| Basis of Accounting Presentation and Summary of Significant Accounting Policies | 3)
Basis of Accounting Presentation and Summary of Significant Accounting Policies Basis of Accounting Presentation The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). Any reference
in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). All significant intercompany
balances and transactions have been eliminated in consolidation. As described above, the Merger closed on March 25, 2021. The Merger was accounted for as a reverse acquisition, in which Brooklyn LLC was deemed
the acquiring company for accounting purposes. Brooklyn LLC’s historical financial statements have replaced Brooklyn’s historical financial statements with respect to periods prior to the completion of the Merger (when Brooklyn operated under the
name “NTN Buzztime, Inc.”). The Company retrospectively adjusted the weighted average shares used in determining loss per common share to reflect the conversion of the outstanding Class A units, Class B units, Class C units, and common units of
Brooklyn LLC that converted into shares of Brooklyn’s common stock upon the Merger and to reflect the effect of a 2-to-1 Also as described above, the Acquisition closed on July 16, 2021. The Acquisition was accounted for as an asset acquisition, and substantially
all of the value was attributed to in-process research and development (“IPR&D”), with the exception of the cash paid for the investment in NoveCite, which is being accounted for as an investment in equity securities. The IPR&D had no
alternative future uses and no separate economic value from its originally intended purpose and was therefore expensed in the period the cost was incurred. Restatement of Previously Reported Information As part of the Company’s preparation of its Quarterly
Report on Form 10-Q for the three months ended March 31, 2022, the Company reviewed the original accounting treatment for the IRX Acquisition that Brooklyn LLC completed in November 2018. The IRX Acquisition was accounted for as a business
combination under ASC 805 and resulted in Brooklyn LLC recording, among other items, the fair value of a contingent consideration liability of $870,000
and the fair value of an IPR&D asset of $6,860,000 in its opening balance sheet, as Brooklyn LLC was formed for the purpose of
completing the IRX Acquisition. Subsequent to recording these amounts as of December 31, 2018 and based on a third-party valuation firm’s analyses of the fair value of the contingent liability during the years ended December 31, 2019, 2020 and
2021, Brooklyn LLC recognized an increase in the fair value of the contingent consideration liability in its statements of operations of $19,240,000
for the year ended December 31, 2020, increasing the contingent consideration liability to $20,110,000 at December 31, 2020, and a
decrease in the fair value of $180,000 during the year ended December 31, 2021, decreasing the contingent consideration liability to $19,930,000 at December 31, 2021. The third-party valuation firm’s analysis for the year ended December 31, 2019 resulted in no change in fair value from the fair value recorded as of December 31, 2018. The contingent consideration liability relates to
obligations to pay royalties pursuant to certain license and royalty agreements IRX entered into at various times from 2000 to 2012 with the Royalty Recipients based on future revenues, if any, from future IRX-2 product sales. The future royalty
obligations were not additional consideration payable to the Royalty Recipients for the IRX Acquisition, as these license and royalty agreements existed prior to the IRX Acquisition and were assumed by Brooklyn, LLC. In its review of the original accounting treatment for the IRX Acquisition, the
Company determined that assets and liabilities arising from contingencies that are acquired or assumed in a business combination would fall within the scope of ASC 805 and should be recorded at fair value if such fair value can be determined
during the measurement period of the business combination. Accordingly, Brooklyn LLC calculated the fair value of the contingent royalty obligations. However, because this liability was not a contingent consideration liability that IRX had
assumed from a previous acquisition it made and because the license and royalty agreements assumed by Brooklyn LLC could not be sold or sublicensed to another party without the related contingent royalty obligations, the Company determined that
the contingent royalty obligations should have reduced the value of the IPR&D asset rather than separate units of account and recognized on a gross basis. Recording the IPR&D net of the contingent royalty obligations would have resulted
in the Company not recognizing changes in the fair value of the contingent liability, as there would be no contingent liability separately stated. On June 16, 2022, the Company and the Audit Committee concluded that it is appropriate to restate the Company’s previously issued financial statements as
of and for the years ended December 31, 2021, and December 31, 2020, which were included in the Original 10-K, as well as for the quarters ended June 30, 2020, September 30, 2020, March 31, 2021, June 30, 2021 and September 30, 2021 (the
“Relevant Periods”). Considering such restatement, the Company concluded that the previously issued financial statements should no longer be relied upon. The adjustments to the financial statement items for the affected periods are as
