What changed in this filing

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Item 1. Financial Statements

2022-08-11 compared with 2022-07-01 · 492 added, 363 removed, 491 unchanged (64% of the section changed)

Financial Statements

BROOKLYN IMMUNOTHERAPEUTICS, INC.

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Preferred stock, $ 0.005 par value, 1,000 shares authorized, 156

designated and outstanding of Series A convertible preferred stock at March 31 , 2022 and December 31 , 2021 , $ 156 liquidation

Common stock, $ 0.005 par value, 100,000 shares authorized at March 31, 2022 and December 31, 2021;

57,452 and 52,021 issued and outstanding at March 31 , 2022 and December 31 , 2021 ,

designated, issued and outstanding of Series A convertible preferred stock at June 30 , 2022 and December 31 , 2021 , $ 156 liquidation

Common stock, $ 0.005 par value, 100,000 shares authorized at June 30, 2022 and December 31, 2021;

57,469 and 52,021 issued and outstanding at June 30 , 2022 and December 31 , 2021 ,

Additional paid-in capital

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BROOKLYN IMMUNOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three months ended

Three months ended June 30 ,

Six months ended June 30 ,

Operating expenses:

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General and administrative

Impairment of in-process research and development

Transaction costs

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Loss from operations

Other expense, net:

Other income (expense), net:

Loss on sale of NTN assets

Warrant liabilities expense

Change in fair value of warrant liabilities

Loss on non-controlling investment

Other expense, net

Total other expense, net

Loss before income taxes

Provision for income taxes

Total other income (expense), net

Series A preferred stock dividend

Net loss attributable to common stockholders

Net loss per common share - basic and diluted

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ AND MEMBERS’ EQUITY

For the three months ended March 31, 2022 and 2021 (unaudited)

For the three and six months ended June 30, 2022 and 2021 (unaudited)

(in thousands)

Membership Equity

Series A Preferred

Balances at April 1, 2022

Issuance of common stock from vested restricted stock units

Stock-based compensation

Cash dividends to Series A preferred stockholders

Balances at June 30, 2022

Balances at January 1, 2022

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Stock-based compensation

Balances at March 31, 2022

Cash dividends to Series A preferred stockholders

Balances at June 30, 2022

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

Membership Equity

Series A Preferred

Balances at April 1, 2021

Common stock to be retained by NTN stockholders

Issuance of common stock from the exercise of stock options

Issuance of common stock related to stock purchase agreement with Lincoln Park Capital Fund, LLC, net

Issuance of common stock in lieu of cash dividend to Series A preferred stockholders

Forfeiture of unvested restricted stock

Stock-based compensation

Balances at June 30, 2021

Balances at January 1, 2021

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Issuance of common stock to Financial Advisor upon consummation of merger

Issuance of common stock from the exercise of stock options

Issuance of common stock related to stock purchase agreement with Lincoln Park Capital Fund, LLC, net

Issuance of common stock in lieu of cash dividend to Series A preferred stockholders

Forfeiture of unvested restricted stock

Stock-based compensation

Balances at March 31, 2021

Balances at June 30, 2021

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

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(in thousands)

For the three months ended

For the six months ended

Cash flows used in operating activities:

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Stock-based compensation

Amortization of right-to-use asset

Amortization of right-of-use asset

Impairment of right-of-use asset

Impairment of in-process research and development

Transaction costs - shares to Financial Advisor

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Gain on lease termination

Warrant liabilities expense

Gain on warrant liabilities

Loss on non-controlling investment

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Net cash used in operating activities

Cash flows used in investing activities:

Cash flows (used in) provided by investing activities:

Purchase of property and equipment

Proceeds from the sales of fixed assets

Purchase of NTN, net of cash acquired

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Proceeds from issuance of common stock and warrants in connection with private offering

Payroll tax remitted on net share settlement of equity awards

Dividends paid to Series A preferred stockholders

Proceeds from issuance of common stock to Lincoln Park

Fees incurred in connection with the common stock issued to Lincoln Park

Proceeds from sale of members’ equity

NTN’s PPP loan

Proceeds from the exercise of stock options

Repayment of NTN’s PPP loan

Net cash provided by financing activities

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Series A preferred stock retained in business combination

Initial measurement of ROU assets and liabilities

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

BROOKLYN IMMUNOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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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.

and, prior to the closing under the Acquisition Agreement, a 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.

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not include all of the information and footnotes required by GAAP for complete financial statements.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be anticipated for the

entire year ending December 31, 2022, or any other period.

Reclassifi cations

reclassifications have been made to Brooklyn’s prior years’ financial statements to conform to the current year presentation.

The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be anticipated for

the entire year ending December 31, 2022, or any other period.

Reclassifications

Certain reclassifications have been made

to Brooklyn’s prior years’ financial statements to conform to the current year presentation.

These reclassifications had no effect on Brooklyn’s previously reported results of operations or accumulated deficit.

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administrative support for operations.

As of March 31, 2022, the Company had a cash balance of approximately $ 23.5 million and an

As of June 30, 2022, the Company had a cash balance of approximately $ 19.4 million and an

accumulated deficit of approximately $ 153.5 million.

For the three months ended March 31, 2022, the Company incurred a net loss of

$ 9.4 million, and the Company used cash in operating activities of $ 5.4

On March 9, 2022, the Company consummated a private placement of common stock and warrants resulting in net proceeds of approximately $ 11

million (See Note 10).

In connection with preparing the accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2022, the Company’s management concluded that there is substantial doubt regarding the Company’s

For the three and six months ended June 30, 2022, the Company incurred a net

loss of $ 3.4 million and $ 12.8

million, respectively, and the Company used cash in operating activities of $ 9.4 million.

In connection with preparing the accompanying condensed consolidated financial statements as of and for the three months ended June 30, 2022, 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.

will need to raise additional capital, which could be through the remaining availability under our equity line purchase agreement with Lincoln Park Capital Fund, LLC (the “Second Purchase Agreement”) (to the extent the Company is permitted to

will need to raise additional capital, which could be through the remaining availability under an equity line purchase agreement with Lincoln Park Capital Fund, LLC (the “Second Purchase Agreement”) (to the extent the Company is permitted to

use such agreement) (see Note 11), public or private equity offerings, debt financings, corporate collaborations or other means.

