NOTE 12

COMMITMENTS AND CONTINGENCIES

Legal Matters

The Company is involved in litigation and arbitrations from time to time in the ordinary course of business. Legal fees and other costs associated with such actions are expensed as incurred. In addition, the Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and contingencies. The Company reserves for costs relating to these matters when a loss is probable, and the amount can be reasonably estimated.

University of South Florida

As of December 31, 2019, the Company was involved in a legal matter with the University of South Florida (“USF”), whereby USF sent a demand letter to IRX and Brooklyn LLC on December 21, 2018, contending its right to 25% of IRX proceeds from the business combination. The Company entered into a settlement agreement with USF on August 7, 2020. The amount of $150,000 was paid on August 19, 2020. Other than the royalty payments described below, no other amounts are due to USF under the license agreement.

Litigation

Transaction between NTN and Brooklyn LLC / Related NTN Shareholder Litigation

NTN and its former directors have been named as defendants in ten (10) substantially similar actions brought by purported stockholders of NTN arising out of the merger: Henson v. NTN Buzztime, Inc., et al., No. 1:20-cv-08663-LGS (S.D.N.Y.); Monsour v. NTN Buzztime, Inc., et al., No. 1:20-cv-08755-LGS (S.D.N.Y.); Amanfo v. NTN Buzztime, Inc., et al., No. 1:20-cv-08747-LGS (S.D.N.Y.); Carlson v. NTN Buzztime, Inc., et al., No. 1:21-cv-00047-LGS (S.D.N.Y.); Finger v. NTN Buzztime, Inc., et al., No. 1:21-cv-00728-LGS (S.D.N.Y.); Falikman v. NTN Buzztime, Inc., et al., No. 1:20-cv-05106-EK-SJB (E.D.N.Y.); Haas v. NTN Buzztime, Inc., et al., No. 3:20-cv-02123-BAS-JLB (S.D. Cal.); Gallo v. NTN Buzztime, Inc., et al., No. 3:21-cv-00157-WQH-AGS (S.D. Cal.); Chinta v. NTN Buzztime, Inc., et al., No. 1:20-cv-01401-CFC (D. Del.); and Nicosia v. NTN Buzztime, Inc., et al., No. 1:21-cv-00125-CFC (D. Del.) (collectively, the “Stockholder Actions”). Only two of these suits (the Chinta and Nicosia cases) also name the Company. These actions assert claims alleging violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Securities Exchange Commission Rule 14a-9 promulgated thereunder and in both the Chinta and Nicosia cases alleged that the Company is a controlling person of NTN. The complaints generally allege that the defendants failed to disclose allegedly material information in a Form S-4 Registration Statement filed on October 2, 2020, including: (1) certain details regarding any projections or forecasts of NTN or the Company may have made, and the analyses performed by NTN’s financial advisor, Newbridge Securities Corporation; (2) conflicts concerning the sales process; and (3) disclosures regarding whether or not NTN entered into any confidentiality agreements with standstill and/or “don’t ask, don’t waive” provisions. The complaints generally allege that these purported failures to disclose rendered the Form S-4 false and misleading. The complaints request preliminary and permanent injunction of the merger; rescission of the merger if executed and/or rescissory damages in unspecified amounts; direction to the individual directors to disseminate a compliant Registration Statement; an accounting by NTN for all alleged damages suffered; a declaration that certain federal securities laws have been violated; and costs, including attorneys’ and expert fees and expenses. On or about February 26, 2021, in order to moot certain of the disclosure claims asserted in the Stockholder Actions, to avoid nuisance, potential expense, and delay, and to provide additional information to NTN’s stockholders, NTN determined to voluntarily supplement the Proxy Statement with certain additional disclosures. In exchange for those disclosures the Plaintiffs in each of the ten actions agreed to voluntarily dismiss their claims. All ten actions have now been dismissed. The parties are presently attempting to resolve plaintiffs’ counsel’s request for an award of attorneys’ fee and expenses based on the purported benefit they contend was conferred on NTN’s stockholders as a result of the supplemental disclosures. If agreement cannot be reached, plaintiffs’ counsel have reserved their right to seek a fee and defendants have reserved their right to challenge fee application.

Dhesh Govender v. Brooklyn Immunotherapeutics, LLC, et al., Index No. 650847/2021 (N.Y. Sup. Ct. N.Y. Cty. 2021)

On or about February 5, 2021, Dhesh Govender, a former short-term consultant of the Company, filed a complaint against the Company and certain individuals that plaintiff alleges are directors of the Company. The complaint is captioned, Dhesh Govender v. Brooklyn Immunotherapeutics, LLC, et al., Index No. 650847/2021 (N.Y. Sup. Ct. N.Y. Cty. 2021). Plaintiff purports to state claims against the Company and the individual defendants under the New York State Executive Law, New York State Administrative Code and other statutory and common law claims for alleged unlawful and discriminatory conduct based on race, national origin and hostile work environment. Plaintiff also asserts various breach of contract, fraud and quantum meruit claims based on an alleged oral agreement pursuant to which he alleges the Company agreed to hire him as an executive once the Company went public. In particular, plaintiff alleges that in exchange for transferring an opportunity to obtain an agreement to acquire a license from Novellus for its mRNA-based gene editing and cell reprogramming technology (the “Novellus License”) to the Company, he was promised a $500,000 salary and 7% of the equity of the Company. Based on these and other allegations, plaintiff seeks damages of not less than $10 million, a permanent injunction enjoining the Company from exercising the option to acquire the Novellus License or completing the proposed merger with NTN. On or about February 19, 2021, an amended complaint was filed asserting the same causes of action but withdrawing the request for injunctive relief. On or about April 26, 2021, the parties entered into a stipulation whereby the defendants agreed to accept service of the Amended Complaint without waiver of any defenses, including jurisdictional defenses, except for improper service, and the plaintiff agreed to extend Defendants time to respond to the Complaint to June 6, 2021.

Carlson v. Allen Wolff, Michael Gottlieb, Richard Simtob, Susan Miller, and NTN Buzztime, Inc., C.A. No. 2021-0193-KSJM (Del. Ch. Ct.)

On or about March 12, 2021, Douglas Carlson, a purported stockholder of NTN Buzztime, Inc., filed a verified class action complaint against NTN and its then current members of the board of directors, for allegedly breaching their fiduciary duties and violating Section 211(c) of the Delaware General Corporation Law. In particular, plaintiff seeks to compel the defendants to hold an annual stockholder meeting. Plaintiff also moved for summary judgment at the same time that he filed his complaint. In order to moot the claim addressed in the complaint, the Company has agreed to hold its annual meeting on June 29, 2021. On or about May 6, 2021, the parties entered into a stipulation, which was “so ordered” by the Court, extending defendants time to respond to the complaint and file their answering brief in opposition to Plaintiff’s motion for summary judgment on or before July 16, 2021 and Plaintiff’s reply brief in support of his motion for summary judgment is due on or before August 20, 2021.

Robert Garfield Demand Letter

On April 29, 2021, Robert Garfield, a purported stockholder of the Company forwarded a demand letter (the “Demand”) that had purportedly been sent to NTN Buzztime, Inc. on or about March 16, 2021, to the Company asserting that NTN Buzztime, Inc. made material misstatements in a prospectus issued in connection with it seeking a stockholder vote on March 15, 2021 with respect to an amendment to the Company’s certificate of incorporation to increase the company’s authorized shares from 15M to 100M shares. The Demand seeks to have the Company deem the amendment ineffective or seek a valid stockholder approval of such amendment to the Certificate of Incorporation and for the Company to implement internal controls.

Edmund Truell Matter

On May 14, 2021, Edmund Truell, a shareholder alleged that he sustained loss because he was unable to sell shares timely due to the Company’s delayed issuance of paper stock certificates in lieu of electronic book entry.

