets and liabilities		5,836		100

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 September 30, 2020
	increase/ (decrease) in foreign exchange rates			Effect on net loss (Expressed in USD)

RMB (against USD)		5	%		287

		-5	%		(287	)

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 re-measure 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.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the three months ended September 30, 2020, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On August 25, 2020 and August 28, 2020, prior to our proxy filing in relation to the proposed Merger, we received demand letters from two of our stockholders, to inspect certain books and records of the Company pursuant to Section 220 of the Delaware General Corporate Law (the “Demands”). The Demands catalog 12 broad categories of books and records that the two stockholders seek to inspect, primarily relating to the proposed Merger.

On October 9, 2020 the Company filed its preliminary definitive proxy statement and Schedule 13E-3, Transaction statement relating to the proposed Merger.

The Company has responded and is conferring with the stockholders' counsel regarding the Demands.

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

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. We describe risks associated with our business in under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended 31, 2019. Each of the risks described in our Risk Factors may be relevant to decisions regarding an investment in or ownership of our stock. The occurrence of any such risks could have a significant adverse effect on our reputation, business, financial condition, revenue, results of operations, growth, or ability to accomplish our strategic objectives, and could cause the trading price of our common stock to decline. You should carefully consider such risks and the other information contained in this report, including our condensed consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, before making investment decisions related to our common stock.

The following risk factors supplement the Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2019. The following disclosures do not address all risks that may be important to you as a stockholder.

Our business activities for fiscal 2020 are expected to be adversely affected by the global COVID-19 pandemic.

The coronavirus disease 2019 (COVID-19) has spread globally and the World Health Organization (WHO) has declared it a global pandemic. While still evolving, the COVID-19 pandemic has caused significant worldwide economic and financial turmoil, and has fueled concerns that it will lead to a global recession. On March 13, 2020, the United States declared a national emergency with respect to COVID-19. The Company is following the recommendations of local health authorities to minimize exposure risk for its team members and visitors. The continued and prolonged implementation of restrictions by federal, state and local authorities to slow the spread of COVID-19 could disrupt the business, activities, and operations of our members, as well our business and operations. Our plan to improve our capabilities and resources, including the manufacturing capabilities of our U.S. R&D center in Rockville, Maryland to support our clinical development in the U.S. might be delayed. The extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our vendors ability to supply us with raw materials; and any closures of our and our business partners’ offices and facilities. The COVID-19 pandemic has disrupted and delayed our in-process developments and clinical studies for a number of our pipeline drug candidates during the first quarter of 2020, and a prolonged interruption to our corporate development, research or manufacturing facilities may result in a negative impact to our operations and further delay developments or clinical studies of some or all of our pipeline drug candidates.

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Any of these events could cause or exacerbate the risks and uncertainties enumerated in the Annual Report and could materially adversely affect our business, financial condition, results of operations and/or stock price.

Our clinical development activities for fiscal 2020 are expected to be adversely affected by the recent COVID-19 pandemic.

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 trial partners and their contract manufacturers, are expected to 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 have been and may continue to be affected by the emergency measures related to the COVID-19 pandemic. 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. In the second quarter we saw a want of COVID-19 patients in the Shanghai Ruijin Hospital pilot clinical study on inhalation of mesenchymal stem cell exosomes treating severe Novel Coronavirus Pneumonia (“NCP”). Considering the possibility of a subsequent wave or resurgence of the pandemic, it is uncertain whether we will continue to 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 contracting COVID-19. Such difficulties are likely to 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.

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On July 2, 2020 the U.S. FDA updated its March 18, 2020 released guidance for conducting clinical trials during the COVID-19 pandemic that provides a quick look at facts, figures, and highlights of the agency’s response efforts. In its guidance, the U.S. FDA acknowledged potential impacts from the pandemic to clinical trial conduct, for example quarantines, travel limitations, site closures, interruptions to supply chain for investigational products, and potential infection of site personnel or trial participants may lead to difficulties in meeting protocol defined procedures, including administration of investigational product and adherence to protocol-mandated visits. As a result, the U.S. FDA recognized that there may be unavoidable protocol deviations, but also noted that efforts to minimize impacts on trial integrity are important. Laboratories studying viruses and bacteria follow a protocol known as the Biosafety Level (BSL) standards, which are applied internationally. Protocol deviations due to COVID-19 means trials could be interrupted due to missed biopsies and results or data that are uninterpretable or need to be repeated. The impact of COVID-19 on trials will vary depending on many factors, including the nature of disease under study, the trial design and in what region(s) the study is being conducted. For gene and cell therapies, clinical trials may be delayed because patients may only be treated with non-transplant standard of care where possible with transplantation or experimental therapies reserved for life-threatening cases (malignancies, neurocognitive disorders) due to capacity constraint. 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 the U.S. and China, 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.