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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 condensed 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.

accompanying condensed 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.

The accompanying condensed

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 condensed 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 .

MERGER, DISPOSITION AND ACQUISITION TRANSACTIONS

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The purchase price of $ 8.2 million, 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.

consideration transferred in the Merger.

Under the acquisition method of accounting, the total

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The sale was completed in accordance with the terms of the Asset Purchase Agreement.

the Disposition are as follows (in thousands):

Details of the

Disposition are as follows (in thousands):

Proceeds from sale:

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upon price of $ 14.5253 per share.

At the date of issuance, the fair value of the shares were approximately $ 58.6 million.

At the date of issuance, the fair value of the shares was approximately $ 58.6 million.

The Acquisition Agreement contained customary

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In connection with the Acquisition, the co-founders of

Novellus, Ltd.

Novellus, Inc.

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 (the “Board”) 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.

Acquisition, and Brooklyn’s Chairman of the Board of Directors (the “Board”) and its former Chief Executive Officer and President entered into identical lock-up agreements with respect to their current holdings of Brooklyn stock.

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

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.

evolution into a platform company with a pipeline of next generation mRNA cellular and gene editing programs.

In addition, the acquisition of Novellus, Ltd.

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(See Note 9).

The completion of the

acquisition of Novellus, Ltd.

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.

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.

As a result, substantially all of the value acquired 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, as discussed further below.

Brooklyn paid $ 22.9 million in cash, net of cash acquired, as part of the consideration for the Acquisition, of which $ 1.0 million was paid in cash for the investment in NoveCite.

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Investment in NoveCite

As a result of the Acquisition, Brooklyn acquired

and currently owns 25 % of NoveCite and Citius Pharmaceuticals, Inc.

As a result of the Acquisition, Brooklyn acquired and

currently owns 25 % of NoveCite and Citius Pharmaceuticals, Inc.

(“Citius”) owns the remaining 75 %.

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The investment may also reflect an equity loss in the event that circumstances indicate an other-than-temporary impairment.

For the three months ended March 31, 2022, the Company recorded $ 0.6 million in losses from its investment in NoveCite, of which $ 0.5 million relates to NoveCite’s year ended December 31, 2021.

For the three and six months ended June 30, 2022, the Company recorded $ 0.3 million and $ 0.9 million, respectively, in losses from its investment in NoveCite, and of the $ 0.9

million loss for the six months ended June 30, 2022, $ 0.5 million related to NoveCite’s year ended December 31, 2021.

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.

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

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.

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 March 31, 2022 (in thousands).

There were no liabilities measured at fair value as of December 31, 2021:

As of March 31,

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:

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.

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.

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 June 30, 2022 (in thousands).

There were no liabilities measured at fair value as of Decem ber 31, 2021:

As of June 30,

Warrant liabilities - Pre-Funded Warrants

Warrant liabilities - Common Warrants

On March 9, 2022, the Company issued pre-funded warrants exercisable for approximately 1,357,000 shares of common stock (the “Pre-Funded Warrants”) and warrants exercisable for approximately 6,857,000 shares of common stock (the “Common Warrants”) in connection with the PIPE Transaction (as defined below).

See Note 10 for more information related to the PIPE

The Common Warrants and Pre-Funded Warrants were accounted for as liabilities

under ASC 815-40, Derivatives and Hedging, Contracts in Entity’s Own Equity (“ASC

815-40”), as these warrants provide for a cashless settlement provision that does not meet the requirements of the indexation guidance under ASC 815-40.

These warrant liabilities were measured at fair value at inception and are then

subsequently measured on a recurring basis, with changes in fair value presented within the Company’s statement of operations.

The Company uses a Black-Scholes option pricing model to estimate the fair value of the Common Warrants, which is considered a Level 3 fair

value measurement.

March 9, 2022, the Company issued pre-funded warrants exercisable for approximately 1,357,000 shares of common stock (the “Pre-Funded

Warrants”) and warrants exercisable for approximately 6,857,000 shares of common stock (the “Common Warrants”) in connection with the

PIPE Transaction (as defined below).

See Note 11 for more information related to the PIPE Transaction.

The Common Warrants and Pre-Funded Warrants were accounted for as liabilities under ASC

815-40, Derivatives and Hedging, Contracts in Entity’s Own Equity (“ASC 815-40”), as these warrants provide for a cashless settlement provision that does not meet the requirements of the indexation guidance under ASC 815-40.

These warrant

liabilities were measured at fair value at inception and are then subsequently measured on a recurring basis, with changes in fair value presented within the Company’s statement of operations.

The Company uses a Black-Scholes option pricing model to estimate the fair value of the Common

Warrants, which is considered a Level 3 fair value measurement.

Certain inputs used in this Black-Scholes pricing model may fluctuate in future periods based upon factors that are outside of the Company’s control.

A significant change in one or more of these inputs used in the

calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities, which could also result in material non-cash gains or losses being reported in the Company’s consolidated statement of

The estimated fair value of the Pre-Funded Warrants was deemed a Level 2 measurement as of March 31, 2022, as all significant inputs to the

valuation model used to estimate the fair value of the Pre-Funded Warrants were directly observable from the Company’s publicly-traded common stock.

A significant change in

one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities, which could also result in material non-cash gains or losses being reported in the

Company’s consolidated statement of operations.

The estimated fair value of the Pre-Funded Warrants was deemed a Level 2 measurement as of June 30, 2022, as all significant inputs to the valuation model used to estimate the fair value of the Pre-Funded Warrants

were directly observable from the Company’s publicly-traded common stock.

The fair values of the Common Warrants and the Pre-Funded Warrants at the issuance date totaled $ 12.6 million in the aggregate, which was $ 0.6 million more

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Given the Company’s capital requirements and market conditions, the Company consummated this financing on market terms available at the time of the transaction.

