Ernexa Therapeutics Inc. 10-K

ITEM 9A. Controls and Procedures Disclosure Controls and Procedures We maintain “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act 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 Annual Report on Form 10-K 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. Based on that evaluation, our Chief Executive Officer and Vice President of Finance concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Annual Report on Form 10-K in providing reasonable assurance of achieving the desired control objectives due primarily to a material weakness discussed below. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Vice President of Finance, we conduct an annual evaluation of the effectiveness of our internal control over financial reporting based on the guidelines established by the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. If management identifies any material weakness in the course of that evaluation, management cannot conclude that our internal controls over financial reporting are effective. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. 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 December 31, 2021, our disclosure controls and procedures were not effective and did not provide reasonable assurance of achieving the desired control objectives. 70 Table of Contents Management’s Plan for Material Weakness in Internal Control over Financial Reporting Management plans to implement measures designed to ensure that the deficiencies contributing to the ineffectiveness of our disclosure controls and procedures are promptly remediated, such that the controls and procedures are designed, implemented and operating effectively. The remediation actions planned include: • hiring additional accounting personnel in a number, and with experience, to allow for proper segregation of duties; and • 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. 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 hired a full-time controller at the beginning of 2022. Also, during the fourth quarter of 2021, we engaged a third-party consulting firm with expertise in implementing the framework for internal controls over financial reporting, and we currently developing this framework. 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 most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. Other Information Not Applicable. ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not Applicable. 71 Table of Contents PART III The information required in Item 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related Transactions, and Director Independence), and Item 14 (Principal Accounting Fees and Services) is incorporated by reference to the Company’s definitive proxy statement for the 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of December 31, 2021. 72 Table of Contents PART IV ITEM 15. Exhibits, Financial Statement Schedules (a) The following documents are filed as a part of this Annual Report on Form 10-K: (1) Consolidated Financial Statements. The consolidated financial statements of the Company and its consolidated subsidiaries are set forth in the “Index to Consolidated Financial Statements” on page F-1. (2) Financial Statement Schedules. None (3) Exhibits. The following exhibits are submitted with this Annual Report on Form 10-K or, where indicated, incorporated by reference to other filings. Exhibit Description Incorporated By Reference 2.1(b) Agreement and Plan of Merger and Reorganization, dated August 12, 2020, among NTN Buzztime, Inc., BIT Merger Sub, Inc. and Brooklyn Immunotherapeutics LLC Annex A to the proxy statement/prospectus/consent solicitation statement forming a part of the S-4 Registration Statement filed on January 20, 2021 2.2(b) 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. Exhibit to Form 8-K filed on July 19, 2021 3.1 Restated Certificate of Incorporation Exhibit to Form 10-Q filed on August 14, 2013 3.2 Certificate of Amendment to the Restated Certificate of Incorporation (reverse/forward split) Exhibit to Form 8-K filed on June 17, 2016 3.3 Certificate of Decrease of the Series A Convertible Preferred Stock Exhibit to Form 8-K filed on April 12, 2017 3.4 Certificate of Amendment to the Restated Certificate of Incorporation (decrease in authorized capital stock) Exhibit to Form 8-K filed on June 9, 2017 3.5 Certificate of Amendment to Restated Certificate of Amendment, dated March 25, 2021 (Reverse Stock Split) Exhibit to Form 8-K filed on March 31, 2021 3.6 Certificate of Amendment to Restated Certificate of Amendment, dated March 25, 2021 (Authorized Share Increase) Exhibit to Form 8-K filed on March 31, 2021 3.7 Certificate of Amendment to Restated Certificate of Amendment, dated March 25, 2021 (Name Change) Exhibit to Form 8-K filed on March 31, 2021 3.8 Certificate of Validation of Brooklyn ImmunoTherapeutics, Inc., as filed with the Secretary of State of the State of Delaware on September 3, 2021 Exhibit to Form 8-K filed on September 13, 2021 3.9 Amended and Restated Bylaws of Brooklyn ImmunoTherapeutics, Inc. Exhibit to Form 8-K filed on September 23, 2021 4.1 Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 Filed herewith 10.1 Registration Rights Agreement, dated as of April 26, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Lincoln Park Capital Fund, LLC Exhibit to Form 8-K filed on April 30, 2021 10.2 Registration Rights Agreement, dated as of May 26, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Lincoln Park Capital Fund, LLC Exhibit to Form 8-K filed on May 26, 2021 10.3 Registration Rights Agreement, dated as of July 16, 2021, by and among Brooklyn ImmunoTherapeutics, Inc. and the individuals and entities named therein. Exhibit to Form 8-K filed on July 19, 2021 10.4 Amended and Restated Royalty Agreement and Distribution Agreement, dated March 22, 2021. Exhibit to Form 8-K filed on March 31, 2021 10.5 (a) Assignment and Assumption of Employment Agreement dated March 30, 2021 among Brooklyn ImmunoTherapeutics, LLC, Brooklyn ImmunoTherapeutics, Inc. and Ronald Guido . Exhibit to Form 8-K filed on March 31, 2021 73 Table of Contents 10.6 (a) Assignment and Assumption of Employment Agreement dated March 30, 2021 among Brooklyn ImmunoTherapeutics, LLC, Brooklyn ImmunoTherapeutics, Inc. and Lynn Sadowski Mason. Exhibit to Form 8-K filed on March 31, 2021 10.7 (a) Executive Employment Agreement, dated as of April 1, 2021 and effective as of April 16, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Howard J. Federoff. Exhibit to Form 8-K filed on April 7, 2021 10.8 (a) Executive Employment Agreement, dated as of June 5, 2021 and effective as of June 28, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Kevin D’Amour. Exhibit to Form 8-K filed on June 10, 2021 10.9 (a) Executive Employment Agreement, dated as of June 16, 2021 and effective as of June 21, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Sandra Gurrola. Exhibit to Form 8-K filed on June 21, 2021 10.10 (a) Executive Employment Agreement, dated as of July 6, 2021 and effective as of July 15, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Jay Sial. Exhibit to Form 8-K filed on July 19, 2021 10.11 (a) Executive Employment Agreement, effective as of September 20, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Roger Sidhu. Exhibit to Form 8-K filed on September 23, 2021 10.12 Form of Indemnification Agreement Exhibit to Form 8-K filed on April 16, 2021 10.13 Purchase Agreement, dated as of April 26, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Lincoln Park Capital Fund, LLC Exhibit to Form 8-K filed on April 30, 2021 10.14 Purchase Agreement, dated as of May 26, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Lincoln Park Capital Fund, LLC Exhibit to Form 8-K filed on May 26, 2021 10.15 Exclusive License Agreement, dated as of April 26, 2021, between Factor Bioscience Limited, Novellus Therapeutics Limited and Brooklyn ImmunoTherapeutics LLC Exhibit to Form 8-K filed on April 30, 2021 10.16 (a) Brooklyn ImmunoTherapeutics, Inc. 2021 Inducement Stock Incentive Plan Exhibit to Form 8-K filed on May 26, 2021 10.17 (a) Brooklyn ImmunoTherapeutics, Inc. Restated 2020 Stock Incentive Plan Exhibit to Form 8-K filed on September 13, 2021 10.18 (c) Lease Agreement, made as of September 28, 2015, between Biobat, Inc. and IRX Therapeutics, LLC Exhibit to Form S-4/A filed on November 25, 2020 10.19 First Amendment to Lease Agreement, dated September 28, 2015 Exhibit to Form S-4/A filed on November 25, 2020 10.20 (c) Assignment and Assumption of Lease, made by and between IRX Therapeutics, LLC and Brooklyn, and consented to by Biobat, Inc., as landlord Exhibit to Form S-4/A filed on November 25, 2020 10.21 Second Amendment to Lease Agreement, dated July 24, 2019 Exhibit to Form S-4/A filed on November 25, 2020 10.22 (c) Sublease Agreement, dated April 18, 2019, between Brooklyn and Nezu Asia Capital Management, LLC Exhibit to Form S-4/A filed on November 25, 2020 10.23 Consent to Sublease and Agreement, dated as of May 18, 2019, among 654 Madison Avenue Associates LP, Brooklyn, and Nezu Asia Capital Management, LLC Exhibit to Form S-4/A filed on November 25, 2020 10.24 Commencement Date Confirmation Agreement, made as of June 27, 2019, among Brooklyn and Nezu Asia Capital Management, LLC. Exhibit to Form S-4/A filed on November 25, 2020 10.25 Lease Agreement dated June 15, 2021 between Brooklyn ImmunoTherapeutics, Inc. and Fairlane Columbia, LLC Filed herewith 21.1 Subsidiaries of the Company. Filed herewith. 23.1 Consent of the Independent Registered Accounting Firm. Filed herewith 74 Table of Contents 31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Furnished herewith 32.2 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Furnished herewith 101.INS 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). Filed herewith 101.SCH Inline XBRL Taxonomy Extension Schema Document Filed herewith 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Filed herewith 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Filed herewith 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). (a) Indicates management contract or compensatory plan. (b) Pursuant to Item 601(b)(2) of Regulation S-K, portions of this exhibit have been omitted because the Company customarily and actually treats the omitted portions as private or confidential, and such portions are not material and would likely cause competitive harm to the Company if publicly disclosed. The Company will supplementally provide a copy of an unredacted copy of this exhibit to the U.S. Securities and Exchange Commission or its staff upon request. (c) Certain identified information has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed. ITEM 16. Form 10-K Summary None. 75 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized . BROOKLYN IMMUNOTHERAPEUTICS, INC. Date: A pril 15, 2022 By: /s/ Howard J. Federoff Howard J. Federoff Chief Executive Officer and President (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Name Title Date /s/ Howard J. Federoff Chief Executive Officer, President and Member of the Board (Principal Executive Officer) A pril 15, 2022 Howard J. Federoff /s/ Sandra Gurrola Vice President of Finance (Principal Financial and Accounting Officer) A pril 15, 2022 Sandra Gurrola /s/ Charles Cherington Chairman of the Board A pril 15, 2022 Charles Cherington /s/ Dennis H. Langer Member of the Board A pril 15, 2022 Dennis H. Langer /s/ Erich Mohr Member of the Board A pril 15, 2022 Erich Mohr /s/ Heather B. Redman Member of the Board A pril 15, 2022 Heather B. Redman /s/ Erin S. Enright Member of the Board A pril 15, 2022 Erin S. Enright 76 Table of Contents BROOKLYN IMMUNOTHERAPEUTICS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 688 ) F-2 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2021 and 2020 F-3 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2021 and 2020 F-4 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021 and 2020 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 F-6 Notes to the Consolidated Financial Statements F-7 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders, Members and Board of Directors of Brooklyn ImmunoTherapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Brooklyn ImmunoTherapeutics, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ and members’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2 . The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Change in Accounting Principle As discussed in Notes 3 and 7 to the financial statements, the Company has changed its method of accounting for leases in 2020 due to the adoption of the guidance in ASC Topic 842, Leases (“Topic 842”). Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. F-2 Fair Value of Contingent Consideration Description of the Matter As discussed in Note 5 to the financial statements, contingent consideration is recorded at fair value at the transaction date and subsequently revalued each reporting period, with changes in the fair value recognized within the statement of operations. As of and for the year ended December 31, 2021, management recorded a contingent consideration liability of $19.9 million and change in fair value of $0.2 million. Management utilized a third-party valuation specialist to assist in estimating the contingent consideration fair value using the income approach, and the discounted cash flows were used to estimate the expected royalty payments to third parties. Auditing management’s estimated fair value of contingent consideration is highly subjective and judgmental as the assumptions used in the fair value measurement, including the discount rate, the amount and timing of cash flows, and the forecast of future product sales, are all based on significant inputs not observable in the market. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures related to the fair value of contingent consideration and the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained. How we Addressed the Matter in Our Audit With the assistance of our valuation specialists, our audit procedures included, amongst others: • We obtained an understanding of management’s process in regards to the methodology used and the factors considered around the inputs, sources of data used and assumptions and estimates made in determining the fair value of contingent consideration, including those over management’s review of its third-party specialist valuation report. • We tested the completeness and accuracy of the data used in the discounted cash flow model. • We evaluated the appropriateness of the discounted cash flow model. • We performed a sensitivity analysis on the discount rate used in the discounted cash flow model to determine the impact rate changes could have on the fair value. /s/ Marcum llp Marcum LLP We are uncertain as to the year we began serving consecutively as the auditor of the Company’s financial statements; however, we are aware that we have been the Company’s auditor consecutively since at least 2013. New York, NY April 15, 2022 F-2 Table of Contents BROOKLYN IMMUNOTHERAPEUTICS, INC. AND SUBSDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except par value amount) December 31, 2021 December 31, 2020 ASSETS Current assets: Cash $ 16,985 $ 1,630 Accounts receivable 684 - Prepaid expenses and other current assets 1,097 102 Total current assets 18,766 1,732 Property and equipment, net 670 594 Right-of-use assets - operating leases 2,567 2,093 Goodwill 2,044 2,044 In-process research and development 6,860 6,860 Investment in minority interest 1,000 - Security deposits and other assets 522 453 Total assets $ 32,429 $ 13,776 LIABILITIES AND STOCKHOLDERS’ AND MEMBERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 1,755 $ 1,275 Accrued expenses 1,249 1,051 Loans payable - 410 PPP loan, current - 116 Operating lease liabilities, current 426 273 Other current liabilities 247 - Total current liabilities 3,677 3,125 Contingent consideration 19,930 20,110 Operating lease liabilities, non-current 2,297 1,905 PPP loan, non-current - 194 Other liabilities 23 23 Total liabilities 25,927 25,357 Stockholders’ and members’ equity (deficit): Class A membership units - 23,202 Class B membership units - 1,400 Class C membership units - 1,000 Common units - 198 Series A preferred stock, $ 0.005 par value, $ 156 liquidation preference, 156 shares authorized, issued and outstanding at December 31, 2021; no shares issued and outstanding at December 31, 2020. 