follows:
As Previously
Adjustments
As Restated
(unaudited)
Consolidated
Balance Sheet as of December 31, 2020
In-process
research and development
$
6,860,000
$
(870,000
)
$
5,990,000
Contingent consideration
$
20,110,000
$
(20,110,000
)
$
-
Accumulated deficit
$
(37,381,000
)
$
19,240,000
$
(18,141,000
)
Consolidated
Statement of Operations for the year ended December 31, 2020
Change in fair
value of contingent consideration
$
19,240,000
$
(19,240,000
)
$
-
Net loss
$
(26,531,000
)
$
19,240,000
$
(7,291,000
)
Net loss per
common share - basic and diluted
$
(1.51
)
$
1.10
$
(0.41
)
Consolidated
Statement of Cash Flows for the year ended December 31, 2020
Net loss
$
(26,531,000
)
$
19,240,000
$
(7,291,000
)
Change in fair
value of contingent consideration
$
19,240,000
$
(19,240,000
)
$
-
Consolidated
Balance Sheet as of December 31, 2021
In-process
research and development
$
6,860,000
$
(870,000
)
$
5,990,000
Security deposits
and other assets
$
522,000
$
(34,000
)
$
488,000
Contingent consideration
$
19,930,000
$
(19,930,000
)
$
-
Other liabilities
$
23,000
$
25,000
$
48,000
Accumulated deficit
$
(159,703,000
)
$
19,001,000
$
(140,702,000
)
Consolidated
Statement of Operations for the year ended December 31, 2021
Change in fair
value of contingent consideration
$
(180,000
)
$
180,000
$
-
Provision for income taxes
$
(5,000
)
$
(59,000
)
$
(64,000
)
Net loss
$
(122,306,000
)
$
(239,000
)
$
(122,545,000
)
Net loss
attributable to common stockholders
$
(122,322,000
)
$
(239,000
)
$
(122,561,000
)
Net loss per
common share - basic and diluted
$
(2.82
)
$
(0.01
)
$
(2.83
)
Consolidated
Statement of Cash Flows for the year ended December 31, 2021
Net loss
$
(122,306,000
)
$
(239,000
)
$
(122,545,000
)
Change in fair
value of contingent consideration
$
(180,000
)
$
180,000
$
-
Security deposits
and other assets
$
(34,000
)
$
34,000
$
-
Other liabilities
$
-
$
25,000
$
25,000 The adjustments to the line items for the affected unaudited quarterly financial statements are as follows:
As of June 30, 2020
As of September 30, 2020
As Previously
Adjustments
As Restated
As Previously
Adjustments
As Restated
(in thousands)
(in thousands)
Consolidated
Balance Sheets
(unaudited)
(unaudited)
In-process
research and development
$
6,860,000
$
(870,000
)
$
5,990,000
$
6,860,000
$
(870,000
)
$
5,990,000
Contingent
consideration
$
870,000
$
(870,000
)
$
-
$
870,000
$
(870,000
)
$
-
As of March 31, 2021
As of June 30, 2021
As Previously
Adjustments
As Restated
As Previously
Adjustments
As Restated
(in thousands)
(in thousands)
Consolidated
Balance Sheets
(unaudited)
(unaudited)
In-process
research and development
$
6,860,000
$
(870,000
)
$
5,990,000
$
6,860,000
$
(870,000
)
$
5,990,000
Contingent
consideration
$
19,290,000
$
(19,290,000
)
$
-
$
19,290,000
$
(19,290,000
)
$
-
Accumulated
deficit
$
(55,083,000
)
$
18,420,000
$
(36,663,000
)
$
(65,176,000
)
$
18,420,000
$
(46,756,000
)
As of September 30, 2021
As Previously
Adjustments
As Restated
(in thousands)
Consolidated Balance Sheets
(unaudited)
In-process
research and development
$
6,860,000
$
(870,000
)
$
5,990,000
Contingent consideration
$
19,360,000
$
(19,360,000
)
$
-
Accumulated deficit
$
(151,232,000
)
$
18,490,000
$
(132,742,000
)
Three months ended March 31, 2021
Three months ended September 30, 2021
As Previously
Adjustments
As Restated
As Previously
Adjustments
As Restated
(in thousands, except per share data)
(in thousands, except per share data)
Consolidated
Statement of Operations
(unaudited)
(unaudited)
Change in fair
value of contingent consideration
$
(820,000
)
$
820,000
$
-
$
70,000
$
(70,000
)
$
-
Net loss
$
(17,702,000
)
$
(820,000
)
$
(18,522,000
)
$
(86,055,000
)
$
70,000
$
(85,985,000
)
Net loss
attributable to common stockholders
$
(17,702,000
)
$
(820,000
)
$
(18,522,000
)
$
(86,055,000
)
$
70,000
$
(85,985,000
)
Net loss per
common share - basic and diluted
$
(0.64
)
$
(0.03
)
$
(0.67
)
$
(1.70
)
$
-
$
(1.70
)
Three months ended March 31, 2021
Six months ended June 30, 2021
As Previously
Adjustments
As Restated
As Previously
Adjustments
As Restated
(in thousands, except per share data)
(in thousands, except per share data)
Consolidated
Statement of Cash Flows
(unaudited)
(unaudited)
Net loss
$
(17,702,000
)
$
(820,000
)
$
(18,522,000
)
$
(27,787,000
)
$
(820,000
)
$
(28,607,000
)
Change in fair
value of contingent consideration
$
(820,000
)
$
820,000
$
-
$
(820,000
)
$
820,000
$
-
Nine months ended September 30, 2021
As Previously
Adjustments
As Restated
(in thousands, except per share data)
Consolidated Statement of Cash Flows
(unaudited)
Net loss
$
(113,842,000
)
$
(750,000
)
$
(114,592,000
)
Change in fair
value of contingent consideration
$
(750,000
)
$
750,000
$
- Summary of Significant Accounting Policies Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (a)
the reported amounts of assets and liabilities; (b) disclosure of contingent assets and liabilities at the date of the consolidated financial statements; (c) the reported amounts of revenues and expenses during the reporting period and (d) the
reported amount of the fair value of assets acquired in connection with business combinations. Actual results could differ from those estimates. The Company’s significant estimates and assumptions include the recoverability and useful lives of
long-lived assets and the contingent consideration liability. Cash and Cash Equivalents The Company classifies highly liquid investments with a remaining contractual maturity at date of purchase of three months or less as cash
equivalents. The Company had no cash equivalents as of December 31, 2021 or 2020. Property and Equipment Property and equipment are recorded at cost and are depreciated over their estimated useful lives using the straight-line method. Laboratory and
manufacturing equipment are depreciated over an estimated useful life of seven years. Leasehold improvements are depreciated over the
shorter of their estimated useful life, or the lease term. Computer equipment are depreciated over an estimated useful life of three years.
Upon retirement or other disposition of these assets, the cost and related accumulated depreciation of these assets are removed from the accounts and the resulting gain or losses are reflected in the results of operations. Expenditures for
maintenance and repairs are charged to operations. Renewals and betterments are capitalized. Goodwill Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in the acquisition of IRX
Therapeutics, Inc. in November 2018 (the “IRX Acquisition”), which was accounted for as a business combination. Goodwill is not amortized but is tested for impairment annually, or if events occur or circumstances change that would reduce the fair
value of a reporting unit below its carrying value. Because management evaluates the Company as a single reporting unit, goodwill is tested for impairment at the entity level by first performing a qualitative assessment to determine whether it is
more likely than not that the fair value of the entity is less than its carrying value. Such qualitative factors include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant
events. If the entity does not pass the qualitative assessment, then the entity’s carrying value is compared to its fair value. Goodwill is considered impaired if the carrying value of the entity exceeds its fair value. IPR&D IPR&D assets represent the fair value assigned to technologies that were acquired in connection with the IRX Acquisition, which have not
reached technological feasibility and have no alternative future use. IPR&D assets are considered to be indefinite lived until the completion or abandonment of the associated research and development projects. During the period that the
IPR&D assets are considered indefinite-lived, they are tested for impairment on an annual basis, or more frequently if the Company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the
IPR&D assets are less than their carrying amounts. If and when development is complete, which generally occurs upon regulatory approval, and the Company is able to commercialize products associated with the IPR&D assets, these assets are
then deemed definite-lived and are amortized based on their estimated useful lives beginning at that point in time. If development is terminated or abandoned, the Company may have a full or partial impairment charge related to the IPR&D assets,
calculated as the excess of carrying value of the IPR&D assets over fair value. Impairment of Long-Lived Assets The Company reviews long-lived assets and certain identifiable assets for impairment whenever circumstances and situations change such that there
is an indication that the carrying amounts may not be recovered. An impairment exists when the carrying value of the long-lived asset is not recoverable and exceeds its fair value. For the years ended December 31, 2021 and 2020, there were no
qualitative factors that indicated it was more likely than not that the fair value of the long-lived assets exceeded the carrying value. Research and Development The Company expenses its research and development costs as incurred. Research and development expenses consist of costs incurred for
company-sponsored research and development activities, as well as support for selected investigator-sponsored research. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the
period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended. IPR&D that is acquired through an asset acquisition (as
opposed to a business combination) and has no alternative future uses and, therefore, no separate economic values, is expensed to research and development costs at the time the costs are incurred. The major components of research and development costs include preclinical study costs, clinical manufacturing costs, clinical study and trial
expenses, insurance coverage for clinical trials, expensed licensed technology, expensed IPR&D, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and
materials and allocations of various overhead costs related to our product development efforts. In the normal course of our business, the Company contracts with third parties to perform various clinical study and trial activities in the
on-going development and testing of potential products. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors
such as the achievement of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the clinical study or trial or similar
conditions. Preclinical and clinical study and trial associated activities such as production and testing of clinical material require significant up-front expenditures. The Company anticipates paying significant portions of a study’s or trial’s
cost before they begin and incurring additional expenditures as the study or trial progresses and reaches certain milestones. Income Taxes The Company records deferred tax liabilities and assets based on the differences between the consolidated financial statements carrying amounts