The Company remeasured the fair value of the warrant liabilities as of March 31, 2022, and the following table presents the changes in the warrant

liabilities from the issuance date (in thousands):

The Company remeasured the fair value of the warrant liabilities as of June 30, 2022, and the following table presents the changes in the

warrant liabilities from the issuance date (in thousands):

Total Warrant

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Change in fair value of warrant liabilities

Fair value at March 31, 2022

The Company has operating leases for office and laboratory space in the borough of Manhattan in New York, New York and in Cambridge,

Massachusetts, which expire in 2026 and 2028, respectively.

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 was April 19, 2022, which is the date the Company

will record a right-of-use (“ROU) asset and corresponding operating lease liability.

Fair value at June 30, 2022

The Company has operating leases for office and laboratory space in the borough of

Manhattan in New York, New York and in Cambridge, Massachusetts, which expire in 2026 and 2028, respectively.

square feet of lab and office space.

The term of the San Diego Lease is 62 months and the lease commencement date was April 19, 2022.

The San Diego Lease will expire in June 2027.

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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.

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.

The Company recorded a $ 1.7 million right-of-use (“ROU”) asset and $ 1.7 million lease liabilities

for the San Diego Lease.

During the second quarter of 2022, the Company made the decision to consolidate its research and

development efforts in Cambridge, Massachusetts, and the Company intends to sublease the San Diego lab and office space.

As a result, the Company recognized an impairment charge of approximately $ 0.8 million on the San Diego Lease ROU asset.

On March 5, 2022, the Company entered into an Agreement to Assign Space Lease with Regen Lab USA LLC (“Regen”) pursuant to which the Company

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(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

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.

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 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 wrote off the remaining ROU asset balance and the corresponding lease

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 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 wrote off

the remaining ROU asset balance and the corresponding lease liability.

The Company accounts for leases under ASC 842, Leases .

Operating leases are included in “Right-of use assets - operating leases” within the Company’s balance sheets and represent the Company’s right to use an underlying asset for the lease term.

The Company’s related obligation to make lease

payments are included in “Operating lease liabilities, non-current” and “Operating lease liabilities, current” within the Company’s balance sheets.

ROU assets and liabilities are recognized at commencement date based on the present value of

lease payments over the lease term.

Because the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rates based on the information available at the lease commencement date in determining the

present value of lease payments.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease

expense on a straight-line basis over the lease term.

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.

Operating leases are included in

“Right-of use assets - operating leases” within the Company’s balance sheets and represent the Company’s right to use an underlying asset for the lease term.

The Company’s related obligation to make lease payments are included in “Operating lease

liabilities, non-current” and “Operating lease liabilities, current” within the Company’s balance sheets.

ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments.

Lease expense for lease

payments is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term.

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.

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.

During the three months ended March 31, 2022 and 2021, the net operating lease expenses were as follows (in thousands):

Three months ended March 31,

During the three and six months ended June 30, 2022 and 2021, the net operating lease expenses were as follows (in thousands):

Three months ended June 30,

Operating lease expense

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Total lease expense

The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2022 and the ending balances as of

March 31, 2022, including the changes during the period (in thousands).

Six months ended June 30,

Operating lease expense

Sublease income

Variable lease expense

Total lease expense

The tables below show the beginning

balances of the operating ROU assets and lease liabilities as of January 1, 2022 and the ending balances as of June 30, 2022, including the changes during the period (in thousands).

Operating Lease

Operating lease ROU assets at January 1, 2022

Amortization of operating lease ROU assets

Operating lease ROU assets at

January 1, 2022

Initial measurement of operating lease ROU assets

Amortization of operating lease

Impairment of ROU assets

Write off of ROU asset due to lease termination

Operating lease ROU assets at March 31, 2022

Operating lease ROU assets at

June 30, 2022

Operating Lease

Operating lease liabilities at January 1, 2022

Principal payments on operating lease liabilities

Operating lease liabilities at

January 1, 2022

Initial measurement of operating lease liabilities

Principal payments on operating

lease liabilities

Write off of operating lease liability due to lease termination

Operating lease liabilities at March 31, 2022

Operating lease liabilities at

June 30, 2022

Less non-current portion

Current portion at March 31, 2022

As of March 31, 2022, the Company’s operating leases had a weighted-average remaining life of 5.8 years with a weighted-average discount rate of 10.23 %.

The maturities of the

operating lease liabilities are as follows (in thousands):

Current portion at June 30, 2022

As of June 30, 2022, the Company’s operating leases had a weighted-average remaining

life of 5.2 years with a weighted-average discount rate of 8.97 %.

The maturities of the operating lease liabilities are as follows (in thousands):

June 30, 2022

Total payments

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Total operating lease liabilities

GOODWILL AND IN-PROCESS RESEARCH & DEVELOPMENT

In 2018, the Company acquired IRX, which was accounted for as a business combination.

The Company recorded IPR&D in the amount of $ 6.0 million, which represents the fair value assigned to technologies that were acquired in connection with the IRX Acquisition and which have not

reached technological feasibility and have no alternative future use.

IPR&D assets acquired in a business combination are considered to be indefinite lived until the completion or abandonment of the associated research and development

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

IN-PROCESS RESEARCH & DEVELOPMENT AND GOODWILL

In 2018, the Company acquired IRX Therapeutics (“IRX”), which was accounted for as a business combination.

The Company recorded IPR&D in the

amount of $ 6.0 million, which represents the fair value assigned to technologies that were acquired in connection with the IRX

acquisition and which have not reached technological feasibility and have no alternative future use.

IPR&D assets acquired in a business combination are considered to be indefinite lived until the completion or abandonment of the associated

research and development projects.

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

The Company also recorded goodwill in the amount of $ 2.0

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that indicate that the fair value of the entity is less than its carrying values.

As of March 31, 2022, the Company performed a qualitative assessment to determine whether it is more likely than not that the fair value of the

As of June 30, 2022, the Company performed 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.

As a result of the qualitative

assessment, the Company determined that due to the decline in the

Company’s stock price of $ 4.17 per

share as of December 31, 2021 to $ 2.05 per share as of March 31, 2022, there were indications of impairment.

Accordingly, the Company

engaged a third-party valuation firm to perform a quantitative analysis to compare the entity’s carrying values to its fair value, the results of which showed that the entity’s fair value exceeded its carrying value and there was no impairment of the recorded goodwill or IPR&D.

