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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read with, the unaudited condensed
consolidated financial statements and notes included in Item 1 of Part I of this report, to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations.
Background
On March 25, 2021, BIT Merger Sub, Inc., a wholly owned subsidiary of Brooklyn (then known as NTN Buzztime, Inc.) merged with and into Brooklyn LLC, with Brooklyn LLC surviving
as a wholly owned subsidiary of Brooklyn. This transaction, which we refer to as the Merger, was completed in accordance with the terms of an agreement and plan of merger and reorganization dated August 12, 2020 among Brooklyn (then known as NTN
Buzztime, Inc.), BIT Merger Sub, Inc. and Brooklyn LLC. In accordance with such agreement and plan of merger, on March 25, 2021 Brooklyn amended its restated certificate of incorporation in order to effect:
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prior to the Merger, a reverse stock split of its common stock, par value $0.005 per share, at a ratio of one-for-two; and
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following the Merger, a change in its corporate name from “NTN Buzztime, Inc.” to “Brooklyn ImmunoTherapeutics, Inc.”
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On March 26, 2021, Brooklyn sold its rights, title and interest in and to the assets relating to the business it operated prior to the Merger, which it had operated under the
name “NTN Buzztime, Inc.,” to eGames.com Holdings LLC, or eGames.com, in exchange for eGames.com’s payment of a purchase price of $2.0 million and assumption of specified liabilities relating to such pre-Merger business. This transaction, which we
refer to as the Disposition, was completed in accordance with the terms of an asset purchase agreement dated September 18, 2020, as amended, between Brooklyn and eGames.com.
The Merger has been accounted for as a reverse acquisition in accordance with United States generally accepted accounting
principles, or GAAP. Under this method of accounting, Brooklyn LLC was deemed the “acquiring” company and Brooklyn (then known as NTN Buzztime, Inc.) was treated as the “acquired” company for financial reporting purposes. Operations prior to the
Merger are those of Brooklyn LLC, and the historical financial statements of Brooklyn LLC became the historical financial statements of Brooklyn with respect to periods prior to the completion of the Merger. The weighted average shares used in
determining loss per common share were retrospectively adjusted to reflect the conversion of the outstanding Class A, Class B, Class C and common units of Brooklyn LLC into shares of Brooklyn’s common stock upon the Merger, and all share and per
share amounts of common stock have been retrospectively restated to reflect the reverse split described above.
On July 16, 2021, Brooklyn Acquisition Sub, Inc., a wholly owned subsidiary of Brooklyn, merged with and into Novellus, Inc.,
which is the sole equity holder of Novellus Therapeutics Limited or Novellus, Ltd., which merger we refer to as the Acquisition. As part of the Acquisition, Brooklyn also acquired 25.0% of the total outstanding equity interests of NoveCite, Inc.,
or NoveCite, a corporation focused on developing an allogeneic mesenchymal stem cell, or MSC, product for patients with acute respiratory distress syndrome, including from COVID-19. The Acquisition was accounted for as an asset acquisition, and
substantially all the value was attributed to in-process research and development, or IPR&D, with the exception of the value allocated to the investment in NoveCite, which was accounted for as an investment in equity securities.
Overview
We are a clinical-stage biopharmaceutical company focused on exploring the role that cytokine-based therapy can have on the
immune system in treating patients with cancer, both as a single agent and in combination with other anti-cancer therapies. We are seeking to develop IRX‑2, a novel cytokine-based therapy, to treat patients with cancer. IRX‑2 active constituents,
namely Interleukin-2, or IL‑2, and other key cytokines, are postulated to signal, enhance and restore immune function suppressed by the tumor, thus enabling the immune system to attack cancer cells, unlike existing cancer therapies, which rely on
targeting the cancer directly. We also are exploring opportunities to advance oncology, blood disorder, and monogenic disease therapies using gene-editing cell‑therapy technology through a license with Factor Bioscience Limited, or Factor, and
through the Acquisition.
IRX-2
IRX‑2 is a mixed, human-derived cytokine product with multiple active constituents including Interleukin-2, or IL‑2, and other key cytokines. Together, these cytokines are
believed to signal, enhance and restore immune function suppressed by the tumor, thus enabling the immune system to attack cancer cells, unlike existing cancer therapies, which rely on targeting the cancer directly. IRX-2 is prepared from the
supernatant of pooled allogeneic peripheral blood mononuclear cells, known as PBMNCs, that have been stimulated using a proprietary process employing a specific population of cells and a specific mitogen.
While IRX‑2 is a cytokine mixture, one of its active components is IL‑2, a cytokine-signaling molecule in the immune system. IL‑2 is a protein that regulates the activities of
white blood cells (leukocytes and often lymphocytes) that are responsible for immunity. IL‑2 is part of the body’s natural response to microbial infection, and in discriminating between foreign, or non-self and “self,” IL‑2 mediates its effects by
binding to IL‑2 receptors, which are expressed by lymphocytes. The major sources of IL‑2 are activated CD4+ T cells and activated CD8+ T cells.
Unlike existing recombinant IL‑2 therapies, IRX‑2 is derived from human blood cells. This may promote better tolerance, broader targeting and a natural molecular conformation
leading to greater activity, and may permit low physiologic dosing, rather than the high doses needed in other existing IL‑2 therapies.
Aside from optimizing IRX-2 manufacture, we are also modifying our manufacturing process to allow us to develop additional drugs with a variety of cytokine mixtures to expand
our product offerings.
Regarding IRX-2 development, our strategy is:
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Advance our product candidate IRX-2 through clinical development. IRX-2 is a human blood-based IL 2 therapy being studied for
multiple types of cancer, including squamous cell cancer of the head and neck. Treatment of patients in the INSPIRE trial has been completed, and patients who participated in the trial are currently being monitored for event-free
survival with top-line data estimated to be available in the first half of 2022.
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Advance combination trials with checkpoint inhibitors. Once INSPIRE trial data are released, we plan to use those results as a
catalyst in addition to data from the other clinical trials in the program with multiple data read-outs anticipated in 2022 and later.
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Pursue partnerships to advance the IRX-2 clinical program. We are pursuing partnering opportunities with leading biopharmaceutical companies for the development and
commercialization of IRX-2.
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Regulatory strategy. We believe that our assets may present opportunities for potential breakthroughs in the treatment of cancer and other indications. We will
endeavor to seek breakthrough therapy designation with regulatory agencies for IRX-2 for one or more indications. We cannot, however, assure that we will receive breakthrough therapy designation for any future indications or that any
breakthrough therapy designation we do receive will necessarily lead to a faster approval time.
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Intellectual Property. We continue to pursue additional intellectual property based on data from IRX clinical studies.
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Pre-Clinical Results
Our findings to date from nonclinical studies of IRX‑2 include murine acute toxicology as well as acute and chronic primate studies. These studies detected circulating
associated cytokines yet were associated with benign toxicological findings. A further murine study demonstrated PD/PDL‑1 synergy when additively administered with IRX‑2.
Clinical Program
IRX‑2 currently remains under development and has not yet been approved for marketing authorization in any jurisdiction. The ongoing development program is investigating use of
IRX‑2 as an immunotherapeutic neoadjuvant (pre-surgical) and adjuvant (post-operative) treatment for advanced head and neck squamous cell carcinoma, or HNSCC, and other solid tumors.
HNSCC
The HNSCC development program is being conducted under U.S. Food and Drug Administration, or FDA Investigational New Drug
#11,137 filed on June 30, 2003 and is ongoing. The HNSCC program has received fast track designation, approved November 7, 2003, and orphan drug designation, conferred on July 7, 2005, from the FDA. We have not submitted a request for orphan drug
designation in the European Union, although we may seek such designation in the future.
