2022 Which RegisteredANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 2017☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
NTN Buzztime,Delaware 31-1103425 10355 Cambridge Street, Suite 18A, Cambridge, MA 02141 2231 Rutherford Road, Suite 200Carlsbad, California92008(Address of Principal Executive Offices) (Zip Code) (760) 438-7400 Common Stock, $.005$0.005 par value NYSE AmericanERNA
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]☐ No [X]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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.Documents Incorporated by Reference.
Portions of the registrant’s definitive proxy statement relating to its 2018 annual meeting of stockholders are incorporated by reference into Part III of this report where indicated. Such proxy statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
benefits. As of March values and alignment with the interests of our stockholders. contributions of their role, which takes into account the skills, knowledge and abilities required to perform each position, as well as the experience brought to the job. We may also provide our employees with opportunities to earn cash and equity incentive compensation to reward the achievement of company-wide goals that are established annually and designed to drive aspects of our strategic priorities that support and advance our strategy across our company. Our employees are also eligible for the grant of equity awards under our long-term incentive program that are designed to align interests of our employees with that of our stockholders. All employees also participate in a regular performance measurement process through which staff receive performance and development feedback, which is taken into account in determining annual compensation. and Industry Exclusive Factor License Agreement. We cyber-security. commercialization objectives. From time to time, we needs. such date. Stock. We expect to pay the dividends on our Series A Preferred Stock in accordance with its terms, though we may elect to pay the dividend in shares of our common stock in the future. Network Subscribers as of December 31, For the years ended December 31, See “Index to Consolidated Financial Annual Report on Form 10-K. due primarily to the material weakness discussed below. 2022. 2020. Marcum’s reports for such years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. During the two years ended December 31, 2021, and from December 31, 2020 through January 24, 2022, there were no (i) disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K promulgated by the SEC pursuant to the Exchange Act) between us and Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to satisfaction of Marcum, would have caused Marcum to make reference to the subject matter of such disagreements in connection with its report, or (ii) “reportable events,” as described in Item 304(a)(1)(v) of Regulation S-K, that would require disclosure under Item 304(a)(1)(v) of Regulation S-K, except for the material weaknesses previously reported in our Quarterly Report on Form 10-Q for the period ended September 30, 2021 related to (a) segregation of duties and (b) documentation of policies and procedures critical to the accomplishment of financial reporting objectives. We previously furnished Marcum with a copy of the disclosure under this heading “Change in Certifying Accountant” prior to filing a Current Report on Form 8-K containing such disclosure with the SEC on January 24, 2022 and requested that Marcum furnish it with a letter addressed to the SEC stating whether or not it agreed with the statements made by us in such Current Report on Form 8-K insofar as they related to Marcum’s audit services and engagement as our independent registered public accounting firm. A copy of Marcum’s letter concurring with the foregoing disclosures was attached as Exhibit 16.1 to the Current Report on Form 8-K filed by us on January 24, 2022. Marcum’s dismissal became effective on April 15, 2022, and no events had occurred since the filing of such Form 8-K that would have required the filing of an amendment to such Form 8-K. pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. (a) The following documents are filed as a part of this Annual Report on Form 10-K: Andrew Jackson Title Date /s/ /s/ /s/ /s/ /s/Gregory /s/ financial statements opinion 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. Standards balance sheets as of December 31, 2022 and 2021 pursuant to the Employee Retention Credit program under the CARES Act. of the $0.9 million loss for year ended December 31, 2022, $0.5 million related to NoveCite’s year ended December 31, 2021. The December 31, 2022. annual tax costs attributable to the subleased space during the term of the sublease. recorded goodwill in the amount of $2.0 million related to the IRX Acquisition. As of December 31, a straight-lined basis. the Company assumes no dividends. Forfeitures are recognized as incurred. included in the Units and the shares of common stock issuable upon exercise of the Q1-22 Pre-Funded Warrants and the Q1-22 Common Warrants. The Company agreed to use its best efforts to have such registration statement declared effective as promptly as possible after the filing thereof, subject to certain specified penalties if timely effectiveness were not achieved. The Company filed the 2021 Annual Report on April 15, 2022 and the registration statement on April 29, 2022. The resale registration statement became effective on May 11, 2022. common stock subject to the lock-up agreement may be released from the lock-up restrictions earlier if the price of common stock on the principal market for the common stock exceeds specified thresholds. issued approximately 10 shares of common stock for payment of dividends during the year ended December 31, 2021. The conversion rate will adjust under the following circumstances: fully reserved by a valuation allowance since it is more likely than not that such tax benefits will not be realized. impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The law. The Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months.2Item Page Part I 1. 1 1A. 24 1B. 39 2. 39 3. 39 4. 40 Part II 5. 41 6. 41 7. 41 7A. 49 8. 49 9. 49 9A. 49 9B. 51 9C. 51 Part III 10. 52 11. 58 12. 72 13. 74 14. 77 Part IV 15. 79 16. 81 82 F-1 and the documents incorporated herein by reference containcontains “forward-looking statements” –as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements related to future events, results, performance, prospects and opportunities, including statements related to our strategic plans and targets, revenue generation, product availability and offerings, capital needs, capital expenditures, industry trends and our financial position. Forward-looking statements are based on information currently available to us, on our current expectations, estimates, forecasts, and projections about the industries in which we operate and on the beliefs and assumptions of management. Forward looking statements often contain words such as “expects,” “anticipates,” “could,” “targets,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “would,” and similar expressions. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances, are forward-looking statements. 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 statements. For us, particular factors that might cause or contribute to such differences include (1) our ability to compete effectively within the highly competitive interactive games, entertainment and marketing services industries, (2) the impact of new products and technological change, especiallythose identified in the mobile“Summary of Principal Risk Factors” below and wireless markets, on our operations and competitiveness, (3) our ability to maintain or improve our relationship with Buffalo Wild Wings, who together with its franchisees accounted for a significant portion of our revenues, (4) our ability to maintain an adequate supply of the tablet and related equipment used in our BEOND tablet platform, (5) our ability to adequately protect our proprietary rights and intellectual property, (6) our ability to raise additional funds in the future on favorable terms; we have borrowed substantially all amounts available to us under existing credit facilities and, subject to limited exceptions, our loan and security agreement with East West Bank prohibits us from borrowing additional amounts from other lenders, (7) our ability to significantly grow our subscription revenue and implement our other business strategies, (8) our ability to successfully and efficiently manage the design, manufacturing and assembly process of the tablet and related equipment used in our BEOND tablet platform and (9) the other risks and uncertainties described in Part I, Item 1A “Risk Factors” of this reportAnnual Report on Form 10-K and described in other documents we file from time to time with the Securities and Exchange Commission, or SEC, including our Quarterly Reports on Form 10-Q.contained in this report or incorporated by reference herein,Annual Report on Form 10-K, which speak only as of the date of this report.Annual Report on Form 10-K. We are including this cautionary note to make applicable, and take advantage of, the safe harbor provisions of the PSLRA. Except as required by law, we do not undertake, and expressly disclaim any obligation, to revisedisseminate, after the date hereof, any updates or updaterevisions to any such forward-looking statementstatements to reflect futureany change in expectations or events, conditions or circumstances.About Our Businesscircumstances on which any such statements are based.How We Talk About ItWe deliver interactive entertainmentuncertainties, you should not rely on any forward- looking statements as a prediction of actual results, developments or other outcomes. You should read these forward-looking statements with the understanding that we may be unable to achieve projected results, developments or other outcomes and innovative dining technologythat actual results, developments or other outcomes may be materially different from what we expect.bars and restaurants in North America. Customers subscribeEterna Therapeutics Inc. upon our filing with the Secretary of State of the State of Delaware a Certificate of Amendment to our customizable solution to differentiate themselves via competitive fun by offering guests trivia, card, sports and single player games, nationwide competitions, and by offering self-service dining features including dynamic menus, touchscreen ordering and secure payment. Our platform can improve operating efficiencies, create connections amongRestated Certificate of Incorporation, as amended. On December 20, 2022, we changed the players and venues and amplify guests’ positive experiences. Built on an extended network platform, our interactive entertainment system has historically allowed multiple players to interact at the venue and more recently allows for competition between venues, referred to as massively multiplayer gaming. Our current platform, which we refer to as Buzztime Entertainment On Demand, or BEOND, was commercially launched during 2013 and then scaled during 2014. We continue to enhance our network architecture and the BEOND tablet platform and player engagement paradigms. We also continue to support our legacy network product line, which we refer to as Classic.We currently generate revenue by charging subscription fees for our service to our network subscribers, by leasing equipment (including tablets used in our BEOND tablet platform and the cases and charging trays for the tablets) to certain network subscribers, by hosting live trivia events, by selling advertising aired on in-venue screens and as partname of customized games, from providing professional services (such as developing certain functionality within our platform for customers), and from pay-to-play single player games.Since 2015, over 115million games were played on our network annually, and as of December 31, 2017, approximately 56%one of our network subscriber venues are affiliated with national and regional restaurant brands, including Buffalo Wild Wings, Buffalo Wings & Rings, Old Chicago, Native Grill & Wings, Houlihans, Beef O’Brady’s, Boston Pizza, and Arooga’s.We own several trademarks and considersubsidiaries from Brooklyn ImmunoTherapeutics, LLC to Eterna Therapeutics LLC. Unless stated otherwise or 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.Unlesscontext otherwise indicated,requires, all references in this report: (a)Annual Report on Form 10-K to “Buzztime,” “NTN,“Eterna” refer to Eterna Therapeutics Inc., references to “Eterna LLC” refer to Eterna Therapeutics LLC, and references to the “Company,” “we,” “us” andor “our” refer to NTN Buzztime, Inc.Eterna and its consolidated subsidiaries; (b)subsidiaries, including Eterna LLC, Novellus, Inc. and Novellus Therapeutics Limited.“network subscribers”our business and industry described under “Risk Factors” contained in Item 1A of this Annual Report on Form 10-K. The occurrence of any of the events discussed below could significantly and adversely affect our business, prospects, results of operations, financial condition, and cash flows, which could result in a decline in the market price of our common stock.“customers”the Exclusive Factor License Agreement is terminated for any reason, our ability to enter into strategic partnerships or develop therapeutics products would be harmed.ITEM 1. Business venues that subscribeas our “mRNA technology platform.” We plan to develop and advance a pipeline of therapeutic products, both internally and through strategic partnerships, with the near-term focus on deploying our network service; (c)mRNA technology platform through strategic partnerships. We license our mRNA technology platform from Factor Bioscience Limited (“Factor Limited”) under an exclusive license agreement.“consumers” or “players” refer towhich, among other matters, Merger Sub merged with and into Eterna LLC, with Eterna LLC surviving the individuals that engage in our games, events, and entertainment experiences available at our customers’ venues and (d) to “venues” or “sites” refer to locations (suchmerger as a barwholly owned subsidiary of Eterna (the “Merger”). The Merger closed on March 25, 2021. The Merger was accounted for as a reverse acquisition, in which Eterna LLC was deemed the acquiring company for accounting purposes. In March 2021, we sold the NTN Buzztime legacy assets to a third party (the “Disposition”).restaurant)accessible through, our website is not a part of our customers at which our games, events, and entertainment experiences are available to consumers.
is not incorporated by reference into this Annual Report on Form 10-K.3AmendedRestated Credit FacilityIn November 2017,License Agreementan amendeda cell line customization and restated loan and securitylicense agreement (the “Amended and Restated Loan“Lineage Agreement”) with East West BankLineage Cell Therapeutics, Inc. (“EWB”Lineage”). The Amended & Restated Loan Agreement amends and restates the loan and security agreement, pursuant to which, Lineage may request prior to August 22, 2023 that we entered into with EWB dated asdevelop for, and deliver to, Lineage certain induced pluripotent stem cell lines, which Lineage would use to evaluate the possible development of April 14, 2015 (as the same has been previously amended, the “Prior Loan Agreement”).The following is a summarycell transplant therapies for treatment of diseases of the material termscentral nervous system in humans, (a) excluding ophthalmologic indications, (b) diseases and conditions of the Amendedperipheral nervous system, (c) psychiatric, respiratory, musculoskeletal, and Restated Loan Agreement:● EWB loaned us $4,500,000 as a one-time 36-month term loan, $4,450,000 ofhematological diseases, disorders, and conditions, and (d) cancer. The Lineage Agreement also provides Lineage with the option to obtain an exclusive sublicense to certain related technology for preclinical, clinical and commercial purposes, which we agreedwould permit Lineage to use, and did use, to refinance the $4,450,000 that we had outstanding under the Prior Loan Agreement. We applied the additional $50,000 to pay the facility fee ($45,000) and to pay reasonable costs or expenses incurred by EWB in connection with, among other matters, the preparation and negotiation of the Amended and Restated Loan Agreement.● We are required to make payments on the loan on the last calendar day of each month commencing on December 31, 2017 and through its maturity date, November 29, 2020. Payments will be interest only until the payment due on June 30, 2018, at which time payments will become principal plus interest.● Other than during the continuance of an event of default, the loan bears interest, on the outstanding daily balance thereof, at our option, at either: (A) a variable rate per annum equal to the prime rate as set forth in The Wall Street Journal plus 1.75%, or (B) a fixed rate per annum equal to the LIBOR rate for the interest period for the advance plus 4.50%.● We continue to grant and pledge to EWB a first-priority security interest in all our existing and future personal property, including oursublicense such intellectual property, subject to customary exceptions.● Subjectpayment of certain sublicense royalty fees. Lineage has six months from our delivery to customary exceptions,Lineage of such induced pluripotent stem cell lines to exercise such option, and upon any such exercise, Lineage would agree to use its commercially reasonable efforts to exploit and make commercially available one or more licensed products derived from such induced pluripotent stem cell lines in accordance with the Lineage Agreement. Upon entry into the Lineage Agreement, Lineage paid us a $250,000 non-refundable up-front payment. We are also entitled to certain cell line customization fees with respect to cell lines that Lineage may request that we continuedevelop for Lineage, as well as royalty payments with respect to generallyany such licensed products, certain sublicense fees and certain milestone payments under the Lineage Agreement.prohibitedentitled, we paid an amount of cash equal to the product of (i) the fractional share to which the holder would otherwise be entitled and (ii) the then fair value of a share as determined in good faith by our Board of Directors. We paid an aggregate of $719 for a total of 175 fractional shares.borrowing additional Indebtedness other than subordinated debtFactor Limited under an exclusive license agreement.upeventual clinical development of product candidates for a variety of clinical indications. We expect that the initial product candidates developed by our strategic partners utilizing our mRNA technology platform will include hypoimmune induced pluripotent stem cell (“iPSC”)-derived product candidates for the treatment of neurological indications and iPSC-derived immune-modulating cells (“iIMCs”) for indications such as acute myeloid leukemia (“AML”) and solid tumors.$2.0 millionaspects of our mRNA technology platform as “mRNA delivery,” “mRNA gene editing” and “mRNA cell reprogramming.”aggregategenome. Our mRNA gene-editing technology instead is designed to employ mRNA to express gene-editing proteins, which can potentially enable gene editing without unwanted insertional mutagenesis, because, unlike conventional gene-editing technologies that employ viruses or DNA-based vectors, mRNA does not typically cause unwanted insertional mutagenesis. We believe the efficiency of our mRNA gene-editing technology has the potential to support development of product candidates that could create new therapeutic approaches. For example, we anticipate that our mRNA gene-editing technology can be used to generate allogeneic chimeric antigen receptor T-cell (“CAR-T”) therapies for the treatment of cancer. In such allogeneic CAR-T therapies, mRNA encoding gene-editing proteins would be used to inactivate the endogenous T-cell receptor to prevent therapeutic T-cells from causing graft-versus-host disease (“GvHD”). GvHD occurs when transplanted cells view the patient’s (i.e. the host’s) cells as a threat and attack the host’s cells. We expect that this same mechanism of action can generate allogeneic stem cell-derived therapies in which mRNA encoding gene-editing proteins could be used to inactivate one or more components of the human leukocyte antigen (“HLA”) complex to render the cells immuno-nonreactive or “stealth,” which may be useful for the development of allogeneic cell-based therapies.equipment financingidentifying and pursuing certain opportunities to grant to third parties sublicenses to the extent EWB approves such debt. “Indebtedness” meansFactor Patents. The Amended Factor License Agreement also (i) all our other indebtedness for borrowed money orterminated the deferred purchase price of property or services,Novellus-Factor License Agreement, (ii) all our obligations evidenced by notes, bonds, debentures and similar instruments, (iii) all our capital lease obligations, and (iv) all our contingent obligations.For additional information regarding this credit facility, see “PART II—ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources,” below.Our StrategyBelow is a discussion of our strategy and highlights of accomplishments and milestones achieved during 2017:Scale digital menu and payment functionality.We continue focusing on delivering digital menu and payment functionality on the tablet platform, which we believe will improve the operational and marketing value of our product offering. This expanded functionality will help us deliver an enhanced guest experience. Rolling out this functionality will continueconfirmed Factor Limited’s grant to be a key focus for us in 2018. As previously announced in March 2017, we have expanded our relations with Buffalo Wild Wings, who chose us to be its provider of digital menu, order, and payment functionality, and since that time, we have continued making progress on the software integration. In the fourth quarter of 2017, we completed muchEterna LLC of the integration work required for payment functionalityrights and subsequently deliveredlicenses Novellus Limited previously granted to Eterna LLC under the first batch of tablets with magnetic swipe, Europay, MasterCard® and Visa® (“EMV”) and Near-Field Communication (“NFC”) capabilities to 28 Buffalo Wild Wings locations. Due to the acquisition of Buffalo Wild Wings by Arby’s Restaurant Group, Inc., and to the attendant changes with Buffalo Wild Wings’ operations, the rollout of our expanded functionality has been putNovellus-Factor License Agreement on hold until its new management has time to assess all of the programs at Buffalo Wild Wings. Based on discussions to date, we expect that the rollout could be put on hold for up to six months and that we could re-commence the rollout at additional Buffalo Wild Wings locations shortly thereafter. After the initial set of locations is running smoothly, we anticipate rolling out our system throughout the rest of Buffalo Wild Wings corporate and franchise locations with which we have partnered. We expect our inventory balances to fluctuate as we prepare to expand and support this relationship.Improve value and price for our “independent” customers. During 2017, we continued to make progress on our hardware design and quality in order to reduce expense, while expanding capabilities, retaining consistency in the design and giving us the ability to offer flexibility in our pricing for quality independent customers. We are now deploying our new tablets and cases into the market and are better positioned in 2018 to acquire new independent sites and new venues in other vertical markets to help grow sites.Refine our commercial execution. We are focused on increasing our site count of both independent customers and chain customers. Receiving a reference from a national chain account, such as Buffalo Wild Wings, is critical to our chain efforts, and our ability to demonstrate Buffalo Wild Wings as a strategic user of the menu, order and pay functionality is critical to receiving that reference. For our independent customers, we continue to model and test our go-to-market efforts by improving our sales processes, technology and people.Expand revenue opportunities.We intend to grow the consumer audience by engaging them more with improved entertainment experiences and providing premium content that we can monetize through direct payment. In addition, we have been researching and testing our services within adjacent markets, such as senior centers, car dealerships and casinos. Although the growth of our previously announced partnership with Heartland has been slower than anticipated due to a variety of technical issues, we continue to work with Heartland and its dealer network. As we announced earlier this year, we entered into a licensing agreement with Scientific Games to license our trivia games for installation on casino slot machines where we will earn a per game license fee for each slot machine that has one of our trivia games installed on it. We have since sold a few contracts and are awaiting installation, which we expect to occur during the second quarter of 2018. We also developed a stand-alone, single unit tablet to serve Scientific Games customers in the market where casinos use tablets in retail settings to redeem loyalty points. We are excited about the value we feel we can bring to this market with both of these product offerings. We also continue to monetize the network through local and national advertising revenue streams. During the third quarter of 2017, we partnered with The Chive, a digital media company, to expand the size and reach of our network, which we believe will allow us to expand our advertising revenues. They have delivered sales as well as a pipeline for growth. Lastly, in January 2018, we signed our first contract to sell several thousands of our tablets to a customer who will deliver their services to their market. We expect to deliver these tablets and recognize revenue sometime between the second and third quarter of 2018. We are also working with this customer to license our gaming content for its customers, which may represent revenue sharing opportunity. We anticipate several follow-on tablet orders and believe that this is an exciting recurring revenue opportunity that can scale.4Products and ServicesOur principal product and service is our BEOND platform. Built on an extended network platform, our interactive entertainment system offers trivia, card, sports and single player games, nationwide competitions, and self-service features including dynamic menus, touchscreen ordering and secure payment. Generally, as part of the subscription to our BEOND platform, we provide the equipment used in our BEOND platform (including tablets used in our BEOND tablet platform and the cases and charging trays for the tablets) to network subscribers, though we also lease such equipment to certain network subscribers. In 2017, we began licensing our content to customers to be installed on equipment that they obtain from other parties. In 2018, we began selling the equipment used in our BEOND platform to customers who may not subscribe to our BEOND platform but who can use the equipment in their business for other purposes. Our primary network subscribers are bars and restaurants in North America, which we target directly through our internal sales organization. More recently we have begun offering our BEOND platform in adjacent markets, such as senior centers, car dealerships and casinos, which we target through third parties who have existing business relationships with potential customers in such markets.We primarily develop the content and functionality available through our BEOND platform internally. The tablet used in our BEOND platform is an Android-based tablet customized to our specifications by a single unaffiliated third-party manufacturer. Such third-party also manufacturers the cases and charging trays for the tablets. Such manufacturer sources the raw materials used to manufacture such equipment. See ITEM 1A., Risk Factors—Risk Factors That May Affect Our Business—"A disruption in the supply of equipment could negatively impact our subscriptions and revenue” and “—Our business could be adversely impacted if the sole manufacturer of our customized tablet and our tablet equipment is not able to meet our manufacturing quality standards,” below.CompetitionWe face direct competition in venues and face competition for total entertainment and marketing dollars in the marketplace from other companies offering similar content and services. A relatively small number of direct competitors are active in the hospitality marketing services and entertainment markets, including Ziosk and E la Carte, Inc. Competing forms of technology, entertainment, and marketing available in hospitality venues include games, apps and other forms of entertainment offerings available directly to consumers on their smart phones and tablets, on-table bar and restaurant entertainment systems, music and video-based systems, live entertainment and games, cable, satellite and pay-per-view programming, coin-operated single-player games/amusements, and traffic-building promotions like happy hour specials and buffets.Buzztime Significant CustomerOur customers range from small independently operated bars and restaurants to bars and restaurants operated by national chains. This results in diverse venue sizes and locations. As of December 31, 2017, 2,730 venues in the U.S. and Canada subscribed to our interactive entertainment network, of which, approximately 45% were Buffalo Wild Wings corporate-owned restaurants and its franchisees (collectively, “Buffalo Wild Wings”). For the years ended December 31, 2017 and 2016, revenue generated from Buffalo Wild Wings was as follows: Year Ended
December 31, 2017 2016 Buffalo Wild Wings revenue $ 8,678,000 $ 8,913,000 Percent of total revenue 41 % 40 % As of December 31, 2017 and 2016, amounts included in accounts receivable from Buffalo Wild Wings was as follows: Year Ended
December 31, 2017 2016 Buffalo Wild Wings accounts receivable $ 191,000 $ 261,000 BacklogWe generally do not have a significant backlog because we normally can deliver and install new systems at venues within the delivery schedule requested by customers (generally within three to four weeks).Licensing, Trademarks, Copyrights and PatentsA majority of the gaming content available on our platform is internally developed. The balance is licensed from third parties. We also license third party content for our pay-to-play and free-to-consumer games lobby. The amounts paid for such third party licensed content was not material during either 2017 or 2016.Our intellectual property assets, including patents, trademarks, and copyrights, are important to our business and, accordingly, we actively seek to protect the proprietary technology that we consider important to our business. No single patent or copyright is solely responsible for protecting our products.We keep confidential as trade secrets our technology, know-how and software. Most of the hardware we use in our operations is purchased from a third party and customized for use with our service. We enter into agreements with third parties with whom we conduct business, which contain provisions designed to protect our intellectual property and to limit access to, and disclosure of, our proprietary information. We also enter into confidentiality and invention assignment agreements with our employees and contractors.5We believe the duration of our patents is adequate relative to the expected lives of our products. We consider the following United States patents to be important to the protection of our products and service:Patent No.DescriptionExpiration Date8,562,438System and method for television-based services4/21/20318,562,442Interactive gaming via mobile playmaker6/3/20318,790,186User-controlled entertainment system, apparatus and method2/6/20348,898,075Electronic menu system and method9/11/20329,044,681System and method for television-based services10/13/20339,358,463Interactive gaming via mobile playmaker10/16/20339,498,713User-controlled entertainment system, apparatus and method2/6/2034We have trademark protection for the names of our key proprietary programming, products, and services to the extent that we believe trademark protection is appropriate. We are expanding our efforts to protect these investments. We consider the Buzztime, Playmaker, Mobile Playmaker and PlayersPlus trademarks and our other related trademarks to be valuable assets, and we seek to protect them through a variety of actions. Our content, branding, and some of our game titles, such as Countdown, SIX, and Showdown are also protected by copyright and trademark law.Geographic MarketsAs of December 31, 2017, 2,730 venues in the U.S. and Canada subscribed to our interactive entertainment network. The following table presents the geographic breakdown of our revenue for the last two fiscal years. Year Ended
December 31, 2017 2016 United States 97 % 97 % Canada 3 % 3 % Total 100 % 100 % The following table presents the geographic breakdown of our long-term tangible assets for our last two fiscal years. Year Ended