In June 2022, the Company received results from the INSPIRE phase 2 trial of IRX-2, a multi-cytokine biologic immunotherapy, in patients with newly diagnosed stage II, III or IVA squamous cell carcinoma of the oral

The IRX-2 multi-cytokine biologic immunotherapy represents substantially all the fair value assigned to the technologies of IRX that the Company acquired.

Despite outcomes that favored IRX-2 in certain predefined subgroups, the INSPIRE

trial did not meet the primary endpoint of Event-Free Survival (at two years of follow up.

Significant additional clinical development work would be required to advance IRX-2 in the form of additional Phase 2 and 3 studies to further evaluate

the treatment effect of IRX-2 in patient subgroups and in combination with checkpoint inhibitor therapies.

The INSPIRE trial is the only Company-sponsored study of IRX-2.

IRX-2 has been studied externally in other clinical settings outside of

head and neck cancer in the form of investigator sponsored trials, which have either ended or are not currently active.

Based on the totality of available information, the Company currently does not have plans to further develop the IRX-2

product candidate.

As such, the Company determined that the carrying value of the IPR&D asset was impaired and recognized a non-cash impairment charge of approximately $ 6.0 million on the condensed consolidated statement of operations for the three and six months ended June 30, 2022, which reduced the value of the asset to zero .

The Company also determined that there were qualitative indications of a goodwill impairment, namely the Company’s stock price declined from $ 2.05 per share as of March 31, 2022 to $ 0.52 per share as of June 30,

Accordingly, the Company proceeded to the first step in the quantitative assessment of impairment and determined that the fair value of the reporting unit exceeded the carrying amount of the reporting unit, and therefore, the goodwill

was no t impaired as of June 30, 2022 .

CEO SEPARATION AGREEMENT

On May 24, 2022, Dr.

Federoff resigned as the Company’s Chief Executive

Officer and President effective May 26, 2022.

In connection with Dr.

Federoff’s resignation, the Company entered into a Separation Agreement and General Release with Dr.

Federoff (the “Separation Agreement”),

pursuant to which Dr.

Federoff resigned from his positions as Chief Executive Officer and as an officer, director and employee of the Company and all subsidiaries.

Federoff’s resignation from the Board was not due to any disagreement with

the Company on any matter relating to the Company’s operations, policies or practices.

In consideration for Dr.

Federoff’s execution of the Separation Agreement and non-revocation of a waiver and release of claims relating thereto, Dr.

will receive following benefits under the Separation Agreement:

a lump sum cash severance benefit in the amount of $ 0.2 million, representing Dr.

target bonus for 2022;

payment of Dr.

Federoff’s annual base salary for a period of twelve months after the expiration of the applicable revocation period (the “Separation Period”), for a total gross amount equal to $ 0.5 million;

payment of Dr.

Federoff’s premiums for continued health benefits provided under COBRA for the Separation Period;

full acceleration of the vesting of all outstanding options (with the exception of the Milestone Grant (as defined below) options) that would have vested during the Separation Period, and such options,

together with outstanding options that vested prior to the separation date, representing collectively approximately 1,523,000

shares of common stock, may be exercised for a period of thirty-six months after the separation date.

(See Note 10 for

modification accounting impact);

acceleration and vesting of 25/36 th of the Milestone Grant options, representing collectively approximately 415,000 shares of

common stock, may be exercised for a period of thirty-six months after the separation date.

(See Note 10 for modification

accounting impact);

a lump sum cash severance benefit in the amount of $ 0.1 million, representing the value Dr.

Federoff would have received if he was entitled to receive a settlement of a pro rata portion of his performance restricted stock units through the expiration of the Separation Period, assuming the performance metrics were waived and

assuming a per share value of $ 0.81 .

The Separation Agreement also includes certain other customary representations,

warranties and covenants of Dr.

Federoff, and provides for reimbursement of certain expenses incurred by Dr Federoff.

The Separation Agreement supersedes all other agreements or arrangements between Dr.

Federoff and the Company regarding the

subject matter of the agreement, including those with respect to severance payments and benefits.

ACCRUED EXPENSES

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Total accrued expenses

Accrued general and administrative expenses include $ 0.8 million for legal-related matters.

Accrued compensation includes $ 1.0 million of severance, of which, approximately $ 0.5

million relates to severance for Dr.

Federoff pursuant to the Separation Agreement discussed above.

Accrued general and administration expenses includes $ 1.2 million for legal-related matters.

COMMITMENTS AND CONTINGENCIES

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and cell reprogramming technology to Brooklyn LLC, he was promised a $ 0.5 million 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 wi thdrawing 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 $ 0.5 million 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 have selected a three -member arbitration panel.

Based on these and other allegations, plaintiff seeks damages of not less than $ 10 million .

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 $ 0.5 million 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 have selected a three -member arbitration panel.

arbitration is scheduled to begin December 5, 2022.

Defendants intend to vigorously defend themselv es against these claims.

At this stage in the litigation, the Company is not able to predict the probability of a favorable or

unfavorable outcome.

At this stage in the litigation, the Company is not able to predict the probability of a favorable

or unfavorable outcome.

Emerald Private Equity Fund, LLC Matter

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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

The stated purpose of the demand was to investigate possible wrongdoing by persons responsible for the implementation of the Merger and the issuance of paper

stock certificates, including investigating whether:

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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.

Brooklyn responded to the demand letter and 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 subsequently joined as parties to such agreement.

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

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Emerald’s counsel 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 since engaged in such discussions.

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

Additionally, on April 7, 2022, the Company received a demand for indemnification from its financial advisor as it relates to the aforementioned

potential lawsuit.

on behalf of individual stockholders whom counsel represents in addition to Emerald (collectively, the “Emerald Plaintiffs”);

and the Company engaged in such discussions in lieu of incurring the legal costs anticipated in

respect of litigating the Emerald Plaintiffs’ claims, all of which the Company disputes.

