Ernexa Therapeutics Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations . Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read with, the accompanying 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 Inc. (then known as NTN Buzztime, Inc.) merged with and into Brooklyn LLC, with Brooklyn LLC surviving as a wholly owned subsidiary of Brooklyn Inc.. 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 Inc. (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 Inc. amended its restated certificate of incorporation in order to effect: • 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, which we refer to as the Reverse Split; and • following the Merger, a change in its corporate name from “NTN Buzztime, Inc.” to “Brooklyn ImmunoTherapeutics, Inc.” On March 26, 2021, Brooklyn Inc. 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 Asset Sale, was completed in accordance with the terms of an asset purchase agreement dated September 18, 2020, as amended, between Brooklyn Inc. and eGames.com. Following the completion of the Merger and the Asset Sale, our business consists exclusively of the business conducted by Brooklyn LLC. 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 Inc. (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 Inc. 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 that converted into shares of Brooklyn Inc.’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. 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 Biosciences Limited and Novellus Therapeutics Limited, which we refer to collectively as the Licensor. 29 Table of Contents The development of our product candidates could be disrupted and materially adversely affected by the continuing COVID-19 pandemic. As a result of measures imposed by the governments in affected regions, businesses and schools have been 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 slowly 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 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. 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 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. IRX‑2 is a therapy based on IL‑2, a type of cytokine-signaling molecule in the immune system. While many of the mechanisms of action of COVID-19 are still unknown, there is evidence that for some patients, severe COVID-19 patients may result in “cytokine storm syndrome,” in which the body releases cytokines into the body too quickly, which can create symptoms such as high fever, inflammation, severe fatigue and nausea and can lead to severe or life-threatening symptoms. In June 2020 the Journal of Medical Virology published a letter submitted by Wen Luo, Jia-Wen Zhang, Wei Zhang, Yuan-Long Lin and Qi Wang, supported by grants from the State Key Laboratory of Veterinary Technology, Harbin Veterinary Research Institute, stating that, based on a review of 25 patients admitted to intensive care units with a confirmed infection of COVID-19, cytokine storm of a number of interleukins, including IL‑2, was absent. The letter therefore suggested that the severity of COVID-19 symptoms is not directly associated with circulating levels of IL‑2. There can be no assurance, however, that further study will bear this out or that patients treated with IRX‑2, who are already at higher risk for COVID-19 due to their underlying diagnosis, will not be adversely affected. IRX‑2 is a primary human cell-derived biological medicinal product containing multiple active cytokine components acting as immunomodulators. It 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 principal 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 (“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 naturally derived from human blood cells. This potentially 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. Our ongoing development program is specifically investigating use of IRX‑2 in neoadjuvant (pre-surgical) and adjuvant (post-operative) treatment for advanced head and neck squamous cell carcinoma, or HNSCC. IRX‑2 has received both fast track designation and orphan drug designation from the U.S. Food and Drug Administration, or FDA, for this indication. Potential use of our product candidate in other cancer indications is also being evaluated in several investigator-sponsored trials. Finally, we are currently modifying our manufacturing process to allow us to develop additional drugs with a variety of cytokine mixtures to expand our product offerings. Our product candidate 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 HNSCC and other indications. 30 Table of Contents The HNSCC development program is being conducted under FDA Investigational New Drug #11,137 filed on June 30, 2003 and is ongoing. Potential use of IRX‑2 in other cancer indications is also being conducted by independent clinical researchers as investigator‑initiated trials. 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, though we may seek such designation in the future. 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 studies in humans involving IRX‑2 show immune marker activation in patients treated with IRX‑2. In a prior clinical trial, a correlation was shown between marker activation and disease-free survival in head and neck cancer. Our clinical pipeline of therapeutic studies focused on oncology indications of high unmet medical need includes: Monotherapy studies: • INSPIRE, a Phase 2B study involving 105 patients with HNSCC. Details of this trial can be found at clinicaltrials.gov (NCT02609386). • 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). • 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). Combination studies: • BAS-104 - A basket study originally intended to enroll 100 patients with metastatic bladder, renal, non-small cell lung cancer (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. Details of this trial can be found on clinicaltrials.gov (NCT03758781). • HCC-107 - A study involving 28 patients with metastatic hepatocellular carcinoma, HCC, being held at HonorHealth Research Institute, City of Hope Medical Center 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). • GI-106 - A study involving 20 patients with metastatic gastric and gastroesophageal junction cancers (GI) being held at HonorHealth Research Institute, City of Hope Medical Center 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). • 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). • 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 (PD1) and chemotherapy treatments. Details of this trial can be found at clinicaltrials.gov (NCT04373031). Other than the INSPIRE study, each of the studies described above is an investigator-sponsored study for which we are providing IRX‑2 as study drug and financial support to conduct the trial. 31 Table of Contents Our strategy is twofold: to rapidly advance our IRX 2 platform to become a leader in immunologic therapy for various types of cancer as both a first-line therapy and in combination with other cancer treatments, and to commercialize the gene editing technology licensed from the Licensor: • Pursue commercialization of gene-editing technology . Develop analog mRNA based technology and proprietary delivery system licensed from the Licensors for gene therapy, and cellular engineering in the treatment of indications of high unmet medical need in oncology and other conditions. • 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. • Advance combination trials with checkpoint inhibitors . Once INSPIRE trial are released, we plan to use those results as a catalyst in addition to six other clinical trials with multiple data read-outs anticipated in 2022 and later. • Pursue partnerships to advance our clinical program. We are pursuing partnering opportunities with leading biopharmaceutical companies for the development and commercialization of IRX 2. • Opportunistically in-license/acquire complementary programs. We may seek additional products to license or acquire in order to expand our product pipeline. This includes products that we may seek to develop if we exercise our option to exclusively license certain additional technology from the Licensors. • Regulatory Strategy. We believe that our assets may be deemed to be unique and to represent potential breakthroughs in cancer treatment. We will endeavor to seek breakthrough therapy designation with regulatory agencies for IRX 2 for one or more indications and for any other product we may acquire or in license that could potentially lead to accelerated clinical development timelines. We cannot, however, assure you that we will receive breakthrough therapy designation for any indications or that any breakthrough therapy designation we do receive will necessarily lead to a faster approval time. • Intellectual Property. We continue to pursue additional intellectual property based on data from IRX clinical studies. For additional information regarding our business, please see Item 8.01 of our Current Report on Form 8-K filed with the SEC on May 11, 2021. Recent Developments License Agreements with the Licensor On April 26, 2021 , Brooklyn LLC entered into an exclusive license agreement, or the License Agreement, with the Licensor to license the Licensor’s IP 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 Therapeutics Limited. The License Agreement provides that Brooklyn LLC is obligated to pay the Licensor a total of $4,000,000 in connection with the execution of the License Agreement, of which $2,500,000 has been paid and the remaining $1,500,000 is expected to be paid in July 2021. Brooklyn LLC is obligated to pay to the Licensor additional fees of $5,000,000 in October 2021 and $7,000,000 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 Licensor may have the right to terminate the rights of Brooklyn LLC under provisions of the License Agreement relating to those milestones. 32 Table of Contents The Licensor is responsible for preparing, filing, prosecuting and maintaining all patent applications and patents under the License Agreement. If, however, the Licensor determines 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 is a pre-clinical development, manufacturing, and technology licensing entity focused on engineered cellular medicines. Novellus has created, developed, and patented mRNA-based cell reprogramming and gene editing technologies to create engineered cellular medicines. The synthetic mRNA developed by Novellus is non-immunogenic—it is capable of successfully evading the immune system while being recognized by cellular processes. The synthetic mRNA is then 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 induce human pluripotent stem cells, or 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 has 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 greater 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 Agreement On April 26, 2021, we entered into a purchase agreement, or the Purchase Agreement, with Lincoln Park Capital Fund, LLC, or Lincoln Park, under which, subject to specified terms and conditions, we may sell to Lincoln Park up to $20.0 million of shares of common stock from time to time during the term of the Purchase Agreement. Additionally, on April 26, 2021, we entered into a registration rights agreement, or the Registration Rights Agreement, with Lincoln Park, pursuant to which we agreed to file a registration statement with the Securities and Exchange Commission, or the SEC, covering the resale of shares of common stock issued to Lincoln Park under the Purchase Agreement. Under the terms and subject to the conditions of the Purchase Agreement, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $20.0 million of shares of common stock. Any such sale of common stock will be subject to specified limitations and may occur from time to time, at our discretion, over a 36-month period commencing after the date that a registration statement covering the resale of shares of common stock issued under the Purchase Agreement, which we agreed to file with the SEC pursuant to the Registration Rights Agreement, is declared effective by the SEC and a final prospectus in connection therewith is filed and the other conditions set forth in the Purchase Agreement are satisfied. Lincoln Park has no right to require us to sell any common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as we direct, subject to conditions set forth in the Purchase Agreement. Upon entering into the Purchase Agreement, we issued and sold 56,041 shares of common stock, or the Commitment Shares, to Lincoln Park as consideration for Lincoln Park’s commitment to purchase up to $20.0 million shares of common stock under the Purchase Agreement. 33 Table of Contents Under the Purchase Agreement, we may elect from time to time, subject to specified conditions, to require the selling stockholder to purchase on any single business day on which the closing price of common stock is equal to or greater than $1.00, which we refer to as a Regular Purchase, (a) up to 60,000 shares of common stock, (b) if the closing sale price of common stock on the NYSE American is at least $5.50 per share, up to 80,000 shares of common stock or (c) if the closing sale price of common stock on the NYSE American is at least $7.00 per share, up to 120,000 shares of common stock. In no case, however, will the selling stockholder’s commitment with respect to any single Regular Purchase exceed $1,000,000. The foregoing share amounts and per share prices will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring after the date of the Purchase Agreement with respect to common stock. The purchase price per share for each such Regular Purchase will be based on prevailing market prices of the common stock immediately preceding the time of sale, as determined under the Purchase Agreement. In addition to Regular Purchases, we may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases on the terms and subject to the conditions set forth in the Purchase Agreement. As of May 14, 2021, we had issued and sold an aggregate of 302,358 shares of common stock to Lincoln Park pursuant to the Purchase Agreement, resulting in gross proceeds of $6.3 million. 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 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. 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, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials (required capital equipment) and allocations of various overhead costs related to our product development efforts. To date, all of our research and development resources have been devoted to the development of IRX-2, and we expect this to continue for the foreseeable future. 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 or trial’s cost before such begins and incurring additional expenditures as the study or trial progresses and reaches certain milestones. 34 Table of Contents Critical Accounting Policies and Estimates Our 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 GAAP. The preparation of these consolidated financial statements requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue and expenses during the reporting periods. We continually evaluate our judgments, estimates and assumptions. We base our estimates on the terms of underlying agreements, our expected course of development, historical experience and other factors we believe are reasonable based on the circumstances, the results of which form our management’s basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The accounting policies described below are not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP. There are also areas in which our management’s judgment in selecting any available alternative would not produce a materially different result. Our consolidated financial statements and the notes thereto included elsewhere in this report contain accounting policies and other disclosures as required by GAAP. Use of Estimates We are required under GAAP to make estimates and assumptions that affect (a) the reported amounts of assets and liabilities, (b) disclosure of contingent assets and liabilities at the date of the financial statements, (c) the reported amounts of revenues and expenses during the reporting period, and (d) the reported amount of the fair value of assets required in connection with our business combination with IRX Therapeutics, LLC in 2018. Our actual results could differ, possibly significantly, from those estimates. Cash and Cash Equivalents Cash and cash equivalents are a measure of our cash on hand and any highly liquid investments with maturity dates within the next three months. At December 31, 2020 and March 31, 2021, we had cash of $1.6 million and $8.4 million, respectively. Property and Equipment Property and equipment are recorded at cost on our balance sheets, and then are depreciated over their useful lives. Laboratory and manufacturing equipment are depreciated over an estimated 7-year life span. Leasehold improvements are depreciated over the shorter of their useful life, or the end of the lease term. When these assets are disposed of, the cost and related accumulated depreciation are removed from our balance sheet and the resulting gain or loss is recognized. In-Process Research and Development In-process research and development, or IPR&D, assets represent the fair value of the technologies acquired in connection with the business combination with IRX Therapeutics, LLC have not reached technological feasibility and likely have no alternative future use. IPR&D assets are considered to be indefinite lived until the associated research is completed or abandoned. If IPR&D assets are deemed to be indefinite, they are tested for impairment on an annual basis, or more frequently if we become aware of any events or changes that result in the fair value of these assets being decreased. In such a case, where we are able to commercialize IPR&D assets, the lives of the assets are reduced and the amounts are amortized based on the estimated useful lives beginning at that point in time. Where development is terminated or abandoned, there may be a small impairment charge related to the IPR&D assets. Research and Development Research and development expenses are charged to operations as incurred. These assets include costs related to clinical and preclinical trials such as payments to coordinators and hospitals, costs of testing and other medical procedures provided to patient test subjects, site visits, and other costs related to our clinical trials. Income Taxes We were not directly subject to federal, state or local income taxes through December 31, 2018, as any tax liability was passed on to our members. In the year ended December 31, 2019, we recorded taxable income related to the New York City Unincorporated Business Tax. We expect this to continue in the future. The benefits from uncertain tax positions are recognized only if it is more likely than not that the position will be sustained upon examination by local, state or federal taxing authorities. Any tax benefits recognized in our financial statements are measured based on the largest benefit that has at least a 50% likelihood of being realized. At this time, we have no material uncertain tax positions for any recording period. 