Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.WASHINGTON, DC 20549

 

FORM 10-K

 

(Mark One)

 

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2023

For the fiscal year ended May 31, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[_]For the transition period from ___________ to _______________

For the transition period from to

Commission File Number 0-22182

 

PATRIOT SCIENTIFIC CORPORATIONMOSAIC IMMUNOENGINEERING, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of incorporation or organization)

84-1070278

(I.R.S. Employer Identification No.)

  

 

2038 Corte Del Nogal, Suite 141, Carlsbad, 9114 Adams Avenue, #202, Huntington Beach, California

(Address of principal executive offices)

9201192646

(Zip Code)

 

(Registrant’s telephone number, including area code): (760) 795-8517code: (657) 208-0890

 

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

 

Title of each class Trading Symbol Name of each exchange on which registered
NoneCommon Stock, $0.00001 par value None None

 

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]Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES [  ]  NO [X]Yes ☐ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X]  NO [  ]Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X] NO [ ]Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [  ]   

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [  ]   

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [  ]  NO [X]Yes ☐ No

 

ApproximateThe aggregate market value of the registrant’sshares of common stock held by non-affiliates on Novemberof the registrant as of June 30, 20192023, the last business day of the registrant’s most recently completed second fiscal quarter, was $999,791$816,893, calculated based on athe closing price of $0.0025 per sharethe registrant’s common stock as reported onby OTC of the OTC Pink. For purposesMarkets.

As of this calculation, it has been assumed that allApril 12, 2024, the number of shares of the registrant'sregistrant’s common stock held by directors, executive officers and shareholders beneficially owning five percent or more of the registrant's common stock are held by affiliates. The treatment of these persons as affiliates for purposes of this calculation is not conclusive as to whether such persons are, in fact, affiliates of the registrant.

On August 24, 2020, 401,392,948 shares of common stock, par value $0.00001 per share were outstanding.outstanding was 7,242,137.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

 

 

   

 

 

MOSAIC IMMUNOENGINEERING, INC.

ANNUAL REPORT ON FORM 10-K

Table of ContentsTABLE OF CONTENTS

 

PART I
   
ITEM 1.Business24
ITEM 1A.Risk Factors410
ITEM 1B.Unresolved Staff Comments727
ITEM 1C.ITEM 2.CybersecurityProperties727
ITEM 2.ITEM 3.PropertiesLegal Proceedings728
ITEM 3.Legal Proceedings28
ITEM 4.Mine Safety Disclosures828
   
PART II
   
ITEM 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities929
ITEM 6.Selected Financial Data1030
ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations1031
ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk1538
ITEM 8.Financial Statements and Supplementary Data1539
ITEM 9.Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure1539
ITEM 9A.Controls and Procedures1539
ITEM 9B.Other Information1640
   
PART III
   
ITEM 10.Directors, Executive Officers and Corporate Governance1741
ITEM 11.Executive Compensation1947
ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters2048
ITEM 13.Certain Relationships and Related Transactions, and Director Independence2150
ITEM 14.Principal Accountant Fees and Services2150
   
PART IV
   
ITEM 15.Exhibit and Financial Statement Schedules52
ITEM 16.Form 10-K Summary53
 ITEM 15.EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES22
SIGNATURES2654

 

 

 

 i 

 

 

Unless the context otherwise requires, references to the “Company,” “Mosaic,” “we,” “our,” or “us” in this Annual Report on Form 10-K (“Report”) refer to Mosaic ImmunoEngineering, Inc. and its subsidiaries.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report, on Form 10-K, including all documents incorporated by reference herein, includes certain statements constituting “forward-looking” statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995, including statements concerning our beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, operations, future results and prospects, and we rely on the “safe harbor” provisions in those laws. We are including this statement for the express purpose of availing ourselves of the protections of such safe harbors with respect to all such forward-looking statements. The forward-looking statements in this report reflect our current views with respect to future events and financial performance. In this report, the words “anticipates,” “believes,” “expects,” “intends,” “future,” “estimates,” “may,” “could,” “should,” “would,” “will,” “shall,” “propose,” “continue,” “predict,” “plan” and similar expressions are generally intended to identify certain of the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. Any forward-looking statement is not a guarantee of future performance.

 

These forward-looking statements are subject to certain risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors, including, but not limited to those items shown under “Item 1A. Risk Factors” and “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part 2.II. You should read this report completely with the understanding that our actual results may differ materially from what we expect. Unless required by law, we undertake no obligation to publicly disclose the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.

 

You should not place undue reliance on these types of forward-looking statements, which speak only as of the date that they were made. These forward-looking statements are based on the beliefs and assumptions of the Company’s management based on information currently available to management and should be considered in connection with any written or oral forward-looking statements that the Company may issue in the future as well as other cautionary statements the Company has made and may make. Except as required by law, the Company does not undertake any obligation to release publicly any revisions to these forward-looking statements after completion of the filing of this Report to reflect later events or circumstances or the occurrence of unanticipated events.

 

 

 

 

 

 

 

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RISK FACTOR SUMMARY

Below is a summary of material factors that make an investment in our common stock speculative or risky. Importantly, this summary does not address all of the risks and uncertainties that we face. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider this section to be a complete discussion of all potential risks or uncertainties that may substantially impact our business. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found under “Risk Factors” in Part I, Item 1A of this Report. Moreover, we operate in a competitive and rapidly changing environment. New factors emerge from time to time, and it is not possible to predict the impact of all of these factors on our business, financial condition or results of operations. The below summary is qualified in its entirety by that more complete discussion of such risks and uncertainties. You should consider carefully the risks and uncertainties described under “Risk Factors” in Part I, Item 1A of this Report as part of your evaluation of an investment in our common stock.

Risks Related to Our Operations

·While the Company’s financial statements have been prepared on a going concern basis, we do not currently have sufficient working capital to fund our existing liabilities and planned operations for the next twelve months and we may be required to cease our operations altogether if we are unable to secure sufficient funding.
·We currently do not have sufficient capital to pay all amounts owed under our License Agreement with Case Western Reserve University (“CWRU”) in the amount of approximately $407,000 as of December 31, 2023 and on March 22, 2024, we received a notice of termination from CWRU.
·We may not successfully identify new product candidates to expand our development pipeline.
·If we are able to raise sufficient capital, we expect that we will incur significant losses over the next several years and may never achieve or maintain profitability.
·Our development efforts have historically been with product candidates in preclinical development.
·Our short operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.
·The Company and its subsidiaries have limited insurance for their operations and are subject to various risks of loss.
·Drug development involves a lengthy and expensive process with an uncertain outcome, including failure to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the product manufacturing of any product candidates.
·If serious adverse events or unacceptable side effects are identified during the development of any product candidates, we may need to abandon or limit our development of these product candidates.
·If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.

Risks Related to Our Financial Position and Need for Additional Capital

·We need substantial additional funding. If we are unable to secure sufficient capital in the near term, we may be required to further reduce or eliminate product development and potentially cease operations.
·Raising capital will cause dilution to our stockholders, restrict our operations, or require us to relinquish rights to our technologies or product candidates.

Risks Related to the Commercialization of Any Product Candidate

·We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.
·Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.

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Risks Related to Our Dependence on Third Parties

·Future development collaborations may be important to us. If we are unable to enter into or maintain these collaborations, or if these collaborations are not successful, our business could be adversely affected.
·We may contract with third parties for the manufacture of product candidates for preclinical and clinical studies and may expect to continue to do so for commercialization. This potential reliance on third parties increases the risk that we will not have sufficient quantities of product candidates or products at an acceptable cost and quality, which could delay, prevent or impair our development or commercialization efforts.
·Data provided by collaborators and other parties upon which we rely has not been independently verified and could turn out to be inaccurate, misleading, or incomplete.

Risks Related to Intellectual Property

·If we are unable to obtain and maintain intellectual property protection for technology and products we plan to develop or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.
·If we fail to comply with our obligations under any license agreement or other agreements under which we may license intellectual property and other rights from third parties or otherwise experience disruptions to our business relationships with our future licensors, we could lose those rights or other rights, which could be the products upon which our business depends.
·We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
·We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.
·Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
·If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

Risks Related to Our Employee Matters, Managing Growth and Macroeconomic Conditions

·Our future success depends on our ability to attract, hire, retain and motivate executives, key employees, and our general workforce.
·We expect to expand our research and development function, as well as our corporate operations, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
·We may face risks related to securities litigation that could result in significant legal expenses and settlement or damage awards.

Risks Related to Our Common Stock

·There is a substantial lack of liquidity of our common stock and volatility risks, and because there is no active public trading market for our common stock, you may not be able to resell your common stock.
·The market for our common stock is subject to rules relating to low-priced stock (“Penny Stock”) which may limit our ability to raise capital.
·Future sales of shares by existing stockholders could cause the Company’s stock price to decline.
·We expect our stock price to be volatile, and the market price of our common stock may drop unexpectedly.
·We may issue preferred stock, and the terms of such preferred stock may reduce the value of our common stock.
·Our executive officers, directors and principal stockholders, if they choose to act together, will have the ability to control all matters submitted to stockholders for approval.
·Our amended and restated certificate of incorporation and amended and restated bylaws provides that state or federal court located within the state of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
·Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

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PART I

 

Unless the context otherwise requires, references to the “Company,” “Mosaic,” “we,” “our,” or “us” in this Annual Report on Form 10-K (“Report”) refer to Mosaic ImmunoEngineering, Inc. and its subsidiaries.

ITEM 1.BUSINESS

 

The CompanyBusiness Overview

 

We are a development-stage biotechnology company focused on advancing and eventually commercializing immunotherapies for the treatment of cancer. We have historically advanced an early-stage product candidate, MIE-101, that is based on a naturally occurring plant virus licensed from Case Western Reserve University (“CWRU”) (see Note 12 to the accompanying consolidated financial statements). In addition, we are pursuing new product candidates and platforms to expand our pipeline based on a deep understanding of immunotherapies, although we may be unsuccessful in our efforts to identify new product candidates.

Business Strategy

Our strategy is to leverage our considerable industry experience, understanding of immunotherapies, and development expertise to identify, develop and commercialize product candidates with significant market potential that can fulfill unmet medical needs in the treatment of cancer. We have assembled a management team along with both scientific and business advisors, including recognized experts in the field of immunotherapy, with significant industry and regulatory experience to lead and execute the development and commercialization of immunotherapy products. We are focused on identifying and successfully licensing or acquiring new product candidates.

Our Corporate History and Background

Private Mosaic, a Delaware corporation, was formed on March 30, 2020. On July 1, 2020, we signed a Material Transfer, Evaluation, and Exclusive Option Agreement (“License Option Agreement”) with Case Western Reserve University (“CWRU”), granting us the exclusive right to license the cowpea mosaic virus (“CPMV”) platform technology to treat and prevent cancer and infectious diseases in humans and for veterinary use. On May 4, 2022, we entered into the license agreement with CWRU (“License Agreement”) pursuant to our rights granted under the License Option Agreement (see Note 6 to the accompanying audited consolidated financial statements). On March 22, 2024, we received a notice of termination from CWRU (see Note 12 to the accompanying consolidated financial statements). On August 19, 2020, Patriot Scientific Corporation (the “Company”, “Patriot”, “we”, “us”, or “our”(now known as Mosaic ImmunoEngineering, Inc.) has beenand Private Mosaic entered into a licensing company of patented microprocessor technologies that offered broad and open licensing and by litigating against those who may have infringed on its patents. These licensing efforts were performed through our joint venture with Phoenix Digital Solutions, LLC (“PDS”). PDS has not generated significant license revenues since September 2013. Furthermore, on November 4, 2019, the Supreme Court of the United States denied our application to review a lower court’s decision that was adverse to our patented microprocessor technologies. As result of this denial to review the lower court’s decision, our patented microprocessor technologies were no longer enforceable, and we have no other options to appeal the lower court’s adverse decision. As a result, there are no future licensing opportunities or sources of revenue from PDS and we need to either pursue a new line of business, liquidate the Company in a dissolution under Delaware law, or seek protection under the provisions of the U.S. Bankruptcy Code.reverse merger transaction, as further described below.

Reverse Merger

 

On August 19, 2020, Patriot Scientific Corporation, (referred toa corporation organized under Delaware law on March 24, 1992 (now known as “Parent” in the transaction),Mosaic ImmunoEngineering, Inc.) and Private Mosaic entered into a stock purchase agreement (the “Stock(“Stock Purchase Agreement”) among Parent,, whereby one of the wholly owned subsidiaries of Patriot Scientific Corporation (“PTSC”) merged with and into Private Mosaic, with Private Mosaic surviving as wholly owned subsidiary of PTSC Sub One Inc., a Delaware corporation (as “Buyer” and together(the “Reverse Merger”). The transaction closed on August 21, 2020 (“Closing Date”) in accordance with the Parent, the “Buyer Parties”), Mosaic ImmunoEngineering Inc., a Delaware corporation (the “Target”), certain stockholdersterms of the Target set for therein (as “Sellers”),Stock Purchase Agreement.