Clinical studies in humans with HNSCC involving IRX‑2 show immune marker activation in patients treated with IRX‑2. In a prior phase 2a clinical trial, a correlation was shown
between marker activation and disease-free survival in head and neck cancer. Results from this study were used to support the initiation of the INSPIRE study, a Phase 2B study involving 105 patients with HNSCC. Details of this trial can be found at
clinicaltrials.gov (NCT02609386).
Other Indications
Other than the INSPIRE study, all clinical studies using IRX-2 are investigator-sponsored studies for which we are providing IRX‑2 as study drug and financial support to
conduct the trial. These studies include:
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BR-101 - A study involving 16 patients with neoadjuvant breast cancer performed at the Providence Portland Medical Center. Details of this trial can be found at clinicaltrials.gov (NCT02950259).
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CIN-201 - An open label single arm Phase 2 trial of the IRX‑2 regimen in women with cervical squamous intraepithelial neoplasia 3 or squamous vulvar intraepithelial
neoplasia 3. Details of this trial can be found at clinicaltrials.gov (NCT03267680).
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BAS-104 - A basket study originally intended to enroll 100 patients with metastatic bladder, renal, non-small cell lung cancer, or NSCLC, melanoma, and head and neck
cancer being held at the Moffitt Cancer Center, using IRX‑2 in conjunction with Opdivo (Nivolumab), an immunotherapy cancer treatment marketed by Bristol-Myers Squibb Company. This trial was discontinued after 11 subjects were enrolled
due to insurance reimbursement challenges. Details of this trial can be found on clinicaltrials.gov (NCT03758781).
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HCC-107 - A study involving 28 patients with metastatic hepatocellular carcinoma, or HCC, being held at City of Hope Medical Center, HonorHealth Research Institute, and
Texas Oncology at Baylor Charles A. Simmons Cancer Center using IRX‑2 in conjunction with Opdivo, a cancer treatment marketed by Bristol-Myers Squibb Company. Details of this trial can be found at clinicaltrials.gov
(NCT03655002).
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GI-106 - A study involving 20 patients with metastatic gastric and gastroesophageal junction cancers (GI) being held at City of Hope Medical Center, HonorHealth Research
Institute, and Texas Oncology at Baylor Charles A. Simmons Cancer Center using IRX‑2 in conjunction with Keytruda (Pembrolizumab), an immunotherapy cancer treatment marketed by Merck. Details of this trial can be found at clinicaltrials.gov (NCT03918499).
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MHN-102 - A study involving 15 patients with metastatic head and neck cancer being held at the H. Lee Moffitt Cancer Center and Research Institute and University of
Michigan Health System using IRX‑2 in conjunction with Imfinzi (Durvalumab), a cancer treatment marketed by AstraZeneca plc. Details of this trial can be found at clinicaltrials.gov
(NCT03381183).
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BR-202 - A study involving 30 patients with neoadjuvant triple negative breast cancer, held at the Providence Portland Medical Center using IRX‑2 in conjunction with a
programmed cell death protein 1, or PD1, and chemotherapy treatments. Details of this trial can be found at clinicaltrials.gov (NCT04373031).
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Impact of COVID-19 Pandemic
The development of our product candidates has been, and could continue to be, disrupted and materially adversely affected by past and continuing impacts of the COVID-19
pandemic. This is a result of measures imposed by the governments and hospitals in affected regions, businesses and schools were suspended due to quarantines intended to contain this outbreak. The spread of SARS CoV‑2 from China to other countries
resulted in the Director General of the World Health Organization declaring COVID-19 a pandemic in March 2020. While the constraints of the pandemic are being lifted, we are still assessing the longer-term impact of the COVID-19 pandemic on our
development plans, and on the ability to conduct our clinical trials There can be no assurance that this analysis will enable us to avoid or remediate part or all of any impact from the spread of COVID-19 or its consequences, including downturns in
business sentiment generally. The extent to which the COVID-19 pandemic and ongoing global efforts to contain its spread will impact our operations will depend on future developments, which are highly uncertain and cannot be predicted at this time,
and include the duration, severity and scope of the pandemic and the actions taken to contain or treat the COVID‑19 pandemic. Further, the specific clinical outcomes, or future pandemic related impacts of emerging SARS-CoV-2 variants cannot be
reliably predicted.
The patients in our clinical trials have conditions that make them especially vulnerable to COVID-19, and as a result we have seen slowdowns in enrollment in our clinical
trials. While our Phase 2b clinical study in patients with squamous cell carcinoma of the oral cavity, known as the INSPIRE study, is fully populated, our other clinical studies are likely to continue to encounter delays in enrollment as a result
of the pandemic. Further, with respect to the INSPIRE study, we anticipate that the COVID-19 pandemic will slow our ability to close out trial sites and report trial data.
Engineered Cellular and Genetic Medicines
We are exploring opportunities to advance oncology, blood disorders and monogenic disease therapies using gene-editing and cell
therapy technology through a license with Factor and through our acquisition of Novellus, Inc. and Novellus, Ltd. in July 2021. The product candidates resulting from the acquisition will initiate with unedited (that is, not gene modified), induced
pluripotent stem cells (or iPSCs)-derived allogeneic mesenchymal stem cells, or iMSC. We will begin preclinical development of iMSC towards clinical indications where inhibiting inflammation and/or supporting recovery of bone marrow stromal cells
are required. The prior work of Novellus and NoveCite, with iMSC show evidence for preclinical efficacy in inflammatory conditions (for example, acute respiratory distress syndrome, or ARDS) and interactions with the U.S. Food and Drug
Administration, or FDA, provided guidance on Chemistry, Manufacturing and Controls, or CMC, and manufacturing plans, which will be undertaken in a similar manner for additional iMSC applications. Second generation iMSC products will involve gene
editing. Here, we anticipate the step-wise addition of genes, using the in-licensed Factor gene editing machinery, NoveSlice, to efficiently place genes and regulatory sequences into safe harbor locations. Development of processes to advance CMC
and manufacturing will follow the experience from first generation iMSC. Clinical indications for gene-modified iMSC will include solid tumors and conditions associated with chronic inflammation.
Pluripotent Stem Cell-Derived MSC
MSC, also known as mesenchymal stromal cells, were originally discovered and isolated from bone marrow in the 1970s and have
been isolated from various tissue sources including muscle, umbilical cord, liver, placenta, skin, amniotic fluid, synovial membrane, and tooth root. MSC have been intensely investigated for clinical applications within the last decades with a very
strong record of safety and tolerability. However, the majority of registered clinical trials applying MSC therapy for diverse human diseases have fallen short of expectations, despite the encouraging pre-clinical outcomes in varied animal disease
models. This can be attributable to inconsistent properties of MSC across studies as a result of variations in tissue source, donor variability, as well as isolation and manufacturing methodologies.
The generation of MSC from an iPSC source eliminates many of the sources of variability attributable to tissue-derived MSC. Sources of reduced variability include the use a
single tissue source and single donor as well as the ability to make larger cell banks due to the more extensive proliferation capacity of iMSC. Moreover, development of iMSC products can leverage decades of valuable manufacturing, preclinical and
clinical experience with MSC. Brooklyn plans to deploy iMSC products in clinical indications that harness their anti-inflammatory and tumor homing properties. Further, gene editing the iPSC can produce a stable source for iMSC that are endowed
with additional therapeutically beneficial properties that are not present in tissue-derived MSC or native iMSC.