35 Table of Contents Results of Operations Comparison of Three Months Ended March 31, 2021 and 2020 For the three months ended March 31, 2021 2020 Change $ Change % Operating Expenses: Research and development $ 1,519,633 $ (38,971 ) 1,558,604 -3999 % General and administrative 1,636,557 1,053,505 583,052 55 % Transaction costs 5,765,407 - 5,765,407 N/A Change in fair value of contingent consideration (820,000 ) - (820,000 ) N/A Total operating expenses 8,101,597 1,014,534 Loss from operations (8,101,597 ) (1,014,534 ) Other Expenses: Other expense, net (2,564 ) (4,678 ) 2,114 -45 % Loss on sales of NTN assets (9,598,173 ) - (9,598,173 ) N/A Total other expenses (9,600,737 ) (4,678 ) Net loss attributable to common stockholders $ (17,702,334 ) $ (1,019,212 ) Revenues We had no revenues for the three months ended March 31, 2021 or 2020. General and Administrative Expenses General and administrative expenses include corporate and office expenses, legal, accounting and consulting fees, and travel expenses. Our general and administrative expenses increased due to additional fees for professional and legal fees associated with the Merger. We expect general and administrative expenses to increase in future periods as we increase our business activities following completion of the Merger and incur costs associated with being a publicly traded company. Research and Development Expenses Research and development expenses in 2021 relate to the support of our investigator-sponsored studies. Expenses related to our research and development activities increased during the three months ended March 21, 2021 when compared against the same period in 2020 due to stock-based compensation modification for the conversion of common units into common shares and increase in clinical trials for new trial initiation. We expect research and development expenses to grow as we expand our clinical trial activities. Transaction Costs There were no transaction costs for the three months ended March 31, 2020. For the three months ended March 31, 2020, transaction costs related to the issuance of common stock to our financial advisor upon consummation of the Merger. Change in Fair Value of Contingent Consideration Change in fair value of contingent consideration was $820,000 for the three months ended March 31, 2021 and $0 for the three months ended March 31, 2020. Other Expense, Net Other expense, net for the three months ended March 31, 2021 and 2020 mainly related to payments of interest on notes in the principal amount of $410,000 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. Loss on Sales of NTN Assets Loss on sales of NTN assets for the three months ended March 31, 2021 was incurred when we completed the Asset Sale. 36 Table of Contents Liquidity and Capital Resources Since our inception, we have financed our operations primarily with capital calls to our members. At March 31, 2021, we had cash and cash equivalents of $8.4 million principally derived from contributions by our members. 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 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 through the first quarter of 2022. 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, 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 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 • As a condition to the closing of the Merger, we were 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 our members entered into agreements pursuant to which those members purchased units of Brooklyn LLC for an aggregate purchase price of $10.5 million. • On April 26, 2021, we entered into the Purchase Agreement under which, subject to specified terms and conditions, we may sell to Lincoln Park up to $20.0 million of shares of common stock from time to time during the term of the Purchase Agreement. As of May 14, 2021, we had issued and sold an aggregate of 302,358 shares of common stock to Lincoln Park pursuant to the Purchase Agreement, resulting in gross proceeds of $6.3 million. For further information, see “—Recent Developments—Purchase Agreement.” Asset Sale . On March 26, 2021, we completed the Asset Sale, 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. 37 Table of Contents Brooklyn PPP Loan . On March 27, 2020, then-President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, as amended on June 5, 2020 by the Paycheck Protection Program, or PPP. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carry back periods, and alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. On May 4, 2020, we were granted a loan from Silicon Valley Bank, which we refer to as the Brooklyn PPP Loan, in the aggregate amount of $309,905, pursuant to the PPP under Division A, Title I of the CARES Act. The Brooklyn PPP Loan, which was in the form of a Note we issued as of May 4, 2020, matures on May 5, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing on November 4, 2020. We may prepay the Note at any time prior to maturity, with no prepayment penalties. Funds from the Brooklyn PPP Loan may only be used for payroll costs, rent and utilities. We are using the funds received from the Brooklyn PPP Loan for what we believe are qualifying expenses. Under the terms of the Brooklyn PPP Loan, certain amounts of the Brooklyn PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. Uses of Funds Net Cash Used in Operating Activities . Our operations used $3,429,927 million in the three months ended March 31, 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 $486,000 per annum for our facilities in Brooklyn, New York, where we have our offices and manufacturing operations, subject to annual increases and to a sharing of common area expenses with other tenants in the building. The lease expires on December 31, 2025. NTN PPP Loan . On April 18, 2020, NTN Buzztime, Inc. was granted a loan, which we refer to as the NTN PPP Loan, in the aggregate amount of $1,625,000, pursuant to the PPP under the CARES Act. Under the terms of the NTN Loan, certain amounts of the NTN 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 NTN PPP Loan, leaving a principal balance of $532,000, all of which, plus accrued and unpaid interest, was due and, in accordance with the terms of the agreement and plan of merger and reorganization for the Merger, paid by us upon the closing of the Merger. Recent Accounting Pronouncements A discussion of recent accounting pronouncements is included in Note 3 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Under SEC rules and regulations, as a smaller reporting company we are not required to provide the information otherwise required by this item.