and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse and established a valuation allowance when it was more likely than not that some portion or all of the deferred tax
assets would not be realized. Income tax expense consists of the tax payable for the period and the change during the period in deferred tax assets and liabilities. Tax benefits from uncertain tax positions are recognized only if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of
being realized upon ultimate resolution. The Company has no material uncertain tax positions for any of the reporting periods presented. Earnings Per Share Basic and diluted loss per common share have been computed by dividing the losses applicable to common stock by the weighted average number of
common shares outstanding. The Company’s basic and fully diluted earnings per share (“EPS”) calculation are the same since the increased number of shares that would be included in the diluted calculation from assumed exercise of common stock
equivalents would be anti-dilutive to the net loss in each of the years shown in the consolidated financial statements. Segment Reporting In accordance with ASC No. 280, Segment Reporting Concentration of Credit Risk The Company maintains its cash balances in financial institutions located in the United States. Accounts at each institution are insured by the
Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At times, the Company’s cash balances may be uninsured for deposit accounts that exceed the FDIC insurance limit. In the Company’s business, vendor concentrations could be indicative of vulnerabilities in the Company’s supply chain, which could ultimately
impact the Company’s ability to continue its research and development activities. For the years ended December 31, 2021 and 2020, there was no vendor concentration related to the Company’s research and development activities. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between
willing market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The
fair value hierarchy is as follows: • Level 1 Inputs – Valued based on quoted prices in active markets for identical
assets or liabilities that the reporting entity has the ability to access at the measurement date. • Level 2 Inputs – Valued based on inputs other than quoted prices included in Level
1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that
are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market
data by correlation or other means. • Level 3 Inputs – Valued based on inputs for which there is little or no market
value, which require the reporting entity to develop its own assumptions. The carrying amounts reported on the balance sheet for cash and cash equivalents, accounts receivable, prepaid assets and other current assets,
accounts payable and accrued expenses, other current liabilities and other liabilities approximate fair value based due to their short maturities. The carrying value of loans payable approximates its fair market value because the effective yield on
this debt, which includes contractual interest rates as well as other finance charges, is comparable to rates of returns for instruments of similar credit risk. Leases The Company adopted ASC Topic 842, Leases, Operating lease liabilities represent the present value of lease payments not yet paid. ROU assets represent the Company’s right to use an
underlying asset and are based upon the operating lease liabilities adjusted for prepaid or accrued lease payments, initial direct costs, lease incentives and impairment of operating lease assets. If the interest rate implicit in the lease is not
readily determinable, the Company uses the incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. To determine the present value of lease payments not yet
paid, the Company estimates secured borrowing rates corresponding to the maturities of the leases. The Company has elected the practical expedient to not separate non-lease components from the lease components to which they relate and instead
account for each as a single lease component for all underlying asset classes. Some leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance, tax payments and other
miscellaneous costs. The variable portion of lease payments is not included in the ROU assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments
is incurred and are included in lease expenses. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses. Commitment and Contingencies The Company follows ASC No.450-20, Loss Contingencies Stock-Based Compensation The Company recognizes stock-based compensation expense for equity awards granted to employees, directors and certain consultants. The Company
estimates the fair value of stock options using the Black-Scholes option pricing model. The fair value of stock options granted is recognized as expense over the requisite service period. Stock-based compensation expense for share-based payment
awards is recognized using the straight-line single-option method. Recent Accounting Standards In May 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-04,
Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain
Modifications or Exchanges of Freestanding Equity-Classified Written Call Options In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842) – Lessors - Certain Leases with Variable Lease
Payments, |