Following such discussions, with no admission of wrongdoing, the Company and the Emerald Plaintiffs entered into a

confidential settlement agreement, pursuant to which the Company agreed to pay $ 1.2 million in full settlement of

all of the Emerald Plaintiffs’ purported claims, including a release by the Emerald Plaintiffs in favor of the Company in respect of any and all such claims .

subsequently made such payment.

John Westman v.

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County (Massachusetts) Superior Court against Novellus, Inc.

and the company’s founders and former executives, Christopher Rohde and Matthew Angel (collectively, “Defendants”).

The case includes allegations that Novellus,

and the company’s founders and former executives, Dr.

Christopher Rohde and Dr.

Matthew Angel (collectively, “Defendants”).

The case includes allegations that

Novellus, Inc.

violated the Massachusetts Wage Act..

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Westman’s claims relate to alleged conduct that took place before Brooklyn acquired Novellus, Inc.

Defense and liability in

association with any Wage Act claims have been assumed by Mr.

Rohde and Mr.

liability in association with any Wage Act claims have been assumed by Dr.

Rohde and Dr.

On December 24, 2021, Westman dismissed the case without prejudice so the parties could mediate the matter.

The parties’ February 2022

mediation was unsuccessful and the dispute is currently in arbitration.

The company accrued $ 0.8 million in legal-related expenses during the quarter ended March 31, 2022 for the matters discussed above.

February 2022 mediation was unsuccessful and the dispute is currently pending in arbitration.

Novellus, Inc .

Sowyrda et al ., C.A.

2184CV02436-BLS2

On October 25, 2021 Novellus, Inc.

filed a complaint in the Superior Court of

Massachusetts, Suffolk County, against former Novellus, Inc.

employees Paul Sowyrda and John Westman and certain other former investors in Novellus LLC (Novellus, Inc.’s former parent company prior to the Company’s

acquisition of Novellus, Inc.), alleging breach of fiduciary duty, breach of contract and civil conspiracy.

Brooklyn acquired Novellus, Inc.

on July 16, 2021.

On May 27, 2022 Novellus, Inc.

amended the complaint to withdraw

all claims against all defendants except Paul Sowyrda and John Westman.

On July 1, 2022, Westman filed a motion to compel arbitration or in the alternative, to stay the litigation pending the disposition of certain

litigations in the Court of Chancery for the State of Delaware filed by Mr.

Sowyrda against Novellus LLC, Dr.

Christopher Rohde, Dr.

Matthew Angel, Leonard Mazur and Factor Bioscience, Inc.

captioned Zelickson et al., v.

Angel et al., C.A.

2021-1014-JRS and by Westman against Novellus LLC captioned Westman v.

Novellus LLC , C.A.

2021-0882-NAC (the “Delaware

On July 1, 2022, Sowyrda answered the complaint and asserted counterclaims against Novellus, Inc, and third-party defendants Dr.

Matthew Angel and Dr.

Christopher Rohde alleging violations of the Massachusetts

Wage Act, Massachusetts Minimum Fair Wage Law, the Fair Labor Standards Act, breach of contract, unjust enrichment and quantum meruit.

Sowyrda also joined in Westman’s motion to stay the case pending the Delaware Actions.

Novellus, Inc.’s claims and Mr.

Sowyrda’s counterclaims relate to alleged conduct that took place before Brooklyn acquired Novellus, Inc.

Defense and liability in association with any Wage Act claims have been assumed by Dr.

Rohde and Dr.

The Company believes that the plaintiffs ’ claims in the foregoing matters are without merit, and the Company intends to defend against them vigorously .

Under applicable Delaware law and Novellus Inc.’s organizational documents, the Company may be required to advance or reimburse certain legal

expenses incurred by former officers and directors of Novellus, Inc.

in connection with the foregoing Westman and Sowyrda matters.

Licensing Agreements

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million 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.

the terms of the License Agreement, Brooklyn LLC is obligated to pay the Licensors a total of $ 4.0 million in connection

with the execution of the License Agreement, all of which was paid as of June 2021.

use in the development of certain mRNA, gene-editing, and cellular therapies to be evaluated and developed for treating human diseases, including certain types of cancer, sickle cell disease, and beta thalassemia.

terms of the License Agreement, Brooklyn LLC is obligated to pay the Licensors a total of $ 4.0 million in connection with

the execution of the License Agreement, all of which was paid as of June 2021.

The completion of the acquisition of Novellus, Ltd.

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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.

to use certain technology owned by Factor for the development of certain cellular therapies to be evaluation and developed for treating diseases.

Novellus, Ltd.

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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.

There are no termination provisions in the IRX Investor Royalty

Brooklyn LLC has not recognized any revenues to date, and no royalties are due pursuant to any of the above-mentioned royalty agreements.

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Stock Options

There were no stock options outstanding or granted during the three months ended March 31, 2021.

The following weighted-average assumptions were used for stock options granted during the three months ended March 31, 2022 :

Three months ended

March 31 , 2022

During the three and six months ended June 30, 2022 and 2021, the Company granted the

following stock options (in thousands):

Three months ended June 30,

Six months ended June 30,

Stock options granted

The following weighted-average assumptions were used for stock options granted during the three and six months ended June

30, 2022 and 2021:

Three months ended June 30,

Weighted average risk-free rate

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Expected term

The following table summarizes stock option activity for the three months ended March 31, 2022 :

Outstanding Options

Weighted Average Exercise Price per Share

Weighted Average Remaining Contractual Life (in years)

Aggregate Intrinsic Value

Outstanding January 1, 2022

Outstanding March 31 , 2022

Options vested and exercisable at March 31, 2022

The per-share weighted average grant-date fair value of stock options granted during

the three months ended March 31, 2022 was $ 1.58 .

As of March 31, 2022, the unamortized stock-based compensation expense related to outstanding unvested options was approximately $ 18.5 million with a weighted average remaining requisite service period of 3.06 years.

The Company expects to amortize this expense over the remaining requisite service period of these stock options.

Included in the 5,179,000 stock options outstanding as of March 31, 2022 are two stock option grants the Company awarded to Howard J.

Federoff, M.D., Ph.D.

upon his appointment as the Company’s Chief Executive Officer and President in April 2021.