December 31, 2017 2016 United States 93 % 97 % Canada 7 % 3 % Total 100 % 100 % Government ContractsWe provide our content distribution services through our network to colleges, universities, and a small number of government agencies, typically military base recreation units. However, the number of government customers is small compared to our overall customer base. We provide our products and services to government agencies under contracts with substantially the same terms and conditions as granted by Novellus Limited to Eterna LLC under such agreement, (iii) confirmed that the sublicense granted by Novellus Limited in accordance with the Novellus-Factor License Agreement to NoveCite (as discussed below), survived termination of the Novellus-Factor License Agreement and (iv) removed Novellus Limited from the Amended Factor License Agreement and the NoveCite Agreement and replaced Novellus Limited with Factor Limited as the direct licensor to Eterna LLC and NoveCite under such agreements, respectively.placepreparing, filing, prosecuting and maintaining the Factor Patents and agreed to bear all costs and expenses associated with non-government customers.Government RegulationsThe costenforcing and defending the Factor Patents in any action or proceeding arising from pursuit of compliance with federal, state,sublicensing opportunities under the license granted under the Exclusive Factor License Agreement.local laws has not had a material effectcommercialize the technology licensed under the Exclusive Factor License Agreement. See Item 1A “Risk Factors—Risks Related to our Business and Industry—We depend substantially, and expect in the future to continue to depend, on in-licensed intellectual property. Such licenses impose obligations on our capital expenditures, earnings, or competitive positionbusiness, and if we fail to date. comply with those obligations, we could lose license rights, which would substantially harm our business” contained in this Annual Report on Form 10-K.DecemberOctober 2020, Novellus Limited (as sublicensor) and NoveCite (as sublicensee) entered into an exclusive license agreement (the “NoveCite Agreement”) to license a novel cellular therapy for acute respiratory indications, which Novellus Limited was licensing from Factor Limited under the Novellus-Factor License Agreement. As discussed above, as a result of the Amended Factor License Agreement and the termination of the Novellus-Factor License Agreement, the NoveCite Agreement was amended to remove Novellus Limited as sublicensor and create a direct license between Factor Limited and NoveCite effective November 1, 2022.we received approvalIRX 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 Eterna LLC in November 2018 when Eterna LLC acquired the assets of IRX Therapeutics. Pursuant to the IRX Investor Royalty Agreement, if and when Eterna LLC becomes obligated to pay royalties to the Research Association under the USF License Agreement, it will pay an additional royalty of 1% of gross sales to an entity organized by the investors who participated in such financing transaction.Federal Communications Commission,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 FCC,expiration of the last IRX patent or other exclusivity of IRX-2.our BEOND tablet charging trays, and in September 2015, we received FCC approval for our third generation BEOND tablet cases with and without payment electronics. The BEOND tablets we currently use have been certified by its manufacturer.the mRNA technology platform includes:Family Number and Title 6 In addition to laws and regulations applicable to businesses generally, we are also subject to laws and regulations that apply directly to the interactive entertainment and product marketing industries. Additionally, state and federal governments may adopt additional laws and regulations that address issues related to certain aspects of our business such as:●user privacy; ●copyrights; ●gaming, lotteryFAB-001: “Methods and alcohol beverage control regulations;Products for Transfecting Cells” ●consumer protection;●the distribution of specific material or content; and12/05/2011 FAB-003: “Methods and Products for Transfection” 12/05/2011 FAB-005: “Methods and Products for Expressing Proteins in Cells” 11/01/2012 FAB-008: “Methods and Products for Nucleic Acid Production and Delivery” 08/18/2014 FAB-009: “Nucleic Acid Products and Methods of Administration Thereof” 02/13/2015 FAB-010: “Nucleic Acid Products and Methods of Administration Thereof” 08/17/2016 FAB-011: “Nucleic Acid-Based Therapeutics” 03/27/2018 FAB-012: “Cationic Lipids and Transfection Methods” FAB-013: “Engineered Gene-Editing Proteins” 05/12/2020 FAB-016: “Mesenchymal Stem Cell Therapies” FAB-017: “Engineered Immune Cell Therapies” 03/05/2021 FAB-018: “Circular RNA” 04/27/2021 IRX-2 Modified Manufacturing Process Method of Reversing Immune Suppression of Langerhans Cells Method of Increasing Immunological Effect Vaccine Immunotherapy Vaccine Immunotherapy Immunotherapy for Reversing Immune Suppression US: 02/06/2025 Vaccine Immunotherapy for Immune Suppressed Patients US: 04/14/2023 (No. 6,977,072), 08/17/2023 (Nos. 9,789,172 and 9,789,173) Immunotherapy for Immune Suppressed Patients All Others: 3/9/2027 Composition for the Treatment of Advanced Prostate Cancer 7/24/2027 Uses of PD-1/PD-L1 Inhibitors and/or CTLA-4 Inhibitors with a Biologic Containing Multiple Cytokine Components to Treat Cancer ● completion of pre-clinical laboratory tests, animal studies and formulation studies according to the FDA’s good laboratory practice, or GLP, regulations; ● submission of an investigational new drug application, or IND, which must become effective before human clinical trials may begin and which must include approval by an institutional review board, or IRB, at each clinical site before the trials are initiated; ● performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use conducted in compliance with federal regulations and good clinical practice, or GCP, an international standard meant to protect the rights and health of human clinical trial subjects and to define the roles of clinical trial sponsors, administrators, and monitors; ● submission to, and acceptance by, the FDA of a MA; ● satisfactory completion of an FDA inspection of our manufacturing facility or other facilities at which the drug or biologic is produced to assess compliance with current good manufacturing practice, or cGMP, regulations to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; ● potential FDA audit of the non-clinical and clinical trial sites that generated the data in support of the MA: and ● FDA review and approval of the MA. ● Phase 1 clinical trials involve the initial introduction of the drug or biologic into human subjects. These studies are designed to determine the safety of usually single doses of the compound and determine any dose limiting intolerance, as well as evidence of the metabolism and pharmacokinetics of the drug in humans. For some products for severe or life-threatening diseases, especially if the product may be too toxic to administer to healthy humans, the initial clinical trials may be conducted in individuals having a specific disease for which use the tested product is indicated. ● Phase 2 clinical trials usually involve studies in a limited patient population to evaluate the characteristicssafety and qualityefficacy of interactive entertainment productsthe drug or biologic for specific, targeted indications, to determine dosage tolerance and services.optimal dosage, and to identify possible adverse effects and safety risks● In Phase 3, if a compound is found to be potentially effective and to have an acceptable safety profile in Phase 2 (or occasionally Phase 1) studies, the Phase 3 studies will be conducted to further confirm clinical efficacy, optimal dosage and safety within an expanded population which may involve geographically diverse clinical trial sites. Generally, but not always, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of a marketing application. ● Phase 4 clinical trials are studies required of or agreed to by a sponsor that are conducted after the FDA has approved a product for marketing. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase 4 clinical trial requirement. Failure to promptly conduct Phase 4 clinical trials where necessary could result in withdrawal of approval for products approved under accelerated approval regulations. service,contract manufacturers, fail to comply or cannot remedy regulator identified deficiencies, then we operate gamesmay be prohibited from marketing product.chance and games of skill. These gamesa supplemental application before the drug may be marketed as changed. Any products that we manufacture or distribute pursuant to FDA approvals are subject to continuing monitoring and regulation by the FDA, including compliance with cGMP and the reporting of adverse experiences with the drugs. The nature of marketing claims that the FDA will permit us to make in many jurisdictions. Our games are played just for funthe labeling and winner recognition. Noneadvertising of our games award anythingproducts will generally be limited to those specified in FDA approved labeling, and the advertising of our products will be subject to comprehensive monitoring and regulation by the FDA. Products whose review was accelerated may carry additional restrictions on marketing activities, including the requirement that all promotional materials are pre-submitted to the FDA. Claims exceeding those contained in approved labeling will constitute a violation of the FDCA. Violations of the FDCA or regulatory requirements at any time during the product development process, approval process, or marketing and sale following approval may result in agency enforcement actions, including corrective advertising, cessation of violative promotion, withdrawal of approval, recall, seizure of products, warning letters, injunctions, fines and/or civil or criminal penalties. Any agency enforcement action could have a material adverse effect on our business.winners.fundamental changes. There have been, and we expect there will continue to be, legislative and regulatory proposals to change the healthcare system in ways that could significantly affect our business, including the Patient Protection and Affordable Care Act of 2010 (the “Affordable Care Act”).● controls on government-funded reimbursement for drugs; ● mandatory rebates or additional charges to manufacturers for their products to be covered on Medicare Part D formularies; ● controls on healthcare providers; ● controls on pricing of pharmaceutical products, including the possible reference of the pricing of United States drugs to non-United States drug pricing for the same product; ● challenges to the pricing of drugs or limits or prohibitions on reimbursement for specific products through other means; ● reform of drug importation laws; ● entering into contractual agreements with payors; and ● expansion of use of managed-care systems in which healthcare providers contract to provide comprehensive healthcare for a fixed cost per person weand as to how any such change might affect our products.nominaleight years of data exclusivity and ten years of marketing exclusivity.prizes to trivia competition participants,penalties, and exclusion from participation in compliance with applicable regulations. Included in our offeringfederal healthcare programs. Although there are a number of interactive card games,statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.Texas Hold’em poker. These card gameswell as investment interests held by physicians and their immediate family members. The information reported each year is made publicly available on a searchable website. Failure to submit required information may result in civil monetary penalties.restrictedconsidering similar proposals. Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws face civil penalties.jurisdictions. Theprescription drugs distributed in the United States and preempts existing state drug pedigree laws and regulations on this topic. The DSCSA also establishes new requirements for the licensing of wholesale distributors and third-party logistic providers. The FDA is the process of finalizing regulations addressing wholesale distributors and third-party logistics providers. We serialize our product at both the package and homogeneous case level, pass serialization and required transaction information to our customers, and believe that governwe comply with all such requirements.games, however, vary from jurisdictionlaws grant individuals rights with respect to jurisdictiontheir information, and we may be required to expend significant resources to comply with these laws. For example, various states, such as California and Massachusetts, have implemented privacy laws and regulations, such as the California Confidentiality of Medical Information Act, that impose restrictive requirements regulating the use and disclosure of personally identifiable information, including protected health information. These laws in many cases are more restrictive than, and may not be preempted by, the HIPAA rules and may be subject to legislativevarying interpretations by courts and regulatory change,government agencies.law enforcement discretion. Wenovel immunotherapies. Our commercial opportunities could be reduced or eliminated if our competitors develop intellectual property and commercialize products that are safer, more effective, have fewer or less severe effects, are more convenient, have a broader label, are marketed more effectively, are reimbursed or are less expensive than any products developed using our intellectual property or that we may find it necessary to eliminate, modify,develop. Our competitors also may obtain FDA, EMA or cancel certain components of our offerings in certain states or jurisdictions based on changes in law, regulations and law enforcement discretion,other marketing approval for their products more rapidly than we may obtain approval for ours, which could result in additional development costs and/orour competitors establishing a strong market position before we are able to enter the possible lossmarket.revenue.Web Site Accessrecognize that our success relies upon our ability to SEC FilingsOur annual reportsattract, develop and retain a diverse team of talented individuals. We place high value on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-Kthe satisfaction and amendments to those reports, and proxy statements and other information we file or furnish pursuant to Section 13(a) or 15(d) of the Exchange Act are available on our website atwww.buzztime.com/business/investor-relations/ under the headingSEC Filings as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC. In addition, we make available on that same website under the headingCorporate Governance our (i) our code of conduct and ethics; (ii) our corporate governance guidelines; and (iii) the charter of each active committeewell-being of our board of directors. We intend to disclose any amendment to, or a waiver from, a provision of our code of conductemployees and ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functionsoperate with fair labor standards and that relates to any element of the code of ethics definition enumerated in paragraph (b) of Item 406 of Regulation S-K by posting such information on that website.Materials we file with the SEC may also be readindustry-competitive compensation and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website atwww.sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file electronically with the SEC.Employees6, 2018,20, 2023, we employed approximately 104 people on ahad nine full-time basisemployees, which includes four research and 342 people on a part-time basis. We also utilize independent contractors for specific projects.development positions and five administrative positions. None of our employees are representedcovered by collective bargaining agreements.labor union,focus on encouraging performance, promoting accountability and we believeadherence to our employee relations are satisfactory.Corporate HistoryNTN Buzztime, Inc. was incorporated in Delaware in 1984 as Alroy Industries and changed its corporate namebase pay program aims to NTN Communications, Inc. in 1985. The name was changedcompensate staff members relative to NTN Buzztime, Inc. in 2005 to better reflect the growing rolevalue of the Buzztime consumer brand.a number ofmany factors, whether currently known or unknown, many of which are not exclusively within our control, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to differ materially from historical or anticipated future financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price. We urge investors to carefully consider the risk factors described below in evaluating our stock and the information contained in this report.Risk Factors That May Affect OurAnnual Report on Form 10-K, including the consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”may not be able to compete effectively within the highly competitivedepend substantially, and evolving interactive games, entertainment and marketing services industries.We face intense competitionexpect in the markets in which we operate. We face significant competition for entertainmentfuture to continue to depend, on in-licensed intellectual property. Such licenses impose obligations on our business, and marketing services in hospitality venues from other companies offering similar content and services. Our services also compete with games, apps and other forms of entertainment offerings available directly to consumers on their smart phones and tablets. See “ITEM 1. Business—Competition,” above. Some of our current and potential competitors enjoy substantial competitive advantages, including greater financial resources for competitive activities, such as content development and programming, research and development, strategic acquisitions, alliances, joint ventures, and sales and marketing. As a result, our current and potential competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or consumer preferences.7The increased availability of the internet and wireless networks provides consumers with an increasing number of alternatives to our entertainment offerings. With this increasing competition and the rapid pace of change in product and service offerings, we must be able to compete in terms of technology, content, and management strategy. Ifif we fail to provide competitive, engaging, quality servicescomply with those obligations, we could lose license rights, which would substantially harm our business.products, we will lose revenues to competing companies and technologies. Increased competition may also result in price reductions, fewer customer orders, reduced gross margins, longer sales cycles, reduced revenues, and loss of market share.New products and rapid technological change, especially inproprietary technology licensed from Factor Limited under the mobile and wireless markets, may render our operations obsolete or noncompetitive.The emergence of new entertainment products and technologies, changes in consumer preferences, the adoption of new industry standards, and other factors may limit the life cycle and market penetration of our technologies, products, and services. In particular, the mobile and wireless device, content, applications, social media, and entertainment markets are highly competitive and rapidly changing. Accordingly, our future performance will depend on our ability to:●identify emerging technological trends and industry standards in our market;●identify changing consumer needs, desires, or tastes;●develop and maintain competitive technology, including new hardware and content products and service offerings;●improve the performance, features, and reliability of our existing products and services, particularly in response to changes in consumer preferences, technological changes, and competitive offerings; and●bring technology that is appealing to consumers to the market quickly at cost-effective prices.If we do not compete successfully in developing new products and keep pace with rapid technological change, we will be unable to achieve profitability or sustain a meaningful market position. may not be successful in developing and marketing new products and services that respond to technological and competitive developments, changing customer needs, and consumer preferences. We may have to incur substantial costs to modify or adapt our products or services to respond to these developments, customer needs, and changing preferences. We must be able to incorporate new technologies into the products we design and develop in order to address the increasingly complex and varied needs of our customer base. Any significant delay or failure in developing new or enhanced technology, including new product and service offerings, could result in a loss of actual or potential market share and a decrease in revenues.We receive a significant portion of our revenues from Buffalo Wild Wings, and any decrease in the amount of their business could materially and adversely affect our cash flow and revenue.For the year ended December 31, 2017, Buffalo Wild Wings accounted for approximately 41%, or $8,678,000, of our total revenue. As of that date, approximately $191,000 was included in accounts receivable. If a significant number of the Buffalo Wild Wings corporate-owned restaurants or its franchisees, or any other customer who may in the future represent a significant portionbecome party to additional license agreements pursuant to which we in-license key intellectual property for the development of therapeutics products both through strategic partnerships and internally. We are party to the Exclusive Factor License Agreement with Factor Limited, pursuant to which we acquired our mRNA technology platform. The Exclusive Factor License Agreement imposes various sublicense fees and other obligations on us. For example, we are obligated to pay the expenses incurred by Factor Limited in preparing, filing, prosecuting and maintaining the Factor Patents and agreed to bear all costs and expenses associated with enforcing and defending the Factor Patents in any action or proceeding arising from pursuit of sublicensing opportunities under the license granted under the Exclusive Factor License Agreement. Factor Limited has customary termination rights under the Exclusive Factor License Agreement, including in connection with certain uncured material breaches of the Exclusive Factor License Agreement and specified bankruptcy events. Any termination of our revenue, breachexisting or terminate their subscriptions or otherwise decrease the amount of business they transact with us, wefuture licenses could lose a significant portion of our revenues and cash flow.A disruptionresult in the supplyloss of equipment could negatively impactsignificant rights and would harm our subscriptionsbusiness significantly.revenue.During our licensors regarding intellectual property subject to a license agreement, including:fourth quarterscope of 2016, we began having an unaffiliated third party manufacture an Android-based tablet customizedrights granted under the license agreement and other interpretation-related issues;specifications. Other than a small amount of inventorytechnology and processes infringe intellectual property of the third-party tabletlicensor that is not subject to the licensing agreement;historically usedlicensed, or license in the future, prevent or impair our BEOND platform, we expectability to usemaintain our customized tabletcurrent licensing arrangements on a going-forward basis. This third party manufacturer also manufactures our tablet equipment—tablet charging trays and tablet cases. We currently do not have an alternative manufacturing source for our customized tablet or the tablet equipment or alternatives for the tablet equipment.If our sole manufacturer is delayed in delivering tablets to us, becomes unavailable, has product quality issues, or shortages occur, in addition to not realizing the benefits of having a tablet manufactured to our specifications, we would need to return to the historical third-party tablets or find an alternative device. Similarly, if our sole manufacturer is delayed in delivering the tablet equipment to us, becomes unavailable, has product quality issues, or shortages occur,acceptable terms, we may be unable to timely obtain replacement tablet equipment. Delays, unavailabilitysuccessfully enter into strategic partnerships or develop therapeutic products. In addition, the resolution of any such disputes could narrow what we believe to be the tablet or tablet equipment, product quality issues and shortages could damage our reputation and customer loyalty, cause subscription cancellations, increase our expense and reduce our revenue. See also “Our business could be adversely impacted if the sole manufacturerscope of our customized tablet and tablet equipment is not ablerights to meetthe relevant intellectual property or technology, or increase what we believe to be our manufacturing quality standards,” below.8If our sole manufacturer and/financial or suppliers were to go outother obligations under the relevant agreement, either of business or otherwise become unable to meet our needs for reliable equipment, the process of locating and qualifying alternate sources could take months, during which time our production could be delayed, and may, in some cases, require us to redesign our products and systems. Such delays and potentially costly re-sourcing and redesign could have a material adverse effect on our business, operatingfinancial condition, results of operations, and financial condition.Our business couldprospects.adversely impacted if the sole manufacturer of our customized tabletcertain that activities conducted by Factor Limited or any other present or future licensors have been or will be conducted in compliance with applicable laws and our tablet equipmentregulations or will result in valid and enforceable patents and other intellectual property rights. We may also have limited control over other intellectual property that is not ablelicensed to meetus but that may be related to our manufacturing quality standards.As discussed above, one unaffiliatedin-licensed intellectual property. We may have limited control over the manner in which our licensors initiate an infringement proceeding against a third-party infringer or the intellectual property or defend certain of the intellectual property that is licensed to us. It is possible that the licensors’ infringement proceedings or defense activities may be less vigorous than had we conducted them ourselves.party manufacturesparties or acquire products or businesses, in each case that we believe will complement or augment this business strategy. These relationships or transactions, or those like them, may require us to incur nonrecurring and other charges, increase our customized tabletnear- and long-term expenditures, issue securities that dilute our tablet equipment. Continued improvement in supply-chainexisting stockholders, reduce the potential profitability of any products that are the subject of the relationship or disrupt our management and business. In addition, we face significant competition in manufacturing of our customized tabletseeking appropriate strategic partnerships and tablet equipmenttransactions and manufacturing qualitythe negotiation process is time-consuming and product testing are important to our business. Flaws in the designcomplex and manufacturing of our customized tablet or tablet equipment or both (by us or our supplier) could result in substantial delays in shipment and in substantial repair, replacement or service costs, could damage our reputation and customer loyalty, could cause subscription cancellations, and could increase our expense and reduce our revenue. Costs associated with tablet or tablet equipment defects due to, for example, problems in our design and manufacturing processes, could include: (a) writing off the value of inventory; (b) disposing of items that cannot be fixed; (c) recalling items that have been shipped; and (d) providing replacements or modifications. These costs could be significant and may increase expenses and lower gross margin. Therethere can be no assurance that we can enter into any of these transactions even if we desire to do so.monitor, develop modifyand maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us, and materially and adversely affect our business and operating results.appropriate testour internal controls;manufacturing processes forrefinement of our tabletinternal controls related to our review of users with access to its key financial systems, specifically to validate and evidence that all users were subject to review and access was appropriate;equipmentinternal controls to standardize business processes.permit us to avoid quality issues. Significant quality issuespotential future material weaknesses.financial condition.If we do not adequately protect our proprietary rightsability to complete a business combination.intellectual propertyoperations would suffer in the event of system failures, cyber-attacks or we are subjected to intellectual property claims by others,a deficiency in our business could be seriously damaged.combinationsecurity breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of trademarks, copyrights, patents,attempted attacks and trade secret lawsintrusions from around the world have increased. If such an event were to protect our proprietary rightsoccur and cause interruptions in our operations, it could result in a material disruption of our drug development and other programs. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability and the further development of any product candidate could be delayed.small numberlimited operating history and have never generated any product revenue.patents and patent applications pendingconsummating a business combination with IRX Therapeutics, Inc., which business combination was consummated in jurisdictions related toNovember 2018. Since inception, we have incurred significant net losses. As of December 31, 2022, we had an accumulated deficit of approximately $165.3 million. Since inception, we have financed our business activities. Our pending patent applications and any future applications might not be approved. Moreover, our patents might not provide usoperations with competitive advantages. Third parties might challenge our patents or trademarks or attempt to use infringing technologies or brands which could harm our ability to compete and reduce our revenues,capital contributions from the former beneficial holders of Eterna LLC’s Class A membership interests, as well as create significant litigation expense. In addition, patents and trademarks held by third parties might have an adverse effect onthrough the sale of our ability to do business and could likewise result in significant litigation expense. Furthermore, third parties might independently develop similar products, duplicate our products or, tosecurities under the extent patents are issued to us, design around those patents. Others may have filedPurchase Agreements with the Investment Group and in the future may file, patent applicationsconnection with certain private placement transactions.similar or identical to ours. Such third-party patent applications might have priority over our patent applications. To determine the priority of inventions,commercialized, we may have to participate in interference proceedings declared byincur significant costs associated with the United States Patent and Trademark Office. Such interference proceedings could result in substantial cost to us.We believe thatrelated strategic partnership. If we cannot successfully execute any one of the success offoregoing, our business also depends on such factorsmay not succeed, and your investment will be negatively impacted.technical expertise and innovative capabilitiescommencement or completion of our employees. It is our policy that all employees and consultants sign non-disclosure agreements and assignmentscientific studies, clinical trials, the submission of invention agreements. Our competitors, former employees, and consultants may, however, misappropriate our technologyregulatory filings or independently develop technologies that are as good as or better than ours. Our competitors may also challenge or circumvent our proprietary rights. If we have to initiate or defend against an infringement claim to protect our proprietary rights, the litigation over any such claim, with or without merit, could be time-consuming and costly to us, adversely affecting our financial condition.hiremay publicly announce the expected timing of some of these milestones. The achievement of these milestones by our strategic partners or retain employees or consultants who may have worked for other companies developing products similar to those that we offer. These other companies may claim thatcollaborators will generally be outside of our productscontrol. All of these milestones are based on their products and that we have misappropriated their intellectual property. Any such claim, with or without merit, could be time-consuming and costly to us, adversely affecting our financial condition.We may be liable for the content and services we make available on our Buzztime network and the internet.We make content and entertainment services available on our Buzztime network and the internet which includes games and game content, software, and a variety of other entertainment content. The availability of this content and services and our branding could result in claims against us based on a variety of theories, including defamation, obscenity, negligence, or copyright or trademark infringement. We could also be exposedassumptions, which may cause the timing of achievement of the milestones to liability for third-party content accessed through the linksvary considerably from our websitesestimates. If our strategic partners or collaborators fail to other websites. Federal laws may limit, but not eliminate, our liability for linking to third-party websites that include materials that infringe copyrights or other rights, so long as we comply with certain statutory requirements. We may incur costs to defend against claims related to either our own content or that of third parties, and our financial condition could be materially adversely affected if we are found liable for information that we make available. Implementing measures to reduce our exposure may require us to spend substantial resources and may limit the attractiveness of our services to users which would impair our profitability and harm our business operations.9Our cash flow may not cover our capital needs and we may need to raise additional fundsachieve milestones in the future. Such fundstimeframes we expect, we may not be available on favorable terms or at all and, if available, may dilute current stockholders.Our capital requirements will depend on many factors, including:●our ability to generate cash from operating activities;●acceptance of, and demand for, our interactive games and entertainment;●the costs of continuing to develop and implement our BEOND tablet platform and product line;●the costs of developing new entertainment content, products, or technology or expanding our offering to new media platforms such as the internet and mobile phones;●the extent to which we invest in the creation of new entertainment content and new technology; and●the number and timing of acquisitions and other strategic transactions, if any.In addition, in orderentitled to fully executereceive certain contractual payments, which could have a material adverse effect on our long-term strategic initiatives discussed above under the section entitled “ITEM 1. Business—Our Strategy,” we believe we will likely require additional funding in the future. business, financial position, results of operations and future growth prospects.need to raise additional fundsare not successful in the future, such funds may not be available on favorable terms, or at all. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution,attracting and the new equity or debt securities may have rights, preferences, and privileges senior to those of our existing stockholders. If we cannot raise funds on acceptable terms, or at all,retaining highly qualified personnel, we may not be able to continue to develop and implement our BEOND technology platform and product line, develop or enhance our other products and services, successfully execute our business plan or any or all of our strategic initiatives, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements.We have experienced significant losses, and we may incur significant losses in the future.We have a history of significant losses, including net losses of $1,077,000 and $2,923,000 for the years ended December 31, 2017 and 2016, respectively, and have an accumulated deficit of $129,119,000 as of December 31, 2017. We may also incur future operating and net losses, due in part to expenditures required to continue to implement our business strategies, includingstrategy.continued developmenthighly competitive pharmaceuticals industry depends in large part upon the ability to attract highly qualified managerial, scientific and implementationmedical personnel. In order to induce valuable employees to remain with us, we intend to provide employees with stock options that vest over time. The value to employees of our BEOND technology platform and product line. Despite significant expenditures, we maystock options that vest over time will be significantly affected by movements in the price of the common stock that it will not be able to achieve or maintain profitability. Moreover, even if we do achieve profitability, the level of any profitability cannot be predictedcontrol and may vary significantlyat any time be insufficient to counteract more lucrative offers from quarter to quarterother companies.year to year. See also “—Risks Relating to the Marketcompetition for Our Common Stock—If we are again determined to be non-compliant with any of the NYSE American continued listing standards within twelve months of May 12, 2017, depending on the nature of such non-compliance, NYSE Regulationexperienced scientists may truncate the compliance procedures available to us or immediately initiate delisting proceedings,” below.We may not be able to significantly grow our subscription revenue and implement our other business strategies.Our success depends onlimit our ability to increase market awarenesshire and encourage the adoptionretain highly qualified personnel on acceptable terms. Despite our efforts to retain valuable employees, members of the Buzztime brandour management, scientific and our Buzztime network among hospitality venues such as restaurants, sports bars, taverns and pubs, and within the interactive game player community.medical teams may terminate their employment with us on short notice. Our success also depends on our ability to improve customer retention.continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.● the cost of filing, prosecuting, defending and enforcing its patent claims and other intellectual property rights; ● the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us or any of our strategic partners or collaborators; and ● the effect of competing market developments. ● the demand for our or our strategic partners’ product candidates, if we or they obtain regulatory approval; ● the ability to set a price that we believe is fair for such products; ● our ability to generate revenue and achieve or maintain profitability; ● the level of taxes that we are required to pay; and ● the availability of capital. leveragefile and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Furthermore, we, or any future partners, collaborators, or licensees, may fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, we may miss potential opportunities to seek additional patent protection. It is possible that defects of form in the preparation or filing of patent applications may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, claim scope, or requests for patent term adjustments. If we fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If there are material defects in the form, preparation, prosecution or enforcement of our patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents.to expand awareness of and demand forhave made significant investments in competing technologies, have developed or may develop technologies that may be related or competitive with our Buzztime network.approach, and may have filed or may file patent applications and may have been issued or may be issued patents with claims that overlap or conflict with our patent applications, either by claiming the same compositions, formulations or methods or by claiming subject matter that could dominate our patent position. In addition, our efforts to improve our game platform and contentthe laws of foreign countries may not succeedprotect our rights to the same extent as the laws of the United States. As a result, any patents we may obtain in generating additional demandthe future may not provide us with adequate and continuing patent protection sufficient to exclude others from commercializing products similar to future products and product candidates that we or our strategic partners or collaborators may develop.or in strengthening the loyalty and retention of our existing customers. The degree of market adoption of our Buzztime network will depend on many factors, including consumer preferences, the availability and quality of competing products and services,may suffer and our ability to leverage our brand.Our success also depends on our ability to implement our other business strategies, which include developing our BEOND tablet platform that allows for consumer play across the digital platform, developing more premium content that allow us to grow thegenerate revenue stream directly from consumers, developing dynamic menuing and point-of-sale, or POS, integration competency, and growing our marketing services and sponsorship revenues. Implementing these strategies will require us to dedicate significant resources to, among other things, fully developing and implementing our BEOND tablet platformcould be severely impacted.line, expandingcandidates that we or our other product offerings, customizingstrategic partners or collaborators may develop could be found invalid or unenforceable if challenged in court or in administrative proceedings. We may not be able to protect our trade secrets in court.servicesproduct candidates that we or our strategic partners or collaborators may develop, the defendant could counterclaim that the patent covering such products or product candidates is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the unique needspatent withheld information material to patentability from the USPTO, or made a misleading statement, during prosecution. Third parties also may raise similar claims before administrative bodies in the United States or abroad, even outside the context of select accounts,litigation. Such mechanisms include re- examination, post grant review, inter partes review and expanding and improving our marketing services and promotional efforts. We may be unable to successfully implement these strategies as currently planned.10Our products and services are subject to government regulations that may restrict our operations or cause demand for our products to decline significantly.In addition to laws and regulations applicable to businesses generally, we are also subject to laws and regulations that apply specifically toequivalent proceedings in foreign jurisdictions. An adverse determination in any of the interactive entertainment and product marketing industries. In addition, we operate games of chance and, in some instances, we may provide items of nominal value (e.g., key chains, etc.) to the venue that hosts a game, and the venue may award such items to consumers. These games are regulated in many jurisdictions and the laws and regulations vary from jurisdiction to jurisdiction. See “ITEM 1. BUSINESS—Government Regulations.”We may find it necessary to eliminate, modify, suspend, or cancel certain features of our products (including the games we offer) in certain jurisdictions based on the adoptions of new laws and regulations or changes in law or regulations or the enforcement thereof, whichforegoing proceedings could result in additional development costs and/the revocation or cancellation of, or amendment to, our patents in such a way that they no longer cover future products and product candidates that we or our strategic partners or collaborators may develop. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which the patent examiner and we were unaware during prosecution. If a defendant or third party were to prevail on a legal assertion of invalidity or unenforceability, we could lose at least part, and perhaps all, of the patent protection on one or more of the future products and product candidates that we or our strategic partners or collaborators may develop. Such a loss of customerspatent protection could have a material adverse impact on our business.revenue.Communicationother third parties could purchase future products and product candidates that we or our strategic partners or collaborators may develop and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe, misappropriate or otherwise violate our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other system failuresthird party, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If our trade secrets are not adequately protected or sufficient to provide an advantage over our competitors, our competitive position could be adversely affected, as could our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating our trade secrets.customer cancellationsabandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. The terms of one or more licenses that we enter into the future may not provide us with the ability to maintain or prosecute patents in the portfolio and a decrease in our revenues.Wemust therefore rely on continuous operation of our information technology and communications systems, and those of a variety of third parties to communicate withdo so. If we fail to obtain and to distribute our services tomaintain the locations of our network subscribers. We currently transmit our data to our customers via broadband internet connections including telephonepatents and cable TV networks. Both our communications systems and those of third parties on which we rely are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, storms, fires, power loss, telecommunications and other network failures, equipment failures, computer viruses, computer denial of service or other attacks, and other causes. These systems are also subject to break-ins, sabotage, vandalism, and to other disruptions, for example if we or the operators of these systems and system facilities have financial difficulties. Some of our systems are not fully redundant, and our system protections and disaster recovery plans cannot prevent all outages, errors, or data losses. In addition, our services and systems are highly technical and complex and may contain errors or other vulnerabilities. Any errors or vulnerabilities inpatent applications covering our products and services, damage to or failure of our systems, any natural or man-made disaster, or other unanticipated problems at our facilities or those of a third party, could result in lengthy interruptions in our service to our customers, which could reduce our revenues and cash flow, and damage our brand. Any interruption in communications or failure of proper hardware or software function at our or our customers’ venues could also decrease customer loyalty and satisfaction and result in a cancellation of our services.Our success depends on our ability to recruit and retain skilled professionals.Our business requires experienced programmers, creative designers, application developers, and sales and marketing personnel. Our success will depend on identifying, hiring, training, and retaining such experienced and knowledgeable professionals. We must recruit and retain talented professionals in order for our business to grow. There is significant competition for the individuals with the skills required to develop the products and perform the services we offer. We may be unable to attract a sufficient number of qualified individuals in the future to sustain and grow our business, andprocedures, we may not be successful in motivating and retaining the individuals we are able to attract. If we cannot attract, motivate, and retain qualified technical and sales andstop a competitor from marketing professionals,products that are the same as our business, financial condition, and results of operations will suffer.We have incurred significant net operating loss carryforwards that we will likely be unable to use.As of December 31, 2017, we had federal income tax net operating loss (“NOL”) carryforwards of approximately $66,554,000, portions ofproduct candidates, which will continue expiring in 2018. As of December 31, 2017, we had state income tax NOL carryforwards of approximately $29,185,000, portions of which will continue expiring in 2018. We believe that our ability to utilize our NOL carryforwards may be substantially restricted by the passage of time and the limitations of Section 382 of the Internal Revenue Code, which apply when there are certain changes in ownership of a corporation. To the extent we begin to realize significant taxable income, these Section 382 limitations may result in our incurring federal income tax liability notwithstanding the existence of otherwise available NOL carryforwards. We have established a full valuation allowance for substantially all of our deferred tax assets, including the NOL carryforwards, since we do not believe we are likely to generate future taxable income to realize these assets.We are subject to cybersecurity risks and incidents.Our business involves transmitting payment information of our customers and certain personal information of consumers (such as their name, date of birth, and email address). In the future, we may store and transmit additional personal information of consumers, particularly as the services of the BEOND tablet platform become more advanced to include POS integration. While we have implemented measures designed to prevent security breaches and cyber incidents, any failure of these measures and/or any material security breaches, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance could potentially lead to the compromise of sensitive, confidential or personal data or information, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, system downtimes, and operational disruptions. In addition, a cyber-related attack could result in other negative consequences, including damage to our reputation or competitiveness, remediation or increased protection costs, litigation or regulatory action.We could become subject to additional regulations and compliance requirements as we introduce features in direct payments from consumers.In preparation for expanding features and functionality to our BEOND tablet platform that involve us accepting credit card and other forms of payments directly from consumers, we certified our compliance with Payment Card Industry (“PCI”) Data Security Standard v3.1 as a service provider, and will be required to do so annually. Compliance with additional regulations and requirements may be difficult for us; thereby limiting our ability to grow the amount of revenue we receive directly from consumers. In addition to these additional regulations and requirements, if we fail to comply with the rules or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or terminates our rights to use payment methods we accept, or if a data breach occurs relating to our payment systems, we may, among other things, be subject to fines or higher transaction fees and may lose, or face restrictions placed upon, our ability to accept credit card and debit card payments from consumers.11Risks Relating to the Market for Our Common StockIf we are again determined to be non-compliant with any of the NYSE American continued listing standards within twelve months of May 12, 2017, depending on the nature of such non-compliance, NYSE Regulation may truncate the compliance procedures available to us or immediately initiate delisting proceedings.On May 12, 2017, as previously reported, we received a letter from NYSE Regulation Inc. notifying us that we have regained compliance with Sections 1003(a)(ii) and (iii) of the NYSE American Company Guide. As previously reported, NYSE Regulation previously notified us that we were not in compliance with Section 1003(a)(iii) because we reported stockholders’ equity of less than $6 million as of September 30, 2015 and had net losses in five of our most recent fiscal years ended December 31, 2014, and that we were not in compliance with Section 1003(a)(ii) because we reported stockholders’ equity of less than $4 million as of December 31, 2015 and had net losses in three of our four most recent fiscal years ended December 31, 2015.We believe that the NYSE Regulation may notify us that we are not in compliance with Section 1003(a)(iii) because our stockholders’ equity was less than $6 million as of December 31, 2017 (it was $5,536,000) and because we had net losses in five of our most recent fiscal years ended December 31, 2017. As of March 9, 2018, we have not received such a notice from the NYSE Regulation. In accordance with Section 1009(h) of the Company Guide, if we are again determined to be below any of the NYSE American continued listing standards within twelve months of May 12, 2017, NYSE Regulation will examine the relationship between the two incidents of noncompliance and re-evaluate our method of financial recovery from the first incident. NYSE Regulation will then take appropriate action, which, depending on the circumstances, may include truncating the compliance procedures described in Section 1009 of the Company Guide or immediately initiating delisting proceedings.We are exploring options to address our low stockholders’ equity. We can give no assurances that we will be able to address it successfully, or that, if we receive a notice of non-compliance from NYSE Regulation, that we will be able to address such non-compliance or, even if we do, that we will be able to maintain the listing of our common stock on the NYSE American. In addition, we may determine to pursue business opportunities or grow our business at levels or on timelines that further 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 of our warrants or other 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.resultsthe protection it affords, is limited. Even if patents covering future products and product candidates that we or our strategic partners or collaborators may develop are obtained, once the patent life has expired for a product candidate, we or our strategic partners or collaborators may be open to competition from competitive products. Given the amount of operations. time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.addition, the delistingfuture, if we obtain an issued patent covering one of future products and product candidates that we or our common stockstrategic partners or collaborators may develop, depending upon the timing, duration and specifics of any FDA marketing approval of such product candidates, such patent may be eligible for whatever reasonlimited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may materially impairbe extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. A patent may only be extended once and only based on a single approved product. However, we may not be granted an extension because of, for example, failure to obtain a granted patent before approval of a product candidate, failure to exercise due diligence during the testing phase or regulatory review process, failure to apply within applicable deadlines, failure to apply prior to expiration of relevant patents or otherwise our stockholders’failure to satisfy applicable requirements. A patent licensed to us by a third party may not be available for patent term extension. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially.buyprotect future products and sell sharesproduct candidates that we or our strategic partners or collaborators may develop.our common stockthe patent laws in the United States or other jurisdictions could increase the uncertainties and could have an adverse effect oncosts surrounding the market priceprosecution of patent applications and the efficiencyenforcement or defense of issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. When implemented, the Leahy-Smith Act included several significant changes to U.S. patent law that impacted how patent rights could be prosecuted, enforced and defended. In particular, the Leahy-Smith Act also included provisions that switched the United States from a “first-to-invent” system to a “first-to-file” system, allowed third- party submission of prior art to the USPTO during patent prosecution and set forth additional procedures to attack the validity of a patent by the USPTO administered post grant proceedings. Under a first-to-file system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor had made the invention earlier. The USPTO developed new regulations and procedures governing the administration of the trading market for, our common stock.If our common stock were delistedLeahy-Smith Act, and determinedmany of the substantive changes to be a “penny stock,” a broker-dealer may find it more difficultpatent law associated with the Leahy-Smith Act, and in particular, the first to trade our common stockfile provisions, only became effective on March 16, 2013. Some of the Company’s patents 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 maypatent applications have effective dates later than March 16, 2013 and thus will 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 shareprovisions 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.The market price of our common stock historically has been and likely will continue to be highly volatile and our common stock is thinly traded.The market price for our common stock historically has been highly volatile, and the market for our common stock has from time to time experienced significant price and volume fluctuations, based both on our operating performance and for reasons that appear to us unrelated to our operating performance. Our stock is also thinly traded, which can affect market volatility, which could significantly affect the market price of our common stock without regard to our operating performance. Leahy-Smith Act.market pricepatent positions of our common stock may fluctuate significantly in response to a number of factors, including:12●the level of our financial resources;●announcements of entry into or consummation of a financing;●announcements of new products or technologies, commercial relationships or other events by us or our competitors;●announcements of difficulties or delays in entering into commercial relationships with our customers;●changes in securities analysts’ estimates of our financial performance or deviations in our business and the trading price of our common stock from the estimates of securities analysts;●fluctuations in stock market prices and trading volumes of similar companies;●sales of large blocks of our common stock, including sales by significant stockholders, our executive officers or our directors or pursuant to shelf or resale registration statements that register shares of our common stock that may be sold by us or certain of our current or future stockholders;●discussion of us or our stock price by the financial press and in online investor communities;●announcement of non-compliance with any of the NYSE American continued listing standards;●commencement of delisting proceedings by NYSE Regulation; and●additions or departures of key personnel.The realization of any of the foregoing could have a dramatic and adverse impact on the market price of our common stock.Future sales of substantial amounts of our common stockcompanies in the public market ordevelopment and commercialization of biologics and pharmaceuticals are particularly uncertain. Recent rulings from the anticipationU.S. Court of such salesAppeals for the Federal Circuit and the U.S. Supreme Court have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on then-prevailing market prices.In April 2017, March 2017,our existing patent portfolio and November 2016, we sold an aggregate of approximately 642,000 shares of our common stockability to protect and enforce our intellectual property in registered direct offerings. In a private placement we completedthe future.November 2013, we issued approximately 120,000 shares ofall countries throughout the world would be prohibitively expensive, and our common stock and warrants to purchase approximately 72,000 shares of our common stock at an exercise price of $20.00 per share. A registration statement registeringintellectual property rights in some countries outside the resale of the shares we issued in such private placement and the shares issuable upon exercise of the warrants we issued in such private placement is currently effective, and we are obligated to use commercially reasonable efforts to maintain such registration statement continuously effective until all such registered shares have been sold.In addition, as of December 31, 2017, there were approximately 156,000 shares of our Series A Preferred Stock outstanding. The holders of such shares may elect to convert them into shares of our common stock at any time. Based on the current conversion price, we would issue approximately 11,000 shares of our common stock if all of the outstanding shares of our Series A Preferred Stock were so converted. Generally, all of the shares of common stock we may issue upon conversion of the Series A Preferred Stock may be sold under Rule 144 of the Securities Act of 1933.As of December 31, 2017, there were also approximately 156,000 shares of common stock reserved for issuance upon the exercise of outstanding stock options at exercise prices ranging from $5.10 to $35.00 per share. Registration statements registering such shares of common stock are currently effective.Accordingly, a significant number of shares of our common stockUnited States could be sold atless extensive than those in the United States. The requirements for patentability may differ in certain countries, particularly in developing countries; thus, even in countries where we do pursue patent protection, there can be no assurance that any time. Depending upon market liquidity atpatents will issue with claims that cover our products. There can be no assurance that we will obtain or maintain patent rights in or outside the time our common stock is resold by the holders thereof, such resales could cause the trading price of our common stock to decline.United States under any future license agreements. In addition, the salelaws of a substantial numbersome foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from utilizing our inventions in all countries outside the United States, even in jurisdictions where we pursue patent protection, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not pursued and obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with future products and product candidates that we or our strategic partners or collaborators may develop and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.our common stock, or anticipationcertain countries, particularly certain developing countries, do not favor the enforcement of such sales,patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology and pharmaceutical products, which could make it more difficult for us to obtain future financing. Tostop the extent the trading priceinfringement of our common stockpatents or marketing of competing products in violation of our proprietary rights generally. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Proceedings to enforce our patent rights, even if obtained, in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the timedamages or other remedies awarded, if any, may not be commercially meaningful. While we intend to protect our intellectual property rights in major markets for our products, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our products. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop.exercisewhat we regard as our own intellectual property.of our outstanding optionssuch third party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or warrants exceeds their exercise price, such exercise will havepersonnel or sustain damages. Such intellectual property rights could be awarded to a dilutive effect on our stockholders.Raising additional capital may cause dilution to our existing stockholdersthird party, and may restrict our operations.We may raise additional capital at any time and may do so through one or more financing alternatives, including public or private sales of equity or debt securities directly to investors or through underwriters or placement agents. As discussed above, we are exploring options to address our non-compliance with the NYSE American continued listing standards, in particular, options to address our low stockholders’ equity. We have a shelf registration statement on file under which we could currently sell upbe required to approximately $23.2 million worth of securities. See also “Our abilityobtain a license from such third party to raise capitalcommercialize our technology or products. Such a license may not be limited by applicable laws and regulations,” below. Raising capital through the issuance of common stock (or securities convertible into or exchangeable or exercisable for shares of our common stock) may depress the market price of our stock and may substantially dilute our existing stockholders. In addition, our board of directors may issue preferred stock with rights, preferences and privileges that are senior to those of the holders of our common stock. Debt financings could involve covenants that restrict our operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens or make investments and may, among other things, preclude us from making distributions to stockholders (either by paying dividends or redeeming stock) and taking other actions beneficial to our stockholders. In addition, investors could impose more one-sided investment terms and conditions on companies that have or are perceived to have limited remaining funds or limited ability to raise additional funds. The lower our cash balance, the more difficult it is likely to be for us to raise additional capitalavailable on commercially reasonable terms or at all.
Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.13Ourraise capital may be limited by applicable laws and regulations.Over the past few yearsdedicate substantially greater resources to prosecuting these legal actions than we have raised capital through the sale of our equity securities. The offeringscan. Any claims we completed in April 2014, November 2016, March 2017 and April 2017 were equity offerings conducted under the “shelf” registration statement on Form S-3. Using a shelf registration statement on Form S-3assert against perceived infringers could provoke these parties to raise additional capital generally takes less time and is less expensive than other means, such as conducting an offering under a Form S-1 registration statement. However, our ability to raise capital using a shelf registration statement may be limited by, among other things, current SEC rules and regulations. Under current SEC rules and regulations, we must meet certain requirements to use a Form S-3 registration statement to raise capital without restriction as to the amount of the market value of securities sold thereunder. One such requirement isassert counterclaims against us alleging that we periodically evaluateinfringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both.market value ofother party from using the technology at issue on the grounds that our outstanding shares of common stock held by non-affiliates, or public float, and if, at an evaluation date,patents do not cover the technology in question. Accordingly, despite our public float is less than $75.0 million, then the aggregate market value of securities sold by us or on our behalf under the Form S-3 in any 12-month period is limited to an aggregate of one-third of our public float. Our public float is currently approximately $8.1 million and thereforeefforts, we are currently subject to the one-third of our public float limitation. Assuming our public float remains the same amount the next time we are required to evaluate it, we will onlymay not be able to sell up to an additional approximately $2.7 million using the “shelf” registration statement. If our ability to utilize a Form S-3 registration statement for a primary offering of our securities is limited to one-third of our public float,prevent third parties from infringing upon or misappropriating intellectual property rights we may conduct such an offering pursuant to an exemption from registration under the Securities Actown or under a Form S-1 registration statement, and we would expect either of those alternatives to increase the cost of raising additional capital relative to utilizing a Form S-3 registration statement.In addition, under current SEC rules and regulations, our common stock must be listed and registered on a national securities exchangecontrol. An adverse result in order to utilize a Form S-3 registration statement (i) for a primary offering, if our public float is not at least $75.0 million as of a date within 60 days prior to the date of filing the Form S-3 or a re-evaluation date, whichever is later, and (ii) to register the resale of our securities by persons other than us (i.e., a resale offering). While currently our common stock is listed on the NYSE American, there can be no assurance that we will be able to maintain such listing. See also our risk factor “Although we have regained compliance with the continued listing standards of the NYSE American with which we were previously not compliant, if we are again determined to be non-compliant with any of its continued listing standards within twelve months of May 12, 2017, depending on the nature of such non-compliance, NYSE Regulation may truncate the compliance procedures available to us or immediately initiate delisting proceedings” above.Our ability to timely raise sufficient additional capital also may be limited by the NYSE American’s stockholder approval requirements for transactions involving the issuance of our common stock or securities convertible into our common stock. For instance, the NYSE American requires that we obtain stockholder approval of any transaction involving the sale, issuance or potential issuance by us of our common stock (or securities convertible into our common stock) at a price less than the greater of book or market value, which (together with sales by our officers, directors and principal stockholders) equals 20%litigation proceeding could put one or more of our then outstanding common stock, unlessowned or in-licensed patents at risk of being invalidated or interpreted narrowly. Further, because of the transactionsubstantial amount of discovery required in connection with intellectual property litigation, there is considered a “public offering”risk that some of our confidential information could be compromised by disclosure during this type of litigation.NYSE American staff.court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, certain prior sales by us maythere could be aggregated with any offering we may propose in the future, further limiting the amount we could raise in any future offering that is not considered a public offering by the NYSE American staff and involves the sale, issuance or potential issuance by us of our common stock (or securities convertible into our common stock) at a price less than the greater of book or market value. The NYSE American also requires that we obtain stockholder approval if the issuance or potential issuance of additional shares will be considered by the NYSE American staff to result in a change of control of our company.Obtaining stockholder approval is a costly and time-consuming process. If we are required to obtain stockholder approval for a potential transaction, we would expect to spend substantial additional money and resources. In addition, seeking stockholder approval would delay our receipt of otherwise available capital, which may materially and adversely affect our ability to execute our business strategy, and there is no guarantee our stockholders ultimately would approve a proposed transaction. A public offering under the NYSE American rules typically involves broadly announcing the proposed transaction, which often times has the effect of depressing the issuer’s stock price. Accordingly, the price at which we could sell our securities in a public offering may be less, and the dilution existing stockholders experience may in turn be greater, than if we were able to raise capital through other means.Our charter contains provisions that may hinder or prevent a change in control of our company, which could result in our inability to approve a change in control and potentially receive a premium over the current market value of your stock.Certain provisions of our certificate of incorporation could make it more difficult for a third party to acquire control of us, even if such a change in control would benefit our stockholders, or to make changes in our board of directors. For example, our certificate of incorporation (i) prohibits stockholders from filling vacancies on our board of directors, calling special stockholder meetings, or taking action by written consent, and (ii) requires a supermajority vote of at least 80%announcements of the total voting powerresults of our outstanding shares, voting together ashearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a single class, to remove our directors from office or to amend provisions relating to stockholders taking action by written consent or calling special stockholder meetings.14Additionally, our certificate of incorporation and restated bylaws contain provisions that could delay or prevent a change of control of our company. Some of these provisions:●authorizesubstantial adverse effect on the issuance of preferred stock which can be created and issued by our board of directors without prior stockholder approval, with rights senior to those of the common stock;●prohibit our stockholders from making certain changes to our bylaws except with 66 2/3% stockholder approval; and●require advance written notice of stockholder proposals and director nominations.These provisions could discourage third parties from taking control of our company. Such provisions may also impede a transaction in which you could receive a premium over then current market prices and your ability to approve a transaction that you consider in your best interest.In addition, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation, restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stockstock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities.decline.ITEM 1B.conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.Unresolved Staff CommentsITEM 1B. Unresolved Staff Comments ITEM 2.PropertiesITEM 2. Properties 28,00049,000 square feet of office and laboratory space in Carlsbad, California. The termNew York and Massachusetts, of the lease is from June 2011 through November 2018, and we have the option to renew the lease for an additional five-year extension. We also leasewhich, approximately 7,50045,000 square feet is attributable to a new sublease of warehouseoffice and laboratory space in Hilliard, Ohio. The term of this lease is from May 2013 through April 2018, and we anticipate extending this lease through April 2019. The facilitiesSomerville, Massachusetts that we lease are suitable forentered into in October 2022. We intend to begin building out the Somerville leased space in the second quarter of 2023, which we expect to be substantially complete during the fourth quarter of 2023. The terms of our leases expire from December 2026 through approximately December 2032. We believe that our leased property meets our current needs and are considered adequate to support expected growth.ITEM 3.Legal ProceedingsITEM 3. Legal Proceedings subject to legal proceedingsinvolved in litigation and claims, both asserted and unasserted, that arisearbitrations in the ordinary course of business. LitigationLegal fees and other costs associated with such actions are expensed as incurred. In addition, we assess the need to record a liability for litigation and contingencies. We reserve for costs relating to these matters when a loss is probable, and the amount can be reasonably estimated.general,unlawful and securitiesdiscriminatory conduct based on race, national origin and hostile work environment. Plaintiff also asserted various breach of contract, fraud and quantum meruit claims based on an alleged oral agreement pursuant to which he alleged Eterna LLC agreed to hire him as an executive once the Merger was completed. On December 15, 2022, the parties executed a Confidential Settlement Agreement and Release of All Claims. On January 11, 2023, the parties filed a Stipulation to Discontinue in the Court action. Also on January 11, 2023, Govender voluntarily dismissed the arbitration.particular, can be expensivethe Court of Chancery for the State of Delaware filed by Mr. Sowyrda against Novellus LLC, Dr. Christopher Rohde, Dr. Matthew Angel, Leonard Mazur and disruptiveFactor Bioscience, Inc. captioned Zelickson et al., v. Angel et al., C.A. 2021-1014-JRS and by Westman against Novellus LLC captioned Westman v. Novellus LLC, C.A. No. 2021-0882-NAC (the “Delaware Actions”). On July 1, 2022, Sowyrda answered the complaint and asserted counterclaims against Novellus, Inc, and third-party defendants Dr. Matthew Angel and Dr. Christopher Rohde alleging violations of the Massachusetts Wage Act, Massachusetts Minimum Fair Wage Law, the Fair Labor Standards Act, breach of contract, unjust enrichment and quantum meruit. Sowyrda also joined in Westman’s motion to normal business operations. Moreover,stay the resultscase pending the Delaware Actions. Novellus, Inc.’s claims and Mr. Sowyrda’s counterclaims relate to alleged conduct that took place before Eterna acquired Novellus, Inc.legal proceedings are difficultcontract, breaches of the implied duty of good faith and fair dealing, breaches of fiduciary duty, breaches of the operating agreement, aiding and abetting breaches of fiduciary duty, tortious interference with contract, equitable accounting, violations of the Massachusetts Wage Act, Massachusetts Minimum Fair Wage Law, the Fair Labor Standards Act, unjust enrichment, and quantum meruit. Also on December 15, 2022, Westman filed an answer to predict. An unfavorable resolution of one the Amended Complaint and asserted similar counterclaims against the same Counterclaim Defendants. Westman and Sowyrda each asserted claims for indemnification and/or more legal proceedings could materially adversely affect our business, results of operations, advancement against Novellus, Inc. On January 11, 2023, Westman and Sowyrda served a joint motion to enforce their advancement and/or financial condition. In addition, defending any claim requires resources, including cash to pay legal feesindemnification rights against Novellus Inc. Novellus Inc. vigorously opposes this motion and expenses,served its opposition on January 27, 2023. On February 8, 2023, Westman and our limited financial resources could severely impact our ability to defend any such claim.Also from time to time, state and provincial tax agencies have made, and we anticipate will makeSowyrda served a reply in the future, inquiries as to whether our service offerings are subject to taxation in their jurisdictions. Many states have expanded their interpretationsupport of their salesmotion to enforce indemnification/advancement rights, and use tax statutes,submitted the motion to the Court. Novellus Inc. answered Westman and Sowyrda’s counterclaims on January 27, 2023, denying liability. The remaining Counterclaim Defendants served a motion to dismiss most of the remaining counterclaims on January 27, 2023. Sowyrda’s and Westman’s oppositions to the motion to dismiss were served on March 3, 2023, and Counterclaim Defendants’ reply is due March 24, 2023, at which generally hadpoint the effect of increasingmotion to dismiss will be fully briefed. The Court announced that it would hold oral argument on April 5, 2023 on (a) the scope of activities that may be subjectCounterclaim Defendants’ motion to such statutes. We evaluate inquiries from statedismiss, and provincial tax agencies(b) Sowyrda’s and Westman’s motion to enforce. The parties attended an initial status and scheduling conference with the Court on February 7, 2023. The Court deferred entering a case-by-case basis and have favorably resolvedcase scheduling until after the majority of these inquiries in the past, though we can give no assurances as to our ability to favorably resolve such inquiries in the future. Any such inquiry could, if not resolved favorably to us, materially adversely affect our business, results of operations, or financial condition.ITEM 4.April 5 hearing.ITEM 4. Mine Safety Disclosures Not Applicable.15ITEM 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities the NYSE AmericanThe Nasdaq Capital Market under the symbol “NTN.“ERNA.” Set forth below are the high and low sales prices (adjusted for the reverse/forward split effected on June 3, 2016) for our common stock during the two most recent fiscal years. High Low Year Ended December 31, 2017 First Quarter $ 9.54 $ 5.42 Second Quarter $ 8.54 $ 5.65 Third Quarter $ 7.98 $ 6.01 Fourth Quarter $ 6.43 $ 3.76 High Low Year Ended December 31, 2016 First Quarter $ 9.45 $ 5.50 Second Quarter $ 10.23 $ 4.89 Third Quarter $ 8.31 $ 5.23 Fourth Quarter $ 10.65 $ 5.92 On6, 2018, the closing price for our common stock as reported on the NYSE American was $6.60 and20, 2023, there were approximately 541 holders145 stockholders of record.To date, we have not declared or paid any cash dividends with respect to our common stock, and the current policy of our Board of Directors is to retain earnings, if any, after payment of dividendsrecord based on the outstanding preferred stock to provide for our growth. In addition, our credit facility with East West Bank generally prohibits us from paying any dividends or making any other distribution or payment on accountactual number of or in redemption, retirement or purchase of our common stock. Consequently, no cash dividends are expected to be paidholders registered on our common stock in the foreseeable future. Any future determinations to pay cash dividends on our common stock will bebooks at the discretion of our Board of Directors and will depend upon our results of operations, cash flows, and financial condition, contractual restrictions, restrictions imposed by applicable law and other factors deemed relevant by our Board of Directors.156,000156,112 shares of Series A Preferred Stock issued and outstanding. The Series A Preferred Stock provides for a cumulative annual dividend of 10 cents per share, payable in semi-annual installments in June and December. Dividends may be paid in cash or in shares of our common stock. In 2017,2022, we paid approximately $16,000 in cash dividends to the holders of our Series A Preferred Stockholders.ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Years ended December 31, 2022 2021 Change (in thousands) Total operating expenses Total other income (expense), net Years ended December 31, 2022 2021 Change (in thousands) Total research and development expenses Years ended December 31, 2022 2021 Change (in thousands) Professional fees Payroll-related Insurance Stock-based compensation Loss on disposal or sale of fixed assets Other expenses, net Total general and administrative expenses Years ended December 31, 2022 2021 Change (in thousands) Q1-22 PIPE transaction fees Liquidated damages Interest expense, net PPP Loan forgiveness and ERC refunds Other income, net Total other (expense), income net For the years ended
December 31, (in thousands) 2022 2021 Change Cash (used in) provided by: Operating activities $ (20,976 ) $ (23,488 ) $ 2,512 Investing activities (47 ) (22,742 ) 22,695 Financing activities 19,579 61,585 (42,006 ) Net (decrease) increase in cash and cash equivalents $ (1,444 ) $ 15,355 $ (16,799 ) ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsIntroductionManagement’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the accompanying audited consolidated financial statements and notes, included in Item 8 of this report, to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations. You should also see the section entitled “Forward-Looking Statements” at the beginning of this report. All dollar amounts in MD&A are rounded to the nearest thousand. Our MD&A is organized as follows:ITEM 8. ●OverviewFinancial Statements and Highlights. This section provides a general description of our business and significant events and transactions that we believe are important in understanding our financial condition and results of operations.●Critical Accounting Policies. This section provides a listing of our significant accounting policies, including any material changes in our critical accounting policies, estimates and judgments during the year ended December 31, 2017 from those described in the MD&A section of our Annual Report on Form 10-K for the year ended December 31, 2016.Supplementary Data16●Results of Operations. This section provides an analysis of our results of operations presented in the accompanying audited consolidated statements of operations by comparing the results for our two most recent completed fiscal years.●Liquidity and Capital Resources. This section provides an analysis of our historical cash flows, as well as our future capital requirements.OverviewWe deliver interactive entertainment and innovative dining technology to bars and restaurants in North America. Customers subscribe to our customizable solution to differentiate themselves via competitive fun by offering guests trivia, card, sports and single player games, nationwide competitions, and self-service dining features including dynamic menus, touchscreen ordering and secure payment. Our platform can improve operating efficiencies, create connections among the players and venues and amplify guests’ positive experiences.Results of OperationsYear Ended December 31, 2017 compared to the Year Ended December 31, 2016We generated a net loss of $1,077,000 for the year ended December 31, 2017, compared to net loss of $2,923,000 for the year ended December 31, 2016.RevenueWe currently generate revenue by charging subscription fees for our service to our network subscribers, by leasing equipment (including tablets used in our BEOND tablet platform and the cases and charging trays for the tablets) to certain network subscribers, by hosting live trivia events, by selling advertising aired on in-venue screens and as part of customized games, from providing professional services (such as developing certain functionality within our platform for customers), and from pay-to-play single player games. The table below summarizes the type of revenue we generated for the years ended December 31, 2017 and 2016: Years ended December 31, 2017 2016 $ % of Total Revenue $ % of Total Revenue Change $ % Change Subscription revenue 16,949,000 79.7 % 17,463,000 78.3 % (514,000 ) (2.9 %) Sales-type lease revenue 770,000 3.6 % 1,266,000 5.7 % (496,000 ) (39.2 %) Other revenue 3,555,000 16.7 % 3,583,000 16.0 % (28,000 ) (0.8 %) Total 21,274,000 100.0 % 22,312,000 100.0 % (1,038,000 ) (4.7 %) Subscription revenue decreased for the year ended December 31, 2017 primarily due to lower average site count when compared to 2016. Equipment lease revenue recognized under sales-type lease arrangements in 2017 decreased due to fewer installations of our BEOND platform for customers under sales-type lease arrangements when compared to 2016. Equipment lease revenue (which has lower margins due to the cost we incur to purchase the equipment that we lease) is recognized when we lease the equipment. The equipment lease revenue is a one-time payment that covers the lease of the equipment for three-years, after which the lessee may purchase the equipment for a nominal fee or lease new equipment. We expect the amount of equipment lease revenue to continue fluctuating in correlation with customer contracts under sales-type lease arrangements. Other revenue decreased for the year ended December 31, 2017 due primarily to decreased professional services revenue offset by an increased in our revenue from pay-to-play single player games. The increase in our revenue from pay-to-play single player games is primarily due to it being available all of 2017, whereas during 2016, it was available only since the second quarter.Geographic breakdown of our ending site count for the Buzztime network is as follows: 2017 2016 United States 2,590 2,664 Canada 140 150 Total 2,730 2,814 17Direct Costs and Gross MarginThe following table compares the direct costs and gross margin for the years ended December 31, 2017 and 2016: For the years ended
December 31, 2017 2016 Change Revenues $ 21,274,000 $ 22,312,000 $ (1,038,000 ) Direct Costs 6,755,000 7,710,000 (955,000 ) Gross Margin $ 14,519,000 $ 14,602,000 $ (83,000 ) Gross Margin Percentage 68.2 % 65.4 % Direct costs decreased 12% for the year ended December 31, 2017 primarily due to decreased depreciation expense for capitalized site equipment and for software development programs of $482,000, decreased service provider fees of $267,000, decreased equipment expense of $199,000, which was related to lower sale-type lease revenue offset by increased repair expense.Operating Expenses For the years ended
December 31, 2017 2016 Change Selling, general and administrative $ 15,587,000 $ 16,458,000 $ (871,000 ) Depreciation and amortization (excluding depreciation and amortization included in direct operating costs) $ 334,000 $ 422,000 $ (88,000 ) Selling, General and Administrative ExpensesThe decrease in selling, general and administrative expenses for the year ended December 31, 2017 was primarily due to decreased payroll and related expense of $272,000 resulting from capitalizing more payroll compared to 2016, decreased marketing expense of $209,000, decreased equipment expense of $160,000, decreased miscellaneous taxes of $138,000 and decreased other miscellaneous expenses of $91,000, in each case, when compared to 2016.Depreciation and AmortizationThe decrease in depreciation and amortization expense for the year ended December 31, 2017 compared to 2016 was primarily due to assets becoming fully depreciated or amortized sooner than we are replenishing them with new assets.Other Expense, Net For the years ended
December 31, Increase in 2017 2016 income, net Interest expense $ (498,000 ) $ (576,000 ) Other income (expense), net 889,000 (31,000 ) Total other income (expense), net $ 391,000 $ (607,000 ) $ 998,000 The increase in total other income (expense), net is primarily due to a one-time payment from a supplier as well as less interest expense due to less long-term debt outstanding. The one-time payment related to a supply chain matter that was resolved in exchange for such payment and which we do not expect to receive againIncome Taxes For the years ended
December 31, 2017 2016 Provision for income taxes $ (66,000 ) $ (38,000 ) 18We expect to incur state income tax liability in 2017 related to our U.S. operations. We also expect to incur income tax liability in Canada due to the profitability of our Canadian subsidiary. At December 31, 2017, we had available NOL carryforwards of approximately $66,554,000 for federal income tax purposes, which will begin expiring in 2018. The NOL carryforwards for state purposes, which will continue expiring in 2018, are approximately $29,185,000. There can be no assurance that we will ever be able to realize the benefit of some or all of the federal and state loss carryforwards due to continued operating losses. Further, under Internal Revenue Code Section 382 and similar state provisions, ownership changes may limit the annual utilization of NOL carryforwards existing prior to a change in control that are available to offset future taxable income. Such limitations would reduce, potentially significantly, the gross deferred tax assets related to the NOL carryforwards. We had a Section 382 analysis performed to determine the impact of changes in ownership. Based on this analysis, no ownership change has occurred that would limit the use of the NOLs, provided we generate sufficient future earnings prior to the expiration of the NOLs and that future changes in ownership do not trigger a Section 382 limitation. We continue to disclose the NOL carryforwards at their original amount as no potential limitation has been quantified. We have also established a full valuation allowance for substantially all deferred tax assets, including the NOL carryforwards, since we could not conclude that we are more likely than not able to generate future taxable income to realize these assets. In addition, we have approximately $170,000 of state tax credit tax carryforwards that expire in the years 2018 through 2026.EBITDA—Consolidated OperationsEarnings before interest, taxes, depreciation and amortization, or EBITDA, is not intended to represent a measure of performance in accordance with GAAP. Nor should EBITDA be considered as an alternative to statements of cash flows as a measure of liquidity. EBITDA is included herein because we believe it is a measure of operating performance that financial analysts, lenders, investors and other interested parties find to be a useful tool for analyzing companies like us that carry significant levels of non-cash depreciation and amortization charges in comparison to their net income or loss calculation in accordance with GAAP.The reconciliation of our consolidated net loss calculated in accordance with GAAP to EBITDA for the years ended December 31, 2017 and 2016 is shown in the table below. EBITDA should not be considered as substitutes for, or superior to, net loss calculated in accordance with GAAP. For the years ended
December 31, 2017 2016 Net loss per GAAP $ (1,077,000 ) $ (2,923,000 ) Interest expense, net 498,000 576,000 Income tax provision 66,000 38,000 Depreciation and amortization 2,317,000 2,887,000 EBITDA $ 1,804,000 $ 578,000 Liquidity and Capital ResourcesAs of December 31, 2017, we had cash and cash equivalents of $3,378,000 compared to cash and cash equivalents of $5,686,000 as of December 31, 2016.In November 2017, we entered into an amended and restated loan and security agreement (the “Amended and Restated Loan Agreement”) with East West Bank (“EWB”). The Amended & Restated Loan Agreement amends and restates the loan and security agreement that we entered into with EWB dated as of April 14, 2015 (as the same has been previously amended, the “Prior Loan Agreement”).The following is a summary of the material terms of the Amended and Restated Loan Agreement:● EWB loaned us $4,500,000 as a one-time 36-month term loan, $4,450,000 of which we agreed to use, and did use, to refinance the $4,450,000 that we had outstanding under the Prior Loan Agreement. We applied the additional $50,000 to pay the facility fee ($45,000) and to pay reasonable costs or expenses incurred by EWB in connection with, among other matters, the preparation and negotiation of the Amended and Restated Loan Agreement.● We are required to make payments on the loan on the last calendar day of each month commencing on December 31, 2017 and through its maturity date, November 29, 2020. Payments will be interest only until the payment due on June 30, 2018, at which time payments will become principal plus interest.19● Other than during the continuance of an event of default, the loan bears interest, on the outstanding daily balance thereof, at our option, at either: (A) a variable rate per annum equal to the prime rate as set forth in The Wall Street Journal plus 1.75%, or (B) -a fixed rate per annum equal to the LIBOR rate for the interest period for the advance plus 4.50%.● We continue to grant and pledge to EWB a first-priority security interest in all our existing and future personal property, including our intellectual property, subject to customary exceptions.● Subject to customary exceptions, we continue to generally be prohibited from borrowing additional Indebtedness other than subordinated debt and up to $2.0 million in the aggregate for the purpose of equipment financing to the extent EWB approves such debt. “Indebtedness” means (i) all our other indebtedness for borrowed money or the deferred purchase price of property or services, (ii) all our obligations evidenced by notes, bonds, debentures and similar instruments, (iii) all our capital lease obligations, and (iv) all our contingent obligations.● We must comply with the following financial covenants:○ Minimum Fixed Charge Coverage Ratio – We must not have a Fixed Charge Coverage Ratio (as defined below) as of the last day of a fiscal quarter less than 1.25 to 1.00. However, if our unrestricted cash exceeds the loan principal outstanding, then what would otherwise be a breach of the covenant will be deemed automatically cured. The automatic cure may not be used more than (A) two times in any fiscal year or (B) four times during the term of the Amended and Restated Loan Agreement. Fixed Charge Coverage Ratio means the ratio of (a) Adjusted EBITDA (as defined below) for the four fiscal quarters ending on the applicable measuring date, less (i) unfinanced capital expenditures during such period and (ii) cash taxes paid during such period, to (b) the sum of (i) scheduled principal and interest payments with respect to the loan, (ii) scheduled principal and interest payments with respect to other Indebtedness (as defined below) and (C) scheduled lease payments. “Adjusted EBITDA” means (a) EBITDA (which is net income, plus interest expense, plus, to the extent deducted in the calculation of net income, depreciation expense and amortization expense, plus income tax expense) plus (b) other noncash expenses and charges, plus (c) to the extent approved by EWB, other onetime charges, plus (g) to the extent approved by EWB, any losses arising from the sale, exchange, transfer or other disposition of assets not in the ordinary course of business.○ Minimum Liquidity – The aggregate amount of unrestricted cash we have in deposit accounts or securities accounts maintained with EWB must not be less than $2,000,000. This liquidity test will be measured the last day of each calendar month.○ Maximum Sr. Leverage Ratio – As of the last day of a fiscal quarter, the ratio of (a) all our Indebtedness outstanding on such day, other than subordinated debt, to (b) Adjusted EBITDA for four fiscal quarters ending on such day, must not be greater than 2.75 to 1.00 for fiscal quarters ending December 31, 2017 through March 31, 2018, and must not be greater than 2.50 to 1.00 for fiscal quarters ending June 30, 2018 and later.As of December 31, 2017, we were in compliance with all covenants except the Fixed Charge Coverage Ratio. We anticipate that EWB will waive such non-compliance, and EWB informed us that is would forbear from taking action with respect to the event of default caused by such non-compliance. Accordingly, we expect that our repayment terms will not change as a result of this non-compliance.As of December 31, 2017, $4,500,000 was outstanding under the Amended and Restated Loan Agreement, all of which is recorded in current portion of long-term debt on the accompanying consolidated balance sheet as a result of the covenant non-compliance as of December 31, 2017 discussed above. We recorded total debt issuance costs of $59,000, which includes the $45,000 facility fee. The debt issuance costs will be amortized to interest expense using the effective interest rate method over the life of the loan. As of December 31, 2017, the unamortized portion of the debt issuance costs was $56,000 and is recorded as a reduction of long term debt. We have no more borrowing availability under the Amended and Restated Loan Agreement.We have another financing arrangement with an equipment lender under which we may request funds to finance the purchase of certain capital equipment. The lender determines whether to extend such funds on a case-by-case basis, taking into account such factors as the lender considers relevant, including the amount outstanding under this financing arrangement. Through December 31, 2017, we borrowed $9,690,000. As of December 31, 2017, $623,000 was outstanding, of which $615,000 is recorded in current portion of long-term debt and $8,000 is recorded in long-term debt on the accompanying consolidated balance sheet. We currently do not expect the lender to lend any additional funds under this financing arrangement.In connection with preparing the financial statement as of and for the year ended December 31, 2017, we evaluated whether there are conditions and 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 within one year after the date that such financial statements are issued. As a result of such evaluation, we believe we will have sufficient cash to meet our operating cash requirements and to fulfill our debt obligations for at least the next twelve months from the issuance date of such financial statements. To address our low stockholders’ equity, to increase the likelihood that we will be able to successfully execute our operating and strategic plan, and to position us to better take advantage of market opportunities for growth, we are continuing to evaluate additional financing alternatives, including additional equity financings and alternative sources of debt. If our cash and cash equivalents are not sufficient to meet future cash requirements, we may be required to reduce planned capital expenses, reduce operational cash uses or raise capital on terms that are not as favorable to us as they otherwise might be. Any actions we may undertake to reduce planned capital purchases or reduce expenses may be insufficient to cover shortfalls in available funds. If we require additional capital, we may be unable to secure additional capital on terms that are acceptable to us, or at all.20Working CapitalAs of December 31, 2017, we had negative working capital (current liabilities in excess of current assets) of $1,109,000 compared to working capital (current assets in excess of current liabilities) of $4,019,000 as of December 31, 2016. Due to the non-compliance with the Fixed Charge Coverage Ratio as of December 31, 2017 discussed above, the $4,500,000 outstanding under the Amended and Restated Loan Agreement was classified as current portion of long-term debt, which attributed to the negative working capital amounts. The following table shows our change in working capital from December 31, 2016 to December 31, 2017. Increase
(Decrease) Working capital as of December 31, 2016 $ 4,019,000 Changes in current assets: Cash and cash equivalents (2,308,000 ) Accounts receivable, net of allowance (214,000 ) Site equipment to be installed 1,868,000 Prepaid expenses and other current assets (370,000 ) Total current assets (1,024,000 ) Changes in current liabilities: Accounts payable 143,000 Accrued compensation (414,000 ) Accrued expenses (279,000 ) Sales taxes payable (35,000 ) Income taxes payable 9,000 Current portion of long-term debt 2,071,000 Current portion of obligations under capital leases 21,000 Deferred revenue 2,505,000 Deferred rent 182,000 Other current liabilities (99,000 ) Total current liabilities 4,104,000 Net change in working capital (5,128,000 ) Working capital as of December 31, 2017 $ (1,109,000 ) Cash FlowsCash flows from operating, investing and financing activities, as reflected in the accompanying consolidated statements of cash flows, are summarized as follows: 2017 2016 Change Cash provided by (used in): Operating activities $ 549,000 $ 23,000 $ 526,000 Investing activities (1,452,000 ) (840,000 ) (612,000 ) Financing activities (1,468,000 ) 3,256,000 (4,724,000 ) Effect of exchange rates 63,000 24,000 39,000 Net (decrease) increase in cash and cash equivalents $ (2,308,000 ) $ 2,463,000 $ (4,771,000 ) Net cash provided by operations. The increase in cash provided by operating activities was due to a decrease in net loss of $1,688,000, after giving effect to adjustments made for non-cash transactions, offset by an increase in cash used in operating assets and liabilities of $1,162,000 during 2017 compared to 2016, primarily driven by purchases of site equipment to be installed inventory, which increased to $4,866,000 as of December 31, 2017 from $2,998,000 as of December 31, 2016.Our largest use of cash is payroll and related costs. Cash used for payroll and related costs increased $105,000 to $11,178,000 for 2017 from $11,073,000 for 2016, primarily due to the timing of hew hires in 2016.21Our primary source of cash is cash we generate from customers. Cash received from customers increased $2,857,000 to $26,050,000 for 2017 from $23,193,000 for 2016. This increase was primarily related to a one-time prepayment from Buffalo Wild Wings for equipment and services to be delivered in the future.Net cash (used in) investing activities. The $612,000 increase in cash used in investing activities was primarily due to increased software development expenditures and capital expenditures.Net cash (used in) provided by financing activities. The $4,724,000 increase in cash used in financing activities was primarily attributable to the following:●During 2017, we received $2,452,000 less in proceeds from long-term debt than we did during 2016;●During 2017, our payments on long-term debt increased by $1,209,000 compared to 2016; and●During 2017, we received $919,000 less in net proceeds from common stock offerings than we did during 2016.Off-Balance Sheet ArrangementsWe 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.Critical Accounting Policies and EstimatesThe discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues 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 of fixed assets, allowance for doubtful accounts, site equipment to be installed, investments, intangible assets, and contingencies. We base our estimates on a combination of historical experience and various other assumptions that are believed to be reasonable under the circumstances, 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 materially from these estimates. 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.We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.Allowance for Doubtful Accounts—We maintain allowances for doubtful accounts for estimated losses resulting from nonpayment by our customers. We reserve for all accounts that have been suspended or terminated from our Buzztime network services and for customers with balances that are greater than a predetermined number of days past due. We analyze historical collection trends, customer concentrations and creditworthiness, economic trends and anticipated changes in customer payment patterns when evaluating the adequacy of our allowance for doubtful accounts for specific and general risks. Additional reserves may also be established if specific customers’ balances are identified as potentially uncollectible. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.Site Equipment to be Installed—Site equipment to be installed consist of finished goods related to our BEOND product platform and are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. Rapid technological change or new product development could result in an increase in the quantity of obsolete site equipment to be installed on hand, and we could recognize losses from disposal of excess or obsolete site equipment to be installed. Additionally, our carrying costs of our site equipment to be installed are dependent on accurate estimates of customer demand for our products. A significant increase in the demand for our products could result in a short-term increase in the cost of site equipment purchases, while a significant decrease in demand could result in an increase in the amount of excess site equipment quantities on hand. As a result, although we attempt to maximize the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or in technological developments could have a significant impact on the value of our site equipment to be installed and our reported operating results.The BEOND tablet platform equipment remains in site equipment to be installed until it is installed at our customer sites. For BEOND 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 BEOND tablet platform customers, the cost of the equipment is reclassified to fixed assets upon installation and depreciated over its useful life.Fixed Assets—Fixed assets are recorded at cost. Equipment under capital leases is recorded at the present value of future minimum lease payments. Depreciation of fixed assets is computed using the straight-line method over the estimated useful lives of the assets. Depreciation of leasehold improvements and fixed assets under capital leases is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the lease period.We incur a relatively significant level of depreciation expense in relation to our operating income. The amount of depreciation expense in any fiscal year is largely related to the equipment located at our customers’ sites that are not under sales-type lease arrangements. Such equipment includes our Classic Playmaker, our BEOND tablet, other associated electronics and the computers located at our customer’s sites (collectively, “Site Equipment”). The components within Site Equipment are depreciated over two to five years based on the shorter of the contractual capital lease period or the estimated useful life, which considers anticipated technology changes. If our Site Equipment turns out to have longer lives, on average, than estimated, then our depreciation expense would be significantly reduced in those future periods. Conversely, if the Site Equipment turns out to have shorter lives, on average, than estimated, then our depreciation expense would be significantly increased in those future periods.22ASC No. 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with ASC No. 360,Property, Plant and Equipment. In accordance with ASC No. 360, we assess potential impairments of our long-lived assets whenever events or changes in circumstances indicate the asset’s carrying value may not be recoverable. An impairment loss would be recognized when the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. We performed our annual reviews as of December 31, 2017 and 2016 of our other intangible assets and determined that there were no indications of impairment for either period.Revenue Recognition—We recognize revenue from recurring subscription fees for our service earned from our network subscribers, from leasing equipment (including tablets used in our BEOND tablet platform and the cases and charging trays for such tablets) to certain network subscribers, from hosting live trivia events, from selling advertising aired on in-venue screens and as part of customized games and directly from consumers who pay to play or use the premium content we began offering via our BEOND tablet platform in 2014. To the extent any of the foregoing contains multiple deliverables, we evaluate the criteria in ASC No. 605,Revenue Recognition, to determine whether such deliverables represent separate units of accounting. In order to be considered a separate unit of accounting, the delivered items in an arrangement must have stand-alone value to the customer and objective and reliable evidence of fair value must exist for any undelivered elements. Arrangements for the transmission of our Buzztime network contain two deliverables: the installation of equipment and the transmission of our network content for which we receive monthly subscription fees. As the installation deliverable does not have stand-alone value to the customer, it does not represent a separate unit of accounting. Therefore, for our Classic product, all installation fees received are deferred and recognized as revenue on a straight-line basis over the estimated life of the customer relationship. Because deployment of our BEOND tablet platform is still new, we have not yet established an estimated life of a BEOND customer, and therefore, we are deferring and recognizing installation fees as revenue on a straight-line basis over the customer contract term. All installation fees not recognized in revenue have been recorded as deferred revenue in the accompanying consolidated balance sheets.In addition, the direct expenses of the installation, commissions, setup and training are being deferred and amortized on a straight-line basis and are classified as deferred costs on the accompanying consolidated balance sheets. For these direct expenses that are associated with our Classic product, the amortization period approximates the estimated life of the customer relationship for deferred direct costs that are of an amount that is less than or equal to the deferred revenue for the related contract. For costs that exceed the deferred revenue, the amortization period is the initial term of the contract, in accordance with ASC No. 605, which is generally one year. For direct costs associated with our BEOND tablet platform, the amortization period approximates the life of the contract.We evaluate our lease transactions in accordance with ASC No. 840,Leases, to determine classification of the leases against the following criteria:●The lease transfers ownership of the property to the lessee by the end of the lease term;●There is a bargain purchase option;●The lease term is equal to or greater than 75% of the economic life of the equipment; or●The present value of the minimum payments is equal to or greater than 90% of the fair market value of the equipment at the inception of the lease.Because our current leasing agreement meets at least one of the criteria above, because collectability of the minimum lease payments is reasonably assured and because there are no important uncertainties surrounding the amount of reimbursable costs yet to be incurred under the lease, we classify the lease as a sales-type lease, and we recognize revenue when persuasive evidence of an arrangement exists, product delivery has occurred or the services have been rendered, the price is fixed and determinable and collectability is reasonably assured.We recognize revenues from selling advertising, from hosting live trivia events and from consumers who pay to play our premium content when all material services or conditions relating to the transaction have been performed or satisfied.We have arrangements with certain third parties to share the revenue generated from some of our products and services. We evaluate recognition of the associated revenue in accordance with ASC No. 605-45,Revenue Recognition, Principal Agent Considerations.When indicators suggest that we are functioning as a principal, we record revenue gross and the corresponding amounts paid to third parties are recorded as direct expense. Conversely, when indicators suggest that we are functioning as an agent, we record revenue net of amounts paid to third parties.23Software Development Costs—We capitalize costs related to the development of certain software products in accordance with ASC No. 350. Amortization of costs related to interactive programs is recognized 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 $230,000 and $386,000 for the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017 and 2016, approximately $784,000 and $642,000, respectively, of capitalized software costs were not subject to amortization as the development of various software projects was not complete.We performed our annual review of software development projects for the year ended December 31, 2017 and determined to abandon various 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 industry for which the content was intended. As a result, an impairment of $5,000 was recognized for the year ended December 31, 2017, which was recorded in selling, general and administrative expenses on our consolidated statements of operations. We also performed our annual review for the year ended December 31, 2016 and determined that there were no indications of impairments during this period.Stock Based Compensation—We estimate the fair value of our stock options using a Black-Scholes option pricing model, consistent with the provisions of ASC No. 718, Compensation – Stock Compensation and ASC No. 505-50,Equity – Equity-Based Payments to Non-Employees.The fair value of stock options granted is recognized to expense over the requisite service period. Stock-based compensation expense for share-based payment awards to employees is recognized using the straight-line single-option method. Stock-based compensation expense for share-based payment awards to non-employees is recorded at its fair value on the grant date and is periodically re-measured as the underlying awards vest.We used the historical stock price volatility as an input to value our stock options under ASC No. 718. The expected term of our stock options represents the period of time options are expected to be outstanding, and is based on observed historical exercise patterns for our company, which we believe are indicative of future exercise behavior. For the risk-free interest rate, we use the observed interest rates appropriate for the term of time options are expected to be outstanding. The dividend yield assumption is based on our history and expectation of dividend payouts.The following weighted average assumptions were used for grants issued during 2017 and 2016 under the ASC No. 718 requirements: 2017 2016 Weighted average risk-free rate 1.97 % 1.20 % Weighted average volatility 113.57 % 111.02 % Dividend yield 0.00 % 0.00 % Expected life 7.19 years 6.17 years ASC No. 718 requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeiture rates differ from those estimates. Forfeitures were estimated based on historical activity for our company. Stock-based compensation expense for employees for the years ended December 31, 2017 and 2016 was $457,000 and $419,000, respectively, and is included in selling, general and administrative expenses based upon the departments to which substantially all of the associated employees report and credited to additional paid-in-capital.Income Taxes—Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.ASC No. 740,Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. A tax position that meets the “more-likely-than-not” criterion are measured at the largest amount of benefit that is more than 50% likely of being realized upon ultimate settlement. We have reviewed our tax positions and determined that an adjustment to the tax provision is not considered necessary nor is a reserve for income taxes required.Earnings Per Share—Basic and diluted loss per common share have been computed by dividing the losses applicable to common stock by the weighted average number of common shares outstanding. Our basic and fully diluted earnings per share (“EPS”) calculation are the same since the increased number of shares that would be included in the diluted calculation from assumed exercise of common stock equivalents would be anti-dilutive to the net loss in each of the years shown in the consolidated financial statements.24Segment Reporting—In accordance with ASC No. 280,Segment Reporting, we have determined that we operate as one operating segment. Decisions regarding our overall operating performance and allocation of our resources are assessed on a consolidated basis.Recent Accounting PronouncementsIn February 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-02,Income Statement—Reporting Comprehensive Income (Topic 220)—Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update was issued to address the income tax accounting treatment of the stranded tax effects within other comprehensive income due to the prohibition of backward tracing due to an income tax rate change that was initially recorded in other comprehensive income. This issue came about from the enactment of the Tax Cuts and Jobs Act on December 22, 2017, which changed our income tax rate from 35% to 21%. The ASU changed current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings. The ASU is effective for periods beginning after December 15, 2018 (which is January 1, 2019 for us), although early adoption is permitted. We do not anticipate that the adoption of this ASU will have a material impact on our consolidated financial statements.In July 2017, the FASB issued ASU 2017-11,Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815).The amendments in Part I of this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present EPS in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (which is January 1, 2019 for us). Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We do not expect the adoption of ASU 2017-11 to have a material impact on our consolidated financial statements and related disclosures.In May 2017, the FASB issued ASU 2017-09,Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting,which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This update is effective for annual reporting periods beginning after December 15, 2017 (which is January 1, 2018 for us). Early adoption is permitted. We do not expect the adoption of ASU 2017-09 to have a material impact on our consolidated financial statements and related disclosures.In January 2017, the FASB issued ASU No 2017-04,Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update removes the requirement to perform step two of the quantitative two-step goodwill impairment test. An entity still has the option to perform the qualitative assessment for an entity to determine if the quantitative impairment test is necessary. This update is effective on a prospective basis for fiscal years beginning after December 15, 2019 (which is January 1, 2020 for us). Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not anticipate that the adoption of this ASU will have a material impact on our consolidated financial statements.In November 2016, the FASB issued Accounting Standards Update (ASU) No 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash. This update requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2018 (which is January 1, 2019 for us), including interim periods within those periods, using a retrospective transition method to each period presented. We do not anticipate that the adoption of this ASU will have a material impact on our consolidated financial statements.In October 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory. This update requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This update is effective for fiscal years beginning after December 15, 2017 (which is January 1, 2018 for us), including interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year. The new standard must be adopted using a modified retrospective transition method, which is a cumulative-effective adjustment to retained earnings as of the beginning of the first effective reporting period. We do not anticipate that the adoption of this ASU will have a material impact on our consolidated financial statements.25In August 2016, the FASB issued ASU No. 2016-15,Classification of Certain Cash Receipts and Cash Payments. This update is intended to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. This update is effective for fiscal periods beginning after December 15, 2017 (which is January 1, 2018 for us), with early adoption permitted. We do not anticipate that the adoption of this ASU will have a material impact on our consolidated financial statements.In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842). This update requires lessees to recognize at the lease commencement date a lease liability, which is the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use assets, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees will no longer be provided with a source of off-balance sheet financing. This update is effective for fiscal periods beginning after December 15, 2018 (which is January 1, 2019 for us), including interim periods within those fiscal years. Early adoption is permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Applying a full retrospective transition approach is not allowed. We do not anticipate that the adoption of this ASU will have a material impact on our consolidated financial statements.In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers (Topic 606). This update outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for fiscal periods beginning after December 15, 2017 (which is January 1, 2018 for us), including interim periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We have the option of using either a full retrospective or a modified approach to adopting the guidance. We will apply the full-retrospective method when adopting this guidance.This update requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required for customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. We continue to evaluate the effect of adopting this update and expect to complete our assessment by the end of the quarter ending March 31, 2018.ITEM7A.Quantitative and Qualitative Disclosures about Market RiskUnder SEC rules and regulations, as a smaller reporting company we are not required to provide the information otherwise required by this item.ITEM 8.Financial Statements and Supplementary DataStatements and Schedule”Statements” on page F-1 for a listing of the Consolidated Financial Statements and Schedule filed with this report.ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNoneITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act reports 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.26reportAnnual Report on Form 10-K under the supervision, and with the participation, of our management, including our Chief Executive Officer and President (who serves as our principal executive officer) and our Chief Financial Officer (who serves as our principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures.ourthat evaluation, and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that there were no material weaknesses in our disclosure controls and procedures and that such disclosure controls and procedures were not effective as of the end of the period covered by this reportAnnual Report on Form 10-K in providing reasonable assurance of achieving the desired control objectives and therefore there were no corrective actions taken.Under our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017. According to2022 based on the guidelinesframework and criteria established byin Internal Control—Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, one or more material weaknesses renders a company’sCommission. Based on such evaluation, management concluded that the Company’s internal control over financial reporting ineffective. Basedwas not effective as of December 31, 2022 due to the material weakness described below.this evaluation, we haveForm 10-K for the years ended December 31, 2021 and 2020 during our preparation of the financial statements for the quarter ended March 31, 2022. Management concluded that the errors were the result of accounting personnel’s lack of technical proficiency in complex matters. We filed an amendment to our Annual Report on Form 10-K/A for the years ended December 31, 2021 and 2020 on June 30, 2022 to correct the errors in our financial statements for the years ended December 31, 2021 and 2020 and for the quarters ended June 30, 2020, September 30, 2020, March 31, 2021, June 30, 2021 and September 30, 2021.2017.Therenoa change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.ITEM 9B.Other InformationITEM 9B. Other Information ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ITEM 10. Directors, Executive Officers and Corporate Governance Name Age Matthew Angel 42 President and Chief Executive Officer and Director Andrew Jackson 54 Chief Financial Officer Sandra Gurrola 56 Vice President, Finance Charles Cherington 60 Chairman of the Board Gregory Fiore 53 Director William Wexler 63 Director Nicholas J. Singer 43 Director 275Female Male Part I: Gender Identity Directors 5 — — Part II: Demographic Background African-American or Black — — — — Alaskan Native or Native American — — — — Asian — — — — Hispanic — — — Native Hawaiian or Pacific Islander — — — — White 4 — — Two or more races or ethnicities — — — — LGBTQ+ — — — — Did not disclose demographic background — 1 — — ITEM 10.Directors, Executive OfficersCorporate Governance Guidelines. Our Board strongly supports effective corporate governance and has developed and followed a program of strong corporate governance. Our Nominating and Corporate GovernanceInformation required Committee is responsible for overseeing our governance guidelines and reporting and making recommendations to the Board concerning corporate governance matters. Our guidelines are published on our website at www.eternatx.com and are available in print to any stockholder who requests them from our Secretary.item will beAnnual Report on Form 10-K.Name William Wexler Chair X X Nicholas J. Singer X Chair X Charles Cherington X X Chair headings “PROPOSAL 1: ELECTION OF DIRECTORS,Exchange Act. All of the members of our Audit Committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq. In addition, Mr. Singer qualifies as our “Audit Committee financial expert,” “BOARD OF DIRECTORS AND CORPORATE GOVERNANCE,” “EXECUTIVE OFFICERS,”as such term is defined in Item 407 of Regulation S-K.“SECTIONapproving the corporate goals and objectives, evaluating the performance and reviewing and approving the compensation of our executive officers;BENEFICIAL OWNERSHIP REPORTING COMPLIANCE”Beneficial Ownership Reporting Compliancedefinitive proxy statementequity securities. To our knowledge, based solely on a review of copies of such reports that we received, our records and written representations received from our directors, executive officers and certain of those persons who own greater than 10% of any class of our equity securities, for the year ended December 31, 2022, all applicable Section 16(a) filing requirements were complied with on a timely basis.ITEM 11. Executive Compensation 2018executive officers, except that neither our former CEO, Howard J. Federoff, or our current CEO, Dr. Matthew Angel, participated when the Board evaluated their respective performance, and neither was present during voting or deliberations regarding their respective performance or compensation matters.Name Title Matthew Angel Chief Executive Officer Howard J. Federoff Former Chief Executive Officer Andrew Jackson Chief Financial Officer Chief Medical Officer Kevin D’Amour Former Chief Scientific Officer (1) Dr. Sidhu resigned as our Chief Medical Officer effective January 31, 2023. Salary (US$) Bonus (US$) 2022 $ — $ 210,959 (4) $ — $ 910,453 $ — $ — $ 29,842 $ 1,151,254 2022 $ 182,811 $ — $ 798,557 $ 599,422 $ 225,000 $ — $ 424,231 $ 2,230,021 $ 318,750 $ — $ — $ 23,612,647 $ 159,375 $ — $ — $ 24,090,772 2022 $ 243,679 $ — $ — $ 305,466 $ — $ — $ — $ 549,145 2022 $ 447,200 $ — $ 274,369 $ 205,903 $ — $ — $ — $ 927,472 2021 $ 127,045 $ — $ 803,274 $ 1,486,131 $ 48,277 $ — $ — $ 2,464,727 2022 $ 259,375 $ — $ 267,112 $ 200,542 $ — $ — $ 175,289 $ 902,318 $ 212,216 $ — $ 1,500,592 $ 2,773,903 $ 84,886 $ — $ — $ 4,571,697 1. The amounts reported in this column represents the aggregate grant date fair value of stock options granted during the applicable year. These amounts were calculated in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, except that any estimate of forfeitures was disregarded. For a description of the assumptions used in computing the dollar amount recognized for financial statement reporting purposes, see Note 14, Stock-Based Compensation, in the Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K.2.Represents discretionary bonuses earned by the applicable named executive officer for 2021, as determined by the Compensation Committee. 3. Dr. Angel was appointed our Interim Chief Executive Officer and President on May 26, 2022 and a member of the Board effective June 6, 2022. Dr. Angel was appointed our Chief Executive Officer and President on January 1, 2023. 4. A cash signing bonus, which represents the salary Dr. Angel would have earned for the period during which he served as interim Chief Executive Officer and President, had Dr. Angel’s appointment as Chief Executive Officer and President been in effect beginning May 26, 2022. 5. Represents a reimbursement of legal fees Dr. Angel incurred in connection with entering into his employment offer letter. 6. Dr. Federoff resigned as the Company’s Chief Executive Officer and as a member of the Board effective on May 26, 2022. 7. Includes $384,237 of severance payments, payment of $36,780 for final accrued paid time off, $2,965 for reimbursed legal fees Dr. Federoff incurred in connection with entering into his separation agreement and $250 for cell phone reimbursement. 8. Mr. Jackson was appointed Chief Financial Officer effective May 31, 2022. 9. Dr. Sidhu resigned as Chief Medical Officer effective January 31, 2023. 10. Dr. D’Amour resigned as Chief Scientific Officer on August 26, 2022. 11. Includes $145,609 of severance payments, payment of $24,305 for final accrued paid time off, $5,000 for reimbursed legal fees Dr. D’Amour incurred in connection with entering into his separation agreement and $375 for cell phone reimbursement. “Proxy Statement”“Restated Plan”),. The general purpose of the Restated Plan is to provide a means whereby eligible employees, officers, employee and non-employee directors, consultants and prospective employees may develop a sense of proprietorship and personal involvement in our development and financial success, and to encourage them to devote their best efforts to us, thereby advancing our interests and the interests of stockholders. The Board believes that the granting of stock options, restricted stock, restricted stock units, performance awards, unrestricted stock awards and similar kinds of equity-based compensation promotes continuity of management and increases incentive and personal interest in our welfare by those who are primarily responsible for shaping and carrying out our long-range plans and securing growth and financial success. In general, the Restated Plan is administered by the Compensation Committee. The Compensation Committee determines the persons to whom awards issuable under the Restated Plan may be granted. The Compensation Committee may also establish rules and regulations for the administration of the Restated Plan and amendments or modifications of outstanding awards. The Compensation Committee also delegates authority to certain executive officers grant awards and execute award agreements, subject to applicable law and the Restated Plan. Each award is set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award. A brief description of the material terms of the Restated Plan and the equity awards thereunder follows.we expectsuch option, SAR or award was terminated or forfeited will be available for future grants under the Restated Plan. Awards settled in cash will not count against the number of shares available for issuance under the Restated Plan; however, if any award is cancelled forfeited or terminated in order to filed no later than 120 dayspay the exercise price of a stock option, purchase price or any taxes or tax withholdings on an award, such shares will not be available for future awards under the Restated Plan.endeffective time of the Restated Plan.fiscalother employees. The employee benefit plans are designed to assist in attracting and retaining skilled employees critical to our long-term success. We also maintain a 401(k) plan for the benefit of our eligible employees, including the named executive officers, as discussed below.2017,2021 we paid Dr. Federoff a $159,375 cash bonus. The agreement also provided for the grant of certain equity awards and severance benefits.• Option Awards Stock Awards Name Grant Date 15,542 108,808 — 9.80 8/1/2032 — — — — 68,434 — — 158.80 5/26/2025 — — — — 20,737 — — 158.80 5/26/2025 — — — — 8,043 — — 38.60 5/26/2025 — — — — — 33,239 — 12.17 6/3/2032 — — — — 2,520 5,545 — 199.20 9/20/2031 — — — — — — — — — 3,024 9,737 — — 1,776 5,329 — 38.60 3/11/2032 — — — — — — — — — — — — — — — — — — — — — — 1. 2. The options vested pursuant to Dr. Federoff’s Separation Agreement. 3. The option vests at a rate of 25% of the shares subject to the award on the one-year anniversary of the grant date, with the remaining shares subject to the award vesting in 36 substantially equal monthly installments thereafter. 4. The restricted stock units vest at a rate of 25% of the shares subject to the award in four substantially equal annual installments on the anniversary of the grant date. 5. The option vests over 36 substantially equal monthly installments. Compensation Element Amount Annual Board Member Compensation Paid in cash or stock options, at the Board’s discretion. Cash paid in quarterly installments or upon the effective date of an earlier resignation of the non-employee director. Stock Options to vest quarterly over one year from grant date: a. Board Member: $40,000 b. Board Chair: $70,000 Committee Member Retainers Paid in cash or stock options, at the Board’s discretion. Cash paid in quarterly installments or upon the effective date of an earlier resignation of the non-employee director. Stock Options to vest quarterly over one year from grant date: c. Audit Committee: $7,500 d. Compensation Committee: $5,000 e. Nominating/Governance Committee: $4,000 Leadership Supplemental Retainer Paid in cash or stock options, at the Board’s discretion. Cash paid in quarterly installments or upon the effective date of an earlier resignation of the non-employee director. Stock Options to vest quarterly over one year from grant date: f. Audit Committee Chair: $15,000 g. Compensation Committee Chair: $10,000 h. Nominating/Governance Committee Chair: $8,000 New Director Equity Award (outside directors) Option for 8,260 shares of Common Stock, which option shall have an exercise price equal to the fair market value per share of common stock, as determined under the 2020 Plan, and, subject to continued service on the Board, vest in an initial installment of 1/3 of the shares on the first anniversary of the grant date, with the remaining shares to vest in 24 substantially equal installments thereafter. Name Total ($) Charles Cherington 21,661 — 134,516 — — — 156,177 — — 92,178 — — — 92,178 — — 110,171 — — — 110,171 — — 112,288 — — — 112,288 10,382 — — — — — 10,382 9,569 — — — — — 9,569 10,822 — 162,073 — — — 172,895 9,299 — 162,073 — — — 171,372 1. As of December 31, 2022, our non-employee directors had the following options outstanding: Name Charles Cherington 22,395 Gregory Fiore 13,045 Nicholas Singer 15,595 William Wexler 15,895 Dennis Langer — Erich Mohr — Erin Enright — Heather Redman — (2) Appointed to the Board on June 6, 2022. (3) Resigned from the Board effective June 5, 2022 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Name and Address of Beneficial Owner 574,104 11.2 % 71,306 45.7 % 11.2 % 460,209 9.0 % 71,306 45.7 % 9.0 % 452,283 8.8 % — — 8.8 % 398,349 7.8 % — — 7.8 % 129,033 2.5 % — — 2.5 % 574,104 11.2 % 71,306 45.7 % 11.2 % 398,349 7.8 % — — 7.8 % 315,460 6.0 % — — 6.0 % 10,538 * — — * 8,401 * — — * Andrew Jackson — — — — — 97,214 1.9 % — — 1.9 % Roger Sidhu 1,008 * ― ― * Kevin D’Amour 574 * — — * 1,309,747 24.6 % 71,306 45.7 % 24.6 % * Less than 1% (1) Includes 14,668 shares of common stock subject to issuance upon exercise of options and 2,971 shares of common stock issuable upon conversion of Series A convertible preferred stock. (2) Includes 2,971 shares of common stock issuable upon conversion of Series A convertible preferred stock. Denny Family Partners II, LLC owns 50,453 shares of common stock and the George Denny III Trust dated 6/11/1981 owns 406,785 shares of common stock. Mr. Denny disclaims beneficial ownership of the shares held by Denny Family Partners II, LLC except to the extent of his pecuniary interest therein. Mr. Denny’s address is. Mr. Denny has sole voting and dispositive power over 204 shares and has shared voting and dispositive power over 460,209 shares. (3) Shares held by the John D. Halpern Revocable Trust, of which, Mr. Halpern and Katherine H. Halpern are trustees. Mr. Halpern and Ms. Halpern share voting and dispositive powers. Mr. Halpern’s address is PO Box 540 Portsmouth, New Hampshire 03802.. (4) Includes (i) 121,882 shares of common stock held by Purchase Capital LLC and (ii) 266,214 shares of common stock held by Pacific Premier Trust as Custodian for the benefit of Mr. Singer. Mr. Singer has sole voting and investment power over all 398,349 shares. Also includes 64,478 shares of common stock subject to issuance upon exercise of options. (5) Factor Bioscience Inc. owns 129,033 shares of common stock, over which Messrs. Angel and Rohde have shared voting and investment power. Mr. Angel also has sole voting and investment power over 45,449 shares, and Mr. Rohde has sole voting and investment power over 67,885 shares. Factor Biosciences, Inc. and Messers. Angel and Rohde have entered into lock-up agreements with respect to 168,884 shares of common stock listed above. Each lock-up agreement extends for a period of three years, provided that up to 75% of the shares of common stock subject to the lock-up agreement may be released from the lock-up restrictions earlier if the price of common stock on The Nasdaq Capital Market stock exchange exceeds specified thresholds. The lock-up agreements include customary exceptions for transfers during the applicable lock-up period. Factor Bioscience, Inc.’s address is 1035 Cambridge Street, Suite 17B, Cambridge, MA 02141. (6) Includes 129,033 shares of common stock owned by Factor Biosciences Inc., of which Dr. Angel owns approximately 64% of the outstanding equity, and 140,978 shares of common stock subject to issuance upon exercise of options. (7) Represents shares of common stock subject to issuance upon exercise of options. (8) Includes 187,124 shares of common stock issuable upon exercise of options and 2,971 shares of common stock issuable upon conversion of Series A convertible preferred stock. Equity Compensation Plan Information Plan Category (a) (b) (c) Equity compensation plans approved by securityholders 258,092 $ 16.72 165,694 105,072 $ 160.83 56,774 Total 363,164 $ 57.18 222,468 (1) Our 2021 Inducement Plan was not approved by our stockholders. For additional information on the 2021 Inducement Plan, see “Item 11. Executive Compensation—Narrative to Summary Compensation Table—Equity-Based Compensation Programs—2021 Inducement Plan” contained in this Annual Report on Form 10-K. ITEM 13. Certain Relationships and Related Transactions, and Director Independence incorporatedsubject to customary adjustments.thisthe Q4-22 PIPE Transaction on the same terms and subject to the same conditions as all other Q4-22 PIPE Investors.reference.ITEM 11.Executive CompensationThe information required by this item will be set fortheach director concerning his or her background, employment, and affiliations, our Board has determined that the Board meets independence standards under the heading “EXECUTIVE OFFICER COMPENSATION”applicable rules and regulations of the SEC and the listing standards of Nasdaq. The Board of Directors has affirmatively determined that the following Directors are “independent” as defined in the Definitive Proxy Statementlisting standards of Nasdaq: Charles Cherington; Nicholas J. Singer; and is incorporatedWilliam Wexler. In making these determinations, our Board considered the current and prior relationships that each non-employee director has with our Company and all other facts and circumstances our Board deemed relevant in this reportdetermining their independence, including the beneficial ownership of our capital stock by reference.ITEM 12.Security Ownership of Certain Beneficial Ownerseach non-employee director, and Management and Related Stockholder MattersThe information required by this item will be set forth under the headings “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” and “EQUITY COMPENSATION PLAN INFORMATION”transactions involving them described in the Definitive Proxy Statement and is incorporated in this report by reference.ITEM 13.Certainsection titled “Certain Relationships and Related Transactions,Party Transactions.”ITEM 14. Principal Accounting Fees and Services Director Independenceinformationtable below summarizes the fees and expenses billed to us by Grant Thornton and Marcum for the years ended December 31, 2022 and 2021.Year Audit Fees Audit-Related Fees Tax Fees All Other Fees Total 2022 $ 435,750 $ — $ — $ — $ 435,750 2021 $ 357,925 $ — $ 18,540 $ — $ 376,465 this item will be set forth understatute or regulation, and consultation concerning financial accounting and reporting standards.headings “PROPOSAL 1: ELECTION OF DIRECTORS,” “BOARD OF DIRECTORS AND CORPORATE GOVERNANCE”independent auditors are pre-approved by the Audit Committee (or the Chair of the Audit Committee, pursuant to a delegation of authority). These services may include audit services, audit-related services, tax services and “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” inother services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the Definitive Proxy Statementparticular service or category of services and is incorporatedgenerally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this report by reference.ITEM 14.Principal Accounting Fees and ServicesThe information required by this item will be set forth under the headings “PRINCIPAL ACCOUNTING FIRM FEES” in the Definitive Proxy Statement and is incorporated in this report by reference.ITEM 15. 28Exhibits, Financial Statement Schedules ITEM 15.Exhibits, Consolidated Financial Statement Schedulesreport: Filed or Furnished HerewithIncorporated By Reference Incorporated By Reference From the Document Indicated Previously Filed by the Registrant3.1(a)Agreement and Plan of Merger and Reorganization, dated August 12, 2020, among NTN Buzztime, Inc., BIT Merger Sub, Inc. and Eterna Therapeutics LLC Exhibit 2.1 to the proxy statement/prospectus on Form S-4/A filed on January 20, 2021 Agreement and Plan of Acquisition, dated as of July 16, 2021, by and among Eterna Therapeutics Inc., Brooklyn Acquisition Sub, Inc., Novellus LLC, Novellus, Inc., and the Sellers’ Representative Exhibit 10.1 to Form 8-K filed on July 19, 2021 Composite Restated Certificate of Incorporation.Incorporation of the Company Second Amended and Restated Bylaws of the Company Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 Securities Purchase Agreement, dated as of March 6, 2022, between Eterna Therapeutics Inc. and the purchaser party thereto Exhibit 10.1 to Form 8-K filed on March 9, 2022 Registration Rights Agreement, dated as of March 6, 2022, between Eterna Therapeutics Inc. and the purchaser party thereto Exhibit 10.4 to Form 8-K filed on March 9, 2022 Form of Pre-Funded Warrant Exhibit 10.2 to Form 8-K filed on March 9, 2022 Form of Common Stock Warrant Exhibit 10.3 to Form 8-K filed on March 9, 2022 Agreement to Assign Space Lease dated March 5, 2022 between Eterna Therapeutics LLC and Regen Lab USA LLC. Exhibit 10.5 to Form 10-Q filed on July 1, 2022 Assignment and Assumption of Lease dated March 25, 2022 between Eterna Therapeutics LLC and Regen Lab USA LLC Exhibit 10.6 to Form 10-Q filed on July 1, 2022 Amended and Restated Executive Employment Agreement, dated as of May 10, 2022, by and between Eterna Therapeutics Inc. and Andrew Jackson Exhibit 10.1 to Form 8-K filed on May 31, 2022 Separation Agreement and General Release, dated May 25, 2022, by and between Eterna Therapeutics Inc. and Howard J. Federoff Exhibit 10.2 to Form 8-K filed on May 31, 2022 Torrey Pines Science Center Lease, dated March 31, 2022, between Eterna Therapeutics Inc. and Torrey Pines Science Center Limited Partnership Exhibit 10.3 to Form 10-Q filed on August 14, 201311, 20223.1(b)Certificate of Amendment to the Restated Certificate of Incorporation (reverse/forward split).to Form 8-K filed on June 17, 20163.1(c)Certificate of Decrease of the Series A Convertible Preferred Stock.Exhibit10.3 to Form 8-K filed on April 12, 201730, 2021 3.1(d)Certificate ofFirst Amendment to the Restated Certificate of Incorporation (decrease in authorized capital stock).Exclusive License Agreement, dated November 22, 2022, by and among Eterna Therapeutics Inc., Eterna Therapeutics LLC, Novellus Therapeutics Limited and Factor Bioscience Limited Exhibit to Form 8-K filed on June 9, 20173.2Bylaws of the Company, as amended.Exhibit to Form 10-K filed on March 26, 20084.1Form of Certificate of Common Stock of NTN Buzztime, Inc.Exhibit to Form 8-K filed on June 17, 20164.2Form of warrant issued on November 12, 2013.Exhibit10.1 to Form 8-K filed on November 13, 201322, 20222910.6* The NTN Buzztime, Inc. Executive Incentive Plan for Eligible Employees of NTN Buzztime, Inc. Fiscal Year 2017.Third Amended and Restated Exclusive License Agreement, dated November 1, 2020, by and between Factor Bioscience Limited and Novellus Therapeutics Limited Master Services Agreement, dated September 9, 2022, by and between Factor Bioscience Inc. and Eterna Therapeutics Inc. Exhibit 10.1 to Form 8-K filed on March 13, 2017September 15, 2022 10.7Form of DirectorSeparation Agreement and Officer Indemnification AgreementGeneral Release, dated August 24, 2022, by and between Eterna Therapeutics Inc and Kevin D’Amour Exhibit 10.1 to Form 10-Q8-K/A filed on November 7, 2014September 1, 2022 Sublease Agreement, dated October 18, 2022, by and between E.R. Squibb & Sons, LLC and Eterna Therapeutics Inc. Filed herewith 10.8(a)Option Agreement, dated October 8, 2022, by and between Exacis Biotherapeutics, Inc. and Eterna Therapeutics Inc. Exhibit 10.1 to Form 8-K filed on October 14, 2022 Securities Purchase Agreement, dated as of November 12, 2013,23, 2022, by and among the registrantEterna Therapeutics Inc. and the purchasers identified thereinparty thereto Exhibit 10.1 to Form 8-K filed on November 13, 201325, 2022 10.8(b)Registration Rights agreement dated November 12, 2013, by and among the registrant and the purchasers identified thereinForm of Warrant Exhibit 10.1 to Form 8-K filed on November 13, 2013December 5, 2022 10.9(a)Loan and SecurityRegistration Rights Agreement, dated as of December 2, 2022, by and between East West Bankamong Eterna Therapeutics Inc. and the registrant dated April 14, 2015purchasers party thereto Exhibit 10.2 to Form 8-K filed on April 16, 2015December 5, 2022 Lease Termination Agreement, dated November 30, 2022, by and between Torrey Pines Science Center Limited Partnership and Eterna Therapeutics Inc. Filed herewith 10.9(b)First Amendment to Loan and SecurityLease Termination Agreement, and Waiverdated December 29, 2022, by and between East West BankTorrey Pines Science Center Limited Partnership and the registrant dated March 10, 2016.Eterna Therapeutics Inc. Filed herewith Angel Offer Letter, dated December 30, 2022, by and among Eterna Therapeutics Inc. and Dr. Matthew Angel Exhibit to Form 10-Q filed on May 9, 201610.9(c)Second Amendment to the Loan and Security Agreement by and between East West Bank and NTN Buzztime, Inc. dated December 30, 2016.Exhibit10.1 to Form 8-K filed on January 4, 20172023 10.9(d)Third Amendment to the Loan and Securityby anddated as of April 26, 2021, between East West Bank and NTN Buzztime, Inc. dated February 28, 2017.Exhibit to Form 8-K filed on March 3, 201710.9(e)Amended and Restated Loan and Security Agreement by and between East West Bank and NTN Buzztime, Inc. dated November 29, 2017.Exhibit to Form 8-K filed on November 30, 201710.10Subscription Agreement between NTN Buzztime,Eterna Therapeutics Inc. and the purchaser parties thereto dated November 1, 2016.Lincoln Park Capital Fund, LLCto Form 8-K filed on November 1, 201610.11Subscription Agreement between NTN Buzztime, Inc. and the purchaser parties thereto dated March 27, 2017.Exhibit to Form 8-K filed on March 27, 2017.10.12Subscription Agreement between NTN Buzztime, Inc. and the purchaser parties thereto dated April 25, 2017.Exhibit10.2 to Form 8-K filed on April 25, 201730, 2021 10.13* Separation Agreement and General Release of all Claims between Dave Miller and the registrantMarcum, LLP letter dated December 2, 2017.January 24, 2022 X Marcum, LLP letter dated April 19, 2022 21.1 SubsidiariesRegistrantthe Independent Registered Accounting Firm, Grant Thornton LLP X 23.1Consent of Squar Milner, LLPX24.1Power of attorney (included on the signatures page of this report)X31.1X31.2X32.1#X32.2#X101.INSX101.SCHX101.CALX101.DEFX101.LABX*Management Contract or Compensatory Plan#Furnished herewith. This certification is being furnished solely to accompany this report pursuant to U.S.C. § 1350,is not being filed for purposes of Section 18 of the Securities 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 languagecontained in such filing.Exhibit 101)None.(a) 30Indicates management contract or compensatory plan. ITEM 16. Form 10-K Summary Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.Dated: March 9, 2018 NTN BUZZTIME,ETERNA THERAPEUTICS INC. Date: March 20, 2023 By: /s/ Allen Wolff Andrew Jackson Allen WolffChief Financial Officer and Executive Vice President( As Principal Financial Officer)KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ram Krishnan and Allen Wolff, and each of them acting individually, as his or her true and lawful attorneys-in-fact and agents, each with full power to act alone, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or resubstitute, may lawfully do or cause to be done by virtue hereof.and in the capacities and on the dates indicated.Signature Ram Krishnan Chief Executive Officer, President and Director March 9, 2018Ram Krishnan(Principal (Principal Executive Officer) March 20, 2023 /s/Allen WolffChief Financial Officer and Executive Vice PresidentMarch 9, 2018Allen Wolff(Principal Financial Officer)/s/Sandra GurrolaVice President of Finance (Principal Accounting Officer)March 9, 2018Sandra GurrolaMatthew Angel Jeff Berg Chairman of the Board of DirectorsChief Financial Officer (Principal Financial Officer) March 9, 201820, 2022Jeff BergAndrew Jackson Steve Mitgang DirectorVice President of Finance (Principal Accounting Officer) March 9, 201820, 2022Steve MitgangSandra Gurrola Richard Simtob Director Chairman of the Board March 9, 201820, 2022Richard SimtobCharles Cherington Thomas Director March 9, 201820, 2022Gregory ThomasFiore Paul Yanover Director March 9, 201820, 2022Paul YanoverNicholas Singer/s/ William Wexler Director March 20, 2022 William Wexler 31NTN BUZZTIME, Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 248) F-2 F-3 Consolidated Financial Statements: F-3F-4 F-5 F-5F-6 F-6F-7 F-7F-8F-1of NTN Buzztime,and StockholdersFinancial Statementssheetssheet of NTN Buzztime,Eterna Therapeutics, Inc. (a Delaware corporation)and its subsidiaries (the “Company”) as of December 31, 2017 and 2016,2022, the related consolidated statements of operations, and comprehensive loss, shareholders’changes in members’/stockholders’ equity, and cash flows for each of the yearsyear then ended, and the related notes(collectively referred to as the consolidated financial statements (collectively, the financial statements)“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company atas of December 31, 2017 and 2016,2022, and the results of itsoperations and itscash flows for the yearsyear then ended, in conformity with accounting principles generally accepted in the United States of America.Opinionaudits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our auditsaudit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.auditsaudit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion./s/ SQUAR MILNER LLPWe have served as Company’s auditor since 2013.Los Angeles, CaliforniaMarch 9, 2018F-2NTN BUZZTIME, INC. AND SUBSIDIARIES(In thousands, except par value amount) December 31, 2017 2016 ASSETS Current Assets: Cash and cash equivalents $ 3,378 $ 5,686 Accounts receivable, net of allowances of $463 and $376, respectively 714 928 Site equipment to be installed 4,866 2,998 Prepaid expenses and other current assets 680 1,050 Total current assets 9,638 10,662 Fixed assets, net (Note 3) 3,678 3,101 Software development costs, net of accumulated amortization of $2,651 and $2,641, respectively 1,459 970 Deferred costs 775 904 Goodwill (Note 4) 1,004 937 Intangible assets, net (Note 4) - 29 Other assets 16 92 Total assets $ 16,570 $ 16,695 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 390 $ 247 Accrued compensation (Note 6) 646 1,060 Accrued expenses 418 697 Sales taxes payable 107 142 Income taxes payable 13 4 Current portion of long-term debt (Note 11) 5,059 2,988 Current portion of obligations under capital leases (Note 12) 176 155 Current portion of deferred revenue 3,564 1,059 Deferred rent 182 - Other current liabilities 192 291 Total current liabilities 10,747 6,643 Long-term debt (Note 11) 8 5,123 Long-term obligations under capital leases (Note 12) 164 259 Long-term deferred revenue 63 219 Deferred rent - 371 Other liabilities 52 12 Total liabilities 11,034 12,627 Commitments and contingencies (Notes 12 and 13) Shareholders’ Equity (Note 9): Series A 10% cumulative convertible preferred stock, $.005 par value, $156 liquidation preference, 156 shares authorized; 156 shares issued and outstanding at December 31, 2017 and 2016 1 1 Common stock, $.005 par value, 15,000 shares authorized at December 31, 2017 and 2016; 2,521 and 2,261 shares issued and outstanding at December 31, 2017 and 2016, respectively 13 11 Treasury stock, at cost, 10 shares at December 31, 2017 and 2016 (456 ) (456 ) Additional paid-in capital 134,752 132,315 Accumulated deficit (129,119 ) (128,026 ) Accumulated other comprehensive income (Note 14) 345 223 Total shareholders’ equity 5,536 4,068 Total liabilities and shareholders’ equity $ 16,570 $ 16,695 See accompanying notes to consolidated financial statementsF-3NTN BUZZTIME, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(In thousands, except per share amounts) Years Ended December 31, 2017 2016 Revenues Subscription revenue $ 16,949 $ 17,463 Sales-type lease revenue 770 1,266 Other revenue 3,555 3,583 Total revenue 21,274 22,312 Operating expenses: Direct operating costs (includes depreciation and amortization of $1,983 and $2,465, respectively) 6,755 7,710 Selling, general and administrative 15,587 16,458 Depreciation and amortization (excluding depreciation and amortization included in direct operating costs) 334 422 Total operating expenses 22,676 24,590 Operating loss (1,402 ) (2,278 ) Other (expense) income: Interest expense (498 ) (576 ) Other income (expense) 889 (31 ) Total other income (expense), net 391 (607 ) Loss before income taxes (1,011 ) (2,885 ) Provision for income taxes (66 ) (38 ) Net loss $ (1,077 ) $ (2,923 ) Net loss per common share - basic and diluted $ (0.44 ) $ (1.54 ) Weighted average shares outstanding - basic and diluted 2,442 1,903 Comprehensive loss Net loss $ (1,077 ) $ (2,923 ) Foreign currency translation adjustment (Note 14) 122 51 Total comprehensive loss $ (955 ) $ (2,872 ) See accompanying notes that were communicated or required to consolidatedbe communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.F-4NTN BUZZTIME, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTSREPORT OF SHAREHOLDERS’ EQUITYForINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMyearsStockholders, Members and Board of Directors of20172021, and 2016(in thousands) Series A Cumulative Convertible Preferred Stock Common Stock Additional Paid-in Treasury Accumulated Accumulated Other Comprehensive Shares Amount Shares Amount Capital Stock Deficit Income Total Balances at January 1, 2016 156 $ 1 1,849 $ 9 $ 129,209 $ (456 ) $ (125,087 ) $ 172 $ 3,848 Foreign currency translation adjustment - - - - - - - 51 51 Net loss - - - - - - (2,923 ) - (2,923 ) Adjustment to common stock in connection with reverse/forward stock split (Note 9) - - - - (3 ) - - - (3 ) Net proceeds from issuance of common stock related to registered direct offering (Note 9) - - 412 2 2,690 - - - 2,692 Dividend paid to Series A preferred stockholders - - - - - - (16 ) - (16 ) Non-cash stock based compensation - - - - 419 - - - 419 Balances at December 31, 2016 156 $ 1 2,261 $ 11 $ 132,315 $ (456 ) $ (128,026 ) $ 223 $ 4,068 Foreign currency translation adjustment - - - - - - - 122 122 Net loss - - - - - - (1,077 ) - (1,077 ) Common stock issued for compensation in lieu of cash payment - - 30 1 208 - - - 209 Net proceeds from issuance of common stock related to registered direct offering (Note 9) - - 230 1 1,772 - - - 1,773 Dividend paid to Series A preferred stockholders - - - - - - (16 ) - (16 ) Non-cash stock based compensation - - - - 457 - - - 457 Balances at December 31, 2017 156 $ 1 2,521 $ 13 $ 134,752 $ (456 ) $ (129,119 ) $ 345 $ 5,536 See accompanyingthe related notes to consolidated financial statementsF-5NTN BUZZTIME, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) For the twelve months ended
December 31, 2017 2016 Cash flows provided by operating activities: Net loss $ (1,077 ) $ (2,923 ) Adjustments to reconcile net loss to net cash provide by operating activities: Depreciation and amortization 2,317 2,887 Provision for doubtful accounts 72 74 Excess and obsolete site equipment to be installed expense 226 63 Transfer of fixed assets to sales-type lease - 5 Stock-based compensation 457 419 Amortization of debit issuance costs 60 36 Common stock issued for compensation in lieu of cash payment 209 - Loss from disposition of equipment and capitalized software 18 33 Changes in assets and liabilities: Accounts receivable 142 (83 ) Site equipment to be installed (3,932 ) (217 ) Prepaid expenses and other assets 443 121 Accounts payable and accrued liabilities (586 ) 47 Income taxes payable 9 (19 ) Deferred costs 130 425 Deferred revenue 2,349 (327 ) Deferred rent (189 ) (170 ) Other liabilities (99 ) (348 ) Net cash provided by operating activities 549 23 Cash flows (used in) investing activities: Capital expenditures (728 ) (427 ) Software development expenditures (724 ) (413 ) Net cash (used in) investing activities (1,452 ) (840 ) Cash flows (used in) provided by financing activities: Net proceeds from issuance of common stock related to registered direct offering 1,773 2,692 Proceeds from long-term debt 50 2,502 Payments on long-term debt (3,038 ) (1,829 ) Debt issuance costs on long-term debt (82 ) (9 ) Principal payments on capital lease (155 ) (81 ) Adjustments to common stock in connection with reverse/forward stock split (Note 9) - (3 ) Dividends paid to Series A preferred shareholders (16 ) (16 ) Net cash (used in) provided by financing activities (1,468 ) 3,256 Net (decrease) increase in cash and cash equivalents (2,371 ) 2,439 Effect of exchange rate on cash 63 24 Cash and cash equivalents at beginning of year 5,686 3,223 Cash and cash equivalents at end of year $ 3,378 $ 5,686 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 458 $ 492 Income taxes $ 36 $ 47 Supplemental disclosure of non-cash investing and financing activities: Site equipment transferred to fixed assets $ 1,838 $ 1,220 Equipment acquired under capital lease $ 81 $ 279 Site equipment transferred to other current assets $ - $ 176 See accompanying notes to consolidated financial statementsF-6NTN BUZZTIME, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the Years Ended December 31, 2017 and 20161. Organization of CompanyDescription of BusinessNTN Buzztime, Inc. (the “Company”) was incorporated in Delaware in 1984 as Alroy Industries and changed its corporate name to NTN Communications, Inc. in 1985. The Company changed its name to NTN Buzztime, Inc. in 2005 to better reflect the growing role of the Buzztime consumer brand.The Company delivers interactive entertainment and innovative dining technology to bars and restaurants in North America. Customers subscribe to the Company’s customizable solution to differentiate themselves via competitive fun by offering guests trivia, card, sports and single player games, nationwide competitions, and by offering self-service dining features including dynamic menus, touchscreen ordering and secure payment. The Company’s platform can improve operating efficiencies, create connections among the players and venues and amplify guests’ positive experiences. Built on an extended network platform, the Company’s interactive entertainment system has historically allowed multiple players to interact at the venue and also enables competition between venues,(collectively referred to as massively multiplayer gaming. The Company’s current platform, which it refers tothe “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as Buzztime Entertainment On Demand, or BEOND, was commercially launched during 2013 and then scaled during 2014. The Company continues to enhance its network architectureof December 31, 2021, and the BEOND tablet platformresults of its operations and player engagement paradigms. The Company also continues to support its legacy network product line, which it refers to as Classic.The Company currently generates revenue by charging subscription fees for our service to our network subscribers, by leasing equipment (including tablets used in our BEOND tablet platform and the cases and charging trayscash flows for the tablets) to certain network subscribers, by hosting live trivia events, by selling advertising aired on in-venue screens and as part of customized games, from providing professional services (such as developing certain functionality within our platform for customers), and from pay-to-play single player games.Atyear ended December 31, 2017, 2,730 venues2021, in the U.S. and Canada subscribed to the Company’s interactive entertainment network, of which approximately 81% were using the BEOND tablet platform.Basis of Accounting PresentationThe consolidated financial statements include the accounts of NTN Buzztime, Inc. and its wholly-owned subsidiaries: IWN, Inc., IWN, L.P., Buzztime Entertainment, Inc., NTN Wireless Communications, Inc., NTN Software Solutions, Inc., NTN Canada, Inc., and NTN Buzztime, Ltd., all of which, other than NTN Canada, Inc., are dormant subsidiaries. Unless otherwise indicated, references to the Company include its consolidated subsidiaries.2. Summary of Significant Accounting Policies and EstimatesConsolidation—The Company’s consolidated financial statements have been prepared in accordanceconformity with accounting principles generally accepted in the United States (GAAP)of America. ASSETS Current assets: Cash Other receivable Prepaid expenses and other current assets Total current assets Restricted cash 4,095 - Property and equipment, net Right-of-use assets - operating leases Goodwill In-process research and development Investment in non-controlling interest Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable Accrued expenses 1,750 - Operating lease liabilities, current Other current liabilities Total current liabilities Due to related party, non-current 1,206 - Warrant liabilities 331 - Operating lease liabilities, non-current Other liabilities Total liabilities Commitments and contingencies (Note 12) Preferred stock, $0.005 par value, 1,000 shares authorized, 156 designated and outstanding of Series A convertible preferred stock at December 31, 2022 and 2021, $156 liquidation preference Additional paid-in capital Accumulated deficit Total stockholders’ equity Total liabilities and stockholders’ equity Year ended December 31, 2022 2021 5,990 - Total operating expenses - (9,648 ) Change in fair value of warrant liabilities 10,795 - Loss on non-controlling investment (941 ) - Total other income (expenses), net (24,534 ) (122,481 ) (45 ) (64 ) Series A Preferred Additional Membership Equity Common Stock Stock Paid-in Accumulated Class A Class B Class C Common Shares Amount Shares Amount Capital Deficit Total Balances at January 1, 2021 Brooklyn rights offerings membership units Elimination of Eterna LLC’s historical members’ equity Common stock to be retained by NTN stockholders Issuance of common stock to Eterna LLC members Cash dividends to Series A preferred stockholders Forfeiture of unvested restricted stock Stock based compensation Net loss Balances at December 31, 2021 Issuance of common stock and pre-funded warrants in connection with March 2022 private offering, net. - - - - 275 1 - - (1 ) - - Issuance of common stock from exercise of pre-funded warrants - - - - 68 - - - 874 - 874 Issuance of common stock and warrants in connection with November 2022 private offering, net. - - - - 2,185 12 - - 7,383 - 7,395 Forfeiture of unvested restricted stock - - - - (4 ) - - - - - - Issuance of common stock from vested restricted stock units - - - - 2 - - - (5 ) - (5 ) Cash dividends to Series A preferred stockholders - - - - - - - - - (16 ) (16 ) Stock based compensation - - - - - - - - 2,935 - 2,935 Net loss - - - - - - - - - (24,579 ) (24,579 ) Balances at December 31, 2022 $ - $ - $ - $ - 5,127 $ 26 156 $ 1 $ 177,377 $ (165,297 ) $ 12,107 For years ended December 31, 2022 2021 Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization Stock-based compensation Amortization of right-to-use asset Impairment of right-of-use asset 772 - (642 ) - 5,990 - - 80,538 Loss on disposal of fixed assets Gain on lease termination (85 ) - Gain on warrant liabilities (10,795 ) - Loss on non-controlling investment 941 - Transaction costs - shares to Financial Advisor - 5,765 Loss on sale of NTN assets - 9,648 Gain on forgiveness of PPP loan Changes in operating assets and liabilities: Other receivables (262 ) Prepaid expenses and other current assets Other non-current assets (646 ) Accounts payable and accrued expenses Due to related party 2,956 - Operating lease liability Other liabilities Net cash used in operating activities Purchase of property and equipment Proceeds from the sale of fixed assets 250 - Purchase of NTN, net of cash acquired Purchase of Novellus, net of common stock issued and cash acquired Proceeds from the sale of NTN assets, net of cash disposed Net cash used in investing activities Proceeds from issuance of common stock and warrants in connection with private offerings 19,706 - Expenses paid in connection with private offering (110 ) - Issuance of common stock from exercise of pre-funded warrants 7 - Payroll tax remitted on net share settlement of equity awards (5 ) - Principal payments on finance leases (2 ) - Dividends paid to Series A preferred shareholders (16 ) (8 ) Cash paid for fractional shares in connection with reverse stock split (1 ) - Net proceeds of common stock issued to Lincoln Park - 52,025 Proceeds from sale of members’ equity Proceeds from the exercise of stock options Principal payments on notes payable Net cash provided by financing activities Net (decrease) increase in cash, cash equivalents and restricted cash Cash paid during the period for: Interest Income taxes Conversion of warrant liability to equity $ 867 $ - Initial measurement of ROU assets and operating lease liabilities $ 1,706 $ 866 Unpaid fees incurred in connction with private offering $ 208 $ - Initial measurement of finance lease liability $ 10 $ - Issuance of common stock for Series A preferred stock dividend Issuance of common stock for business combination Issuance of common Stock for Novellus acquisition Preferred shares issued in connection with reverse merger Reconciliation of cash, cash equivalents and restricted cash at end of period: Cash and cash equivalents $ 11,446 $ 16,985 Restricted Cash 4,095 - Total Cash, cash equivalents and restriced cash at end of period $ 15,541 $ 16,985 1) Organization and Description of Business Operations 2) Liquidity and Capital Resources 3) Basis of Accounting Presentation and Summary of Significant Accounting Policies —Preparing the Company’sitmanagement to make estimates and judgmentsassumptions that affectaffect: (a) the reported amounts of assets liabilities, revenues and expenses, and relatedliabilities; (b) disclosure of contingent assets and liabilities.liabilities at the date of the consolidated financial statements; (c) the reported amounts of expenses during the reporting period; and (d) the reported amount of the fair value of assets acquired in connection with business combinations. On an ongoing basis, the Company evaluates its estimates, including those related to deferred coststhe recoverability and revenues; depreciationuseful lives of fixedlong-lived assets; allowance for doubtful accounts; site equipment to be installed; stock-based compensation assumptions; impairmentvaluation assumptions of fixed assets, software development costs, intangible assets and goodwill; contingencies, including the reserve for sales tax inquiries;warrants; contingencies; and the provision for income taxes, including the valuation allowance. The Company bases its estimates on a combination of historical experience and various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about significant carrying values of assets and liabilities that are not readily apparent from other sources.circumstances. Actual results may differ materially from these estimates. and Cash Equivalents—Accounting Standards Codification (“ASC”) No. 230,Statement of and Restricted Cash Flows, defines “cash and cash equivalents” as any short-term,investment that is both readily convertible to known amountsinvestments with a remaining contractual maturity at date of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. For the purpose of financial statement presentation, the Company has applied the provisions of ASC No. 230, as it considers all highly liquid investment instruments with original maturitiespurchase of three months or less or any investment redeemable without penalty or loss of interest, to beas cash equivalents.F-7Capital Resources— In November 2017, the Company entered into an amended and restated loan and security agreement (the “Amended and Restated Loan Agreement”) with East West Bank (“EWB”). The Amended & Restated Loan Agreement amends and restates the loan and security agreement that the Company entered into with EWB dated as of April 14, 2015 (as the same has been previously amended, the “Prior Loan Agreement”). The Amended and Restated Loan Agreement provides for $4,500,000 as a one-time 36-month term loan, of which the Company used $4,450,000 to refinance the $4,450,000 the Company had outstanding under the Prior Loan Agreement. The Company applied the additional $50,000 to pay the $45,000 facility fee and to pay reasonable costs or expenses incurred by EWB in connection with the Amended and Restated Loan Agreement. The Company is required to make payments on the loan on the last calendar day of each month commencing on December 31, 2017 and through its maturity date, November 29, 2020. Payments will be interest only until the payment due on June 30, 2018, at which time payments will become principal plus interest. As of December 31, 2017, $4,500,000 was outstanding under the Amended and Restated Loan Agreement, all of which is recorded in current portion of long-term debt on the accompanying consolidated balance sheet as a result of the covenant non-complianceno cash equivalents as of December 31, 2017 discussed2022 or 2021.Note 11, Long-Term Debt, below. The Company recorded total debt issuance coststhe form of $59,000, which includesa letter of credit issued by the $45,000 facility fee. The debt issuance costs will be amortizedCompany’s commercial bank and delivered to interest expense using the effective interest rate method over the lifesublessor of the loan. AsSublease. The amount of December 31, 2017,required restricted cash collateral will decline in parallel with the unamortized portion of the debt issuance costs was $56,000 and is recorded as a reduction of long term debt. We have no more borrowing availability under the Amended and Restated Loan Agreement.The Company has another financing arrangement with an equipment lender under which the Company may request funds to finance the purchase of certain capital equipment. The lender determines whether to extend such funds on a case-by-case basis, taking into account such factors as the lender considers relevant, including the amount outstanding under this financing arrangement. Through December 31, 2017, the Company borrowed $9,690,000. As of December 31, 2017, $623,000 remained outstanding, of which $615,000 is recorded in current portion of long-term debt and $8,000 is recorded in long-term debt on the accompanying consolidated balance sheet. The Company currently does not expect the lender to lend any additional funds under this financing arrangement.In connection with preparing the financial statement as of and for the year ended December 31, 2017, the Company evaluated whether there are conditions and events, considered in the aggregate, that are known and reasonably knowable that would raise substantial doubt about its ability to continue as a going concern within one year after the date that the financial statements are issued. As a result of such evaluation, the Company believes it will have sufficient cash to meet its operating cash requirements and to fulfill its debt obligations for at least the next twelve months from the issuance date of these financial statements. In order to increase the likelihood that the Company will be able to successfully execute its operating and strategic plan and to position the Company to better take advantage of market opportunities for growth, the Company is continuing to evaluate additional financing alternatives, including additional equity financings and alternative sources of debt. If the Company’s cash and cash equivalents are not sufficient to meet future cash requirements, the Company may be required to reduce planned capital expenses, reduce operational cash uses or raise capital on terms that are not as favorable to the Company as they otherwise might be. Any actions the Company may undertake to reduce planned capital purchases or reduce expenses may be insufficient to cover shortfalls in available funds. If the Company requires additional capital, it may be unable to secure additional financing on terms that are acceptable to the Company, or at all.Allowance for Doubtful Accounts—The Company maintains allowances for doubtful accounts for estimated losses resulting from nonpayment by its customers. The Company reserves for all accounts that have been suspended or terminated from its Buzztime network services and for customers with balances that are greater than a predetermined number of days past due. The Company analyzes historical collection trends, customer concentrations and creditworthiness, economic trends and anticipated changes in customer payment patterns when evaluating the adequacy of its allowance for doubtful accounts for specific and general risks. Additional reserves may also be established if specific customers’ balances are identified as potentially uncollectible. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.Site Equipment to be Installed –Site equipment to be installed consist of finished goods related to the Company’s BEOND product platform and are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. Rapid technological change or new product development could result in an increase in the quantity of obsolete site equipment to be installed on hand, and the Company could recognize losses from disposal of excess or obsolete site equipment to be installed. Additionally, the Company’s carrying costs of its site equipment to be installed are dependent on accurate estimates of customer demand for its products. A significant increase in the demand for the Company’s products could result in a short-term increase in the cost of site equipment purchases, while a significant decrease in demand could result in an increase in the amount of excess site equipment quantities on hand. As a result, although the Company attempts to maximizeletter of credit over the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the valueterm of the Company’s siteSublease. to be installed and its reported operating results.The BEOND tablet platform equipment remains in site equipment to be installed until it is installed in customer sites. For BEOND 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 BEOND tablet platform customers, the cost of the equipment is reclassified to fixed assets upon installation and depreciated over its useful life.F-8Fixed Assets— Fixed assets are recorded at cost. Equipment under capital leases is recorded at the present value of future minimum lease payments. Depreciation of fixed assets is computedcost and are depreciated over their estimated useful lives using the straight-line methodmethod. Laboratory and manufacturing equipment are depreciated over thean estimated useful liveslife of the assets. Depreciation of leaseholdseven years. Leasehold improvements and fixed assets under capital leases is computed using the straight-line methodare depreciated over the shorter of thetheir estimated useful lives of the assetslife, or the lease period.The Company incurs a relatively significant level of depreciation expense in relation to its operating income. The amount of depreciation expense in any fiscal year is largely related to theterm. Computer equipment located at the Company’s customers’ sites that are not under sales-type lease arrangements. Such equipment includes the Classic Playmaker, BEOND tablet, other associated electronics and the computers located at customer’s sites (collectively, “Site Equipment”). The components within Site Equipment are depreciated over two to five years based on the shorter of the contractual capital lease period or thean estimated useful life which considers anticipated technology changes. Ifof three years. Upon retirement or other disposition of these assets, the Company’s Site Equipment turns outcost and related accumulated depreciation of these assets are removed from the accounts and the resulting gain or losses are reflected in the results of operations. Expenditures for maintenance and repairs are charged to have longer lives, on average, than estimated, then its depreciation expense would be significantly reduced in those future periods. Conversely, if the Site Equipment turns out to have shorter lives, on average, than estimated, then its depreciation expense would be significantly increased in those future periods.Goodwilloperations. Renewals and Other Intangible Assets—betterments are capitalized.coststhe purchase price over the fair value of assets of businesses acquired. Goodwill and intangibleidentifiable net assets acquired in the acquisition of IRX Therapeutics, Inc. (“IRX”) in November 2018 (the “IRX Acquisition”), which was accounted for as a purchase combination determined to have an indefinite useful life arebusiness combination. Goodwill is not amortized but instead are assessed quarterlyis tested for impairment based onannually or if events occur or circumstances change that would reduce the fair value of a reporting unit below its carrying value. Because management evaluates the Company as a single reporting unit, goodwill is tested for impairment at the entity level by first performing a qualitative factorsassessment 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 goodwillentity is less than its carrying amount.value. Such qualitative factors include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events. If after assessing the totalityentity does not pass the qualitative assessment, then the entity’s carrying value is compared to its fair value. Goodwill is considered impaired if the carrying value of eventsthe entity exceeds its fair value.circumstancesabandonment of the associated research and development projects. During the period that the IPR&D assets are considered indefinite-lived, they are tested for impairment on an annual basis or more frequently if the Company determines it is not more likely than not that the goodwill is less than its carrying amount, then performing the two-step impairment test outlined in ASC No. 350 is unnecessary. During the year ended December 31, 2017, the Company performed the annual assessmentbecomes aware of its goodwill related to NTN Canada, Inc., and determined that there were no indications of impairment.ASC No. 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with ASC No. 360,Property, Plant and Equipment. In accordance with ASC No. 360, the Company assesses potential impairments of its long-lived assets wheneverany events occurring or changes in circumstances that indicate that the asset’s carryingfair value may not be recoverable. An impairment loss would be recognized when the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the useIPR&D assets are less than their carrying amounts. If and eventual disposition of the asset or asset group. The Company performed its annual review as of December 31, 2017 and 2016 of its other intangible assets and determined that there were no indications of impairment for either of those periods.Revenue Recognition—The Company recognizes revenue from recurring subscription fees for its service earned from its network subscribers, from leasing equipment (including tablets used in its BEOND tablet platformwhen development is complete, which generally occurs upon regulatory approval, and the cases and charging trays for the tablets)Company is able to certain network subscribers, from hosting live trivia events, from selling advertising aired on in-venue screens and as part of customized games and directly from consumers who pay to play or use the premium content the Company began offering via its BEOND tablet platform in 2014. To the extent any of the foregoing contain multiple deliverables, the Company evaluates the criteria in ASC No. 605,Revenue Recognition, to determine whether such deliverables represent separate units of accounting. In order to be considered a separate unit of accounting, the delivered items in an arrangement must have stand-alone value to the customer and objective and reliable evidence of fair value must exist for any undelivered elements. The Company’s arrangements for the transmission of the Buzztime network contain two deliverables: the installation of its equipment and the transmission of its network content for which the Company receives monthly subscription fees. As the installation deliverable does not have stand-alone value to the customer, it does not represent a separate unit of accounting. Therefore, for the Company’s Classic product, all installation fees received are deferred and recognized as revenue on a straight-line basis over the estimated life of the customer relationship. Because deployment of the Company’s BEOND tablet platform is so new, the Company has not yet established an estimated life of a BEOND customer, and therefore, it is deferring and recognizing installation fees as revenue on a straight-line basis over the customer contract term. All installation fees not recognized in revenue have been recorded as deferred revenue in the accompanying consolidated balance sheets.In addition, the direct expenses of the installation, commissions, setup and training are deferred and amortized on a straight-line basis and are classified as deferred costs on the accompanying consolidated balance sheets. For these direct expenses that arecommercialize products associated with the Classic product,IPR&D assets, these assets are then deemed definite-lived and are amortized based on their estimated useful lives beginning at that point in time. If development is terminated or abandoned, the amortization period approximatesCompany may have a full or partial impairment charge related to the estimated lifeIPR&D assets, calculated as the excess of carrying value of the customer relationshipIPR&D assets over fair value.deferred direct costs thatcompany-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 of an amountexpensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended. IPR&D that is less than or equalacquired through an asset acquisition (as opposed to a business combination) and has no alternative future uses and, therefore, no separate economic values, is expensed to research and development costs at the deferred revenuetime the costs are incurred.theclinical trials, expensed licensed technology, expensed IPR&D, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead costs related contract. For costs that exceed the deferred revenue, the amortization period is the initial term of the contract, in accordance with ASC No. 605, which is generally one year. For direct costs associated with the BEOND tablet platform, the amortization period approximates the life of the contract.The Company evaluated its lease transactions in accordance with ASC No. 840,Leases,to determine classification of the leases against the following criteria:●The lease transfers ownership of the property to the lessee by the end of the lease term;●There is a bargain purchase option;●The lease term is equal to or greater than 75% of the economic life of the equipment; or●The present value of the minimum payments is equal to or greater than 90% of the fair market value of the equipment at the inception of the lease.
our product development efforts.F-9Because the Company’s current leasing agreement meets at least one of the criteria above, because collectability of the minimum lease payments is reasonably assured and because there are no important uncertainties surrounding the amount of reimbursable costs yet to be incurred under the lease, the Company classifies the lease as a sales-type lease, and it recognizes revenue when persuasive evidence of an arrangement exists, product delivery has occurred or the services have been rendered, the price is fixed and determinable and collectability is reasonably assured.The Company recognizes revenues from selling advertising, from hosting live trivia events and from consumers who pay to play the Company’s premium content when all material services or conditions relating to the transaction have been performed or satisfied.arrangementscontracted with certain third parties to shareperform various clinical study and trial activities in revenue generatedthe development and testing of potential products. The financial terms of these agreements vary from some of its productscontract to contract and services.may result in uneven payment flows. The Company evaluates recognitionaccrues for third party expenses based on estimates of the associated revenue in accordance with ASC No. 605-45,Revenue Recognition, Principal Agent Considerations.When indicators suggest thatservices received and efforts expended during the Companyreporting period. If the actual timing of the performance of the services or the level of effort varies from the estimate, the accrual is functioning as a principal, it records revenue gross and the corresponding amounts paid to third parties are recorded as direct expense. Conversely, when indicators suggest that the Company is functioning as an agent, it records revenue net of amounts paid to third parties.Software Development Costs—adjusted accordingly. The Company capitalizes costs related to developing certain software products in accordance with ASC No. 350. Amortization of costs related to interactive programs isexpenses for some third-party services may be recognized on a straight-line basis overif the programs’ estimated useful lives, generally twoexpected costs are expected to three years. Amortization expense relating to capitalized software development costs totaled $230,000 and $386,000 forbe incurred ratably during the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017 and 2016, approximately $784,000 and $642,000, respectively, of capitalized software costs were not subject to amortizationperiod. Payments under the contracts depend on factors such as the developmentachievement of various software projects was not complete.performed its annual review of software development projects for the year ended December 31, 2017records deferred tax liabilities and determined to abandon various software development projects that it 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, an impairment of $5,000 was recognized for the year ended December 31, 2017, which was recorded in selling, general and administrative expensesassets based on the Company’s consolidated statements of operations. The Company also performed its annual review for the year ended December 31, 2016 and determined that there were no indications of impairments during this period.Advertising Costs –There were no marketing-related advertising costs for the either of the years ended December 31, 2017 or 2016.Shipping and Handling Costs—Shipping and handling costs are included in direct operating costs in the accompanying consolidated statements of operations and are expensed as incurred.Stock-Based Compensation— The Company estimates the fair value of its stock options using a Black-Scholes option pricing model, consistent with the provisions of ASC No. 718, Compensation – Stock Compensation and ASC No. 505-50,Equity – Equity-Based Payments to Non-Employees. The fair value of stock options granted is recognized to expense over the requisite service period. Stock-based compensation expense for share-based payment awards to employees is recognized using the straight-line single-option method. Stock-based compensation expense for share-based payment awards to non-employees is recorded at its fair value on the grant date and is periodically re-measured as the underlying awards vest. Stock-based compensation expense is reported as selling, general and administrative based upon the departments to which substantially all of the associated employees report.Income Taxes—Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statementstatements carrying amounts and the tax basis of existing assets and liabilities, and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable incomein effect in the years in which those temporarythe differences are expected to be recovered or settled. The effect on deferred tax assetsreverse and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced byestablishing a valuation allowance when in the opinion of management, it iswas more likely than not that some portion or all of the deferred tax assets willwould not be realized.ASC No. 740,Income Taxes, definestax expense consists of the thresholdtax payable for recognizing the period and the change during the period in deferred tax assets and liabilities.offrom uncertain tax return positions inare recognized only if it is more likely than not that the financial statements as “more-likely-than-not” totax position will be sustained on examination by the taxing authority. Aauthorities, based on the technical merits of the position. The tax position that meetsbenefits recognized in the “more-likely-than-not” criterionconsolidated financial statements from such a position are measured atbased on the largest amount of benefit that is morehas a greater than 50% likelylikelihood of being realized upon ultimate settlement.resolution. The Company reviewed itshas no material uncertain tax positions and determined that an adjustment tofor any of the tax provision is not considered necessary nor is a reserve for income taxes required.
reporting periods presented.F-10Earnings—applicableattributable to common stockstockholders by the weighted average number of common shares outstanding. The Company’s basic and fully diluted earningsloss per share (“EPS”) calculationcalculations are the same sincebecause the increased number of shares that would be included in the diluted calculation from assumed exercise of common stock equivalents would be anti-dilutive to the net loss in each of the years shown in the consolidated financial statements.—In, the Company has determined that it operates as one operating segment. Decisions regardingoverallbusiness, vendor concentrations could be indicative of vulnerabilities in the Company’s supply chain, which could ultimately impact the Company’s ability to continue its research and development activities. For the years ended December 31, 2022 and 2021, there was no vendor concentration related to the Company’s research and development activities.performancelease liabilities adjusted for prepaid or accrued lease payments, initial direct costs, lease incentives and allocationimpairment of its resourcesoperating lease assets. If the interest rate implicit in the lease is not readily determinable, the Company uses the incremental borrowing rates for collateralized borrowings in an amount equal to the lease payments under similar terms.assesseddependent on usage or may vary for other reasons, such as payments for insurance, tax payments and other miscellaneous costs. The variable portion of payments contemplated in the lease that do not depend on an index or rate are not included in the ROU assets or lease liabilities. Rather, variable payments that do not depend on 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.consolidatedstraight-lined basis.PronouncementsFebruary 2018,July 2021, the FASB issued Accounting Standards Update (“ASU”) No. 2018-02,Income Statement—Reporting Comprehensive Income2021-05, Leases (Topic 220)—Reclassification of842) – Lessors - Certain Tax Effects from Accumulated Other Comprehensive Income. This update was issuedLeases with Variable Lease Payments, which amends the lessor classification guidance to address the income tax accounting treatment of the stranded tax effects within other comprehensive income due to the prohibition of backward tracing due to an income tax rate changeintroduce additional criteria when classifying leases with variable lease payments that was initially recorded in other comprehensive income. This issue came about from the enactment of the Tax Cuts and Jobs Actdo not depend on December 22, 2017, which changed the Company’s income tax rate from 35% to 21%.a reference index or a rate. The Company adopted this ASU changed current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings. The ASU is effective for periods beginning after December 15, 2018 (which is January 1, 2019 for the Company), although early adoption is permitted. The Company does2022, which did not anticipate that the adoption of this ASU will have a material impact on its consolidated financial statements.July 2017,May 2021, the FASB issued ASU 2017-11,2021-04, Earnings Per Share (Topic 260), Distinguishing Liabilities from EquityDebt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 480)718), and Derivatives and Hedging (Topic 815)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. The amendments in Part I ofCompany adopted this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present EPS in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this update areASU effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (which is January 1, 2019 for the Company). Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company does2022, which did not anticipate that the adoption of this ASU will have a material impact on its consolidatedthe Company’s financial statements.May 2017,November 2021, the FASB issued ASU 2017-09,Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting,2021-10, Disclosures by Business Entities about Government Assistance, which provides guidance about which changes to the terms or conditions ofrequires a share-based payment award require anbusiness entity to apply modificationdisclose information about certain government assistance that it has received, including (i) the type of assistance, (ii) an entity’s accounting in Topic 718. This update isfor the assistance and (iii) the effect of the assistance on the entities accounting statements. The Company adopted this standard effective for annual reporting periods beginning after December 15, 2017 (which is January 1, 2018 for the Company). Early adoption is permitted. The Company does2022, which did not anticipate that the adoption of this ASU will have a material impact on itsthe Company’s financial statements. The Company has approximately $0.6 million in payroll tax refunds recorded in other receivable on the accompanying consolidated financial statements.January 2017,June 2022, the FASB issued ASU No 2017-04,Intangibles – GoodwillNo. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). The FASB issued ASU 2022-03 to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and Other (Topic 350): Simplifying(3) to introduce new disclosure requirements for equity related securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 clarifies that a contractual restriction on the Test for Goodwill Impairment. This update removes the requirement to perform step twosale of an equity security is not considered part of the quantitative two-step goodwill impairment test. An entity still hasunit of account of the option to perform the qualitative assessment for an entity to determine if the quantitative impairment testequity security and, therefore, is necessary. This update is effective on a prospective basis for fiscal years beginning after December 15, 2019 (which is January 1, 2020 for the Company). Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.not considered in measuring fair value. The Company does not anticipate that the adoption of this ASU will have a material impact on its consolidated financial statements.In November 2016, the FASB issued Accounting Standards Update (ASU) No 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash. This update requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. This updateguidance is effective for fiscal years beginning after December 15, 2018 (which is January 1, 2019 for the Company), including interim periods within those periods, using a retrospective transition method to each period presented. The Company does not anticipate that the adoption of this ASU will have a material impact on its consolidated financial statements.F-11In October 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory. This update requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This update is effective for fiscal years beginning after December 15, 2017 (which is January 1, 2018 for the Company), including2023, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year. The new standard must be adopted using a modified retrospective transition method, which is a cumulative-effective adjustment to retained earnings as of the beginning of the first effective reporting period. The Company does not anticipate that the adoption of this ASU will have a material impact on its consolidated financial statements.In August 2016, the FASB issued ASU No. 2016-15,Classification of Certain Cash Receipts and Cash Payments. This update is intended to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. This update is effective for fiscal periods beginning after December 15, 2017 (which is January 1, 2018 for the Company),years with early adoption permitted. The Company does not anticipate thatis evaluating when to adopt the adoption of thisamendments in ASU will have a material impact on its consolidated financial statements.In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842). This update requires lessees to recognize at the lease commencement date a lease liability, which is the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use assets, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees will no longer be provided with a source of off-balance sheet financing. This update is effective for fiscal periods beginning after December 15, 2018 (which is January 1, 2019 for the Company), including interim periods within those fiscal years. Early adoption is permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Applying a full retrospective transition approach is not allowed.2022-02. The Company does not anticipate that the adoption of this ASU will haveexpect a material impact as a result of adopting this ASU.4) Merger, Disposition and Acquisition Transactions Cash and cash equivalents $ 148 $ - $ 148 Accounts receivable 103 - 103 Prepaid expense and other current assets 329 - 329 Property and equipment, net 1,015 - 1,015 Software development costs 1,296 (368 ) 928 Customers - 548 548 Trade name - 299 299 Accounts payable, accrued liabilities and other current liabilities (3,781 ) - (3,781 ) Net assets acquired, excluding goodwill $ (890 ) $ 479 $ (411 ) Total consideration $ 8,178 Net assets acquired, excluding goodwill (411 ) Goodwill $ 8,589 consolidated financial statements.In May 2014,balance sheet at the FASB issued ASU No. 2014-09,Revenueeffective time of the Merger. To ensure Eterna LLC had the required funds, certain beneficial holders of Eterna LLC’s Class A membership interests entered into contractual commitments to invest $10.0 million into Eterna LLC immediately prior to the closing of the Merger. During March 2021, Eterna offered its Class A unit holders an additional 5% rights offering for an additional $0.5 million to be raised by a rights offering. Eterna received funds from Contracts with Customers (Topic 606). This update outlines a new, single comprehensive model for entitiesthe rights offering between February 17, 2021 and April 5, 2021.use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognitionthe assets relating to depict the transfer of promised goods or servicesbusiness it operated (under the name NTN Buzztime, Inc.) prior to customers in an amount that reflects the consideration a company expectsMerger to receiveeGames.com in exchange for those goods or services. In August 2015,a purchase price of $2.0 million and assumption of specified liabilities relating to that business. The sale was completed in accordance with the FASB issued ASU No. 2015-14,Revenue from Contracts with Customers (Topic 606): Deferralterms of the Effective Date,Asset Purchase Agreement. Details of the Disposition are as follows (in thousands):Proceeds from sale: Cash $ 132 Escrow 50 Assume advance/loans 1,700 Interest on advance/loans 68 Carrying value of assets sold: Cash and cash equivalents (14 ) Accounts receivable (75 ) Prepaids and other current assets (124 ) Property and equipment, net (1,014 ) Software development costs (927 ) Customers (548 ) Trade name (299 ) Goodwill (8,589 ) Other assets (103 ) Liabilities transferred upon sale: Accounts payable and accrued expenses 113 Obligations under finance leases 17 Lease liability 26 Deferred revenue 55 Other current liabilities 149 Transaction costs (265 ) Total loss on sale of assets $ (9,648 ) deferredNovellus, as the effectivesurviving corporation, became Eterna’s wholly owned subsidiary and Novellus Limited became Eterna’s indirectly owned subsidiary; andASU 2014-09issuance, the fair value of the shares was approximately $58.7 million.one year. ASU 2014-09 is now effectiveEterna, immediately following the Novellus Acquisition.fiscal periods beginning after December 15, 2017 (which is January 1, 2018a period of three years, provided that up to 75% of the shares of common stock subject to the lock-up agreement may be released from the lock-up restrictions earlier if the price of common stock on the Nasdaq exceeds specified thresholds. The lock-up agreements include customary exceptions for transfers during the applicable lock-up period.Company)Novellus Acquisition as an asset acquisition (as the assets acquired did not constitute a business as defined in ASC Topic 805, Business Combinations), including interim periods withinand was measured by the amount of cash paid and by the fair value of the shares of common stock issued. As a result, substantially all of the value acquired was attributed to IPR&D, with the exception of the cash paid for the investment in NoveCite, which is being accounted for as an investment in equity securities, as discussed further below. Cash paid $ 22,882 Cash acquired (28 ) Unrestricted shares 36,628 Restricted shares 22,056 Total fair value of consideration paid 81,538 Less amount of cash paid for NoveCite investment (1,000 ) Fair value of IPR&D acquired $ 80,538 reporting period. Early adoption is permitted only asacquired through an asset purchase that has no alternative future uses and no separate economic values from its original intended purpose is expensed in the period the cost is incurred. Accordingly, the Company expensed the fair value of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.the IPR&D during the third quarter of 2021 in the amount of $80.5 million.has the option of using either a full retrospective or a modified approach to adopting the guidance.is accounting for its interest in NoveCite under ASC Topic 323, Investments – Equity Method and Joint Ventures. The Company will apply the full-retrospective method when adopting this guidance. This update requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required for customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The Company continues to evaluate the effect of adopting this update and expects to complete its assessment by the end of the quarter ending March 31, 2018.F-123. Fixed AssetsFixed assets areinvestment was recorded at cost, which was $1.0 million, and consist of the following at December 31, 2017 and 2016: December 31, 2017 2016 Broadcast equipment $ 10,419,000 $ 10,671,000 Machinery and equipment 2,678,000 2,523,000 Furniture and fixtures 279,000 271,000 Leasehold improvements 610,000 610,000 Other equipment 15,000 15,000 14,001,000 14,090,000 Accumulated depreciation (10,323,000 ) (10,989,000 ) Total $ 3,678,000 $ 3,101,000 Depreciation expense totaled $2,058,000 and $2,451,000is adjusted for the yearsCompany’s share of NoveCite’s earnings or losses, which are reflected in the accompanying consolidated statements of operations. The investment may also reflect an equity loss in the event that circumstances indicate an other-than-temporary impairment. For the year ended December 31, 20172022, the Company recorded approximately $0.9 million in losses from its investment in NoveCite, and, 2016, respectively.4. Goodwill and Other Intangible AssetsCompany’s goodwill balanceCompany does not guarantee obligations of $1,004,000 and $937,000NoveCite nor is it otherwise committed to provide financial support for NoveCite. Therefore, the Company will record losses only up to its investment carrying amount.5) Fair Value of Financial Instruments 2017 and 2016, respectively, relates to2021. The following tables summarize the purchase of NTN Canada, Inc. Fluctuations in the amount of goodwill shown on the accompanying balance sheets are due to changes in the foreign currency exchange rates used when translating NTN Canada, Inc.’s financial statement from Canadian dollars to US dollars during consolidation. The Company performed its annual assessment of goodwill impairment for NTN Canada as of December 31, 2017 and determined there were no indications of impairment.The Company performed its annual review of its other intangible assets as of December 31, 2017 and 2016 and determined that there were no indications of impairment for either of the years ended on those dates.As of December 31, 2017, all intangible assets were fully amortized with no remaining useful lives. Amortization expense relating to all intangible assets totaled $29,000 and $50,000 for the years ended December 31, 2017 and 2016, respectively.5. Fair Value of Financial InstrumentsThe carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, long-term debt and obligations under capital leases approximate fair value due to the short maturity of these instruments.ASC No. 820,Fair Value Measurements and Disclosures, applies to certain assets and liabilities that are being measured and reported on a fair value basis. Broadly, the ASC No. 820 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ASC No. 820 also establishes a fair value hierarchy for ranking the quality and reliability of the information used to determine fair values. This hierarchy is as follows:Level 1: Quoted market prices in active markets for identical assets or liabilities.Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.Level 3: Unobservable inputs that are not corroborated by market data.Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:The Company does not have assets or liabilities that are measured at fair value onas of December 31, 2022 (in thousands): As of December 31, 2022 Description Level 1 Level 2 Level 3 Liabilities: Warrant liabilities - Q1-22 Common Warrants $ - $ - $ 331 Total $ - $ - $ 331 recurring basis.Assets and Liabilitiescashless settlement provision that are Measured at Fair Value on a Nonrecurring Basis:Certain assets aredoes not meet the requirements of the indexation guidance under ASC 815-40. These warrant liabilities were measured at fair value at inception and are then subsequently measured on a non-recurringrecurring basis, and are subject towith changes in fair value adjustments only in certain circumstances. Includedpresented within the Company’s statements of operations.categoryBlack-Scholes pricing model may fluctuate in future periods based upon factors that are goodwill written down tooutside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value when determinedmay cause a significant change to be impaired, acquired assets and long-lived assets including capitalized software that are written down tothe fair value when they are held for sale or determined to be impaired. The valuation methods for goodwill, assets and liabilities resulting from acquisitions, and long-lived assets involve assumptions concerning interest and discount rates, growth projections, and/or other assumptions of future business conditions. As all of the assumptions employed to measure these assets andCompany’s warrant liabilities, on a nonrecurring basis are based on management’s judgment using internal and external data, thesewhich could also result in material non-cash gains or losses being reported in the Company’s consolidated statement of operations.determinations are classified in Level 3 of the Q1-22 Pre-Funded Warrants was deemed a Level 2 measurement as all significant inputs to the valuation hierarchy.There were no transfers betweenmodel used to estimate the fair value measurement levels duringof the Q1-22 Pre-Funded Warrants were directly observable from the Company’s publicly-traded common stock. Upon exercise of the Q1-22 Pre-Funded Warrants on July 12, 2022, the Company reclassified the approximately $0.9 million fair value of the Pre-Funded Warrants to equity. Fair value at January 1, 2022 $ - $ - $ - Fair value at March 9, 2022 (issuance date) 2,646 9,943 12,589 Change in fair value of warrant liabilities (1,779 ) (9,612 ) (11,391 ) Exercise of Q1-22 Pre-Funded Warrants (867 ) - (867 ) Fair value at December 31, 2022 $ - $ 331 $ 331 6) Property and Equipment As of December 31, 2022 2021 Laboratory and manufacturing equipment $ 28 $ 258 Leasehold improvements - 464 240 155 268 877 Less accumulated depreciation and amortization (32 ) (207 ) Property and equipment, net $ 236 $ 670 2017.2022, the Company consolidated its research and development activities in Cambridge, Massachusetts and entered into lease termination agreements for its Brooklyn, New York and San Diego, California facilities. (See Note 7 for more information on lease terminations.) As a result, the Company disposed of certain assets it would no longer use and recognized a loss on disposal of fixed assets of approximately $0.3 million, which was composed of $0.6 million in remaining net book value of such assets, offset by proceeds received from selling certain fixed assets for approximately $0.3 million.7) F-13Leases 6. Accrued CompensationAccrued compensation consistedfollowingassignment was March 28, 2022. Under the Assignment Agreement, Regen assumed all of the obligations, liabilities, covenants and conditions of the Company as tenant under the Brooklyn Lease. As a result of the lease assignment, the Company wrote off the remaining ROU asset balance of approximately $1.4 million and the corresponding lease liability of approximately $1.5 million.20172022.2016: December 31, 2017 2016 Accrued vacation $ 290,000 $ 291,000 Accrued salaries 278,000 264,000 Accrued bonuses 61,000 487,000 Accrued commissions 17,000 18,000 Total accrued compensation $ 646,000 $ 1,060,000 7. Concentrationssubsidiary of RiskCredit RiskAt times,Bristol-Myers Squibb Company (“Sublessor”), for office, laboratory and research and development space (the “Premises”). The Premises consist of approximately 45,500 square feet on the Company’s cash balances heldninth floor of the building currently under construction located at 250 Water Street, Somerville, Massachusetts 02141.financial institutionsaccordance with the terms of the Sublease.federally insured limits. Thethis amount, if any, will be at the Company’s own cost. As of December 31, 2022, the Premises had not been made available for the Company performs periodic evaluationsto begin the construction of the relative credit standing of financial institutionstenant improvements. It is expected that the Premises will be made available to begin the construction in March or April 2023, and seeks to limit the amount of risk by selecting financial institutions with a strong credit standing. The Company believes it is anticipated that the construction will be complete and ready for operational use in November or December 2023. As a result, the commencement date of the Sublease did not exposedoccur as of December 31, 2022, and accordingly, the Company did not recognize a lease liability and corresponding ROU asset for the Sublease as of December 31, 2022.any significant credit risk with respectdesign the tenant improvements to its cashthe Premises and cash equivalents.The Buzztime network provides servicesfor a project manager to group viewing locations, generally restaurants, sports bars and lounges throughout North America. Concentrationmanage the construction of the tenant improvements as well as approximately $0.1 million in bank fees related to the issuance of the letter of credit risk with respect to trade receivables is limited due todiscussed above. These costs are recorded in other assets in the large numberaccompanying consolidated balance sheet as of customers comprising the Company’s customer base, and their dispersion across many different geographic locations. The Company performs credit evaluations of new customers and generally requires no collateral. The Company maintains an allowance for doubtful accounts to provide for credit losses.Significant Customer20172022 and 2016,2021, the Company generated approximately $8,678,000net operating lease expenses were as follows (in thousands): Years ended December 31, 2022 2021 Operating lease expense $ 595 $ 688 Sublease income (84 ) (84 ) Variable lease expense 150 19 Total lease expense $ 661 $ 623 $8,913,000, respectively,lease liabilities as of total revenue from Buffalo Wild Wings corporate-owned restaurantsJanuary 1, 2022 and its franchisees, which represented approximately 41% and 40%the ending balances as of total revenue in each of those years, respectively. December 31, 2022, including the changes during the period (in thousands). Operating lease ROU assets at January 1, 2022 $ 2,567 Initial measurement of ROU asset 1,706 Amortization of operating lease ROU assets (336 ) Impairment of ROU asset (772 ) Remeasurment of ROU asset (813 ) Reclassification from fixed assets to ROU assets 50 Write off of ROU asset due to lease termination (1,372 ) Operating lease ROU assets at December 31, 2022 $ 1,030 Operating lease liabilities at January 1, 2022 $ 2,723 Initial measurement of operating lease liabilities 1,706 Principal payments on operating lease liabilties (340 ) Remeasurment of lease liability (1,454 ) Write off of lease liability due to lease termination (1,453 ) Operating lease liabilities at December 31, 2022 1,182 Less non-current portion 887 Current portion at December 31, 2022 $ 295 20172022, the Company’s operating leases had a weighted-average remaining life of 4.5 years with a weighted-average discount rate of 9.98%. The maturities of the operating lease liabilities are as follows (in thousands): 2023 $ 403 2024 272 2025 274 2026 267 2027 163 Thereafter 82 Total payments 1,461 Less imputed interest (279 ) Total operating lease liabilities $ 1,182 2016,therefore, the Company did not record a corresponding lease liability and ROU asset.$191,000999 square feet of space currently rented by the Company in the borough of Manhattan in New York, New York commencing on May 15, 2019. The term of this sublease expires on October 31, 2026 with no option to extend the sublease term. Rent payments provided by the Tenant under the sublease agreement began on September 1, 2019. The sublease agreement stipulates an annual rent increase of 2.25%. The Tenant is also responsible for paying to the Company all tenant energy costs, annual operating costs, and $261,000, respectively, was included in accounts receivable from Buffalo Wild Wings corporate-owned restaurants and its franchisees.Sole Equipment Suppliercurrently purchasesreceived sublease payments of approximately $0.1 million for each of the tablets, casesyears ended December 31, 2022 and charging trays used2021, respectively. In accordance with ASC Topic 842, the Company treats the sublease as a separate lease, as the Company was not relieved of the primary obligation under the original lease. The Company continues to account for the Manhattan lease as a lessee and in its BEOND platformthe 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.one unaffiliated third-party manufacturer.the Tenant over the remaining term of the sublease (in thousands): 2023 $ 84 2024 86 2025 88 2026 75 $ 333 8) In-Process Research & Development and Goodwill an alternative manufacturer for its tablets or an alternative manufacturer or device forplans to further develop the tablet cases or tablet charging trays. IRX-2 product candidate. As such, the Company determined that the carrying value of the IPR&D asset was impaired and recognized a non-cash impairment charge of approximately $6.0 million on the consolidated statement of operations during 2022, which reduced the value of the asset to zero.no longer purchases playmakers for its Classic platform.2017, approximately $2,0002022, the Company performed a qualitative assessment to determine whether it was includedmore likely than not that the fair value of the entity is less than its carrying value of goodwill. Such qualitative factors include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events. Due to the decline in accounts payable or accrued expenses for the tablet equipment purchased from its sole supplier. ThereCompany’s stock price during 2022, the Company determined there were no amounts outstanding in accounts payable or accrued expensesindications of impairment of the goodwill. Accordingly, the Company proceeded to a quantitative assessment of impairment and determined that the fair value of the reporting unit exceeded the carrying amount of goodwill, and therefore, the goodwill was not impaired as of December 31, 20162022.9) 10) Accrued Expenses As of December 31, 2022 2021 Accrued compensation $ 1,065 $ 656 Legal fees and related 1,138 241 Clinical 570 200 Q4-22 PIPE 208 - Other 645 152 Total accrued expenses $ 3,626 $ 1,249 11) Debt 12) Commitments and Contingencies sole supplier.8. expiration of the IRX-13) and Diluted Earnings Per Common ShareBasic earningsnet loss per share excludesis calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding plus dilutive effectssecurities. Shares of common stock issuable upon exercise, conversion or vesting of stock options, RSUs, warrants and other convertible securities. Diluted earningssecurities, including our outstanding Series A Convertible Preferred Stock, are considered potential common shares and are included in the calculation of diluted net loss per share reflectsusing the potential dilutionstreasury method when their effect is dilutive. Diluted net loss per share is the same as basic net loss per share for periods in which the effect of securities that could share inpotentially dilutive shares of common stock is antidilutive. The following table presents the Company’s earnings. Options,amount of warrants, andstock options, convertible preferred stock representing approximately 384,000 and 453,000 sharesRSUs that were excluded from the computationscomputation of diluted net loss per common share for the years ended December 31, 20172022 and 2016, respectively,2021, as their effect was anti-dilutive.9. Stockholders’ EquityRegistered Direct OfferingsIn November 2016, the Company sold approximately 412,000 sharesanti-dilutive (in thousands): Years ended December 31, 2022 2021 Warrants 4,713 - Stock options 359 199 Preferred stock converted into common stock 7 2 RSUs 4 12 Total potential common shares excluded from computation 5,083 213 14) F-14Stock-Based Compensation Reverse/Forward SplitCommon StockIn June 2016, the Company effected a stockholder-approved 1-100 reverse split immediately followed by a 2-for-1 forward split. Any fractional shareRestated 2020 Equity Incentive Plan (the “Restated 2020 Plan”) and the 2021 Inducement Equity Incentive Plan (the “2021 Inducement Plan”). The Company’s board of common stock resulting from the forward split was rounded up to the nearest whole share. The Company refers to the reverse split and to the forward split, together,directors has designated its Compensation Committee as the “reverse/forward split.” Any stockholder who, as of immediately prior to the effective timeadministrator of the reverse split, held fewer than 100foregoing 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 Company’s common stock in one account and, subsequent to the reverse split, would otherwise have been entitled to less than one full share of common stock, received, instead of the fractional share, $0.12 in cashaward.each such share held in that account, which was equal to the average of the closing price per share of the Company’s common stock on the NYSE American over the five trading days immediately before and including the effective date of the reverse/forward split. As of immediately prior to the reverse split/forward split, the Company had 92,439,174 of common stock outstanding, and subsequent to the reverse/forward split, it had 1,848,597(a) approximately 424,000 shares of common stock outstanding. Approximately $3,000 was paid to cashed-out stockholders who owned less than 100 shares immediately prior tothat can be issued under the reverse split.The number of shares of the Company’s authorized common stock did not change in connection with the reverse/forward split. However, upon the effectiveness of the reverse/forward split, the number of authorized shares of the Company’s common stock that were not issued or outstanding increased due to the reductionRestated 2020 Plan and (b) an annual increase in the number of shares reserved for issuance on January 1 of itseach year from 2022 through 2031 equal to the lesser of (i) 5% of the number of shares of common stock issuedoutstanding on the immediately preceding December 31 and outstanding as a result(ii) such smaller number of the reverse/forward split. The reverse/forward split did not affect the par valueshares of a share of the Company’s common stock which remains at $0.005 per share. As a result,as may be determine by the stated capital attributable toboard of directors (the “Annual Evergreen Shares”). Based on the number of shares of common stock outstanding on the Company’s consolidated balance sheet has been reduced proportionately based on the reverse/forward split exchange ratio, and the additional paid-in capital account was credited with the amount by which the stated capital was reduced. Comparative financial statements have been retroactively adjusted. There are no other accounting consequences arising from the reverse/forward split.Equity Incentive PlansAll amounts for the year ended December 31, 2016 reported below have been proportionately adjusted as a result2022, the maximum increase to the number of the reverse/forward split discussed above, when applicable.2004 Performance Incentive PlanIn September 2004 at a Special MeetingAnnual Evergreen Shares of Stockholders, the Company’s stockholders approved the 2004 Performance Incentive Plan (the “2004 Plan”). The 2004 Plan provided for the issuance of up to 50,000 shares of NTN common stock. In addition, all sharesstock that remained unissuedcan be issued under the 1995 Employee Stock OptionRestated 2020 Plan (the “1995 Plan”) on the effective date of the 2004 Plan, and all shares issuable upon exercise of options granted pursuant to the 1995 Plan that expire or become unexercisable for any reason without having been exercised in full, were available for issuance under the 2004 Plan. Options under both the 1995 Plan and the 2004 Plan 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. In September 2009, the 2004 Plan expired. All awards that were granted under the 2004 Plan will continue to be governed by the 2004 Plan until they are exercised or expire in accordance with that plan’s terms.2023 is approximately 256,000 shares. As of December 31, 2017,2022, there were approximately 1,000 options outstandinghave been no Annual Evergreen Shares added to the Restated 2020 Plan.2004 Plan.2010 Amended Performance IncentiveRestated 2020 PlanIn June 2010, the Company’s stockholders approved the 2010 Performance Incentive Plan (the “2010 Plan”). The 2010 Plan provided for the issuance of up to 120,000 shares of the Company’s common stock. At the Company’s 2015 Annual Meeting of Stockholders, the Company’s stockholders approved the Amended 2010 Performance Plan (the “Amended 2010 Plan”), which, among other things, amended the 2010 Plan to increase the authorized shares to be issued thereunder from 120,000 to 240,000. The Amended 2010 Plan expires in February 2020. Under the Amended 2010 Plan, options to the purchase the Company’s common stock or other instruments such as restricted stock units may be granted to officers, directors, employees and consultants. The Company’s Boardconsultants of Directors designated its Nominating and Corporate Governance/Compensation Committee as the Amended 2010 Plan Committee.Company. Stock options granted under the Amended 2010Restated 2020 Plan may either be incentive stock options or nonqualified stock options. A stock option granted under the Amended 2010 Plan generally cannot be exercised until it becomes vested. The Amended 2010 Plan Committee establishes the vesting schedule of each stock option at the time of grant. At its discretion, the Amended 2010 Plan Committee can accelerate the vesting, extend the post-termination exercise term or waive restrictions of any stock options, or other awards under the Amended 2010 Plan. Options under the Amended 2010 Planmay have a term of up to ten years, and are exercisable at a price per share not less than the fair market value on the date of grant. As of December 31, 2017,2022, there were options to purchasewas approximately 70,000166,000 shares of the Company’s common stock outstandingremaining to be issued under the Amended 2010Restated 2020 Plan. As of December 31, 2017,2021, there were approximately 108,000258,000 stock options outstanding under the Restated 2020 Plan. There were no RSUs outstanding under the Restated 2020 Plan as of December 31, 2022.availableas material inducement awards to be granted undernew employees in accordance with the Amended 2010 Plan.F-152014 Inducement PlanIn August 2014, the Nominating and Corporate Governance/Compensation Committee of the Company’s Board of Directors (the “Committee”) approved the 2014 Inducement Plan (the “2014 Plan”)employment inducement grant rules set forth in reliance on Section 771(a)711(a) of the NYSE American LLC Company Guide as an inducement material to Ram Krishnan entering into employment with the Company as its Chief Executive Officer.Guide. The 20142021 Inducement Plan provides for the issuanceexpires in May 2031. As of up to 85,000 shares of the Company’s common stock, of which, an option to purchase 70,000December 31, 2022, there was approximately 57,000 shares of common stock wasremaining to be issued to Mr. Krishnan in September 2014. In accordance with the terms of his employment agreement, in April 2015, Mr. Krishnan was granted another performance-based option to purchase 15,000 shares of common stock. Options under the 2014 Plan have a termRestated 2020 Plan. As of up to ten yearsDecember 31, 2021, there were approximately 12,000 stock options outstanding and are exercisable at a price per share not less than the fair market value on the date of grant. Both of the option grants described above will, subject to Mr. Krishnan’s continued employment through the applicable vesting date and, with respect to the performance-based option granted in April 2015, subject to meeting performance goals, vest as to 25% of the total number of shares subject to the option on the first anniversary of the grant date and the remaining 75% of the total number of shares subject to the option will vest in 36 substantially equal monthly installments thereafter. There are no share-based awards available to be grantedapproximately 4,000 RSUs outstanding under the 2014Restated 2020 Plan. The 2014 Plan expires in September 2024.Stock-Based Compensation Valuation AssumptionsNo.Topic 718,, Compensation – Stock Compensationand ASC No. 505-50,Equity – Equity-Based Payments to Non-Employees.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 to employees is recognized using the straight-line single-option method. Stock-based compensation expense for share-based payment awards to non-employees is recorded at its fair valueperiod on the grant date and is periodically re-measured as the underlying awards vest.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 andrisk-free rate 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 termexpected life. The expected life (estimated period of time outstanding) of the stock options are expected to be outstanding. The dividend yield assumptiongranted 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 volatility of the Company’s historypeer group over the expected life of the stock option granted, and expectation of dividend payouts.grants issuedstock options granted during 2017the years ended December 31, 2022 and 2016 under the ASC No. 718 requirements: 2017 2016 Weighted average risk-free rate 1.97 % 1.20 % Weighted average volatility 113.57 % 111.02 % Dividend yield 0.00 % 0.00 % Expected life 7.19 years 6.17 years ASC No. 718 requires forfeitures to be estimated at the time2021: Year ended December 31, 2022 2021 Weighted average risk-free rate 2.52 % 1.09 % Weighted average volatility 90.49 % 134.64 % Dividend yield 0 % 0 % Expected term 5.79 years 6.10 years Stock Option Activityyear ended December 31, 2017 and 2016: Outstanding