Bone Marrow Transplant
Brooklyn is exploring the use of iMSC to address primary graft failure or poor graft function after bone marrow or
hematopoietic stem cell transplant, or BM/HSCT. Previous studies with tissue-derived MSC have demonstrated a rejuvenation of the bone marrow stromal environment and success with a subsequent BM/HSCT. Preclinical studies are being conducted to
demonstrate the ability of iMSC to home to the bone marrow and influence the microenvironment. In addition, an advisory board of world class experts in BM/HSCT has been assembled to guide the clinical trial design and selection of clinical
populations that are most likely to show benefit of a secondary transplant after treatment with iMSC.
Tumor Localized Delivery of Immune Stimulating Cytokines
The ability of MSC to migrate and home to sites of inflammation, including tumors, makes MSC attractive for delivery of
oncology therapeutics. We intend to use gene editing of iPSC to produce a cell line with expression of the immune stimulatory cytokines IL7 and IL15, which then can be used to generate iMSC that express both IL7 and IL15. Following systemic
delivery of the gene edited iMSC, migration and homing to tumor will result in a localized and more sustained delivery of these potent cytokines in the tumor microenvironment without producing the side effects that occur with high dose systemic
administration of these cytokines.
Precision Genetic Medicines
The ability to engineer site-specific DNA endonucleases with high fidelity (gene editing) has opened a new therapeutic arena for addressing the underlying genetic basis of
disease. Gene editing systems that possess both high specificity (low off-target editing) and high efficiency for on-target editing enable the in vivo use of the gene editing machinery to specifically modify patient DNA in target tissues and thus
address the genetic underpinnings of numerous disease states. Brooklyn’s in-licensed technologies are being leveraged to develop genetic medicines that can achieve precision in vivo gene editing to address disorders that occur primarily as a
result of mutations in a single gene. The initial disease and gene targets being pursued include familial transthyretin amyloidosis (TTR gene mutations) and Stargardt disease (ABC4A gene mutation).
Autologous Cell Therapy
The in-licensed technology for mRNA-based cellular reprogramming is highly efficient and safer than methods that utilize viral vectors or plasmid DNA for expression of
reprogramming factors since it eliminates the chance of DNA integration and potential for creating mutations in genomic DNA. Also, the proprietary reprogramming process utilizes daily repeated transfection of mRNA for expression of reprogramming
factors and can achieve a rapid generation of iPSC clones (in 2 weeks) from patient tissue biopsy. This rapid and efficient process therefore reduces the potential negative impact of low quantity biopsy material and this enhances reproducibility
of autologous iPSC generation. Furthermore, by delivering mRNA for a gene editing nuclease, genomic modifications, including correction of mutations, can be simultaneously performed thus streamlining overall manufacturing time to produce
gene-corrected autologous cells. This approach, leveraging the proprietary in licensed technologies, can be employed to produce cell therapies addressing genetic diseases (e.g. sickle cell disease) of infectious diseases (e.g. HIV).
Third Quarter 2021 and Recent Developments
Listing on The Nasdaq Global Market
We transferred the listing of our common stock to The Nasdaq Global Market effective October 25, 2021, after voluntarily
withdrawing the listing from the NYSE American stock exchange. The common stock continues to trade under the stock symbol “BTX.”
License Agreements
On April 26, 2021, Brooklyn LLC entered into an exclusive license agreement, or the License Agreement, with Novellus, Ltd. and Factor, or the Licensors, to license the
Licensors’ intellectual property and mRNA cell reprogramming and gene editing technology for use in the development of certain cell-based therapies to be evaluated and developed for treating human diseases, including certain types of cancer, sickle
cell disease, and beta thalassemia. Through the License Agreement, Brooklyn LLC acquired an exclusive worldwide license to develop and commercialize certain cell-based therapies to treat cancer and rare blood disorders, including sickle cell
disease, based on patented technology and know-how of Novellus, Ltd.
The License Agreement provides that Brooklyn LLC is obligated to pay the Licensors a total of $4,000,000 in connection with the execution of the License Agreement, all of which
has been paid. Brooklyn LLC is obligated to pay to the Licensors additional fees of $5,000,000 in October 2021 and $7,000,000 in October 2022.
The completion of our acquisition of Novellus, Inc., the sole equity holder of Novellus, Ltd., on July 16, 2021 relieves us from potential obligations to pay Novellus, Ltd.
certain upfront fees, clinical development milestone fees and post-registration royalties under the License Agreement. The agreements with Factor under the License Agreement remain unchanged. Brooklyn LLC is obligated to pay Factor $2,500,000 in
October 2021, which has been paid, and $3,500,000 in October 2022.
Under the terms of the License Agreement, Brooklyn LLC is required to use commercially reasonably efforts to achieve certain delineated milestones, including specified clinical
development and regulatory milestones and specified commercialization milestones. In general, upon its achievement of these milestones, Brooklyn LLC will be obligated, in the case of development and regulatory milestones, to make milestone payments
to Licensor in specified amounts and, in the case of commercialization milestones, to specified royalties with respect to product sales, sublicense fees or sales of pediatric review vouchers. In the event Brooklyn LLC fails to timely achieve
certain delineated milestones, the Licensors may have the right to terminate the rights of Brooklyn LLC under provisions of the License Agreement relating to those milestones.
The Licensors are responsible for preparing, filing, prosecuting and maintaining all patent applications and patents under the License Agreement. If, however, the Licensors
determine not to maintain a particular licensed patent or not to prepare, file and prosecute a licensed patent, Brooklyn LLC will have the right, but not the obligation, to assume those responsibilities in the territory at its expense.
Novellus, Ltd. is a pre-clinical development, manufacturing, and technology licensing entity focused on engineered cellular medicines. Novellus, Ltd. has developed mRNA-based
cell reprogramming and gene editing technologies to create engineered cellular medicines. The synthetic mRNA is non-immunogenic—it is capable of successfully evading the cellular innate immune system and then is capable of expressing high levels of
proteins for cell reprogramming and gene editing. The mRNA may be formulated for injection into target tissues for cellular uptake and therapeutic treatment.
The synthetic mRNA technology may be used to edit gene mutations through mRNA chemistry or expressed gene-editing proteins to treat genetic and rare diseases. It may also be
used to reprogram human non-pluripotent cells and IPSCs. The IPSCs may then be differentiated into pure populations of varying therapeutic cell types. The reprogramming technology offers a rapid, cost-effective and patient specific therapy using
the engineered stem cells created from IPSCs.
Novellus, Ltd. has licenses from Factor to use over 45 granted patents throughout the world covering synthetic mRNA, RNA-based gene editing, and RNA-based cell reprogramming,
in addition to specific patents covering methods for treating specific diseases. There are also more than 50 pending patent applications throughout the world focused on these and other aspects of the technology. The patent coverage includes granted
patents and pending patent applications in the United States, Europe, and Japan, along with other major life sciences markets.
There can be no assurance that Brooklyn LLC can successfully develop and commercialize the technology licensed under the License Agreement.
Purchase Agreements
On April 26, 2021, Brooklyn and Lincoln Park Capital Fund, LLC, or Lincoln Park, executed a purchase agreement, or the First Purchase Agreement, and a related registration
rights agreement. Pursuant to the First Purchase Agreement, Brooklyn had the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park would be obligated to purchase, up to $20.0 million of shares of Brooklyn’s common stock. Sales of
common stock by Brooklyn, if any, were subject to certain limitations, and could occur from time to time, at Brooklyn’s sole discretion. For entering into the First Purchase Agreement, Brooklyn issued to Lincoln Park 56,041 shares of common shares
as consideration for Lincoln Park’s commitment to purchase up to $20.0 million in shares of common stock. As of September 30, 2021, Brooklyn issued and sold to Lincoln Park a total of 1,127,736 shares of common stock for gross proceeds of
$20,000,000, and no further shares may be sold to Lincoln Park under the First Purchase Agreement.