On the Closing Date, Patriot Scientific Corporation acquired 100% of the issued and Steven King (as the “Sellers’ Representative” and together with the Target and Sellers, the “Seller Parties”) pursuant to which, Buyer will buy from Sellersoutstanding common stock of Private Mosaic, representing 630,000 shares of its Class A common stock (“Class A Stock”), par value $0.0001 per share, and 70,000 shares of its Class B common stock (“Class B Stock”), par value $0.0001 per share, together the Class A Stock and Class B Stock shall collectively be (collectively referred to as “Target Common Stock”, representing 100% of the issued and outstanding common stock of the Target as of August 19, 2020. Upon closing, in). In exchange for the Target Common Stock, the holders of the Class A Stock shall receivereceived 630,000 shares of the Parent’s preferred stock to be designatedCompany’s Series A Convertible Voting Preferred Stock (“Series A Preferred”) and holders of the Class B Stock shall receivereceived 70,000 shares of the Parent’s preferred stock to be designatedCompany’s Series B Convertible Voting Preferred Stock (“Series B Preferred”). Each share of Series A Preferred converted into 10.194106 shares of common stock as defined in the Series A Preferred; shall (a) convertCertificate of Designation. Each share of Series B Preferred converts into 5,097.05311.46837 shares of common stock of the Parent, (b) possessCompany, possesses full voting rights, on an as-converted basis, as the common stock of the Parent,Company and (c) have no dividend rate. Each share of the Series B Preferred; shall (a) convert into 5,734.185 shares of common stock of the Parent, (b) possess full voting rights, on an as-converted basis, as the common stock of the Parent, (c) have no dividend rate, and (d) shall possesscontains certain anti-dilution protectionsrights, as defined in the Series B Certificate of Designations.Designation. On a fully diluted, as converted basis, the Sellers shall ownholders of Series A Preferred and Series B Preferred, in aggregate, owned 90% of the issued and outstanding common stock of the ParentCompany as of the Closing Date.

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The Reverse Merger was treated by the Company as a reverse merger in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For accounting purposes, Private Mosaic was considered to have acquired PTSC as the accounting acquirer because: (i) Private Mosaic stockholders owned 90% of the combined company, on an as-converted basis, immediately following the Closing Date, (ii) Private Mosaic directors held a majority of board seats in the combined company and (iii) Private Mosaic management held all key positions in the management of the combined company. Accordingly, Private Mosaic’s historical results of operations replaced PTSC’s historical results of operations for all periods prior to the Closing Date of the Reverse Merger and, for all periods following the Closing Date of the Reverse Merger, the results of operations of the combined company are included in the Company’s financial statements.

Other Key Corporate Events

On November 30, 2020, we filed amended and restated articles of incorporation with the Secretary of State of the State of Delaware (“Amended and Restated Certificate”) to change the name of the Company to Mosaic ImmunoEngineering, Inc. (“Name Change”) to align the Company’s corporate name with its new strategic direction, to implement a 1-for-500 reverse stock split (“Reverse Stock Split”), and to reduce the number of authorized shares of common stock from 600 million to 100 million. The Reverse Stock Split was effective on December 2, 2020. All share numbers and preferred stock conversion numbers included herein have been retroactively adjusted to reflect the 1-for-500 Reverse Stock Split. On December 30, 2020, we changed our fiscal year end from May 31 to December 31.

Our funding has primarily come from the issuance of convertible notes. On May 7, 2021 and February 18, 2022, we issued unsecured convertible promissory notes in the aggregate principal amount of $575,000 and $341,632, respectively (see Note 107 to Patriot’sthe accompanying consolidated financial statements included elsewhere herein)statements).

On July 6, 2022, we entered into a redemption agreement (the “Redemption Agreement”) with Holocom, Inc. (“Holocom”) pursuant to which we requested full redemption of our 2,100,000 shares of Series A Preferred Stock at a redemption price of $0.40 per share, provided Holocom has sufficient capital to redeem the underlying shares. During the year ended December 31, 2023 and 2022, we received cash proceeds in the amount of $433,000 and $343,000, respectively, upon the redemption of 1,242,500 and 857,500 shares of Series A Preferred Stock, respectively (see Note 4 to the accompanying consolidated financial statements).

Patents and Proprietary Rights

Our patent strategy is to in-license and/or file patent applications on innovations and improvements to cover a significant majority of the major pharmaceutical markets in the world. Generally, assuming all maintenance fees (annuities) are paid, patents have a term of twenty years from the earliest priority date (other than a priority date for a provisional application). In some instances, patent terms can be increased or decreased, depending on the laws and regulations of the country or jurisdiction that issued the patent. Notwithstanding the foregoing, the patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in limited cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Also, examinations are often lengthy and can involve numerous challenges to the claims sought. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States, the European Union, and other countries may diminish the value of the underlying patents under our License Agreement or narrow the scope of our patent protection.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States, the European Union, and other major pharmaceutical markets with respect to any new proprietary technology or product candidates.

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In addition, the patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions, and under the laws of certain jurisdictions, patents or other intellectual property rights may be unavailable or limited in scope. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents covering technology under a license agreement. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. Any inability by us or any future licensor to protect adequately the underlying intellectual property may have a material adverse effect on our business, operating results, and financial position.

Our Trade Secrets

We also rely upon unpatented trade secrets, and there is no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technology, or that such rights can be meaningfully protected. We require our employees, consultants, outside scientific collaborators, and other advisers to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of our employees, the agreement provides that all inventions conceived by such employees shall be our exclusive property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information.

Third-Party Rights

Our success also depends in part on our ability to gain access to third-party patent and proprietary rights and to operate our business without infringing on third-party patent rights. We may be required to obtain licenses to patents or other proprietary rights from third parties to develop, manufacture and commercialize product candidates. Licenses required under third-party patents or proprietary rights may not be available on terms acceptable to us, if at all. If we do not obtain the required licenses, we could encounter delays in product development while we attempt to redesign products or methods or we could be unable to develop, manufacture or sell products, if approved, requiring these licenses at all. The failure to obtain licenses, if needed, may have a material adverse effect on our business, operating results, and financial position.

Government Regulation

Regulatory Compliance

Our planned research and development activities, including testing in laboratory animals and in humans, our manufacture of product candidates, and oversight of suppliers and contract manufacturers involved in the production of product candidates, as well as the design, manufacturing, safety, efficacy, handling, labeling, storage, record-keeping, advertising, promotion and marketing of these product candidates that we may develop, are all subject to stringent regulation, primarily by the FDA in the United States under the Federal Food, Drug, and Cosmetic Act (the “FDCA”) and its implementing regulations, and the Public Health Service Act (“PHS Act”) and its implementing regulations, and by comparable authorities under similar laws and regulations in other countries. If for any reason we do not comply with applicable requirements, such noncompliance can result in various adverse consequences, including one or more delays in approval of, or even the refusal to approve, product licenses or other applications, the suspension or termination of clinical investigations, the revocation of approvals if granted, as well as fines, criminal prosecution, recall or seizure of products, injunctions against shipping products and total or partial suspension of production and/or refusal to allow us to enter into governmental supply contracts.

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Product Development and Approval Process

In the United States, product candidates we plan to develop are regulated as biologic pharmaceuticals, or biologics. The FDA’s regulatory authority for the approval of biologics resides in the PHS Act. However, biologics are also subject to regulation under the FDCA because most biological products also meet the FDCA’s definition of “drugs.” Most pharmaceuticals or “conventional drugs” consist of pure chemical substances and their structures are known. Most biologics, however, are complex mixtures that are not easily identified or characterized. Biological products differ from conventional drugs in that they tend to be heat-sensitive and susceptible to microbial contamination, thus requiring sterile manufacturing processes. The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following:

·completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s current Good Laboratory Practices regulations;
·submission to the FDA of an IND which must become effective before human clinical trials may begin and must be updated annually;
·approval by an independent Institutional Review Board (“IRB”) ethics committee at each clinical site before the trial is initiated;
·performance of adequate and well-controlled clinical trials to establish the safety, purity and potency of the proposed biologic, and its safety and efficacy for each indication;
·preparation of and submission to the FDA of a Biologics License Application (“BLA”) for a new biologic, after completion of all pivotal clinical trials;
·satisfactory completion of an FDA Advisory Committee review, if applicable;
·a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;
·satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities to assess compliance with current Good Manufacturing Practice (“cGMP”) regulations; and
·FDA review and approval of a BLA for a new biologic, prior to any commercial marketing or sale of the product in the United States.

Preclinical tests assess the potential safety and efficacy of a product candidate in animal models. Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with current Good Clinical Practices (“cGCPs”), which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Additionally, approval must also be obtained from each clinical trial site’s IRB before the trials may be initiated, and the IRB must monitor the study until completed. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.

The clinical investigation of a pharmaceutical, including a biologic, is generally divided into three phases followed by potential post-market obligations. Although the phases are usually conducted sequentially, they may overlap or be combined.

·Phase I studies are designed to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the investigational product in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness.
·Phase II includes controlled clinical trials conducted to preliminarily or further evaluate the effectiveness of the investigational product for a particular indication(s) in patients with the disease or condition under study, to determine dosage tolerance and optimal dosage, and to identify possible adverse side effects and safety risks associated with the product.
·Phase III clinical trials are generally controlled clinical trials conducted in an expanded patient population generally at geographically dispersed clinical trial sites, and are intended to further evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the investigational product, and to provide an adequate basis for product approval.
·Phase IV clinical trials may be required to as post-marketing studies to find out more about the product’s long-term risks, benefits, and optimal use, or to test the drug in different populations.

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The FDA may place clinical trials on hold at any point in this process if, among other reasons, it concludes that clinical subjects are being exposed to an unacceptable health risk. Trials may also be terminated by IRBs, which must review and approve all research involving human subjects. Side effects or adverse events that are reported during clinical trials can delay, impede or prevent marketing authorization.

The results of the preclinical and clinical testing, along with information regarding the manufacturing of the product and proposed product labeling, are evaluated and, if determined appropriate, submitted to the FDA through a BLA. The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things.  Once the BLA submission has been accepted for filing, the FDA’s standard goal is to review applications within ten months of the filing date or, if the application relates to a drug that treats a serious condition and would provide a significant improvement in safety or effectiveness qualifying for Priority Review, six months from the filing date. The review process is often significantly extended by FDA requests for additional information or clarification.

The FDA offers certain programs, such as Breakthrough Therapy Designation (“BTD”) and Fast Track designation, designed to expedite the development and review of applications for products intended for the treatment of a serious or life-threatening disease or condition. For BTD, preliminary clinical evidence of the product indicates that it may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. If BTD or Fast Track designation is obtained, the FDA may initiate review of sections of a BLA before the application is complete, and the product may be eligible for accelerated approval. However, receipt of BTD or Fast Track designation for a product candidate does not ensure that a product will be developed or approved on an expedited basis, and such designation may be rescinded if the product candidate is found to no longer meet the qualifying criteria.

The FDA reviews the BLA to determine, among other things, whether the proposed product is safe, pure and potent, which includes determining whether it is effective for its intended use, and whether the product is being manufactured in accordance with cGMP, to assure and preserve the product’s identity, strength, quality, potency and purity. The FDA may refer an application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved, and applications for new molecular entities and original BLAs are generally discussed at advisory committee meetings unless the FDA determines that this type of consultation is not needed under the circumstances. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations.

After the FDA evaluates the BLA and conducts inspections of manufacturing facilities, it may issue an approval letter or a complete response letter (“CRL”). An approval letter authorizes commercial marketing of the biologic product with specific prescribing information for specific indications. A CRL indicates that the review cycle of the application is complete and the application is not ready for approval. A CRL may require additional inspections, and/or other significant, expensive and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the BLA does not satisfy the criteria for approval. The FDA could approve the BLA with a Risk Evaluation and Mitigation Strategy (“REMS”) plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase IV clinical trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

Foreign Regulation

In addition to regulations in the United States, we are subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of product candidates we plan to develop, and products being marketed outside of the United States. We must obtain approval by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of any products in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required by the FDA for BLA licensure. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

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Manufacturing

We currently do not possess any internal manufacturing infrastructure or capabilities. For any new product candidates, we plan to rely on internal manufacturing and development capabilities, as capital resources become available and capabilities are developed, in addition to third-party contract manufacturing and development organizations, or CDMOs, to manufacture biological product candidates for clinical testing, as well as for commercial manufacture if any product candidates receive marketing approval. We believe that this hybrid strategy will enable us to control and manage preclinical and early-stage clinical manufacturing while outsourcing other aspects of manufacturing and later-stage clinical manufacturing that would likely require higher infrastructure cost to build and operate. As with any supply program, obtaining pre-clinical and clinical materials of sufficient quality and quantity to meet the requirements of our development programs cannot be guaranteed and we cannot ensure that we will be successful in this endeavor. To date, we have not manufactured any products candidates due to our limited capital resources.

Sales and Marketing

None of our historical product candidates has been approved for sale. If and when a product candidate advances closer to marketing approval, we may commercialize them on our own in the United States and potentially with pharmaceutical or biotechnology partners in other geographies. We currently have no sales, marketing or commercialization capabilities and have no experience as a company doing such activities. However, we may build the necessary capabilities and infrastructure over time following the advancement of our product candidates. Clinical data, the size of the opportunity and the size of the commercial infrastructure required will influence our commercialization plans and decision making.

Competition

Competition in the pharmaceutical and biotechnology industry is intense and characterized by aggressive research and development and rapidly evolving science, technology, and standards of medical care throughout the world. Regarding our competitive position in the industry and our focus on immunotherapies for the treatment of cancer, we would face competition with all other immuno-oncology products either in development or already approved. Many of the companies against which we may compete in the future, such as biotechnology and pharmaceutical companies focused on cancer immunotherapies, including but not limited to, Amgen, Inc., AstraZeneca plc, Bristol-Myers Squibb Company (“BMS”), Genentech, Inc., GlaxoSmithKline PLC, Merck & Co., Inc., Novartis AG, Pfizer Inc., Roche Holding Ltd and Sanofi S.A., all have significantly greater financial resources and expertise in research and development, manufacturing, conducting preclinical studies, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Oncology drugs and therapeutics on the market range from traditional cancer therapies, including chemotherapy, to immune checkpoint inhibitors targeting CTLA-4, such as BMS’ YERVOY, and PD-1/PD-L1, such as BMS’ OPDIVO, Merck & Co.’s KEYTRUDA and Genentech’s TECENTRIQ, to T cell-engager immunotherapies, such as Amgen’s BLINCYTO and to oncolytic immunotherapies, including Amgen’s T-Vec, an FDA-approved oncolytic immunotherapy for treating advanced melanoma.