Options Weighted
Average
Exercise
Price per
Share Weighted
Average
Remaining
Contractual
Life (in years) Aggregate
Intrinsic
Value Outstanding January 1, 2016 136,000 $ 20.38 8.67 $ 2,000 Granted 35,000 7.73 - - Exercised - - - - Cancelled (3,000 ) 21.49 - - Forfeited (3,000 ) 15.51 - - Expired - - - - Outstanding December 31, 2016 165,000 17.78 8.02 36,000 Granted 8,000 6.66 - - Exercised - - - - Cancelled (8,000 ) 16.76 - - Forfeited (9,000 ) 9.87 - - Expired - - - - Outstanding December 31, 2017 156,000 $ 17.74 7.12 $ - Options vested and exercisable at December 31, 2017 112,000 $ 18.71 6.92 $ - No options were exercised during the years ended December 31, 2017 or 2016. 2022 and 2021 (in thousands except for per-share and remaining contractual life data): Outstanding January 1, 2021 - $ - - $ - Granted 199 168.04 Cancelled - - Outstanding December 31, 2021 199 $ 168.04 9.38 $ - Granted 287 17.29 Cancelled (127 ) 140.56 Outstanding December 31, 2022 359 $ 57.18 7.57 $ - Options vested and exercisable at December 31, 2022 146 $ 109.60 4.79 $ - per shareper-share weighted average grant-date fair value of stock options granted during the yearsyear ended December 31, 20172022 and 20162021 was $5.87$12.91 and $6.48,$151.40, respectively.2017,2022, the unamortized stock-based compensation expense related to outstanding unvested options was approximately $383,000$3.2 million with a weighted average remaining requisite service period of 1.212.70 years. The Company expects to amortize this expense over the remaining requisite service period of these stock options. A deferred tax asset January 1, 2021 - $ - Granted 12 276.00 December 31, 2021 12 276.00 Granted 55 38.60 Released (3 ) 271.42 Cancelled (60 ) 61.03 December 31, 2022 4 $ 236.36 Balance expected to vest at December 31, 2022 4 recordedissued at settlement, the value of which is equal to the amount of withholding taxes payable. There were no RSUs that vested during the year ended December 31, 2021. The following table shows the number of RSUs that vested and were settled during the year ended December 31, 2022, as well as the number of shares of common stock withheld to cover the withholding taxes and the net shares issued upon settlement (in thousands):Year ended December 31, 2022 RSUs vested 3 Common stock withheld to cover taxes (1 ) Common stock issued 2 Years ended December 31, 2022 2021 Research and development $ 1,249 $ 1,597 General and administrative 1,686 3,638 Total $ 2,935 $ 5,235 15) Equity and Warrants expected future tax benefitQ4-22 PIPE Transaction.non-qualifiedQ1-22 Common Warrants and Q1-22 Pre-Funded Warrants, the fair value on the exercise date is reclassified from warrant liabilities to equity.options. However, due to a historythe Q1-22 PIPE Investor on July 14, 2022 upon receipt of net operating losses, a full valuation allowance has been recordedthe cash proceeds and reclassified approximately $0.7 million of the fair value of the exercised warrants as of the exercise date from warrant liabilities to equity. Subsequent to the exercise, no Q1-22 Pre-Funded Warrants remained outstanding.tax benefitQ1-22 PIPE Transaction, which were allocated to the fair value of the Q1-22 Warrants and the Q1-22 Pre-Funded Warrants and recorded in other expense, net on the accompanying consolidated statement of operations.non-qualifiedthe year ended December 31, 2021 (the “2021 Annual Report”) to register the resale of the shares of common stock options.Warrant Activitysummarizestable shows the Company’s warrant activity for the year ended December 31, 20172022 (in thousands except for per-share data): Balance as of January 1, 2022 - - - - Granted 343 68 4,370 4,781 Exercised - (68 ) - (68 ) Balance as of December 31, 2022 343 - 4,370 4,713 2016: Outstanding
Warrants Weighted
Average
Exercise
Price per
Share Weighted
Average
Remaining
Contractual
Life (in years) Outstanding January 1, 2016 132,000 $ 33.64 2.18 Granted - - - Exercised - - - Forfeited - - - Outstanding December 31, 2016 132,000 $ 33.64 1.18 Granted - - - Exercised - - - Forfeited (60,000 ) - - Outstanding December 31, 2017 72,000 $ 20.00 0.87 Balance exercisable at December 31, 2017 72,000 $ 20.00 0.87
the weighted average exercise price was $5.82.F-17issued warrantsentered into a common stock purchase agreement (the “First Purchase Agreement”) an investment group (the “Investment Group”), which provided that the Company could offer to purchasethe Investment Group up to an aggregate of $20 million of 60,000common stock over a 36-month period commencing after May 10, 2021, the date that a registration statement covering the resale of shares of common stock in connection with an asset acquisition. The fair value ofissued under the warrantsFirst Purchase Agreement was approximately $537,000 in aggregate and were determined usingdeclared effective by the Black-Scholes model using the following weighted-average assumptions: risk-free interest rates of 2.79%; dividend yield of 0%; expected volatility of 78.1%; and a term of 8 years. None of these warrants were exercised and all expired asSEC. As of December 31, 2017.During 2013,2022, the Company had issued warrants to purchaseand sold an aggregate of 72,000approximately 56,000 shares of common stock to the Investment Group pursuant to the First Purchase Agreement, resulting in connectiongross proceeds of $20 million.private placement. The fair value36-month period commencing after June 4, 2021, the date that a registration statement covering the resale of shares of common stock issued under the Second Purchase Agreement was declared effective by the SEC. As of December 31, 2022, the Company had issued and sold an aggregate of approximately 121,000 shares of common stock to the Investment Group pursuant to the Second Purchase Agreement, resulting in gross proceeds of approximately $34 million. As of December 31, 2022, there were approximately 22,000 shares remaining to be sold under the Second Purchase Agreement.warrants was approximately $1,379,000common stock, provided that the Investment Group’s maximum commitment in aggregateany single Regular Purchase may not exceed $2.0 million. The purchase price per share for each such Regular Purchase is based off of the common stock’s market immediately preceding the time of sale.was determined usingits affiliates, would result in the Black-Scholes model usingInvestment Group and its affiliates having beneficial ownership, at any single point in time, of more than 4.99% of the following weighted-average assumptions: risk-free interest ratesthen total outstanding shares of 1.06%; dividend yield of 0%; expected volatility of 80.25%; and a term of 5 years.common stock. The Company has concludedthe right to terminate the Second Purchase Agreement at any time, at no cost or penalty.these warrants qualify as equity instruments and not liabilities. Noneup to 75% of these warrants were exercised asthe shares of December 31, 2017.The10,000,000156,000 shares of preferred stock. The preferred stock, may be issued in one or more series. The only series currentlyall of which is designated is a series of 5,000,000 shares ofas Series A Cumulative Convertible Preferred Stock (Series(the “Series A Preferred Stock).AsStock”), and all of which were issued and outstanding as of December 31, 2017 and 2016, there were 156,000 shares2022.in each ofduring the yearsyear ended December 31, 20172022. The Company paid approximately $8,000 in cash and 2016.TheAt December 31, 2022, the conversion rate is subject to adjustmentwas 23.9988 and, based on that conversion rate, one share of Series A Convertible Preferred Stock would have converted into approximately 0.04 shares of common stock, and all the outstanding shares of the Series A Convertible Preferred Stock would have converted into approximately 6,000 shares of common stock in certain events and is established at the time of each conversion.aggregate. There were no conversions during either of the years ended December 31, 20172022 and 2016.2021. There is no mandatory conversion term, date or any redemption features associated with the Series A Preferred Stock.10. Income Taxes1. If the Company (a) pays a dividend or makes a distribution in shares of its common stock, (b) subdivides its outstanding shares of common stock into a greater number of shares, (c) combines its outstanding shares of common stock into a smaller number of shares, or (d) issues by reclassification of its shares of common stock any shares of its common stock (other than a change in par value, or from par value to no par value, or from no par value to par value), then the conversion rate in effect immediately prior to the applicable event will be adjusted so that the holders of the Series A Convertible Preferred Stock will be entitled to receive the number of shares of common stock which they would have owned or have been entitled to receive immediately following the happening of the event, had the Series A Convertible Preferred Stock been converted immediately prior to the record or effective date of the applicable event. 2. If the outstanding shares of the Company’s common stock are reclassified (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision, combination or stock dividend), or if the Company consolidates with or merge into another corporation and the Company is not the surviving entity, or if the Company sells all or substantially all of its property, assets, business and goodwill, then the holders of the Series A Convertible Preferred Stock will thereafter be entitled upon conversion to the kind and amount of shares of stock or other equity securities, or other property or assets which would have been receivable by such holders upon such reclassification, consolidation, merger or sale, if the Series A Convertible Preferred Stock had been converted immediately prior thereto. 3. If the Company issues common stock without consideration or for a consideration per share less than the then applicable Equivalent Preference Amount (as defined below), then the Equivalent Preference Amount will immediately be reduced to the amount determined by dividing (A) an amount equal to the sum of (1) the number of shares of common stock outstanding immediately prior to such issuance multiplied by the Equivalent Preference Amount in effect immediately prior to such issuance and (2) the consideration, if any, received by the Company upon such issuance, by (B) the total number of shares of common stock outstanding immediately after such issuance. The “Equivalent Preference Amount” is the value that results when the liquidation preference of one share of Series A Convertible Preferred Stock (which is $1.00) is multiplied by the conversion rate in effect at that time; thus the conversion rate applicable after the adjustment in the Equivalent Preference Amount as described herein will be the figure that results when the adjusted Equivalent Preference Amount is divided by the liquidation preference of one share of Series A Convertible Preferred Stock. 16) Income Taxes Years ended December 31, 2022 2021 (in thousands) Domestic $ (24,513 ) $ (122,476 ) Foreign (21 ) (5 ) Total loss before income taxes $ (24,534 ) $ (122,481 ) 2017ended December 31, 2022 and 2016,2021, current tax provisions and current deferred tax provisions were recorded as follows: 2017 2016 Current Tax Provision Federal $ - $ - State (27,000 ) (25,000 ) Foreign (5,000 ) (1,000 ) (32,000 ) (26,000 ) Deferred Tax Provision Federal - - State (24,000 ) (4,000 ) Foreign (10,000 ) (8,000 ) (34,000 ) (12,000 ) Total Tax Provison Federal - - State (51,000 ) (29,000 ) Foreign (15,000 ) (9,000 ) $ (66,000 ) $ (38,000 )
follows (in thousands):F-18The net deferred Years ended December 31, 2022 2021 Current Tax Provision Federal $ - $ - State 4 5 Foreign - - 4 5 Deferred Tax Provision Federal (6,851 ) (5,840 ) State (1,602 ) (1,414 ) Foreign (187 ) (1 ) (8,640 ) (7,255 ) Change in valuation allowance 8,681 7,314 Total tax provision for income taxes $ 45 $ 64 reported in other liabilities in the consolidated balance sheets at December 31, 2017 and 2016 as follows: 2017 2016 Deferred Tax Assets: NOL carryforwards $ 15,337,000 $ 23,291,000 UK NOL carryforwards 567,000 516,000 Allowance for doubtful accounts 119,000 139,000 Compensation and vacation accrual 64,000 92,000 Operating accruals 47,000 147,000 Research and experimentation, AMT and foreign tax credits 148,000 147,000 Texas Margin Tax Credit 136,000 126,000 Fixed assets and intangibles (220,000 ) 199,000 Other 514,000 664,000 Total gross deferred tax assets 16,712,000 25,321,000 Valuation allowance (16,340,000 ) (24,880,000 ) Net deferred tax assets 372,000 441,000 Deferred Tax Liabilities: Capitalized software 375,000 359,000 Foreign 49,000 45,000 Deferred revenue - 49,000 Total gross deferred liabilities 424,000 453,000 Net deferred taxes $ (52,000 ) $ (12,000 ) As of December 31, 2022 2021 Deferred Tax Assets: Net operating losses $ 9,382 $ 5,457 Foreign net operating losses 782 595 Stock compensation 2,173 1,312 In-process research and development 1,233 - Capitalized rearch and development expenses 1,502 - R&D credit carryforwards 517 288 Compensation accrual 81 30 ROU Liabilities 334 706 Other 549 - Total gross deferred tax assets 16,553 8,388 Valuation allowance (16,157 ) (7,467 ) Net deferred tax assets 396 921 Deferred Tax Liabilities: Fixed assets (10 ) (168 ) ROU Assets (291 ) (666 ) Intangibles - goodwill (160 ) (112 ) Total deferred tax liabilities (461 ) (946 ) Net deferred taxes $ (65 ) $ (25 ) 34%21% is as follows: For the year ended
December 31, 2017 2016 Tax at federal income tax rate $ 316,000 $ 962,000 State provision (51,000 ) (29,000 ) Foreign tax differential 3,000 2,000 Change in valuation allowance 8,898,000 (917,000 ) Impact related to tax reform (8,791,000 ) - Permanent items (441,000 ) (56,000 ) Total Provision $ (66,000 ) $ (38,000 ) On December 22, 2017, the President As of December 31, 2022 2021 Tax at federal income tax rate 21.00 % 21.00 % State income tax, net of federal tax 6.52 % 1.15 % Foreign tax differential (0.01 %) 0.00 % Non-deductible expenses/excludable items 6.09 % (16.30 %) Change in valuation allowance (35.38 %) (5.97 %) Credits 0.98 % 0.23 % Uncertain tax positions (0.49 %) 0.00 % Other 1.11 % (0.16 %) Provision for income taxes (0.18 %) (0.05 %) changeincrease in the total valuation allowance for the year ended December 31, 2017 was a decrease of $8,898,000. The net change in the total valuation allowance for the year ended December 31, 20162022 was an increase of $917,000.approximately $8.8 million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differencesdifference become deductible. Management considersconsidered the scheduled reversal of deferred tax liabilities, projected future taxable income and planning strategies in making this assessment. Based on the level of historical operating results and projections for the taxable income for the future, management has determined that it is more likely than not that the portion of deferred taxes not utilized through the reversal of deferred tax liabilitiesassets will not be realized.utilized. Accordingly, the Company has recorded a full valuation allowance to reduceallowance. The net deferred tax assetsliability represents an indefinite life intangible liability related to the amount that is more likely than not to be realized.
tax deductible goodwill, partially offset by an indefinite life deferred tax asset.F-192017,2022 and 2021, the Company has available net operating loss (“NOL”) carryforwards of approximately $66,554,000$35.6 million and $20.7 million for federal income tax purposes, respectively, of which willapproximately $35.6 million can be carried forward indefinitely. The Company has available $28.8 million and $20.7 million state NOLs for the years ended December 31, 2022 and 2021, respectively, which begin to expire in 2018.2041. The Company also has foreign NOL carryforwards of approximately $6.3 million and $4.8 million for state purposes,the years ended December 31, 2022 and 2021, respectively, which will continue expiring in 2018, are approximately $29,185,000. There can be no assurance that the Company will ever be able to realize the benefit of some or allcarry forward indefinitely. Section 382 of the federal and state loss carryforwards due to continued operating losses. Further, the Company had a Section 382 analysis performed to determine the impact of any changes in ownership. Based on this analysis, no ownership change has occurred that would limit the use of the NOLs. Under Internal Revenue Code (IRC) Section 382 and similar state provisions, ownership changes may limit(“IRC”) imposes limits on the annual utilization ofability to use NOL carryforwards existingthat existed prior to a change in control that are available to offset future taxable income. Such limitations would reduce, potentially significantly, the gross deferred tax assets disclosed in the table above related to the NOL carryforwards. The Company continues to disclose the NOL carryforwards at their original amount in the table above as no potential limitation has been quantified. The Company has also established a full valuation allowance for substantially all deferred tax assets, including the NOL carryforwards, since the Company could not conclude that it was more likely than not able to generate future taxable income to realize these assets. In addition,approximately $171,000 offederal and state income tax credit tax carryforwards thatof approximately $0.5 million and $0.3 million, respectively. The credits begin to expire in 2041.years 2018 through 2026.deferredfollowing table summarizes amounts the Company recorded for uncertain tax assetspositions as of December 31, 2017 include a deferred2022 and 2021 (in thousands): As of December 31, 2022 2021 Beginning balance of uncertain tax positions $ - $ - Additions based on current year’s tax positions 45 - Net changes based on prior year’s tax positions 76 - Ending balance of uncertain tax positions $ 121 $ - assetbenefits may increase or decrease within the next twelve months due to tax examination changes, expiration of $437,000 representing NOLs arising from the exercisestatute of stock options by Company employees for 2005 and prior years. To the extent the Company realizes anylimitations, or changes in tax benefit for the NOLs attributable to the stock option exercises, such amount would be credited directly to stockholders’ equity.United States income taxes were not provided on unremitted earnings from non-United States subsidiaries. Such unremitted earnings are considered to be indefinitely reinvested and determination of the amount of taxes that might be paid on these undistributed earnings is not practicable.its subsidiariespenalties related to unrecognized tax positions within the income tax expense line in the accompanying consolidated statements of operations. There were no accrued interest and penalties associated with uncertain tax positions as of December 31, 2022 or December 31, 2021.federal incomeexamination by the relevant taxing authorities. As of December 31, 2022, the 2019 – 2022 tax as well as income tax of multiple state jurisdictions. With few exceptions, the Company is no longeryears remain subject to incomeexamination in the U.S. federal tax, examination byvarious state, and foreign tax authorities in major jurisdictions for years prior to 2013. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where NOLs were generated and carried forward, and make adjustments up to the amount of the carryforwards.jurisdictions. The Company is not currently under examination by federal state, or foreign jurisdictions.IRS or state taxing authorities.11. Long-term DebtTerm LoanIn November 2017,Inflation Reduction Act of 2022 (the “IRA”) was enacted into law. Among other changes to the tax code, the IRA imposes a 1% excise tax on certain repurchases of corporate stock by certain publicly traded corporations. The 1% stock buyback tax applies to redemptions by domestic corporations occurring in taxable years beginning after December 31, 2022. A number of exceptions to the stock buyback tax are available including exceptions to certain reorganizations. However, while these exceptions may be helpful in limiting the application of the stock buyback tax in situations in which it was not intended to apply, more guidance will be necessary for taxpayers to analyze the potential application of these exceptions and whether they will be able to rely upon them.17) Subsequent Event amendedexclusive option and restated loan and securitylicense agreement (the “Amended and Restated Loan“Lineage Agreement”) with East West Bank (“EWB”). The Amended & Restated Loan Agreement amends and restates the loan and security agreement, pursuant to which, Lineage may request prior to August 22, 2023 that the Company entered into with EWB dated asdevelops for, and delivers to, Lineage certain induced pluripotent stem cell lines, which Lineage would use to evaluate the possible development of April 14, 2015 (as the same has been previously amended, the “Prior Loan Agreement”).The following is a summarycell transplant therapies for treatment of diseases of the material termscentral nervous system in humans, excluding ophthalmologic indications, (b) diseases and conditions of the Amendedperipheral nervous system, (c) psychiatric, respiratory, musculoskeletal, and Restated Loan Agreement:●EWB loaned the Company $4,500,000 as a one-time 36-month term loan, $4,450,000 of which the Company agreed to use, and did use, to refinance the $4,450,000 that it had outstanding under the Prior Loan Agreement. The Company applied the additional $50,000 to pay the facility fee ($45,000) and to pay reasonable costs or expenses incurred by EWB in connection with, among other matters, the preparation and negotiation of the Amended and Restated Loan Agreement.●The Company are required to make payments on the loan on the last calendar day of each month commencing on December 31, 2017 and through its maturity date, November 29, 2020. Payments will be interest only until the payment due on June 30, 2018, at which time payments will become principal plus interest.●Other than during the continuance of an event of default, the loan bears interest, on the outstanding daily balance thereof, at the Company’s option, at either: (A) a variable rate per annum equal to the prime rate as set forth in The Wall Street Journal plus 1.75%, or (B) a fixed rate per annum equal to the LIBOR rate for the interest period for the advance plus 4.50%.●The Company continues to grant and pledge to EWB a first-priority security interest in all its existing and future personal property, including its intellectual property, subject to customary exceptions.●Subject to customary exceptions, the Company continues to generally be prohibited from borrowing additional Indebtedness other than subordinated debt and up to $2.0 million in the aggregate for the purpose of equipment financing to the extent EWB approves such debt. “Indebtedness” means (i) all the Company’s other indebtedness for borrowed money or the deferred purchase price of property or services, (ii) all the its obligations evidenced by notes, bonds, debentures and similar instruments, (iii) all its capital lease obligations, and (iv) all its contingent obligations.●The Company must comply with the following financial covenants:F-20oMinimum Fixed Charge Coverage Ratio – The Company must not have a Fixed Charge Coverage Ratio (as defined below) as of the last day of a fiscal quarter less than 1.25 to 1.00. However, if the Company’s unrestricted cash exceeds the loan principal outstanding, then what would otherwise be a breach of the covenant will be deemed automatically cured. The automatic cure may not be used more than (A) two times in any fiscal year or (B) four times during the term of the Amended and Restated Loan Agreement. Fixed Charge Coverage Ratio means the ratio of (a) Adjusted EBITDA (as defined below) for the four fiscal quarters ending on the applicable measuring date, less (i) unfinanced capital expenditures during such period and (ii) cash taxeshematological diseases, disorders, and conditions, and (d) cancer. The Lineage Agreement also provides Lineage with the option to obtain an exclusive sublicense to certain related technology for preclinical, clinical and commercial purposes, which would permit Lineage to sublicense such intellectual property, subject to payment of certain sublicense royalty fees. Lineage has six months from our delivery to Lineage of such induced pluripotent stem cell lines to exercise such option, and upon any such exercise, Lineage would agree to use its commercially reasonable efforts to exploit and make commercially available one or more licensed products derived from such induced pluripotent stem cell lines in accordance with the Lineage Agreement. Upon entry into the Lineage Agreement, Lineage paid during such period, to (b) the sum of (i) scheduled principal and interest payments with respect to the loan, (ii) scheduled principal and interest payments with respect to other Indebtedness (as defined below) and (C) scheduled lease payments. “Adjusted EBITDA” means (a) EBITDA (which is net income, plus interest expense, plus, to the extent deducted in the calculation of net income, depreciation expense and amortization expense, plus income tax expense) plus (b) other noncash expenses and charges, plus (c) to the extent approved by EWB, other onetime charges, plus (g) to the extent approved by EWB, any losses arising from the sale, exchange, transfer or other disposition of assets not in the ordinary course of business.oMinimum Liquidity – The aggregate amount of unrestricted cash the Company has in deposit accounts or securities accounts maintained with EWB must not be less than $2,000,000. This liquidity test will be measured the last day of each calendar month.oMaximum Sr. Leverage Ratio – As of the last day of a fiscal quarter, the ratio of (a) all the Company’s Indebtedness outstanding on such day, other than subordinated debt, to (b) Adjusted EBITDA for four fiscal quarters ending on such day, must not be greater than 2.75 to 1.00 for fiscal quarters ending December 31, 2017 through March 31, 2018, and must not be greater than 2.50 to 1.00 for fiscal quarters ending June 30, 2018 and later.Asof December 31, 2017, the Company was in compliance with all covenants except the Fixed Charge Coverage Ratio. The Company anticipates that EWB will waive such non-compliance, and EWB informed the Company that it would forbear from taking actiona $250,000 non-refundable up-front payment. We are also entitled to certain cell line customization fees with respect to the event of default caused bycell lines that Lineage may request that we develop for Lineage, and royalty payments with respect to any such non-compliance. Accordingly, the Company expects that its repayment terms will not change as a result of this non-compliance.As of December 31, 2017, $4,500,000 was outstandinglicensed products, certain sublicense fees and certain milestone payments under the Amended and Restated Loan Agreement, all which is recorded in current portion of long-term debt on the accompanying consolidated balance sheet as a result of the covenant non-compliance as of December 31, 2017 discussed above. The Company recorded total debt issuance costs of $59,000, which includes the $45,000 facility fee. The debt issuance costs will be amortized to interest expense using the effective interest rate method over the life of the loan. As of December 31, 2017, the unamortized portion of the debt issuance costs was $56,000 and is recorded as a reduction of long term debt. The Company has no more borrowing availability under the Amended and Restated Loan Agreement.Equipment Notes PayableIn May 2013, the Company entered into a financing arrangement with a lender under which the Company may borrow funds to purchase certain equipment. Initially, the maximum amount the Company could borrow under this financing arrangement was $500,000. Over time, the lender increased that maximum amount, and as of December 31, 2017, the maximum amount was $9,690,000, all of which has been borrowed. In April 2015, the Company used approximately $3,381,000 of the proceeds received under the Prior Loan Agreement with EWB to pay down a portion of the principal amount the Company had borrowed under this financing arrangement, accrued interest and a prepayment fee.The Company was able to borrow up to the maximum amount available under this financing arrangement in tranches as needed. Each tranche borrowed through August 2015 incurred interest at 8.32% per annum; the interest for tranches borrowed thereafter was reduced to rates between 7.32% to 8.05% per annum. With respect to the first $1,000,000 in the aggregate borrowed, principal and interest payments are due in 36 equal monthly installments. With respect to amounts borrowed in excess of the first $1,000,000 in the aggregate, the first monthly payment will be equal to 24% of the principal amount outstanding, and the remaining principal and interest due is payable in 35 equal monthly installments. The Company granted the lender a first security interest in the equipment purchased with the funds borrowed. This equipment lender entered into a subordination agreement with EWB.As of December 31, 2017, $623,000 was outstanding under this financing arrangement, of which $615,000 is recorded in current portion of long-term debt and $8,000 is recorded in long-term debt on the accompanying consolidated balance sheet. The Company currently does not expect the lender to lend any additional funds under this financing arrangement.
Lineage Agreements.F-21Long-Term Debt Principal PaymentsFuture minimum principal payments under long-term debt as of December 31, 2017 are as follows:Years Ending December 31, Principal
Payments 2018 $ 1,665,000 2019 1,808,000 2020 1,650,000 Total $ 5,123,000 Interest expense related to long-term debt for the years ended December 31, 2017 and 2016 was $425,000 and $517,000, respectively.12. CommitmentsOperating LeasesThe Company leases office and production facilities and equipment under agreements that expire at various dates through 2018. Certain leases contain renewal provisions and escalating rental clauses and generally require the Company to pay utilities, insurance, taxes and other operating expenses. Lease expense under operating leases totaled $510,000 and $582,000 in 2017 and 2016, respectively.As of December 31, 2017, future minimum lease payments under operating leases are as follows:Years Ending December 31, Lease
Payment 2017 $ 624,000 2018 10,000 Total $ 634,000 Capital LeasesAs of December 31, 2017 and 2016, property held under current capital leases was as follows: For the Years Ended December 31, 2017 2016 Office equipment $ 362,000 $ 328,000 Site equipment 250,000 250,000 Accumulated depreciation (322,000 ) (185,000 ) Total $ 290,000 $ 393,000 Total depreciation expense under capital leases was $95,000 and $88,000 for the years ended December 31, 2017 and 2016, respectively.As of December 31, 2017, future minimum principal payments under capital leases are as follows:Years Ending December 31, Prinicipal
Payment 2018 $ 176,000 2019 119,000 2020 22,000 2021 21,000 2022 2,000 Total $ 340,000 13. ContingenciesLitigationThe Company is subject to litigation from time to time in the ordinary course of its business. There can be no assurance that any claims will be decided in the Company’s favor and the Company is not insured against all claims made. During the pendency of such claims, the Company will continue to incur the costs of its legal defense. Currently, there is no material litigation pending or threatened against the Company.F-22Sales and Use TaxFrom time to time, state tax authorities will make inquiries as to whether or not a portion of the Company’s services require the collection of sales and use taxes from customers in those states. Many states have expanded their interpretation of their sales and use tax statutes to subject more activities to tax. The Company evaluates such inquiries on a case-by-case basis and has favorably resolved the majority of these tax issues in the past without any material adverse consequences. There were no liabilities recorded in either of the years ended December 31, 2017 or 2016.14. Accumulated Other Comprehensive IncomeAccumulated other comprehensive income includes the accumulated gains or losses from foreign currency translation adjustments. The Company translated the assets and liabilities of its Canadian statement of financial position into U.S. dollars using the period end exchange rate. Revenue and expenses were translated using the weighted-average exchange rates for the reporting period. As of December 31, 2017 and 2016, $345,000 and $223,000, respectively, of accumulated foreign currency translation adjustments were recorded in accumulated other comprehensive income, respectively.15. Geographical InformationGeographic breakdown of the Company’s revenue for the last two fiscal years were as follows: For the years ended
December 31, 2017 2016 United States $ 20,570,000 $ 21,559,000 Canada 704,000 753,000 Total revenue $ 21,274,000 $ 22,312,000 Geographic breakdown of the Company’s long-term tangible assets for the last two fiscal years were as follows: As of December 31, 2017 2016 United States $ 3,406,000 $ 3,015,000 Canada 272,000 86,000 Total assets $ 3,678,000 $ 3,101,000 16. Retirement Savings PlanIn 1994, the Company established a defined contribution plan, organized under Section 401(k) of the Internal Revenue Code, which allows employees who have completed at least three months of service, have worked a minimum of 250 hours in a quarter, and have reached age 18 to defer up to 50% of their pay on a pre-tax basis. The Company does not contribute a match to the employees’ contribution.F-23