Federoff was granted a nonqualified stock option covering approximately 2,628,000 shares of common stock (the “Time-Based Option”).

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.

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 $ 4.3 million .

The Milestone Option will fully vest upon the first concurrence by

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.

continuous service with the Company through such vesting date.

As of March 31, 2022, the Company has no t recognized any stock-based compensation expense on the Milestone Option because the Company has determined that it is not yet probable that the performance milestone

will be accomplished.

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.

There were no

options exercised during the three months ended March 31, 2022 and 2021.

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.

Six months ended June 30,

Weighted average risk-free rate

Weighted average volatility

Dividend yield

Expected term

Of the 1,981 ,000 stock options granted during the six months ended June 30, 2022, approximately 414,000 stock

options were granted in March 2022 to Dr.

Federoff, who served as the Company’s Chief Executive Officer and President until May 26, 2022 (the “March 2022 Stock Option Grant”).

The March 2022 Stock Option Grant vests in 36 substantially equal monthly installments from the grant date and had an exercise price equal to the closing price of the Company’s common stock on the

Of the 3,366 ,000 stock options granted during the six months ended June 30, 2021, approximately 3,225,000 stock

options were granted to Dr.

Federoff upon his appointment as Chief Executive Officer and President in April 2021.

2,628,000 stock options

were under a time-based grant (the “Time-Based Grant”) and 597,000 were under a performance-based grant (the “Milestone Grant”).

Time-Based Grant vests over four years , with 25 %

vesting on the one-year anniversary of the grant date and the remaining options vesting in 36 substantially equal monthly installments

The Milestone Grant vests 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.

Both the Time-Based Grant and the Milestone Grant had an exercise price equal to the closing price of the Company’s common stock on the grant date.

Vesting of all stock options grants is subject to continuous service with the Company

through such vesting dates.

As discussed above, pursuant to the Separation Agreement that the Company entered into

Federoff, the Company accelerated the vesting of approximately 138,000 stock options under the

March 2022 Stock Option Grant and approximately 657,000 stock options under the Time-Based Grant.

The Company also waived the

performance condition under the Milestone Grant and accelerated the vesting of approximately 415,000 stock options under the Milestone

Lastly, the Company extended the post-termination exercise period from 90 days to 36 months immediately following the Separation Date for all options that were vested after such accelerations.

The above modifications to Dr.

Federoff’s stock options grants resulted in modification accounting under ASC 718, Compensation – Stock Compensation.

As a result, the Company immediately recognized approximately $ 0.1 million for the incremental fair value of stock options that were vested prior to the modification by calculating the difference between

the fair value of the modified award and the fair value of the original award immediately before it was modified.

For stock options that were not vested prior to the modification but then vested as a result of the acceleration, the Company

reversed any stock compensation expense previously recognized, remeasured the fair value of the modified award and immediately recognized approximately $ 0.1

million of stock compensation expense in full since there was no future service period required to be provided.

During the three and six months ended June 30, 2021, there were 1,300 options exercised for total cash proceeds of $ 10,202 .

The options exercised had a total intrinsic value of $ 57,212 .

There were no options exercised during the three and six months ended June 30, 2022.

As of June 30, 2022, there were approximately 3,750,000 stock options outstanding.

Restricted Stock Units

During the three and six months ended June 30, 2022 and 2021, the Company granted the

following restricted stock units (“RSUs”) (in thousands):

Three months ended June 30,

Six months ended June 30,

The Company recognizes the fair value of RSUs granted as expense on

a straight-line basis over the requisite service period.

For performance based RSUs, the Company begins recognizing the expense once the achievement of the related performance goal is determined to be probable.

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 three months ended March 31, 2021.

The following table summarizes RSU activity for the three months ended March 31, 2022 :

Outstanding Restricted Stock Units

Weighted Average Fair Value per Share

January 1, 2022

March 31 2022

Balance expected to vest at March 31, 2022

During the three months ended March 31, 2022, the Company issued approximately 1,101,000 performance based RSUs (the “ 2022 PSUs”) to its employees, of which approximately 414,000 were awarded to Dr.

The 2022 PSUs are subject to the

achievement of four performance goals, which are weighted equally.

Once a performance goal is

achieved, the tranche of shares allocated to that performance goal will be earned and will begin to vest over a three-year annual basis beginning on the date the performance goal was achieved.

If a performance goal is not achieved, the tranche of shares allocated to that performance goal will be unearned and forfeited.

The Company recognizes the fair value of RSUs granted as expense on a straight-line

basis over the requisite service period.

For performance based RSUs, the Company will begin recognizing the expense once the achievement of the related performance goal is probable.

As of March 31, 2022, the unamortized stock-based compensation expense related to outstanding RSUs, including performance based RSUs that have been deemed probable, was

approximately $ 3.6 million with a weighted average remaining requisite service period of 2.59 years.

The Company expects to amortize this expense over the remaining requisite service period of the RSUs.

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.

In lieu of paying cash to satisfy withholding taxes due upon the

settlement of vested RSUs, at the Company’s discretion, an employee may elect to have shares of common stock withheld that would otherwise be issued at settlement, the value of which is equal to the amount of withholding taxes payable.

The following table shows the number of RSUs that vested and were settled during the three and six months ended

June 30, 2022, as well as the number of shares of common stock withheld to cover the withholding taxes and the net shares issued upon settlement (in thousands):

Three months ended

Six months ended

June 30, 2022

Common stock withheld to cover

Common stock issued

The 1,101,000 RSUs granted during the six months ended June 30, 2022 are performance-based RSUs (the “2022 PSUs”), of which approximately 414,000 were awarded to Dr.

The 2022 PSUs are subject to the achievement of four performance goals, which are weighted equally.

Once a performance goal is achieved, the tranche of shares allocated to that performance goal will be earned and will begin to vest over a three-year annual basis beginning on the date the performance goal was achieved.

If a performance goal is not achieved, the tranche of shares allocated

to that performance goal will be unearned and forfeited.

As of June 30, 2022, one of the performance goals was not achieved by its due

date, and as a result, approximately 275,000 2022 PSUs were cancelled and any previously recognized stock compensation expense was

Pursuant to Dr.