On May 26, 2021, Brooklyn executed a purchase agreement, or the Second Purchase Agreement, and a related registration rights agreement. Pursuant to the Second
Purchase Agreement, Brooklyn has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park would be obligated to purchase, up to
$40,000,000 of shares of Brooklyn’s common stock. Sales of common stock by Brooklyn, if any, are subject to certain limitations, and may occur from time to time, at Brooklyn’s sole discretion. For entering into the Second Purchase Agreement,
Brooklyn issued to Lincoln Park 50,000 shares of common shares as consideration for Lincoln Park’s commitment to purchase up to $40,000,000 in shares of common stock.
Under the Second Purchase Agreement, on any business day selected by Brooklyn, Brooklyn may direct Lincoln Park to purchase up to 60,000 shares of common stock on such business
day, which we refer to as a Regular Purchase, provided, however, that (i) the Regular Purchase may be increased to up to 80,000 shares, provided that the closing sale price of the common stock is not below $5.50 on the purchase date, and (ii) the
Regular Purchase may be increased to up to 120,000 shares, provided that the closing sale price of the common stock is not below $7.00 on the purchase date. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not
exceed $1,000,000 under the First Purchase Agreement and $2,000,000 under the Second Purchase Agreement. The purchase price per share for each such Regular Purchase will be based off of prevailing market prices of common stock immediately preceding
the time of sale. In addition to Regular Purchases, Brooklyn may direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the common stock exceeds certain threshold
prices as set forth in the Second Purchase Agreement.
The Second Purchase Agreement also prohibits Brooklyn from directing Lincoln Park to purchase any shares of common stock if those shares, when aggregated with all other shares
of common stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of common
stock. Brooklyn has the right to terminate the Second Purchase Agreement at any time, at no cost or penalty.
Actual sales of shares of common stock to Lincoln Park under the Second Purchase Agreements depend on a variety of factors to be determined by Brooklyn from time to time,
including, among others, market conditions, the trading price of the common stock and determinations by Brooklyn as to the appropriate sources of funding for Brooklyn and its operations. We expect that any net proceeds received by Brooklyn from
such sales to Lincoln Park will be used for research and development, working capital and general corporate purposes.
As of September 30, 2021, Brooklyn had issued and sold 3,551,990 shares of common stock under the First Purchase Agreement and the Second Purchase Agreement for total net
proceeds of $52.0 million.
Acquisition of Novellus
On July 16, 2021, Brooklyn and its newly formed, wholly owned subsidiary Brooklyn Acquisition Sub, Inc. entered into an agreement and plan of acquisition, or the Acquisition
Agreement, with (a) Novellus LLC, (b) Novellus, Inc., the sole equity holder of Novellus, Ltd. and, prior to the closing under the Acquisition Agreement, a wholly owned subsidiary of Novellus, LLC, and (c) a seller representative. Novellus, Ltd. is
a pre-clinical stage biotechnology company organized under the laws of Ireland that is developing engineered cellular medicines using its licensed, patented non-immunogenic mRNA, high-specificity gene editing, mutation-free and footprint-free cell
reprogramming and serum-insensitive mRNA lipid delivery technologies.
The closing of the transaction contemplated by the Acquisition Agreement, or the Acquisition, was held contemporaneously with the execution and delivery of the Acquisition
Agreement. At the closing:
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Brooklyn acquired all of the outstanding equity interests of Novellus, Inc. as the result of the merger of Brooklyn Acquisition Sub, Inc. with and into Novellus, Inc., following which Novellus, Inc., as the
surviving corporation, became Brooklyn’s wholly owned subsidiary and Novellus Ltd. became Brooklyn’s indirectly owned subsidiary.
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Brooklyn acquired 25.0% of the total outstanding equity interests of NoveCite, Inc., a corporation focused on developing an MSC product for patients with acute respiratory distress syndrome, including from
COVID-19.
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We delivered consideration for the Acquisition totaling approximately $124.0 million, which consisted of (a) $22.8 million in cash and (b) 7,022,230 shares of common stock,
which under the terms of the Acquisition Agreement were valued at a total of $102.0 million, based on a price of $14.5253 per share.
The Acquisition Agreement contains customary representations, warranties and certain indemnification provisions. A total of
740,766 of the shares issued as consideration have been placed in escrow for a period of up to 12 months in order to secure indemnification obligations to us under the Acquisition Agreement. The Acquisition Agreement also contains non-competition
and non-solicitation provisions pursuant to which Novellus LLC has agreed not to engage in certain competitive activities for a period of five years following the closing, including customary restrictions relating to employees. No employees of
Novellus Ltd. or Novellus, Inc. prior to the Acquisition continued their employment, or were otherwise engaged by us, following the Acquisition.
In connection with the Acquisition, the co-founders of Novellus, Ltd. entered into lock-up agreements with respect to 3,377,690
of the shares received in the Acquisition, and our Chair of the Board of Directors and its Chief Executive Officer and President entered into identical lock-up agreements with respect to their current holdings of our stock. Each lock-up agreement
extends for a period of three years, provided that up to 75% of the shares of common stock subject to the lock-up agreement may be released from the lock-up
restrictions earlier if the price of common stock on our principal stock exchange, now The Nasdaq Global Market, exceeds specified thresholds. The lock-up agreements include customary exceptions for transfers during the applicable lock-up period.
We expect the Acquisition will advance our evolution into a platform company with a pipeline of next-generation engineered cellular, gene editing and cytokine programs. In
addition, the acquisition of Novellus, Ltd. builds on the License Agreement. (See “Second Quarter 2021 and Recent Developments—License Agreements” above.) The completion of the acquisition of Novellus, Ltd. relieves Brooklyn LLC from potential
obligations to pay Novellus, Ltd. certain upfront fees, clinical development milestone fees and post-registration royalties under the License Agreement. The agreement with Factor under the License Agreement, which grants Brooklyn LLC exclusive
rights to develop certain next-generation mRNA gene editing and cell therapy products, remains unchanged.
Basis of Presentation
Revenues
We are a development stage company and have had no revenues from product sales to date. We will not have revenues from product sales until such time as we receive regulatory
approval of our drug candidates, successfully commercialize our products or enter into a licensing agreement which may include up-front licensing fees, of which there can be no assurance.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries, benefits and other costs, including stock-based compensation, for our executive and administrative
personnel, legal and other professional fees, travel, insurance, and other corporate costs.
Research and Development Expenses
We expense our research and development costs as incurred. Our research and development expenses consist of costs incurred for company-sponsored research and
development activities, as well as support for selected investigator-sponsored research. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are
incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended. IPR&D that is acquired
through an asset acquisition and has no alternative future uses and, therefore, no separate economic values, is expensed to research and development costs at the time the costs are incurred.
The major components of research and development costs include preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for
clinical trials, expensed licensed technology, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead costs related
to our product development efforts.
In the normal course of our business, we contract with third parties to perform various clinical study and trial activities in the on-going development and testing of potential
products. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events or
milestones, the successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the clinical study or trial or similar conditions. Preclinical and clinical study and trial
associated activities such as production and testing of clinical material require significant up-front expenditures. We anticipate paying significant portions of a study’s or trial’s cost before such begins and incurring additional expenditures as
the study or trial progresses and reaches certain milestones.