1 - Common stock, $ 0.005 par value, 100,000 shares authorized, 52,021 issued and outstanding at December 31, 2021 ; no shares issued and outstanding at December 31, 2020 . 260 - Additional paid-in capital 165,944 - Accumulated deficit ( 159,703 ) ( 37,381 ) Total stockholders’ and members’ equity (deficit) 6,502 ( 11,581 ) Total liabilities and stockholders’ and members’ equity (deficit) $ 32,429 $ 13,776 The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of Contents BROOKLYN IMMUNOTHERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Years ended December 31, 2021 2020 Operating expenses: Research and development $ 12,705 $ 3,951 Acquired in-process research and development 80,538 - General and administrative 14,724 3,297 Transaction costs 5,765 - Change in fair value of contingent consideration ( 180 ) 19,240 Total operating expenses 113,552 26,488 Loss from operations ( 113,552 ) ( 26,488 ) Other expenses: Loss on sale of NTN assets ( 9,648 ) - Other income (expense), net 899 ( 43 ) Total other expenses, net ( 8,749 ) ( 43 ) Loss before income taxes ( 122,301 ) ( 26,531 ) Provision for income taxes ( 5 ) - Net loss ( 122,306 ) ( 26,531 ) Series A preferred stock dividend ( 16 ) - Net loss attributable to common stockholders $ ( 122,322 ) $ ( 26,531 ) Net loss per common share - basic and diluted $ ( 2.82 ) $ ( 1.51 ) Weighted average shares outstanding - basic and diluted 43,306 17,588 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents BROOKLYN IMMUNOTHERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ AND MEMBERS’ EQUITY (DEFICIT) For the years ended December 31, 2021 and 2020 (In thousands) Membership Equity Common Stock Series A Preferred Stock Additional Paid-in Accumulated Class A Class B Class C Common Shares Amount Shares Amount Capital Deficit Total Balances at January 1, 2021 $ 23,202 $ 1,400 $ 1,000 $ 198 - $ - - $ - $ - $ ( 37,381 ) $ ( 11,581 ) Brooklyn rights offerings membership units 10,500 - - - - - - - - - 10,500 Elimination of Brooklyn’s historical members’ equity ( 33,702 ) ( 1,400 ) ( 1,000 ) ( 198 ) - - - - 36,300 - - Common stock to be retained by NTN stockholders - - - - 1,514 8 - - 8,170 - 8,178 Issuance of Series A preferred stock retained by NTN stockholders - - - - - - 156 1 ( 1 ) - - Issuance of common stock to Brooklyn members - - - - 38,924 195 - - ( 195 ) - - Issuance of common stock to Financial Advisor upon consummation of merger - - - - 1,068 5 - - 5,760 - 5,765 Issuance of common stock from the exercise of stock options - - - - 1 - - - 10 - 10 Issuance of common stock related to stock purchase agreement with Lincoln Park Capital Fund, LLC, net - - - - 3,552 17 - - 52,008 - 52,025 Issuance of common stock in connection with the acquisition of Novellus, Inc. - - - - 7,022 35 - - 58,649 - 58,684 Cash dividends to Series A preferred stockholders - - - - - - - - - ( 8 ) ( 8 ) Issuance of common stock in lieu of cash dividend to Series A preferred stockholders - - - - - - - - 8 ( 8 ) - Forfeiture of unvested restricted stock - - - - ( 60 ) - - - - - - Stock based compensation - - - - - - - - 5,235 - 5,235 Net loss - - - - - - - - - ( 122,306 ) ( 122,306 ) Balances at December 31, 2021 $ - $ - $ - $ - 52,021 $ 260 156 $ 1 $ 165,944 $ ( 159,703 ) $ 6,502 Membership Equity Accumulated Class A Class B Class C Common Deficit Total Balances at January 1, 2020 $ 18,178 $ 1,400 $ 1,000 $ 107 $ ( 10,942 ) $ 9,743 Implementation of new accounting principle - - - - 92 92 Stock based compensation - - - 91 - 91 Sale of members’ equity 5,024 - - - - 5,024 Net loss - - - - ( 26,531 ) ( 26,531 ) Balances at December 31, 2020 $ 23,202 $ 1,400 $ 1,000 $ 198 $ ( 37,381 ) $ ( 11,581 ) The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents BROOKLYN IMMUNOTHERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For years ended December 31, 2021 2020 Cash flows used in operating activities: Net loss $ ( 122,306 ) $ ( 26,531 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 117 98 Stock-based compensation 5,235 91 Amortization of right-to-use asset 342 - Transaction costs - shares to Financial Advisor 5,765 - Loss on sale of NTN assets 9,648 - Loss on disposal of fixed assets 13 - Gain on forgiveness of PPP loan ( 310 ) - Acquired in-process research and development 80,538 - Change in fair value of contingent consideration ( 180 ) 19,240 Changes in operating assets and liabilities: Account receivable ( 659 ) - Prepaid expenses and other current assets ( 850 ) ( 16 ) Security deposits and other non-current assets ( 34 ) ( 90 ) Accounts payable and accrued expenses ( 485 ) ( 930 ) Operating lease liability ( 322 ) 12 Other liabilities - 25 Net cash used in operating activities ( 23,488 ) ( 8,101 ) Cash flows used in investing activities: Purchase of property and equipment ( 154 ) ( 39 ) Purchase of NTN, net of cash acquired 147 - Purchase of Novellus, net of common stock issued and cash acquired ( 22,854 ) - Proceeds from the sale of NTN assets, net of cash disposed 119 - Net cash used in investing activities ( 22,742 ) ( 39 ) Cash flows provided by financing activities: Net proceeds of common stock issued to Lincoln Park 52,025 - Proceeds from sale of members’ equity 10,500 4,359 Proceeds from the exercise of stock options 10 - Proceeds from loans payable - 310 Repayment of NTN’s PPP loan ( 532 ) - Principal payments on notes payable ( 410 ) - Dividends paid to Series A preferred shareholders ( 8 ) - Net cash provided by financing activities 61,585 4,669 Net increase (decrease) in cash and cash equivalents 15,355 ( 3,471 ) Cash and cash equivalents at beginning of period 1,630 5,101 Cash and cash equivalents at end of period $ 16,985 $ 1,630 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 225 $ - Income taxes $ 1 $ - Supplemental disclosure of non-cash investing and financing activities: Issuance of common stock for Series A preferred stock dividend $ 8 $ - Issuance of common stock for business combination $ 8,178 $ - Issuance of common Stock for Novellus acquisition $ 58,684 $ - Forfeiture of unvested restricted stock $ - $ - Preferred shares issued in connection with reverse merger $ 1 $ - Initial measurement of ROU assets, net of tenant improvement allowance $ 816 $ - Initial measurement of operating lease liabilities $ 866 $ - Investor deposits for sale of members’ equity $ - $ 666 Right of use assets obtained in exchange for new operating lease liabilities $ - $ 2,093 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents BROOKLYN IMMUNOTHERAPEUTICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2021 and 2020 1) Organization and Description of Business Operations Brooklyn ImmunoTherapeutics Inc., a Delaware corporation (“Brooklyn” or the “Company”), together with its subsidiaries including Brooklyn ImmunoTherapeutics LLC (“Brooklyn LLC”), Novellus, Inc. (“Novellus”) and Novellus Therapeutics, Ltd. (“Novellus, Ltd.”), is a clinical stage biopharmaceutical company focused on exploring the role that cytokine, gene editing and cell therapy can have in treating patients with cancer, blood disorders and monogenic diseases. As used herein, the “Company” refers collectively to Brooklyn and its subsidiaries. On August 12, 2020, Brooklyn (then known as “NTN Buzztime, Inc.”), Brooklyn LLC and BIT Merger Sub, Inc., a wholly owned subsidiary of Brooklyn (the “Merger Sub”), entered into an agreement and plan of merger and reorganization (the “Merger Agreement”) pursuant to which, among other matters, Merger Sub merged with and into Brooklyn LLC, with Brooklyn LLC continuing as a wholly owned subsidiary of Brooklyn and as the surviving company of the merger (the “Merger”). The Merger closed on March 25, 2021. After the Merger, Brooklyn changed its name from “NTN Buzztime, Inc.” to “Brooklyn ImmunoTherapeutics, Inc.” The Merger was accounted for as a reverse acquisition, in which Brooklyn LLC was deemed the acquiring company for accounting purposes. On March 26, 2021, Brooklyn sold (the “Disposition”) its rights, title and interest in and to the assets relating to the business operated under the name “NTN Buzztime, Inc.” prior to the Merger to eGames.com Holdings LLC (“eGames.com”) in accordance with the terms of an asset purchase agreement dated September 18, 2020, as amended, between Brooklyn and eGames.com (the “Asset Purchase Agreement”). (See Note 4.) On July 16, 2021, Brooklyn and its newly formed, wholly owned subsidiary Brooklyn Acquisition Sub, Inc. entered into an agreement and plan of acquisition (the “Acquisition Agreement”) with (a) Novellus LLC, (b) Novellus (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 (the “Acquisition”), pursuant to which Brooklyn acquired Novellus and its subsidiary, Novellus, Ltd. As part of the Acquisition, Brooklyn also acquired 25.0 % of the total outstanding equity interests of NoveCite, Inc. (“NoveCite”), a corporation focused on developing an allogeneic mesenchymal stem cell product for patients with acute respiratory distress syndrome, including from COVID-19. (See Note 4.) 2) Liquidity and Capital Resources The Company has incurred significant operating losses and has an accumulated deficit as a result of ongoing efforts to develop product candidates, including conducting clinical trials and providing general and administrative support for these operations. As of December 31, 2021, the Company had a cash balance of approximately $ 16,985,000 and an accumulated deficit of approximately $ 159,703,000 . For the year ended December 31, 2021, the Company incurred a net loss of $ 122,306,000 and the Company used cash in operating activities of $ 23,488,000 (inclusive of $ 80,538,000 IPR&D expense related to the Acquisition, $ 9,648,000 related to the loss on sale of assets in the Disposition and $ 180,000 related to the change in fair value of contingent consideration). On April 26, 2021, Brooklyn entered into a common stock purchase agreement (the “First Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), which provided that Brooklyn could offer to Lincoln Park up to an aggregate of $ 20,000,000 of common stock over a 36 -month period commencing after May 10, 2021, the date that a registration statement covering the resale of shares of common stock issued under the First Purchase Agreement was declared effective by the SEC. As of December 31, 2021, Brooklyn had issued and sold an aggregate of approximately 1,128,000 shares of common stock to Lincoln Park pursuant to the First Purchase Agreement, resulting in gross proceeds of $ 20,000,000 . F-7 Table of Contents On May 26, 2021, Brooklyn entered into a second common stock purchase agreement (the “Second Purchase Agreement”) with Lincoln Park, which provides that Brooklyn may offer to Lincoln Park up to an aggregate of $ 40,000,000 of common stock over a 36 -month period commencing after June 4, 2021, the date that a registration statement covering the resale of shares of common stock issued under the Second Purchase Agreement was declared effective by the SEC. As of December 31, 2021, Brooklyn had issued and sold an aggregate of approximately 2,424,000 shares of common stock to Lincoln Park pursuant to the Second Purchase Agreement, resulting in gross proceeds of approximately $ 34,106,000 . On July 16, 2021, Brooklyn used approximately $ 22,854,000 of cash, net of cash acquired, as part of the purchase price of the Acquisition. Brooklyn issued common stock as the remaining portion of the purchase price of the Acquisition. On March 9, 2022, we consummated a private placement of equity resulting in net proceeds of approximately $ 11 million. See Note 17 for details. In connection with preparing its financial statements as of and for the year ended December 31, 2021, the Company’s management concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern because it does not expect to have sufficient cash or working capital resources to fund operations for the twelve-month period subsequent to the issuance date of these financial statements. The Company will need to raise additional capital, which could be through the remaining availability under the Second Purchase Agreement (to the extent the Company is permitted to use such agreement), public or private equity offerings, debt financings, corporate collaborations or other means. The Company may also seek governmental grants to support our clinical trials and preclinical trials.. The Company currently has no arrangements for such capital and no assurances can be given that it will be able to raise such capital when needed, on acceptable terms, or at all. The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern. 3) Basis of Accounting Presentation and Summary of Significant Accounting Policies Basis of Accounting Presentation The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). All significant intercompany balances and transactions have been eliminated in consolidation. As described above, the Merger closed on March 25, 2021. The Merger was accounted for as a reverse acquisition, in which Brooklyn LLC was deemed the acquiring company for accounting purposes. Brooklyn LLC’s historical financial statements have replaced Brooklyn’s historical financial statements with respect to periods prior to the completion of the Merger (when Brooklyn operated under the name “NTN Buzztime, Inc.”). The Company retrospectively adjusted the weighted average shares used in determining loss per common share to reflect the conversion of the outstanding Class A units, Class B units, Class C units, and common units of Brooklyn LLC that converted into shares of Brooklyn’s common stock upon the Merger and to reflect the effect of a 2-to-1 reverse stock split of Brooklyn’s common stock that occurred immediately prior to the Merger. Also as described above, the Acquisition closed on July 16, 2021. The Acquisition was accounted for as an asset acquisition, and substantially all of the value was attributed to in-process research and development (“IPR&D”), with the exception of the cash paid for the investment in NoveCite, which is being accounted for as an investment in equity securities. The IPR&D had no alternative future uses and no separate economic value from its originally intended purpose and was therefore expensed in the period the cost was incurred. F-7 Table of Contents Summary of Significant Accounting Policies Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management 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 consolidated 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 acquired in connection with business combinations. Actual results could differ from those estimates. The Company’s significant estimates and assumptions include the recoverability and useful lives of long-lived assets and the contingent consideration liability. Cash and Cash Equivalents The Company classifies highly liquid investments with a remaining contractual maturity at date of purchase of three months or less as cash equivalents. The Company had no cash equivalents as of December 31, 2021 or 2020. Property and Equipment Property and equipment are recorded at cost and are depreciated over their estimated useful lives using the straight-line method. Laboratory and manufacturing equipment are depreciated over an estimated useful life of seven years . Leasehold improvements are depreciated over the shorter of their estimated useful life, or the lease term. Computer equipment are depreciated over an estimated useful life of three years . Upon retirement or other disposition of these assets, the cost and related accumulated depreciation of these assets are removed from the accounts and the resulting gain or losses are reflected in the results of operations. Expenditures for maintenance and repairs are charged to operations. Renewals and betterments are capitalized. Goodwill Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in the acquisition of IRX Therapeutics, Inc. in November 2018 (the “IRX Acquisition”), which was accounted for as a business combination. Goodwill is not amortized but is tested for impairment annually, or if events occur or circumstances change that would reduce the fair value of a reporting unit below its carrying value. Because management evaluates the Company as a single reporting unit, goodwill is tested for impairment at the entity level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the entity is less than its carrying value. Such qualitative factors include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events. If the entity does not pass the qualitative assessment, then the entity’s carrying value is compared to its fair value. Goodwill is considered impaired if the carrying value of the entity exceeds its fair value. IPR&D IPR&D assets represent the fair value assigned to technologies that were acquired in connection with the IRX Acquisition, which have not reached technological feasibility and have no alternative future use. IPR&D assets are considered to be indefinite lived until the completion or abandonment of the associated research and development projects. During the period that the IPR&D assets are considered indefinite-lived, they are tested for impairment on an annual basis, or more frequently if the Company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the IPR&D assets are less than their carrying amounts. If and when development is complete, which generally occurs upon regulatory approval, and the Company is able to commercialize products associated with the IPR&D assets, these assets are then deemed definite-lived and are amortized based on their estimated useful lives beginning at that point in time. If development is terminated or abandoned, the Company may have a full or partial impairment charge related to the IPR&D assets, calculated as the excess of carrying value of the IPR&D assets over fair value. F-8 Table of Contents Impairment of Long-Lived Assets The Company reviews long-lived assets and certain identifiable assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. An impairment exists when the carrying value of the long-lived asset is not recoverable and exceeds its fair value. For the years ended December 31, 2021 and 2020, there were no qualitative factors that indicated it was more likely than not that the fair value of the long-lived assets exceeded the carrying value. Research and Development The Company expenses its research and development costs as incurred. 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 (as opposed to a business combination) 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, expensed IPR&D, 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, the Company contracts 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. The Company anticipates paying significant portions of a study’s or trial’s cost before they begin and incurring additional expenditures as the study or trial progresses and reaches certain milestones. Income Taxes The Company records deferred tax liabilities and assets based on the differences between the consolidated financial statements carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse and established a valuation allowance when it was more likely than not that some portion or all of the deferred tax assets would not be realized. Income tax expense consists of the tax payable for the period and the change during the period in deferred tax assets and liabilities. Tax benefits from uncertain tax positions are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company has no material uncertain tax positions for any of the reporting periods presented. Earnings Per Share Basic and diluted loss per common share have been computed by dividing the losses applicable to common stock by the weighted average number of common shares outstanding. The Company’s basic and fully diluted earnings per share (“EPS”) calculation are the same since the increased number of shares that would be included in the diluted calculation from assumed exercise of common stock equivalents would be anti-dilutive to the net loss in each of the years shown in the consolidated financial statements. F-9 Table of Contents Segment Reporting In accordance with ASC No. 280, Segment Reporting , the Company has determined that it operates as one operating segment. Decisions regarding the Company’s overall operating performance and allocation of its resources are assessed on a consolidated basis. Concentration of Credit Risk The Company maintains its cash balances in financial institutions located in the United States. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At times, the Company’s cash balances may be uninsured for deposit accounts that exceed the FDIC insurance limit. In the Company’s business, vendor concentrations could be indicative of vulnerabilities in the Company’s supply chain, which could ultimately impact the Company’s ability to continue its research and development activities. For the years ended December 31, 2021 and 2020, there was no vendor concentration related to the Company’s research and development activities. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between willing market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: • Level 1 Inputs – Valued based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. • Level 2 Inputs – Valued based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. • Level 3 Inputs – Valued based on inputs for which there is little or no market value, which require the reporting entity to develop its own assumptions. The carrying amounts reported on the balance sheet for cash and cash equivalents, accounts receivable, prepaid assets and other current assets, accounts payable and accrued expenses, other current liabilities and other liabilities approximate fair value based due to their short maturities. The carrying value of loans payable approximates its fair market value because the effective yield on this debt, which includes contractual interest rates as well as other finance charges, is comparable to rates of returns for instruments of similar credit risk. Leases The Company adopted ASC Topic 842, Leases, on December 31, 2020 using the modified transition method without retrospective application to comparative periods. The Company elected the package of three practical expedients allowed for under the transition guidance. Accordingly, the Company did not reassess: (1) whether any expired or existing contracts are/or contain leases; (2) the lease classification for any expired or existing leases; or (3) initial direct costs for any existing leases. The Company has also elected not to recognize right-of-use assets (“ROU assets”) and lease liabilities for short-term leases that have a term of 12 months or less. Operating lease liabilities represent the present value of lease payments not yet paid. ROU assets represent the Company’s right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepaid or accrued lease payments, initial direct costs, lease incentives and impairment of operating lease assets. If the interest rate implicit in the lease is not readily determinable, the Company uses the incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. To determine the present value of lease payments not yet paid, the Company estimates secured borrowing rates corresponding to the maturities of the leases. The Company has elected the practical expedient to not separate non-lease components from the lease components to which they relate and instead account for each as a single lease component for all underlying asset classes. Some leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance, tax payments and other miscellaneous costs. The variable portion of lease payments is not included in the ROU assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expenses. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses. Commitment and Contingencies The Company follows ASC No.450-20, Loss Contingencies , to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. F-10 Table of Contents Stock-Based Compensation The Company recognizes stock-based compensation expense for equity awards granted to employees, directors and certain consultants. The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The fair value of stock options granted is recognized as expense over the requisite service period. Stock-based compensation expense for share-based payment awards is recognized using the straight-line single-option method. Recent Accounting Standards In May 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options . ASU 2021-04 addresses the accounting for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021 (January 1, 2022 for the Company) and interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of this update to have a significant impact on its financial statements. In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842) – Lessors - Certain Leases with Variable Lease Payments, which amends the lessor classification guidance to introduce additional criteria when classifying leases with variable lease payments that do not depend on a reference index or a rate. This guidance is effective for annual periods beginning after December 15, 2021 (January 1, 2022 for the Company), with early adoption permitted. The Company does not expect the adoption of this update to have a significant impact on its financial statements. 4) Merger, Disposition and Acquisition Transactions Merger On August 12, 2020, Brooklyn, Brooklyn LLC and the Merger Sub entered into the Merger Agreement. The Merger closed on March 25, 2021. After the Merger, Brooklyn changed its name from “NTN Buzztime, Inc.” to “Brooklyn ImmunoTherapeutics, Inc.” The Merger was accounted for as a reverse acquisition, in which Brooklyn LLC was deemed the acquiring company for accounting purposes. Brooklyn LLC, as the accounting acquirer, recorded the assets acquired and liabilities assumed of Brooklyn in the Merger at their fair values as of the acquisition date. Brooklyn’s common stock trades on the NYSE American stock exchange under the ticker symbol “BTX”. Brooklyn LLC was determined to be the accounting acquirer based upon the terms of the Merger and other factors including that (i) Brooklyn LLC members, received common stock in the Merger that represented 96.35 % of Brooklyn’s outstanding common stock on a fully diluted basis as of immediately after the Merger, (ii) all of the directors of Brooklyn immediately after the Merger were designated by Brooklyn LLC under the terms of the Merger Agreement and (iii) existing members of Brooklyn LLC’s management became the management of Brooklyn immediately after the Merger. At the closing of the Merger, all the outstanding membership interests of Brooklyn LLC converted into the right to receive an aggregate of approximately 39,992,000 shares of common stock, of which 1,068,000 shares were issued as compensation to Maxim Group LLC, Brooklyn LLC’s financial advisor (the “Financial Advisor”) for its services to Brooklyn LLC in connection with the Merger. The purchase price of $ 8,178,000 , which represents the consideration transferred in the Merger to stockholders of Brooklyn immediately before the Merger, was calculated based on the closing price of $ 5.40 per share for approximately 1,514,000 shares common stock that those stockholders owned on March 25, 2021 immediately prior to the Merger because that represented a more reliable measure of the fair value of consideration transferred in the Merger. F-12 Table of Contents Under the acquisition method of accounting, the total purchase price has been allocated to the acquired tangible and intangible assets and assumed liabilities of Brooklyn based on their estimated fair values as of March 25, 2021, the Merger closing date. Because the consideration paid by Brooklyn LLC in the Merger is more than the estimated fair values of Brooklyn’s net assets deemed to be acquired, goodwill is equal to the difference of approximately $ 8,589,000 , which has been calculated using the fair values of the net assets of Brooklyn as of March 25, 2021. The allocation of the estimated purchase price to the tangible and intangible assets acquired and liabilities deemed to be assumed from Brooklyn, based on their estimated fair values as of March 25, 2021, is as follows: Historical Balance Sheet of Brooklyn at March 25, 2020 Fair Value Adjustment to Brooklyn Pre-Merger Assets Purchase Price Allocation Pro Forma Adjustment Cash and cash equivalents $ 148,000 $ - $ 148,000 Accounts receivable 103,000 - 103,000 Prepaid expense and other current assets 329,000 - 329,000 Property and equipment, net 1,015,000 - 1,015,000 Software development costs 1,296,000 ( 368,000 ) 928,000 Customers - 548,000 548,000 Trade name - 299,000 299,000 Accounts payable, accrued liabilities and other current liabilities ( 3,781,000 ) - ( 3,781,000 ) Net assets acquired, excluding goodwill $ ( 890,000 ) $ 479,000 $ ( 411,000 ) Total consideration $ 8,178,000 Net assets acquired, excluding goodwill ( 411,000 ) Goodwill $ 8,589,000 Brooklyn LLC was obligated under the Merger Agreement to have $ 10,000,000 in cash and cash equivalents on its balance sheet at the effective time of the Merger. To ensure Brooklyn LLC had the required funds, certain beneficial holders of Brooklyn LLC’s Class A membership interests entered into contractual commitments to invest $ 10,000,000 into Brooklyn LLC immediately prior to the closing of the Merger. During March 2021, Brooklyn offered its Class A unit holders an additional 5 % rights offering for an additional $ 500,000 to be raised by a rights offering. Brooklyn received funds from the rights offering between February 17, 2021 and April 5, 2021. Disposition On March 26, 2021, Brooklyn sold its rights, title and interest in and to the assets relating to the business it operated (under the name NTN Buzztime, Inc.) prior to the Merger to eGames.com in exchange for a purchase price of $ 2,000,000 and assumption of specified liabilities relating to that business. The sale was completed in accordance with the terms of the Asset Purchase Agreement. Details of the Disposition are as follows: F-13 Table of Contents Proceeds from sale: Cash $ 132,000 Escrow 50,000 Assume advance/loans 1,700,000 Interest on advance/loans 68,000 Carrying value of assets sold: Cash and cash equivalents ( 14,000 ) Accounts receivable ( 75,000 ) Prepaids and other current assets ( 124,000 ) Property and equipment, net ( 1,014,000 ) Software development costs ( 927,000 ) Customers ( 548,000 ) Trade name ( 299,000 ) Goodwill ( 8,589,000 ) Other assets ( 103,000 ) Liabilities transferred upon sale: Accounts payable and accrued expenses 113,000 Obligations under finance leases 17,000 Lease liability 26,000 Deferred revenue 55,000 Other current liabilities 149,000 Transaction costs ( 265,000 ) Total loss on sale of assets $ ( 9,648,000 ) Unaudited Pro Forma Disclosure The following unaudited pro forma financial information summarizes the results of operations for the years months ended December 31, 2021 and 2020 as if the Merger and the Disposition had been completed as of January 1, 2020. Pro forma information primarily reflects adjustments relating to the reversal of transaction costs. Assuming that the Merger and the Disposition had been completed as of January 1, 2020, the transaction costs would have been expensed in the prior period. Years ended December 31, 2021 2020 Net loss attributable to common stockholders $ ( 122,306,000 ) $ ( 26,547,000 ) Basic and diluted net loss per share attributable to common stockholders $ ( 2.82 ) $ ( 1.51 ) Acquisition On July 16, 2021, Brooklyn and Brooklyn Acquisition Sub, Inc. entered into the Acquisition Agreement. The Acquisition closed contemporaneously with the execution and delivery of the Acquisition Agreement. At the closing: • 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; and • Brooklyn acquired 25.0 % of the total outstanding equity interests of NoveCite. F-14 Table of Contents Brooklyn delivered consideration for the Acquisition totaling approximately $ 124,000,000 , which consisted of (a) approximately $ 22,854,000 in cash, net of cash acquired, and (b) approximately 7,022,000 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 Acquisition Agreement contained customary representations, warranties and certain indemnification provisions. Approximately 741,000 of the shares issued as consideration were placed in escrow for a period of up to 12 months in order to secure indemnification obligations to Brooklyn under the Acquisition Agreement. The Acquisition Agreement also contains certain non-competition and non-solicitation provisions pursuant to which Novellus LLC 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 Brooklyn, following the Acquisition. In connection with the Acquisition, the co-founders of Novellus, Ltd. entered into lock-up agreements with respect to approximately 3,378,000 of the shares of common stock received in the Acquisition, and Brooklyn’s Chairman 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 Brooklyn 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 the Nasdaq exceeds specified thresholds. The lock-up agreements include customary exceptions for transfers during the applicable lock-up period. The Company expects the Acquisition will advance its 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 Note 11). The completion of the acquisition of Novellus, Ltd. relieved 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 Bioscience Limited (“Factor”) under the License Agreement, which grants Brooklyn LLC exclusive rights to develop certain next-generation mRNA gene editing and cell therapy products, remained unchanged. Although Brooklyn acquired all of the outstanding equity interests of Novellus, Inc., the Company accounted for the Acquisition as an asset acquisition (as the assets acquired did not constitute a business as defined in Accounting Standards Codification (“ASC”) Topic 805, Business Combinations ) , and was measured by the amount of cash paid and by the fair value of the shares of common stock issued. As a result, substantially all of the value acquired was attributed to IPR&D, with the exception of the cash paid for the investment in NoveCite, which is being accounted for as an investment in equity securities, as discussed further below. Brooklyn paid $ 22,854,000 in cash, net of cash acquired, as part of the consideration for the Acquisition, of which $ 1,000,000 was paid in cash for the investment in NoveCite. Brooklyn also issued approximately 7,022,000 shares of the Company’s common stock, of which approximately 3,644,000 shares are unrestricted and 3,378,000 shares are subject to the three-year lockup. The unrestricted shares were valued at $ 10.05 per share, which was the closing price of Brooklyn’s common stock on July 16, 2021. The fair value of the restricted shares was discounted by approximately 35 % to $ 6.53 per restricted share, which was derived from the average discount rate between the Black Scholes and Finnerty valuation models. The resulting fair value of the asset acquired is as follows: Fair Value of Consideration Cash paid $ 22,882,000 Cash acquired ( 28,000 ) Unrestricted shares 36,628,000 Restricted shares 22,056,000 Total fair value of consideration paid 81,538,000 Less amount of cash paid for NoveCite investment ( 1,000,000 ) Fair value of IPR&D acquired $ 80,538,000 IPR&D that is acquired through an asset purchase that has no alternative future uses and no separate economic values from its original intended purpose is expensed in the period the cost is incurred. Accordingly, the Company expensed the fair value of the IPR&D during the third quarter of 2021 in the amount of $ 80,538,000 . F-15 Table of Contents Investment in NoveCite As a result of the Acquisition, Brooklyn acquired and currently owns 25 % of NoveCite and Citius Pharmaceuticals, Inc. (“Citius”) owns the remaining 75 %. A member of the Company’s management holds one of three board seats on NoveCite’s board of directors. Citius’ s officers and directors hold the other two board seats. Citius also retains the ability, in its sole discretion, to increase the size of the board of directors of NoveCite. Pursuant to a subscription agreement, as amended, between NoveCite and Novellus, LLC (the former parent of Novellus, Inc.), which was further amended and assigned to Brooklyn by Novellus, LLC upon the completion of the Acquisition, Citius has complete operational control and financial responsibility for NoveCite. Citrus’s officers are also the officers of NoveCite and oversee the business strategy and operations of NoveCite. Therefore, despite Brooklyn’s ownership of greater than 20 % of NoveCite, which leads to a presumption that in the absence of predominant evidence to the contrary, an investor has the ability to exercise significant influence over an investee, Brooklyn does not exercise any significant influence over NoveCite or its board of directors. Brooklyn also has no contractual rights in the profits or obligations to share in the losses of NoveCite. Accordingly, the Company is accounting for its interest in NoveCite under ASC Topic 321, Investments – Equity Securities. Because NoveCite’s stock is not publicly traded and, therefore, does not have a readily determinable fair value, the Company has elected to account for its investment at cost, which was $ 1,000,000 . The Company will make adjustments to this amount when there are observable transactions for the identical or similar equity securities of the same issuer that would provide an indicator of fair value. In addition, if qualitative factors indicate a potential impairment, fair value must be estimated and the investment written down to that fair value if it is lower than the carrying value. As of December 31, 2021, there were no observable transactions for identical or similar equity securities of NoveCite to provide an indication of fair value, nor were there any indications of impairment of the investment. 5) Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: • Level 1 Inputs – Valued based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. • Level 2 Inputs – Valued based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. • Level 3 Inputs – Valued based on inputs for which there is little or no market value, which require the reporting entity to develop its own assumptions. The following tables summarize the liabilities that are measured at fair value as of December 31, 2021 and 2020: As of December 31, 2021 Description Level 1 Level 2 Level 3 Liabilities: Contingent consideration - - $ 19,930,000 Total $ - $ - $ 19,930,000 As of December 31, 2020 Description Level 1 Level 2 Level 3 Liabilities: Contingent consideration - - $ 20,110,000 Total $ - $ - $ 20,110,000 F-16 Table of Contents The contingent consideration is related to an asset purchase agreement entered into between Brooklyn LLC and IRX Therapeutics (“IRX”) in connection with the IRX Acquisition, according to which, Brooklyn LLC is obligated to pay royalties to certain noteholders and shareholders of IRX based on future revenues from any future IRX-2 product sales. Contingent consideration for the IRX Acquisition was initially valued at the transaction price and is subsequently valued at the end of each reporting period using third-party valuation services or other market observable data. The third-party valuation services use industry standard valuation models, including discounted cash flow analysis, to determine the value. After completing its validation procedures as of December 31, 2021, the Company adjusted the carrying amount of its contingent consideration liabilities as follows: Year ended December 31, 2021 Balance as of beginning of period $ 20,110,000 Fair value adjustments included in operating expenses ( 180,000 ) Balance as of end of period $ 19,930,000 Contingent consideration is measured at fair value and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions the Company believes would be made by a market participant. The Company assesses these estimates on an on-going basis as additional data impacting the assumptions is obtained. Future changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within the statements of operations. Contingent consideration may change significantly as development progresses and additional data are obtained, impacting the Company’s assumptions regarding probabilities of successful achievement of related milestones used to estimate the fair value of the liability and the timing in which the milestones are expected to be achieved. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates. For purposes of this calculation, a royalty equal to 13 % of revenue (consisting of the royalty due to University of South Florida and the royalty due to the collaborator) is assumed until 2029 and a royalty of 7 % of revenues is assumed from 2030 to 2038. The post patent decline is 50 % in the first year and 10 % thereafter. Income taxes were projected to be 26 % of net royalty savings. The cash flows were discounted by the liability specific weighted average cost of capital of 26 % using the mid-point convention. 6) Property and Equipment Property and equipment consist of the following: F-17 Table of Contents December 31, 2021 2020 Laboratory and manufacturing equipment $ 258,000 $ 300,000 Leasehold improvements 464,000 414,000 Computer equipment 154,000 - 877,000 714,000 Less: accumulated depreciation and amortization ( 207,000 ) ( 120,000 ) Property and equipment, net $ 670,000 $ 594,000 Depreciation expense totaled $ 117,000 and $ 98,000 for the years ended December 31, 2021 and 2020, respectively. No depreciation expense is recorded on fixed assets in process until such time as the assets are completed and are placed into service. 7) Leases The Company has operating leases for office and laboratory space in the boroughs of Brooklyn and Manhattan in New York, New York, which expire in 2025 and 2026, respectively. In June 2021, the Company entered into an additional lease agreement to lease approximately 2,700 square feet of office and laboratory space in Cambridge, Massachusetts for approximately $ 56.00 per square foot annually. The lease provides for annual escalation of the base rent based on the year-over-year increase of the consumer price index, as well as the payment of other customary expenses, such as common area maintenance fees, property taxes, and insurance. Upon entering into this lease agreement, the Company paid a lease deposit of approximately $ 25,000 . The Cambridge, Massachusetts lease expires in June 2028. See Note 17 for subsequent event information regarding the Company’s leases. The Company adopted ASC Topic 842, Leases, on December 31, 2020 using the modified transition method without retrospective application to comparative periods. The Company elected the package of three practical expedients allowed for under the transition guidance. Accordingly, the Company did not reassess: (1) whether any expired or existing contracts are/or contain leases; (2) the lease classification for any expired or existing leases; or (3) initial direct costs for any existing leases. The Company has also elected not to recognize right-of-use assets (“ROU assets”) and lease liabilities for short-term leases that have a term of 12 months or less. Operating lease liabilities represent the present value of lease payments not yet paid. ROU assets represent the Company’s right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepaid or accrued lease payments, initial direct costs, lease incentives and impairment of operating lease assets. As the rate implicit in the lease is not readily determinable, the Company used its incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. To determine the present value of lease payments not yet paid, the Company estimates secured borrowing rates corresponding to the maturities of the leases. The Company has elected the practical expedient to not separate non-lease components from the lease components to which they relate and instead account for each as a single lease component for all underlying asset classes. Some leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance, tax payments and other miscellaneous costs. The variable portion of lease payments is not included in the ROU assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expenses. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses. Operating leases are included in right of use assets - operating leases and operating lease liabilities, current and long-term, on the balance sheet. Lease expense for operating leases is recognized on a straight-line basis over the lease term and is included in general and administrative costs in the statements of operations. The Company recognizes operating lease expense and lease payments from the sublease on a straight-line basis in its statements of operations over the lease terms. During the years ended December 31, 2021 and 2020, the net operating lease expenses were as follows: F-18 Table of Contents Years ended December 31, 2021 2020 Operating lease expense $ 688,000 $ 591,000 Sublease income ( 84,000 ) ( 77,000 ) Variable lease expense 19,000 21,000 Total lease expense $ 623,000 $ 535,000 The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2021 and the ending balances as of December 31, 2021, including the changes during the period. Operating Lease ROU Assets Operating lease ROU assets at January 1, 2021 $ 2,093,000 Amortization of operating lease ROU assets ( 342,000 ) Addition of operating lease ROU assets 816,000 Operating lease ROU assets at December 31, 2021 $ 2,567,000 Operating Lease Liabilities Operating lease liabilities at January 1, 2021 $ 2,178,000 Principal payments on operating lease liabilities ( 321,000 ) Addition of operating lease liabilities 866,000 Operating lease liabilities at December 31, 2021 2,723,000 Less non-current portion 2,297,000 Current portion at December 31, 2021 $ 426,000 As of December 31, 2021, the Company’s operating leases had a weighted-average remaining life of 4.9 years with a weighted-average discount rate of 12.76 %. The maturities of the operating lease liabilities are as follows: As of December 31 2022 $ 750,000 2023 767,000 2024 785,000 2025 802,000 2026 267,000 Thereafter 246,000 Total payments 3,617,000 Less imputed interest ( 894,000 ) Total operating lease liabilities $ 2,723,000 Sublease Agreement On April 18, 2019, the Company entered into a sublease agreement with Nezu Asia Capital Management, LLC (the “Tenant”), whereby the Tenant agreed to sublease approximately 999 square feet of space currently rented by the Company in the borough of Manhattan in New York, New York commencing on May 15, 2019. The term of this sublease expires on October 31, 2026 with no option to extend the sublease term. Rent payments provided by the Tenant under the sublease agreement began on September 1, 2019. The sublease agreement stipulates an annual rent increase of 2.25 %. The Tenant is also responsible for paying to the Company all tenant energy costs, annual operating costs, and annual tax costs attributable to the subleased space during the term of the sublease. F-19 Table of Contents As of December 31, 2021 2022 $ 82,000 2023 84,000 2024 86,000 2025 88,000 2026 75,000 $ 415,000 The Company received sublease payments of approximately $ 83,000 and $ 79,000 during the years ended December 31, 2021 and 2020, respectively. In accordance with ASC Topic 842, the Company treats the sublease as a separate lease, as the Company was not relieved of the primary obligation under the original lease. The Company continues to account for the Manhattan lease as a lessee and in the same manner as prior to the commencement date of the sublease. The Company accounts for the sublease as a lessor of the lease. The sublease is classified as an operating lease, as it does not meet the criteria of a sale-type or direct financing lease. 8) Goodwill and In-Process Research & Development The Company recorded goodwill and IPR&D in the amount of $ 2,044,000 and $ 6,860,000 , respectively, in connection with the IRX Acquisition in the year ended December 31, 2018. IPR&D assets are considered to be indefinite lived until the completion or abandonment of the associated research and development projects. In connection with the Acquisition, the Company expensed the fair value of the IPR&D it acquired in the amount of $ 80,538,000 , as the Company determined there were no future alternative uses or separate economic values from its original intended purpose. (See Note 4.) 9) Accrued Expenses Accrued expenses consisted of the following: As of December 31, 2021 2020 Accrued compensation $ 656,000 $ 294,000 Accrued research and development expenses 222,000 207,000 Accrued general and administrative expenses 371,000 400,000 Accrued interest - 150,000 Total accrued expenses $ 1,249,000 $ 1,051,000 10) Debt Loans Payable In connection with the IRX Acquisition in 2018, Brooklyn LLC assumed certain notes payable (the “IRX Notes”) in the amount of $ 410,000 . On January 27, 2020, the IRX Notes were amended to extend the maturity date to the earlier of (i) a change of control, as defined in the IRX Notes, and (ii) December 31, 2021. On December 31, 2021, the Company paid the outstanding $ 410,000 in principal plus accrued and unpaid interest of approximately $ 210,000 under the IRX Notes, and the Company has no further obligations thereunder. Payment Protection Program Loan Brooklyn LLC PPP Loan. F-20 Table of Contents On May 4, 2020, Brooklyn LLC issued a note in the principal amount of approximately $ 310,000 to Silicon Valley Bank evidencing a loan (the “Brooklyn LLC PPP Loan”) Brooklyn LLC received under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S. Small Business Administration (the “CARES Act”). Brooklyn LLC PPP Loan incurred interest at a 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 2021, Brooklyn LLC submitted its loan forgiveness application for the Brooklyn LLC PPP Loan, and in September 2021, the lender informed Brooklyn LLC that the U.S Small Business Administration approved the forgiveness of 100% of the outstanding principal and interest of the Brooklyn LLC PPP Loan. As of December 31, 2021, there was no outstanding principal balance of the Brooklyn LLC PPP Loan. 11) Commitments and Contingencies Legal Matters The Company is involved in litigation and arbitrations from time to time in the ordinary course of business. Legal fees and other costs associated with such actions are expensed as incurred. In addition, the Company assesses the need to record a liability for litigation and contingencies. The Company reserves for costs relating to these matters when a loss is probable, and the amount can be reasonably estimated. Merger-Related Shareholder Litigation Brooklyn (then known as NTN Buzztime, Inc.) and its former directors were named as defendants in ten substantially similar actions arising out of the Merger that were brought by purported pre-Merger stockholders of Brooklyn: Henson v. NTN Buzztime, Inc., et al., No. 1:20-cv-08663-LGS (S.D.N.Y.); Monsour v. NTN Buzztime, Inc., et al., No. 1:20-cv-08755-LGS (S.D.N.Y.); Amanfo v. NTN Buzztime, Inc., et al., No. 1:20-cv-08747-LGS (S.D.N.Y.); Carlson v. NTN Buzztime, Inc., et al., No. 1:21-cv-00047-LGS (S.D.N.Y.); Finger v. NTN Buzztime, Inc., et al., No. 1:21-cv-00728-LGS (S.D.N.Y.); Falikman v. NTN Buzztime, Inc., et al., No. 1:20-cv-05106-EK-SJB (E.D.N.Y.); Haas v. NTN Buzztime, Inc., et al., No. 3:20-cv-02123-BAS-JLB (S.D. Cal.); Gallo v. NTN Buzztime, Inc., et al., No. 3:21-cv-00157-WQH-AGS (S.D. Cal.); Chinta v. NTN Buzztime, Inc., et al., No. 1:20-cv-01401-CFC (D. Del.); and Nicosia v. NTN Buzztime, Inc., et al., No. 1:21-cv-00125-CFC (D. Del.) (collectively, the “Stockholder Actions”). Only two of the Stockholder Actions (the Chinta and Nicosia cases) also named Brooklyn. These actions asserted claims alleging violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 14a-9 promulgated thereunder and both the Chinta and Nicosia cases alleged that Brooklyn LLC is a controlling person of Brooklyn. The complaints generally alleged that the defendants failed to disclose allegedly material information in a Form S-4 Registration Statement filed on October 2, 2020, including: (1) certain details regarding any projections or forecasts of Brooklyn or Brooklyn LLC may have made, and the analyses performed by Brooklyn’s financial advisor, Newbridge Securities Corporation; (2) conflicts concerning the sales process; and (3) disclosures regarding whether or not Brooklyn entered into any confidentiality agreements with standstill and/or “don’t ask, don’t waive” provisions. The complaints generally alleged that these purported failures to disclose rendered the Form S-4 false and misleading. The complaints requested: preliminary and permanent injunction of the Merger; rescission of the Merger if executed and/or rescissory damages in unspecified amounts; direction to the individual directors to disseminate a compliant Form S-4; an accounting by Brooklyn for all alleged damages suffered; a declaration that certain federal securities laws had been violated; and reimbursement of costs, including attorneys’ and expert fees and expenses. On or about February 26, 2021, in order to moot certain of the disclosure claims asserted in the Stockholder Actions, to avoid nuisance, potential expense, and delay, and to provide additional information to Brooklyn’s stockholders, Brooklyn determined to voluntarily supplement the Form S-4 with certain additional disclosures. In exchange for those disclosures, the plaintiffs in each of the Stockholder Actions agreed to voluntarily dismiss their claims. All ten actions have now been dismissed. Following the dismissal the parties amicably resolved plaintiffs’ counsel’s request for an award of attorneys’ fees and expenses based on the purported benefit contented to be conferred on Brooklyn’s stockholders as a result of the supplemental disclosures. F-21 Table of Contents Dhesh Govender v. Brooklyn Immunotherapeutics, LLC, et al., Index No. 650847/2021 (N.Y. Sup. Ct. N.Y. Cty. 2021) On or about February 5, 2021, Dhesh Govender, a former short-term consultant of Brooklyn LLC, filed a complaint against Brooklyn LLC and certain individuals that plaintiff alleges were directors of Brooklyn LLC. The complaint is captioned, Dhesh Govender v. Brooklyn Immunotherapeutics, LLC, et al., Index No. 650847/2021 (N.Y. Sup. Ct. N.Y. Cty. 2021). Plaintiff alleges that Brooklyn LLC and certain of its officers and directors (“defendants”) engaged in unlawful and discriminatory conduct based on race, national origin and hostile work environment. Plaintiff also asserts various breach of contract, fraud and quantum meruit claims based on an alleged oral agreement pursuant to which he alleges Brooklyn LLC agreed to hire him as an executive once the Merger was completed. In particular, plaintiff alleges that, in exchange for transferring an opportunity to obtain an agreement to acquire a license from Novellus for its mRNA-based gene editing and cell reprogramming technology to Brooklyn LLC, he was promised a $ 500,000 salary and 7 % of the equity of Brooklyn LLC. Based on these and other allegations, plaintiff seeks damages of not less than $ 10 million, a permanent injunction enjoining Brooklyn LLC from exercising the option to acquire such license from Novellus or completing the proposed Merger. On or about February 19, 2021, an amended complaint was filed asserting the same causes of action but withdrawing the request for injunctive relief. On June 6, 2021, defendants filed a motion to compel arbitration or, in the alternative, for partial dismissal of the complaint for failure to state viable fraud, quantum meruit and employment discrimination claims. After obtaining extensions of time to respond, plaintiff opposed the defendants’ motion on August 9, 2021. The defendants filed their reply on September 3, 2021. The Court heard oral argument on the motion to compel arbitration and/or dismiss and the motion to seal on October 13, 2021. By Order dated November 10, 2021, the Court granted defendants’ motion to compel Govender to arbitrate all of his claims against them, based on the arbitration clause of his consulting agreement with Brooklyn LLC. Govender thereafter filed his Statement of Claim (the “Demand”) with the American Arbitration Association (“AAA”), Case No. 01-21-0017-9417, on December 15, 2021 against the same defendants, and served it on defendants’ counsel on February 3, 2022. In his Demand, Govender continues to assert statutory discrimination claims against all defendants, claims against Brooklyn LLC premised on the breach of an alleged oral promise to issue Govender 7 % of the equity of Brooklyn LLC and to employ Govender at a $ 500,000 annual salary in exchange for allegedly arranging and negotiating the Novellus license, common law fraud claims against Brooklyn LLC and Cherington based on the breach of these same promises and a claim for quantum meruit against the Brooklyn LLC. In his Demand, Govender now claims that the fair and reasonable value of his services on the quantum meruit claim exceeded $ 100 million and is seeking damages in an amount to be determined at the hearing. Defendants filed an answering statement to the Demand on February 28, 2022 and the parties are in the process of conferring on the selection of a three -member arbitration panel. Defendants intend to vigorously defend themselves against these claims. At this stage in the litigation, the Company is not able to predict the probability of a favorable or unfavorable outcome. Carlson v. Allen Wolff, Michael Gottlieb, Richard Simtob, Susan Miller, and NTN Buzztime, Inc., C.A. No. 2021-0193-KSJM (Del. Ch. Ct.) On or about March 12, 2021, Douglas Carlson, a purported stockholder of Brooklyn (then known as NTN Buzztime, Inc.), filed a verified class action complaint against Brooklyn and its then current members of the board of directors, for allegedly breaching their fiduciary duties and violating Section 211(c) of the Delaware General Corporation Law. In particular, plaintiff seeks to compel the defendants to hold an annual stockholder meeting. Plaintiff also moved for summary judgment at the same time that he filed his complaint. In order to moot the claim addressed in the complaint, Brooklyn agreed to hold its annual meeting on June 29, 2021, which date was subsequently rescheduled to August 20, 2021. On or about May 6, 2021, the parties entered into a stipulation, which was “so ordered” by the court, extending defendants’ time to respond to the complaint and to file their answering brief in opposition to plaintiff’s motion for summary judgment on or before July 16, 2021 and providing that plaintiff’s reply brief in support of his motion for summary judgment is due on or before August 20, 2021. On or about July 12, 2021, the parties entered in a further amended scheduling order, which provided that defendants were to respond to the complaint and file their answering brief in opposition to plaintiff’s motion for summary judgment on or before September 16, 2021 and plaintiff was to file its reply brief in support of his motion for summary judgment on or before October 20, 2021. On August 20, 2021, Brooklyn convened its 2021 annual meeting. Due to the lack of a required quorum, the meeting was adjourned to September 3, 2021. Thereafter, Brooklyn obtained a quorum, and the annual meeting was held on September 3, 2021. On September 10, 2021, Brooklyn filed a report on Form 8-K with the SEC announcing the results of the annual meeting. On September 16, 2021, the parties filed a stipulation seeking voluntary dismissal of the complaint as moot. The Court entered the dismissal on September 16, 2021 with prejudice as to the named plaintiff and without prejudice as to other members of the purported