Federoff’s Separation Agreement, Dr.

Federoff’s 414,000 2022 PSUs were canceled in full (a portion of which included the PSUs allocated to the performance goal that was not achieved timely), and a lump sum cash severance benefit in the amount of $ 0.1 million was paid to Dr.

Federoff, which represents

the value Dr.

Federoff would have received if he were entitled to receive a settlement of a pro rata portion of his 2022 PSUs through the expiration of the Separation Period, assuming the performance metrics were waived and assuming a per share

value of $ 0.81 .

Any stock compensation expense previously recognized on Dr.

Federoff’s 2022 PSUs was reversed and approximately $ 0.1 million was recognized as compensation expense.

As of June 30, 2022, there were approximately 587,000 RSUs outstanding.

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, contingent on continued service.

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 $ 0.3

million was recognized in the statement of operations during the three months ended March 31, 2021.

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 vested quarterly beginning on March

31, 2021 and were to continue through December 31, 2022, contingent on continued service.

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 $ 0.3 million was recognized in the

statement of operations during the six months ended June 30, 2021.

The Company recognizes the fair value of restricted common stock as an expense on a straight-line basis over the requisite service period.

During the quarter ended March 31, 2022, approximately 78,000 shares of unvested restricted common stock were

forfeited due to the holders of such shares no longer providing services to the Company.

As of March 31, 2022, there were no shares of unvested restricted stock outstanding.

During the six months ended June 30, 2022,

approximately 78,000 shares of unvested restricted common stock were forfeited due to the holders of such shares no longer providing

services to the Company.

As of June 30, 2022, there were no shares of unvested restricted stock outstanding.

Stock-Based Compensation Expense

Stock-based compensation is recorded in general and administrative expense and research and development expense in the statement of operations.

For the three months ended March 31, 2022 and 2021, stock-based compensation

expense recorded in general and administrative expense was $ 0.8 million and $ 17,000 , respectively.

For both of the three months ended March 31, 2022 and 2021, stock-based compensation expense recorded in research and development expense was $ 0.4 million.

For the three and six months ended June 30, 2022 and 2021, the

Company recognized stock-based compensation expense as follows, which includes the expense related to Dr.

Federoff’s modified awards discussed above (in thousands):

Three months ended June 30,

Six months ended June 30,

Research and development

General and administrative

STOCKHOLDERS’ EQUITY

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(collectively, the “Units”), each Unit consisting of (i) one share of the Company’s 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

“Subscription Amount”).

The PIPE Transaction closed on March 9, 2022.

Pre-Funded Warrant 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 “Subscription Amount”).

Transaction closed on March 9, 2022.

Pursuant to the Purchase Agreement, the Company is prohibited from issuing equity in variable rate transactions for a period of one-year following consummation of the PIPE Transaction, including issuing equity under the Second Purchase Agreement.

Each Pre-Funded Warrant has an exercise price of $ 0.005 per share of common stock, was immediately exercisable, may be

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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.

Upon the closing of the transaction, the Company issued 5,500,000 shares of common stock and issued Pre-Funded Warrants representing approximately 1,357,000 shares of common stock.

Upon the closing of the PIPE Transaction, the Company issued 5,500,000 shares of common stock and issued Pre-Funded Warrants representing approximately 1,357,000 shares of common stock.

Each Common Warrant has an exercise price of $ 1.91 per share, becomes exercisable six months following the closing of the PIPE Transaction, 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.

As of March 31, 2022, the Company had 6,857,000

As of June 30, 2022, the Company had 6,857,000

Common Warrants outstanding with a weighted average exercise price of $ 1.91 per share and a weighted average contractual life of 5.2 years.

As of March 31, 2022, the Company had 1,357,000

As of June 30, 2022, the Company had 1,357,000

Pre-Funded Warrants outstanding with a weighted average exercise price of $ 0.005 per share.

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than the Subscription Amount.

The excess $ 0.6 million represents an inducement to the PIPE Investor to enter into the transaction

and was recorded in warrant liabilities expense in the accompanying consolidated statement of operations.

Given the Company’s capital requirements and market conditions, the Company consummated this financing on market terms available at the

time of the transaction.

The Company incurred fees of $ 1.0

million through March 31, 2022 related to the PIPE Transaction, which were allocated to the fair value of the Common Warrants and the Pre-Funded Warrants and recorded in other expense, net on the accompanying condensed consolidated statement

of operations.

The excess $ 0.6 million represents an inducement to the PIPE Investor to enter into the PIPE

Transaction and was recorded in warrant liabilities expense in the accompanying consolidated statement of operations.

Given the Company’s capital requirements and market conditions, the Company consummated this financing on market terms

available at the time of the transaction.

The Company incurred fees of approximately $ 1.0 million through June 30, 2022 related to the PIPE Transaction, which were allocated to the fair value of the Common Warrants and the Pre-Funded Warrants and recorded in other expense, net on the

accompanying condensed consolidated statement of operations.

In connection with the PIPE Transaction, the Company and the PIPE Investor also entered into a registration rights agreement, dated March 6,

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and the registration statement on April 29, 2022.

The registration statement became effective on May 11, 2022.

The resale registration statement became effective on May 11, 2022.

Pursuant to the registration rights agreement, the Company is obligated to pay the PIPE Investor liquidated damages equal to 2 % of the Subscription Amount per month, with a maximum aggregate payment of 12 % of the Subscription Amount, in the event the PIPE Investor is not permitted to use the registration statement to resell the securities registered for resale

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On May 24, 2022, the Company provided the PIPE Investor with notice that it was not able to resell the securities registered for resale under

the registration agreement because the Company had not timely filed this Quarterly Report on Form 10-Q (the “Q1 2022 10-Q”) with the SEC, and that the PIPE Investor could not use the registration statement to resell the related securities

the registration agreement because the Company had not timely filed its Quarterly Report on Form 10-Q (the “Q1 2022 10-Q”) with the SEC, and that the PIPE Investor could not use the registration statement to resell the related securities

until the Company filed the Q1 2022 10-Q.