Critical Accounting Policies and Estimates
There were no significant changes in our critical accounting estimates during the three and nine months ended September 30, 2021 to augment the critical accounting estimates disclosed under “Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations--Critical Accounting Policies and Estimates” in Part I of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021.
Results of Operations
Comparison of Three and Nine Months Ended September 30, 2021 and 2020
|
|
|
Three months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
1,466,652
|
|
|
$
|
923,529
|
|
|
$
|
543,123
|
|
|
|
59
|
%
|
|
Acquired IPR&D
|
|
|
80,537,551
|
|
|
|
-
|
|
|
|
80,537,551
|
|
|
|
N/A
|
|
|
General and administrative
|
|
|
4,258,178
|
|
|
|
1,084,057
|
|
|
|
3,174,121
|
|
|
|
293
|
%
|
|
Change in fair value of contingent consideration
|
|
|
70,000
|
|
|
|
-
|
|
|
|
70,000
|
|
|
|
N/A
|
|
|
Total operating expenses
|
|
|
86,332,381
|
|
|
|
2,007,586
|
|
|
|
84,324,795
|
|
|
|
4,200
|
%
|
|
Loss from operations
|
|
|
(86,332,381
|
)
|
|
|
(2,007,586
|
)
|
|
|
(84,324,795
|
)
|
|
|
4,200
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
277,069
|
|
|
|
(12,559
|
)
|
|
|
289,628
|
|
|
|
2,306
|
%
|
|
Total other income (expenses), net
|
|
|
277,069
|
|
|
|
(12,559
|
)
|
|
|
289,628
|
|
|
|
2,306
|
%
|
|
Net loss
|
|
$
|
(86,055,312
|
)
|
|
$
|
(2,020,145
|
)
|
|
$
|
(84,035,167
|
)
|
|
|
4,160
|
%
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
8,379,062
|
|
|
$
|
2,299,669
|
|
|
$
|
6,079,393
|
|
|
|
264
|
%
|
|
Acquired IPR&D
|
|
|
80,537,551
|
|
|
|
-
|
|
|
|
80,537,551
|
|
|
|
N/A
|
|
|
General and administrative
|
|
|
10,515,088
|
|
|
|
2,741,652
|
|
|
|
7,773,436
|
|
|
|
284
|
%
|
|
Transaction costs
|
|
|
5,765,407
|
|
|
|
-
|
|
|
|
5,765,407
|
|
|
|
N/A
|
|
|
Change in fair value of contingent consideration
|
|
|
(750,000
|
)
|
|
|
-
|
|
|
|
(750,000
|
)
|
|
|
N/A
|
|
|
Total operating expenses
|
|
|
104,447,108
|
|
|
|
5,041,321
|
|
|
|
99,405,787
|
|
|
|
1,972
|
%
|
|
Loss from operations
|
|
|
(104,447,108
|
)
|
|
|
(5,041,321
|
)
|
|
|
(99,405,787
|
)
|
|
|
1,972
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of NTN assets
|
|
|
(9,648,173
|
)
|
|
|
-
|
|
|
|
(9,648,173
|
)
|
|
|
N/A
|
|
|
Other income (expense), net
|
|
|
252,318
|
|
|
|
(31,482
|
)
|
|
|
283,800
|
|
|
|
901
|
%
|
|
Total other expenses
|
|
|
(9,395,855
|
)
|
|
|
(31,482
|
)
|
|
|
(9,364,373
|
)
|
|
|
29,745
|
%
|
|
Net loss
|
|
|
(113,842,963
|
)
|
|
|
(5,072,803
|
)
|
|
|
(108,770,160
|
)
|
|
|
2,144
|
%
|
|
Series A convertible preferred stock dividend
|
|
|
(7,806
|
)
|
|
|
-
|
|
|
|
(7,806
|
)
|
|
|
N/A
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(113,850,769
|
)
|
|
$
|
(5,072,803
|
)
|
|
$
|
(108,777,966
|
)
|
|
|
2,144
|
%
|
Revenues
We had no revenues for the three and nine months ended September 30, 2021 or 2020.
Research and Development Expenses
|
|
|
Three months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
|
Payroll-related
|
|
$
|
743,528
|
|
|
$
|
433,435
|
|
|
$
|
310,093
|
|
|
|
72
|
%
|
|
Stock-based compensation
|
|
|
447,780
|
|
|
|
-
|
|
|
|
447,780
|
|
|
|
N/A
|
|
|
Other expenses, net
|
|
|
275,344
|
|
|
|
490,094
|
|
|
|
(214,750
|
)
|
|
|
-44
|
%
|
|
Total research and development expense
|
|
$
|
1,466,652
|
|
|
$
|
923,529
|
|
|
$
|
543,123
|
|
|
|
59
|
%
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
|
License fees
|
|
$
|
4,000,000
|
|
|
$
|
-
|
|
|
$
|
4,000,000
|
|
|
|
N/A
|
|
|
Payroll-related
|
|
|
1,797,317
|
|
|
|
1,291,038
|
|
|
|
506,279
|
|
|
|
39
|
%
|
|
Stock-based compensation
|
|
|
1,018,428
|
|
|
|
-
|
|
|
|
1,018,428
|
|
|
|
N/A
|
|
|
Other expenses, net
|
|
|
1,563,317
|
|
|
|
1,008,631
|
|
|
|
554,686
|
|
|
|
55
|
%
|
|
Total research and development expense
|
|
$
|
8,379,062
|
|
|
$
|
2,299,669
|
|
|
$
|
6,079,393
|
|
|
|
264
|
%
|
For the three months ended September 30, 2021, our research and development expenses increased primarily due to increased
headcount and stock-based compensation for the issuance of equity awards, offset by a decrease in other miscellaneous research and development expenses when compared to the same period in 2020. For the nine months ended September 30, 2021, our
research and development expenses increased due to upfront payments associated with licensed technology, increased clinical trial expenses, increased headcount and increased stock-based compensation when compared to the same period in 2020.
We expect research and development expenses to grow as we expand our gene-editing cell‑therapy research and clinical trial activities.
Acquired IPR&D
During the three and months ended September 30, 2021, we expensed the $80,537,551 fair value of the IPR&D acquired in the Acquisition
because there is no future alternative use for the IPR&D other than for its intended purpose.
General and Administrative Expenses
|
|
|
Three months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
|
Professional fees
|
|
$
|
1,587,573
|
|
|
$
|
779,119
|
|
|
$
|
808,454
|
|
|
|
104
|
%
|
|
Stock-based compensation
|
|
|
1,280,524
|
|
|
|
22,734
|
|
|
|
1,257,790
|
|
|
|
5,533
|
%
|
|
Payroll-related
|
|
|
540,769
|
|
|
|
28,513
|
|
|
|
512,256
|
|
|
|
1,797
|
%
|
|
Insurance
|
|
|
366,986
|
|
|
|
39,709
|
|
|
|
327,277
|
|
|
|
824
|
%
|
|
Other expenses, net
|
|
|
482,326
|
|
|
|
213,982
|
|
|
|
268,344
|
|
|
|
125
|
%
|
|
Total general and administrative expense
|
|
$
|
4,258,178
|
|
|
$
|
1,084,057
|
|
|
$
|
3,174,121
|
|
|
|
293
|
%
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
|
Professional fees
|
|
$
|
5,553,661
|
|
|
$
|
1,827,002
|
|
|
$
|
3,726,659
|
|
|
|
204
|
%
|
|
Stock-based compensation
|
|
|
2,283,269
|
|
|
|
68,202
|
|
|
|
2,215,067
|
|
|
|
3,248
|
%
|
|
Payroll-related
|
|
|
706,066
|
|
|
|
86,553
|
|
|
|
619,513
|
|
|
|
716
|
%
|
|
Insurance
|
|
|
766,951
|
|
|
|
83,627
|
|
|
|
683,324
|
|
|
|
817
|
%
|
|
Other expenses, net
|
|
|
1,205,141
|
|
|
|
676,268
|
|
|
|
528,873
|
|
|
|
78
|
%
|
|
Total general and administrative expense
|
|
$
|
10,515,088
|
|
|
$
|
2,741,652
|
|
|
$
|
7,773,436
|
|
|
|
284
|
%
|
The increase in general and administrative expense for the three and nine months ended September 30, 2021 was primarily related
to increased professional fees such as legal, accounting and consulting fees associated with merger and acquisition activity as well as costs associated with being a publicly traded company, increased stock-based compensation resulting from the
issuance of equity awards, increased payroll-related expense due to an increase in our headcount and increased insurance expenses when compared to the same periods in 2020.