Moreover, mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. These third parties also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. In addition, our ability to compete may be affected in many cases by insurers or other third-party payers seeking to encourage the use of biosimilar or generic products.

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Segment information

The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. The Company’s primary focus is on research and development of immunotherapies with broad potential to treat cancer.

Corporate Information

Mosaic ImmunoEngineering, Inc., formerly known as Patriot Scientific Corporation, is a corporation organized under Delaware law on March 24, 1992. The Company has two wholly owned subsidiaries: Mosaic ImmunoEngineering Development Company (formerly referred to as Private Mosaic in connection with the Reverse Merger), a corporation organized under Delaware law on March 30, 2020 (date of inception) and Patriot Data Solutions Group, Inc., an inactive subsidiary of PTSC.

 

Our business address is 2038 Corte Del Nogal, Suite 141, Carlsbad,9114 Adams Avenue, #202, Huntington Beach, California 92011;94646 and our main telephone number is (760) 795-8517.(657) 208-0890. Our internet website pageaddress is located at http://www.ptsc.com. All of our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge on our internet website.www.mosaicie.com. The information on,contained in, or that can be accessed through, our website is not part of, and is not incorporated in this Annual Report.Report, and should not be relied upon.

 

PTSC is a corporation organized under Delaware law on March 24, 1992, and is the successor by merger to Patriot Financial Corporation, a Colorado corporation, incorporated on June 10, 1987. In June 2005,Human Capital

At December 31, 2023, we entered into a joint venture agreement with Technology Properties Limited, Inc. (“TPL”) to form PDS. In September 2008, we acquired Patriot Data Solutions Group, Inc. formerly known as Crossflo Systems, Inc. (“PDSG”) which engaged in data-sharing services and products primarily in the public safety and government sector. During April 2012, we sold substantially all of our assets in PDSG.

Our Technology

Prior to our patents becoming unenforceable, we focused on licensing our intellectual property that covered the design of microprocessor chips through PDS.

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Phoenix Digital Solutions, LLC

On June 7, 2005, we entered into a Master Agreement (the “Master Agreement”) with TPL, and Charles H. Moore, an individual co-inventor (“Moore”). We, TPL and Moore were parties to certain lawsuits filed by us alleging infringement (the “Infringement Litigation”) of seven U.S. issued patents dating back to 1989 on our microprocessor technology (the “Microprocessor Patents”).

Pursuant to the Master Agreement, we caused certain of our respective interests in the Microprocessor Patents to be licensed to PDS, a joint venture limited liability company owned 50% by us and 50% by TPL, and PDS engaged TPL to commercialize the Microprocessor Patents pursuant to a Commercialization Agreement among PDS, TPL and us (the “Commercialization Agreement”). Under the Commercialization Agreement, PDS granted to TPL the exclusive right to grant licenses and sub-licenses of the Microprocessor Patents and to pursue claims against violators of the Microprocessor Patents, in each case, on behalf of PDS, us, TPL and Moore, and TPL agreed to use reasonable best efforts to commercialize the Microprocessor Patents in accordance with a mutually agreed business plan. Pursuant to the Commercialization Agreement, PDS agreed to a reimbursement policy with regard to TPL’s expenses incurred in connection with the commercialization of the Microprocessor Patents. All proceeds generated by TPL in connection with the commercialization of the Microprocessor Patents were paid directly to PDS. From the inception of the Commercialization Agreement to May 31, 2020, gross license revenues to PDS totaled $312,814,535. Since September 2013, PDS has not generated significant license revenues. As mentioned above, on November 4, 2019, the Supreme Court of the United States denied its application to review a lower court’s decision that was adverse to the Company’s patented microprocessor technologies. As result of this denial to review the lower court’s decision, the Company’s patented microprocessor technologies are no longer enforceable, and it has no other options to appeal the lower court’s adverse decision. As a result, there are no future licensing opportunities or sources of revenue from PDS.

Licenses, Patents, Trade Secrets and Other Proprietary Rights

We currently have no enforceable licenses, patents, trade secrets, or other proprietary rights.

We generally require ourthree full-time employees and consultants, including our management, to sign a non-disclosure and invention assignment agreement upon employment with us.

Employees

At May 31, 2020, we have one full-time employee.five part-time employees. We also engage consultants and part-time assistance, as needed. Our employee isemployees are not represented by a labor union, and we consider our relations with our employeeemployees to be good. Our employee isemployees are not covered by a key mankey-person life insurance policy.

Available Information

 

WeReports we file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Materials filed with pursuant to the SEC can be readExchange Act of 1934, as amended (the “Exchange Act”), including annual and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. Informationquarterly reports, and other reports we file, are available for inspection and review on the operationwebsite of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Our filings are available to the public at the website maintained by the SEC, http://www.sec.gov. WeIn addition, we also make available, free of charge, through our web sitewebsite at www.ptsc.com,www.mosaicie.com, our reports on Forms 10-K, 10-Q, and 8-K, and amendments to those reports, as soon as reasonably practicable after they are filed with the SEC or furnishedby written request to the SEC.Company at Mosaic ImmunoEngineering, Inc., 9114 Adams Avenue, #202, Huntington Beach, California 92646, Attention: Corporate Secretary. The information on,contained in, or that can be accessed through, our website is not part of, and is not incorporated in this Annual Report.Report, and should not be relied upon.

 

Smaller Reporting Company

 

We are currently a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and are thus allowed to provide simplified executive compensation disclosures in our filings, are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that an independent registered public accounting firm provide an attestation report on the effectiveness of internal control over financial reporting and have certain other reduced disclosure obligations with respect to our SEC filings.

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ITEM 1A.RISK FACTORS

 

We urge you toInvesting in our common stock is speculative and illiquid and involves a high degree of risk including the risk of a loss of your entire investment. You should carefully consider the following discussion of risks as well asand uncertainties described below and the other information contained in this Annual Report on Form 10-K. We believe the following to be10-K (“Report”) before investing in our most significant risk factors as of the date this report is being filed.common stock. The risks and uncertainties describedset forth below are not the only ones we face.facing us. Additional risks and uncertainties may exist that could also adversely affect our business, operations and prospects. If any of the following risks actually materialize, our business, financial condition, prospects and/or operations could suffer. In such event, the value of our common stock could decline, and you could lose all or a substantial portion of the money that you pay for our common stock.

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Unless the context otherwise requires, references to the “Company,” the “combined company,” “Mosaic,” “we,” “our,” or “us” in this Report refer to Mosaic ImmunoEngineering, Inc. and its subsidiaries (formerly known as Patriot Scientific Corporation). References to “PTSC” refer to Patriot Scientific Corporation prior to the completion of the Reverse Merger and references to “Private Mosaic” refer to privately held Mosaic ImmunoEngineering, Inc. prior to the completion of the Reverse Merger.

 

If We Are Unable To DevelopRisks Related to Our New Lines of Business, And/Or We Are Unable To Raise Additional Capital, We Will Be Forced To Liquidate The Company In A Dissolution Under Delaware Law Or Seek Protection Under The Provisions Of The U.S. Bankruptcy Code And, In Either Event, It Is Unlikely That Stockholders Would Receive Any Value For Their Shares.Operations

While the Company’s financial statements have been prepared on a going concern basis, we do not currently have sufficient working capital to fund our planned operations for the next twelve months and we may be required to cease our operations altogether if we are unable to secure sufficient funding.

 

There is substantial doubt about our ability to continue as a going concern, as we currently do not have adequate financial resources to fund our forecasted operating costs for at least twelve months from the filing of this Report. As of MayDecember 31, 2020,2023, the Company had cashincurred operating losses since inception, and cash equivalentscontinues to generate losses from operations, and has an accumulated deficit of $571,921 and working capital of $602,813. Historically, we have been a licensing company and entered into a number of agreements to facilitate the pursuit of unlicensed users of our intellectual property through PDS. PDS has not generated significant license revenues since September 2013. Furthermore, on November 4, 2019, the Supreme Court of the United States denied our application to review a lower court’s decision that was adverse to our patents. As result of this denial to review the lower court’s decision, our intellectual property was no longer enforceable, and we have no other options to appeal the lower court’s adverse decision.$7,916,337. As a result, thereour existing cash resources are no future licensing opportunities or sources of revenuenot sufficient to meet our anticipated needs over the next twelve months from the date hereof and we would need to either pursue a new line of business, liquidate the Company in a dissolution under Delaware law, or seek protection under the provisions of the U.S. Bankruptcy Code.

On August 19, 2020, Patriot Scientific Corporation (referred to as “Parent” in the transaction), entered into a stock purchase agreement (the “Stock Purchase Agreement”) among Parent, PTSC Sub One Inc., a Delaware corporation (as “Buyer” and together with the Parent, the “Buyer Parties”), Mosaic ImmunoEngineering Inc., a Delaware corporation (the “Target”), certain stockholders of the Target set for therein (as “Sellers”), and Steven King (as the “Sellers’ Representative” and together with the Target and Sellers, the “Seller Parties”) pursuant to which, Buyer will buy from Sellers 630,000 shares of its Class A common stock (“Class A Stock”), par value $0.0001 per share, and 70,000 shares of its Class B common stock (“Class B Stock”), par value $0.0001 per share, together the Class A Stock and Class B Stock shall collectively be referred to as “Target Common Stock”, representing 100% of the issued and outstanding common stock of the Target as of August 19, 2020. Upon closing, in exchange for the Target Common Stock, the holders of the Class A Stock shall receive 630,000 shares of the Parent’s preferred stock to be designated Series A Convertible Preferred Stock (“Series A Preferred”) and holders of the Class B Stock shall receive 70,000 shares of the Parent’s preferred stock to be designated Series B Convertible Preferred Stock (“Series B Preferred”). Each share of the Series A Preferred; shall (a) convert into 5,097.053 shares of common stock of the Parent, (b) possess full voting rights, on an as-converted basis, as the common stock of the Parent, and (c) have no dividend rate. Each share of the Series B Preferred; shall (a) convert into 5,734.185 shares of common stock of the Parent, (b) possess full voting rights, on an as-converted basis, as the common stock of the Parent, (c) have no dividend rate, and (d) shall possess certain anti-dilution protections as defined in the Series B Certificate of Designations. On a fully diluted, as converted basis, the Sellers shall own 90% of the issued and outstanding common stock of the Parent (see Note 10 to Patriot’s consolidated financial statements included elsewhere herein).

If we are unable to raise additional capital to advancecontinue our operations and to implement our business plan, which capital is unlikely to be available on favorable terms or at all. These matters raise substantial doubt about the new lineCompany’s ability to continue as a going concern.

If we raise funds from the issuance of business, weequity securities (which will be forcedchallenging in light of current market conditions combined with our early stage of development), substantial dilution to liquidateour existing stockholders would likely result. If we raise additional funds by incurring debt financing (also challenging in light of current market conditions combined with our early stage of development), the Company in a dissolution under Delaware law or seek protection under the provisionsterms of the U.S. Bankruptcy Code. In eitherdebt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business. Further, any contracts or license arrangements we enter into to raise funds may require us to relinquish our rights to our products or technology, and we may not be able to enter into any such contracts or license arrangements on favorable terms, or at all. Since the closing date of these events,the Reverse Merger, our limited cash position has required us to perform only limited development activities and to delay and scale back our development programs and other activities to remain afloat. If we might realize significantly less fromcontinue to have insufficient funds, we may be required to cease our assets thanoperations altogether.

Our ability to pursue the values atresearch and development activities and other initiatives discussed in the following risk factors and elsewhere in this Report will require significant funding, which they are carried on our financial statements. The funds resulting from the liquidation of our assets would be used first to satisfy obligations to creditors before any funds wouldmay not be available to us in light of current market conditions combined with our early stage of development.

The consolidated financial statements included in this Report do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

We currently do not have sufficient capital to pay all amounts owed under our stockholders, and any shortfallLicense Agreement with Case Western Reserve University (“CWRU”) in the proceeds would directly reduceamount of approximately $407,000 as of December 31, 2023 and on March 22, 2024, we received a notice of termination from CWRU.

On May 4, 2022, we entered into a License Agreement with CWRU allowing us to develop and commercialize our lead product candidate, MIE-101. If we fail to comply with our obligations under the License Agreement, including the payment of all amounts availabledue under the License Agreement, we may lose the rights to developed and potentially commercialize our lead product candidate, MIE-101, which is the product upon which our business depends. As of December 31, 2023, we have accrued approximately $407,000 in accrued patent fees payable to CWRU under the License Agreement and we currently do not have sufficient capital to pay all amounts due under the License Agreement. On March 22, 2024, we received a notice of termination from CWRU. In addition, there are many risks associated with our financial position and need for distribution, if any, to our creditors and to our stockholders. Inadditional capital, as further described below under the event we are required to liquidate under Delaware law or the federal bankruptcy laws, it is highly unlikely that stockholders would receive any value for their shares.

section titled “RISKS RELATED TO OUR FINANCIAL POSITION AND NEED FOR ADDITIONAL CAPITAL”.

 

 

 

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If We Cannot Obtain Additional Funding, Our New Line of Business May be Delayed or Discontinued.may not successfully identify new product candidates to expand our development pipeline.

 

At May 31, 2020, we had $571,921 in cash and cash equivalents and we have no current sourcesThe success of revenue. Ourour business over the near term depends upon our ability to continueidentify and validate new potential cancer therapeutics. Efforts to fundidentify new product candidates require substantial technical, financial and human resources, and our operations and future line of business is highly dependent on the amount of cash and cash equivalents on handlimited financial resources combined with our abilitymethodology may not successfully identify medically relevant potential therapeutics to be developed as product candidates. Moreover, our research and business development efforts may identify molecules that initially show promise yet fail to yield product candidates for clinical development for multiple reasons. For example, potential product candidates may, on further study, be shown to have inadequate efficacy, harmful side effects, suboptimal drug profiles, suboptimal manufacturability or stability, or other characteristics suggesting that they are unlikely to be commercially viable products. Our inability to successfully identify additional new product candidates to advance into clinical trials could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we are able to raise additionalsufficient capital, to supportwe expect that we will incur significant losses over the next several years and may never achieve or maintain profitability.

We have limited our future operations. Our ability to raise additionaloperations in advancing our technology based on the limited amount of capital we have raised. Since the reverse merger in August 2020, we have not raised any capital other than $575,000 and $341,632 from the equity markets to fund our obligations in future periods is dependent on a number of factors, including, but not limited to, the market demand for our common stock. The market demand or liquidityissuance of our common stock is subjectconvertible notes in May 2021 and February 2022, respectively. Due to our limited operations, our historical results do not reflect the significant costs required to develop a number of risksproduct candidate. In addition, our products have historically been in preclinical development and uncertainties, including but not limited to, negative economic conditions, adverse market conditions, or adverse business results.therefore, we anticipate that our expenses will increase substantially over the next several years, if and as we:

·identify and successfully license or acquire new product candidates or technologies;
·develop product manufacturing processes under the Food and Drug Administration’s (“FDA’s”) current Good Manufacturing Practice regulations (“cGMP”) for product candidates and enter into manufacturing supply agreements to support toxicology studies and clinical trials;
·contract preclinical toxicology studies to support the safety of product candidates prior to starting any human trial;
·continue preclinical research and translational studies to enhance our understanding of the mechanism of action of the product candidates;
·enter into collaboration arrangements with regards to product discovery and product development;
·pay amounts owed under the former licensing agreement with Case Western Reserve University and potentially acquire rights to other product candidates and technologies;
·prepare regulatory filings, such as filing IND applications with the FDA that are required prior to starting any human clinical trial;
·plan, initiate, enroll, and complete clinical trials;
·maintain, expand and protect intellectual property; and
·hire additional personnel to support our research, development, and administrative efforts.

We expect that it will be several years, if ever, before we have a product candidate ready for commercialization. If we are unable to raise sufficient capital in the equity markets,license or acquire new product candidates and advance these product candidates, we may have greater difficulty raising capital on favorable terms, or at all. In addition, there are many risks associated with our financial position and need to delay our new line of business, liquidate the Company in a dissolution under Delaware law, or seek protectionfor additional capital, as further described below under the provisions of the U.S. Bankruptcy Code. In addition, even ifsection titled “RISKS RELATED TO OUR FINANCIAL POSITION AND NEED FOR ADDITIONAL CAPITAL”.

If we are able to raise additionalsufficient capital, itwe expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses that we incur may fluctuate significantly from quarter to quarter and year to year.

To become and remain profitable, we or a potential partner must develop and eventually commercialize a product or products with significant market potential. This will require us to be successful in a range of challenging activities, including completing all phases of clinical trials, obtaining marketing approval and manufacturing, marketing and selling those products for which we obtain marketing approval. We or a potential partner may never succeed in these activities and, even if we do, may never generate revenues that are significant or large enough to achieve profitability. If we do achieve profitability, we may not be atable to sustain or increase profitability on a pricequarterly or on termsannual basis. Our development efforts will take several years and will require significant capital that are favorable to us.

We Have Reported Licensing Income In Prior Fiscal Years Which Will Not Be Indicative Of Our Future Income.

We have entered into license agreements through PDS and have reported income fromwill dilute the joint venture forownership interest of common stockholders. A decline in the fiscal years 2006 to 2011, 2013 to 2014 and 2016 to 2017. However, the joint venture has not generated significant licensing revenues since September 2013 and we do not expect to generate any future licensing revenue through PDS and our patents are no longer enforceable.

The Recent Coronavirus Pandemic ("COVID-19") May Adversely Affect Our Business, Financial Condition, Liquidity, and Our Ability to Raise Capital.

While the impact on our future strategic plans from the recent outbreak of COVID-19 is unknown at this time and difficult to predict, various aspects of our business may be impacted and could be adversely affected by it.

Asvalue of the date of this Annual Report, COVID-19 has been declared a pandemic by the World Health Organization and has been declared a National Emergency by the United States Government. COVID-19 has caused significant volatility in global markets, including the market price of our securities. As the spread of COVID-19 continues, it is unclear how the general slowdown of the global economy will affect our business, results of operations, financial condition and our future strategic plan.

Continuation of this event may cause investors to slow down or delay their decision to deploy capital based on volatile market conditions which will adversely impact our ability to fund future operations. In addition, travel restrictions and shelter-in-place orders may limit our ability to meet with investors, collaborators, or vendors. If these orders continue and we remain unable to meet in person with these contacts, it could have adverse impacts on our business including our ability to raise additional capital and to fund our operations.

If We Fail To Comply With The Reporting Obligations Of The Exchange Act, Our Business, Financial Condition, And Results Of Operations, And Investors’ Confidence In Us, Could Be Materially And Adversely Affected.

As a public company, we are required to comply with the periodic reporting obligations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including preparing annual reports, quarterly reports, and current reports. Our failure to prepare and disclose this information in a timely manner and meet our reporting obligations in their entirety could subject us to penalties under federal securities laws, expose us to lawsuits, and restrict our ability to access financing on favorable terms, or at all.

If We Fail To Maintain Effective Internal Controls Over Financial Reporting, The Price Of Our Common Stock May Be Adversely Affected.

During the fourth quarter of fiscal year ended May 31, 2018, we reduced the number of the Company’s accounting employees down from two to one. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of these controlsCompany could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial fraud. 

cause stockholders to lose all or part of their investment.

 

 

 

 512 

 

 

Our Insurance Liability Coverage Is Limited And May Not Be Adequate To Cover Potential Losses.development efforts have historically been with product candidates in preclinical development.

We currently do not have any products that have gained regulatory approval and our development efforts have historically been focused on product candidates in preclinical development. Our ability to generate product revenues, which we do not expect will occur for several years, if ever, will depend heavily on the successful development and eventual commercialization of new product candidates. As a result, our business is substantially dependent on our ability to successfully license or acquire new technologies and complete the development of and obtain regulatory approval for these product candidates.

If we are unsuccessful in accomplishing the numerous and complex objectives in developing product candidates, we may not be able to successfully develop and commercialize new product candidates, and our business will suffer.

Our short operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.

We are an early development stage biotechnology company formed on March 30, 2020. Our ongoing operations to date have been limited to organizing the Company, business planning, acquiring rights to license the technology, identifying potential product candidates, and undertaking preclinical studies in collaboration with our external researchers under university approved grants. In addition, we have limited human resources to help us achieve our goals. Consequently, any predictions made about our future success or viability based on our short operating history to date may not be as accurate as they could be if we had a longer and more established operating history. In addition, as an early-stage business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors.

Business interruptions resulting from the coronavirus disease (COVID-19) outbreak or similar public health crises could cause a disruption of the development of product candidates and adversely impact our business.

 

In March 2020, the ordinary courseWorld Health Organization declared the novel coronavirus disease (COVID-19) outbreak a global pandemic. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and physical distancing guidelines. Accordingly, businesses have adjusted, reduced or suspended operating activities. We may experience disruptions as a result of COVID-19, any variants of COVID-19, or any other pandemic that could severely impact our business and planned clinical trials, including:

·delays or difficulties in planned clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
·delays or difficulties in enrolling patients in our planned clinical trials and further incurrence of additional costs as a result of preclinical study and clinical trial delays and adjustments;
·challenges related to ongoing and increased operational expenses related to any pandemic;
·diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of clinical trials;
·interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others;
·limitations in resources that would otherwise be focused on the conduct of our business or our clinical trials, including because of sickness or the desire to avoid contact with large groups of people or as a result of government-imposed “Stay-at-Home” orders or similar working restrictions;
·delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;
·delays in preclinical and clinical sites receiving the supplies and materials needed to conduct our planned clinical trials;
·interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our planned clinical trials;
·changes in regulations as part of a response to the COVID-19 pandemic or any variants of COVID-19 or any other pandemic which may require us to change the ways in which our planned clinical trials may be conducted, or which may result in unexpected costs;
·delays in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government or contractor personnel; and
·increased competition for contract research organizations (“CROs”), suppliers and vendors.

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Should COVID-19 or any variants of COVID-19 or any other pandemic cases in USA increase, the country or states may institute stricter social distancing protocols.

Additionally, third parties that we may engage, including our collaborators, contract organizations, third-party manufacturers, suppliers, clinical trial sites, regulators and other third parties with whom we conduct business are similarly adjusting their operations and assessing their capacity in light of any pandemic. If these third parties experience shutdowns or continued business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. It is likely that the disproportionate impact of any pandemic on hospitals and clinical sites will have an impact on recruitment and retention for our planned clinical trials. In addition, our future clinical trial sites could experience delays in collecting, receiving and analyzing data from patients enrolled in our planned clinical trial due to limited staff at such sites, limitation or suspension of on-site visits by patients, or patients’ reluctance to visit the clinical trial sites during the pandemic. As a result, research and development expenses and general and administrative expenses may vary significantly if there is an increased impact from any pandemic on the costs and timing associated with the conduct of our panned clinical trial and other related business activities.

To the extent the any pandemic adversely affects our business, financial condition and operating results, it may also have the effect of heightening many of the risks described in this “Risk Factors” section.

The Company and its subsidiaries have limited insurance for their operations and are subject to various risks of loss.

The Company and its subsidiaries carry limited directors’ and officers’ insurance. In addition, we do not carry general business liability insurance or other insurance applicable to our business. Successful claims against the Company would likely render us insolvent. The Company has not reserved any amounts in connection with self-insuring against any potential claims against the Company or its subsidiaries. Once we are able to raise sufficient funding to advance our business, we purchaseplan to secure additional insurance coverage (e.g., directorsto better protect our business. There can be no assurance that we will obtain sufficient insurance coverage to cover all possible risks and officers, propertypotential related losses.

Drug development involves a lengthy and liability coverage)expensive process with an uncertain outcome, including failure to protect us against claims made by third partiesdemonstrate safety and employeesefficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the product manufacturing of any product candidates.

The risk of failure for property damageproducts in preclinical or personal injuries. However,early stage of development is high. Before obtaining marketing approval from regulatory authorities for the protection provided by such insurancesale of any product candidate, we would need to complete formulation development, conduct nonclinical trials, and then conduct extensive clinical trials to demonstrate the safety and efficacy in humans. In addition, product manufacturing and process development along with preclinical and clinical testing are all expensive activities, difficult to design and implement, and can take several years to complete. The outcome of preclinical and clinical trials is limitedinherently uncertain. Failure can occur at any time during the development program, including during the clinical trial process. Further, the results of preclinical studies and early clinical trials for new product candidates may not be predictive of the results of later-stage clinical trials. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in significant respectspreclinical and clinical trials have nonetheless failed to obtain marketing approval of their products. It is impossible to predict when or if product candidates will prove effective and safe in some instances,humans or will receive regulatory approval.

We may experience delays in clinical trials, and we havedo not know whether any planned clinical trials will begin or enroll subjects on time, need to be redesigned or be completed on schedule, if at all. There can be no coverage and certainassurance that the FDA or any other foreign regulatory body will not put any product candidate on clinical hold in the future. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our insurance policies have substantial “deductibles”ability to receive marketing approval or limits on the maximum amounts thatcommercialize product candidates. Planned clinical trials may be recovered. delayed, suspended or prematurely terminated for a variety of reasons, such as:

·delay or failure in reaching agreement with the FDA, European Medicines Agency (“EMA”), or a comparable foreign regulatory authority on a trial design that we want to execute;
·delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical study;

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·delays in reaching, or failure to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
·inability, delay, or failure in identifying and maintaining a sufficient number of trial sites, many of which may already be engaged in other clinical programs;
·delay or failure in recruiting and enrolling suitable subjects to participate in a trial;
·delay or failure in having subjects complete a trial or return for post-treatment follow-up;
·clinical sites and investigators deviating from trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial;
·lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct additional clinical studies and increased expenses associated with the services of our contract research organizations (“CROs”) and other third parties;
·clinical trials of product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
·the number of patients required for clinical trials of product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we anticipate;
·we may experience delays or difficulties in the enrollment of patients that product candidates are designed to target based on the inclusion and exclusion criteria;
·our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
·we may have difficulty partnering with experienced Clinical Research Organization and study sites that can identify patients that product candidates are designed to target and run our clinical trials effectively;
·regulators or institutional review boards (“IRBs”) may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
·the supply or quality of product candidates or other materials necessary to conduct clinical trials of product candidates may be insufficient or inadequate; or
·there may be changes in governmental regulations or administrative actions.

If a serieswe are required to conduct additional clinical trials or other testing of losses occurred, such as from a series of lawsuits in the ordinary course of business each of which were subjectproduct candidates, or if we are unable to the deductible amount,successfully complete clinical trials or other testing, or if the maximum limitresults of these trials or tests are not positive or are only modestly positive, or if there are safety concerns, we may:

·be delayed in obtaining marketing approval for product candidates, if ever;
·obtain approval for indications or patient populations that are not as broad as intended or desired;
·obtain approval with labeling that includes significant use or distribution restrictions or safety warnings that would reduce the potential market for products or inhibit our ability to successfully commercialize product candidates;
·be subject to additional post-marketing restrictions and/or testing requirements; or
·have the product removed from the market after obtaining marketing approval.

Product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether preclinical studies or clinical trials will need to be restructured or will be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize product candidates or may allow our competitors to bring products to market before we do and impair our ability to successfully commercialize new product candidates and may harm our business and results of operations. In addition, enrollment delays in clinical trials may result in increased development costs, which would cause the value of the available insuranceCompany to decline and limit our ability to obtain additional financing.

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If serious adverse events or unacceptable side effects are identified during the development of any product candidates, we may need to abandon or limit our development of these product candidates.

If product candidates are associated with undesirable effects in preclinical or clinical trials or have characteristics that are unexpected, we may need to interrupt, delay or abandon their development or limit development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Currently unknown, drug-related side effects may be identified in our planned clinical studies and, as such, these possible drug-related side effects could affect patient recruitment, the ability of enrolled subjects to complete the trial, or result in potential product liability claims. Reported serious adverse events may arise and the occurrence, whatever the cause, may impact the conduct of any ongoing or future clinical trial. To date, we have had no product candidates evaluated in any human clinical studies. Any occurrence of clinically significant adverse events may harm our business, financial condition and prospects significantly.

Our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our or third parties’ cyber security.

Given our limited operating history, we are still in the process of implementing our internal security measures. Our internal computer systems and those of current and future third parties on which we rely may fail and are vulnerable to damage from computer viruses and unauthorized access. Our information technology and other planned internal infrastructure systems, including corporate firewalls, servers, connection to the Internet, face the risk of systemic failure that could disrupt our operations. If such an event were substantially exceeded,to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. 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 confidential or proprietary information, we could incur lossesliability, our competitive position could be harmed and the further development and commercialization of product candidates or any future product candidates could be hindered or delayed. In addition, due to limited corporate infrastructure, our entire workforce is currently working remotely. This could increase our cyber security risk, create data accessibility concerns, and make us more susceptible to communication disruptions.

We do not presently maintain insurance coverage to protect against cybersecurity risks. If we procure such coverage in amountsthe future, we cannot ensure that wouldit will be sufficient to cover any loss we may experience as a result of such cyberattacks. Any cyber incident could have a material adverse effect on our business, financial condition, and results of operationsoperations.

If we fail to establish and maintain proper and effective internal control over financial condition.reporting, our operating results and our ability to operate our business could be harmed.

Ensuring that we will have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Generally Accepted Accounting Principles or GAAP.

In addition, we are required to be compliant with public company internal control requirements mandated under Section 302 and 906 of the Sarbanes-Oxley Act. If we are unable to successfully maintain internal controls over financial reporting, the accuracy and timing of our financial reporting, and our stock price, may be adversely affected.

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Risks Related to Our Financial Position and Need for Additional Capital

 

We will need substantial additional funding. If we are unable to secure sufficient capital in the near term, we may be required to further reduce or eliminate product development and potentially cease operations.

As of December 31, 2023, we had cash and cash equivalents of $156,178 and current liabilities of $4,733,055. Since the closing date of the Reverse Merger, we have been unable to raise sufficient capital to advance any product candidate from preclinical development into clinical development. Moreover, our existing cash resources are not sufficient to meet our anticipated needs over the next twelve months from the date hereof. We will need to raise additional capital to continue our operations and to implement our business plan, which capital is unlikely to be available on favorable terms or at all. In addition, we expect our expenses to significantly increase if and when we are able to initiate product manufacturing to support preclinical and clinical testing, perform preclinical studies, including toxicology studies, initiate clinical development, and eventually, if successful, seek marketing approval for, any product candidates. Since the closing date of the Reverse Merger, our limited cash position has slowed our product development and other activities to remain afloat. If we are unable to raise additional capital when needed, we would be forced to further delay our preclinical and clinical development programs and potentially cease our operations altogether.

If we are able to raise additional capital, our funding needs may fluctuate significantly based on several factors, including, but not limited to:

·the scope, progress, results and costs of product development and manufacture of drug product to support preclinical and clinical development of product candidates;
·the extent to which we enter into additional collaboration arrangements regarding product discovery or development;
·the costs, timing and outcome of regulatory review of product candidates;
·our ability to establish additional collaborations with favorable terms, if at all;
·the costs of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of product candidates for which we receive marketing approval;
·the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
·the costs to in-license technology for new products or technologies; and
·revenue, if any, received from commercial sales of product candidates, should any product candidates receive marketing approval.

Identifying potential product candidates and conducting manufacturing and process development, preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, any product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional capital is unlikely to be available on favorable terms or at all.

Raising capital will cause dilution to our stockholders, restrict our operations, or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, and/or licensing arrangements. While we do not have any committed external source of funds, if we raise funds from the issuance of equity securities (which will be challenging in light of current market conditions combined with our early stage of development), substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing (also challenging in light of current market conditions combined with our early stage of development), the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business. Further, any contracts or license arrangements we enter into to raise funds may require us to relinquish our rights to our products or technology, and we may not be able to enter into any such contracts or license arrangements on favorable terms, or at all.

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We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate product development and potentially cease our operations altogether.

Because the Reverse Merger resulted in an ownership change under Section 382 of the Internal Revenue Code for PTSC, PTSC’s pre-merger net operating loss carryforwards and certain other tax attributes may be subject to limitations.

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, the corporation’s net operating loss carryforwards and certain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Reverse Merger resulted in an ownership change for PTSC and, accordingly, PTSC’s net operating loss carryforwards and certain other tax attributes may be subject to limitations (or disallowance) on their use after the Reverse Merger. Additional ownership changes in the future could result in additional limitations on the Company’s post-merger net operating loss carryforwards. Consequently, even if the Company achieves profitability, it may not be able to utilize a material portion of PTSC’s, or the post-merger Company’s net operating loss carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations.

Risks Related to the Commercialization of Any Product Candidates

We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.

The development and commercialization of new drug products is highly competitive. We will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of cancer. Some of these competitive products and therapies are based on scientific approaches in immuno-oncology that may be similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. In addition, our ability to compete may be affected in many cases by insurers or other third-party payers seeking to encourage the use of biosimilar or generic products.

Many of the companies against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, conducting preclinical studies, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

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Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.

We will face an inherent risk of product liability exposure related to the testing of product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend against claims that product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

·decreased demand for any product candidates or products that we may develop, if approved;
·injury to our reputation and significant negative media attention;
·withdrawal of clinical trial participants;
·significant costs to defend the related litigation;
·substantial monetary awards to trial participants or patients;
·loss of revenue, if approved;
·reduced resources of our management to pursue our business strategy; and
·the inability to commercialize any products that we may develop.

We currently have no product liability insurance coverage as we do not have any ongoing clinical testing in patients. If we initiate clinical testing in patients, we will secure product liability insurance, which may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage as we expand our clinical trials or if we commence commercialization of product candidates. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Risks Related to Our Dependence on Third Parties

Future development collaborations may be important to us. If we are unable to enter into or maintain these collaborations, or if these collaborations are not successful, our business could be adversely affected.

We may in the future determine to seek to collaborate with pharmaceutical and biotechnology companies for the development of product candidates. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for any collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other potential development programs, delay its potential development schedule or reduce the scope of research activities, or increase our expenditures and all development activities at our own expense. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development activities, we may not be able to further develop these product candidates, and our business may be materially and adversely affected.

If any future collaboration does not result in the successful development of products or product candidates, product candidates could be delayed, and we may need additional resources to develop product candidates. All of the risks relating to product development, regulatory approval and commercialization described in this periodic report also apply to the activities of our collaborators.

We may contract with third parties for the manufacture of product candidates for preclinical and clinical studies and may expect to continue to do so for commercialization. This potential reliance on third parties increases the risk that we will not have sufficient quantities of product candidates or products at an acceptable cost and quality, which could delay, prevent or impair our development or commercialization efforts.

Due to our limited operations and no existing manufacturing infrastructure or capabilities, we may utilize third parties to formulate, manufacture, package, and distribute preclinical and clinical supplies. In addition, these materials are generally custom-made and available from only a limited number of sources. Despite drug substance and product risk management, this reliance on third parties presents a risk that we will not have sufficient quantities of these product candidates or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts. Any performance failure on the part of our future manufacturers of drug substance or drug products could delay clinical development or potential marketing approval.

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We also expect to rely on other third parties to label, store, and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of product candidates or commercialization of products, producing additional losses and depriving us of potential product revenue.

We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we can establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

·reliance on the third party for regulatory compliance and quality assurance;
·the possible breach of the manufacturing agreement by the third party;
·the possible misappropriation of our proprietary information, including our trade secrets and know-how; and
·the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.

The third parties we may rely on for manufacturing and packaging are also subject to regulatory review, and any regulatory compliance problems with these third parties could significantly delay or disrupt our clinical or commercialization activities. Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of products. Additionally, macro-economic conditions may adversely affect these third parties, causing them to suffer liquidity or operational problems. If a key third-party vendor becomes insolvent or is forced to lay off workers assisting with our projects, our results and development timing could suffer.

In addition, any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations that may be capable of manufacturing for us. Our anticipated future dependence upon others for the manufacture of product candidates or products may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

Data provided by collaborators and other parties upon which we rely has not been independently verified and could turn out to be inaccurate, misleading, or incomplete.

We rely and intend to rely on third-party vendors, scientists, and collaborators to provide us with significant data and other information related to our projects, clinical trials, and business. We do not independently verify or audit all of such data (including possibly material portions thereof). As a result, such data may be inaccurate, misleading, or incomplete.

Risks Related to Intellectual Property

If we are unable to obtain and maintain intellectual property protection for technology and products we plan to develop or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States, the European Union, and other countries with respect to proprietary technology and products we plan to develop. We will seek to protect our proprietary position by filing patent applications in the United States and internationally that are related to novel technologies and product candidates.

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The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions, and under the laws of certain jurisdictions, patents or other intellectual property rights may be unavailable or limited in scope. It is also possible that we will fail to identify patentable aspects of our discovery and preclinical development output before it is too late to obtain patent protection. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in limited cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Also, an examination is often lengthy and can involve numerous challenges to the claims sought. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States, the European Union, and other countries may diminish the value of the underlying patents under our License Agreement or narrow the scope of our patent protection.

Any inability by us to adequately protect the underlying intellectual property with respect to proprietary technology and products we plan to develop may have a material adverse effect on our business, operating results, and financial position.

If we fail to comply with our obligations under any license or other agreements under which we may license intellectual property and other rights from third parties or otherwise experience disruptions to our business relationships with our future licensors, we could lose those rights or other rights which could be the products upon which our business depends.

If we fail to comply with our obligations under any license agreement, or any other future agreement, including the payment of all amounts due under these agreements, we may lose the rights to developed and potentially commercialize the underlying technology, and the licensor may have the right to terminate the license agreement or restrict our rights upon notice, in which event we would not be able to develop or market products covered by the agreement, which could be the products upon which our business depends. For instance, on May Issue Preferred Stock, And The Terms Of Such Preferred Stock May Reduce The Value Of 4, 2022, we entered into a License Agreement with CWRU allowing us to develop and commercialize our former lead product candidate, MIE-101. As of December 31, 2023, we owed CWRU approximately $407,000 in accrued patent fees under the License Agreement and we did not have sufficient capital to pay all amounts due under the License Agreement. While CWRU had historically agreed to extend our payment terms, on March 22, 2024, we received a notice of termination from CWRU (see Note 12 to the accompanying consolidated financial statements).

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Because competition in our industry is intense, competitors may infringe or otherwise violate our potential rights to patents of our licensors or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly, or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our potential patents at risk of being invalidated or interpreted narrowly. We may also elect to enter into license agreements in order to settle patent infringement claims or to resolve disputes prior to litigation, and any such license agreement may require us to pay royalties and other fees that could be significant. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure.

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We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

A third party may hold intellectual property, including patent rights that are important or necessary to the development of potential new products. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize potential products, in which case, we would be required to obtain a license from these third parties on commercially reasonable terms, or our business could be harmed, possibly materially. If we were not able to obtain a license, or we are not able to obtain a license on commercially reasonable terms, our business could be harmed, possibly materially.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our Common Stock.commercial success depends upon our ability, and the ability of our licensors and collaborators, to develop, manufacture, market and sell product candidates and use proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to potential new products and technology, including proceedings challenging validity before the United States Patent and Trademark Office (“USPTO”) and/or European Patent Office (“EPO”). Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future.

If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing these products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing any infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patents for the technology and product candidates, we also plan to rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. Any NDAs or similar agreements entered into by the Company may not be with all relevant parties, or adequately protect the confidentiality of our trade secrets. Moreover, to the extent we enter into such agreements, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from sharing such trade secrets or from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

Risks Related to Our Employee Matters, Managing Growth and Macroeconomic Conditions

Our future success depends on our ability to attract, hire, retain and motivate executives, key employees, and our general workforce.

 

We are authorized to issue up to a totalhighly dependent on the product development, clinical and business development expertise of 5,000,000 shares of preferred stock in one or more series. Our Board of Directors may determine whether to issue shares of preferred stock without further action by holdersthe principal members of our Common Stock.management, scientific and clinical teams. Although we have entered into offer letters with our executives and employees, each of them may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees.

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In addition, our business plan relies significantly on the continued services of our President and Chief Executive Officer, Steven King. If we issue shares of preferred stock, it could affect the rightswere to lose his services, including through death or reduce the value of our Common Stock. In particular, specific rights granted to future holders of preferred stock could be used to restrictdisability, our ability to mergecontinue to execute our business plan would be materially impaired. The Company has not entered into an employment agreement with Mr. King, or sellany other officer of the Company.

Recruiting and retaining qualified scientific, clinical, regulatory, and manufacturing personnel is critical to our assetssuccess. Due to the small size of the Company and the limited number of employees, each of our executives and key employees serves a third party. Thesecritical role. The loss of the services of our executive officers or other key employees could impede the achievement of our development objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of, and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also may include voting rights, preferences asexperience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to dividendsassist us in product manufacturing, preclinical development, clinical development, regulatory strategy, and liquidation, conversioncommercial strategy. Our consultants and redemption rights,advisors may be employed by employers other than us and sinking fund provisions.may have commitments under consulting or advisory contracts with other entities that may limit their availability to provide services to us. If we seek capital forare unable to continue to attract and retain high quality personnel, our business, such capitalability to pursue our development strategy will be limited.

We expect to expand our research and development function, as well as our corporate operations, and as a result, we may be raised through the issuance of preferred stock.encounter difficulties in managing our growth, which could disrupt our operations.

 

If A Large Number Of Our Shares Are Sold All At Once Or In Blocks,we are able to secure sufficient funding, we would expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of product manufacturing, preclinical research, clinical development, and regulatory affairs, as capital resources become available. To manage our anticipated future growth, we must also implement and improve our managerial, operational and financial systems, identify new facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The Market Price Of Our Shares Would Most Likely Decline.expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

 

MostWe may face risks related to securities litigation that could result in significant legal expenses and settlement or damage awards.

We may in the future become subject to claims and litigation alleging violations of the securities laws or other related claims, which could harm our business and require us to incur significant costs. We are generally obliged, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in these types of lawsuits. Regardless of the outcome, litigation may require significant attention from management and could result in significant legal expenses, settlement costs or damage awards that could have a material impact on our financial position, results of operations and cash flows.

Risks Related to Our Common Stock

There is a substantial lack of liquidity of our shareholders arecommon stock and volatility risks, and because there is no active public trading market for our common stock, you may not restricted in the price at which they can sell their shares. Shares sold at a price below the current market price at which our Common Stock is trading may cause the market price of our Common Stockbe able to decline.

Our Common Stock Is Quoted On The OTC Pink Current Information, Which Could Adversely Affect The Market Price And Liquidity Of Our Common Stock.resell your common stock.

 

Our common stock is not listed on any securities exchange and is quoted on the OTC Pink Current Information.Open Market (“OTC Pink”) under the symbol “CPMV.” The quotation of our shares on such marketplace may result in a less liquid market available for existing and potential stockholders to trade sharestrading volume of our common stock could depresshistorically has been limited and sporadic, and the trading price of our common stock and couldprices have a long-term adverse impact on our ability to raise capital in the future.

been volatile. There can be no assurance that there will be an active market for our shares of common stock either now or in the future or that stockholders will be able to liquidate their investment or liquidate it at a price that reflects the value of the business. As a result, our stockholders may not find purchasers for our securities should they to desire to sell them. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained. In addition, if our shares of common stock cease to be quoted, holders would find it more difficult to dispose of or to obtain accurate quotation as to the market value of our common stock, and as a result, the market value of our common stock likely would decline.

23

 

The Market For Our Stock Is Subject To Rules Relating To Low-Priced Stockmarket for our common stock is subject to rules relating to low-priced stock (“Penny Stock”) Which May Limit Our Ability To Raise Capital.which may limit our ability to raise capital.

 

Our Common Stockcommon stock is currently subject to the “penny stock rules” adopted pursuant to Section 15(g) of the Exchange Act. In general, the penny stock rules apply to non-NASDAQnon-Nasdaq or non-national stock exchange companies whose common stock trades at less than $5.00 per share or which have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). Such rules require, among other things, that brokers who trade “penny stock” on behalf of persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document, quote information, broker’s commission information and rights and remedies available to investors in penny stocks. Many brokers have decided not to trade “penny stock” because of the requirements of the penny stock rules, and as a result, the number of broker-dealers willing to act as market makers in such securities is limited. The “penny stock rules,” therefore, may have an adverse impact on the market for our Common Stockcommon stock and may affect our ability to raise additional capital if we decide to do so.capital.

 

FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our common stock.

The Financial Industry Regulatory Authority, or FINRA, has adopted rules requiring that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative or low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative or low-priced securities will not be suitable for at least some customers. If these FINRA requirements are applicable to us or our securities, they may make it more difficult for broker-dealers to recommend that at least some of their customers buy our common stock, which may limit the ability of our stockholders to buy and sell our common stock and could have an adverse effect on the market for and price of our common stock.

Future sales of shares by existing stockholders could cause the Company’s stock price to decline.

If existing stockholders of the Company sell, or indicate an intention to sell, substantial amounts of the Company’s common stock in the public market, the trading price of the common stock could decline significantly. After the Reverse Merger, shareholders of Private Mosaic currently own a majority of the fully diluted shares of common stock outstanding, on an as-converted basis. In addition, our shareholders are not restricted in the price at which they can sell their shares. Shares sold at a price below the current market price at which our common stock is trading may cause the market price of our common stock to decline.

We expect our stock price to be volatile, and the market price of our common stock may drop unexpectedly.

The market price of our common stock could be subject to significant fluctuations. For instance, during the year ended December 31, 2023, the low and high trading prices of our common stock ranged from $0.50 to $1.25 per share. Market prices for securities of early-stage pharmaceutical, biopharmaceutical, and other life sciences companies have historically been particularly volatile.

Some of the factors that may cause the market price of our common stock to fluctuate include:

·results from preclinical testing and clinical trial results, and our ability to obtain regulatory approvals for product candidates, and delays or failures to obtain such approvals;
·issues in manufacturing these product candidates;
·the entry into, or termination of, key agreements, including the termination of our License Agreement with CWRU and any future license agreement;
·the initiation of, material developments in, or conclusion of litigation to enforce or defend intellectual property rights or defend against the intellectual property rights of others;

 

 

 

 624 

 

 

·announcements by competitors of new commercial products, clinical progress or the lack thereof, significant contracts, or commercial relationships;
·the introduction of technological innovations or new therapies that compete with our potential products;
·the loss of key employees;
·general and industry-specific economic conditions that may affect our research and development expenditures;
·changes in the structure of healthcare payment systems;
·issuance of new shares of common stock from raising additional capital, which may not be available on acceptable terms, or at all; and
·period-to-period fluctuations in our financial results.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock.

In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our financial position.

Our Share Price Could Decline As A Result Of Short Sales.share price could decline as a result of short sales.

 

When an investor sells stock that he does not own, it is known as a short sale. The seller, anticipating that the price of the stock will go down, intends to buy stock to cover hishis/her sale at a later date. If the price of the stock goes down, the seller will profit to the extent of the difference between the price at which he originally sold it less his later purchase price. Short sales enable the seller to profit in a down market. Short sales could place significant downward pressure on the price of our Common Stock.common stock. Penny stocks which do not trade on an exchange, such as our Common Stock,common stock, are particularly susceptible to short sales.

  

We may issue preferred stock, and the terms of such preferred stock may reduce the value of our common stock.

We are authorized to issue up to a total of 5,000,000 shares of preferred stock in one or more series, of which, 4,300,000 have been undesignated as of December 31, 2023. Our Future Success DependsBoard of Directors may determine whether to issue shares of preferred stock without further action by holders of our common stock. If we issue shares of preferred stock, it could affect the rights or reduce the value of our common stock. In Significant Part Upon The Continued Services Of Our Key Senior Management.particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with or sell our assets to a third party. These terms may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions. As we seek capital for our business, such capital may be raised through the issuance of preferred stock.

 

Our future success depends in significant part uponexecutive officers, directors and principal stockholders, if they choose to act together, will have the continued servicesability to control all matters submitted to stockholders for approval.

Shareholders of Private Mosaic beneficially own shares representing a majority of our senior management. The competition for highly qualified personnel is intense, and we may notcapital stock outstanding as of December 31, 2023, on an as-converted basis. As a result, if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may:

·delay, defer or prevent a change in control;
·entrench our management and the board of directors; or
·impede a merger, consolidation, takeover or other business combination involving the Company that other stockholders may desire.

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Our amended and restated certificate of incorporation and amended and restated bylaws provides that state or federal court located within the state of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Section XIV of our amended and restated certificate of incorporation provides that “Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by applicable law, be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (A) any derivative action or proceeding brought on behalf of the Corporation, (B) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, (C) any action asserting a claim against the Corporation, its directors, officers or employees or agents arising pursuant to any provision of the DGCL, this Amended and Restated Certificate of Incorporation or the Corporation’s bylaws, or (D) any action asserting a claim against the Corporation, its directors, officers or employees or agents governed by the internal affairs doctrine, except as to each of (A) through (D) above, for any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or over which the Court of Chancery does not have subject matter jurisdiction. To the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article XIV.”

The exclusive forum provision in our amended and restated certificate of incorporation and amended and restated bylaws will not relieve us of our duty to comply with the federal securities laws and the rules and regulations thereunder, and shareholders will not be deemed to have waived our compliance with these laws, rules and regulations. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us or our directors, officers or other employees. In addition, shareholders who do bring a claim in the state or federal court in the State of Delaware could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The state or federal court of the State of Delaware may also reach different judgments or results than would other courts, including courts where a shareholder would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our shareholders. However, the enforceability of similar exclusive forum provisions in other companies’ certificates of incorporation have been challenged in legal proceedings, and it is possible that a court could find this type of provision to be inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings. If a court were to find the exclusive forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions.

Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

The Company’s amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors.

These provisions include:

·providing that our directors may be removed only for cause by the affirmative vote of the holders of at least 75% of the voting power of our then outstanding shares of common stock entitled to vote generally for the election of directors;
·providing that any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing in lieu of a meeting of such stockholders, subject to the rights of the holders of any series of preferred stock with respect to such series, if any;

26

·providing that special meetings of our stockholders may only be called by the board of directors pursuant to a resolution adopted by the affirmative vote of a majority of the board of directors;
·providing that our board of directors can be divided into three classes of directors, with each class as nearly equal in number as possible, serving staggered three-year terms, other than directors which may be elected by holders of preferred stock, if any. This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it could have the effect of increasing the length of time necessary to change the composition of a majority of the board of directors. In general, at least two annual meetings of stockholders will be necessary for stockholders to effect a change in a majority of the members of the board of directors;
·providing that all board vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum, or by a sole remaining director and shall not be filled by the stockholders;
·providing that our amended and restated bylaws may only be amended by the affirmative vote of the holders of at least two-thirds of our then outstanding common stock;
·providing the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; and
·limiting the liability of, and providing indemnification to, our directors and officers.

These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our board of directors and management.

Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our security holders to receive a premium for their securities and could also affect the price that some investors are willing to pay for our securities.

We do not expect to pay any cash dividends in the foreseeable future.

We expect to retain our key employees or attractfuture earnings, if any, to fund the development and retain additional highly qualified personnel ingrowth of our business. As a result, capital appreciation, if any, of our common stock will be the sole source of gain, if any, for any stockholders for the foreseeable future. Our employee is not represented by a labor union, and we consider our relations with our employee to be good. Our employee is not covered by a key man life insurance policy.

 

ITEM 1B.UNRESOLVED STAFF COMMENTS

 

None.Not applicable.

 

ITEM 1C.CYBERSECURITY

Risk Management and Strategy

We recognize the importance of assessing, identifying, and managing material risks associated with cybersecurity threats, as such term is defined in Item 106(a) of Regulation S-K. These risks include, among other things: operational risks, intellectual property theft, fraud, extortion, harm to employees or customers and violation of data privacy or security laws. While do not presently have any general processes for assessing, identifying, and managing material risks from cybersecurity threats due to our limited financial resources, we do oversee certain third-party service providers and we plan to institute broader cybersecurity measures at such time we are able to raise sufficient capital.

27

Oversee Third-party Risk

Because we are aware of the risks associated with third-party service providers, we oversee and manage these risks by monitoring these third-party service providers and reviewing SOC reports of these providers and implementing complementary controls, if necessary. This approach is designed to mitigate risks related to data breaches or other security incidents originating from third parties.

Risks from Cybersecurity Threats

We have not encountered cybersecurity challenges that have materially impaired our operations or financial standing.

ITEM 2.PROPERTIES

 

WeThe Company has no properties at December 31, 2023, and at the period covered by this Report, has no agreements to acquire any properties. The Company currently lease one officeuses the offices of approximately 151 square feet locatedmanagement at 2038 Corte Del Nogal, Suite 141, Carlsbad, California.no cost to the Company. The lease is month-to-monthCompany expects this arrangement to continue until the Company can raise sufficient capital to advance its research and can be terminated upon sixty (60) days advance written notice to our landlord.development product pipeline.

 

The current floor space provides adequate and suitable facilities for our corporate functions.

ITEM 3.LEGAL PROCEEDINGS

 

Patent LitigationInformation pertaining to legal proceedings is provided in Note 10, Commitments and Contingencies, to the accompanying audited consolidated financial statements and is incorporated by reference herein.

 

We, TPL, and PDS (collectively referred to as “Plaintiffs”) were in proceedings in the U.S. District Court for the Northern District of California where the Plaintiffs allege infringement of the US 5,809,336 patent (the “‘336 patent”) by: Huawei Technologies Co. Ltd., LG Electronics, Nintendo Co. Ltd., Samsung Electronics Co. Ltd., and ZTE Corporation (collectively referred to as the “Defendants”). This litigation was proceeding in front of District Court Judge Vince Chhabria.

These proceedings relate to the proceedings filed by the Plaintiffs in February 2008 in the U.S. District Court for the Northern District of California alleging infringement of the US 5,440,749 patent (the “‘749 patent”), the US 5,530,890 patent (the “‘890 patent”) and the ‘336 patent against Amazon.com Inc., Barnes & Noble Inc., Garmin Ltd., Huawei Technologies Co. Ltd., Kyocera Corporation, LG Electronics, Nintendo Co. Ltd., Novatel Wireless Inc., Samsung Electronics Co. Ltd., Sierra Wireless Inc., and ZTE Corporation. We have settled with all defendants except those named in the first paragraph to this footnote. On September 18, 2015, a Markman hearing was held before U.S. Magistrate Judge Grewal and, on September 22, 2015, he issued a claim construction report and recommendation. On September 25, 2015, as a result of the claim construction report and recommendation, Plaintiffs and defendants, with the exception of Huawei Technologies Co. Ltd., (“Huawei”) agreed to stay all proceedings pending resolution of Plaintiffs’ objections to the claim construction report and recommendation. Plaintiffs further stipulated that, under the claim construction provided by the report and recommendation, defendants’ products do not infringe the ‘336 patent, and, in the event that the Court does not materially modify the claim construction, Plaintiffs and defendants ask that the Court enter a final judgment of non-infringement. After Plaintiffs and Huawei filed opposing letter briefs with the Court, U.S. Magistrate Judge Grewal stayed the action against Huawei pending resolution of Plaintiffs’ objections to the claim construction. On October 6, 2015, Plaintiffs filed objections to the claim construction with District Court Judge Chhabria. Judge Chhabria rejected those objections on November 9, 2015. Based on that order, the parties stipulated to a judgment of non-infringement as to the ‘336 patent and such judgment was entered on November 13, 2015.

7

On December 7, 2015, Plaintiffs filed notices of appeal with the U.S. Federal Circuit appealing the district court’s claim construction. Plaintiffs filed their opening appellate brief on March 10, 2016. Defendants filed their response brief on May 23, 2016, with Plaintiffs filing their reply brief on June 23, 2016. On March 3, 2017, the U.S. Court of Appeals for the Federal Circuit rendered its decision modifying the claim construction that was issued in September 2016 by the U.S. District Court for the Northern District of California and has remanded the matter to the District Court for further proceedings.

On May 23, 2017, a case management conference was held in front of District Court Judge Chhabria, who ordered that Plaintiffs amend their infringement contentions on or before June 16, 2017. Judge Chhabria further ordered that Defendants submit any motion for summary judgment based on the amended infringement contentions and the modified claim construction by August 1, 2017. On June 5, 2017, the law firm of Banys, P.C., who had served as local counsel for PDS, withdrew as counsel. PDS continued to be represented by the law firm of Nelson Bumgardner, P.C. On June 16, 2017, Plaintiffs timely amended their infringement contentions. On July 13, 2017, all remaining counsel for each of Patriot, TPL, and PDS moved to withdraw as counsel and further moved to extend all currently pending case deadlines by 60 days for Plaintiffs to seek new counsel.

On September 13, 2017, the law firm of Bunsow De Mory LLP was entered before the U.S. District Court for the Northern District of California as successor counsel in representation of Patriot, PDS, and TPL.

The Defendants moved for summary judgment of non-infringement on September 29, 2017, and the Court held a hearing on Defendants’ motion on November 30, 2017. The Court granted Defendants’ motion and entered judgment of non-infringement on December 13, 2017.

Plaintiffs filed notices of appeal in these district court matters on January 5, 2018. The appeals were docketed and consolidated under lead case No. 18-1439, captioned as Technology Properties Limited v. Huawei Technologies Co., Ltd in the United States Court of Appeals for the Federal Circuit. Oral argument proceeded on February 4, 2019. The Court affirmed the lower court’s determination without written opinion pursuant to Federal Circuit Rule 36 on February 6, 2019. Plaintiffs filed a Petition for Rehearing En Banc on March 8, 2019 which was denied by the Court on April 10, 2019.

On September 6, 2019 Plaintiffs filed a petition for a writ of certiorari with the Supreme Court of the United States as a result of the United States Court of Appeals outcome.

On November 4, 2019, the Supreme Court of the United States denied our petition for a writ of certiorari with respect to patent litigation previously before the United States Court of Appeals for the Federal Circuit that alleged infringement of the ‘336 patent against the Defendants.

ITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

 

 

 

 

 

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PART II

 

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

Our Common Stockcommon stock is currently listed for trading inquoted on the OTC Pink operated by Open Market (“OTC Markets, Inc.Pink”) under the trading symbol PTSC. Prices“CPMV”. There has been a very limited market for our common stock and our trading volume has been negligible. There is no guarantee that an active trading market will develop in our common stock. These quotations as reported representby the OTC Pink reflect inter-dealer prices between dealers, do not include markups, markdownswithout retail mark-up, markdown or commissions and domay not necessarily represent actual transactions. The market for our shares has been sporadic and at times very limited.

The following table sets forth the range of high and low closing bid quotations for our Common Stock foreach of the fiscal years ended MayDecember 31, 20202023 and 2019.2022.

 

  BID QUOTATIONS 
  HIGH  LOW 
Fiscal Year Ended May 31, 2020        
First Quarter $0.0062  $0.0020 
Second Quarter $0.0064  $0.0021 
Third Quarter $0.0029  $0.0013 
Fourth Quarter $0.0028  $0.0010 
  Bid Quotations 
  High  Low 
Year Ended December 31, 2023        
Quarter Ended March 31, 2023 $1.25  $0.76 
Quarter Ended June 30, 2023 $1.05  $0.80 
Quarter Ended September 30, 2023 $1.00  $0.52 
Quarter Ended December 31, 2023 $0.84  $0.50 
         
Year Ended December 31, 2022        
Quarter Ended March 31, 2022 $3.00  $0.50 
Quarter Ended June 30, 2022 $2.05  $0.66 
Quarter Ended September 30, 2022 $2.00  $0.88 
Quarter Ended December 31, 2022 $1.70  $0.52 

 

  BID QUOTATIONS 
  HIGH  LOW 
Fiscal Year Ended May 31, 2019        
First Quarter $0.0105  $0.0037 
Second Quarter $0.0105  $0.0052 
Third Quarter $0.0067  $0.0031 
Fourth Quarter $0.0066  $0.0028 

Holders

 

On August 14, 2020,March 28, 2024, the closing price of our stock was $0.0067$0.32 per share and we had 700645 stockholders of record. Because mostThis number does not include beneficial owners whose shares are held by nominees in street name.

Transfer Agent

The transfer agent of our Common Stockcommon stock is held by brokers and other institutions on behalf of stockholders, we are unable to estimate the totalIssuer Direct Corporation, having an office at One Glenwood Avenue, Suite 1001, Raleigh, NC 27603; their phone number of beneficial owners represented by these record holders.is (801) 272-9294.

 

Dividend Policy

 

We paid no dividends during the fiscal yearsperiods ended MayDecember 31, 20202023 and 20192022, and we havedo not paidexpect to pay any cash dividends since April 9, 2007.in the foreseeable future. We expect to retain any potential future earnings, if any, to fund our research and development efforts.

29

 

Equity Compensation Plan Information

 

Our stockholders previously approvedThe following table summarizes our 2006 Stock Option Plan (“Plan”). Ascompensation plans under which our equity securities are authorized for issuance as of MayDecember 31, 2020, there are no outstanding stock options or options available for future issuance under our 2006 Stock Option Plan as the Plan expired on March 31, 2016.2023:

 

 

 

 

 

 

Plan Category

 

(a)

Number of Securities to be Issued Upon the Exercise of Outstanding Options, Warrants and Rights

  

(b)

Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights ($/share)

  

(c)

Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))

 
Equity compensation plans approved by stockholders  541,957(1)  (2)  1,105,965(3)
Equity compensation plans not approved by stockholders         
Total  541,957(1)  (2)  1,105,965(3)

 ______________________

(1)Represents restricted stock units (“RSUs”) granted under our stockholder approved equity compensation plan referred to as the 2020 Omnibus Incentive Plan (“2020 Plan”).
(2)Weighted-average exercise price is not shown as there is no exercise price for RSUs.
(3)On the first anniversary date from the adoption date of the 2020 Plan (or on October 21, 2022), the total number of shares of common stock reserved for issuance under the 2020 Plan increased to 20% of the fully diluted shares of common stock outstanding, including shares of common stock reserved for issuance under convertible securities, such as the shares issuable upon the conversion of convertible preferred stock, as calculated on an as-converted basis. On October 21, 2021, the number of shares reserved for issuance under the 2020 Plan increased to 1,661,966, of which, 1,105,965 are available for future issuance.

 

Recent Sale of Unregistered Securities

 

None.

 

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Issuer Purchases of Equity Securities

 

None.

 

ITEM 6.SELECTED FINANCIAL DATA

 

As a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act, selected financial data is not required to be disclosed.

 

 

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

THIS ANNUAL REPORT ON FORMUnless the context otherwise requires, references to the “Company,” the “combined company,” “Mosaic,” “we,” “our,” or “us” in this Annual Report on Form 10-K CONTAINS FORWARD-LOOKING STATEMENTS CONCERNING FUTURE EVENTS AND PERFORMANCE OF OUR COMPANY. YOU SHOULD NOT RELY ON THESE FORWARD-LOOKING STATEMENTS, BECAUSE THEY ARE ONLY PREDICTIONS BASED ON OUR CURRENT EXPECTATIONS AND ASSUMPTIONS. MANY FACTORS COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN THESE FORWARD-LOOKING STATEMENTS. YOU SHOULD REVIEW CAREFULLY THE RISK FACTORS IDENTIFIED IN THIS REPORT AS SET FORTH BELOW AND UNDER THE CAPTION “RISK FACTORS.” WE DISCLAIM ANY INTENT TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT SUBSEQUENT ACTUAL EVENTS OR DEVELOPMENTS.(“Report”) refer to Mosaic ImmunoEngineering, Inc. and its subsidiaries.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this Report. 

Cautionary Note Regarding Forward-Looking Statements

This Report, including all documents incorporated by reference herein, includes certain statements constituting “forward-looking” statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995, including statements concerning our beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, operations, future results and prospects, and we rely on the “safe harbor” provisions in those laws. We are including this statement for the express purpose of availing ourselves of the protections of such safe harbors with respect to all such forward-looking statements. The forward-looking statements in this Report reflect our current views with respect to future events and financial performance. In this report, the words “anticipates,” “believes,” “expects,” “intends,” “future,” “estimates,” “may,” “could,” “should,” “would,” “will,” “shall,” “propose,” “continue,” “predict,” “plan” and similar expressions are generally intended to identify certain of the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. Any forward-looking statement is not a guarantee of future performance. Please see Part I, Item 1A. Risk Factors for a discussion of certain risk factors applicable to our business, financial condition, and results of operations. Operating results are not necessarily indicative of results that may occur for any future period. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Overview

 

We are a development-stage biotechnology company focused on advancing and eventually commercializing immunotherapies for the treatment of cancer. We have beenhistorically advanced an early-stage product candidate, MIE-101, that is based on a licensing companynaturally occurring plant virus licensed from Case Western Reserve University (“CWRU”) (see Note 12 to the accompanying consolidated financial statements). In addition, we are pursuing new product candidates and platforms to expand our pipeline based on a deep understanding of patented microprocessor technologies that offered broadimmunotherapies.

Summary of Significant Events

Private Mosaic, a Delaware corporation, was formed on March 30, 2020. On July 1, 2020, we signed a Material Transfer, Evaluation, and open licensingExclusive Option Agreement (“License Option Agreement”) with Case Western Reserve University (“CWRU”), granting us the exclusive right to license the cowpea mosaic virus (“CPMV”) platform technology to treat and by litigating against those who may have infringed on its patents. These licensing efforts were performed through our joint ventureprevent cancer and infectious diseases in humans and for veterinary use. On May 4, 2022, we entered into the license agreement with Phoenix Digital Solutions, LLCCWRU (“PDS”License Agreement”). PDS has not generated significant license revenues since September 2013. Furthermore, on November 4, 2019, the Supreme Court of the United States denied our application to review a lower court’s decision that was adverse pursuant to our patented microprocessor technologies. As result of this denial to review the lower court’s decision, our patented microprocessor technologies were no longer enforceable, and we have no other options to appeal the lower court’s adverse decision. As a result, there are no future licensing opportunities or sources of revenue and we need to either pursue a new line of business, liquidate the Company in a dissolution under Delaware law, or seek protectionrights granted under the provisionsLicense Option Agreement (see Note 6 to the accompanying audited consolidated financial statements). On March 22, 2024, we received a notice of termination from CWRU (see Note 12 to the U.S. Bankruptcy Code.accompanying consolidated financial statements). On August 19, 2020, Patriot Scientific Corporation (now known as Mosaic ImmunoEngineering, Inc.) and Private Mosaic entered into a reverse merger transaction, as further described below.

Reverse Merger

 

On August 19, 2020, Patriot Scientific Corporation, (referred toa corporation organized under Delaware law on March 24, 1992 (now known as “Parent” in the transaction),Mosaic ImmunoEngineering, Inc.) and Private Mosaic entered into a stock purchase agreement (the “Stock(“Stock Purchase Agreement”) among Parent,, whereby one of the wholly owned subsidiaries of Patriot Scientific Corporation (“PTSC”) merged with and into Private Mosaic, with Private Mosaic surviving as wholly owned subsidiary of PTSC Sub One Inc., a Delaware corporation (as “Buyer” and together(the “Reverse Merger”). The transaction closed on August 21, 2020 (“Closing Date”) in accordance with the Parent, the “Buyer Parties”), Mosaic ImmunoEngineering Inc., a Delaware corporation (the “Target”), certain stockholdersterms of the Target set for therein (as “Sellers”),Stock Purchase Agreement.