Because the PIPE Investor was unable to use the registration statement for at least 10

consecutive calendar days, the Company accrued $ 0.2 million for the three months ended March 31, 2022 for the estimated contingent

loss the Company expected to incur as a result of the late Q1 2022 10Q filing, which is recorded in other expense, net in the accompanying condensed consolidated statements of operations.

Reverse Stock-Split

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

following the reverse stock split there were approximately 1,514,000 shares of common stock outstanding prior to the Merger.

fractional shares were issued in connection with the reverse stock split.

consecutive calendar days, the Company accrued $ 0.2 million during the first quarter of 2022 for the contingent loss the Company

incurred as liquidated damages as a result of the late Q1 2022 10Q filing, which is recorded in other expense, net for the six months ended June 30, 2022 in the accompanying condensed consolidated statements of operations.

The Company paid

such $ 0.2 million liquidated damages payment in June 2022.

On June 30, 2022, the Company filed its Q1 2022 10-Q along with the 10-K/A, and on July 1, 2022, the Company provided its notice to the PIPE

Investor that it may resume use of the resale registration statement.

Under the terms of the Merger

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EARNINGS PER SHARE

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period including

the weighted average effect of the Pre-Funded Warrants the Company issued in connection with the PIPE Transaction, the exercise of which requires little or no consideration for the delivery of shares of common stock.

The Company determined that the

exercise of the Pre-Funded Warrants requires nominal consideration for the delivery of shares of common stock, and as such, has considered the 1,357,000

shares underlying the Pre-Funded Warrants to be outstanding effective on March 9, 2022 for the purposes of calculating basic EPS.

Diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares

outstanding (including the weighted average effect of the Pre-Funded Warrants) plus dilutive securities.

Stock options, RSUs, warrants 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.

Diluted net loss per share is the same as basic net loss per share in periods where the effect of potentially dilutive shares of common stock are antidilutive.

The following

table presents the amount of stock options, RSUs, warrants and convertible preferred stock that were excluded from the computation of diluted net loss per common share for three months ended March 31, 2022 and 2021, as their effect was

anti-dilutive:

Three months ended March 31,

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period

including the weighted average effect of the Pre-Funded Warrants the Company issued in connection with the PIPE Transaction, the exercise of which requires little or no consideration for the delivery of shares of common stock.

determined that the exercise of the Pre-Funded Warrants requires nominal consideration for the delivery of shares of common stock, and as such, has considered the 1,357,000 shares underlying the Pre-Funded Warrants to be outstanding effective on March 9, 2022 for the purposes of calculating basic EPS.

Diluted net loss per share is calculated by dividing net loss by the

weighted-average number of common shares outstanding (including the weighted average effect of the Pre-Funded Warrants) plus dilutive securities.

Stock options, RSUs, warrants 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.

Diluted net loss per share is the same as basic net loss per share in periods where the effect of potentially

dilutive shares of common stock are antidilutive.

The following table presents the amount of stock options, RSUs, warrants and convertible preferred stock that were excluded from the computation of diluted net loss per common share for three

and six months ended June 30, 2022 and 2021, as their effect was anti-dilutive:

Three and Six months ended June 30,

Stock options

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RECENT ACCOUNTING PRONOUNCEMENTS

There were no recent accounting pronouncements issued during the

three months ended March 31, 2022 that would have impacted the Company’s financial statements or operations.

In June 2022, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update

2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”).

The FASB issued ASU 2022-03 to (1) clarify the guidance in Topic 820, Fair Value

Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for

equity related securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820.

ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the

unit of account of the equity security and, therefore, is not considered in measuring fair value.

The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years with early adoption

The Company is evaluating when to adopt the amendments in ASU 2022-02.

The Company does not expect a material impact as a result of adopting this amendment.

SUBSEQUENT EVENT

On May 24, 2022, Dr.

Federoff resigned as the Company’s Chief Executive Officer and President effective May 26, 2022, and the Board appointed

Matthew Angel as the Company’s interim Chief Executive Officer.

In connection with Dr.

Federoff’s resignation, the Company entered into a Separation Agreement and General Release with Dr.

Federoff (the “ Separation Agreement ”), pursuant to which Dr.

Federoff resigned from his positions as Chief Executive Officer and as an officer, director and employee of the Company and

all subsidiaries.

Federoff’s resignation from the Board was not due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

In consideration for Dr.

Federoff’s execution of the

Separation Agreement and non-revocation of a waiver and release of claims relating thereto, Dr.

Federoff is entitled to the following benefits under the Separation Agreement:

a lump sum cash severance benefit in the amount of $ 0.2 million,

representing Dr.

Federoff’s target bonus for 2022;

payment of Dr.

Federoff’s annual base salary for a period of twelve months after the expiration of the applicable revocation period (the “ Separation Period ”), for a total gross amount equal to $ 0.5 million;

payment of Dr.

Federoff’s premiums for continued health benefits provided under COBRA for the Separation Period;

full acceleration of the vesting of all outstanding options (with the exception of the Milestone Options) that would have vested during the Separation Period, and such options,

together with outstanding options that vested prior to the Separation Date, representing collectively 1,420,095 shares of

common stock, may be exercised for a period of thirty-six months after the Separation Date;

acceleration and vesting of 25/36 th of the Milestone Options, representing collectively 414,759 shares of common stock, may be exercised for a period of thirty-six months

after the Separation Date;

a lump sum cash severance benefit in the amount of $ 0.1 million,

representing the value Dr.

metrics were waived and assuming a per share value of $ 0.81 .

The Separation Agreement also includes certain other customary representations, warranties and covenants of Dr.

Federoff, and provides for

reimbursement of certain expenses incurred by Dr Federoff.

The Separation Agreement supersedes all other agreements or arrangements between Dr.

Federoff and the Company regarding the subject matter of the agreement, including those with respect

to severance payments and benefits.

July 12, 2022, the PIPE Investor exercised its 1,357,000

Pre-Funded Warrants at an exercise price of $ 0.005

per share for an aggregate exercise price of $ 6,786 ,

The Company issued 1,357,000 shares of common stock to

the PIPE Investor on July 14, 2022 upon receipt of the cash proceeds.

Subsequent to the exercise, no Pre-Funded Warrants

remained outstanding.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements