i

Table of the contract, prior to transferring goods or services to the customer. In such instances, the Company records a contract liability and recognizes the contract liability as revenue when all revenue recognition criteria are met. The table below shows the balance of contract liabilities as of January 1, 2020 and September 30, 2020, including the change during the period.

Deferred
Revenue

Balance at January 1, 2020 $ 462,000
New performance obligations 198,000
Revenue recognized (540,000 )
Balance at September 30, 2020 120,000
Less non-current portion -
Current portion at September 30, 2020 $ 120,000

The Company capitalizes installation costs associated with installing equipment in a customer location and sales commissions as a deferred cost asset on the balance sheet. For installation costs that are of an amount that is less than or equal to the deferred installation revenue for the related contract, the amortization period approximates the longer of the contract term and the expected term of the customer relationship. For any excess installation costs that exceed the deferred revenue, the amortization period of the excess cost is the initial term of the contract, which is generally one to two years because the Company can still recover that excess cost in the initial term of the contract. The Company amortizes commission costs over the longer of the contract term and the expected term of the customer relationship. The table below shows the balance of the unamortized installation cost and sales commissions as of January 1, 2020 and September 30, 2020, including the change during the period.

Installation
Costs

Sales
Commissions

Total
Deferred Costs

Balance at January 1, 2020 $ 187,000 $ 87,000 $ 274,000
Incremental costs deferred 83,000 60,000 143,000
Deferred costs recognized (212,000 ) (120,000 ) (332,000 )
Balance at September 30, 2020 58,000 27,000 85,000

~~(7)~~

~~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, 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. Options, restricted stock units and convertible preferred stock representing approximately 239,000 and 249,000 shares of common stock were excluded from the computations of diluted net loss per common share for the three and nine months ended September 30, 2020 and 2019, respectively, as their effect was anti-dilutive.

~~(8)~~

~~SHAREHOLDERS’ EQUITY~~

~~Equity Incentive Plans~~

The Company’s stock-based compensation plans include the NTN Buzztime, Inc. 2019 Performance Incentive Plan (the “2019 Plan”), the NTN Buzztime, Inc. Amended 2010 Performance Incentive Plan (the “2010 Plan”) and the NTN Buzztime, Inc. 2014 Inducement Plan (the “2014 Plan”). The Company’s board of directors designated its nominating and corporate governance/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.

The 2019 Plan provides for the issuance of up to 240,000 shares of Company common stock. Awards under the 2019 Plan may be granted to officers, directors, employees and consultants of the Company. Stock options granted under the 2019 Plan may either be incentive stock options or nonqualified stock options, 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 September 30, 2020, there were stock options to purchase approximately 2,000 shares of common stock and 98,000 restricted stock units outstanding under the 2019 Plan.

As a result of stockholder approval of the 2019 Plan in June 2019, no future grants will be made under the 2010 Plan. All awards that are outstanding under the 2010 Plan will continue to be governed by the 2010 Plan until they are exercised or expire in accordance with the terms of the applicable award or the 2010 Plan. As of September 30, 2020, there were stock options to purchase approximately 24,000 shares of common stock and 12,000 restricted stock units outstanding under the 2010 Plan.

The 2014 Plan provides for the grant of up to 85,000 share-based awards to a new employee as an inducement material to the new employee entering into employment with the Company and expires in September 2024. As of September 30, 2020, there were no equity grants outstanding under the 2014 Plan.

~~Stock-Based Compensation~~

~~The Company records stock-based compensation in accordance with ASC No. 718~~~~, Compensation – Stock Compensation.~~ 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.

The Company uses the historical stock price volatility as an input to value its stock options under ASC No. 718. The expected term of stock options represents the period of time options are expected to be outstanding and is based on observed historical exercise patterns of the Company, which the Company believes are indicative of future exercise behavior. For the risk-free interest rate, the Company uses the observed interest rates appropriate for the term of time options are expected to be outstanding. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

The Company did not grant any stock options and no options were exercised during the three or nine months ended September 30, 2020. During the three and nine months ended September 30, 2019, the Company granted stock options to purchase approximately 1,000 and 2,000 shares of common stock, respectively, and no options were exercised.

~~The following weighted-average assumptions were used for stock option awards granted during the three and nine months ended September 30, 2019:~~

Three months ended Nine months ended
September 30, 2019 September 30, 2019
Weighted average risk-free rate 1.39 % 1.70 %
Weighted average volatility 95.11 % 108.83 %
Dividend yield 0.00 % 0.00 %
Expected term 5.61 years 5.73 years

The Company estimates forfeitures, based on historical activity, at the time of grant and revised if necessary in subsequent periods if actual forfeiture rates differ from those estimates. Stock-based compensation expense for the three months ended September 30, 2020 and 2019 was $53,000 and $63,000, respectively, and $135,000 and $172,000 for the nine months ended September 30, 2020 and 2019, respectively, and is expensed in selling, general and administrative expenses and credited to additional paid-in-capital.

Outstanding restricted stock units (“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. During the three months ended September 30, 2019, the Company granted 30,000 RSUs. No RSUs were granted during the three months ended September 30, 2020. During the nine months ended September 30, 2020 and 2019, the Company granted 172,000 and 77,000 RSUs, respectively. The weighted average grant date fair value of the RSUs awarded during the three months ended September 30, 2019 was $2.76 per RSU. The weighted average grant date fair value of the RSUs awarded during the nine months ended September 30, 2020 and 2019 was $2.51 and $2.95 per RSU, respectively.

During the three months ended September 30, 2019, 30,000 RSUs were awarded as a performance-based award granted to the Company’s former chief executive officer in connection with his resignation. The award would have vested in full upon the effective date of a change in control transaction in which an individual, entity or group acquired all of the Company’s then-outstanding equity interests on or before March 17, 2020, or in which an individual, entity or group acquired 51% of our then-outstanding equity interests on or before March 17, 2020, and then that same individual, entity or group acquired the remaining equity so that it held all of the Company’s then-outstanding equity interests on or before June 17, 2020. Continuing service was not required for vesting to occur. Because a change in control is not considered probable until a change in control occurs, and because the change in control did not occur as discussed above, the Company did not recognize stock compensation expense on this award and this award expired unvested.

In connection with the resignation of the Company’s former chief executive officer, the vesting of 10,000 of his RSUs were accelerated, 5,000 in September 2019 and 5,000 in October 2019. The modification of this award resulted in the Company recognizing stock compensation expense for the accelerated vesting of RSUs in the period in which the accelerated vesting occurred.

With the exception of the performance-based award and the acceleration of vesting of RSUs discussed above, RSUs typically vest over a period of two to three years, generally in monthly or quarterly increments. Some awards may have an initial cliff period of six months before the monthly vesting begins. All outstanding RSUs as of September 30, 2020 are subject to accelerated vesting in the event of a change in control.

The following table shows the number of RSUs that vested and were settled during the three and nine months ended September 30, 2020 and 2019, as well as the number of shares of common stock issued upon settlement. In lieu of paying cash to satisfy withholding taxes due upon the settlement of vested RSUs, 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.

Three months ended
September 30, Nine months ended
September 30,
2020 2019 2020 2019
Restricted stock units vested and settled 19,000 18,000 39,000 29,000
Common stock issued, net of shares withheld 14,000 13,000 28,000 20,000

14

Contents

~~(9)~~

~~DEBT~~

~~Term Loan~~

In September 2018, the Company entered into a loan and security agreement with Avidbank for a 48-month term loan in the amount of $4,000,000. In February 2020, the Company made a pre-payment on the term loan of approximately $150,000 following the sale of all of the Company’s assets used to conduct the live-hosted knowledge-based trivia events in January 2020. In March 2020, the Company and Avidbank entered into an amendment to the loan and security agreement (“Amendment #1”). In connection with entering into Amendment #1, the Company made a $433,000 payment on the term loan, which included the $83,333 monthly principal payment plus accrued interest for March 2020 and a $350,000 principal prepayment, thereby reducing the outstanding principal balance of the term loan to $2,000,000 as of March 31, 2020.

The Company incurred approximately $26,000 of debt issuance costs related to the loan and security agreement and its amendment, of which approximately $3,000 was related to Amendment #1. The debt issuance costs are being amortized to interest expense using the effective interest rate method over the life of the loan. The unamortized balance of the debt issuance costs as of September 30, 2020 and December 31, 2019 was $1,000 and $11,000, respectively, and is recorded as a reduction of long-term debt.

Under the terms of Amendment #1, the Company’s financial covenants were changed as described below, the maturity date was changed from September 28, 2022 to December 31, 2020, and the amount of the Company’s monthly payment obligations increased as described below.

Before entering into Amendment #1, the Company’s adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) was required to be at least $1,000,000 for the trailing six-month period as of the last day of each fiscal quarter and the aggregate amount of unrestricted cash it had in deposit accounts or securities accounts maintained with Avidbank must be not less than $2,000,000 at all times. Under the terms of Amendment #1, the minimum EBITDA covenant was replaced with a monthly minimum asset coverage ratio covenant, which the Company refers to as the ACR covenant, and the minimum liquidity covenant was amended to provide that the aggregate amount of unrestricted cash the Company has in deposit accounts or securities accounts maintained with Avidbank must be at all times not less than the principal balance outstanding under the term loan. Under the ACR covenant, the ratio of (i) the Company’s unrestricted cash at Avidbank as of the last day of a calendar month plus 75% of its outstanding accounts receivable accounts that are within 90 days of invoice date to (ii) the outstanding principal balance of the term loan on such day must be no less than 1.25 to 1.00. As of September 30, 2020, the Company was in compliance with both of those covenants.

Before entering into Amendment #1, the Company was required to make monthly principal payments of approximately $83,000 plus accrued and unpaid interest. Under the terms of the amendment, the monthly principal payment increased to $125,000 for each of April, May and June 2020, to $300,000 for each of July, August, September, October and November 2020, and to $125,000 for December 2020. As of September 30, 2020, the outstanding principal balance of the term loan was $725,000.

On June 1, 2020, the Company and Avidbank entered into an amendment to the loan and security agreement to formally memorialize Avidbank’s consent to the Company receiving the PPP Loan (as defined below). Avidbank initially consented to the Company receiving the PPP loan in April 2020.

~~Paycheck Protection Program Loan~~

On April 18, 2020, the Company issued a note in the principal amount of approximately $1,625,000 to Level One Bank evidencing the loan (the “PPP Loan”) the Company 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”). As of September 30, 2020, the outstanding principal balance of the PPP Loan was approximately $1,625,000.

The PPP Loan matures on April 18, 2022 and bears interest at a rate of 1.0% per annum. The Company must make monthly interest only payments beginning on November 18, 2020. One final payment of all unforgiven principal plus any accrued unpaid interest is due at maturity. Under the terms of the PPP, the Company may prepay the PPP Loan at any time with no prepayment penalties. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. In October 2020, the Company submitted its loan forgiveness application for the PPP Loan, and in November 2020, the U.S Small Business Administration approved the forgiveness of approximately $1,093,000 of the $1,625,000 loan, leaving a principal balance of approximately $532,000.

15

~~Bridge Loan~~

In connection with the Asset Purchase Agreement entered into with eGames.com on September 18, 2020, the Company issued to Fertilemind Management, LLC, an affiliate of eGames.com, an unsecured promissory note (the “Note”) in the principal amount of $1,000,000, evidencing a $1,000,000 loan received from Fertilemind Management, LLC on behalf of eGames.com (the “Bridge Loan”). The Company may use the loan proceeds for, among other things, the payment of obligations related to the transactions contemplated by the Asset Purchase Agreement and the Merger Agreement and other general working capital purposes. The principal amount accrues interest at rate of 8% per annum (increasing to 15% per annum upon the occurrence of an event of default), compounded annually. The principal amount of the Bridge Loan and accrued interest thereon is due and payable upon the earlier of (i) the termination of the Asset Purchase Agreement, (ii) the closing of a Business Combination (as defined in the Note), and (iii) December 31, 2020. Upon the closing of the Asset Sale, the Bridge Loan will be applied against the purchase price under the Asset Purchase Agreement, and the Note will be extinguished.

All of the Company’s obligations under the Note are subordinate to the indebtedness and all other obligations owed by the Company to Avidbank including under the loan and security agreement, dated as of September 28, 2018 and as amended from time to time, between the Company and Avidbank.

The Note includes customary events of default, including if any portion of the Note is not paid when due; if the Company defaults in the performance of any other material term, agreement, covenant or condition of the Note, subject to a cure period; if any final judgment for the payment of money is rendered against the Company and the Company does not discharge the same or cause it to be discharged or vacated within 90 days; if the Company makes an assignment for the benefit of creditors, if the Company generally does not pay its debts as they become due; if a receiver, liquidator or trustee of the Company is appointed, or if the Company is adjudicated bankrupt or insolvent. In the event of an event of default, the Note will accelerate and become immediately due and payable at the option of the holder.

The Company is in discussions with Fertilemind Management, LLC regarding the possibility of borrowing an additional $500,000 on approximately December 1, 2020, which, if received, would also be applied toward the purchase price at the closing of the Asset Sale. No assurances can be given that the Company will obtain such $500,000 loan from Fertilemind Management, LLC or from any other party.

~~(10)~~

~~LEASES~~

~~As Lessee~~

The Company has operating leases for its warehouse facility and for equipment under agreements that expire at various dates through 2023. Certain of these leases contain renewal provisions and the warehouse lease requires the Company to pay utilities, insurance, taxes and other operating expenses. The Company terminated its lease for its corporate headquarters as of June 30, 2020, which is discussed further below. The Company also has property held under finance leases that expire at various dates through 2021. The Company’s leases do not contain any residual value guarantees or material restrictive covenants.

~~Upon adoption of ASC No. 842,~~ ~~Leases~~ (“ASC No. 842”), the Company recognized on its consolidated balance sheet as of January 1, 2019 an initial measurement of approximately $3,458,000 of operating lease liabilities and approximately $2,336,000 of corresponding operating right-of use assets, net of tenant improvement allowances, the amounts of which were primarily related to the Company’s corporate headquarters. The initial measurement of the finance leases under ASC No. 842 did not have a material change from the balances of the finance lease liabilities and assets recorded prior to the adoption of ASC No. 842. There was also no cumulative effect adjustment to retained earnings as a result of the transition to ASC No. 842. The Company recorded the initial recognition of the operating leases as a supplemental noncash financing activity on the accompanying consolidated statement of cash flows. The adoption of ASC No. 842 did not have a material impact on the Company’s consolidated statement of operations.

~~Corporate Headquarters Lease Termination~~

As part of the Company’s on-going efforts to implement measures designed to reduce operating expenses and preserve capital as it continues to seek to mitigate the substantial negative impact of the COVID-19 pandemic on the Company’s business, on June 25, 2020, the Company entered into a Lease Termination, Surrender and Buy-Out Agreement (the “Lease Termination Agreement”) with Burke Aston Partners, LLC (the “Lessor”) to terminate, effective June 30, 2020, the lease dated July 26, 2018 for the Company’s corporate headquarters. Absent the Lease Termination Agreement, the lease would have expired in accordance with its terms in April 2026. Since January 1, 2020, the Company reduced its headcount from 74 to 19 employees, all of whom are currently working remotely, and the Company did not currently need a corporate headquarters of the size subject to that lease. After paying all the amounts the Company potentially could be required to pay under the Lease Termination Agreement, including both contingent payments described below, the Company will have reduced its future cash obligations under the lease by approximately $3.5 million as compared to the amount of rent the Company would have otherwise paid if the lease remained in effect for the duration of its original term.

Pursuant to the Lease Termination Agreement, in exchange for allowing the Company to terminate the lease early, the Company agreed to (i) allow the Lessor to keep its security deposits of approximately $260,000, which includes $200,000 of restricted cash under a letter of credit, (ii) pay the Lessor approximately $121,000 for past due rent, and (iii) pay the Lessor $80,000 if the Company sells all or any material part of its assets or all or any material part of its equity interests and $5,000 if the Lessor needs to dispose of furniture that remained in the office space. In July 2020, the Lessor informed the Company that it needed to dispose of the remaining furniture, and the Company paid the Lessor $5,000 to do so.

As a result of the lease termination, the Company recorded a gain on the termination of the lease of approximately $8,000 during the three months ended June 30, 2020, which includes writing off the remaining balances of the right-of-use asset of approximately $1,913,000 and the corresponding lease liability of approximately $3,135,000, applying the principal portion of past due rents to be paid in July 2020 of approximately $64,000, writing off of the unamortized tenant improvement allowance of approximately $890,000, and applying the security deposit of approximately $260,000.

Additionally, as part of the lease termination and vacating the facility, the Company recorded a loss on the disposal of fixed assets of approximately $282,000 during the three months ended June 30, 2020, which includes approximately $197,000 in furniture and fixtures and the Company’s vehicle, and $85,000 in other leasehold improvement assets.

The tables below show the beginning balances of the operating lease right-of-use assets and liabilities as of January 1, 2019 and the ending balances as of September 30, 2020, including the changes during the periods.

Operating lease right-of-use
assets

Operating lease right-of use assets at January 1, 2020 $ 2,101,000
Amortization of operating lease right-of-use assets (161,000 )
Addition of operating lease right-of -use asset 28,000
Write-off of right-of-use asset due to headquarters lease termination (1,913,000 )
Write-off of right-of-use asset related to other lease terminations (50,000 )
Operating lease right-of-use assets at September 30, 2020 $ 5,000

Operating lease
liabilities

Operating lease liabilities at January 1, 2020 $ 3,300,000
Principal payments on operating lease liabilities (154,000 )
Addition of operating lease liability 28,000
Write-off of lease liability related to headquarters lease termination (3,135,000 )
Write-off of lease liability related to other lease terminations (34,000 )
Operating lease liabilities at September 30, 2020 5,000
Less non-current portion -
Current portion at September 30, 2020 $ 5,000

~~As of September 30, 2020, the Company’s operating leases have a weighted-average remaining lease term of 1 month for $5,000 in future payments and a weighted-average discount rate of 5%.~~

For the three months ended September 30, 2020 and 2019, total lease expense under operating leases was approximately $17,000 and $137,000, respectively. For the nine months ended September 30, 2020 and 2019, total lease expense under operating leases was approximately $281,000 and $407,000, respectively. Lease expense is recorded in selling, general and administrative expenses.

The tables below show the beginning balances of the finance lease right-of-use assets and liabilities as of January 1, 2020 and the ending balances as of September 30, 2020, including the changes during the periods. The Company’s finance lease right-of-use assets are included in “Fixed assets, net” on the accompanying consolidated balance sheet.

Finance lease right-of-use
assets

Finance lease right-of use assets at January 1, 2020 $ 41,000
Depreciation of finance lease right-of-use assets (15,000 )
Finance lease right-of-use assets at September 30, 2020 $ 26,000

Finace lease
liabilities

Finance lease liabilities at January 1, 2020 $ 41,000
Principal payments on finance lease liabilities as of September 30, 2020 (14,000 )
Finance lease liabilities at September 30, 2020 27,000
Less non-current portion (4,000 )
Current portion at September 30, 2020 $ 23,000

As of September 30, 2020, the Company’s finance leases have a weighted-average remaining lease term of 1.2 years and a weighted-average discount rate of 5.52%. The maturities of the finance lease liabilities are as follows:

As of
September 30, 2020
2020 7,000
2021 21,000
Total Finance lease payments 28,000
Less imputed interest (1,000 )
Present value of Finance lease liabilities $ 27,000

For the three months ended September 30, 2020 and 2019, total lease costs under finance leases were approximately $5,000 and $10,000, respectively. For the nine months ended September 30, 2020 and 2019, total lease costs under finance leases were approximately $15,000 and $41,000, respectively.

~~As Lessor~~

ASC No. 842 did not make fundamental changes to lease accounting guidance for lessors. Therefore there was no financial statement impact due to the adoption of ASC No. 842. As a lessor, the Company has two types of customer contracts that involve leases: right-to-use operating leases and sales-type leases.

~~Right-to-use operating leases.~~ Certain customers enter into contracts to obtain subscription services from the Company, which includes the Company’s content (nonlease component) and equipment installed in the customer locations so the customer can access the content (lease component). The timing and pattern of the transfer of both the subscription services and the equipment are the same, that is, the Company’s subscription services are made available to its customer at the same time as the equipment is installed. Additionally, the Company has determined that the lease component of these customer contracts is an operating lease. Accordingly, the Company has concluded that these contracts qualify for the practical expedient permitted under ASC No. 842 to not separate the nonlease component from the related lease component. Instead, the Company treats the combined component as a single performance obligation under Topic 606, ~~Revenue from Contracts with Customers,~~ ~~as the Company has concluded that the nonlease component (subscription services) is the predominant component of the combined component.~~

~~Sales-type leases.~~ As with the contracts under right-of-use operating leases, certain customers enter into contracts to obtain subscription services from the Company, which includes the Company’s content (nonlease component) and equipment installed in the customer locations so the customer can access the content (lease component). Generally, the equipment lease term is for three years and the customer prepays its lease in full. After the lease term, the lessee may purchase the equipment for a nominal fee or lease new equipment. Although the timing and pattern of the transfer of both the subscription services and the equipment may be the same, the provisions of the contract related to the equipment results in a sales-type lease, and therefore, the Company cannot treat both the nonlease component and the lease component as a combined component. Accordingly, the nonlease component is accounted for under Topic 606 and the sales-type lease is accounted for under Topic 842 and separately disaggregated on the Company’s statement of operations. The Company does not anticipate entering into any sales-type lease arrangements after December 31, 2019. The Company has not recognized any sales-type lease revenue for the three or nine months ended September 30, 2020.

18

~~(11)~~

~~DISPOSITION OF SITE EQUIPMENT TO BE INSTALLED AND FIXED ASSETS~~

Site equipment to be installed consists of fixed assets related to the Company’s tablet platform that have not yet been placed in service and are stated at cost. These assets remain in site equipment to be installed until they are deployed at the Company’s customer sites. For tablet platform customers that are under sales-type lease arrangements, the cost of the equipment is recognized in direct costs upon installation. For all other tablet platform customers, the cost of the equipment is reclassified to fixed assets upon installation and depreciated over its estimated useful life. The Company evaluates the recoverability of site equipment to be installed and fixed assets for impairment whenever events or circumstances indicate that the carrying amounts of such assets may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset or asset group to estimated undiscounted future net cash flows expected to be generated. If the carrying amount of the asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.

The COVID-19 pandemic has had, and continues to have, a significant adverse impact on the Company’s business, cash flows from operations and liquidity. However, based on the cash flows the Company is receiving from its customers during the pandemic and the future undiscounted cash flows the Company expects to receive from these customers, the Company has determined that recoverability of the carrying amounts of its site equipment to be installed and the site equipment in fixed assets is probable and, therefore, during the three months ended September 30, 2020, the Company did not record any impairment charges on these assets, other than disposals of approximately $3,000 in the ordinary course of business. For the nine months ended September 30, 2020, the Company disposed of approximately $229,000 of site equipment, primarily related to older equipment the Company determined would no longer be deployed.

For other fixed assets, as previously discussed, the Company terminated its lease for its corporate headquarters and vacated the facility as of June 30, 2020. (See Note 10) As a result, during the nine months ended September 30, 2020, the Company wrote-off approximately $890,000 of unamortized tenant improvement allowance that is recorded as part of the gain on termination of lease, as well as approximately $85,000 in leasehold improvement assets and $197,000 in furniture and fixtures and the Company’s vehicle.

~~The Company disposed of approximately $4,000 and $24,000 of site equipment during the three and nine months ended September 30, 2019 in the ordinary course of business.~~

The Company will continue to monitor the recoverability of its site equipment and other fixed assets as it relates to the continued impact of the COVID-19 pandemic and will recognize any additional write-offs during the period in which it determines that impairment exists.

~~(12)~~

~~SOFTWARE DEVELOPMENT COSTS~~

~~The Company capitalizes costs related to developing certain software programs in accordance with ASC No. 350,~~ ~~Intangibles – Goodwill and Other~~. When the Company deploys the programs, it begins to recognize costs related to the programs on a straight-line basis over the programs’ estimated useful lives, generally two to three years. Amortization expense relating to capitalized software development costs totaled $137,000 and $100,000 for the three months ended September 30, 2020 and 2019, respectively, and $430,000 and $293,000 for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020 and December 31, 2019, approximately $62,000 and $177,000, respectively, of capitalized software costs were not subject to amortization as the development of various software projects was not complete.

The Company performed its quarterly review of software development projects for the three months ended September 30, 2019, and determined to abandon certain software development projects that were no long a strategic fit for the Company, which resulted in recognizing approximately $51,000 in capitalized software impairment charges. The Company’s quarterly review for the three months ended September 30, 2020 did not result in recognizing any impairment charges for the period. During the nine months ended September 3, 2020 and 2019, the Company abandoned various software development projects that the Company concluded were no longer a current strategic fit or for which it determined that the marketability of the content had decreased due to obtaining additional information regarding the specific industry for which the content was intended. As a result, the Company recognized impairment charges of $238,000 and $52,000, respectively. Impairment of capitalized software is shown separately on the Company’s consolidated statement of operations.

Taking into consideration the impact the COVID-19 pandemic has had, and continues to have, on the Company’s business, the Company determined that based on the future undiscounted cash flows the Company expects to receive from its customers, recoverability of the carrying amounts of capitalized software development costs is probable and, therefore, no additional impairment charges were required to be recognized other than as discussed above. The Company will continue to monitor the recoverability of these assets as it relates to the continued impact of the COVID-19 pandemic on the Company’s business and recognize any additional write-offs during the period in which it determines that impairment exists.

~~(13) GOODWILL~~

The Company’s goodwill balance of $696,000 as of December 31, 2019 relates to the excess of costs over the fair value of assets the Company acquired in 2003 related to its Canadian business (the “Reporting Unit”). In the Company’s evaluation of impairment indicators as of March 31, 2020, it determined that the uncertainty relating to the impact of the COVID-19 pandemic on the Reporting Unit’s future operating results represented an indicator of impairment. Accordingly, the Company compared the estimated fair value of the Reporting Unit to its carrying value at March 31, 2020, determined that a full impairment loss was warranted and recognized an impairment charge of $662,000 for the three months ended March 31, 2020. No further evaluations are necessary after March 31, 2020. There was no goodwill impairment recorded for the three or nine months ended September 30, 2019.

In addition to the impairment loss recognized, fluctuations in the amount of goodwill shown on the accompanying balance sheets can occur due to changes in the foreign currency exchange rates used when translating NTN Canada’s financial statement from Canadian dollars to US dollars during consolidation. The following table shows the changes in the carrying amount of goodwill for the nine months ended September 30, 2020.

Goodwill balance at January 1, 2020 $ 696,000
Activity for the three months ended March 31, 2020
Effects of foreign currency (34,000 )
Goodwill impairment (662,000 )
Goodwill balance at March 31, 2020 and September 30, 2020 $ -

~~(14) ACCUMULATED OTHER COMPREHENSIVE INCOME~~

The United States dollar is the Company’s functional currency, except for its operations in Canada where the functional currency is the Canadian dollar. The financial position and results of operations of the Company’s foreign subsidiaries are measured using the foreign subsidiary’s local currency as the functional currency. In accordance with ASC No. 830, ~~Foreign Currency Matters~~, revenues and expenses of the Company’s foreign subsidiaries have been translated into U.S. dollars using the average exchange rates during the reporting period, and the assets and liabilities of such subsidiaries have been translated using the period end exchange rate. Accumulated other comprehensive income includes the accumulated gains or losses from these foreign currency translation adjustments. As of September 30, 2020 and December 31, 2019, $241,000 and $268,000 of foreign currency translation adjustments were recorded in accumulated other comprehensive income, respectively.

~~(15) RECENT ACCOUNTING PRONOUNCEMENTS~~

~~In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.~~ This ASU enhances and simplifies various aspect of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year and interim-period accounting for enacted changes in tax law. The amendment will be effective for public companies with fiscal years beginning after December 15, 2020, (which will be January 1, 2021 for the Company); early adoption is permitted. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements.

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments~~, which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The ASU requires an entity to establish an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. This ASU will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. For smaller reporting companies, the effective date for this standard has been delayed and will be effective for fiscal years beginning after December 15, 2022 (which will be January 1, 2023 for the Company). The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements.

~~(16) SUBSEQUENT EVENTS~~

~~PPP Loan Forgiveness~~

In November 2020, the U.S. Small Business Administration approved the forgiveness of approximately $1,093,000 of the Company’s $1,625,000 PPP Loan, leaving a principal balance of approximately $532,000.

~~Legal Proceedings~~

From time to time, the Company is subject to legal proceedings in the ordinary course of business. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm its financial position, cash flows, or overall trends in results of operations, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or outcomes could occur that have, individually or in the aggregate, a material adverse effect on the Company’s business, financial condition or operating results. The Company is not currently subject to any pending material legal proceedings except as described below.

~~The Company and its directors have been named as defendants in six substantially similar actions brought by purported stockholders of the Company’s arising out of the Merger:~~ ~~Henson v. NTN Buzztime, Inc.~~~~, Case No. 1:20-cv-08663 (S.D.N.Y. filed Oct. 16, 2020);~~ ~~Chinta v. NTN Buzztime, Inc.~~~~, Case No. 1:20-cv-01401 (D. Del. filed Oct. 16, 2020);~~ ~~Amanfo v. NTN Buzztime, Inc.~~~~, Case No. 1:20-cv-08747 (S.D.N.Y. filed Oct. 20, 2020);~~ ~~Falikman v. NTN Buzztime, Inc.~~~~, Case No. 1:20-cv-05106 (E.D.N.Y. filed Oct. 23, 2020);~~ ~~Haas v. NTN Buzztime, Inc.~~~~, Case No. 3:20-cv-02123-BAS-JLB (S.D. Cal. filed Oct. 29, 2020); and~~ ~~Monsour v. NTN Buzztime, Inc.~~ Case No. 1:20-cv-08755 (S.D.N.Y filed October 20, 2020). These actions assert claims asserting violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Securities Exchange Commission Rule 14a-9 promulgated thereunder. ~~Chinta~~ asserts additional claims for breach of fiduciary duty under Delaware law. The complaints allege that 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 the Company or Brooklyn may have made, and the analyses performed by the Company’s financial advisor, Newbridge Securities Corporation; (2) conflicts concerning the sales process; and (3) disclosures regarding whether or not the Company entered into any confidentiality agreements with standstill and/or “don’t ask, don’t waive” provisions. The complaints allege that these purported failures to disclose rendered the Form S-4 false and misleading. The complaints request a 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 Registration Statement; an accounting by the Company for all alleged damages suffered; a declaration that certain federal securities laws have been violated; and costs, including attorneys’ and expert fees and expenses. Process has been served in ~~Henson~~~~, but not in any of the other actions. The deadline for defendants to respond to the complaint in~~ ~~Henson~~ ~~is December 21, 2020. Although plaintiffs request injunctive relief in their complaints, they have not filed motions for such relief.~~

~~The Company and its directors deny the allegations asserted against the Company in these actions and intend to oppose them vigorously.~~

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

~~CAUTION CONCERNING~~CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report ~~and the documents incorporated by reference herein, if any, contain~~contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, or the Forward-Looking Statements Safe Harbor, as codified in Section 27A of the Securities Act of 1933, ~~as amended,~~ and Section 21E of the Securities Exchange Act of ~~1934, as amended, or the Exchange Act.~~1934. All statements other than statements of historical facts could be deemed forward-looking statements. We have tried, whenever possible, to identify these statements by using words such as “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “seeks,” or words of similar meaning, or future or conditional verbs, such as “may,” “will,” “should,” “could,” “aims,” “intends” or “projects,” and similar expressions, whether in the negative or the affirmative. Forward-looking statements reflect management’s beliefs and assumptions, are all based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Forward-looking statements by their nature address matters that are, to different degrees, subject to risks and uncertainties that could cause actual results to differ materially and adversely from those expressed in any forward-looking statement. ~~For us, particular factors that might cause~~

We may not actually achieve the plans, intentions or contribute to such differences include: (1) the risk that the conditions to the closing of the Asset Sale or the Merger are not satisfied, including the failure to timely or at all obtain stockholder approval for the Asset Sale or the Merger; (2) uncertainties as to the timing of the consummation of the Asset Sale or the Merger and the ability of the parties to consummate the Asset Sale or the Merger; (3) risks related to our ability to correctly estimate our operating expenses and our expenses associated with the Asset Sale or the Merger; (4) unexpected costs, charges or expenses resulting from the Asset Sale or the Merger; (5) if the Merger or the Asset Sale is not consummated, our ability to raise substantial capital in the very near-term to allow us to maintain operations and sustain the negative impact of the COVID-19 pandemic on our business and financial condition, and if we are able to sustain such impact, our ability to recover from the impact; (6) our ability to successfully manage our liquidity and our working capital deficit by managing the timing of payments to our third parties; (7) our ability to comply with our financial covenantsexpectations disclosed in our ~~loan~~forward-looking statements, and ~~security agreement with Avidbank and its right to declare a default if we do~~you should not which could lead to all payment obligations becoming immediately due and payable and which could lead to a foreclosure on our assets; (8) when, and the extent to which, the negative impact of the pandemic will improve, including when a substantial majority of restaurants across the U.S. and Canada will be permitted to offer on-site dining and operate at or close to pre-pandemic levels or when a substantial majority of bars across the U.S. and Canada will be permitted to re-open and operate at or close to pre-pandemic levels, when our customers will re-open, or if they will subscribe to our service if and when they do; (9) the negative impact that measures we implemented and may implement to reduce our operating expenses and planned capital expenses (including investments in our business) may have on our ability to effectively manage and operate our business; (10) our ability to maintain or grow our revenue; and (11) the other risks and uncertainties described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (our “2019 10-K”), and described in other documents we file from time to time with the Securities and Exchange Commission, or SEC, including our Current Reports on Form 8-K and our Quarterly Reports on Form 10-Q filed with the SEC thereafter. To the extent the impact of the COVID-19 pandemic adversely affects our business, operations, financial condition and operating results, it may also have the effect of heightening many of the other risks described in Part I, Item 1A “Risk Factors” included in our 2019 10-K.

~~Readers are urged not to~~ place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in our forward-looking statements. We have identified important factors in the cautionary statements ~~in this report~~included, or incorporated by reference, herein, which speak only as of the date of this report. We are including this cautionary note to make applicable, and take advantage of, the safe harbor provisions of the Forward-Looking Statements Safe Harbor.

~~We believe that the expectations reflected in forward-looking statements~~ in this report, or incorporated herein by reference are based upon reasonable assumptions at the time made. However, given the risks and uncertainties, you should not rely on any forward- looking statements as a predictionparticularly in “Item 1A. Risk Factors” in Part II of this report, that we believe could cause actual results ~~developments~~ or ~~other outcomes. You should read these forward-looking statements with the understanding that we may be unable~~events to ~~achieve projected results, developments or other outcomes and that actual results, developments or other outcomes may be~~differ materially ~~different~~ from ~~what we expect. You are cautioned not to place undue reliance on these~~our forward-looking statements.

We intend forward-looking statements to speak only as of the time they are made. Except as required by law, we do not undertake, and expressly disclaim any obligation, to disseminate, after the date hereof, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.

~~INTRODUCTION~~

~~Management’s discussion and analysis~~

ii

Table of ~~financial condition and results~~Contents

BROOKLYN IMMUNOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2021			December 31, 2020
ASSETS	(unaudited)
Current assets:
Cash	$	50,164,673		$	1,630,455
Tax receivable		23,303			0
Prepaid expenses and other current assets		1,753,197			102,322
Total current assets		51,941,173			1,732,777
Property and equipment, net		582,041			594,106
Right-of-use assets - operating leases		2,767,804			2,092,878
Goodwill		2,043,747			2,043,747
In-process research and development		6,860,000			6,860,000
Security deposits and other assets		514,881			453,252
Total assets	$	64,709,646		$	13,776,760

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	3,679,311		$	1,275,223
Accrued expenses		1,916,126			1,051,020
Loans payable		410,000			410,000
PPP loan, current		309,905			115,972
Operating lease liabilities, current		383,923			273,217
Other current liabilities		985,233			0
Total current liabilities		7,684,498			3,125,432
Contingent consideration		19,290,000			20,110,000
Operating lease liabilities, non-current		2,529,422			1,905,395
PPP loan, non-current		0			193,933
Other liabilities		22,863			22,863
Total liabilities		29,526,783			25,357,623

Stockholders’ and members’ equity (deficit):
Class A membership units		0			23,202,005
Class B membership units		0			1,400,000
Class C membership units		0			1,000,000
Common units		0			197,873
Common stock, $0.005 par value, 100,000,000 shares authorized, 44,707,382 issued and outstanding at June 30, 2021; 0 shares issued and outstanding at December 31, 2020.		223,537			0
Series A preferred stock		781			0
Additional paid-in capital		100,134,743			0
Accumulated deficit		(65,176,198	)		(37,380,741	)
Total stockholders’ and members’ equity (deficit)		35,182,863			(11,580,863	)
Total liabilities and stockholders’ and members’ equity (deficit)	$	64,709,646		$	13,776,760

The accompanying notes are an integral part of ~~operations is provided as a supplement to, and should be read with, the accompanying unaudited~~these condensed consolidated financial ~~statements~~statements.

1

Table of Contents

BROOKLYN IMMUNOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three months ended June 30,						Six months ended June 30,
	2021			2020			2021			2020
Operating expenses:
Research and development		5,392,777			985,081			6,912,410			1,376,140
General and administrative		4,620,353			1,034,120			6,256,910			1,657,595
Transaction costs		0			0			5,765,407			0
Change in fair value of contingent consideration		0			0			(820,000	)		0
Total operating expenses		10,013,130			2,019,201			18,114,727			3,033,735
Loss from operations		(10,013,130	)		(2,019,201	)		(18,114,727	)		(3,033,735	)
Other expenses:
Loss on sale of NTN assets		(50,000	)		0			(9,648,173	)		0
Other expense, net		(22,187	)		(14,245	)		(24,751	)		(18,923	)
Total other expenses		(72,187	)		(14,245	)		(9,672,924	)		(18,923	)
Net loss		(10,085,317	)		(2,033,446	)		(27,787,651	)		(3,052,658	)
Series A preferred stock dividend		(7,806	)		0			(7,806	)		0
Net loss attributable to common stockholders	$	(10,093,123	)	$	(2,033,446	)	$	(27,795,457	)	$	(3,052,658	)
Net loss per common share - basic and diluted	$	(0.24	)	$	(0.12	)	$	(0.79	)	$	(0.17	)
Weighted average shares outstanding - basic and diluted		42,448,188			17,583,489			35,187,292			17,542,750

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

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Table of Contents

BROOKLYN IMMUNOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ AND MEMBERS’ EQUITY (DEFICIT)

For the three and six months ended June 30, 2021 and 2020 (unaudited)

	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 April 1, 2021	$	0		$	0		$	0		$	0			41,505,998		$	207,530			156,112	$	781	$	50,453,489		$	(55,083,075	)	$	(4,421,275	)
Common stock to be retained by NTN stockholders		0			0			0			0			0			0			0		0		(157	)		0			(157	)
Issuance of common stock from the exercise of stock options		0			0			0			0			1,300			6			0		0		10,196			0			10,202
Issuance of common stock related to stock purchase agreement with Lincoln Park Capital Fund, LLC, net		0			0			0			0			3,211,942			16,060			0		0		48,508,858			0			48,524,918
Issuance of common stock in lieu of cash dividend to Series A preferred stockholders		0			0			0			0			202			1			0		0		7,805			(7,806	)		0
Forfeiture of unvested restricted stock		0			0			0			0			(12,060	)		(60	)		0		0		60			0			0
Stock based compensation		0			0			0			0			-			0			-		0		1,154,492			0			1,154,492
Net loss		0			0			0			0			-			0			-		0		0			(10,085,317	)		(10,085,317	)
Balances at June 30, 2021	$	0		$	0		$	0		$	0			44,707,382		$	223,537			156,112	$	781	$	100,134,743		$	(65,176,198	)	$	35,182,863

Balances at January 1, 2021	$	23,202,005		$	1,400,000		$	1,000,000		$	197,873			0		$	0			0	$	0	$	0		$	(37,380,741	)	$	(11,580,863	)
Brooklyn rights offerings membership units		10,500,000			0			0			0			-			0			-		0		0			0			10,500,000
Elimination of Brooklyn’s historical members’ equity		(33,702,005	)		(1,400,000	)		(1,000,000	)		(197,873	)		-			0			-		0		36,299,878			0			0
Common stock to be retained by NTN stockholders		0			0			0			0			1,514,373			7,572			0		0		8,169,885			0			8,177,457
Issuance of Series A preferred stock retained by NTN stockholders		0			0			0			0			0			0			156,112		781		(781	)		0			0
Issuance of common stock to Brooklyn members		0			0			0			0			38,923,957			194,620			0		0		(194,620	)		0			0
Issuance of common stock to Financial Advisor upon consummation of merger		0			0			0			0			1,067,668			5,338			0		0		5,760,069			0			5,765,407
Issuance of common stock from the exercise of stock options		0			0			0			0			1,300			6			0		0		10,196			0			10,202
Issuance of common stock related to stock purchase agreement with Lincoln Park Capital Fund, LLC, net		0			0			0			0			3,211,942			16,060			0		0		48,508,858			0			48,524,918
Issuance of common stock in lieu of cash dividend to Series A preferred stockholders		0			0			0			0			202			1			0		0		7,805			(7,806	)		0
Forfeiture of unvested restricted stock		0			0			0			0			(12,060	)		(60	)		0		0		60			0			0
Stock based compensation		0			0			-			0			-			0			-		0		1,573,393			0			1,573,393
Net loss		0			0			0			0			-			0			-		0		0			(27,787,651	)		(27,787,651	)
Balances at June 30, 2021	$	0		$	0		$	0		$	0			44,707,382		$	223,537			156,112	$	781	$	100,134,743		$	(65,176,198	)	$	35,182,863

	Membership Equity								Accumulated
	Class A		Class B		Class C		Common		Deficit			Total
Balances at April 1, 2020	$	18,490,192	$	1,400,000	$	1,000,000	$	129,671	$	(11,960,738	)	$	9,059,125
Stock based compensation:		0		0		0		22,734		0			22,734
Sale of members’ equity		4,711,813		0		0		0		0			4,711,813
Net loss		0		0		0		0		(2,033,446	)		(2,033,446	)
Balances at June 30, 2020	$	23,202,005	$	1,400,000	$	1,000,000	$	152,405	$	(13,994,184	)	$	11,760,226

Balances at January 1, 2020	$	18,177,692	$	1,400,000	$	1,000,000	$	106,937	$	(10,941,526	)	$	9,743,103
Stock based compensation		0		0		0		45,468		0			45,468
Sale of members’ equity		5,024,313		0		0		0		0			5,024,313
Net loss		0		0		0		0		(3,052,658	)		(3,052,658	)
Balances at June 30, 2020	$	23,202,005	$	1,400,000	$	1,000,000	$	152,405	$	(13,994,184	)	$	11,760,226

The accompanying notes ~~included in Item 1~~are an integral part of ~~this Quarterly Report on Form 10-Q, to help provide~~these condensed consolidated financial statements.

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Table of Contents

BROOKLYN IMMUNOTHERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the six months ended June 30,
	2021			2020
Cash flows used in operating activities:
Net loss	$	(27,787,651	)	$	(3,052,658	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		63,485			47,638
Stock-based compensation		1,573,393			45,468
Amortization of right-to-use asset		148,702			0
Transaction costs - shares to Financial Advisor		5,765,407			0
Loss on sale of NTN assets		9,648,173			0
Change in fair value of contingent consideration		(820,000	)		0
Changes in operating assets and liabilities:
Account receivable		4,680			0
Prepaid expenses and other current assets		(1,509,284	)		(79,175	)
Security deposits and other non-current assets		(26,909	)		(84,915	)
Accounts payable and accrued expenses		2,844,135			(942,836	)
Operating lease liability		(138,895	)		(468	)
Other liabilities		0			10,324
Net cash used in operating activities		(10,234,764	)		(4,056,622	)
Cash flows provided by (used in) investing activities:
Purchase of property and equipment		0			(26,177	)
Purchase of NTN, net of cash acquired		147,262			0
Proceeds from the sale of NTN assets, net of cash disposed		118,594			0
Net cash provided by (used in) investing activities		265,856			(26,177	)
Cash flows provided by financing activities:
Net proceeds of common stock issued to Lincoln Park		48,524,918			0
Proceeds from the exercise of stock options		10,202			0
Proceeds from loans payable		0			309,905
Repayment of NTN’s PPP Loan		(531,994	)		0
Proceeds from sale of members’ equity		10,500,000			3,858,750
Net cash provided by financing activities		58,503,126			4,168,655
Net increase in cash and cash equivalents		48,534,218			85,856
Cash and cash equivalents at beginning of period		1,630,455			5,100,819
Cash and cash equivalents at end of period	$	50,164,673		$	5,186,675

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	0		$	0
Income taxes	$	0		$	0

Supplemental disclosure of non-cash investing and financing activities:
Issuance of common stock for Series A preferred stock dividend	$	7,806		$	0
Issuance of Common Stock for business combination	$	8,177,457		$	0
Forfeiture of unvested restricted stock	$	(60	)	$	0
Preferred shares issued in connection with reverse merger	$	781		$	0
Initial measurement of ROU assets and liabilities	$	873,629		$	0

The accompanying notes are an ~~understanding~~integral part of ~~our~~these condensed consolidated financial ~~condition, the changes in our financial condition and our results~~statements.

4

Table of ~~operations. All dollar amounts in this discussion are rounded to the nearest thousand. Our discussion is organized as follows:~~

Contents

BROOKLYN IMMUNOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1)	●	~~Overview and Highlights~~~~. This section describes our business and significant events and transactions we believe are important in understanding our financial condition and results of operations.~~

	●	~~Critical Accounting Policies~~. This section lists our significant accounting policies, including any material changes in our critical accounting policies, estimates and judgments during the three and nine months ended September 30, 2020 from those described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2019 10-K.

	●	~~Results of Operations~~. This section provides an analysis of our results of operations presented in the accompanying unaudited condensed consolidated statements of operations by comparing the results for the three and nine months ended September 30, 2020 to the results for the three and nine months ended September 30, 2019.

	●	~~Liquidity and Capital Resources~~~~. This section provides an analysis of our historical cash flows, and our future capital requirements.~~

	●	~~Recent Accounting Pronouncements.~~ ~~This section provides information related to new or updated accounting guidance that may impact our consolidated financial statements.~~

	●	~~Off-Balance Sheet Arrangements~~~~. This section provides information related to any off-balance sheet arrangement we may have that would affect our consolidated finance statements.~~DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

~~OVERVIEW AND HIGHLIGHTS~~

~~About Our~~

Description of Business ~~and How We Talk About It~~

~~We deliver interactive entertainment and innovative technology~~

Brooklyn ImmunoTherapeutics Inc. (“Brooklyn”), together with its subsidiaries including Brooklyn ImmunoTherapeutics LLC (“Brooklyn LLC”) , is a clinical stage biopharmaceutical company focused on developing a cytokine-based therapy to ~~our partners in a wide range of verticals – from bars and restaurants~~treat patients with cancer. As used herein, the “Company” refers collectively to ~~casinos and senior living centers. By enhancing the overall guest experience, we believe we help our hospitality partners acquire, engage, and retain patrons.~~

Through social fun and friendly competition, our platform creates bonds between our hospitality partners and their patrons, and between patrons themselves. We believe this unique experience increases dwell time, revenue, and repeat business for venues – and has also created a large and engaged audience which we connect with through our in-venue TV network. Until the significant disruptions to the restaurant and bar industry resulting from the COVID-19 pandemic that began in March 2020, over 1 million hours of trivia, card, sports and arcade games were played on our network each month. Since the pandemic, approximately 100,000 hours per month of such games have been played on our network each month.

We generate revenue by charging subscription fees to our partners for access to our 24/7 trivia network, by selling and leasing tablet and hardware equipment for custom usage beyond trivia/entertainment, by selling digital-out-of-home (DOOH) advertising direct to advertisers and on national ad exchanges, by licensing our entertainment and trivia content to other parties, and by providing professional services such as custom game design or development of new platforms on our existing tablet form factor. Until February 1, 2020, we also generated revenue from hosting live trivia events. We sold all our assets used to host live trivia events in January 2020.

We own several trademarks and consider the Buzztime®, Playmaker®, Mobile Playmaker, and BEOND Powered by Buzztime trademarks to be among our most valuable assets. These and our other registered and unregistered trademarks used in this document are our property. Other trademarks are the property of their respective owners.

~~Unless otherwise indicated, references in this report: (a) to “Buzztime,” “NTN,” “we,” “us” and “our” refer to NTN Buzztime, Inc.~~Brooklyn and its consolidated subsidiaries; (b) to “network subscribers,” “customers,” or “partners” refer to venues that subscribe to our network service; (c) to “consumers,” “patrons” or “players” refer to the individuals that engage in our games, events, and entertainment experiences available at venues and (d) to “venues” or “sites” refer to locations (such as a bar or restaurant) of our customers at which our games and entertainment experiences are available to consumers.

~~Recent Developments~~

~~Proposed Reverse Merger and Asset Sale Transactions~~

Since 2018, we have been exploring and evaluating strategic alternatives focused on maximizing shareholder value, while also exploring and evaluating financing alternatives to increase the likelihood that we would be able to avoid a restructuring (such as a reorganization, bankruptcy or assignment for the benefit of creditors) or a dissolution, liquidation and/or winding up of our company, in the event the strategic process does not result in a transaction.

subsidiaries.

On August 12, 2020, weBrooklyn (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”) ~~with Brooklyn Immunotherapeutics LLC (“Brooklyn”),~~ pursuant to which, ~~subject to the terms and conditions thereof, a wholly-owned subsidiary ours will be~~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 was 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, with Brooklyn LLC being deemed the acquiring company for accounting purposes.

On ~~September 18, 2020, we entered an asset purchase agreement~~March 26, 2021, Brooklyn sold (the ~~“Asset Purchase Agreement”~~“Disposition”) ~~with eGames.com Holdings LLC (“eGames.com”), pursuant to which, subject to the terms and conditions thereof, we will sell and assign (the “Asset Sale”) all of our right,~~its rights, title and interest in and to the assets relating to ~~our current business (the “Purchased Assets”) to eGames.com.~~

If the Merger and the Asset Sale are completed, we will sell to eGames.com all of our right, title and interest in and to the assets relating to our business of licensing our interactive entertainment network and services and the tablets and related equipment used therein, and our business will become the business ~~of Brooklyn. Brooklyn is a clinical-stage biopharmaceutical company focused on exploring the role that cytokine-based therapy can have on the immune system in treating patients with cancer.~~

Pursuant to, and on the terms and subject to the conditions of, the Merger Agreement, at the closing of the Merger, Brooklyn will become our wholly owned subsidiary. At the effective time of the Merger, Brooklyn’s members will exchange their equity interests in Brooklyn for shares of our common stock representing between approximately 94.08% and 96.74% of our outstanding common stock immediately following the effective time of the Merger on a fully diluted basis (less a portion of such shares which will be allocated to Maxim Group LLC in respect of the success fee owed to it ~~by Brooklyn), and our stockholders as of immediately~~operated prior to the ~~effective time, will own between approximately 5.92% and 3.26% of our outstanding common stock immediately after~~Merger, which was operated under the ~~effective time of the Merger on a fully diluted basis. The exact number of shares to be issued in the Merger will be determined pursuant to a formula in the Merger Agreement.~~

Upon completion of the Merger, the board of directors of the combined company is expected to consist entirely of individuals designated by Brooklyn and the officers of the combined company are expected to be members of Brooklyn’s current management team. The employment of Allen Wolff, our chief executive officer, with us will terminate upon the closing of the Asset Sale, and he will become employed by eGames.com. Sandra Gurrola, our senior vice president of finance, has had discussions regarding her possible employment with eGames.com following the closing of the Merger, and as of the date of this report, the parties continue to be in discussions and Ms. Gurrola has not accepted an offer.

Consummation of the Merger is subject to certain closing conditions, including, among other things, approval by our stockholders and by the beneficial holders of the Class A membership units of Brooklyn. The Merger Agreement contains certain termination rights for each of us and Brooklyn, including that either party may terminate the Merger Agreement if the Merger has not been consummated by December 31, 2020, subject to extension under specified circumstances. The Merger Agreement also provides that, upon the termination of the Merger Agreement under specified circumstances, we or Brooklyn will be required to pay the other party a $750,000 termination fee or reimburse the other party for up to $250,000 of its third party expenses.

We devoted significant resources and effort to identify, evaluate and negotiate the Merger Agreement with Brooklyn and the Asset Purchase Agreement with eGames.com, and continue to devote significant resources and effort to consummate the transactions contemplated by the Merger Agreement and the Asset Purchase Agreement. However, no assurances are, or can be given, that the Merger or the Asset Sale will be consummated.

If the Merger is not completed, we cannot predict whether and to what extent we would be successful in consummating an alternative transaction, the timing of such a transaction or our future cash needs required to complete such a transaction, and we may choose or be forced to effectuate a restructuring or to dissolve and liquidate our assets. Even if the Merger is completed, it ultimately may not deliver the anticipated benefits or enhance stockholder value.

If neither the Merger nor the Asset Sale are completed, we will reconsider our strategic alternatives and could attempt to complete another strategic transaction like the Merger or the Asset Sale, continue to operate our business, or dissolve and liquidate our assets. However, because of our limited cash and resources, we would likely be required to dissolve and liquidate our assets.

~~If the Merger does not close and the Asset Sale closes, we may attempt to find another reverse merger partner or dissolve and liquidate our assets. Because the NYSE Regulation,~~name “NTN Buzztime, Inc. may begin delisting proceedings if we had no assets or operations and due to our limited cash availability, we may be unable to identify and complete another reverse merger and we would likely be required to dissolve and liquidate our assets. In such case, we would be required to pay all our debts and contractual obligations and to set aside certain reserves for potential future claims.

If the Merger closes and our stockholders do not approve the Asset Sale Proposal, the combined company will focus its resources on executing Brooklyn’s business plan, and the board of directors of the combined company may elect to, among other things, attempt to sell or otherwise dispose of the assets related to our historical business, including,” to eGames.com under the Asset Purchase Agreement. Because as of immediately following the closing of the Merger, the assets related to our historical business are not expected to constitute all or substantially all of the combined company’s assets, the combined company may be able sell or otherwise dispose of the assets related to our historical business without stockholder approval, including to eGames.com under the Asset Purchase Agreement.

~~The descriptions above of Merger Agreement and the Asset Purchase Agreement do not purport to be complete and are qualified~~Holdings LLC (“eGames.com”) in ~~their entirety by reference to the Merger Agreement and the Asset Purchase Agreement that have been filed~~accordance with the Securities and Exchange Commission (the “SEC”), and are incorporated by reference in this report. The assertions embodied in the representations and warranties contained in the Merger Agreement and the Asset Purchase Agreement are qualified by information in confidential disclosure schedules delivered by the parties in connection with the signing of those agreements. Moreover, certain representations and warranties contained in those agreements were made as of a specified date; may have been made for the purposes of allocating contractual risk between the parties to such agreements; and may be subject to contractual standards of materiality different from what might be viewed as material to our stockholders. Accordingly, the representations and warranties in those agreements should not be relied on by any persons as characterizations of the actual state of facts and circumstances of our company or any other parties thereto at the time they were made and should consider the information in these agreements in conjunction with the entirety of the factual disclosure about our company in this report. Information concerning the subject matter of the representations and warranties may have changed after the date of those agreements, which subsequent information may or may not be fully reflected in our public disclosures. Those agreements should not be read alone, but should instead be read in conjunction with each other and other information included in this report and in the registration statement on Form S-4 we filed with the SEC on October 2, 2020, to register the offer and sale of the shares of our common stock to be issued pursuant to the Merger Agreement (the “Registration Statement”). The Registration Statement also serves as our proxy statement for the special meeting of stockholders that we intend to convene as promptly as practicable following the effectiveness of the Registration Statement at which our stockholders will be asked to vote to approve (i) the issuance of shares of our common stock to the members of Brooklyn pursuant to the terms of the Merger Agreement and the change of control resulting therefrom, (ii) a reverse stock split of the outstanding shares of our common stock within a range of one new share for every 3 to 10 (or any number in between) shares outstanding (if the reverse stock split is implemented in connection with the Merger, the ratio will be mutually agreed upon by our board of directors and Brooklyn’s managers, and if not implemented in connection with the Merger, will be determined by our board of directors), (iii) amendments to our certificate of incorporation to increase the authorized number of shares of our common stock, change our corporate name to “Brooklyn Immunotherapeutics, Inc.”, and provide the holders of our Series A Convertible Preferred Stock with voting rights (in order to help ensure the tax-deferred nature of the transactions contemplated by the Merger Agreement), (iv) a new stock incentive plan, which will become effective upon the Merger and will authorize the issuance of no more than 7.5% of the fully-diluted outstanding shares of our common stock immediately following the effective date of the merger, (v) the Asset Sale and (vi) on a non-binding, advisory basis, the compensation that will be paid or may become payable to our named executive officers in connection with the Merger and the Asset Sale.

~~Bridge Loan~~

~~In connection with entering into the Asset Purchase Agreement with eGames.com on~~an asset purchase agreement dated September 18, 2020, ~~we issued to Fertilemind Management, LLC, an affiliate~~as amended, between Brooklyn and eGames.com (the “Asset Purchase Agreement”). (See Note 3.)

Basis of eGames.com, an unsecured promissory note in the principal amount of $1,000,000, evidencing a $1,000,000 loan received from Fertilemind Management, LLC on behalf of eGames.com. We may use the loan proceeds for, among other things, the payment of obligations related to the transactions contemplated by the Asset Purchase Agreement and the Merger Agreement and other general working capital purposes. Upon the closing of the Asset Sale, the loan be applied against the purchase price under the Asset Purchase Agreement, and the promissory note evidencing the loan will be extinguished. See “—Liquidity and Capital Resources,” below.

We are in discussions with Fertilemind Management, LLC regarding the possibility of borrowing an additional $500,000 on approximately December 1, 2020, which, if received, would also be applied toward the purchase price at the closing of the Asset Sale. No assurances can be given that we will obtain such $500,000 loan from Fertilemind Management, LLC or from any other party.

~~COVID-19 Impact~~

Presentation

The negative impact of the COVID-19 pandemic on the restaurant and bar industry was abrupt and substantial, and our business, cash flows from operations and liquidity suffered, and continues to suffer, materially as a result. In many jurisdictions, including those in which we have many customers and prospective customers, restaurants and bars were ordered by the government to shut-down or close all on-site dining operations in the latter half of March 2020. Since then, governmental orders and restrictions impacting restaurants and bars in certain jurisdictions were eased or lifted as the number of COVID-19 cases decreased or plateaued, but as jurisdictions began experiencing a resurgence in COVID-19 cases, many jurisdictions reinstated such orders and restrictions, including mandating the shut-down of bars and the closing of all on-site dining operations of restaurants. We have experienced material decreases in subscription revenue, advertising revenue and cash flows from operations, which we expect to continue for at least as long as the restaurant and bar industry continues to be negatively impacted by the COVID-19 pandemic, and which may continue thereafter if restaurants and bars seek to reduce their operating costs or are unable to re-open even if restrictions within their jurisdictions are eased or lifted. For example, at its peak, approximately 70% of our customers had their subscriptions to our services temporarily suspended. As of November 10, 2020, approximately 11% of our customers remain on subscription suspensions.

~~In response to the impact of the pandemic on our business, we implemented measures to reduce our operating expenses and preserve capital, and we may implement additional measures in the future.~~

	●	~~We reduced our headcount (as of November 10, 2020, we had 22 employees, all of whom are currently working remotely, compared to 74 at December 31, 2019).~~

	●	Our chief executive officer agreed to defer payment of 45% of his base salary between May 1, 2020 and October 31, 2020 until the earlier of October 31, 2020 or such time as our board of directors determines in good faith that we are in the financial position to pay his accumulated deferred salary. As of September 30 2020, we have accrued approximately $21,000 related to our chief executive officer’s deferred compensation.

	●	~~We terminated the lease for our corporate headquarters, resulting in a reduction in our future cash obligations under the lease by approximately $3.4 million (see Note 10 to the~~accompanying unaudited interim condensed ~~consolidated~~ financial statements ~~included herein).~~

	●	~~We substantially eliminated all capital projects and are aggressively managing our payables to limit further cash outlays and manage our working capital.~~

~~Paycheck Protection Program Loan~~

In April 2020, we received a loan of approximately $1,625,000 under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S. Small Business Administration. The loan matures on April 18, 2022 and bears interest at a rate of 1.0% per annum. We must make monthly interest only payments beginning on November 18, 2020. One final payment of all unforgiven principal plus any accrued unpaid interest is due at maturity. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. In October 2020, we submitted our loan forgiveness application for the PPP Loan and in November 2020, the U.S Small Business Administration approved the forgiveness of approximately $1,093,000 of the $1,625,000 loan, leaving a note balance of approximately $532,000. See “—Liquidity and Capital Resources,” below.

~~CRITICAL ACCOUNTING POLICIES~~

~~The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which~~ have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

As described above, the Merger closed on March 25, 2021. The Merger was accounted for as a reverse acquisition, with Brooklyn LLC being 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 ~~preparation~~Company retrospectively adjusted the weighted average shares used in determining loss per common share to reflect the conversion of ~~these~~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 the 2-to-1 reverse stock split of Brooklyn’s common stock that occurred upon the Merger.

These condensed consolidated financial statements ~~requires us to make estimates~~should be read with the audited consolidated financial statements and ~~judgments~~notes thereto for the fiscal year ended, and as of, December 31, 2020, contained in Brooklyn’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021, as amended by an amendment thereto filed with the SEC on April 30, 2021. The accompanying condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited financial statements at that ~~affect~~date but does not include all of the ~~reported amounts of assets, liabilities, revenues~~information and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to deferred costs and revenues, depreciation and amortization of fixed assets, the provisionfootnotes required by GAAP for income taxes including the valuation allowance, stock-based compensation, bad debts, impairment of software development costs, goodwill, intangible assets and contingencies. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, thecomplete financial statements. The results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results and require management’s most subjective judgments.

There have been no material changes in our critical accounting policies, estimates and judgments during the three months ended September 30, 2020 from those described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2019 10-K.

~~RESULTS OF OPERATIONS~~

~~We incurred a net loss of $1,481,000 and $4,722,000~~operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, compared~~2021 are not necessarily indicative of the results to ~~a net loss of $351,000 and $754,000~~be anticipated for the ~~three and nine months ended September 30, 2019.~~

~~Revenue~~

We generate revenue by charging subscription fees to our partners for access to our 24/7 trivia network, by selling and leasing tablet and hardware equipment for custom usage beyond trivia/entertainment, by selling DOOH advertising direct to advertisers and on national ad exchanges, by licensing our entertainment and trivia content to other parties, and by providing professional services such as custom game design or development of new platforms on our existing tablet form factor. Until February 1, 2020, we also generated revenue from hosting live trivia events. We sold all our assets used to host live trivia events in January 2020. The table below summarizes the type of revenue we generated for the three and nine months ended September 30, 2020 and 2019 and the change in such revenue between the two periods:

Three months ended September 30,
2020 2019
$ % of Total
Revenue $ % of Total
Revenue $
Change %
Change
Subscription revenue 1,053,000 71.3 % 3,723,000 81 % (2,670,000 ) (71.7 )%
Hardware revenue 379,000 25.7 % 11,000 0 % 368,000 3,345.5 )%
Other revenue 45,000 3.0 % 846,000 19 % (801,000 ) (94.7 )%
Total 1,477,000 100.0 % 4,580,000 100 % (3,103,000 ) (67.8 )%

Nine months ended September 30,
2020 2019
$ % of Total
Revenue $ % of Total
Revenue $
Change %
Change
Subscription revenue 3,779,000 82 % 11,356,000 78 % (7,577,000 ) (67 )%
Hardware revenue 421,000 9 % 811,000 6 % (390,000 ) (48 )%
Other revenue 425,000 9 % 2,471,000 17 % (2,046,000 ) (83 )%
Total 4,625,000 100 % 14,638,000 100 % (10,013,000 ) (68 )%

~~Subscription Revenue~~

The decrease in subscription revenue for the three and nine months ended September 30, 2020 was due to lower average site count, lower average revenue per site and the impact of the COVD-19 pandemic on our business when compared to the same periods in 2019. We previously reported that our subscription revenue would materially decrease beginning in the first quarter of 2020 if we did not add network subscribers or other revenue sources sufficient to replace the revenue historically received from Buffalo Wild Wings corporate-owned restaurants and its franchisees, after our existing relationships with BWW terminated in November 2019. To date, we have not offset the lost subscription revenue from Buffalo Wild Wings corporate-owned restaurants and its franchisees, and, in light of the substantial negative impact the pandemic has had, continues to have and is expected to continue to have, on the restaurant and bar industry and on our business, and taking into account the measures we implemented in response to the impact of the pandemic on our business to reduce operating expenses and preserve capital, including reducing our headcount and sales and marketing team, we do not expect that will be able to do so in the foreseeable future.

Because shelter-in-place orders and governmental orders and restrictions on the operations of restaurants and bars to shut-down or close all on-site dining were generally issued toward the end of the first quarter of 2020, the negative impacts of the COVID-19 pandemic on our subscription revenue were significantly greater in the second quarter of 2020 compared to the first quarter of 2020. Although restrictions have been lifted or reduced for many of our customers, our subscription revenue suffered during the third quarter of 2020 and we expect that it will continue to suffer as a result of the pandemic, including because we expect governmental orders and restrictions impacting restaurants and bars will remain in effect or be reinstated in response to resurgences in COVID-19 cases. See “Item 1A. Risk Factors” in Part II of this report for additional information regarding the impact of the pandemic on our business and outlook.

ASC No. 606 specifies certain criteria that an arrangement with a customer must have in order for a contract to exist for purposes of revenue recognition, one of which is that it must be probable that we will collect the consideration to which we will be entitled under the contract. As a result of the impact that the COVID-19 pandemic has had, and continues to have, on our customers, we determined that due to the uncertainty of collectability of the subscription fees for certain customers, our arrangement with those customers no longer meets all the criteria needed for a contract to exist for revenue recognition purposes. Therefore, we did not recognize revenue for these customers and fully reserved for accounts receivable in the allowance for doubtful accounts. We only recognize revenue for the arrangements that continued to meet the contract criteria, including the criteria that collectability was probable.

~~The table below provides a geographic breakdown of our site count as of the date indicated:~~

Network Subscribers
as of September 30,
2020 2019
United States 981 2,431
Canada 99 134
Total 1,080 2,565

~~Hardware Revenue~~

The increase in hardware revenue for the three months ended September 30, 2020 was due to the final delivery of tablets to our jail services partner. In September 2020, we entered into an agreement with our jail service partner to terminate our existing contract and cancel the remaining tablets to be delivered under our contract. We expect our hardware revenue to materially decrease in the future.

The decrease in hardware revenue for the nine months ended September 30, 2020 was primarily due to decreased sales-type lease arrangements when compared to the same periods in 2019. As previously reported, we did not, and do not, expect to continue recognizing hardware revenue under sales-type lease arrangements during 2020 or thereafter.

~~Other Revenue~~

The decrease in other revenue for the three and nine months ended September 30, 2020 was primarily due to a decrease in revenue from our live-hosted trivia events when compared to the same periods in 2019 as a result of the sale in January 2020 of all our assets used to conduct such events. We do not expect to recognize revenue from live-hosted trivia events in the future.

We also recognized less license revenue and advertising revenue during the three and nine months ended September 30, 2020 when compared to the same periods in 2019. We expect our advertising revenue will continue to be materially adversely impacted because of a decrease in advertising sales arising from a slowdown in consumer traffic in the restaurant and bars that subscribe to our service as a result of the COVID-19 pandemic.

~~Direct Operating Costs and Gross Margin~~

~~A comparison of direct operating costs and gross margin for the periods indicated is shown in the table below:~~

Three months ended
September 30,
2020 2019 Change % Change
Revenues $ 1,477,000 $ 4,580,000 $ (3,103,000 ) (68 )%
Direct Operating Costs 801,000 1,344,000 (543,000 ) (40 )%
Gross Margin $ 676,000 $ 3,236,000 $ (2,560,000 ) (79 )%

Gross Margin Percentage 46 % 71 %

Nine months ended
September 30,
2020 2019 Change % Change
Revenues $ 4,625,000 $ 14,638,000 $ (10,013,000 ) (68 )%
Direct Operating Costs 2,364,000 4,545,000 (2,181,000 ) (48 )%
Gross Margin $ 2,261,000 $ 10,093,000 $ (7,832,000 ) (78 )%

Gross Margin Percentage 49 % 69 %

For the three months ended September 30, 2020, the decrease in direct operating costs was primarily due to decreased (1) direct wages of approximately $313,000 as a result of no longer providing live-hosted trivia events after January 2020 following the sale of all our assets used to conduct those events; (2) depreciation expense of $302,000; (3) service provider and freight expense of approximately $152,000; and (4) other miscellaneous expenses of $78,000, in each case, when compared to the same period in 2019. These decreased expenses were offset by increased equipment expense of approximately $303,000 as a result of the delivery of tablets to our jail services provider during the three months ended September 30, 2020 compared to the same period in 2019.

For the nine months ended September 30, 2020, the decrease in direct costs was primarily due to decreased (1) direct wages of approximately $828,000 as a result of no longer providing live-hosted trivia events after January 2020; (2) equipment expense of approximately $71,000 due primarily to reduction in hardware revenue; (3) depreciation expense of $677,000; (4) service provider and freight expense of approximately $398,000; and (5) other miscellaneous expenses of $206,000, in each case, when compared to the same period in 2019.

The decrease in gross margin for the three and nine months ended September 30, 2020 was primarily due to the reduction in revenue when compared to the same periods in 2019. Additionally, certain fixed costs, such as direct depreciation and amortization expense, negatively impacted gross margins for the three and nine months ended September 30, 2020 when compared to the same periods in 2019.

~~Operating Expenses~~

Three months ended
September 30,
2020 2019 Change
Selling, general and administrative $ 2,068,000 $ 3,413,000 $ (1,345,000 )

Impairment of capitalized software $ - $ 51,000 $ (51,000 )

Depreciation and amortization (non-direct) $ 26,000 $ 88,000 $ (62,000 )

Nine months ended
September 30,
2020 2019 Change
Selling, general and administrative $ 6,743,000 $ 10,303,000 $ (3,560,000 )

Impairment of capitalized software $ 238,000 $ 52,000 $ 186,000

Impairment of goodwill $ 662,000 $ - $ 662,000

Depreciation and amortization (non-direct) $ 189,000 $ 273,000 $ (84,000 )

~~Selling, General and Administrative Expenses~~

The decrease in selling, general and administrative expenses for the three and nine months ended September 30, 2020 when compared to the same period in 2019 was primarily due to decreased (1) payroll and related expense of $1,498,000 and $3,320,000, respectively, as a result of reduced headcount; (2) marketing fees of $168,000 and $609,000, respectively, due to managing discretionary spending; (3) lease expense of approximately $118,000 and $127,000, respectively, due to terminating our lease and vacating our corporate headquarters in June 2020, and (4) miscellaneous expense of $192,000 and $208,000, respectively, in each case, when compared to the same periods in 2019. These decreases were partially offset by increased professional fees of $630,000 and $613,000 for the three and nine months ended September 30, 2020, respectively, primarily due to costs associated with the Merger and Asset Sale transactions.

In light of the recent measures we implemented to reduce operating expenses and to preserve capital, we expect our selling, general and administrative expenses to continue to decrease in the fourth quarter of 2020 when compared to the priorentire year ~~period. However, such actions, and any similar actions we may implement in the future, could adversely affect our business and we may not realize the operation or financial benefits of such actions.~~

~~Impairment of Capitalized Software~~

For the nine months ended September 30, 2020, we abandoned certain capitalized software development projects that we concluded were no longer a current strategic fit or for which we determined that the marketability of the content had decreased due to obtaining additional information regarding the specific purpose for which the content was intended. We did not incur any impairment charges during the three months ended September 30, 2020. For the three and nine months ended September 30, 2019, we also abandoned certain capitalized software projects, which resulted in impairments charges during each of those periods.

~~Impairment of Goodwill~~

Through March 31, 2020, we had goodwill resulting from the excess of costs over the fair value of assets we acquired in 2003 related to our Canadian business (the “Reporting Unit”). Goodwill and intangible assets acquired in a purchase combination that are determined to have an indefinite useful life are not amortized, but instead are assessed annually, or at interim periods, for impairment based on qualitative factors, such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events, to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the Reporting Unit is less than its carrying amount. If there are indications of impairment, then we perform a quantitative impairment test.

During out evaluation of impairment indicators as of March 31, 2020, we determined that the uncertainty relating to the impact of the COVID-19 pandemic on the Reporting Unit’s future operating results represented an indicator of impairment. Accordingly, we compared the estimated fair value of the Reporting Unit to its carrying value at March 31, 2020, determined that a full impairment loss was warranted and recognized an impairment charge of $662,000 for the nine months ended September 30, 2020, all of which was recorded during the three months ended March 31, 2020. There was no goodwill impairment recorded for the three or nine months ended September 30, 2019.

~~Depreciation and Amortization~~

The decrease in depreciation and amortization expense for the three and nine months ended September 30, 2020 was primarily due to various equipment becoming fully depreciated and not replacing with new assets, and as a result of writing off our leasehold improvement assets when we terminated our lease and vacated our corporate headquarters in June 2020.

~~Other Income (Expense), Net~~

Three months ended
September 30, Increase in other
2020 2019 expense, net
Total other expense, net $ (82,000 ) $ (16,000 ) $ (66,000 )

Nine months ended
September 30, Increase in other
2020 2019 income, net
Total other income (expense), net $ 826,000 $ (189,000 ) $ 1,015,000

For the three months ended September 30, 2020, the increase in other expense, net, was primarily due to increased foreign currency losses related to our Canadian subsidiary and losses related to the disposal or sale of assets, offset by a decreased interest expense due to lower long-term debt balances when compared to the same period in 2019.

For the nine months ended September 30, 2020, the increase in other income, net was primarily due to a $1,225,000 gain related to the sale of all our assets used to conduct live-hosted trivia events, increased foreign currency gains related to our Canadian subsidiary, and decreased interest expense due to lower long-term debt balances, offset by a $286,000 loss related to the terminating our leases and disposing of related fixed assets, in each case, when compared to the same period in 2019.

~~Income Taxes~~

Three months ended
September 30,
2020 2019 Change
Benefit (provision) for income taxes $ 19,000 $ (19,000 ) $ 38,000

Nine months ended
September 30,
2020 2019 Change
Benefit (provision) for income taxes $ 23,000 $ (30,000 ) $ 53,000

We expect to incur state income tax liability in 2020 related to our U.S. operations. For the nine months ended September 30, 2020, an impairment to goodwill resulted in a net tax benefit in Canada. We have established a full valuation allowance for substantially all of our deferred tax assets, including the net operating loss carryforwards, since we do not believe that we are more likely than not to generate future taxable income to realize these assets.

~~LIQUIDITY AND CAPITAL RESOURCES~~

As of September 30, 2020, we had cash, cash equivalents and restricted cash of approximately $1.7 million, including the $1.0 million bridge loan we received in connection with entering into the Asset Purchase Agreement, which is discussed further below, compared to approximately $3.4 million as ofending December 31, ~~2019. During the three and nine months ended September 30, 2020, we incurred a net loss of $1,481,000 and $4,722,000, respectively.~~

In connection with preparing our financial statements as of and for the three and nine months ended September 30, 2020, our management evaluated whether there are conditions or events, considered in the aggregate, that are known and reasonably knowable that would raise substantial doubt about our ability to continue as a going concern through twelve months after the date that such financial statements are issued.

Our primary source of capital is cash from operations. We have experienced material decreases in subscription revenue, advertising revenue and cash flows from operations as a result of the impact of the COVID-19 pandemic on the restaurant and bar industry. We expect the negative impact on our business to continue for as long as restaurants and bars continue to be negatively impacted by the pandemic, and which may continue thereafter if restaurants and bars seek to reduce their operating costs or choose not to re-open even if governmental orders and restrictions are eased or lifted. See “Recent Developments—COVID-19 Impact,” above.

As a result of the impact of the pandemic on our business and taking into account our current financial condition and our existing sources of projected revenue and our projected subscription revenue, advertising revenue and cash flows from operations, if we are able to borrow an additional $500,000 from Fertilemind Management, LLC as discussed below, we believe we will have sufficient cash resources to pay forecasted cash outlays only through mid-January 2021, ~~but if we do not borrow such amount from Fertilemind Management, LLC~~ or any other party, we believe we will have sufficient cash resources to pay forecasted cash outlays only through mid-December 2020, in each case, assuming Avidbank does not take actions to foreclose on our assets in the event we are not in compliance with our financial covenants under our loan and security agreement with Avidbank, and we are able to continue to successfully manage our working capital deficit by managing the timingperiod.

5

Table of ~~payments to our vendors and other third parties.~~

We expect to meet our near term debt service obligations on our term loan with Avidbank and we satisfied our financial covenants under our related loan and security agreement as of September 30, 2020. However, unless in the very near term our subscription revenue, advertising revenue and cash flows from operations return to pre-pandemic levels and/or we raise substantial capital, we may not satisfy the liquidity covenant under the loan and security agreement, which is measured on a daily basis, at all times during December 2020, which may result in Avidbank declaring a default and foreclosing on our assets. See Item 1A. Risk Factors in Part II of this report, below.

Based on the factors described above, management concluded that there is substantial doubt regarding our ability to continue as a going concern through the twelve-month period subsequent to the issuance date of these financial statements. As discussed in greater detail in the section entitled “—Overview and Highlights—Recent Developments—Proposed Reverse Merger and Asset Sale Transactions,” if we do not complete the Merger, we would likely be required to dissolve and liquidate our assets, and we would be required to pay all our debts and contractual obligations and set aside certain reserves for potential future claims. We may attempt to complete another strategic transaction like the Merger or the Asset Sale or to raise additional capital through equity financings and/or alternative sources of debt to allow us to continue as a going concern. However, based on the strategic process conducted to date, we do not believe that we would be able to identify and complete another reverse merger or consummate a financing to obtain sufficient additional financial resources when needed, on acceptable terms, or at all.

Contents

2)	LIQUIDITY AND CAPITAL RESOURCES

The accompanying ~~consolidated~~ financial statements have been prepared onassuming that the Company will continue as a ~~going-concern basis,~~going concern, which contemplates the realization of assets and the ~~satisfaction~~settlement of liabilities and commitments in the normal course of business. The ~~accompanying consolidated~~ financial statements do not ~~include~~reflect any adjustments relating to ~~reflect the possible future effects on~~ the recoverability and ~~classification~~reclassification of assets ~~or the amounts~~ and ~~classifications of~~ liabilities that ~~may result from uncertainty related to our ability~~might be necessary if the Company is unable to continue as a going concern.

~~Avidbank Term Loan~~

~~Under~~ The Company has incurred significant operating losses and has an accumulated deficit as a ~~loan~~result of ongoing efforts to develop product candidates, including conducting clinical trials and ~~security agreement we~~providing general and administrative support for these operations. As of June 30, 2021, the Company had a cash balance of $50,164,673 and an accumulated deficit of $65,176,198 (inclusive of a non-cash gain of $820,000 relating to change in fair value of contingent consideration and $9,648,173 relating to loss on sale of assets in the Disposition). During the three and six months ended June 30, 2021, the Company incurred a net loss of $10,085,317 and $27,787,651, respectively, and during the six months ended June 30, 2021, the Company used cash in operating activities of $10,234,764.

On April 26, 2021, Brooklyn entered into a common stock purchase agreement (the “First Purchase Agreement”) with ~~Avidbank in September 2018, or~~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 ~~Original LSA, we borrowed $4,000,000 in~~date that a registration statement covering the ~~form~~resale of ~~a 48-month term loan, all~~shares of ~~which we used~~common stock issued under the First Purchase Agreement was declared effective by the SEC. As of June 30, 2021, Brooklyn had issued and sold an aggregate of 1,127,736 shares of common stock to pay-off the $4,050,000 of principal borrowed from our then-existing lender. In February 2020, we made a pre-payment on the term loan of approximately $150,000 following the sale in January 2020 of all our assets used to conduct live-hosted trivia events. In March 2020, we entered into an amendmentLincoln Park pursuant to the Original LSA. We refer to the Original LSA, as amended, as the Avidbank LSA. In connection with entering into the amendment, we made a $433,000 payment on our term loan, which included the $83,333 monthly principal payment for March 2020 plus accrued interest and a $350,000 principal prepayment. AsFirst Purchase Agreement, resulting in gross proceeds of September 30, 2020, the outstanding principal balance on the term loan was $725,000. See Note 9 to the unaudited condensed consolidated financial statements included herein for additional information regarding the Avidbank LSA.

~~The monthly principal payment amounts under the Avidbank LSA was $300,000 for each of July, August, September, and October 2020, and will be $300,000 for November 2020 and $125,000 for December 2020.~~

We must satisfy two financial covenants under the Avidbank LSA: a monthly minimum asset coverage ratio covenant, which we refer to as the ACR covenant, and a minimum liquidity covenant. Under the ACR covenant, the ratio of (i) our unrestricted cash at Avidbank as of the last day of a calendar month plus 75% of our outstanding accounts receivable accounts that are within 90 days of invoice date to (ii) the outstanding principal balance of our term loan on such day must be no less than 1.25 to 1.00. Under the minimum liquidity covenant, the aggregate amount of unrestricted cash we have in deposit accounts or securities accounts maintained with Avidbank must be at all times not less than the principal balance outstanding under our term loan. As of September 30, 2020, we were in compliance with both of those covenants. However, unless in the very near term our subscription revenue, advertising revenue and cash flows from operations return to pre-pandemic levels and/or we raise substantial capital, we may not satisfy the liquidity covenant under the loan and security agreement, which is measured on a daily basis, at all times during December 2020, which may result in Avidbank declaring a default and foreclosing on our assets.

Under the Avidbank LSA, subject to customary exceptions, we are prohibited from borrowing additional indebtedness. We granted and pledged to Avidbank a first-priority security interest in all our existing and future personal property. $20,000,000.

On ~~June 1, 2020, we and Avidbank~~May 26, 2021, Brooklyn entered into a second ~~amendment~~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 June 30, 2021, Brooklyn had issued and sold an aggregate of 2,084,206 shares of common stock to Lincoln Park pursuant to the ~~loan~~Second Purchase Agreement, resulting in gross proceeds of $30,496,755.

The Company believes its existing cash resources are sufficient to fund its current operating plan for at least the next 12 months from the date these financial statements are being issued.

3)	MERGER AND DISPOSITION TRANSACTIONS

Merger

On August 12, 2020, Brooklyn, Brooklyn LLC and ~~security~~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, with Brooklyn LLC being 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 (i) Brooklyn LLC members, having 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 having been designated by Brooklyn LLC under the terms of the Merger Agreement and (iii) existing members of Brooklyn LLC’s management having become 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 39,991,625 shares of common stock, of which 1,067,668 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.

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The purchase price of $8,177,614, which represents the consideration transferred in the Merger to stockholders of Brooklyn immediately before the Merger, was calculated based on the fair value of the 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. The purchase price of $8,177,614 was calculated as follows:

Number of shares of common stock owned by Brooklyn stockholders immediately before the Merger		1,514,373
Multiplied by the fair value per share of common stock (i)	$	5.40
Total purchase price	$	8,177,614

(i)

Based on the closing price per share (post reverse stock split) of the common stock of Brooklyn as reported on the NYSE American stock exchange on March 25, 2021, immediately before the Merger.

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 equal to the difference is reflected in the unaudited pro forma condensed consolidated balance sheet. The goodwill of $8,588,576 has been calculated using the fair values of the net assets of Brooklyn as of March 25, 2021.

The preliminary 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			Pro Forma Fair Value Adjustment to Brooklyn \|Pre-Merger Assets			Preliminary Purchase Price Allocation Pro Forma Adjustment
Cash and cash equivalents	$	147,728		$	0		$	147,728
Accounts receivable		102,517			0			102,517
Prepaid expense and other current assets		329,596			0			329,596
Property and equipment, net		1,015,370			0			1,015,370
Software development costs		1,296,460			(368,460	)		928,000
Customers		0			548,000			548,000
Trade name		0			299,000			299,000
Accounts payable, accrued liabilities and other current liabilities		(3,781,173	)		0			(3,781,173	)
Net assets acquired, excluding goodwill	$	(889,502	)	$	478,540		$	(410,962	)

Total consideration	$	8,177,614
Net assets acquired, excluding goodwill		(410,962	)
Goodwill	$	8,588,576

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 to its Class A unit holders an additional 5% rights offering for an additional $500,000 to be raised by a rights offering. Funding to the rights offering was received between February 17 and April 5, 2021.

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Disposition

On March 26, 2021, Brooklyn sold its rights, title and interest in and to the assets relating to the business it operated prior to the Merger 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:

Proceeds from sale:
Cash	$	132,055
Escrow		50,000
Assume advance/loans		1,700,000
Interest on advance/loans		67,945

Carrying value of assets sold:
Cash and cash equivalents		(13,461	)
Accounts receivable		(75,153	)
Prepaids and other current assets		(123,769	)
Property and equipment, net		(1,013,950	)
Software development costs		(927,368	)
Customers		(548,000	)
Trade name		(299,000	)
Goodwill		(8,588,576	)
Other assets		(103,173	)

Liabilities transferred upon sale:
Accounts payable and accrued expenses		113,156
Obligations under finance leases		16,676
Lease liability		25,655
Deferred revenue		54,803
Other current liabilities		148,987

Transaction costs		(265,000	)

Total loss on sale of assets	$	(9,648,173	)

Unaudited Pro Forma Disclosure

The following unaudited pro forma financial information summarizes the results of operations for the six months ended June 30, 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.

	Six months ended June 30,
	2021			2020

Net loss attributable to common stockholders	$	(27,795,457	)	$	(3,060,464	)

Basic and diluted net loss per share attributable to common stockholders	$	(0.79	)	$	(0.17	)

4)	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:

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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 June 30, 2021 and December 31, 2020:

	As of June 30, 2021
Description	Level 1		Level 2		Level 3
Liabilities:
Contingent consideration		0		0	$	19,290,000
Total	$	0	$	0	$	19,290,000

	As of December 31, 2020
Description	Level 1		Level 2		Level 3
Liabilities:
Contingent consideration		0		0	$	20,110,000
Total	$	0	$	0	$	20,110,000

The contingent consideration is related to an asset purchase agreement entered into between Brooklyn LLC and IRX Therapeutics (“IRX”) for the acquisition of substantially all of the net assets of IRX, 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 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 June 30, 2021, the Company deemed there was no adjustment to record to the carrying amount of the contingent consideration for the three months ended June 30, 2021. During the six months ended June 30, 2021, the Company adjusted the carrying amount of its contingent consideration liabilities as follows:

	Other Liabilities: Contingent Consideration
Balance as of December 31, 2020	$	20,110,000
Fair value adjustments included in operating expenses		(820,000	)
Balance as of June 30, 2021	$	19,290,000

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.

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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.

5)

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 ~~formally memorialize Avidbank’s consent to our borrowing~~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 ~~PPP Loan (as defined below). We received Avidbank’s~~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 the lease agreement, the Company paid a lease deposit of $25,331. The lease expires in June 2028.

The Company adopted Accounting Standards Codification (“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 ~~consent~~direct costs for any existing leases. The Company has also elected not to ~~borrow~~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 ~~PPP Loan~~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 ~~April 2020.~~

~~We incurred approximately $26,000~~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 ~~debt issuance costs related~~lease payments. To determine the present value of lease payments not yet paid, the Company estimates secured borrowing rates corresponding to the ~~Original LSA~~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.

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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 three and six months ended June 30, 2021, the net operating lease expenses were as follows:

	Three months ended June 30, 2021			Six months ended June 30, 2021
Operating lease expense	$	163,752		$	314,617
Sublease income		(21,045	)		(42,090	)
Variable lease expense		1,350			10,352
Total lease expense	$	144,057		$	282,879

The tables below show the beginning balances of the operating ROU assets and liabilities as of January 1, 2021 and the ~~amendment to~~ending balances as of June 30, 2021, including the ~~LSA. The debt issuance costs are being amortized to interest expense using~~changes during the ~~effective interest rate method over~~period.

	Operating Lease ROU Assets

Operating lease ROU assets at January 1, 2021	$	2,092,878
Amortization of operating lease ROU assets		(148,702	)
Addition of operating lease ROU assets		823,628
Operating lease ROU assets at June 30, 2021	$	2,767,804

	Operating Lease Liabilities
Operating lease liabilities at January 1, 2021	$	2,178,612
Principal payments on operating lease liabilities		(138,895	)
Addition of operating lease liabilities		873,628
Operating lease liabilities at June 30, 2021		2,913,345
Less non-current portion		2,529,422
Current portion at June 30, 2021	$	383,923

As of June 30, 2021, the Company’s operating leases had a weighted-average remaining life of ~~the loan.~~ 5.4 years with a weighted-average discount rate of 12.76%. The ~~unamortized balance~~maturities of the ~~debt issuance costs~~operating lease liabilities are as ~~of September 30, 2020 was approximately $1,000 and is recorded as a reduction of long-term debt.~~

The Avidbank LSA includes customary representations, warranties and covenants (affirmative and negative), including restrictive covenants that, subject to specified exceptions, limit our ability to: dispose of our business or property; merge or consolidate with or into any other business organization; incur or prepay additional indebtedness; create or incur any liens on its property; declare or pay any dividend or make a distribution on any class of our stock; or enter specified material transactions with our affiliates. The Avidbank LSA also includes customary events of default, including: payment defaults; breaches of covenants following any applicable cure period; material breaches of representations or warranties; the occurrence of a material adverse effect; events relating to bankruptcy or insolvency; and the occurrence of an unsatisfied material judgment against us. Upon the occurrence of an event of default, Avidbank may declare all outstanding obligations immediately due and payable, do such acts as it considers necessary or reasonable to protect its security interest in the collateral, and take such other actions as are set forth in the Avidbank LSA.

~~Paycheck Protection Program Loan~~

follows:

	As of June 30, 2021
2021	$	361,318
2022		751,861
2023		769,864
2024		787,275
2025		805,192
Thereafter		514,174
Total payments		3,989,684
Less imputed interest		(1,076,339	)
Total operating lease liabilities	$	2,913,345

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 for an initial term of eight years, commencing on May 15, 2019. The term of the 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.

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Future lease payments to be received under the sublease agreement as of June 20, 2021 are as follows:

	As of June 30, 2021
2021	$	40,628
2022		82,419
2023		84,194
2024		86,010
2025		87,867
Thereafter		74,590
	$	455,708

The Company received sublease payments in the amount of $40,054 during the six months ended June 30, 2020. 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.

6)	GOODWILL AND IN-PROCESS RESEARCH & DEVELOPMENT

The Company recorded goodwill and in-process research and development (“IPR&D”) in the amount of $2,043,747 and $6,860,000, respectively, in connection with the acquisition of IRX. IPR&D assets are considered to be indefinite lived until the completion or abandonment of the associated research and development projects.

7)	ACCRUED EXPENSES

Accrued expenses consisted of the following:

	June 30, 2021		December 31, 2020
Accrued compensation	$	385,935	$	293,534
Accrued research and development expenses		631,563		207,468
Accrued general and administrative expenses		719,023		399,893
Accrued interest		179,605		150,125
Total accrued expenses	$	1,916,126	$	1,051,020

8)

DEBT

Loans payable

In connection with the acquisition of IRX in 2018, Brooklyn LLC assumed certain notes payable (the “IRX Notes”) in the amount of $410,000. On January 27, 2020, wethe IRX Notes were amended to extend the maturity date to the earlier of (i) a change of control, as defined, or (ii) December 31, 2021. As of June 30, 2021, accrued and unpaid interest on the IRX Notes was $179,605.

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Payment Protection Program Loan

On May 4, 2020, Brooklyn LLC issued a note in the principal amount of approximately ~~$1,625,000~~$309,905 to Silicon Valley Bank evidencing a loan (the “PPP Loan”) weBrooklyn 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”). As of June 30, 2021, the outstanding principal balance of the PPP Loan was $309,905.

The PPP Loan matures on ~~April 18,~~May 5, 2022 and bears interest at a rate of 1.0% per annum. WeBrooklyn LLC must make monthly interest only payments beginning on November ~~18,~~4, 2020. One final payment of all unforgiven principal plus any accrued unpaid interest is due at maturity. Funds from the PPP Loan may only be used for payroll costs, rent and utilities. The Company believes Brooklyn LLC used the funds received from the PPP Loan for qualifying expenses. Under the terms of the PPP, weBrooklyn LLC may prepay the PPP Loan at any time with no prepayment ~~penalties. As of September 30, 2020, the outstanding principal balance of the PPP Loan was $1,625,000.~~

~~Under the terms of the PPP,~~penalties, and certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. In June 2021, Brooklyn LLC submitted its loan forgiveness application for the PPP Loan. The Company believes Brooklyn LLC will qualify for forgiveness of the PPP Loan, but there can be no assurance that it will obtain full forgiveness based on the legislation.

9)	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. The parties are presently attempting to resolve a request of plaintiffs’ counsel for an award of attorneys’ fee and expenses based on the purported benefit contended to be conferred on Brooklyn’s stockholders as a result of the supplemental disclosures. If agreement cannot be reached, plaintiffs’ counsel have reserved their right to seek a fee and defendants have reserved their right to challenge fee application.

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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 purports to state claims against Brooklyn LLC and the individual defendants under the New York State Executive Law and the New York State Administrative Code, as well as other statutory and common law claims for alleged 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 or about April 26, 2021, the parties entered into a stipulation whereby the defendants agreed to accept service of the amended complaint without waiver of any defenses, including jurisdictional defenses, except for improper service, and the plaintiff agreed to extend defendants’ time to respond to the complaint to June 6, 2021. On June 6, 2021, we 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’ reply is due on September 3, 2021. 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 providing that defendants shall 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 shall file its reply brief in support of his motion for summary judgment on or before October 20, 2021. At this stage in the litigation, the Company is not able to predict the probability of a favorable or unfavorable outcome.

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 has 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 and 205 of the Delaware General Corporation Law at the annual meeting of stockholders scheduled to take place on August 20, 2021.

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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 letter dated July 7, 2021, Emerald Private Equity Fund, LLC, 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. The stockholder states that it is making its demand for the purpose of 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 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 the parties are presently negotiating the terms of a confidentiality agreement that will govern the production of certain documents that are responsive to the demand.

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 Therapeutics Limited (“Novellus, Ltd.”) and Factor Bioscience Limited (“Factor,” and together with Novellus, Ltd., 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 $4.0 million (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 $4.0 million in connection with the execution of the License Agreement, all of which had been paid as of June 30, 2021. Brooklyn LLC is obligated to pay to the Licensors additional fees of $5,000,000 in October 2021 and $7,000,000 in October 2022.

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, in the case of development and regulatory milestones, to make 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 may have the right to terminate Brooklyn LLC’s rights under provisions of the License Agreement relating to those milestones. (See Note 13.)

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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.

10)	STOCK-BASED COMPENSATION

Equity Incentive Plans

Brooklyn’s stock-based compensation plans consist of the 2019 Performance Incentive Plan (the “2019 Plan”), the 2020 Equity Incentive Plan (the “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.

The 2020 Plan was approved by stockholders at Brooklyn’s special meeting of stockholders held on March 15, 2021. The 2020 Plan provides for the issuance of up to 3,368,804 shares of common stock. Awards under the 2020 Plan may be granted to officers, directors, employees and consultants of the Company. Stock options granted under the 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 June 30, 2021, there were 0 stock options outstanding under the 2020 Plan.

Due to the approval of the 2020 Plan, no future grants will be made under the 2019 Plan. As of June 30, 2021, all outstanding options under the 2019 Plan were either 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 June 30, 2021, there 140,580 stock options and 105,290 restricted stock units (“RSUs”) outstanding under the 2021 Inducement Plan.

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Stock-Based Compensation

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 term of time options are expected to be outstanding. 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.

There were 0 stock options granted during the three and six months ended June 30, 2020. There were 3,365,748 stock options granted during the three and six months ended June 30, 2021, including 2 stock option grants made to Howard J. Federoff, M.D., Ph.D. upon his appointment as Brooklyn’s chief executive officer and president.

Dr. Federoff was granted a nonqualified stock option covering 2,627,915 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 597,253 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. 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 of Brooklyn’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 Brooklyn. Each of the Time-Based Option and the Milestone Option is 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.

The following weighted-average assumptions were used for grants issued during the three and six months ended June 30, 2021:

	Three and six months ended June 30, 2021
Weighted average risk-free rate	1.06%
Weighted average volatility	134.30%
Dividend yield	0%
Expected term	6.08 years

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 0 options exercised during the three and six months ended June 30, 2020.

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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. During the three and six months ended June 30, 2021, Brooklyn granted 105,290 RSUs with a weighted average grant date fair value of $19.60. NaN RSUs were granted during the three and six months ended June 30, 2020. NaN RSUs vested during the three and six months ended June 30, 2021 and 2020.

The Company recognizes the intrinsic value of RSUs granted as expense on a straight-line basis over the requisite service period.

Restricted Stock

Pursuant to the Merger, Brooklyn LLC’s 3,427 restricted common units were exchanged for 629,643 shares of restricted common stock. There were no changes to any conditions and requirements to 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 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 $249,905 was recognized in the statement of operations for the six months ended June 30, 2021. The Company recognizes the fair value of restricted common stock as expense on a straight-line basis over the requisite service period.

Stock-based compensation expense for the three months ended June 30, 2021 and 2020 was $1,154,492 and $22,734, respectively. Stock based compensation for the six months ended June 30, 2021 and 2020 was $1,573,393 (including the $249,905 of modification expense discussed above) and $45,468, respectively. Forfeitures are recognized as incurred. Stock-based compensation is recorded in general and administrative expense and research and development expense in the statement of operations.

11)	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, if any, were subject to certain limitations, and could occur from time to time, at Brooklyn’s sole discretion. For entering into the First Purchase Agreement, Brooklyn issued to Lincoln Park 56,041 shares of common shares as consideration for Lincoln Park’s commitment to purchase up to $20,000,000 in shares of common stock. During the three months ending June 30, 2021, Brooklyn issued and sold to Lincoln Park a total of 1,127,736 shares of common stock for gross proceeds of $20,000,000, and 0 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, if any, are subject to certain limitations, and may occur from time to time, at Brooklyn’s sole discretion. For entering into the Second Purchase Agreement, Brooklyn issued to Lincoln Park 50,000 shares of common shares as consideration for Lincoln Park’s commitment to purchase up to $40,000,000 in shares of common stock.

Under the Second Purchase Agreement, on any business day selected by Brooklyn, Brooklyn may direct Lincoln Park to purchase up to 60,000 shares of common stock on such business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 80,000 shares, provided that the closing sale price of the common stock is not below $5.50 on the purchase date, and (ii) the Regular Purchase may be increased to up to 120,000 shares, provided that the closing sale price of the common stock is not below $7.00 on the purchase date. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000 under the First Purchase Agreement and $2,000,000 under the Second Purchase Agreement. The purchase price per share for each such Regular Purchase will be based off of prevailing market prices of common stock immediately preceding the time of sale. In addition to Regular Purchases, Brooklyn may direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the common stock exceeds certain threshold prices as set forth in the Second Purchase Agreement.

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The Second Purchase Agreement also prohibits Brooklyn from directing Lincoln Park to purchase any shares of common stock if those shares, when aggregated with all other shares of common stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of common stock. Brooklyn has the right to terminate the Second Purchase Agreement at any time, at no cost or penalty.

Actual sales of shares of common stock to Lincoln Park under the Second Purchase Agreements depend on a variety of factors to be determined by Brooklyn from time to time, including, among others, market conditions, the trading price of the common stock and determinations by Brooklyn as to the appropriate sources of funding for Brooklyn and its operations. The Company expects that any net proceeds received by Brooklyn from such sales to Lincoln Park will be used for research and development, working capital and general corporate purposes.

As of June 30, 2021, Brooklyn had issued and sold 3,211,942 shares of common stock under the First Purchase Agreement and the Second Purchase Agreement for total net proceeds of $48,508,585.

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 1,514,373 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 3), on March 25, 2021, Brooklyn issued shares of common stock to the equity holders of Brooklyn LLC. The 86,667 Class A units of Brooklyn LLC were converted into 22,274,718 shares of common stock; the 15,000,000 Class B units were converted into 2,514,714 shares of common stock; the 10,000,000 Class C units were converted into 1,676,308 shares of common stock; 629,643 shares of common units were converted into 629,643 shares of common stock, and 10,500,000 rights options were converted into 11,828,575 shares of common stock. Brooklyn also issued 1,067,879 shares of common stock to the Financial Advisor pursuant to the Merger Agreement.

12)	RECENT ACCOUNTING PRONOUNCEMENTS

In May 2021, the Financial Accounting Standards Board 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 our financial statements.

13)	SUBSEQUENT EVENT

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, Inc., the sole equity holder of Novellus, Ltd. and, prior to the closing under the Acquisition Agreement, a wholly owned subsidiary of Novellus, LLC, and (c) a seller representative. Novellus, Ltd. is a pre-clinical stage biotechnology company organized under the laws of Ireland that is developing engineered cellular medicines using its licensed, patented non-immunogenic mRNA, high-specificity gene editing, mutation-free and footprint-free cell reprogramming and serum-insensitive mRNA lipid delivery technologies.

The closing of the transaction contemplated by the Acquisition Agreement (the “Acquisition”) was held 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.

•

Brooklyn acquired 25.0% of the total outstanding equity interests of NoveCite, Inc., a corporation focused on bringing an allogeneic mesenchymal stem cell (“MSC”) product to patients with acute respiratory distress syndrome, including from COVID-19.

Brooklyn delivered consideration for the Acquisition totaling $124,022,181, which consisted of (a) $22,822,181 in cash and (b) 7,022,230 shares of common stock, which under the terms of the Acquisition Agreement were valued at a total of $102,000,000, based on a price of $14.5253 per share.

The Acquisition Agreement contains customary representations, warranties and certain indemnification provisions. A total of 740,766 of the shares issued as consideration have been placed in escrow for a period of up to 12 months in order to secure indemnification obligations to Brooklyn under the Acquisition Agreement. The Acquisition Agreement also contains non-competition and non-solicitation provisions pursuant to which Novellus LLC has agreed not to engage in certain competitive activities for a period of five years following the closing, including customary restrictions relating to employees. No employees of Novellus Ltd. or Novellus, Inc. prior to the Acquisition continued their employment, or were otherwise engaged by Brooklyn, following the Acquisition.

In connection with the Acquisition, the co-founders of Novellus, Ltd. entered into lock-up agreements with respect to 3,377,690 of the shares received in the Acquisition, and Brooklyn’s Chair of the Board of Directors and its Chief Executive Officer and President entered into identical lock-up agreements with respect to their current holdings of 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 NYSE American stock exchange 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 9.) The completion of the acquisition of Novellus, Ltd. relieves Brooklyn LLC from potential obligations to pay Novellus, Ltd. certain upfront fees, clinical development milestone fees and post-registration royalties under the License Agreement. The agreement with Factor under the License Agreement, which grants Brooklyn LLC exclusive rights to develop certain next-generation mRNA gene editing and cell therapy products, remains unchanged.

The Company is currently assessing the proper accounting treatment for the Acquisition under ASC 805, Business Combinations.

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Item 2.

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

Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read with, the unaudited condensed consolidated financial statements and notes included in Item 1 of Part I of this report, to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations.

Background

On March 25, 2021, BIT Merger Sub, Inc., a wholly owned subsidiary of Brooklyn (then known as NTN Buzztime, Inc.) merged with and into Brooklyn LLC, with Brooklyn LLC surviving as a wholly owned subsidiary of Brooklyn. This transaction, which we refer to as the Merger, was completed in accordance with the terms of an agreement and plan of merger and reorganization dated August 12, 2020 among Brooklyn (then known as NTN Buzztime, Inc.), BIT Merger Sub, Inc. and Brooklyn LLC. In accordance with such agreement and plan of merger, on March 25, 2021 Brooklyn amended its restated certificate of incorporation in order to effect:

•

prior to the Merger, a reverse stock split of its common stock, par value $0.005 per share, at a ratio of one-for-two, which we refer to as the Reverse Split; and

•

following the Merger, a change in its corporate name from “NTN Buzztime, Inc.” to “Brooklyn ImmunoTherapeutics, Inc.”

On March 26, 2021, Brooklyn sold its rights, title and interest in and to the assets relating to the business it operated prior to the Merger, which it had operated under the name “NTN Buzztime, Inc.,” to eGames.com Holdings LLC, or eGames.com, in exchange for eGames.com’s payment of a purchase price of $2.0 million and assumption of specified liabilities relating to such pre-Merger business. This transaction, which we refer to as the Disposition, was completed in accordance with the terms of an asset purchase agreement dated September 18, 2020, as amended, between Brooklyn and eGames.com.

Following the completion of the Merger and the Disposition, our business consists exclusively of the business conducted by Brooklyn LLC.

The Merger has been accounted for as a reverse acquisition in accordance with United States generally accepted accounting principles, or GAAP. Under this method of accounting, Brooklyn LLC was deemed the “acquiring” company and Brooklyn (then known as NTN Buzztime, Inc.) was treated as the “acquired” company for financial reporting purposes. Operations prior to the Merger are those of Brooklyn LLC, and the historical financial statements of Brooklyn LLC became the historical financial statements of Brooklyn with respect to periods prior to the completion of the Merger. The weighted average shares used in determining loss per common share were retrospectively adjusted to reflect the conversion of the outstanding Class A, Class B, Class C and common units of Brooklyn LLC into shares of Brooklyn’s common stock upon the Merger, and all share and per share amounts of common stock have been retrospectively restated to reflect the Reverse Split.

Overview

We are a clinical-stage biopharmaceutical company focused on exploring the role that cytokine-based therapy can have on the immune system in treating patients with cancer, both as a single agent and in combination with other anti-cancer therapies. We are seeking to develop IRX‑2, a novel cytokine-based therapy, to treat patients with cancer. IRX‑2 active constituents, namely Interleukin-2, or IL‑2, and other key cytokines, are postulated to signal, enhance and restore immune function suppressed by the tumor, thus enabling the immune system to attack cancer cells, unlike existing cancer therapies, which rely on targeting the cancer directly. We also are exploring opportunities to advance oncology, blood disorder, and monogenic disease therapies using gene-editing cell‑therapy technology through a license with Factor Bioscience Limited, or Factor, and through our acquisition of Novellus, Inc. and Novellus Therapeutics Limited, or Novellus, Ltd.

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We also are exploring opportunities to advance oncology, blood disorders and monogenic disease therapies using gene-editing and cell therapy technology through a license with Factor and through our acquisition of Novellus, Inc. and Novellus, Ltd. in July 2021. The product candidates resulting from the acquisition will initiate with unedited (that is, not gene modified), induced pluripotent stem cells (iPSCs)-derived allogeneic mesenchymal stem cells, or iMSCs. We will begin preclinical development of iMSCs towards clinical indications where inhibiting inflammation and/or supporting recovery of bone marrow stromal cells are required. The prior work of Novellus and NoveCite, Inc., or NoveCite, with iMSCs show evidence for preclinical efficacy in inflammatory conditions (for example, acute respiratory distress syndrome, or ARDS) and interactions with the U.S. Food and Drug Administration, or FDA, provided guidance on Chemistry, Manufacturing and Controls, or CMC, and manufacturing plans which will be undertaken in a similar manner for additional iMSC applications. Second generation iMSC products will involve gene editing. Here, we anticipate the step-wise addition of genes, using the in-licensed Factor gene editing machinery, NoveSlice, to efficiently place genes and regulatory sequences into safe harbor locations. Development of processes to advance CMC and manufacturing will follow the experience from first generation iMSCs. Clinical indications for gene-modified iMSCs will include solid tumors and conditions associated with chronic inflammation.

IRX-2

IRX‑2 is a mixed human cytokine product with multiple active constituents including Interleukin-2, or IL‑2, and other key cytokines. Together, these cytokines are believed to signal, enhance and restore immune function suppressed by the tumor, thus enabling the immune system to attack cancer cells, unlike existing cancer therapies, which rely on targeting the cancer directly. IRX-2 is prepared from the supernatant of pooled allogeneic peripheral blood mononuclear cells, known as PBMNCs, that have been stimulated using a proprietary process employing a specific population of cells and a specific mitogen.

While IRX‑2 is a cytokine mixture, one of its active components is IL‑2, a cytokine-signaling molecule in the immune system. IL‑2 is a protein that regulates the activities of white blood cells (leukocytes and often lymphocytes) that are responsible for immunity. IL‑2 is part of the body’s natural response to microbial infection, and in discriminating between foreign (“non-self”) and “self,” IL‑2 mediates its effects by binding to IL‑2 receptors, which are expressed by lymphocytes. The major sources of IL‑2 are activated CD4⁺ T cells and activated CD8⁺ T cells.

Unlike existing recombinant IL‑2 therapies, IRX‑2 is naturally derived from human blood cells. This may promote better tolerance, broader targeting and a natural molecular conformation leading to greater activity, and may permit low physiologic dosing, rather than the high doses needed in other existing IL‑2 therapies.

Aside from optimizing IRX-2 manufacture, we are also modifying our manufacturing process to allow us to develop additional drugs with a variety of cytokine mixtures to expand our product offerings.

Regarding IRX-2 development, our strategy is:

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Advance our product candidate IRX-2 through clinical development. IRX-2 is a human blood-based IL 2 therapy being studied for multiple types of cancer, including squamous cell cancer of the head and neck. Treatment of patients in the INSPIRE trial has been completed, and patients who participated in the trial are currently being monitored for event-free survival with top-line data estimated to be available in the first half of 2022.

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Advance combination trials with checkpoint inhibitors. Once INSPIRE trial data are released, we plan to use those results as a catalyst in addition to data from the other clinical trials in the program with multiple data read-outs anticipated in 2022 and later.

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Pursue partnerships to advance the IRX-2 clinical program. We are pursuing partnering opportunities with leading biopharmaceutical companies for the development and commercialization of IRX-2.

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Regulatory strategy. We believe that our assets may be deemed to be unique and to represent potential breakthroughs in the treatment of cancer and other indications. We will endeavor to seek breakthrough therapy designation with regulatory agencies for IRX-2 for one or more indications. We cannot, however, assure that we will receive breakthrough therapy designation for any future indications or that any breakthrough therapy designation we do receive will necessarily lead to a faster approval time.

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Intellectual Property. We continue to pursue additional intellectual property based on data from IRX clinical studies.

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Pre-Clinical Results

Our findings to date from nonclinical studies of IRX‑2 include murine acute toxicology as well as acute and chronic primate studies. These studies detected circulating associated cytokines yet were associated with benign toxicological findings. A further murine study demonstrated PD/PDL‑1 synergy when additively administered with IRX‑2.

Clinical Program

IRX‑2 currently remains under development and has not yet been approved for marketing authorization in any jurisdiction. The ongoing development program is investigating use of IRX‑2 as an immunotherapeutic neoadjuvant (pre-surgical) and adjuvant (post-operative) treatment for advanced head and neck squamous cell carcinoma, or HNSCC, and other solid tumors.

HNSCC

The HNSCC development program is being conducted under FDA Investigational New Drug #11,137 filed on June 30, 2003 and is ongoing. The HNSCC program has received fast track designation, approved November 7, 2003, and orphan drug designation, conferred on July 7, 2005, from the FDA. We have not submitted a request for orphan drug designation in the European Union, although we may seek such designation in the future.

Clinical studies in humans involving IRX‑2 show immune marker activation in patients treated with IRX‑2. In a prior phase 2a clinical trial, a correlation was shown between marker activation and disease-free survival in head and neck cancer. Results from this study were used to support the initiation of the INSPIRE study, a Phase 2B study involving 105 patients with HNSCC. Details of this trial can be found at clinicaltrials.gov (NCT02609386).

Other Indications

Other than the INSPIRE study, all clinical studies using IRX-2 are investigator-sponsored studies for which we are providing IRX‑2 as study drug and financial support to conduct the trial. These studies include:

Monotherapy studies:

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BR-101 - A study involving 16 patients with neoadjuvant breast cancer performed at the Providence Portland Medical Center. Details of this trial can be found at clinicaltrials.gov (NCT02950259).

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CIN-201 - An open label single arm Phase 2 trial of the IRX‑2 regimen in women with cervical squamous intraepithelial neoplasia 3 or squamous vulvar intraepithelial neoplasia 3. Details of this trial can be found at clinicaltrials.gov (NCT03267680).

Combination studies:

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BAS-104 - A basket study originally intended to enroll 100 patients with metastatic bladder, renal, non-small cell lung cancer, or NSCLC, melanoma, and head and neck cancer being held at the Moffitt Cancer Center, using IRX‑2 in conjunction with Opdivo (Nivolumab), an immunotherapy cancer treatment marketed by Bristol-Myers Squibb Company. This trial was discontinued after 11 subjects were enrolled due to insurance reimbursement challenges. Details of this trial can be found on clinicaltrials.gov (NCT03758781).

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HCC-107 - A study involving 28 patients with metastatic hepatocellular carcinoma, or HCC, being held at City of Hope Medical Center, HonorHealth Research Institute, and Texas Oncology at Baylor Charles A. Simmons Cancer Center using IRX‑2 in conjunction with Opdivo, a cancer treatment marketed by Bristol-Myers Squibb Company. Details of this trial can be found at clinicaltrials.gov (NCT03655002).

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GI-106 - A study involving 20 patients with metastatic gastric and gastroesophageal junction cancers (GI) being held at City of Hope Medical Center, HonorHealth Research Institute, and Texas Oncology at Baylor Charles A. Simmons Cancer Center using IRX‑2 in conjunction with Keytruda (Pembrolizumab), an immunotherapy cancer treatment marketed by Merck. Details of this trial can be found at clinicaltrials.gov (NCT03918499).

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MHN-102 - A study involving 15 patients with metastatic head and neck cancer being held at the H. Lee Moffitt Cancer Center and Research Institute and University of Michigan Health System using IRX‑2 in conjunction with Imfinzi (Durvalumab), a cancer treatment marketed by AstraZeneca plc. Details of this trial can be found at clinicaltrials.gov (NCT03381183).

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BR-202 - A study involving 30 patients with neoadjuvant triple negative breast cancer, held at the Providence Portland Medical Center using IRX‑2 in conjunction with a programmed cell death protein 1, or PD1, and chemotherapy treatments. Details of this trial can be found at clinicaltrials.gov (NCT04373031).

Impact of COVID-19 Pandemic

The development of our product candidates has been, and could continue to be, disrupted and materially adversely affected by past and continuing impacts of the COVID-19 pandemic. This is a result of measures imposed by the governments and hospitals in affected regions, businesses and schools were suspended due to quarantines intended to contain this outbreak. The spread of SARS CoV‑2 from China to other countries resulted in the Director General of the World Health Organization declaring COVID-19 a pandemic in March 2020. While the constraints of the pandemic are being lifted, we are still assessing the longer-term impact of the COVID-19 pandemic on our development plans, and on the ability to conduct our clinical trials There can be no assurance that this analysis will enable us to avoid or remediate part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally. The extent to which the COVID-19 pandemic and ongoing global efforts to contain its spread will impact our operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the pandemic and the actions taken to contain or treat the COVID‑19 pandemic. Further, the specific clinical outcomes, or future pandemic related impacts of emerging SARS-CoV-2 variants cannot be reliably predicted

The patients in our clinical trials have conditions that make them especially vulnerable to COVID-19, and as a result we have seen slowdowns in enrollment in our clinical trials. While our Phase 2b clinical study in patients with squamous cell carcinoma of the oral cavity, known as the INSPIRE study, is fully populated, our other clinical studies are likely to continue to encounter delays in enrollment as a result of the pandemic. Further, with respect to the INSPIRE study, we anticipate that the COVID-19 pandemic will slow our ability to close out trial sites and report trial data.

IRX‑2 is a product containing among others, IL‑2, as well as IL-6 and IL-8, IL-10 and TNF-a types of cytokine-signaling molecules in the immune system. While many of the mechanisms of action of COVID-19 are still unknown, there is evidence that some patients with severe COVID-19 cases may experience “cytokine release syndrome” or “cytokine storm.” In these cases, the body releases cytokines into the body too quickly, which can create symptoms such as high fever, inflammation, severe fatigue and nausea and can lead to severe or life-threatening symptoms. In addition, a paper published in the British Medical Journal in 2020 reported increased proinflammatory and anti-inflammatory cytokines, including IL-2R, IL-6, IL-8, TNF and IL-10, and an obvious association with both COVID-19 severity and in-hospital mortality.

In June 2020 the Journal of Medical Virology published a letter submitted by Wen Luo, Jia-Wen Zhang, Wei Zhang, Yuan-Long Lin and Qi Wang, supported by grants from the State Key Laboratory of Veterinary Technology, Harbin Veterinary Research Institute, stating that, based on a review of 25 patients admitted to intensive care units with a confirmed infection of COVID-19, cytokine storm of a number of interleukins, including IL‑2, was absent. The letter therefore suggested that the severity of COVID-19 symptoms is not directly associated with circulating levels of IL‑2. There can be no assurance, however, that further study will bear this out or that patients treated with IRX‑2, who are already at higher risk for COVID-19 due to their underlying diagnosis, will not be adversely affected.

For additional information regarding our business, please see Item 8.01 of our Current Report on Form 8-K filed with the Securities and Exchange Commission, or SEC, on May 11, 2021.

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Second Quarter 2021 and Recent Developments

License Agreements

On April 26, 2021, Brooklyn LLC entered into an exclusive license agreement, or the License Agreement, with Novellus, Ltd. and Factor, or the Licensors, to license the Licensors’ intellectual property and mRNA cell reprogramming and gene editing technology for use in the development of certain cell-based therapies to be evaluated and developed for treating human diseases, including certain types of cancer, sickle cell disease, and beta thalassemia. Through the License Agreement, Brooklyn LLC acquired an exclusive worldwide license to develop and commercialize certain cell-based therapies to treat cancer and rare blood disorders, including sickle cell disease, based on patented technology and know-how of Novellus, Ltd.

The License Agreement provides that Brooklyn LLC is obligated to pay the Licensors a total of $4,000,000 in connection with the execution of the License Agreement, all of which has been paid. Brooklyn LLC is obligated to pay to the Licensors additional fees of $5,000,000 in October 2021 and $7,000,000 in October 2022.

The completion of our acquisition of Novellus, Inc., formerly the sole equity holder of Novellus, Ltd., on July 16, 2021 relieves us from potential obligations to pay Novellus, Ltd. certain upfront fees, clinical development milestone fees and post-registration royalties under the License Agreement. The agreements with Factor under the License Agreement remains unchanged. Brooklyn LLC is obligated to pay Factor $2,500,000 in October 2021 and $3,500,000 in October 2022.

Under the terms of the License Agreement, Brooklyn LLC is required to use commercially reasonably efforts to achieve certain delineated milestones, including specified clinical development and regulatory milestones and specified commercialization milestones. In general, upon its achievement of these milestones, Brooklyn LLC will be obligated, in the case of development and regulatory milestones, to make milestone payments to Licensor in specified amounts and, in the case of commercialization milestones, to specified royalties with respect to product sales, sublicense fees or sales of pediatric review vouchers. In the event Brooklyn LLC fails to timely achieve certain delineated milestones, the Licensors may have the right to terminate the rights of Brooklyn LLC under provisions of the License Agreement relating to those milestones.

The Licensor is responsible for preparing, filing, prosecuting and maintaining all patent applications and patents under the License Agreement. If, however, the Licensors determine not to maintain a particular licensed patent or not to prepare, file and prosecute a licensed patent, Brooklyn LLC will have the right, but not the obligation, to assume those responsibilities in the territory at its expense.

Novellus, Ltd. is a pre-clinical development, manufacturing, and technology licensing entity focused on engineered cellular medicines. Novellus, Ltd. has created, developed, and patented mRNA-based cell reprogramming and gene editing technologies to create engineered cellular medicines. The synthetic mRNA developed by Novellus, Ltd. is non-immunogenic—it is capable of successfully evading the immune system while being recognized by cellular processes. The synthetic mRNA is then capable of expressing high levels of proteins for cell reprogramming and gene editing. The mRNA may be formulated for injection into target tissues for cellular uptake and therapeutic treatment.

The synthetic mRNA technology may be used to edit gene mutations through mRNA chemistry or expressed gene-editing proteins to treat genetic and rare diseases. It may also be used to reprogram human non-pluripotent cells and IPSCs. The IPSCs may then be differentiated into pure populations of varying therapeutic cell types. The reprogramming technology offers a rapid, cost-effective and patient specific therapy using the engineered stem cells created from IPSCs.

Novellus, Ltd. has licenses from Factor to use over 45 granted patents throughout the world covering synthetic mRNA, RNA-based gene editing, and RNA-based cell reprogramming, in addition to specific patents covering methods for treating specific diseases. There are also more than 50 pending patent applications throughout the world focused on these and other aspects of the technology. The patent coverage includes granted patents and pending patent applications in the United States, Europe, and Japan, along with other major life sciences markets.

There can be no assurance that Brooklyn LLC can successfully develop and commercialize the technology licensed under the License Agreement.

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Purchase Agreements

On April 26, 2021, Brooklyn and Lincoln Park Capital Fund, LLC, or Lincoln Park, executed a purchase agreement, or the First Purchase Agreement, and a related registration rights agreement. Pursuant to the First Purchase Agreement, Brooklyn had the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park would be obligated to purchase, up to $20.0 million of shares of Brooklyn’s common stock. Sales of common stock by Brooklyn, if any, were subject to certain limitations, and could occur from time to time, at Brooklyn’s sole discretion. For entering into the First Purchase Agreement, Brooklyn issued to Lincoln Park 56,041 shares of common shares as consideration for Lincoln Park’s commitment to purchase up to $20.0 million in shares of common stock. During the three months ending June 30, 2021, Brooklyn issued and sold to Lincoln Park a total of 1,127,736 shares of common stock for gross proceeds of $20,000,000, and no further shares may be sold to Lincoln Park under the First Purchase Agreement.

On May 26, 2021, Brooklyn executed a purchase agreement, or the Second Purchase Agreement, and a related registration rights agreement. Pursuant to the Second Purchase Agreement,Brooklyn has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park would be obligated to purchase, up to $40,000,000 of shares of Brooklyn’s common stock. Sales of common stock by Brooklyn, if any, are subject to certain limitations, and may occur from time to time, at Brooklyn’s sole discretion. For entering into the Second Purchase Agreement, Brooklyn issued to Lincoln Park 50,000 shares of common shares as consideration for Lincoln Park’s commitment to purchase up to $40,000,000 in shares of common stock.

Under the Second Purchase Agreement, on any business day selected by Brooklyn, Brooklyn may direct Lincoln Park to purchase up to 60,000 shares of common stock on such business day, which we refer to as a Regular Purchase, provided, however, that (i) the Regular Purchase may be increased to up to 80,000 shares, provided that the closing sale price of the common stock is not below $5.50 on the purchase date, and (ii) the Regular Purchase may be increased to up to 120,000 shares, provided that the closing sale price of the common stock is not below $7.00 on the purchase date. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000 under the First Purchase Agreement and $2,000,000 under the Second Purchase Agreement. The purchase price per share for each such Regular Purchase will be based off of prevailing market prices of common stock immediately preceding the time of sale. In addition to Regular Purchases, Brooklyn may direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the common stock exceeds certain threshold prices as set forth in the Second Purchase Agreement.

The Second Purchase Agreement also prohibits Brooklyn from directing Lincoln Park to purchase any shares of common stock if those shares, when aggregated with all other shares of common stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of common stock. Brooklyn has the right to terminate the Second Purchase Agreement at any time, at no cost or penalty.

Actual sales of shares of common stock to Lincoln Park under the Second Purchase Agreements depend on a variety of factors to be determined by Brooklyn from time to time, including, among others, market conditions, the trading price of the common stock and determinations by Brooklyn as to the appropriate sources of funding for Brooklyn and its operations. We expect that any net proceeds received by Brooklyn from such sales to Lincoln Park will be used for research and development, working capital and general corporate purposes.

As of June 30, 2021, Brooklyn had issued and sold 3,211,942 shares of common stock under the First Purchase Agreement and the Second Purchase Agreement for total net proceeds of $48.5 million.

Acquisition of Novellus

On July 16, 2021, Brooklyn and its newly formed, wholly owned subsidiary Brooklyn Acquisition Sub, Inc. entered into an agreement and plan of acquisition, or the Acquisition Agreement, with (a) Novellus LLC, (b) Novellus, Inc., the sole equity holder of Novellus, Ltd. and, prior to the closing under the Acquisition Agreement, a wholly owned subsidiary of Novellus, LLC, and (c) a seller representative. Novellus, Ltd. is a pre-clinical stage biotechnology company organized under the laws of Ireland that is developing engineered cellular medicines using its licensed, patented non-immunogenic mRNA, high-specificity gene editing, mutation-free and footprint-free cell reprogramming and serum-insensitive mRNA lipid delivery technologies.

The closing of the transaction contemplated by the Acquisition Agreement, or the Acquisition, was held contemporaneously with the execution and delivery of the Acquisition Agreement. At the closing:

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Brooklyn acquired all of the outstanding equity interests of Novellus, Inc. as the result of the merger of Brooklyn Acquisition Sub, Inc. with and into Novellus, Inc., following which Novellus, Inc., as the surviving corporation, became Brooklyn’s wholly owned subsidiary and Novellus Ltd. became Brooklyn’s indirectly owned subsidiary.

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Brooklyn acquired 25.0% of the total outstanding equity interests of NoveCite, Inc., a corporation focused on bringing an allogeneic mesenchymal stem cell, or MSC, product to patients with acute respiratory distress syndrome, including from COVID-19.

Brooklyn delivered consideration for the Acquisition totaling approximately $124.0 million, which consisted of (a) $22.8 million in cash and (b) 7,022,230 shares of common stock, which under the terms of the Acquisition Agreement were valued at a total of $102.0 million, based on a price of $14.5253 per share.

The Acquisition Agreement contains customary representations, warranties and certain indemnification provisions. A total of 740,766 of the shares issued as consideration have been placed in escrow for a period of up to 12 months in order to secure indemnification obligations to Brooklyn under the Acquisition Agreement. The Acquisition Agreement also contains non-competition and non-solicitation provisions pursuant to which Novellus LLC has agreed not to engage in certain competitive activities for a period of five years following the closing, including customary restrictions relating to employees. No employees of Novellus Ltd. or Novellus, Inc. prior to the Acquisition continued their employment, or were otherwise engaged by Brooklyn, following the Acquisition.

In connection with the Acquisition, the co-founders of Novellus, Ltd. entered into lock-up agreements with respect to 3,377,690 of the shares received in the Acquisition, and Brooklyn’s Chair of the Board of Directors and its Chief Executive Officer and President entered into identical lock-up agreements with respect to their current holdings of 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 NYSE American stock exchange exceeds specified thresholds. The lock-up agreements include customary exceptions for transfers during the applicable lock-up period.

We expect the Acquisition will advance our evolution into a platform company with a pipeline of next-generation engineered cellular, gene editing and cytokine programs. In addition, the acquisition of Novellus, Ltd. builds on the License Agreement. (See “__Second Quarter 2021 and Recent Developments—License Agreements” above.) The completion of the acquisition of Novellus, Ltd. relieves Brooklyn LLC from potential obligations to pay Novellus, Ltd. certain upfront fees, clinical development milestone fees and post-registration royalties under the License Agreement. The agreement with Factor under the License Agreement, which grants Brooklyn LLC exclusive rights to develop certain next-generation mRNA gene editing and cell therapy products, remains unchanged.

Basis of Presentation

Revenues

We are a development stage company and have had no revenues from product sales to date. We will not have revenues from product sales until such time as we receive regulatory approval of our drug candidates, successfully commercialize our products or enter into a licensing agreement which may include up-front licensing fees, of which there can be no assurance.

General and Administrative Expenses

Our general and administrative expenses consist primarily of salaries, benefits and other costs, including stock-based compensation, for our executive and administrative personnel, legal and other professional fees; travel, insurance, and other corporate costs.

Research and Development Expenses

We expense our research and development costs as incurred. Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as support for selected investigator-sponsored research. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended. The major components of research and development costs include preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, expensed licensed technology, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead costs related to our product development efforts.

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In the normal course of our business, we contract with third parties to perform various clinical study and trial activities in the on-going development and testing of potential products. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the clinical study or trial or similar conditions. Preclinical and clinical study and trial associated activities such as production and testing of clinical material require significant up-front expenditures. We anticipate paying significant portions of a study’s or trial’s cost before such begins and incurring additional expenditures as the study or trial progresses and reaches certain milestones.

Critical Accounting Policies and Estimates

There were no significant changes in our critical accounting estimates during the three and six months ended June 30, 2021 to augment the critical accounting estimates disclosed under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations--Critical Accounting Policies and Estimates” in Part I of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021.

Results of Operations

Comparison of Three and Six Months Ended June 30, 2021 and 2020

	Three months ended June 30,
	2021			2020			Change			% Change

Operating expenses:
Research and development		5,392,777			985,081			4,407,696			447	%
General and administrative		4,620,353			1,034,120			3,586,233			347	%
Total operating expenses		10,013,130			2,019,201			7,993,929			396	%
Loss from operations		(10,013,130	)		(2,019,201	)		(7,993,929	)		396	%

Other expenses:
Loss on sale of NTN assets		(50,000	)		-			(50,000	)		N/A
Other expense, net		(22,187	)		(14,245	)		(7,942	)		56	%
Total other expenses		(72,187	)		(14,245	)		(57,942	)		407	%
Net loss		(10,085,317	)		(2,033,446	)		(8,051,871	)		396	%
Series A preferred stock dividend		(7,806	)		-			(7,806	)		N/A
Net loss attributable to common stockholders	$	(10,093,123	)	$	(2,033,446	)	$	(8,059,677	)		396	%

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	Six months ended June 30,
	2021			2020			Change			% Change

Operating expenses:
Research and development		6,912,410			1,376,140			5,536,270			402	%
General and administrative		6,256,910			1,657,595			4,599,315			277	%
Transaction costs		5,765,407			-			5,765,407			N/A
Change in fair value of contingent consideration		(820,000	)		-			(820,000	)		N/A
Total operating expenses		18,114,727			3,033,735			15,080,992			497	%
Loss from operations		(18,114,727	)		(3,033,735	)		(15,080,992	)		497	%

Other expenses:
Loss on sale of NTN assets		(9,648,173	)		-			(9,648,173	)		N/A
Other expense, net		(24,751	)		(18,923	)		(5,828	)		31	%
Total other expenses		(9,672,924	)		(18,923	)		(9,654,001	)		51017	%
Net loss		(27,787,651	)		(3,052,658	)		(24,734,993	)		810	%
Series A preferred stock dividend		(7,806	)		-			(7,806	)		N/A
Net loss attributable to common stockholders	$	(27,795,457	)	$	(3,052,658	)	$	(24,742,799	)		811	%

Revenues

We had no revenues for the three and six months ended June 30, 2021 or 2020.

General and Administrative Expenses

The increase in general and administrative expense for the three and six months ended June 30, 2021 was primarily related to increased legal, accounting and consulting fees associated with merger and acquisition activity, costs associated with being a publicly traded company and increased stock-based compensation resulting from the issuance of equity awards when compared to the same periods in 2020.

We expect general and administrative expenses to increase in future periods as we increase our business activities and incur costs associated with being a publicly traded company.

Research and Development Expenses

For the three and six months ended June 30, 2021, our research and development expenses increased due to upfront payments associated with licensed technology, increased clinical trial expenses and stock-based compensation for the issuance of equity awards when compared to the same periods in 2020.

We expect research and development expenses to grow as we expand our clinical trial activities.

Transaction Costs

There were no transaction costs for the three months ended June 30, 2021. For the six months ended June 30, 2021, transaction costs related to the issuance of common stock to our financial advisor upon consummation of the Merger.

Change in Fair Value of Contingent Consideration

There were no changes to the fair value of contingent consideration for the three and six months ended June 30, 2020. For the three and six months ended June 30, 2021, change in fair value of contingent consideration was $0 and $820,000, respectively.

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Other Expense, Net

For the three and six months ended June 30, 2021, other expense, net increased primarily due to interest accrued on notes payable of $410,000 that we assumed as part of the acquisition of the assets of IRX Therapeutics, LLC in 2018. The notes bear interest at the rate of 14% and were due on December 31, 2019. On January 27, 2020, the notes were amended to extend the maturity date to the earlier of (i) a change of control and (ii) December 31, 2021, whichever comes first.

Loss on Sales of NTN Assets

Loss on sales of NTN assets for the three and six months ended June 30, 2021 was incurred when we completed the Disposition.

Liquidity and Capital Resources

At June 30, 2021, we had cash and cash equivalents of $50,164,673. During the second quarter of 2021, we entered into the First Purchase Agreement and Second Purchase Agreement with Lincoln Park, pursuant to which we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to an aggregate of $60,000,000 in shares of our common stock. Future sales of common stock by us, if any, are subject to certain limitations, and may occur from time to time, at our sole discretion. As of August 12, 2021, we had issued and sold 3,211,942 shares of common stock for total gross proceeds of $50.5 million and net proceeds of $48.5 million. For further information, see “—Recent Developments—Purchase Agreements.”

We have to date incurred operating losses, and we expect these losses to increase in the future as we expand our drug development programs and operate as a publicly traded company. We anticipate using current cash on hand and our net proceeds from sales of common stock under the Second Purchase Agreement to finance these activities. It will likely be some years before we obtain the necessary regulatory approvals to commercialize one or more of our drug candidates. Based on our current financial condition and forecasts of available cash, including as mentioned above, we believe we have sufficient funds to fund our operations for the next twelve months. There can be no assurance that we will ever be in a position to commercialize IRX-2 or any other drug candidate we may acquire, or that we will obtain any additional financing that we require in the future or, even if such financing is available, that it will obtainable on terms acceptable to us.

In that regard, our future funding requirements will depend on many factors, including:

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the scope, rate of progress and cost of our clinical trials and other product development activities;

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future clinical trial results;

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the terms and timing of any collaborative, licensing and other agreements that we may establish;

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the cost and timing of regulatory approvals;

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the cost and delays in product development as a result of any changes in regulatory oversight applicable to our products;

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the cost and timing of establishing sales, marketing and distribution capabilities;

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the effect of competition and market developments; and

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the cost of filing and potentially prosecuting, defending and enforcing any patent claims and other intellectual property rights.

We plan to raise additional funds to support our product development activities and working capital requirements through the remaining availability under the Second Purchase Agreement, public or private equity offerings, debt financings, corporate collaborations or other means. We may also seek governmental grants to support our clinical trials and preclinical trials. Further, we may seek to raise capital to fund additional product development efforts even if we have sufficient funds for our planned operations. Any sale by us of additional equity or convertible debt securities could result in dilution to our stockholders. There can be no assurance that any such required additional funding will be available to us at all or available on terms acceptable to us.

Further, to the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more research and development programs, which could have an adverse effect on our business.

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Sources of Funds

Equity Securities

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During the second quarter, we entered into the First Purchase Agreement and the Second Purchase Agreement with Lincoln Park, pursuant to which, subject to specified terms and conditions, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to an aggregate of $60.0 million in shares of our common stock. As of August 12, 2021, we had issued and sold 3,211,942 shares of common stock for total gross proceeds of $50.5 million and net proceeds of $48.5 million. For further information, see “—Recent Developments—Purchase Agreements.”

•

As a condition to the closing of the Merger, Brooklyn LLC was required to have at least $10.0 million in cash and cash equivalents at the effective time of the Merger. In furtherance of, and prior to, the Merger, certain of its members entered into agreements pursuant to which those members purchased additional units of Brooklyn LLC for an aggregate purchase price of $10.5 million.

Disposition.

On March 26, 2021, Brooklyn completed the Disposition, in which it sold to eGames.com its rights, title and interest in and to the assets relating to the business it operated prior to the Merger under the name “NTN Buzztime, Inc.” in exchange for eGames.com’s payment of a purchase price of $2.0 million and assumption of specified liabilities relating to such pre-Merger business.

Brooklyn LLC PPP Loan.

On May 4, 2020, Brooklyn LLC issued a note in the principal amount of approximately $309,905 to Silicon Valley Bank evidencing the loan, or the Brooklyn LLC PPP Loan, Brooklyn LLC received under the Paycheck Protection Program, or PPP, of the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S. Small Business Administration, or the CARES Act. As of June 30, 2021, the outstanding principal balance of the Brooklyn LLC PPP Loan was $309,905.

The Brooklyn LLC PPP Loan matures on May 5, 2022 and bears interest at a rate of 1.0% per annum. Brooklyn LLC must make monthly interest-only payments beginning on November 4, 2020. One final payment of all unforgiven principal plus any accrued unpaid interest is due at maturity. Funds from the Brooklyn LLC PPP Loan may only be used for payroll costs, rent and utilities. We believe Brooklyn LLC used the funds received from the Brooklyn LLC PPP Loan for qualifying expenses. Under the terms of the PPP, we may prepay the Brooklyn LLC PPP Loan at any time with no prepayment penalties, and certain amounts of the Brooklyn LLC PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. In June 2021, Brooklyn LLC submitted our loan forgiveness application for the PPP Loan. We believe Brooklyn LLC will qualify for forgiveness of the Brooklyn LLC PPP Loan, but there can be no assurance that Brooklyn LLC will obtain full forgiveness based on the legislation.

Uses of Funds

Net Cash Used in Operating Activities. Our operations used $10.2 million during the six months ended June 30, 2021. Our cash use for operating activities is influenced by the level of our net loss and the amount of cash we invest in ~~November~~personnel and technology development to support anticipated growth in our business.

Lease Obligations. We are obligated to pay approximately $660,000 per year for our facilities leases, subject to annual increases and to a sharing of common area expenses with other tenants in the building. The leases expire at varying times between December 2025 and June 2028.

Brooklyn PPP Loan. On April 18, 2020, Brooklyn (then known as NTN Buzztime, Inc.) was granted a loan, which we refer to as the Brooklyn PPP Loan, in the aggregate amount of $1,625,000, pursuant to the PPP under the CARES Act. Under the terms of the PPP, certain amounts of the Brooklyn PPP Loan could be forgiven if they were used for qualifying expenses as described in the CARES Act. In October 2020 the ~~U.S~~U.S. Small Business Administration approved the forgiveness of ~~approximately~~ $1,093,000 of the $1,625,000 ~~loan,~~principal amount of the Brooklyn PPP Loan, leaving a principal balance of approximately $532,000,.

~~Bridge Loan~~

~~In connection~~ all of which, plus accrued and unpaid interest, was due and, in accordance with ~~entering into~~ the ~~Asset Purchase Agreement with eGames.com, we issued to Fertilemind Management, LLC, an affiliate~~terms of eGames.com, an unsecured promissory note (the “Note”) in the principal amount of $1,000,000, evidencing a $1,000,000 loan received from Fertilemind Management, LLC on behalf of eGames.com (the “Bridge Loan”). We may use the loan proceeds for, among other things, the payment of obligations related to the transactions contemplated by the Asset Purchase Agreement and the Merger Agreement, ~~and other general working capital purposes. The principal amount accrues interest at rate of 8% per annum (increasing to 15% per annum~~paid by Brooklyn upon the occurrence of an event of default), compounded annually. The principal amount of the Bridge Loan and accrued interest thereon is due and payable upon the earlier of (i) the termination of the Asset Purchase Agreement, (ii) the closing of a Business Combination (as defined in the Note), and (iii) December 31, 2020. Upon the closing of the ~~Asset Sale, the Bridge Loan will be applied against the purchase price under the Asset Purchase Agreement, and the~~Merger.

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Recent Accounting Pronouncements

A discussion of recent accounting pronouncements is included in Note ~~will be extinguished.~~

~~All of our obligations under the Note are subordinate~~12 to the ~~indebtedness and all other obligations owed by us to Avidbank including under the Avidbank LSA.~~

The Note includes customary events of default, including if any portion of the Note is not paid when due; if we default in the performance of any other material term, agreement, covenant or condition of the Note, subject to a cure period; if any final judgment for the payment of money is rendered against us and we do not discharge the same or cause it to be discharged or vacated within 90 days; if we make an assignment for the benefit of creditors, if it generally does not pay its debts as they become due; if a receiver, liquidator or trustee of ours is appointed, or if we are adjudicated bankrupt or insolvent. In the event of an event of default, the Note will accelerate and become immediately due and payable at the option of the holder.

We are in discussions with Fertilemind Management, LLC regarding the possibility of borrowing an additional $500,000 on approximately December 1, 2020, which, if received, would also be applied toward the purchase price at the closing of the Asset Sale. No assurances can be given that we will obtain such $500,000 loan from Fertilemind Management, LLC or from any other party.

~~Working Capital~~

As of September 30, 2020, we had negative working capital (current liabilities in excess of current assets) of $137,000 compared to negative working capital of $25,000 as of December 31, 2019. The following table shows our change in working capital from December 31, 2019 to September 30, 2020.

Increase
(Decrease)
Working capital as of December 31, 2019 $ (25,000 )
Changes in current assets:
Cash and cash equivalents (1,499,000 )
Restricted cash (50,000 )
Accounts receivable, net (1,063,000 )
Income tax receivable 13,000
Site equipment to be installed (298,000 )
Prepaid expenses and other current assets (380,000 )
Net decrease in current assets (3,277,000 )
Changes in current liabilities:
Accounts payable (560,000 )
Accrued compensation (463,000 )
Accrued expenses -
Sales taxes payable (117,000 )
Income taxes payable (3,000 )
Current portion of long-term debt, net (1,015,000 )
Current portion of obligations under operating leases (404,000 )
Current portion of obligations under finance leases 2,000
Current portion of deferred revenue (340,000 )
Other current liabilities (265,000 )
Net decrease in current liabilities (3,165,000 )
Net decrease in working capital (112,000 )
Working capital as of September 30, 2020 $ (137,000 )

~~Cash Flows~~

~~Cash flows from operating, investing and financing activities, as reflected in the accompanying consolidated statements of cash flows, are summarized as follows:~~

Nine months ended
September 30,
2020 2019 Change
Cash (used in) provided by:
Operating activities $ (3,280,000 ) $ 1,761,000 $ (5,041,000 )
Investing activities (194,000 ) (964,000 ) 770,000
Financing activities 1,765,000 (826,000 ) 2,591,000
Effect of exchange rates 10,000 27,000 (17,000 )
Net decrease in cash, cash equivalents and restricted cash $ (1,699,000 ) $ (2,000 ) $ (1,697,000 )

~~Net cash (used in) provided by operations.~~ The increase in cash used in operating activities was due to an increase in net loss of $4,635,000, after giving effect to adjustments made for non-cash transactions of negative $667,000, and an increase in cash used for operating assets and liabilities of $406,000, during the nine months ended September 30, 2020 when compared to the same period in 2019.

Our largest use of cash is payroll and related costs. Cash used for payroll and related costs decreased $3,661,000 to $3,725,000 for the nine months ended September 30, 2020 from $7,386,000 for the same period in 2019, primarily due to reduced headcount. See “—Results of Operations—Operating Expenses,” above.

Our primary source of cash is cash we generate from customers. Cash received from customers decreased $9,477,000 to $5,578,000 for the nine months ended September 30, 2020 from $15,055,000 for the same period in 2019. This decrease was primarily related to decreased subscription revenue, hardware revenue and revenue from live-hosted trivia events. The negative impact of the COVID-19 pandemic on the restaurant and bar industry was abrupt, and our business suffered materially as a result. See “Recent Developments—COVID-19 Impact,” above, and “—Results of Operations—Revenue,” above.

~~Net cash used in investing activities.~~ ~~The $770,000 decrease in cash used in investing activities was primarily due to decreased capital expenditures and capitalized software development expenses.~~

~~Net cash provided by (used in) financing activities.~~ During the nine months ended September 30, 2020, we received $1,226,000 in net proceeds from the sale of all our assets used to conduct live-hosted trivia events, $1,625,000 in proceeds from the PPP Loan and $1,000,000 in proceeds from the Bridge Loan. There were no similar transactions during the same period in 2019. During the nine months ended September 30, 2020, we made $1,275,000 more in principal payments on long-term debt when compared to the same period in 2019.

~~RECENT ACCOUNTING PRONOUNCEMENTS~~

~~In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.~~ This ASU enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year and interim-period accounting for enacted changes in tax law. The amendment will be effective for public companies with fiscal years beginning after December 15, 2020, (which will be January 1, 2021 for us); early adoption is permitted. We are currently assessing the impact of this pronouncement to ourcondensed consolidated financial ~~statements.~~

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments~~, which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The ASU requires an entity to establish an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. This ASU will resultstatements included in ~~earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. For smaller reporting companies, the effective date for~~ this standard has been delayed and will be effective for fiscal years beginning after December 15, 2022 (which will be January 1, 2023 for us). We are evaluating the impact that the adoption of this standard will have on our consolidated financial statements.

~~OFF-BALANCE SHEET ARRANGEMENTS~~

report.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in our financial condition, expenses, results of operations, liquidity, capital expenditures or capital resources.

~~Item 3.~~ ~~Quantitative and Qualitative Disclosures About Market Risk~~.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Under SEC rules and regulations, as a smaller reporting company we are not required to provide the information otherwise required by this item.

~~Item 4.~~ ~~Controls and Procedures~~.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, ~~or the Exchange Act,~~ designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act ~~reports~~of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of the end of the period covered by this report under the supervision and with the participation of our management, including our Chief Executive Officer and ~~Senior~~President (who serves as our principal executive officer) and our Vice President of Finance (who serves as our principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures.

Upon completion of the Merger in March 2021 and the resulting change in our business model and strategy, we experienced a complete turnover of our employees, including all of the members of our executive management team, which resulted in, among other things, our having insufficient accounting staff available to enable and ensure adequate segregation of duties and our lacking appropriate and complete documentation of policies and procedures critical to the accomplishment of financial reporting objectives. The accounting personnel and documentation deficiencies each increase the risk that a material misstatement of our financial statements will not be prevented or detected on a timely basis. Based on ~~our~~this evaluation, ~~and subject to the foregoing,~~ our Chief Executive Officer and ~~Senior~~President and our Vice President of Finance concluded that, as of June 30, 2021, our disclosure controls and procedures were not effective ~~as of the end of the period covered by this report in providing~~and did not provide reasonable assurance of achieving the desired control objectives.

Management plans to implement measures designed to ensure that the deficiencies contributing to the ineffectiveness of our disclosure controls and procedures are remediated, such that the controls and procedures are designed, implemented and operating effectively. The remediation actions planned include:

●	hiring and employing 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. 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

~~There~~

Other than described above, there was no change in our internal control over financial reporting during ~~our most recently completed fiscal quarter~~the three months ended June 30, 2021 that ~~has~~ materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We will continue to review and document our disclosure controls and procedures, including our internal control over financial reporting, and may from time to time make changes to enhance their effectiveness and ensure that our systems evolve with our business.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

This information is set forth under “Note 9—Commitments and Contingencies—Legal Matters” to the condensed consolidated financial statements included in this report and is incorporated in this Item 1. ~~Legal Proceedings~~.

1 by reference.

From time to time we ~~are subject to~~may become involved in legal proceedings arising in the ordinary course of business. ~~While management presently believes~~Except as described above, we do not believe there is any litigation pending that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or outcomes could ~~occur that~~ have, individually or in the aggregate, a material adverse effect on our ~~business,~~results of operations, financial condition or ~~operating results. We are not currently subject to any pending material legal proceedings except as described below.~~

~~We and our directors have been named as defendants in six substantially similar actions brought by purported stockholders of ours arising out of the Merger:~~ ~~Henson v. NTN Buzztime, Inc.~~~~, Case No. 1:20-cv-08663 (S.D.N.Y. filed Oct. 16, 2020);~~ ~~Chinta v. NTN Buzztime, Inc.~~~~, Case No. 1:20-cv-01401 (D. Del. filed Oct. 16, 2020);~~ ~~Amanfo v. NTN Buzztime, Inc.~~~~, Case No. 1:20-cv-08747 (S.D.N.Y. filed Oct. 20, 2020);~~ ~~Falikman v. NTN Buzztime, Inc.~~~~, Case No. 1:20-cv-05106 (E.D.N.Y. filed Oct. 23, 2020);~~ ~~Haas v. NTN Buzztime, Inc.~~~~, Case No. 3:20-cv-02123-BAS-JLB (S.D. Cal. filed Oct. 29, 2020); and~~ ~~Monsour v. NTN Buzztime, Inc.,~~ Case No. 1:20-cv-08755 (S.D.N.Y. file Oct. 20, 2020). These actions assert claims asserting violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Securities Exchange Commission Rule 14a-9 promulgated thereunder. ~~Chinta~~ asserts additional claims for breach of fiduciary duty under Delaware law. The complaints allege that 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 we or Brooklyn Immunotherapeutics, Inc. may have made, and the analyses performed by our financial advisor, Newbridge Securities Corporation; (2) conflicts concerning the sales process; and (3) disclosures regarding whether or not we entered into any confidentiality agreements with standstill and/or “don’t ask, don’t waive” provisions. The complaints allege that these purported failures to disclose rendered the Form S-4 false and misleading. The complaints request a 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 Registration Statement; an accounting by us for all alleged damages suffered; a declaration that certain federal securities laws have been violated; and costs, including attorneys’ and expert fees and expenses. Process has been served in ~~Henson~~~~, but not in any of the other actions. The deadline for defendants to respond to the complaint in~~ ~~Henson~~ is December 21, 2020. Although plaintiffs request injunctive relief in their complaints, they have not filed motions for such relief. We and our directors deny the allegations asserted against us in these actions and intend to oppose them vigorously.

cash flows.

~~Item 1A.~~ ~~Risk Factors~~.

Item 1A. Risk Factors.

An investment in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described ~~under Item 1A of Part I~~below and in the “Risk Factors” section of our ~~2019 10-K and in our other filings~~Current Report on Form 8-K filed with the SEC ~~subsequent to December 31, 2019,~~on May 11, 2021, together with all other information contained or incorporated by reference in this report, before you invest in ~~our~~ common stock. If any of the risks described in this report ~~in our 2019 10-K~~ or in ~~our other filings with the SEC subsequent to December 31, 2019~~such Current Report occur, our business, financial condition, results of operations and ~~our~~ future growth prospects could be materially and adversely affected. Under these circumstances, the trading price of ~~our~~ common stock could decline, and you may lose all or part of your investment.

Because our gene-editing and cell therapy product candidates are based on novel technologies, we cannot assure you that we will be successful, or predict the related cost and time we will spend, in initiating, conducting and completing clinical development, and obtaining the necessary regulatory and reimbursement approvals, required for commercialization.

Cell programming technology and platform for generating cell therapy products using allogenic MSCs derived from iPSCs represent novel therapeutic approaches, and to our knowledge no iPSC-derived cell products are currently approved for commercial sale anywhere in the world. As such, it is difficult to accurately predict the type and scope of challenges that we will incur during development of our respective product candidates, and we thus face uncertainties associated with the preclinical and clinical development, manufacture, and regulatory compliance for the initiation and conduct of clinical trials, regulatory approval, and reimbursement required for successful commercialization of product candidates. In addition, because the iPSC-derived cell product candidates are in the pre-clinical stage, no human data are yet available to assess the long-term effects of treatment. Animal models and assays may not accurately predict the safety and efficacy of our product candidate in our target patient populations, and appropriate models and assays may not exist for demonstrating the safety and purity of the ~~date~~product candidates, as required by the FDA and other regulatory authorities for ongoing clinical development and regulatory approval.

The pre-clinical and clinical development, manufacture, and regulatory requirements for approval of ~~this report, we do not believe there have been any material changes~~the product candidates may be more expensive and take longer than for other more well-known or extensively studied pharmaceutical or biopharmaceutical product candidates due to a lack of prior experiences on the side of both developers and regulatory agencies. Additionally, due to the ~~risk factors disclosed in our 2019 10-K except as described below.~~

~~RISKS RELATED TO THE PROPOSED MERGER AND ASSET SALE~~

~~Risks Related to~~uncertainties associated with the ~~Merger~~

~~The formula~~pre-clinical and clinical development, manufacture, and regulatory requirements for determining the number of shares to be issued in the Merger to Brooklyn members is not adjustable based on the market price of NTN’s common stock, so the number of shares of NTN common stock that may be issued in the Merger may have a greater or lesser value than at the time the Merger Agreement was signed.

The Merger Agreement has set the formula for determining the number of shares to be issued to Brooklyn’s members in the Merger, and the number of shares to be so issued is only adjustable upward or downward under certain circumstances as described in the Merger Agreement. Any changes in the market price of NTN common stock before the completionapproval of the Merger will not affect the number of shares of NTN common stock that Brooklyn members will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the Merger the market price of NTN common stock declines from the market price on the date of the Merger Agreement, then Brooklyn members could receive merger consideration with substantially lower value for their equity interests in Brooklyn than the value of NTN common stock based on the market price on the date of the Merger Agreement. Similarly, if before the completion of the Merger the market price of NTN common stock increases from the market price on the date of the Merger Agreement, then Brooklyn members could receive merger consideration with substantially more value for their equity interests in Brooklyn than the value of NTN common stock based on the market price on the date of the Merger Agreement. Because the formula does not adjust as a result of changes in the value of NTN common stock, for each one percentage point that the market value of NTN common stock rises or declines, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration issued to Brooklyn members compared to the market price of the NTN common stock on the date of the Merger Agreement.

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The formula for determining the number of shares to be issued in the Merger to Brooklyn members is subject to an upward adjustment to the extent that Brooklyn has more than $10.0 million in cash and cash equivalents at the closing of the Merger and to the extent that NTN’s net cash at the closing of the Merger is less than zero dollars, and as a result, NTN’s stockholders could own less, and Brooklyn members could own more, of the combined company.

The number of shares to be issued in the Merger to Brooklyn members will increase to the extent that Brooklyn has more than $10.0 million in cash and cash equivalents at the closing of the Merger, and will further increase to the extent that NTN’s net cash at the closing of the Merger is less than zero dollars. The increase based on the amount of Brooklyn’s cash and cash equivalents at the closing of the Merger is subject to a $15.0 million cap, except that to the extent that NTN’s net cash is less than zero, the number of shares to be issued in the Merger to Brooklyn members will increase to the extent that Brooklyn has more than $15.0 million in cash and cash equivalents at the closing, up to the absolute amount of NTN’s net cash. Accordingly, NTN’s stockholders could own less, and Brooklyn members could own more, of the combined company depending on the amount of cash and cash equivalents Brooklyn has at the closing and on the extent to which NTN’s net cash at the closing is negative.

~~If the conditions to closing the Merger are not satisfied, the Merger may not occur.~~

Even if NTN’s stockholders approve the issuance of shares of NTN common stock to Brooklyn’s members under the Merger Agreement and the change of control resulting therefrom and even if the beneficial holders of the Class A membership interests of Brooklyn approve the Merger and the Merger Agreement, other specified conditions must be satisfied or waived to complete the Merger. No assurances can be given that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or will be delayed, and NTN and Brooklyn each may lose some or all of the intended benefits of the Merger.

For example, one of the conditions to closing the Merger is that the deficit in NTN’s net cash not exceed $3.0 million. If the Asset Sale Proposal is approved by NTN’s stockholders and the Asset Sale closes, NTN expects that it will satisfy this closing condition. However, NTN has limited cash on hand and its cash flow from operations has suffered as result of the COVID-19 pandemic and any delay in the closing of the Asset Sale and/or the Merger, will increase the risk that NTN will not satisfy this closing condition. Further, if the Asset Sale is not approved by NTN’s stockholders or if the Asset Sale does not close for any other reason, NTN will likely not satisfy this condition.

As another example, one of the conditions to closing the Merger is that, at the closing, Brooklyn have not less than $10 million in cash and cash equivalents on its balance sheet and have not more than $750,000 of indebtedness for borrowed money. To help ensure that Brooklyn meets this condition, Brooklyn has previously engaged in a rights offering to the beneficial holders of its Class A membership interests pursuant to which such beneficial holders who exercised their rights have agreed to make additional contributions to Brooklyn. Such members will exchange the additional membership interests they receive for their contribution for a portion of the shares of NTN common stock issuable to members of Brooklyn in the Merger. Although Brooklyn expects to receive at least $10 million in proceeds from the rights offering, there can be no assurance that these members will contribute what they have contractually agreed to contribute. If these members do not make their committed contributions, Brooklyn may not be able to satisfy the closing condition that it have not less than $10 million in cash and cash equivalents on its balance sheet at the closing of the Merger. If this closing condition is not satisfied, and if NTN does not waive the condition, the Merger will not occur.

Failure to complete the Merger may result in NTN or Brooklyn paying a termination fee to the other party and could significantly harm the market price of NTN’s common stock and negatively affect the future business and operations of both companies.

~~If the Merger is not completed and the Merger Agreement is terminated under certain circumstances, NTN or Brooklyn~~product candidates, we may be required to ~~pay the other party a termination fee of $750,000,~~modify or ~~reimburse the transaction expenses of the other party, up~~change pre-clinical and clinical development plans or manufacturing activities and plans, or be required to ~~a maximum of $250,000. Even if a termination fee is not payable~~meet stricter regulatory requirements for approval. Any such modifications or transaction expenses are not reimbursable in connection with a termination of the Merger Agreement, we will have incurred significant legal, financial, advisory, accounting, audit and other general operating expenses, which must be paid whetherchanges could delay or ~~not the Merger is completed. Further, if the Merger is not completed, it could significantly harm the market price of our common stock and further increase the doubt as to~~prevent our ability to ~~continue as~~develop, manufacture, obtain regulatory approval or commercialize the product candidates, which would adversely affect our business, financial condition and results of operations.

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Cellular immunotherapies, and stem cell therapies and iPSC-derived cell therapies in particular, represent relatively new therapeutic areas, and the FDA has cautioned consumers about potential safety risks associated with cell therapies. To date, there are relatively few approved cell therapies. As a ~~going concern. In addition, if~~result, the ~~Merger Agreement~~regulatory approval process for a gene-editing or cellular therapy product candidate is ~~terminated~~uncertain and may be more expensive and take longer than the approval process for product candidates based on other, better known or more extensively studied technologies and therapeutic approaches. For example, there are currently no FDA approved products with a label designation that supports the use of a product to treat and reduce the severity of ARDS in patients with COVID-19, which makes it difficult to determine the clinical endpoints and data required to support an application or regulatory approval, and the time and cost required to obtain regulatory approval in the United States for our ~~board~~product candidate.

Regulatory requirements in the United States governing cell therapy products have changed frequently and the FDA or other regulatory bodies may change the requirements, or identify different regulatory pathways, for approval of ~~directors Brooklyn determines~~the product candidates. For example, within the FDA, the Center for Biologics Evaluation and Research, or CBER, restructured and created a new Office of Tissues and Advanced Therapies to ~~seek another business combination, there can~~better align its oversight activities with FDA Centers for Drugs and Medical Devices. It is possible that over time new or different divisions may be ~~no assurance that~~established or be granted the responsibility for regulating cell and/or gene therapy products, including iPSC-derived cell products. As a result, we may be required to change its regulatory strategy or to modify its applications for regulatory approval, which could delay and impair its ability to complete the pre-clinical and clinical development and manufacture of, and obtain regulatory approval for, our product candidates. Changes in regulatory authorities and advisory groups, or any new requirements or guidelines they promulgate, may lengthen the regulatory review process, require us to perform additional studies, increase its development and manufacturing costs, lead to changes in regulatory pathways, positions and interpretations, delay or prevent approval and commercialization of the product candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be ~~able~~required to ~~find a partner~~consult with the FDA and ~~close~~other regulatory authorities, and our product candidates will likely be reviewed by an ~~alternative transaction on terms that are as~~FDA advisory committee. We also must comply with applicable requirements, and if we fail to do so, we may be required to delay or ~~more favorable than~~discontinue development of our product candidates. Delays or unexpected costs in obtaining, or the ~~terms set forth in the Merger Agreement.~~

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The Merger is subject to the approval by our stockholders of various proposals at the special meeting and approval by the beneficial holders of the Class A membership interests of Brooklyn of the Merger and the Merger Agreement. Failurefailure to obtain, ~~these approvals would prevent~~ the ~~closing of~~regulatory approval necessary to bring the ~~Merger.~~

~~Before the Merger can~~product candidates to market could impair our ability to generate sufficient product revenues to maintain our respective businesses.

We own only a 25% interest in NoveCite, Inc., and that interest may be completed, our stockholders of must approve various proposals—(i) the issuance of shares of our common stock to the members of Brooklyn pursuant to the terms of the Merger Agreement and the change of control resulting therefrom, (ii) a reverse stock splitdiluted unless we invest additional funds.

In July 2021, we acquired 25% of the outstanding ~~shares~~common stock of NoveCite, Inc. As a result, we will only be entitled to a portion of any benefits that flow from the development by NoveCite, Inc. of any product candidates. In the event that NoveCite, Inc. issues additional equity securities in the future, our percentage ownership would be diluted unless we were to invest additional funds. Dilution of our ~~common stock within~~equity ownership would decrease our portion of any benefit that might be derived from a ~~range of one new share for every 3~~NoveCite, Inc. drug candidate’s successful development. If we were to ~~10 (or any number~~determine that it would be in ~~between) shares outstanding (if~~ the reverse stock split is implemented in connection with the merger, the ratio will be mutually agreed upon by our board of directors and Brooklyn’s managers, and if not implemented in connection with the merger, will be determined by our board of directors), and (iii) amendments to our certificate of incorporation to increase the authorized number of sharesbest interests of our ~~common stock~~company and ~~provide the holders~~stockholders to invest additional amounts in NoveCite, Inc. to prevent dilution of our ~~Series A Convertible Preferred Stock with voting rights (in order~~interests, the required funds may not be available to help ensure the tax-deferred nature of the transactions contemplated by the Merger Agreement)—and the holders of a majority of the beneficial interests in the Class A membership interests of Brooklyn must approve the Merger and the Merger Agreement. The failure to obtain these approvals would result in the Merger not being completed unless, with respect to the proposed amendment to our certificate of incorporation to increase the authorized number of shares of our common stock, such failureus on reasonable terms, or at all.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Set forth below is waived by Brooklyn, and we have a sufficient number of shares of authorized common stock, including following the implementation of the reverse stock split, to issue the number shares of our common stock required to be issued in the Merger.

Certain of the officers and directors of NTN and certain of the officers and managers of Brooklyn have interests in the Merger that are different from the stockholders of NTN and members of Brooklyn, respectively, and that may influence them to support or approve the Merger without regard to the interests of the stockholders of NTN or the members of Brooklyn.

Certain officers and directors of NTN and certain officers and managers of Brooklyn participate in arrangements that provide them with interests in the Merger that are different from the interests of the stockholders of NTN and members of Brooklyn including, among others, the continued service as an officer or director of the combined company, severance benefits, the acceleration of vesting of equity awards, continued indemnification and the potential ability to sell an increased number ofinformation regarding shares of common stock issued by us during the three months ended June 30, 2021 that were not registered under the Securities Act of 1933. Included is the consideration, if any, we received for such shares and information relating to the section of the ~~combined company~~Securities Act of 1933, or the rule of the SEC, under which exemption from registration was claimed.

On April 26, 2021, we entered into a purchase agreement with Lincoln Park Capital Fund, LLC, or Lincoln Park, pursuant to which we issued to Lincoln Park an aggregate of 1,127,736 shares of common stock from April 26, 2021 through May 19, 2021, of which (a) 56,041 shares of common stock were issued as consideration for Lincoln Park’s commitment to purchase shares of common stock under our April 26, 2021 purchase agreement, and (b) 1,071,695 shares were issued to Lincoln Park pursuant to the purchase agreement for an aggregate purchase price of $20.0 million. We intend to us the net proceeds for general corporate purposes, including working capital.

On May 26, 2021, we entered into a purchase agreement with Lincoln Park pursuant to which we issued to Lincoln Park an aggregate of 2,084,206 shares of common stock from May 26, 2021 through June 29, 2021, of which (a) 50,000 shares of common stock were issued as consideration for Lincoln Park’s commitment to purchase shares of common stock under our May 26, 2021 purchase agreement, and (b) 2,034,206 shares were issued to Lincoln Park pursuant to the purchase agreement for an aggregate purchase price of $30.5 million. Pursuant to our purchase agreement with Lincoln Park, we have the right to sell to Lincoln Park up to an additional $9.5 million in ~~accordance with Rule 144~~shares of common stock, subject to certain limitations, from time to time on or before June 4, 2024. We intend to us the net proceeds for general corporate purposes, including working capital.

The securities described in this Item 2 were issued to investors in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as set forth in Section 4(a)(2) under the Securities Act of 1933 ~~as amended (the “Securities Act”). These interests, among others, may influence~~and/or Regulation D promulgated thereunder relative to transactions by an issuer not involving any public offering, to the ~~officers and directors~~extent an exemption from such registration was required. The recipients of ~~NTN and the officers and managers of Brooklyn to support or approve the Merger.~~

~~The market price of our common stock following the Merger may decline as a result of the Merger.~~

~~The market price of our common stock may decline as a result of the Merger for a number of reasons including if:~~

	●	~~investors react negatively to the prospects of the combined company’s product candidates, business and financial condition following the Merger;~~
	●	~~the effect of the Merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or~~
	●	~~the combined company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts.~~

NTN stockholders and Brooklyn members will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the closing of the Merger as compared to their current ownership and voting interestsecurities in the ~~respective companies.~~

~~After~~transactions described above represented that they were accredited investors and were acquiring the ~~completion of the Merger, the current stockholders of NTN~~securities for their own account for investment purposes only and ~~the current members of Brooklyn will own~~not with a ~~smaller percentage of the combined company than their ownership in the respective companies prior~~view to, ~~the Merger. At the effective time of Merger, Brooklyn’s members will exchange their equity interests in Brooklyn~~or for shares of NTN common stock representing between approximately 94.08% and 96.74% of the outstanding common stock of NTN immediately after the effective time of the Merger on a fully diluted basis (less a portion of such shares which will be allocated to Maxim Group, LLC in respect of the success fee owed to it by Brooklyn), and NTN’s stockholders as of immediately prior to the effective time, will own between approximately 5.92% and 3.26% of the outstanding common stock of NTN immediately after the effective time on a fully diluted basis. Consequently, NTN stockholders and Brooklyn members will be able to exercise less influence over the management and policies of the combined company following the closing of the Merger than they currently exercise over the management and policies of their respective companies.

37

~~NTN stockholders and Brooklyn members may not realize a benefit from the Merger commensurate with the ownership dilution they will experience~~sale in connection with, any distribution thereof and that they could bear the ~~Merger.~~

If the combined company is not able to realize the strategic and financial benefits currently anticipated from the Merger, NTN stockholders and Brooklyn members will have experienced substantial dilution of their ownership interests in their respective companies without receiving the expected commensurate benefit, or only receiving partrisks of the ~~commensurate benefit to the extent that the combined company is able to realize only part of the expected strategic and financial benefits currently anticipated from the Merger.~~

The combined company may need to raise additional capital by issuing securities or debt or through licensing or other arrangements, which may cause dilution to the combined company’s stockholders or restrict the combined company’s operations or impact its proprietary rights. Future issuances of the combined company’s common stock pursuant to options outstanding following the Merger and under its equity incentive plan could result in additional dilution.

The combined company may be required to raise additional funds sooner than currently planned. If either NTN or Brooklyn hold less cash at the time of the closing of the Merger than the parties currently expect, the combined company may need to raise additional capital sooner than expected. Additional financing may not be available to the combined company when needed or it may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such an issuance may cause significant dilution and the terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined company enters into may include covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing, partnering or other strategic arrangements, it may be necessary to relinquish rights to some of the combined company’s technologies or product candidates and proprietary rights, or grant licenses on terms that are not favorable to the combined company.

In addition, the exercise or conversion of some or all of the combined company’s outstanding options (or, after the Merger, the issuance of equity awards under the combined company’s equity incentive plan) could result in additional dilution in the percentage ownership interest of current NTN stockholders and Brooklyn members in the combined company.

During the pendency of the Merger, NTN and Brooklyn may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.

Covenants in the Merger Agreement impede the ability of NTN and Brooklyn to make acquisitions, subject to certain exceptions relating to fiduciary duties, or to complete other transactions that are not in the ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, the parties may be at a disadvantage to their competitors during such period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets, or other business combination outside the ordinary course of business with any third party, subject to certain exceptions relating to fiduciary duties and, with respect to NTN, other than the asset sale. Any such transactions could be favorable to such party’s securityholders.

Certain provisions of the Merger Agreement may discourage third parties from submitting alternative acquisition proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit NTN and Brooklyn from soliciting alternative acquisition proposals or cooperating with persons making unsolicited acquisition proposals, except in limited circumstances where the board of directors of NTN and the board of managers of Brooklyn, as applicable, determines in good faith that an unsolicited alternative acquisition proposal is or is reasonably likely to lead to a superior offer and that failure to cooperate with the proponent of that proposal would reasonably be likely to be inconsistent with the board’s fiduciary duties.

Because the lack of a public market for Brooklyn’s securities makes it difficult to evaluate the value of such securities, the members of Brooklyn may receive shares of NTN common stock in the Merger that have a value that is less than, or greater than, the fair market value of Brooklyn’s securities and/or NTN may pay more than the fair market value of Brooklyn’s securities.

The outstanding securities of Brooklyn are privately held and not traded in any public market. The lack of a public market makes it difficult to determine the fair market value of Brooklyn. Because the percentage of NTN common stock to be issued to Brooklyn members was determined based on negotiations between NTN and Brooklyn, it is possible that the value of NTN common stock to be received by Brooklyn members in the Merger will be less than the fair market value of Brooklyn, or NTN may pay more than the aggregate fair market value for Brooklyn.

38

~~Litigation relating to the Merger could require NTN, Brooklyn or the combined company to incur significant costs and suffer management distraction~~investment and could ~~delay or enjoin~~hold the ~~Merger.~~

~~NTN and Brooklyn are subject to shareholder litigation relating to the Merger. See “Item 1. Legal Proceedings,” above~~securities for information regarding such litigation. Such litigation may create uncertainty relating to the Merger, or delay or enjoin the Merger. The combined company may continue to be involved in this litigation after the closing of the Merger. Litigation is often expensive and may divert management’s attention and resources, which could adversely affect NTN’s, Brooklyn’s or the combined company’s business. By virtue of the applicable self-insured retention in NTN’s directors and officers insurance policy, NTN and the combined company may bear all or a significant amount of the costs associated with this litigation. In addition, such insurance may not be sufficient to cover all costs or damages related to this litigation.

The ownership of the combined company common stock is expected to be concentrated, which may prevent you and other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause the combined company stock price to decline.

Executive officers and directors of the combined company and their affiliates are expected to beneficially own or control approximately 39.7% of the outstanding shares of the combined company common stock following the closing of the Merger on a fully diluted basis. Accordingly, these executive officers, directors and their affiliates, acting as a group, will have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the combined company assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of the combined company, even if such a change of control would benefit the other stockholders of the combined company. The significant concentration of stock ownership may adversely affect the trading price of the combined company’s common stock due to investors’ perception that conflicts of interest may exist or arise.

~~Risks Related to the Asset Sale~~

~~While the Asset Sale is pending, it creates unknown impacts on NTN’s future which could materially and adversely affect its business, financial condition and results of operations.~~

While the Asset Sale is pending, it creates unknown impacts on NTN’s future. Therefore, NTN’s current or potential business partners may decide to delay, defer or cancel entering into new business arrangements with NTN pending consummation of the Asset Sale. The occurrence of these events individually or in combination could materially and adversely affect NTN’s business, financial condition and results of operations.

~~The failure to consummate the Asset Sale may materially and adversely affect NTN’s business, financial condition and results of operations.~~

The Asset Sale is subject to various closing conditions including stockholder approval of the Asset Sale as required under applicable law. NTN cannot control these conditions and cannot assure you that they will be satisfied. If the Asset Sale is not consummated, NTN may be subject to a number of risks, including the following:

	●	~~NTN may not satisfy the closing condition in the Merger Agreement that the deficit in NTN’s net cash not exceed $3.0 million;~~
	●	NTN may not be able to identify an alternate transaction, or if an alternate transaction is identified, such alternate transaction may not result in terms as favorable to NTN as compared to the terms of the Asset Sale;
	●	~~the trading price of NTN common stock may decline to the extent that the current market price reflects a market assumption that the Asset Sale will be consummated;~~
	●	~~NTN’s expenses related to the Asset Sale, such as legal, accounting and financial advisor fees, must be paid even if the Asset Sale is not completed; and~~
	●	~~NTN’s relationships with its customers, suppliers and employers may be negatively impacted which may harm its business.~~

The occurrence of any of these events individually or in combination could materially and adversely affect NTN’s business, financial condition and results of operations, which could cause the market value of NTN common stock to decline.

~~In addition, if the Asset Sale does not close and the Merger does close, the aggregate ownership percentage of the combined company by NTN stockholders will likely decrease due to~~ an ~~increase in the deficit of NTN’s net cash as a result of not receiving the $2.0 million in the Asset Sale.~~

~~Failure to complete the Asset Sale may result in NTN paying a termination fee to eGames.com.~~

If the Asset Sale is not completed and the Asset Purchase Agreement is terminated under certain circumstances, NTN may be required to pay eGames.com a termination fee of $250,000. Even if a termination fee is not payable in connection with a termination of the Asset Purchase Agreement, NTN will have incurred significant legal, financial, advisory, accounting, audit and other general operating expenses, which must be paid whether or not the Asset Sale is completed.

Certain of the officers and directors of NTN have interests in the Asset Sale that are different from the stockholders of NTN and that may influence them to support or approve the Asset Sale without regard to the interests of the stockholders of NTN.

Certain officers and directors of NTN participate in arrangements that provide them with interests in the Asset Sale that are different from the interests of the stockholders of NTN including, among others, change-in-control benefits and the acceleration of vesting of equity awards. In addition, as an inducement to eGames.com to enter into the Asset Purchase Agreement, eGames.com required that, contingent and effective upon the closing of the Asset Sale, Allen Wolff, our chief executive officer, become the chief executive officer of eGames.com, and that his employment as NTN’s chief executive officer terminate at such time. Mr. Wolff entered into an employment agreement with eGames.com on September 18, 2020, the effectiveness of which is contingent upon the closing of the Asset Sale. The NTN board of directors and its strategic committee were made aware of the material terms of Mr. Wolff’s employment agreement with eGames.com and considered them before approving the Asset Purchase Agreement. Neither the board of directors of NTN, nor its strategic committee, nor any advisor to NTN, was involved in the negotiations regarding the terms of Mr. Wolff’s employment with eGames.com. In addition, after NTN and eGames.com entered into the Asset Purchase Agreement, eGames.com and Sandra Gurrola, NTN’s senior vice president of finance, have had discussions regarding her possible employment with eGames.com following the closing of the Merger. As of the date of this report, the parties continue to be in discussions and Ms. Gurrola has not accepted any offer. These interests, among others, may influence the officers and directors of NTN to support or approve the Asset Sale.

~~RISKS RELATED TO OUR BUSINESS~~

Our cash flows from operations and liquidity have been materially adversely affected by the effects of the COVID-19 pandemic. We need to raise capital in the near term and/or complete a strategic transaction, and our inability to do so could result in our lender foreclosing on all of our assets and/or us pursuing a restructuring, which may include a reorganization or bankruptcy under Federal bankruptcy laws, assignment for the benefit of creditors, or a dissolution, liquidation and/or winding up.

The negative impact of the COVID-19 pandemic on the restaurant and bar industry was abrupt and substantial, and our business, cash flows from operations and liquidity suffered, and continues to suffer, materially as a result. In many jurisdictions, including those in which we have many customers and prospective customers, restaurants and bars were ordered by the government to shutdown or close all on-site dining operations in the latter half of March 2020. Since then, governmental orders and restrictions impacting restaurants and bars in certain jurisdictions were eased or lifted as the number of COVID-19 cases decreased or plateaued, but as jurisdictions began experiencing a resurgence in COVID-19 cases, many jurisdictions reinstated such orders and restrictions, including mandating the shutdown of bars and the closing of all on-site dining operations of restaurants. Jurisdictions that have not imposed governmental orders and restrictions on restaurants and bars or reinstated them could do so at any time. At its peak, approximately 70% of our customers had their subscriptions to our services temporarily suspended. As of November 10, 2020, approximately 11% of our customers remain on subscription suspensions, but that percentage could increase, perhaps materially, at any time due to the effects of the pandemic on our customers, including as jurisdictions reinstate governmental orders and restrictions impacting our customers. Even in jurisdictions in which governmental orders and restrictions were eased or lifted, certain of our customers have requested, and others could request, to continue their subscription suspensions because, for example, such customers choose not to re-open despite being permitted to do so. As a result, we have experienced material decreases in subscription revenue, advertising revenue and cash flows from operations, which we expect to continue for at least as long as the restaurant and bar industry continues to be negatively impacted by the COVID-19 pandemic, and which may continue thereafter if restaurants and bars seek to reduce their operating costs or are unable to re-open even if restrictions within their jurisdictions are eased or lifted.

The full extent to which the COVID-19 pandemic will, directly or indirectly, impact our business, results of operations and financial condition is currently highly uncertain, including due to factors that currently are also highly uncertain, including when, and the extent to which, the negative impact of the pandemic will improve, including when a substantial majority of restaurants across the U.S. and Canada will be permitted to offer on-site dining and operate at or close to pre-pandemic levels or when a substantial majority of bars across the U.S. and Canada will be permitted to re-open and operate at or close to pre-pandemic levels, when our customers will re-open, or if they will subscribe to our service if and when they do, the ultimate impact of the pandemic and how long it endures, the impact of the current or future resurgences in COVID-19 cases, and the actions required or recommended to contain or treat COVID-19. However, unless in the very near term our subscription revenue, advertising revenue and cash flows from operations return to pre-pandemic levels and/or we raise substantial capital, the amountindefinite period of time and ~~the amount of cash we have to maintain operations and sustain the negative effects of the pandemic is very limited.~~

As of September 30, 2020, we had cash, cash equivalents and restricted cash of approximately $1,710,000. As of September 30, 2020, $0.7 million of principal was outstanding under our term loan with Avidbank, $1.6 million of principal was outstanding under the PPP Loan, and $1.0 million of principal was outstanding under the Bridge Loan. As a result of the impact of the pandemic on our business and taking into account our current financial condition and our existing sources of projected revenue and our projected subscription revenue, advertising revenue and cash flows from operations, if we are able to borrow an additional $500,000 from Fertilemind Management, LLC or any other party on or before December 1, 2020, we believe we will have sufficient cash resources to pay forecasted cash outlays only through mid-January 2021, but if we do not borrow such amount from the Fertilemind Management, LLC or any other party, we believe we will have sufficient cash resources to pay forecasted cash outlays only through mid-December 2020, in each case, assuming Avidbank does not take actions to foreclose on our assets in the event we are out of compliance with our financial covenants, and we are able to continue to successfully manage our working capital deficit by managing the timing of payments to our vendors and other third parties. See, “If we fail to comply with our financial covenants to Avidbank, it may declare a default, which could lead to all payment obligations becoming immediately due and payable and have a material adverse effect on our financial condition and business~~,” below.~~

We need to complete the Merger or the Asset Sale or raise capital to meet our debt service obligations to Avidbank and fund our working capital needs. We currently have no arrangements for such capital and no assurances can be given that we will be able to raise such capital when needed, on acceptable terms, or at all. The effects of the pandemic on macroeconomic conditions and the capital markets make it more challenging to raise capital. The going concern explanatory paragraph included in the report of our independent registered public accounting firm on our consolidated financial statements as of and for the year ended December 31, 2019 and management’s going concern assessment for the three and nine months ended September 30, 2020 could also impair our ability to raise capital. If we are unable to complete the Merger or the Asset Sale or raise sufficient additional capital in the very near term, we will likely default on our payment obligations to Avidbank and not satisfy our financial covenants to Avidbank, and if we do, Avidbank may declare a default, which could lead to all payment obligations becoming immediately due and payable. In addition, we will be required to curtail or terminate some or all of our business operations and we may determine to pursue a restructuring, which may include a reorganization or bankruptcy under Federal bankruptcy laws, assignment for the benefit of creditors, or a dissolution, liquidation and/or winding up. Our investors may lose their entire investment in the event Avidbank forecloses on our personal property to satisfy our payment obligations and/or in the event of a reorganization, bankruptcy, assignment for the benefit of creditors, liquidation, dissolution or winding up.

If we fail to comply with our financial covenants to Avidbank, it may declare a default, which could lead to all payment obligations becoming immediately due and payable and have a material adverse effect on our financial condition and business.

We must comply with financial covenants our loan and security agreement with Avidbank: our unrestricted cash we have in deposit accounts or securities accounts maintained with Avidbank must be not less than the outstanding principal at all times and our asset coverage ratio must be no less than 1.25 to 1.00 at each month-end. As of September 30, 2020, weappropriate legends were in compliance with these covenants. There can be no assurance, however, that we will satisfy these covenants through December 31, 2020. If we fail to comply with our covenants, Avidbank may declare a default, which could lead to all payment obligations becoming immediately due and payable, and would have a material adverse effect on our financial condition and business. Avidbank has a first-priority security interest in all our existing and future personal property. Accordingly, in an event of a default, Avidbank could dispose of such property to satisfy our payment obligations.

Our common stock could be delisted or suspended from trading on the NYSE American if we do not regain compliance with continued listing criteria with which we are currently not compliant or if we fail to meet any other continued listing criteria.

As previously reported, in March 2020, we received a letter from NYSE Regulation Inc. stating that we are not in compliance with Section 1003(a)(iii) of the NYSE American Company Guide (the “Company Guide”) because we reported stockholders’ equity of less than $6 million as of December 31, 2019 and had net losses in five of our most recent fiscal years ended December 31, 2019. Our stockholders’ equity was $5.1 million as of December 31, 2019. On June 11, 2020, NYSE Regulation notified us that we are not in compliance with Section 1003(a)(ii) of the Company Guide because we reported stockholders’ equity of less than $4.0 million as of March 31, 2020 and had net losses in five of our most recent fiscal years ended December 31, 2019.

On June 11, 2020, the NYSE Regulation notified us that it has accepted our plan to regain compliance with Section 1003(a)(iii) of the Company Guide and granted us a plan period through September 27, 2021 to regain compliance. On August 12, 2020, NYSE Regulation notified us that we are not in compliance with Section 1003(a)(i) of the Company Guide because we reported stockholders’ equity of less than $2.0 million as of June 30, 2020 and had net losses in five of our most recent fiscal years ended December 31, 2019. We continue to be subjectaffixed to the ~~procedures and requirements~~instruments representing such securities issued in such transactions.

34

Table of ~~Section 1009 of the Company Guide.~~

The listing of our common stock on the NYSE American is being continued during the plan period pursuant to an extension. The NYSE Regulation staff will review us periodically for compliance with initiatives outlined in our plan. If we are not in compliance with Sections 1003(a)(i), (ii) and (iii) by September 27, 2021 or if we do not make progress consistent with our plan during the plan period, NYSE Regulation staff will initiate delisting proceedings as appropriate.

We can give no assurances that we will be able to address our non-compliance with the NYSE American continued listing standards or, even if we do, that we will be able to maintain the listing of our common stock on the NYSE American. Our common stock could be delisted because we do not make progress consistent with our plan during the plan period, because we do not regain compliance by September 27, 2021, or because we become out of compliance with other NYSE American listing standards. In addition, we may determine to pursue business opportunities that reduces our stockholders’ equity below the level required to maintain compliance with NYSE American continued listing standards. The delisting of our common stock for whatever reason could, among other things, substantially impair our ability to raise additional capital; result in a loss of institutional investor interest and fewer financing opportunities for us; and/or result in potential breaches of representations or covenants in agreements pursuant to which we made representations or covenants relating to our compliance with applicable listing requirements. Claims related to any such breaches, with or without merit, could result in costly litigation, significant liabilities and diversion of our management’s time and attention and could have a material adverse effect on our financial condition, business and results of operations. In addition, the delisting of our common stock for whatever reason may materially impair our stockholders’ ability to buy and sell shares of our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock.

If our common stock were delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock in the secondary market.

If our common stock were delisted or suspended from trading on the NYSE American, it may be subject to the so-called “penny stock” rules. The SEC has adopted regulations that define a “penny stock” to be any equity security that has a market price per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange. For any transaction involving a “penny stock,” unless exempt, the rules impose additional sales practice requirements on broker-dealers, subject to certain exceptions. If our common stock were delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock.

Contents

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

~~None~~

~~Item 3.~~ ~~Defaults Upon Senior Securities.~~

~~None~~

~~Item 4.~~ ~~Mine Safety Disclosures.~~

~~Not Applicable~~

~~Item 5.~~ ~~Other Information~~.

~~None~~

42Item 6.

Exhibits.

Exhibit

~~Item 6.~~ ~~Exhibits.~~

~~Exhibit~~Description		~~Description~~		Incorporated byBy Reference
~~2.1~~ 10.1(a)†*		Agreement and Plan of ~~Merger~~Acquisition, dated as of July 16, 2021, by and ~~Reorganization, dated August 12, 2020,~~ among ~~NTN Buzztime,~~Brooklyn ImmunoTherapeutics, Inc., ~~BIT Merger~~Brooklyn Acquisition Sub, Inc., Novellus LLC, Novellus, Inc., and ~~Brooklyn Immunotherapeutics LLC^~~the Sellers’ Representative.		Exhibit to Form 8-K filed on ~~August 14, 2020~~July 19, 2021
~~2.2~~ 10.1 (b)†		~~Asset Purchase~~Registration Rights Agreement, dated ~~September 18, 2020~~as of July 16, 2021, by and ~~between NTN Buzztime,~~among Brooklyn ImmunoTherapeutics, Inc. and ~~eGames.com Holdings LLC^~~the individuals and entities named therein.		Exhibit to Form 8-K filed on ~~September 18, 2020~~July 19, 2021
~~3.1(a)~~ 10.2+§		~~Restated Certificate~~Executive Employment Agreement, dated as of ~~Incorporation~~April 1, 2021 and effective as of April 16, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Howard J. Federoff.		Exhibit to Form ~~10-Q~~8-K filed on ~~August 14, 2013~~April 7, 2021
~~3.1(b)~~ 10.3(a)+	Form of Indemnification Agreement		Exhibit to Form 8-K filed on April 16, 2021
~~Certificate of Amendment~~10.3(b)	Schedule identifying agreements substantially identical to the ~~Restated Certificate~~form of ~~Incorporation (reverse/forward split)~~indemnification agreement filed as Exhibit 10.2(a)		Exhibit to Form 8-K filed on June ~~17, 2016~~21, 2021
~~3.1(c)~~ 10.4(a)	Purchase Agreement, dates 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
~~Certificate~~10.4(b)	Registration Rights Agreement, dated as of ~~Decrease~~May 26, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Lincoln Park Capital Fund, LLC		Exhibit to Form 8-K filed on May 26, 2021
10.5§*	Exclusive License Agreement, dated as of ~~the Series A Convertible Preferred Stock~~April 26, 2021, between Factor Bioscience Limited, Novellus Therapeutics Limited and Brooklyn ImmunoTherapeutics LLC		Exhibit to Form 8-K filed on April ~~12, 2017~~30, 2021
~~3.1(d)~~ 10.6+	Brooklyn ImmunoTherapeutics, Inc. 2021 Inducement Stock Incentive Plan		Exhibit to Form 8-K filed on May 26, 2021
~~Certificate~~10.7+	Executive Employment Agreement, dated as of ~~Amendment to the Restated Certificate~~June 5, 2021 and effective as of ~~Incorporation (decrease in authorized capital stock)~~June 28, 2021, between Brooklyn ImmunoTherapeutics, Inc. and Kevin D’Amour.		Exhibit to Form 8-K filed on June ~~9, 2017~~10, 2021
~~3.2~~ 10.8+		~~Bylaws (as amended~~Executive Employment Agreement, dated as of June 16, 2021 and ~~restated~~effective as of June 21, 2021, between Brooklyn ImmunoTherapeutics, Inc. and ~~further amended through December 6, 2018).~~Sandra Gurrola.		Exhibit to Form 8-K filed on ~~December 7, 2018~~June 21, 2021
~~10.1(a)~~ 10.9+		~~8% Promissory Note issued by NTN Buzztime,~~Executive Employment Agreement, dated as of July 6, 2021 and effective as of July 15, 2021, between Brooklyn ImmunoTherapeutics, Inc. ~~on September 18, 2020~~and Jay Sial.		Exhibit to Form 8-K filed on ~~September 18, 2020~~July 19, 2021
~~10.1(b)~~ 31.1		~~Guaranty by Aram Fuchs in favor of NTN Buzztime, Inc.~~		~~Exhibit to Form 8-K filed on September 18, 2020~~
10.2*		~~Amendment #4 to Employment Agreement made and entered into as of September 18, 2020 between NTN Buzztime, Inc. and Allen Wolff.~~		~~Exhibit to Form 8-K filed on September 18, 2020~~
~~10.3~~		Form of Support Agreement among NTN Buzztime, Inc., Brooklyn Immunotherapeutics LLC and the officers and directors of NTN Buzztime, Inc. (solely in their capacity as actual or potential stockholders of NTN Buzztime, Inc.)		~~Exhibit to Form 8-K filed on August 14, 2020~~
~~10.4~~		Form of Support Agreement among NTN Buzztime, Inc., Brooklyn Immunotherapeutics LLC and certain beneficial holders of Class A membership interests of Brooklyn Immunotherapeutics LLC (solely in their capacity as actual or potential beneficial holders of such interests)		~~Exhibit to Form 8-K filed on August 14, 2020~~
~~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#~~ 32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Furnished herewith
~~32.2#~~ 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
~~101.DEF~~104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).		~~XBRL Taxonomy Extension Definition Linkbase Document~~		~~Filed herewith~~

~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document~~		~~Filed herewith~~
^	*	Certain ~~schedules~~information redacted and replaced with “[***]”.

+	Indicates management contract or compensatory plan.

§

Certain addenda have been omitted pursuant to Item 601(a)(5) of Regulation S-K. We hereby undertake to furnish copies of the omitted addenda upon request by the Securities and Exchange Commission, provided that we may request confidential treatment pursuant to Rule 24b‑2 of the Securities Exchange Act of 1934 for the addenda so furnished.

†	Schedules and exhibits have been omitted pursuant to ~~pursuant Instruction 4 of Item 1.01 of Form 8-K and~~ Item 601(b)(2) of Regulation S-K. ~~A copy~~Brooklyn ImmunoTherapeutics, Inc. hereby undertakes to furnish supplementally copies of any ~~omitted schedule and/or exhibit will be furnished to the SEC or its staff upon request.~~
*		~~Indicates management contract or compensatory plan.~~
#		~~This certification is being furnished solely to accompany this report pursuant to U.S.C. § 1350, and is not being filed for purposes of Section 18~~ of the omitted schedules and exhibits upon request by the Securities and Exchange Act of 1934, as amended, and is not to be incorporated herein by reference into any filing of the Company whether made before or after the date hereof, regardless of any general incorporation language in such filing.Commission

43

35

Table of Contents

~~SIGNATURES~~

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	~~NTN BUZZTIME,~~BROOKLYN IMMUNOTHERAPEUTICS, INC.

Date: ~~November~~August 13, ~~2020~~2021	By:	/s/ ~~Sandra M. Gurrola~~ Howard J. Federoff
		~~Sandra M. Gurrola~~Howard J. Federoff
		~~Senior Vice~~Chief Executive Officer and President ~~of Finance~~
		~~(on behalf of the Registrant, and as its Principal Financial Officer)~~

44

36

~~DELAWARE~~Delaware		31-1103425
(State of incorporation)		(I.R.S. Employer Identification No.)

~~6965 EL CAMINO REAL, SUITE 105-BOX 517,~~ ~~CARLSBAD, CALIFORNIA~~140 58th Street, Suite 2100, Brooklyn, New York		~~92008~~11220
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading ~~Symbol(s)~~symbol		Name of each exchange on which registered
Common ~~Stock~~stock, $0.005 par value per share		~~NTN~~BTX		NYSE American

Large accelerated filer	~~[ ]~~☐	Accelerated filer	~~[ ]~~
			☐
Non-accelerated filer	~~[X]~~☐	Smaller reporting company	~~[X]~~
			☒
		Emerging growth company	~~[ ]~~☐

Item		Page

	PART I – FINANCIAL INFORMATION

1.	Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019	3

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2020 and 2019 (unaudited)	4

	Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2020 and 2019 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

3.	Quantitative and Qualitative Disclosures About Market Risk	34

4.	Controls and Procedures	34

PART II – OTHER INFORMATION

1.	Legal Proceedings	35

1A.	Risk Factors	35

2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

3.	Defaults Upon Senior Securities	42

4.	Mine Safety Disclosures	42

5.	Other Information	42

6.	Exhibits	43

	Signatures	44

	September 30, 2020			December 31, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	1,710		$	3,209
Restricted cash		-			50
Accounts receivable, net of allowances of $845 and $354, respectively		132			1,195
Income tax receivable		13			-
Site equipment to be installed		792			1,090
Prepaid expenses and other current assets		146			526
Total current assets		2,793			6,070
Restricted cash, long-term		-			150
Operating lease right-of-use assets		5			2,101
Fixed assets, net		689			2,822
Software development costs, net of accumulated amortization of $3,016 and $3,341, respectively		1,420			1,915
Deferred costs		85			274
Goodwill		-			696
Other assets		62			97
Total assets	$	5,054		$	14,125

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	275		$	835
Accrued compensation		125			588
Accrued expenses		490			490
Sales taxes payable		14			131
Income taxes payable		-			3
Current portion of long-term debt, net		1,724			2,739
Current portion of obligations under operating leases		5			409
Current portion of obligations under finance leases		23			21
Current portion of deferred revenue		120			460
Other current liabilities		154			419
Total current liabilities		2,930			6,095
Long-term debt		1,625			-
Long-term obligations under operating leases		-			2,891
Long-term obligations under finance leases		4			20
Long-term deferred revenue		-			2
Other liabilities		-			26
Total liabilities		4,559			9,034

Shareholders’ Equity

Series A 10% cumulative convertible preferred stock, $0.005 par value, $156 liquidation preference, 156 shares authorized, issued and outstanding at September 30, 2020 and December 31, 2019		1			1
Common stock, $0.005 par value, 15,000 shares authorized at September 30, 2020 and December 31, 2019; 2,952 and 2,901 shares issued at September 30, 2020 and December 31, 2019, respectively		15			14
Treasury stock, at cost, 10 shares at September 30, 2020 and December 31, 2019		(456	)		(456	)
Additional paid-in capital		136,881			136,721
Accumulated deficit		(136,187	)		(131,457	)
Accumulated other comprehensive income		241			268
Total shareholders’ equity		495			5,091

Total liabilities and shareholders’ equity	$	5,054		$	14,125

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

Revenue from contracts with customers
Subscription revenue	$	1,053		$	3,723		$	3,779		$	11,356
Hardware revenue		379			11			421			811
Other revenue		45			846			425			2,471
Total revenue from contracts with customers		1,477			4,580			4,625			14,638
Operating expenses:
Direct operating costs (includes depreciation and amortization of $346 and $649 for the three months ended September 30, 2020 and 2019, respectively, and $1,241 and $1,918 for the nine months ended September 30, 2020 and 2019, respectively)		801			1,344			2,364			4,545
Selling, general and administrative		2,068			3,413			6,743			10,303
Impairment of capitalized software		-			51			238			52
Impairment of goodwill		-			-			662			-
Depreciation and amortization (excluding depreciation and amortization included in direct operating costs)		26			88			189			273
Total operating expenses		2,895			4,896			10,196			15,173
Operating loss		(1,418	)		(316	)		(5,571	)		(535	)
Other (expense) income, net		(82	)		(16	)		826			(189	)
Loss before income taxes		(1,500	)		(332	)		(4,745	)		(724	)
Benefit (provision) for income taxes		19			(19	)		23			(30	)
Net loss		(1,481	)		(351	)		(4,722	)		(754	)

Series A preferred stock dividend		-			-			(8	)		(8	)

Net loss attributable to common shareholders	$	(1,481	)	$	(351	)	$	(4,730	)	$	(762	)

Net loss per common share - basic and diluted	$	(0.50	)	$	(0.12	)	$	(1.62	)	$	(0.27	)

Weighted average shares outstanding - basic and diluted		2,936			2,874			2,920			2,870

Comprehensive loss
Net loss	$	(1,481	)	$	(351	)	$	(4,722	)	$	(754	)
Foreign currency translation adjustment		1			(18	)		(27	)		47
Total comprehensive loss	$	(1,480	)	$	(369	)	$	(4,749	)	$	(707	)

	Series A Cumulative Convertible Preferred Stock				Common Stock				Treasury			Additional Paid-in			Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Shares		Amount		Stock			Capital			Deficit			Income			Total

Balances at July 1, 2020		156	$	1		2,938	$	15	$	(456	)	$	136,837		$	(134,706	)	$	240		$	1,931
Foreign currency translation adjustment		-		-		-		-		-			-			-			1			1
Net loss		-		-		-		-		-			-			(1,481	)		-			(1,481	)
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes		-		-		14		-		-			(9	)		-			-			(9	)
Non-cash stock based compensation		-		-		-		-		-			53			-			-			53
Balances at September 30, 2020		156	$	1		2,952	$	15	$	(456	)	$	136,881		$	(136,187	)	$	241		$	495

Balances at January 1, 2020		156	$	1		2,901	$	14	$	(456	)	$	136,721		$	(131,457	)	$	268		$	5,091
Foreign currency translation adjustment		-		-		-		-		-			-			-			(27	)		(27	)
Net loss		-		-		-		-		-			-			(4,722	)		-			(4,722	)
Issuance of common stock upon vesting of restricted stock units, net of shares withheld for payroll taxes		-		-		28		-		-			(18	)		-			-			(18	)
Issuance of common stock in lieu of cash compensation, net of shares withheld for payroll taxes		-		-		23		1		-			43			-			-			44
Non-cash stock based compensation		-		-		-		-		-			135			-			-			135
Cash paid to Series A preferred stockholders for semi-annual dividend		-		-		-		-		-			-			(8	)		-			(8	)
Balances at September 30, 2020		156	$	1		2,952	$	15	$	(456	)	$	136,881		$	(136,187	)	$	241		$	495

	For the nine months ended September 30,
	2020			2019
Cash flows (used in) provided by operating activities:
Net loss	$	(4,722	)	$	(754	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		1,430			2,191
Provision for doubtful accounts		124			144
Amortization of operating lease right-of-use-assets		161			217
Common stock issued for compensation in lieu of cash payment		61			-
Transfer of fixed assets to sales-type lease		-			7
Stock-based compensation		135			172
Gain from the asset sale of Stump! Trivia and OpinioNation		(1,225	)		-
Loss from the termination of operating lease		9			-
Loss (gain) from the sale or disposition of assets, net		511			(5	)
Impairment of capitalized software		238			52
Impairment of goodwill		662			-
Amortization of debt issuance costs		12			7
Changes in assets and liabilities:
Accounts receivable		939			222
Site equipment to be installed		51			475
Operating lease liabilities		(154	)		(111	)
Prepaid expenses and other assets		353			(66	)
Accounts payable and accrued liabilities		(1,405	)		(196	)
Income taxes		(16	)		4
Deferred costs		189			84
Deferred revenue		(342	)		(541	)
Other liabilities		(291	)		(141	)
Net cash (used in) provided by operating activities		(3,280	)		1,761
Cash flows used in investing activities:
Capital expenditures		(21	)		(111	)
Capitalized software development expenditures		(173	)		(882	)
Proceeds from the sales of equipment		-			29
Net cash used in investing activities		(194	)		(964	)
Cash flows provided by (used in) financing activities:
Net proceeds from the sale of Stump! Trivia		1,226			-
Proceeds from long-term debt		2,625			-
Payments on long-term debt		(2,025	)		(750	)
Debt issuance costs on long-term debt		(3	)		-
Principal payments on finance leases		(14	)		(39	)
Payment of preferred stockholders dividends		(8	)		(8	)
Payroll tax remitted on net share settlement of equity awards		(36	)		(29	)
Net cash provided by (used in) financing activities		1,765			(826	)
Effect of exchange rate on cash and cash equivalents		10			27
Net decrease in cash, cash equivalents and restricted cash		(1,699	)		(2	)
Cash, cash equivalents and restricted cash at beginning of period		3,409			2,786
Cash, cash equivalents and restricted cash at end of period	$	1,710		$	2,784

Supplemental disclosures of cash flow information:
Cash paid during the period for:

Interest	$	86		$	195
Income taxes	$	23		$	26

Supplemental disclosure of non-cash investing and financing activities:
Site equipment transferred to fixed assets	$	69		$	458
Assets acquired under operating leases	$	28		$	57
Initial measurement of operating lease right-of-use assets and liabilities	$	-		$	3,458

Reconciliation of cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents	$	1,710		$	2,533
Restricted cash		-			51
Restricted cash, long-term		-			200
Total cash, cash equivalents and restricted cash at end of period	$	1,710		$	2,784

		Page
PART I – FINANCIAL INFORMATION
Item 1.	~~Identify~~Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020	1
	Condensed Consolidated Statements of Operations for the ~~contract(s) with customers~~three and six months ended June 30, 2021 and 2020 (unaudited)	2
	Condensed Consolidated Statements of Changes in Members’ and Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2021 and 2020 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

		2.	~~Identify the performance obligations~~
	PART II – OTHER INFORMATION
Item 1.	3. Legal Proceedings	~~Determine the transaction price~~33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6.	Exhibits	35
Signatures
	4.	~~Allocate the transaction price to the performance obligations~~

	5.	~~Recognize revenue when the performance obligations have been satisfied~~36

	Three months ended						Nine months ended
	September 30,						September 30,
	2020			2019			2020			2019
Buffalo Wild Wings revenue	$	25,000		$	1,676,000		$	176,000		$	5,891,000
Percent of total revenue		2	%		37	%		4	%		40	%

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
United States	$	1,420,000	$	4,420,000	$	4,390,000	$	14,144,000
Canada		57,000		160,000		235,000		494,000
Total revenue	$	1,477,000	$	4,580,000	$	4,625,000	$	14,638,000

	Deferred Revenue
Balance at January 1, 2020	$	462,000
New performance obligations		198,000
Revenue recognized		(540,000	)
Balance at September 30, 2020		120,000
Less non-current portion		-
Current portion at September 30, 2020	$	120,000

	Installation Costs			Sales Commissions			Total Deferred Costs
Balance at January 1, 2020	$	187,000		$	87,000		$	274,000
Incremental costs deferred		83,000			60,000			143,000
Deferred costs recognized		(212,000	)		(120,000	)		(332,000	)
Balance at September 30, 2020		58,000			27,000			85,000

	Three months ended			Nine months ended
	September 30, 2019			September 30, 2019
Weighted average risk-free rate		1.39	%		1.70	%
Weighted average volatility		95.11	%		108.83	%
Dividend yield		0.00	%		0.00	%
Expected term		5.61 years			5.73 years

	Operating lease right-of-use assets
Operating lease right-of use assets at January 1, 2020	$	2,101,000
Amortization of operating lease right-of-use assets		(161,000	)
Addition of operating lease right-of -use asset		28,000
Write-off of right-of-use asset due to headquarters lease termination		(1,913,000	)
Write-off of right-of-use asset related to other lease terminations		(50,000	)
Operating lease right-of-use assets at September 30, 2020	$	5,000

	Operating lease liabilities
Operating lease liabilities at January 1, 2020	$	3,300,000
Principal payments on operating lease liabilities		(154,000	)
Addition of operating lease liability		28,000
Write-off of lease liability related to headquarters lease termination		(3,135,000	)
Write-off of lease liability related to other lease terminations		(34,000	)
Operating lease liabilities at September 30, 2020		5,000
Less non-current portion		-
Current portion at September 30, 2020	$	5,000

	Finance lease right-of-use assets
Finance lease right-of use assets at January 1, 2020	$	41,000
Depreciation of finance lease right-of-use assets		(15,000	)
Finance lease right-of-use assets at September 30, 2020	$	26,000

	Finace lease liabilities
Finance lease liabilities at January 1, 2020	$	41,000
Principal payments on finance lease liabilities as of September 30, 2020		(14,000	)
Finance lease liabilities at September 30, 2020		27,000
Less non-current portion		(4,000	)
Current portion at September 30, 2020	$	23,000

	As of
	September 30, 2020
2020		7,000
2021		21,000
Total Finance lease payments		28,000
Less imputed interest		(1,000	)
Present value of Finance lease liabilities	$	27,000

Goodwill balance at January 1, 2020	$	696,000
Activity for the three months ended March 31, 2020
Effects of foreign currency		(34,000	)
Goodwill impairment		(662,000	)
Goodwill balance at March 31, 2020 and September 30, 2020	$	-

	Network Subscribers as of September 30,
	2020		2019
United States		981		2,431
Canada		99		134
Total		1,080		2,565

	Three months ended September 30,						Increase in other
	2020			2019			expense, net
Total other expense, net	$	(82,000	)	$	(16,000	)	$	(66,000	)

	Increase (Decrease)
Working capital as of December 31, 2019	$	(25,000	)
Changes in current assets:
Cash and cash equivalents		(1,499,000	)
Restricted cash		(50,000	)
Accounts receivable, net		(1,063,000	)
Income tax receivable		13,000
Site equipment to be installed		(298,000	)
Prepaid expenses and other current assets		(380,000	)
Net decrease in current assets		(3,277,000	)
Changes in current liabilities:
Accounts payable		(560,000	)
Accrued compensation		(463,000	)
Accrued expenses		-
Sales taxes payable		(117,000	)
Income taxes payable		(3,000	)
Current portion of long-term debt, net		(1,015,000	)
Current portion of obligations under operating leases		(404,000	)
Current portion of obligations under finance leases		2,000
Current portion of deferred revenue		(340,000	)
Other current liabilities		(265,000	)
Net decrease in current liabilities		(3,165,000	)
Net decrease in working capital		(112,000	)
Working capital as of September 30, 2020	$	(137,000	)