We expect general and administrative expenses to increase in future periods as we increase our business activities and incur costs associated with being a publicly traded
company.
Transaction Costs
There were no transaction costs for the three months ended September 30, 2021. For the nine months ended September 30, 2021,
the $5,765,407 in transaction costs related to the issuance of common stock to Brooklyn LLC’s financial advisor upon consummation of the Merger.
Change in Fair Value of Contingent Consideration
For the three and nine months ended September 30, 2021, the change in fair value of the contingent consideration was an increase to the liability of $70,000 and a decrease to
the liability of $750,000, respectively, based on our quarterly valuation analyses. There were no changes to the fair value of contingent consideration for the three and months ended September 30, 2020.
Loss on Sales of NTN Assets
The $9,648,173 loss on the sale of NTN assets for the nine months ended September 30, 2021 was incurred when we completed the
Disposition.
Other Income (Expense), Net
|
|
Three months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
|
Income from Brooklyn PPP Loan forgiveness
|
|
$
|
309,905
|
|
|
$
|
-
|
|
|
$
|
309,905
|
|
|
|
N/A
|
|
|
Interest expense, net
|
|
|
(20,210
|
)
|
|
|
(12,559
|
)
|
|
|
(7,651
|
)
|
|
|
61
|
%
|
|
Other expenses, net
|
|
|
(12,626
|
)
|
|
|
-
|
|
|
|
(12,626
|
)
|
|
|
N/A
|
|
|
Total other income (expense), net
|
|
$
|
277,069
|
|
|
$
|
(12,559
|
)
|
|
$
|
289,628
|
|
|
|
-2,306
|
%
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
% Change
|
|
|
Income from Brooklyn PPP Loan forgiveness
|
|
$
|
309,905
|
|
|
$
|
-
|
|
|
$
|
309,905
|
|
|
|
N/A
|
|
|
Interest expense, net
|
|
|
(55,974
|
)
|
|
|
(31,482
|
)
|
|
|
(24,492
|
)
|
|
|
78
|
%
|
|
Other expenses, net
|
|
|
(1,613
|
)
|
|
|
-
|
|
|
|
(1,613
|
)
|
|
|
N/A
|
|
|
Total other income (expense), net
|
|
$
|
252,318
|
|
|
$
|
(31,482
|
)
|
|
$
|
283,800
|
|
|
|
-901
|
%
|
For the three and nine months ended September 30, 2021, we recognized an increase in other income, net of expense primarily
as a result of the forgiveness of our PPP Loan, which was primarily offset by interest accrued on notes payable of that we assumed as part of the acquisition of the assets of IRX Therapeutics, LLC in 2018. The notes bear interest at the rate of
14% and were due on December 31, 2019. On January 27, 2020, the notes were amended to extend the maturity date to the earlier of (i) a change of control and (ii) December 31, 2021, whichever comes first.
Liquidity and Capital Resources
At September 30, 2021, we had cash and cash equivalents of $24,381,831. During the second quarter of 2021, we entered into the First Purchase Agreement and Second Purchase
Agreement with Lincoln Park, pursuant to which we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to an aggregate of $60,000,000 in shares of our common stock. Future sales of common
stock by us, if any, are subject to certain limitations, and may occur from time to time, at our sole discretion. As of November 9, 2021, we had issued and sold 3,551,990 shares of common stock for total gross proceeds of $54.1 million and net
proceeds of $52.0 million. For further information, see “—Recent Developments—Purchase Agreements.”
We have to date incurred operating losses, and we expect these losses to increase in the future as we expand our drug development programs and operate as a publicly traded
company. We anticipate using current cash on hand and our net proceeds from sales of common stock under the Second Purchase Agreement to finance these activities. It will likely be some years before we obtain the necessary regulatory approvals to
commercialize one or more of our drug candidates. Based on our current financial condition and forecasts of available cash, including as mentioned above, we believe we have sufficient funds to fund our operations for the next twelve months from the
filing of these financial statements. There can be no assurance that we will ever be in a position to commercialize IRX-2 or any other drug candidate we may acquire, or that we will obtain any additional financing that we require in the future or,
even if such financing is available, that it will obtainable on terms acceptable to us.
In that regard, our future funding requirements will depend on many factors, including:
• the scope, rate of progress and cost of our clinical trials and other product development activities;
• future clinical trial results;
• the terms and timing of any collaborative, licensing and other agreements that we may establish;
• the cost and timing of regulatory approvals;
• the cost and delays in product development as a result of any changes in regulatory oversight applicable to
our products;
• the cost and timing of establishing sales, marketing and distribution capabilities;
• the effect of competition and market developments; and
• the cost of filing and potentially prosecuting, defending and enforcing any patent claims and other intellectual property rights.
We plan to raise additional funds to support our product development activities and working capital requirements through the remaining availability under the Second Purchase
Agreement, public or private equity offerings, debt financings, corporate collaborations or other means. We may also seek governmental grants to support our clinical trials and preclinical trials. Further, we may seek to raise capital to fund
additional product development efforts even if we have sufficient funds for our planned operations. Any sale by us of additional equity or convertible debt securities could result in dilution to our stockholders. There can be no assurance that any
such required additional funding will be available to us at all or available on terms acceptable to us.
Further, to the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses
on terms that are not favorable to us. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more research and development programs, which could have an adverse effect on our
business.
Sources of Funds
Equity Securities
During the second quarter, we entered into the First Purchase Agreement and the Second Purchase Agreement with Lincoln Park,
pursuant to which, subject to specified terms and conditions, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to an aggregate of $60.0 million in shares of our common stock. As of
November 9, 2021, we had issued and sold 3,551,990 shares of common stock for total gross proceeds of $54.1 million and net proceeds of $52.0 million and a total of $5.9 million of common stock remained available for sale under the Second Purchase
Agreement. For further information, see “—Recent Developments—Purchase Agreements.”
As a condition to the closing of the Merger, Brooklyn LLC was required to have at least $10.0 million in cash and cash
equivalents at the effective time of the Merger. In furtherance of, and prior to, the Merger, certain of its members entered into agreements pursuant to which those members purchased additional units of Brooklyn LLC for an aggregate purchase price
of $10.5 million.
Disposition.
On March 26, 2021, we completed the Disposition, in which we sold to eGames.com our rights, title and interest in and to the
assets relating to the business we operated prior to the Merger under the name “NTN Buzztime, Inc.” in exchange for eGames.com’s payment of a purchase price of $2.0 million and assumption of specified liabilities relating to such pre-Merger
business.
Brooklyn LLC PPP Loan.
On May 4, 2020, Brooklyn LLC issued a note in the principal amount of approximately $309,905 to Silicon Valley Bank
evidencing the loan, or the Brooklyn LLC PPP Loan, Brooklyn LLC received under the Paycheck Protection Program, or PPP, of the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S. Small Business Administration, or the CARES
Act. Brooklyn LLC PPP Loan had an interest rate of 1.0% per annum.
Under the terms of the CARES Act, certain amounts of the Brooklyn LLC PPP Loan could be forgiven if they were used for
qualifying expenses as described in the CARES Act. In June 2020, Brooklyn LLC submitted its loan forgiveness application for the Brooklyn LLC PPP Loan, and in September 2020, the lender informed Brooklyn LLC that the U.S Small Business
Administration approved the forgiveness of 100% of the outstanding principal and interest. As of September 30, 2021, there was no outstanding principal balance of the Brooklyn LLC PPP Loan.
Uses of Funds
Net Cash Used in Operating Activities.
Our operations used $16.7 million during the nine months ended September 30, 2021. Our cash use for operating activities is influenced by the level of our net loss and the
amount of cash we invest in personnel and technology development to support anticipated growth in our business.
Lease Obligations.
We are obligated to pay approximately $660,000 per year for our facilities leases, subject to annual increases and to a sharing of common area expenses with other tenants in
the building. The leases expire at varying times between December 2025 and June 2028.
Acquisition.
On July 16, 2021, we used $22,882,181 of cash towards the purchase of the Acquisition. The remaining purchase price of
the Acquisition was completed through the issuance of common stock.
Brooklyn PPP Loan.
On April 18, 2020, Brooklyn (then known as NTN Buzztime, Inc.) was granted a loan, which we refer to as the Brooklyn PPP Loan, in the aggregate amount of $1,625,000, pursuant
to the PPP under the CARES Act. Under the terms of the PPP, certain amounts of the Brooklyn PPP Loan could be forgiven if they were used for qualifying expenses as described in the CARES Act. In October 2020 the U.S. Small Business Administration
approved the forgiveness of $1,093,000 of the $1,625,000 principal amount of the Brooklyn PPP Loan, leaving a principal balance of approximately $532,000, all of which, plus accrued and unpaid interest, was due and, in accordance with the terms of
the Merger Agreement, paid by Brooklyn upon the closing of the Merger.
Recent Accounting Pronouncements
A discussion of recent accounting pronouncements is included in Note 12 to the condensed consolidated financial statements included in this report.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in our financial
condition, expenses, results of operations, liquidity, capital expenditures or capital resources.
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk.
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Under the rules and regulations of the Securities and Exchange Commission or SEC, as a smaller reporting company we are not required to provide
the information otherwise required by this item.
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Item 4.
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Controls and Procedures.
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Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, designed to ensure that
information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and we were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of the end of the
period covered by this report under the supervision and with the participation of our management, including our Chief Executive Officer and President (who serves as our principal executive officer) and our Vice President of Finance (who serves as
our principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures.
Upon completion of the Merger in March 2021 and the resulting change in our business model and strategy, we experienced a complete turnover of our employees, including all of
the members of our executive management team, which resulted in, among other things, our having insufficient accounting staff available to enable and ensure adequate segregation of duties and our lacking appropriate and complete documentation of
policies and procedures critical to the accomplishment of financial reporting objectives. The accounting personnel and documentation deficiencies each increase the risk that a material misstatement of our financial statements will not be prevented
or detected on a timely basis. Based on this evaluation, our Chief Executive Officer and President and our Vice President of Finance concluded that, as of September 30, 2021, our disclosure controls and procedures were not effective and did not
provide reasonable assurance of achieving the desired control objectives.
Management plans to implement measures designed to ensure that the deficiencies contributing to the ineffectiveness of our disclosure controls and procedures are remediated,
such that the controls and procedures are designed, implemented and operating effectively. The remediation actions planned include:
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•
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hiring and employing additional accounting personnel in a number, and with experience, to allow for proper segregation of duties; and
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•
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developing and implementing, and then monitoring the effectiveness of, written policies and procedures required to achieve our financial reporting objectives in a timely manner,
including policies and procedures relating to internal control over financial reporting.
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We are committed to developing a strong internal control environment, and we believe the remediation efforts that we will
implement will result in significant improvements in our control environment. We hired our Vice President of Finance in the second quarter of 2021 to oversee all accounting and financial reporting matters, including implementing a framework for
internal controls over financial reporting, and we expect to hire a full-time controller at the beginning of 2022. Also, beginning during the fourth quarter of 2021, we are engaging a
third-party consulting firm with expertise in implementing the framework for internal controls over financial reporting. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness
of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary.
Changes in Internal Control Over Financial Reporting
Other than described above, there was no change in our internal control over financial reporting during the three months ended September 30, 2021 that materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting. We will continue to review and document our disclosure controls and procedures, including our internal control over financial reporting, and may from time to
time make changes to enhance their effectiveness and ensure that our systems evolve with our business.
PART II — OTHER INFORMATION
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Item 1.
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Legal Proceedings.
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This information is set forth under “Note 9—Commitments and Contingencies—Legal Matters” to the condensed consolidated financial statements included in this report and is
incorporated in this Item 1 by reference.
From time to time we may become involved in legal proceedings arising in the ordinary course of business. Except as described above, we do not believe there is any litigation
pending that could have, individually or in the aggregate, a material adverse effect on our results of operations, financial condition or cash flows.
An investment in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties
described below and in the “Risk Factors” section of our Current Report on Form 8-K filed with the SEC on May 11, 2021, and our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the SEC on August 13, 2021,
together with all other information contained or incorporated by reference in this report. If any of the risks described in this report or in such Current Report or Quarterly Report occur, our business, financial condition, results of operations
and future growth prospects could be materially and adversely affected. Under these circumstances, the trading price of common stock could decline, and you may lose all or part of your investment.
We can provide no assurance that claims will not be made to challenge the validity of the ratification
of the filing and effectiveness of the certificate of amendment to our restated certificate of incorporation filed with the Secretary of State of the State of Delaware on March 25, 2021 with respect to the increase in the number of authorized
shares of common stock pursuant to Section 204 of the Delaware General Corporation Law.
On September 3, 2021, our stockholders approved the
ratification, which we refer to as the Share Increase Ratification, of the amendment to our restated certificate of incorporation filed with the Secretary of State of the State of Delaware on March 25, 2021, which effected an increase
in the number of authorized shares of common stock by 85,000,000, from 15,000,000 shares to 100,000,000 shares, and which we refer to as the Share Increase Amendment. We subsequently filed a certificate of validation with respect to the Share
Increase Amendment with the Secretary of State of the State of Delaware, which we refer to as the Certificate of Validation, on September 3, 2021.
Even though we filed the Certificate of Validation, any claim that (i) the
increase in the number of authorized shares of common stock and related issuance of such shares ratified pursuant to the Share Increase Ratification is void or voidable due to a failure of authorization, or (ii) the Delaware Court of Chancery
should declare in its discretion that the Share Increase Ratification not be effective or be effective only on certain conditions, which we refer to collectively as the Subsequent Claims, may still be brought within 120 days from the time that
the filing of the Certificate of Validation with the Secretary of State of the State of Delaware becomes effective in accordance with the DGCL.