Passage of the Holding Foreign Companies Accountable Act puts our securities at risk of being delisted from U.S. securities exchanges

Although we are a Delaware corporation, our presence is largely based in China, as measured by the number of employees and the number of GMP manufacturing facilities we operate in China. Accordingly, we changed our principal auditor from BDO U.S. to BDO China Shu Lun Pan in 2014. China currently prohibits Chinese-based auditors from submitting their audits for inspection by the Public Company Accounting Oversight Board (PCAOB), the non-profit body that oversees audits of all U.S. companies in public markets. On May 20, 2020, the U.S. Senate passed by unanimous consent the Holding Foreign Companies Accountable Act, which would ban a company being listed on any U.S. securities exchange if its auditors fails to comply with the PCAOB’s inspection requirements for three consecutive years. The U.S. House of Representatives has introduced and is currently reviewing a companion bill. It is currently unknown whether China will continue to prohibit the PCAOB from examining audits of companies whose shares are publicly traded on U.S. securities exchanges. If the bill is enacted into law as currently proposed by the U.S. Senate, the Company will be required to comply with the new law or it may become delisted.

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The uncertainties surrounding the intellectual property rulemaking in China can affect the commercialization of pharmaceutical products.

Proposed PRC laws and regulations governing the intellectual property aspect of our business operations in China may involve substantial uncertainty. These include, but are not limited to, laws and regulations relating to a pharmaceutical patent linkage system for Abbreviated New Drug Applications (ANDA). The draft regulation includes a registration system to collect and publish drug patent information and requires New Drug Application (NDA) and ANDA applicants to register their patent information when filing. ANDA applicants are also required to make a declaration that its ANDA does not infringe on any existing patent registered in the system. Under the proposed regulation, if (i) an action or complaint is brought within 45 days of an ANDA’s publication and (ii) a determination is made that the ANDA’s generic drug infringes on a prior patent, the Center for Drug Evaluation (CDE) will conditionally prohibit the ANDA applicant from marketing its generic drug while the patent is still in effect. We will be required to comply with these laws and regulations despite any uncertainty. The initial implication for pharmaceutical companies is the burden to ensure all drug patent information is timely registered and updated in the registration system of drug patent information, and always keep track on ANDA published by the CDE, to timely take legal action against any potential patent infringement and preemptively file objection to the ANDA. In addition, 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. There are substantial uncertainties regarding the interpretation and application to our business of PRC laws and regulations. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors.

The Company may be subject to information technology system failures, network disruptions and breaches in data security that could adversely affect its businesses and reputation.

The Company is subject to cyber security risks and the potential for cyber incidents, including potential incidents at manufacturing sites and the related electricity transmission and distribution infrastructure, and incidents at data processing centers they use, to the extent not prevented by intrusion detection and prevention systems, anti-virus software, firewalls and other general information technology controls.

The measures we have taken to protect the Company from cyber security risks may be inadequate or may not function as intended. The Company’s current operation is predominantly in China. In China we have successfully passed ISO27001:2013 audit. We have deployed Next-Generation Firewalls (NGFWs) in the U.S. and in China for our intranet & internet boundaries. We use hypertext transfer protocol secure (HTTPS) protocol on top of TCP/IP to support web browser requests and server responses. Like most typical internet traffic, our server connections run through a series of intermediate network routers. We use security gateway devices to control and monitor our inbound and outbound email and network data traffic. Our users are required to use complex password for account login and we mandate password refresh on regular interval. We have also setup multiple areas of network isolation, and timely apply system upgrade patches, conduct routine data backup, verify system and administrator logs, perform periodic malware scanning, probe for weakness and implement remedies, conduct data restoration drill and established data backup in geographically diversified cities in China. However, there can be no assurance that these measures are sufficient to protect us from or to prevent any system failures, network disruptions, or breaches in data security. In addition, we are preparing for a level 3 system assessment under Chinese cybersecurity network classified protection regulations, which contains a more stringent requirement than the ISO standard. Even meeting these more stringent requirements will not ensure that the Company will not face cyber incidents.

At our new Rockville, Maryland facility, the IT/server room is in a separate access-controlled room in our secured facility. We have hired a third party contractor in Rockville to help design our IT/Network to CBMG requirements and to safeguard cyber security. The third party contractor is responsible for installing all data network equipment, data cabinets and wireless access points. Despite its own security protocols, the third party contractor could experience cyber incidents that would have a negative impact on our business.