Licensing Agreements

University of South Florida

The Company has license agreements with USF, granting the Company the right to sell, market, and distribute IRX-2, subject to a 7% royalty payable to USF based on a percentage of gross product sales. Under the license agreement with USF, the Company is obligated to repay patent prosecution expenses incurred by USF. To date, the Company has not recorded any product sales, or obligations related to USF patent prosecution expenses. The license agreement terminates upon the expiration of the IRX-2 patents.

Novellus

In December 2020 (and as amended in April 2021), the Company entered into option agreements with Novellus Therapeutics Limited and Factor Bioscience Limited (together, Novellus) to obtain the right to exclusively license Novellus’ IP and mRNA cell reprogramming and gene editing technology for use in the development of certain cell-based therapies to treat cancer and rare blood disorders, such as sickle cell disease and beta thalassemia.

The option is exercisable before May 21, 2021 and requires Brooklyn to pay a non-refundable option fee of $500,000 (even if the option is not exercised). Brooklyn paid an advance on the license fees owed of $1 million on April 13, 2021, for an extension of the option until May 21, 2021.

The license agreement is currently being negotiated which include the following material terms:

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Brooklyn will pay an upfront payment of $4,000,000 (inclusive of the $500,000 option fee) and receive an exclusive license (with right to sublicense) to Novellus’ patents, including know-how and any improvements, for developing and commercializing certain cell-based therapies. As discussed above Brooklyn already paid an advance of $1,000,000 of the license fee on April 13, 2021 and $1,500,000 on April 29, 2021.

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Upon payment of additional milestones of $5,000,000 (within 6 months of signing) and $7,000,000 (within 18 months of signing), Brooklyn will have the ability to acquire additional cell lines for developing cell-based therapies in cancer and rare blood disorders.

Royalty Agreements

Collaborator Royalty Agreement

Effective June 22, 2018, IRX terminated its Research, Development and Option Facilitation Agreement and its Options Agreement (the “RDO and Options Agreements”) with a collaborative partner (the “Collaborator”), pursuant to a termination agreement (the “Termination Agreement”). In connection with the Termination Agreement, all of the rights granted to the Collaborator under the RDO and Options Agreements were terminated, and the IRX has no obligation to refund any payments received from the Collaborator. As consideration for entering into the Termination Agreement, the Collaborator will receive a royalty equal to 6% of revenues from the sale of IRX-2, for the period of time beginning with the first sale of IRX-2 through the later of (i) the twelfth anniversary of the first sale of IRX-2, or (ii) the expiration of the last IRX patent, or other exclusivity of IRX-2.

Investor Royalty Agreement

On March 22, 2021, Brooklyn restated its royalty agreement with the former Class A membership investors of the GP and LP (the “Investor Royalty Agreement”), whereby such beneficial holders will continue to receive royalties in an aggregate amount equal to 4% of the net revenues of the Company.

Royalty Agreement with certain former IRX Therapeutics investors

On May 1, 2012, IRX Therapeutics entered into a royalty agreement, which we refer as the IRX Investor Royalty Agreement, with certain investors who participated in a financing transaction. The IRX Investor Royalty Agreement was assigned to Brooklyn LLC in November 2018 when Brooklyn LLC acquired the assets of IRX Therapeutics. Pursuant to the IRX Investor Royalty Agreement, when Brooklyn 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. There are no termination provisions in the IRX Investor Royalty Agreement. The Company has not recognized any revenues to date, and no royalties are due pursuant to the any of the above-mentioned royalty agreements.

Employment Agreements

On July 8, 2020, the Brooklyn entered into a retention agreement (the “Retention Agreement”) with an employee (the “Employee”). Pursuant to the Retention Agreement, the Employee was paid a lump sum of $200,000 in the second quarter of 2021.

In addition, the Company may unilaterally elect a second retention period from January 8, 2021 to July 8, 2021 (the “Second Retention Period”). The Company has elected not to make the Second Retention Period payment.