We can provide no assurance that Subsequent Claims will not be made within the available time period for making such claims
or what the resolution of such Subsequent Claims would be. If Subsequent Claims are made, it could have a material adverse effect on our liquidity, which could result in our filing for bankruptcy or an involuntary petition for bankruptcy being
filed against us.
We may not generate the expected benefits of the Acquisition and the Acquisition could disrupt our ongoing
business, distract our management and increase our expenses.
We entered into the Acquisition Agreement to acquire all of the outstanding equity interests of Novellus, Inc. and Novellus,
Ltd., which we collectively refer to as Novellus, with the expectation that the Acquisition will result in various benefits, including accelerating our research and development efforts in the gene editing and mRNA spaces. Achieving the anticipated
benefits of the Acquisition is subject to a number of uncertainties, including whether our business and the business of Novellus can be integrated in an efficient and effective manner. We cannot assure you that we will be able to accurately
forecast the performance or ultimate impact of the Acquisition.
It is possible that the integration process following the Acquisition could take longer than anticipated and could result in
unforeseen expenses, the disruption of our ongoing business, processes and systems, or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect our ability to achieve
the anticipated benefits of the Acquisition. There may be increased risk due to integrating financial reporting and internal control systems. The integration process is subject to a number of uncertainties, and no assurance can be given that the
anticipated benefits, expense savings and synergies of the Acquisition will be realized or, if realized, the timing of their realization. Failure to achieve these anticipated benefits could result in increased costs or decreases in the amount of
expected revenues and could adversely affect our future business, financial condition, operating results and prospects.
We have incurred and will continue to incur non-recurring expenses in connection with the Acquisition, including legal,
accounting and other expenses. Additional unanticipated costs may be incurred following consummation of the Acquisition in the course of the integration of the business of Novellus into our business. We cannot be certain that the realization of
efficiencies related to the integration of Novellus will offset in the near term, or at all, the transaction and integration costs of the Acquisition and any losses from undiscovered liabilities not covered by indemnification provisions from the
sellers of Novellus under the Acquisition Agreement or otherwise.
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds.
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Set forth below is information regarding shares of common stock issued by us during the three months ended September 30, 2021 that were not registered under the Securities Act
of 1933. Included is the consideration, if any, we received for such shares and information relating to the section of the Securities Act of 1933, or the rule of the SEC, under which exemption from registration was claimed.
Under the Second Purchase Agreement with Lincoln Park pursuant to which we issued to Lincoln Park an aggregate of 340,048
shares of common stock from September 19, 2021 through September 20, 2021 for an aggregate purchase price of $3.6 million. We intend to us the net proceeds from these transactions for general corporate purposes, including working capital.
On July 16, 2021, we entered into the Acquisition Agreement to acquire all of the outstanding equity interests of Novellus,
Inc., which became our wholly owned subsidiary, and Novellus, Ltd. became our indirectly owned subsidiary. We also acquired 25% of the total outstanding equity interests of NoveCite. We delivered consideration that included 7,022,230 shares of
common stock, which under the terms of the Acquisition Agreement were valued at a total of $102,000,000, based on a price of $14.5253 per share. The closing of the transaction, including the issuance of the common stock, was held contemporaneously
with the execution and delivery of the Acquisition Agreement.
The securities described in this Item 2 were issued to investors in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as set forth
in Section 4(a)(2) under the Securities Act of 1933 and/or Regulation D promulgated thereunder relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required. The recipients
of securities in the transactions described above represented that they were accredited investors and were acquiring the securities for their own account for investment purposes only and not with a view to, or for sale in connection with, any
distribution thereof and that they could bear the risks of the investment and could hold the securities for an indefinite period of time and appropriate legends were affixed to the instruments representing such securities issued in such
transactions.
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Exhibit
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Description
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Incorporated By Reference
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Restated Certificate of Incorporation
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Exhibit to Form 10-Q filed on August 14, 2013
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Certificate of Amendment to the Restated Certificate of Incorporation (reverse/forward split)
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Exhibit to Form 8-K filed on June 17, 2016
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Certificate of Decrease of the Series A Convertible Preferred Stock
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Exhibit to Form 8-K filed on April 12, 2017
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Certificate of Amendment to the Restated Certificate of Incorporation (decrease in authorized capital stock)
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Exhibit to Form 8-K filed on June 9, 2017
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Certificate of Amendment to Restated Certificate of Amendment, dated March 25, 2021 (Reverse Stock Split)
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Exhibit to Form 8-K filed on March 31, 2021
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Certificate of Amendment to Restated Certificate of Amendment, dated March 25, 2021 (Authorized Share Increase)
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Exhibit to Form 8-K filed on March 31, 2021
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Certificate of Amendment to Restated Certificate of Amendment, dated March 25, 2021 (Name Change)
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Exhibit to Form 8-K filed on March 31, 2021
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(q) Certificate of Validation of Brooklyn ImmunoTherapeutics, Inc., as filed with the Secretary of State of the State of Delaware on
September 3, 2021
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Exhibit to Form 8-K filed on September 13, 2021
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Amended and Restated Bylaws of Brooklyn ImmunoTherapeutics, Inc.
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Exhibit to Form 8-K filed on September 23, 2021
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Agreement and Plan of Acquisition, dated as of July 16, 2021, by and among Brooklyn ImmunoTherapeutics, Inc., Brooklyn Acquisition Sub,
Inc., Novellus LLC, Novellus, Inc., and the Sellers’ Representative.
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Exhibit to Form 8-K filed on July 19, 2021
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Registration Rights Agreement, dated as of July 16, 2021, by and among Brooklyn ImmunoTherapeutics, Inc. and the individuals and entities
named therein.
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Exhibit to Form 8-K filed on July 19, 2021
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Executive Employment Agreement, dated as of July 6, 2021 and effective as of July 15, 2021, between Brooklyn ImmunoTherapeutics, Inc. and
Jay Sial.
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Exhibit to Form 8-K filed on July 19, 2021
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Executive Employment Agreement, effective as of September 20, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Roger Sidhu
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Exhibit to Form 8-K filed on September 23, 2021
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Form of Indemnification Agreement
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Exhibit to Form 8-K filed on April 16, 2021
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Schedule identifying agreements substantially identical to the form of indemnification agreement filed as Exhibit 10.4(a)
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Filed herewith
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Brooklyn ImmunoTherapeutics, Inc. Restated 2020 Stock Incentive Plan
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Exhibit to Form 8-K filed on September 13, 2021
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Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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Filed herewith
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Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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Filed herewith
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Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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Furnished herewith
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Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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Furnished herewith
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101.INS
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Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document).
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Filed herewith
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101.SCH
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Inline XBRL Taxonomy Extension Schema Document
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Filed herewith
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101.CAL
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Inline XBRL Taxonomy Extension Calculation Linkbase Document
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Filed herewith
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101.DEF
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Inline XBRL Taxonomy Extension Definition Linkbase Document
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Filed herewith
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101.LAB
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Inline XBRL Taxonomy Extension Label Linkbase Document
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Filed herewith
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101.PRE
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Inline XBRL Taxonomy Extension Presentation Linkbase Document
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Filed herewith
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104
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
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*
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Certain information redacted and replaced with “[***]”.
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+
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Indicates management contract or compensatory plan.
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†
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Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Brooklyn ImmunoTherapeutics, Inc. hereby undertakes to furnish supplementally copies of any of the omitted schedules and
exhibits upon request by the Securities and Exchange Commission.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
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BROOKLYN IMMUNOTHERAPEUTICS, INC.
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Date: November 12, 2021
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By:
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/s/ Howard J. Federoff
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Howard J. Federoff
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Chief Executive Officer and President
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