While CBMG has continuously fortified our protection against cyberattacks on the operation, design, and development of CBMG’s networks, systems, data storage, and facilities, there is no guarantee that these efforts are sufficient. We are still subject to information technology system failures, network disruptions and breaches in data security that could adversely affect its businesses and reputation.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

The Company provided consulting services to Novartis and recognized revenue of $32,295 during the nine months ended September 30, 2020. The Company also paid $1,505,000 to Novartis for raw material purchase and service received during the nine months ended September 30, 2020. Novartis AG holds approximately 7.5% of the Company’s stock. The Company is also a manufacturing service provider to Novartis International AG, a member of the Rollover Stockholders in the definitive merger agreement in connection with the Company potentially going private.

The Company outsources clinical studies trial site selection and feasibility analysis, principal investigators key opinion leadership influence assessment and selection, trial participants counseling, recruitment and trial protocol fidelity interface, trial document management and coordination, archival and submission of documents, trial participants recruitment, trial progress monitoring, and submission of documents for Institutional Review Board (IRB) and Independent Ethics Committee (IEC) approval; biostatistics analysis, preparation of trial study reports to secure IND approval, etc., to Clinical Research Organizations (CRO);and trial site management organizations (SMO). Three CROs—Hangzhou Tigermed Consulting Co., Ltd (“Tigermed”), Renzhi (Suzhou) Medical Research Co., Ltd (“Renzhi”), Clinflash Healthcare Technology Ltd (“Clinflash”)—and one SMO—Hangzhou Simo Co., Ltd (“SIMO”)—represent four of the twenty-four CRO/SMO vendors CBMG China has used in its clinical studies. Tigermed, Renzhi, Clinflash, and SIMO are affiliates of TF Capital Fund III, L.P., one of the Equity Investors in the definitive merger agreement in connection with the Company potentially going private. During the nine months ended September 30, 2020, the Company paid Tigermed, Renzhi, Clinflash, and SIMO $387,856 for CRO/SMO services.

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ITEM 6. EXHIBITS

Exhibits

Exhibit Number		Description
2.1*		Agreement and Plan of Merger, dated as of August 11, 2020, by and among Cellular Biomedicine Group, Inc., CBMG Holdings and CBMG Merger Sub Inc. (incorporated by reference to the Company’s Current Report on Form 8-K, filed August 12, 2020).
10.1		Bridge Loan Agreement, dated as of August 11, 2020, by and between Cellular Biomedicine Group, Inc. and Yunfeng Capital Limited (incorporated by reference to the Company’s Current Report on Form 8-K, filed August 12, 2020).
10.2		Amendment Letter, dated as of August 11, 2020, by and between Cellular Biomedicine Group, Inc. and Winsor Capital Limited in relation to the Bridge Loan Agreement, dated as of January 28, 2020, by and between Cellular Biomedicine Group, Inc. and Winsor Capital Limited (incorporated by reference to the Company’s Current Report on Form 8-K, filed August 12, 2020).
10.3†		U.S. National Heart, Lung, and Blood Institute nonexclusive patent AAV5 License Agreement (incorporated by reference to the Company’s Quarterly Report on the Form 10-Q for the Quarter ended June 30, 2020).
10.4		Sponsored Collaborative Research Agreement with Duke University, executed on September 21, 2020

10.5		Bridge Loan Agreement by and between Cellular Biomedicine Group, Inc. and TF I Ltd., dated October 23, 2020 (incorporated by reference to the Company’s Current Report on Form 8-K, filed October 26, 2020).
10.6		Bridge Loan Agreement by and between Cellular Biomedicine Group, Inc. and Yunfeng Capital Limited, dated October 23, 2020 (incorporated by reference to the Company’s Current Report on Form 8-K, filed October 26, 2020).
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer and Chief Financial Officer.
32.1		Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document – this instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* All schedules to the Merger Agreement have been omitted pursuant to Item 601(b)(2)(ii) of Regulation S-K they are both (1) not material and (2) would be competitively harmful to the registrant if publicly disclosed.

† Certain portions of this exhibit have been omitted because pursuant to Item 601(b)(10)(iv) of Regulation S-K because they are both (1) not material and (2) would be competitively harmful to the registrant if publicly disclosed.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CELLULAR BIOMEDICINE GROUP, INC.
	(Registrant)

Date: November 9, 2020	By:	/s/ Tony (Bizuo) Liu
		Tony (Bizuo) Liu
		Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and
		Principal Financial and Accounting Officer)