class and retained jurisdiction for the purpose of determining any fee application to the extent it cannot be resolved amicably the parties. Thereafter, on or about November 12, 2022, the parties resolved plaintiff’s counsel’s request for an award of fees and expenses for the purported benefit that Carlson contended was received by stockholders as a result of his action. F-22 Table of Contents Robert Garfield Matter On April 29, 2021, Robert Garfield, a purported stockholder of Brooklyn, sent to Brooklyn a demand letter that had purportedly been sent to Brooklyn (then known as NTN Buzztime, Inc.) on or about March 16, 2021. The demand letter asserts that, Brooklyn (then known as NTN Buzztime, Inc.) made material misstatements in a prospectus issued in seeking a stockholder vote on March 15, 2021 with respect to an amendment to Brooklyn’s certificate of incorporation to increase the number of authorized shares from 15 million to 100 million. The demand letter seeks to have Brooklyn deem the amendment to the certificate of incorporation ineffective or seek valid stockholder approval of such amendment and for Brooklyn to implement internal controls. Brooklyn decided to seek stockholder ratification of the March 15, 2021 stockholder vote concerning an amendment to Brooklyn’s certificate of incorporation to increase the number of authorized shares from 15 million to 100 million pursuant to Sections 204 of the Delaware General Corporation Law. Stockholder ratification was obtained at the annual meeting of stockholders that took place on September 3, 2021. As a result of the ratification, Garfield advised that the claims set forth in his demand letter were moot. The parties thereafter resolved Garfield’s counsel’s request for an award of attorney’s fees and expenses for the purported benefit that Garfield contented was received by stockholders as a result of the stockholder ratification. Edmund Truell Matter On May 14, 2021, Edmund Truell, a stockholder of Brooklyn, alleged that he sustained a loss because he was unable to sell shares of common stock timely due to a delay caused by Brooklyn’s issuance of stock certificates in lieu of electronic book entry. Emerald Private Equity Fund, LLC Matter By a letter dated July 7, 2021, Emerald Private Equity Fund, LLC (“Emerald”), a stockholder of Brooklyn, made a demand pursuant to 8 Del. C. 220 to inspect certain books and records of Brooklyn. The stated purpose of the demand is to investigate possible wrongdoing by persons responsible for the implementation of the Merger and the issuance of paper stock certificates, including investigating whether: (i) Brooklyn’s stock certificates were issued in accordance with the Merger Agreement; (ii) certain restrictions on the sale of Brooklyn common stock following the Merger were proper and applied without favor; (iii) anyone received priority in post-Merger issuances of Brooklyn’s stock certificates that allowed them to benefit from an increase in the trading price of Brooklyn’s common stock; and (iv) it should pursue remedial measures and/or report alleged misconduct to the SEC. Brooklyn has responded to the demand letter and has produced certain information to Emerald in connection with the demand, which is subject to the terms of a confidentiality agreement entered into among the parties, including certain additional stockholders who have subsequently joined as parties to such agreement (including Truell noted above). In October 2021, Emerald requested that Brooklyn produce additional information related to the authority, purpose and justification for the restriction imposed on the sale of Brooklyn common stock following the Merger and the timing of share delivery to Brooklyn stockholders, following which request Brooklyn agreed to produce certain additional information and emails relating to these topics. On March 30, 2022, counsel to Emerald advised the Company that it was prepared to file suit against the Company, certain current and former directors of the Company, and the Company’s financial advisor in connection with the Merger, on behalf of Emerald and a class of similarly situated stockholders with respect to some or all of the foregoing matters, alleging claims for breach of fiduciary duty, conversion and aiding and abetting breach of fiduciary duty. Emerald’s counsel has expressed a willingness to engage in private pre-suit early resolution discussions with the Company and its financial advisor on behalf of individual stockholders whom counsel represents in addition to Emerald; and the Company has agreed to respond to Emerald’s counsel by April 22, 2022. The Company can provide no assurance that such pre-suit early resolution discussions will be successful or that suit will not ultimately be filed against the Company, nor can the Company currently predict the outcome of any such suit, if filed. The Company intends to defend itself vigorously against any and all claims. Additionally, on April 7, 2022, the Company received a demand for indemnification from its financial advisor as it relates to the aforementioned potential lawsuit. John Westman v. Novellus, Inc., Christopher Rohde, and Matthew Angel, Civil Action No. 2181CV01949 (Middlesex County (Massachusetts) Superior Court) On or about September 7, 2021, John Westman, a former employee of Novellus, Inc. filed a Complaint in Middlesex County (Massachusetts) Superior Court against Novellus, Inc. and the company’s founders and former executives, Christopher Rohde and Matthew Angel (collectively, “Defendants”). Brooklyn acquired Novellus, Inc. on July 16, 2021. Mr. Westman’s claims relate to alleged conduct that took place before Brooklyn acquired Novellus, Inc. Pursuant to the July 16, 2021 Agreement and Plan of Acquisition, as well as a separate agreement among Brooklyn, Novellus, Inc., Mr. Rohde, and Mr. Angel, Mr. Rohde and Mr. Angel are essentially assuming the defense of and paying the fees associated with defending against these claims. To that end, on September 10, 2021, Morgan Lewis accepted service on behalf of all defendants. On December 24, 2021, Westman dismissed the case without prejudice so the parties could mediate the matter. The parties’ February 2022 mediation was unsuccessful, but Mr. Westman has not refiled suit. F-23 Table of Contents Licensing Agreements USF Brooklyn LLC has license agreements with University of South Florida Research Association, Inc. (“USF”), granting Brooklyn LLC the right to sell, market, and distribute IRX-2, subject to a 7 % royalty payable to USF based on a percentage of gross product sales. Under the license agreement with USF, Brooklyn LLC is obligated to repay patent prosecution expenses incurred by USF. To date, Brooklyn LLC has not recorded any product sales, or obligations related to USF patent prosecution expenses. The license agreement terminates upon the expiration of the IRX-2 patents. Novellus, Ltd. and Factor In December 2020, Brooklyn LLC entered into option agreements (the “Option Agreements”) with Novellus, Ltd. and Factor (together, the “Licensors”) to obtain the right to exclusively 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 (the “Licensed Technology”). The option was exercisable before February 28, 2021 (or April 30, 2021 if the Merger had not closed by that date) and required Brooklyn LLC to pay a non-refundable option fee of $ 500,000 and then an initial license fee of $ 4,000,000 (including the non-refundable fee of $ 500,000 ) in order to exercise the option. In April 2021, Brooklyn LLC and the Licensors amended the Option Agreements to extend the exercise period to May 21, 2021 and to require Brooklyn, LLC to pay a total $ 1,000,000 of the $ 4,000,000 initial license fees to the Licensors by April 15, 2021. In April 2021, Brooklyn LLC and the Licensors entered into an exclusive license agreement (the “License Agreement”) pursuant to which Brooklyn LLC acquired an exclusive worldwide license to the Licensed Technology. Under the terms of the License Agreement, 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 had been paid as of June 30, 2021. The completion of the acquisition of Novellus, Ltd. relieved 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, remained unchanged. Accordingly, Brooklyn LLC is obligated to pay to Factor a fee of $ 3,500,000 in October 2022, which will be in addition to a fee of $ 2,500,000 paid to Factor in October 2021. Brooklyn LLC is also 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 to pay, in the case of development and regulatory milestones, milestone payments to the Licensors in specified amounts and, in the case of commercialization milestones, 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 will have the right to terminate Brooklyn LLC’s rights under provisions of the License Agreement relating to those milestones. Novellus, Ltd. also has a license agreement with Factor, which was entered into in February 2015, amended in June 2018 and March 2020, and then amended and restated in November 2020. This license agreement provides for Novellus, Ltd. to use over 70 granted patents owned by Factor 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 60 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. F-24 Table of Contents Novellus, Ltd. 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, Novellus, Ltd. will be obligated, in the case of development and regulatory milestones, to make milestone payments of up to $ 51 million in aggregate to Factor and, in the case of commercialization milestones, specified royalties with respect to product sales, sublicense fees or sales of pediatric review vouchers. In the event Novellus, Ltd. fails to timely achieve certain delineated milestones, Factor may have the right to terminate Novellus, Ltd.’s rights under provisions of the License Agreement relating to those milestones. NoveCite In October 2020, Novellus, Ltd. (as sublicensor) and NoveCite (as sublicensee) entered into an exclusive license agreement (the “Sublicense”) to license novel cellular therapy for acute respiratory distress syndrome, which NoveCite is licensing from Factor. Under the sublicense agreement, NoveCite 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, NoveCite will be obligated, in the case of development and regulatory milestones, to make milestone payments to the Novellus, Ltd. in specified amounts and, in the case of commercialization milestones, specified royalties with respect to product sales, sublicense fees or sales of pediatric review vouchers. Under the terms of the Sublicense, in the event that Novellus, Ltd. receives any revenue involving the original cell line included in the licensed technology, then Novellus, Ltd. shall remit to NoveCite 50 % of such revenue. Royalty Agreements Collaborator Royalty Agreement Effective June 22, 2018, IRX terminated its Research, Development and Option Facilitation Agreement and its Options Agreement (the “RDO and Options Agreements”) with a collaborative partner (the “Collaborator”), pursuant to a termination agreement (the “Termination Agreement”). The Termination Agreement was assigned to Brooklyn, LLC in November 2018 when Brooklyn LLC acquired the assets of IRX. In connection with the Termination Agreement, all of the rights granted to the Collaborator under the RDO and Options Agreements were terminated, and Brooklyn LLC has no obligation to refund any payments received from the Collaborator. As consideration for entering into the Termination Agreement, the Collaborator will receive a royalty equal to 6 % of revenues from the sale of IRX-2, for the period of time beginning with the first sale of IRX-2 through the later of (i) the twelfth anniversary of the first sale of IRX-2 or (ii) the expiration of the last IRX patent, or other exclusivity of IRX-2. Investor Royalty Agreement On March 22, 2021, Brooklyn LLC restated its royalty agreement with certain beneficial holders of Brooklyn ImmunoTherapeutics Investors GP LLC and Brooklyn ImmunoTherapeutics Investors LP, whereby such beneficial holders will continue to receive, on an annual basis, royalties in an aggregate amount equal to 4 % of the net revenues of IRX-2, a cytokine-based therapy being developed by Brooklyn LLC to treat patients with cancer. Royalty Agreement with certain former IRX Therapeutics Investors On May 1, 2012, IRX Therapeutics entered into a royalty agreement (the “IRX Investor Royalty Agreement”) with certain investors who participated in a financing transaction. The IRX Investor Royalty Agreement was assigned to Brooklyn LLC in November 2018 when Brooklyn LLC acquired the assets of IRX. Pursuant to the IRX Investor Royalty Agreement, when Brooklyn LLC becomes obligated to pay royalties to USF under the agreement described above under “Licensing Agreements-USF,” it will pay an additional royalty of 1 % of gross sales to an entity organized by the investors who participated in such financing transaction. There are no termination provisions in the IRX Investor Royalty Agreement. Brooklyn LLC has not recognized any revenues to date, and no royalties are due pursuant to any of the above-mentioned royalty agreements. F-25 Table of Contents 12) Basic and Diluted Earnings per Common Share Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration of potential common shares. Diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding plus potential common shares. Stock options, restricted stock units (“RSUs”), and other convertible securities are considered potential common shares and are included in the calculation of diluted net loss per share using the treasury method when their effect is dilutive. The following table shows the amount of stock options, RSUs and convertible preferred stock that were excluded from the computation of diluted net loss per common share for the year ended December 31, 2021, as their effect was anti-dilutive: Year ended December 31, 2021 Stock options 3,988,000 RSUs 240,000 Preferred stock converted into common stock 42,000 Total potential common shares excluded from computation 4,270,000 There were no stock options, RSUs or convertible preferred stock outstanding prior to the Merger to exclude from diluted net loss per common share for the year ended December 31, 2020. 13) Stock-Based Compensation Equity Incentive Plans Brooklyn’s stock-based compensation plans consist of the Restated 2020 Equity Incentive Plan (the “Restated 2020 Plan”) and the 2021 Inducement Equity Incentive Plan (the “2021 Inducement Plan”). Brooklyn’s board of directors has designated its compensation committee as the administrator of the foregoing plans (the “Plan Administrator”). Among other things, the Plan Administrator selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures, if any, and other provisions of the award. At Brooklyn’s special meeting of stockholders held on March 15, 2021, the stockholders approved the 2020 Equity Incentive Plan (the “2020 Plan”), which provided for the issuance of up to approximately 3,369,000 shares of common stock. At Brooklyn’s annual meeting of stockholders held on September 3, 2021, the stockholders approved the Restated 2020 Plan, which provides for (1) an increase in the number of shares of common stock that can be issued under the Restated 2020 Plan by 5,116,000 to 8,485,000 shares of common stock in total and (2) an annual increase in the number of shares reserved for issuance on January 1 of each year from 2022 through 2031 equal to the lesser of (i) 5 % of the number of shares of common stock outstanding on the immediately preceding December 31 and (ii) such smaller number of shares of common stock as may be determine by the board of directors (the “Annual Evergreen Shares”). No other provision of the 2020 Plan were amended. Based on the number of shares of common stock outstanding on December 31, 2021, the maximum increase to the number of Annual Evergreen Shares of common stock that can be issued under the Restated 2020 Plan in 2022 is approximately 2,601,000 shares. Awards under the Restated 2020 Plan may be granted to officers, directors, employees and consultants of the Company. Stock options granted under the Restated 2020 Plan may either be incentive stock options or nonqualified stock options, may have a term of up to ten years , and are exercisable at a price per share not less than the fair market value on the date of grant. As of December 31, 2021, there were approximately 320,000 stock options and 18,000 RSUs outstanding under the Restated 2020 Plan. In June 2019 Brooklyn adopted the 2019 Performance Incentive Plan (the “2019 Plan”), Upon the approval of the 2020 Plan, no future grants could be made under the 2019 Plan. As of December 31, 2021, all outstanding options under the 2019 Plan either had been exercised or had expired in accordance with the terms of the applicable award or the 2019 Plan. In May 2021, Brooklyn’s board of directors adopted the 2021 Inducement Plan, which provides for the grant of up to 1,500,000 share-based awards as material inducement awards to new employees in accordance with the employment inducement grant rules set forth in Section 711(a) of the NYSE American LLC Company Guide. The 2021 Inducement Plan expires in May 2031. As of December 31, 2021, there were approximately 443,000 nonqualified stock options and 222,000 RSUs outstanding under the 2021 Inducement Plan. F-26 Table of Contents Equity Awards Stock Options The Company records stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation. The Company estimates the fair value of each stock option award granted with service-based vesting requirements, using the Black-Scholes option pricing model. The Company recognizes the fair value of stock options granted as expense on a straight-line basis over the requisite service period. The risk-free rate is based on the observed interest rates appropriate for the expected life. The expected life (estimated period of time outstanding) of the stock options granted is estimated using the “simplified” method as permitted by the SEC’s Staff Accounting Bulletin No. 110, Share-Based Payment. Expected volatility is based on the Company’s historical volatility over the expected life of the stock option granted, and the Company assumes no dividends. Forfeitures are recognized as incurred. There were no stock options outstanding or granted during the year ended December 31, 2020. The following weighted-average assumptions were used for stock options granted during the year ended December 31, 2021: Year ended December 31, 2021 Weighted average risk-free rate 1.09 % Weighted average volatility 134.64 % Dividend yield 0 % Expected term 6.10 years The following table summarizes stock option activity for the year ended December 31, 2021: Outstanding Options Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding January 1, 2021 - $ - - $ - Granted 3,988,000 8.40 9.38 - Outstanding December 31, 2021 3,988,000 $ 8.40 9.38 $ - Options vested and exercisable at December 31, 2021 - $ - - $ - The per-share weighted average grant-date fair value of stock options granted during the year ended December 31, 2021 was $ 7.57 . As of December 31, 2021, the unamortized stock-based compensation expense related to outstanding unvested options was approximately $ 21,915,000 with a weighted average remaining requisite service period of 3.30 years. The Company expects to amortize this expense over the remaining requisite service period of these stock options. Included in the 3,988,000 stock options granted during the year ended December 31, 2021, the Company issued two stock option grants to Howard J. Federoff, M.D., Ph.D. upon his appointment as the Company’s Chief Executive Officer and President. F-27 Table of Contents Dr. Federoff was granted a nonqualified stock option covering approximately 2,628,000 shares of common stock (the “Time-Based Option”). The Time-Based Option was granted at a per share exercise price equal to the closing price of the common stock on the NYSE American stock exchange on the date of grant. Of the shares covered by the Time-Based Option, 25 % will vest on the one-year anniversary of the grant date, and the remaining shares will vest in substantially 36 equal monthly installments thereafter, so long as Dr. Federoff provides continuous service to the Company throughout the relevant vesting date. Dr. Federoff was also granted a performance-based nonqualified stock option covering approximately 597,000 shares of common stock (the “Milestone Option”). The Milestone Option was granted at a per share exercise price equal to the closing price of common stock on the NYSE American stock exchange on the date of grant, and its fair value is $ 4,288,738 . The Milestone Option will fully vest upon the first concurrence by the U.S. Food and Drug Administration that a proposed investigation may proceed following review of a Company filed investigational new drug application in connection with that the License Agreement. This milestone is subject to Dr. Federoff’s continuous service with the Company through such vesting date. Both the Time-Based Option and the Milestone Option were granted outside the Company’s equity incentive plans discussed above. The unvested portion of the Time-Based Option and the Milestone Option will be cancelled upon the termination of Dr. Federoff’s employment with the Company for any reason, subject to certain vesting acceleration provisions upon a qualifying termination, as described in his employment agreement with the Company. Unless earlier terminated in accordance with their terms, each of the Time-Based Option and the Milestone Option will otherwise expire on the tenth anniversary of their respective grant date and be subject to the terms and conditions of the respective option agreement approved by the Company. Each of the Time-Based Option and the Milestone Option was intended to constitute an “employment inducement grant” in accordance with the employment inducement grant rules set forth in Section 711(a) of the NYSE American LLC Company Guide and was offered as an inducement material to Dr. Federoff in connection with his hiring. During the year ended December 31, 2021, there were 1,300 options exercised for total cash proceeds of $ 10,202 . The options exercised had a total intrinsic value of $ 47,010 . There were no options exercised during the year ended December 31, 2020. RSUs Outstanding RSUs are settled in an equal number of shares of common stock on the vesting date of the award. An RSU award is settled only to the extent vested. Vesting generally requires the continued employment or service by the award recipient through the respective vesting date. Because RSUs are settled in an equal number of shares of common stock without any offsetting payment by the recipient, the measurement of cost is based on the quoted market price of the stock at the measurement date, which is the grant date. There were no RSUs outstanding or granted during the year ended December 31, 2020. The following table summarizes RSU activity for the years ended December 31, 2021: Outstanding Restricted Stock Units Weighted Average Fair Value per Share January 1, 2021 - $ - Granted 240,000 13.80 December 31, 2021 240,000 $ 13.80 Balance expected to vest at December 31, 2021 - No RSUs vested during the year ended December 31, 2021. The Company recognizes the intrinsic value of RSUs granted as expense on a straight-line basis over the requisite service period. As of December 31, 2021, the unamortized stock-based compensation expense related to outstanding RSUs was approximately $ 2,935,000 with a weighted average remaining requisite service period of 3.51 years. The Company expects to amortize this expense over the remaining requisite service period of these stock options. F-28 Table of Contents Restricted Stock Pursuant to the Merger, Brooklyn LLC’s approximately 3,000 outstanding restricted common units were exchanged for approximately 630,000 shares of Brooklyn’s restricted common stock. There were no changes to any conditions and requirements of the restricted common stock. The shares vest quarterly beginning on March 31, 2021 and continuing through December 31, 2022. Due to the modification of the restricted common units, the fair value of the restricted common stock immediately after the Merger was compared to the fair value of the restricted common units immediately prior to the Merger, and the change in fair value of $ 250,000 was recognized in the statement of operations for year ended December 31, 2021. The Company recognizes the fair value of restricted common stock as an expense on a straight-line basis over the requisite service period. Stock-Based Compensation Expense Total stock-based compensation expense for the years ended December 31, 2021 and 2020 was approximately $ 5,235,000 and $ 91,000 , respectively. Stock-based compensation is recorded in general and administrative expense and research and development expense in the statement of operations. 14) Stockholders’ and Members’ Equity (Deficit) Equity Line Offerings On April 26, 2021, Brooklyn and Lincoln Park executed 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 $ 20,000,000 of shares of Brooklyn’s common stock. Sales of common stock by Brooklyn 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 approximately 56,000 shares of common shares as consideration for Lincoln Park’s commitment to purchase up to $ 20,000,000 in shares of common stock. As of December 31, 2021, Brooklyn issued and sold to Lincoln Park approximately 1,128,000 shares of common stock under the First Purchase Agreement 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 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 are subject to certain limitations, and may occur from time to time, at Brooklyn’s sole discretion. In consideration of Lincoln Park’s entry into the Second Purchase Agreement, Brooklyn issued to Lincoln Park 50,000 shares of common stock. Under the Second Purchase Agreement, the Company may direct Lincoln Park to purchase up to 60,000 shares of common stock on any business day (the “Regular Purchase”), which amount may be increased up to 120,000 shares based on the closing price of the common stock, provided that Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $ 2.0 million. The purchase price per share for each such Regular Purchase is based off of the common stock’s market immediately preceding the time of sale. 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 us from time to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. F-29 Table of Contents As of December 31, 2021, Brooklyn had issued and sold approximately 2,424,000 shares of common stock under the Second Purchase Agreement for total gross proceeds of approximately $ 34,106,000 . As of December 31, 2021, there were approximately 446,000 shares remaining to be sold under the Second Purchase Agreement. Pursuant to the securities purchase agreement in respect of the PIPE Transaction, the Company is prohibited from issuing additional shares under the Section Purchase Agreement for a period of one-year immediately following the closing of the PIPE Transaction. Reverse Stock-Split On March 25, 2021, immediately prior to the Merger, Brooklyn filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse stock split. As a result of the reverse stock split, the number of issued and outstanding shares of common stock immediately prior to the reverse stock split was reduced into a smaller number of shares, such that every two shares of common stock held by a stockholder of Brooklyn immediately prior to the reverse stock split were combined and reclassified into one share of common stock after the reverse stock split. Immediately following the reverse stock split there were approximately 1,514,000 shares of common stock outstanding prior to the Merger. No fractional shares were issued in connection with the reverse stock split. Merger Under the terms of the Merger Agreement (see Notes 1 and 4), on March 25, 2021, Brooklyn issued shares of common stock to the equity holders of Brooklyn LLC. The 87,000 Class A units of Brooklyn LLC were converted into approximately 22,275,000 shares of common stock; the 15,000,000 Class B units were converted into approximately 2,515,000 shares of common stock; the 10,000,000 Class C units were converted into approximately 1,676,000 shares of common stock; approximately 630,000 shares of common units were converted into approximately 630,000 shares of common stock, and 10,500,000 rights options were converted into approximately 11,828,000 shares of common stock. Brooklyn also issued approximately 1,068,000 shares of common stock to the Financial Advisor pursuant to the Merger Agreement. Acquisition Under the terms of the Acquisition (see Notes 1 and 4), on July 16, 2021, Brooklyn issued approximately 7,022,000 shares of common stock, of which approximately 3,644,000 shares are unrestricted and approximately 3,378,000 shares are subject to a three-year lockup agreement, 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 the principal market for the common stock exceeds specified thresholds. Cumulative Convertible Preferred Stock As a result of the Merger, the Company has authorized 156,000 shares of preferred stock, all of which is designated as Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”), and all of which were issued and outstanding as of December 31, 2021. The Series A Preferred Stock provides for a cumulative annual dividend of $ 0.10 per share, payable in semi-annual installments in June and December. Dividends may be paid in cash or with shares of common stock. The Company paid approximately $ 8,000 in cash and issued approximately 202 shares of common stock for payment of dividends during the year ended December 31, 2021. The Series A Preferred Stock has no voting rights and has a $ 1.00 per share liquidation preference over common stock. The registered holder has the right at any time to convert shares of Series A Preferred Stock into that number of shares of common stock that equals the number of shares of Series A Preferred Stock that are surrendered for conversion divided by the conversion rate. At December 31, 2021, the conversion rate was 3.7016 and, based on that conversion rate, one share of Series A Convertible Preferred Stock would have converted into approximately 0.27 shares of common stock, and all the outstanding shares of the Series A Convertible Preferred Stock would have converted into approximately 42,000 shares of common stock in the aggregate. There were no conversions during the year ended December 31, 2021. There is no mandatory conversion term, date or any redemption features associated with the Series A Preferred Stock. The conversion rate will adjust under the following circumstances: F-30 Table of Contents 1. If the Company (a) pays a dividend or makes a distribution in shares of its common stock, (b) subdivides its outstanding shares of common stock into a greater number of shares, (c) combines its outstanding shares of common stock into a smaller number of shares, or (d) issues by reclassification of its shares of common stock any shares of its common stock (other than a change in par value, or from par value to no par value, or from no par value to par value), then the conversion rate in effect immediately prior to the applicable event will be adjusted so that the holders of the Series A Convertible Preferred Stock will be entitled to receive the number of shares of common stock which they would have owned or have been entitled to receive immediately following the happening of the event, had the Series A Convertible Preferred Stock been converted immediately prior to the record or effective date of the applicable event. 2. If the outstanding shares of the Company’s common stock are reclassified (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision, combination or stock dividend), or if the Company consolidates with or merge into another corporation and the Company is not the surviving entity, or if the Company sells all or substantially all of its property, assets, business and goodwill, then the holders of the Series A Convertible Preferred Stock will thereafter be entitled upon conversion to the kind and amount of shares of stock or other equity securities, or other property or assets which would have been receivable by such holders upon such reclassification, consolidation, merger or sale, if the Series A Convertible Preferred Stock had been converted immediately prior thereto. 3. If the Company issues common stock without consideration or for a consideration per share less than the then applicable Equivalent Preference Amount (as defined below), then the Equivalent Preference Amount will immediately be reduced to the amount determined by dividing (A) an amount equal to the sum of (1) the number of shares of common stock outstanding immediately prior to such issuance multiplied by the Equivalent Preference Amount in effect immediately prior to such issuance and (2) the consideration, if any, received by the Company upon such issuance, by (B) the total number of shares of common stock outstanding immediately after such issuance. The “Equivalent Preference Amount” is the value that results when the liquidation preference of one share of Series A Convertible Preferred Stock (which is $1.00) is multiplied by the conversion rate in effect at that time; thus the conversion rate applicable after the adjustment in the Equivalent Preference Amount as described herein will be the figure that results when the adjusted Equivalent Preference Amount is divided by the liquidation preference of one share of Series A Convertible Preferred Stock. 15) Income Taxes Loss before income taxes consist of the following: Years ended December 31, 2021 2020 Domestic $ ( 122,296,000 ) $ ( 26,531,000 ) Foreign ( 5,000 ) - Total tax provision for income taxes $ ( 122,301,000 ) $ ( 26,531,000 ) For each of the years ended December 31, 2021 and 2020, current tax provisions and current deferred tax provisions were recorded as follows: Years ended December 31, 2021 2020 Current Tax Provision Federal $ - $ - State 5,000 - Foreign - - 5,000 - Deferred Tax Provision Federal ( 5,836,000 ) - State ( 1,433,000 ) ( 322,000 ) Foreign ( 1,000 ) - ( 7,270,000 ) ( 322,000 ) Change in valuation allowance 7,270,000 322,000 Total tax provision for income taxes $ 5,000 $ - F-31 Table of Contents Deferred tax assets and liabilities consist of the effects of temporary differences as shown in the table below. Deferred tax assets have been fully reserved by a valuation allowance since it is more likely than not that such tax benefits will not be realized. As of December 31, 2021 2020 Deferred Tax Assets: Net operating losses 5,454,000 747,000 Foreign net operating losses 595,000 - R&D credit carryforwards 288,000 - Stock compensation 1,312,000 - Vacation accrual 30,000 - Contingent consideration 5,171,000 - Deferred rent 40,000 - Total gross deferred tax assets 12,890,000 747,000 Valuation allowance ( 12,610,000 ) ( 747,000 ) Net deferred tax assets 280,000 - Deferred Tax Liabilities: Fixed assets ( 168,000 ) - Intangibles - goodwill ( 112,000 ) - Total deferred tax liabilities ( 280,000 ) - Net deferred taxes $ - $ - The reconciliation of computed expected income taxes to effective income taxes by applying the federal statutory rate of 21 % as follows: As of December 31, 2021 2020 Tax at federal income tax rate 21.00 % 21.00 % State income tax, net of federal tax 1.17 - Non-deductible expenses/excludable items ( 16.33 ) - Pass-through loss - ( 19.79 ) Change in valuation allowance ( 5.94 ) ( 1.21 ) Credits 0.24 - Other ( 0.14 ) - Provision for income taxes 0 .00 % 0 .00 % The net increase in the total valuation allowance for the year ended December 31, 2021 was an increase of $ 11,863,000 of which $ 7,270,000 relates to the current year deferred expense and $ 4,593,000 relates to the purchase accounting related to the 2021 business combinations. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary difference become deductible. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and planning strategies in making this assessment. Based on the level of historical operating results and projections for the taxable income for the future, management has determined that it is more likely than not that the deferred taxes assets will not be utilized. Accordingly, the Company has recorded a full valuation allowance. F-32 Table of Contents At December 31, 2021 and 2020 the Company has available net operating loss (“NOL”) carryforwards of approximately $ 20,679,000 and $ 0 for federal income tax purposes, respectively, of which $ 20,679,000 can be carried forward indefinitely. The Company has available $ 1,397,000 and $ 747,000 state NOLs for the years ended December 31, 2021 and 2020, respectively. The Company also has foreign NOL carryforwards of $ 4,759,000 and $ 0 for the years ended December 31, 2021 and 2020, respectively, which carry forward indefinitely. Section 382 of the Internal Revenue Code (“IRC”) imposes limits on the ability to use NOL carryforwards that existed prior to a change in control to offset future taxable income. Such limitations would reduce, potentially significantly, the gross deferred tax assets disclosed in the table above related to the NOL carryforwards. The Company continues to disclose the NOL carryforwards at their original amount in the table above as no potential limitation has been quantified. The Company has also established a full valuation allowance for all deferred tax assets, including the NOL carryforwards, since the Company could not conclude that it was more likely than not able to generate future taxable income to realize these assets. At December 31, 2021 and 2020 the Company has federal and state income tax credit carryforwards of approximately $ 288,000 and $ 0 , respectively. The credits begin to expire in 2041 . In accordance with authoritative guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company has no uncertain tax positions as of December 31, 2021 or December 31, 2020. The Company recognizes interest and penalties related to unrecognized tax positions within the income tax expense line in the accompanying consolidated statements of operations. There were no accrued interest and penalties associated with uncertain tax positions as of December 31, 2021 or December 31, 2020. The Company is subject to U.S. federal, state, and foreign income tax. Tthe Company’s income tax returns are subject to examination by the relevant taxing authorities. As of December 31, 2021, the 2018 – 2021 tax years remain subject to examination in the U.S. federal tax, various state, and foreign tax jurisdictions. The Company is not currently under examination by federal state, or foreign jurisdictions. 16) Retirement Savings Plan The Company established a defined contribution plan, organized under Section 401(k) of the Internal Revenue Code, which allows employees to defer up to 90 % of their pay on a pre-tax basis. The Company does not contribute a match to the employees’ contribution. 17) Subsequent Events Private Placement of Equity On March 6, 2022, the Company entered into a certain Securities Purchase Agreement (the “Purchase Agreement”) with an investor (the “PIPE Investor”) providing for the private placement (the “PIPE Transaction”) to a private investor (the “PIPE Investor”) of approximately 6,857,000 units (collectively, the “Units”), each Unit consisting of (i) one share of our common stock (or, in lieu thereof, one pre-funded warrant (the “Pre-Funded Warrants”) to purchase one share of common stock) and (ii) one warrant (the “Common Warrants”) to purchase one share of common stock, for an aggregate gross purchase price of approximately $ 12.0 million. The PIPE Transaction closed on March 9, 2022. Each Pre-Funded Warrant has an exercise price of $ 0.005 per share of common stock, was immediately exercisable and may be exercised at any time and has no expiration date and is subject to customary adjustments. The Pre-Funded Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 9.99 % immediately after exercise thereof. Each Common Warrant has an exercise price of $ 1.91 per share, becomes exercisable six months following the closing of the PIPE Transaction, and expires five-and-one-half years from the date of issuance, and is subject to customary adjustments. The Common Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99 % immediately after exercise thereof, subject to increase to 9.99 % at the option of the holder. F-33 Table of Contents In connection with the PIPE Transaction, the Company and the PIPE Investor also entered into a registration rights agreement, dated March 6, 2022, pursuant to which the Company agreed to prepare and file a registration statement with the SEC no later than 15 days following the filing date of this Annual Report on Form 10-K to register the resale of the shares of common stock included in the Units and the shares of common stock issuable upon exercise of the Pre-Funded Warrants and the Common Warrants. The Company agreed to use its best efforts to have such registration statement declared effective as promptly as possible after the filing thereof, subject to certain specified penalties if timely effectiveness is not achieved. Reduction in Force On January 3, 2022, the Company completed a reduction in force (the “Reduction”), comprising eight employees ( 53 % of our workforce at that time), effective January 3, 2022, which was the date on which the Company notified such employees of their termination. The Company believes the Reduction, which was approved by its Board of Directors, will enable the Company to better align its workforce with the needs of its business and focus more of its capital resources on the Company’s cell therapy and gene editing platform, as it continues to sustain its investment in the prosecution of IRX-2 through the end of the INSPIRE Phase 2B study. In connection with the Reduction, the Company estimates that it will incur approximately $ 500,000 for severance and termination-related costs, which the Company will record during the first quarter of 2022. The Company may also incur additional costs and non-cash charges that are not currently contemplated or determinable, which may occur as a result of the Reduction. Lease Assignment On March 5, 2022, the Company entered into an Agreement to Assign Space Lease with RegenLab USA LLC (“Regen”) pursuant to which the Company agreed to assign its Brooklyn, NY lease (the “Brooklyn Lease”) to Regen. The effective date of the assignment would be contingent upon, among other things, a consent from BioBat, Inc. (the “Landlord”) to assign the Brooklyn Lease. Additionally, Regen agreed to purchase certain equipment from the Company for $ 50,000 , partly reimburse the Company $ 50,000 toward certain existing unamortized leasehold improvements, and to reimburse the Company for the existing security deposit the Company had under the Brooklyn Lease of approximately $ 63,000 . On March 25, 2022, the Company entered into an Assignment and Assumption of Lease Agreement (the “Assignment Agreement”) with Regen, the consent of which was provided by the Landlord in the Assignment Agreement. The effective date of the assignment was March 28, 2022. Under the Assignment Agreement, Regen (i) accepts the assignment of the Brooklyn Lease; (ii) assumes all of the obligations, liabilities, covenants and conditions of the Company’s as tenant under the Brooklyn Lease; (iii) assumes and agrees to perform and observe all of the obligations, terms, requirements, covenants and conditions to be performed or observed by the Company under the Brooklyn Lease; and (iv) makes all of the representations and warranties binding under the Brooklyn Lease with the same force and effect as if Regens had executed the Brooklyn Lease originally as the tenant. Notwithstanding the above assumptions above by Regen, the Company shall be and remain liable and responsible for the due keeping, and full performance and observance, of all the provisions of the Brooklyn Lease on the part of the tenant to be kept, performed and observed. As a result of the Assignment Agreement, the Company will write off the remaining ROU asset balance and the corresponding lease liability as of March 25, 2022, and it will record any resulting gain or loss on the termination of the Brooklyn lease in its statement of operations. The Company does not expect to recognize a contingent liability for its ongoing obligation to remain liable and responsible for all the provisions of the Brooklyn Lease, as the Company has determined that it is not probable it will recognize a loss under the Assignment Agreement. New Lease Agreement On March 31, 2022, the Company entered into the Torrey Pines Science Center Lease in San Diego, California (the “San Diego Lease”) with Torrey Pines Science Center Limited Partnership for approximately 5,200 square feet of lab and office space. The term of the San Diego Lease is 62 months and the lease commencement date begins on the earlier to occur of (i) the date the Company first commences to conduct business in the premises or (ii) the possession date, which is anticipated to be August 1, 2022 (or earlier if the current tenant terminates its lease early). The lease commencement date was April 15 , 2022. Base rent is $ 6.35 per square foot in the first year of the San Diego Lease, with a rent abatement for the second and third full months of the first year. The base rent will increase by approximately 3 % on each anniversary of the lease commencement date. The Company is also required to pay its share of operating expenses and property taxes. The San Diego Lease provides for a one-time option to extend the lease term for an additional five years at the then fair rental value. F-34