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On the Closing Date, Patriot Scientific Corporation acquired 100% of the issued and Steven King (as the “Sellers’ Representative” and together with the Target and Sellers, the “Seller Parties”) pursuant to which, Buyer will buy from Sellersoutstanding common stock of Private Mosaic, representing 630,000 shares of its Class A common stock (“Class A Stock”), par value $0.0001 per share, and 70,000 shares of its Class B common stock (“Class B Stock”), par value $0.0001 per share, together the Class A Stock and Class B Stock shall collectively be (collectively referred to as “Target Common Stock”, representing 100% of the issued and outstanding common stock of the Target as of August 19, 2020. Upon closing, in). In exchange for the Target Common Stock, the holders of the Class A Stock shall receivereceived 630,000 shares of the Parent’s preferred stock to be designatedCompany’s Series A Convertible Voting Preferred Stock (“Series A Preferred”) and holders of the Class B Stock shall receivereceived 70,000 shares of the Parent’s preferred stock to be designatedCompany’s Series B Convertible Voting Preferred Stock (“Series B Preferred”). Each share of Series A Preferred converted into 10.194106 shares of common stock as defined in the Series A Preferred; shall (a) convertCertificate of Designation. Each share of Series B Preferred converts into 5,097.05311.46837 shares of common stock of the Parent, (b) possessCompany, possesses full voting rights, on an as-converted basis, as the common stock of the Parent,Company and (c) have no dividend rate. Each share of the Series B Preferred; shall (a) convert into 5,734.185 shares of common stock of the Parent, (b) possess full voting rights, on an as-converted basis, as the common stock of the Parent, (c) have no dividend rate, and (d) shall possesscontains certain anti-dilution protectionsrights, as defined in the Series B Certificate of Designations.Designation. On a fully diluted, as converted basis, the Sellers shall ownholders of Series A Preferred and Series B Preferred, in aggregate, owned 90% of the issued and outstanding common stock of the ParentCompany as of the Closing Date.

The Reverse Merger was treated by the Company as a reverse merger in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For accounting purposes, Private Mosaic was considered to have acquired PTSC as the accounting acquirer because: (i) Private Mosaic stockholders owned 90% of the combined company, on an as-converted basis, immediately following the Closing Date, (ii) Private Mosaic directors held a majority of board seats in the combined company and (iii) Private Mosaic management held all key positions in the management of the combined company. Accordingly, Private Mosaic’s historical results of operations replaced PTSC’s historical results of operations for all periods prior to the Closing Date of the Reverse Merger and, for all periods following the Closing Date of the Reverse Merger, the results of operations of the combined company are included in the Company’s financial statements.

Other Key Corporate Events

On November 30, 2020, we filed amended and restated articles of incorporation with the Secretary of State of the State of Delaware (“Amended and Restated Certificate”) to change the name of the Company to Mosaic ImmunoEngineering, Inc. (“Name Change”) to align the Company’s corporate name with its new strategic direction, to implement a 1-for-500 reverse stock split (“Reverse Stock Split”), and to reduce the number of authorized shares of common stock from 600 million to 100 million. The Reverse Stock Split was effective on December 2, 2020. All share numbers and preferred stock conversion numbers included herein have been retroactively adjusted to reflect the 1-for-500 Reverse Stock Split. On December 30, 2020, we changed our fiscal year end from May 31 to December 31.

Our funding has primarily come from the issuance of convertible notes. On May 7, 2021 and February 18, 2022, we issued unsecured convertible promissory notes in the aggregate principal amount of $575,000 and $341,632, respectively (see Note 107 to Patriot’sthe accompanying consolidated financial statements included elsewhere herein)statements).

 

On July 6, 2022, we entered into a redemption agreement (the “Redemption Agreement”) with Holocom, Inc. (“Holocom”) pursuant to which we requested full redemption of our 2,100,000 shares of Series A Preferred Stock at a redemption price of $0.40 per share, provided Holocom has sufficient capital to redeem the underlying shares. During the year ended December 31, 2023 and 2022, we received cash proceeds in the amount of $433,000 and $343,000, respectively, upon the redemption of 1,242,500 and 857,500 shares of Series A Preferred Stock, respectively (see Note 4 to the accompanying consolidated financial statements).

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Critical Accounting Policies and Estimates

 

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and judgments that significantly affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates, and such differences could affect the results of operations reported in future periods. We believe the following critical accounting policies affect our most significant estimates and judgments used in the preparation of our consolidated financial statements.

 

1.        Investments

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1.Investment in Affiliated Company

In February 2007, we invested an aggregate of $370,000 in Marketable SecuritiesHolocom, Inc. (“Holocom”), a California corporation that manufactures products that protect information transmitted over secure networks, in exchange for 2,100,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”), which represented an approximate 46% ownership interest in Holocom, on an as-converted basis. Pursuant to the articles of incorporation of Holocom, the Series A Preferred Stock is convertible at our option into shares of common stock of Holocom on a one-to-one basis or is redeemable at any time after May 31, 2007 at a redemption price equal to $0.40 per share or $840,000 in aggregate, provided Holocom has sufficient funding to redeem our shares of Series A Preferred Stock.

On July 6, 2022, we entered into a redemption agreement (the “Redemption Agreement”) with Holocom, pursuant to which we requested full redemption of our Series A Preferred Stock, provided Holocom has sufficient capital to redeem the underlying shares.

 

We classify our investments in marketable securities in certificates of deposit atrecognized the time of purchase as held-to-maturity and reevaluate such classifications at each balance sheet date. Held-to-maturity investments consist of securities that we have the intent and ability to retain until maturity. These securities are recorded at cost and adjustedpayments for the amortizationredemption of premiumsshares of Series A Preferred Stock using a cash basis of accounting rather than an accrual method as we are unable to assert that collection of amounts due under the Redemption Agreement is probable, regardless of the terms of the Redemption Agreement. As a result, the remaining redemption amount receivable as of December 31, 2022 was fully reserved and discounts, which approximates fair value. Cash inflows and outflows relatedother income was recognized once payments were received. We would remove the cash basis of accounting designation at such time we believe collection from Holocom is probable based upon sufficient liquidity or a demonstrated payment history.

On June 21, 2023, we entered into an amendment to the sale and purchaseRedemption Agreement (“Amendment No. 1”) to redeem the remaining 910,000 shares of investments are classifiedSeries A Preferred Stock outstanding in exchange for a lump sum payment of $300,000 (in lieu of monthly payments), representing a redemption price of approximately $0.33 per share. As of December 31, 2023, we redeemed in aggregate, 2,100,000 shares of Series A Preferred Stock, in exchange for aggregate net proceeds received by us of $776,000 as investing activities in our condensedfollows:

  Year Ended December 31, 2023  Year Ended December 31, 2022 
Proceeds received $433,000  $343,000 
Shares of Series A Preferred Stock redeemed $1,242,500  $857,500 

As of December 31, 2023, Holocom had no further obligations to us under the Redemption Agreement or any other arrangement (see Note 4 to the accompanying consolidated statements of cash flows.financial statements).

2.Fair Value of Financial Instruments

Anti-Dilution Issuance Rights Derivative Liability

 

2.        Investment in Affiliated Companies

We havePursuant to the Series B Preferred Certificate of Designation, the Series B Preferred includes certain anti-dilution issuance rights, whereby the holder will continue to maintain equity ownership equal to 10% of the fully diluted shares of common stock outstanding, calculated on an as converted basis, including all other convertible securities outstanding and reserved for issuance (and excluding stock options issued and outstanding and reserved for issuance under a 50% interest in PDS. We accountBoard approved employee stock option plan reserving for our investment usingissuance no more than ten percent (10%) of the equity method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the votingoutstanding common stock of the investee of between 20% and 50%, although other factors, such as representation onCompany) until we raise the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and is recognized in the condensed consolidated statements of operations in the caption “Equity in loss of affiliated company” and also is adjusted by contributions to and distributions from PDS.

PDS, as an unconsolidated equity investee, recognizes revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligationsCapital Threshold under the license agreement are satisfied,License Agreement (see Note 6 to the accompanying audited consolidated financial statements). The Capital Threshold was met as of June 30, 2023 and therefore, there was no derivative liability as of December 31, 2023. As of December 31, 2022, the realization of revenue is assured, which is generally upon the receipt of the license proceeds. PDS may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones are met.

We review our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near-term prospects of PDS. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss.

We own 100% of the preferred stock of Holocom. Prior to impairment, this investmentCapital Threshold was accounted for at cost since we did not have the ability to exercise significant influence over the operating and financial policies of Holocom.

approximately $283,000.

 

 

 

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3.       Income TaxesTo determine the estimated fair value of the anti-dilution issuance rights liability, the Company used a Monte Carlo simulation methodology, which models the future movement of stock prices based on several key variables. At December 31, 2022, the estimated fair value of the anti-dilution issuance rights was $46,700. We initially recorded the fair value as a derivative liability with a corresponding charge to research and development expense and we will mark-to-market at each reporting period, with changes in fair value recognized in other income (expense) in the consolidated statement of operations at each period-end while this derivative instrument is outstanding.

The primary inputs used in valuing the anti-dilution issuance rights liability at December 31, 2022 was as follows:

    
  

December 31, 2022

 
Fair value of common stock (per share) $0.99 
Estimated additional shares of common stock  71,511 
Expected volatility  130% 
Expected term (years)  0.25 
Risk-free interest rate  4.42% 

The fair value of the anti-dilution issuance rights liability as of December 31, 2022 was determined by management with the assistance of an independent third-party specialist. The computation of expected volatility was estimated using available information about the historical volatility of stocks of similar publicly traded companies for a period matching the expected term assumption. In addition, the Company incorporated the estimated number of shares, timing, and probability of future equity financings in the calculation of the anti-dilution issuance rights liability.

3.Convertible Notes

The Company follows Financial Accounting Standards Board (“FASB’s”) Accounting Standards Codification (“ASC”) 480-10, “Distinguishing Liabilities from Equity” in its evaluation of the accounting for share-settled debt (Convertible Notes). ASC 480-10-25-14 requires liability accounting for certain financial instruments, including shares that embody an unconditional obligation to transfer a variable number of shares, provided that the monetary value of the obligation is based solely or predominantly on one of the following three characteristics:

a)A fixed monetary amount known at inception;

b)Variations in something other than the fair value of the issuer’s equity shares; or

c)Variations in the fair value of the issuer’s equity shares, but the monetary value to the counterparty moves in the opposite direction as the value of the issuer’s shares.

Moreover, equity classification was not an appropriate classification for the convertible notes because the underlying terms of the convertible notes do not expose the investors to risks and rewards similar to those of an owner and, therefore, do not create a shareholder relationship. Pursuant to ASC 835-30, the convertible notes were initially recorded at their amortized cost and are being accreted to their redemption value over the estimated conversion period using the effective interest method.

4.Income Taxes

 

We follow authoritative guidance in accounting for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement requirement for the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under this guidance, we may only recognize tax positions that meet a “more likely than not” threshold.

 

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We follow authoritative guidance to evaluate whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. We are assessingassess our deferred tax assets annually under more likely than not scenarios in which they may be realized through future income.

 

WeIn addition, utilization of our net operating loss carryforwards may be subject to an annual limitation due to ownership change limitations that may have occurred as a result of the Reverse Merger that closed in August 2020, or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These ownership changes may limit the amount of the net operating loss carry forwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a Company by certain stockholders. Moreover, since we will need to raise substantial additional funding to finance our operations, we may undergo further ownership changes in the future, which could further limit our ability to use net operating loss carryforwards. As a result, if we generate taxable income, our ability to use some of our net operating loss carryforwards to offset U.S. federal taxable income may be subject to limitations, which could result in increased future tax liability to us.

With the exception of refundable income taxes, we have determined that it was more likely than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable losses.losses in addition to the potential loss of deferred tax assets as a result of the change in control (see Note 1 to the accompanying consolidated financial statements). As a result of this determination, and with the exception for the aforementioned refundable income taxes, we have recorded a full valuation allowance against our deferred tax assets.

 

4.       AssessmentResults of Contingent LiabilitiesOperations

 

We may be involved in various legal matters, disputes,Years Ended December 31, 2023 and patent infringement claims which arise in2022

Research and Development Expenses

Research and development expenses of approximately $435,000 for the ordinary course of our business. We accrue for any estimated losses at the time when we can make a reliable estimate of such loss and it is probable that it has been incurred. By their very nature, contingenciesyear ended December 31, 2023 are difficult to estimate. We continually evaluate informationprimarily related to all contingencies to determine that the basis on which we have recorded our estimated exposure is appropriate.

RESULTS OF OPERATIONS

Comparisonsalaries and related costs for personnel in research and development functions and related consulting fees, including approximately $22,000 in share-based compensation expense. The decrease in research and development expenses of fiscal year 2020 and 2019

  May 31, 2020  May 31, 2019 
Selling, general and administrative $996,019  $734,062 

Selling, general and administrative expenses increased from $734,062approximately $613,000 for the fiscal year ended MayDecember 31, 20192023 as compared to $996,019 for the fiscalsame prior year ended May 31, 2020. The current fiscal year increase in expenses was primarily due to higher compensation expense mostly associated with severance expense paid to Mr. Flowers, our former Chief Financial Officer. Mr. Flowers resigned on September 30, 2019 and agreed to severance compensation of $327,750, in lieu of any amounts owed under his amended and restated employment agreement, payable in seven equal monthly installments commencing October 30, 2019. In addition, during the current fiscal year, we had an increase in consulting fees, mostly associated with the evaluation of new business opportunities in collaboration with Artius Bioconsulting LLC. These current fiscal year increases in expenses were offset by lower board fees as our board member volunteered to cease taking board fees.

  May 31, 2020  May 31, 2019 
Other income (expense):        
Interest income $12,068  $28,711 
Equity in loss of affiliated company  (74,977)  (91,512)
Total other expense, net $(62,909) $(62,801)

Total other expenses, net increased slightly from $62,801 for the fiscal year ended May 31, 2019 to $62,909 for the fiscal year ended May 31, 2020. The increaseperiod was primarily due to a (i) decrease in the equity in the losspayroll and related costs of PDS resulting fromapproximately $253,000 due to a reduced time commitment by certain employees, (ii) a decrease in PDS legal expenses. The current fiscal year increase was partially offset byshare-based compensation expense of approximately $102,000 as the majority of share-based awards have been fully expensed in prior periods, (iii) a decrease in interest incomeconsulting fees of approximately $263,000 due to a lower cash balance on hand combinedtime commitment by our independent contractors, and (iv) a decrease in other expenses of approximately $5,000, which amounts were offset by an increase in technology license maintenance fees of $10,000.

Research and development expenses of approximately $1,048,000 for the year ended December 31, 2022 are primarily related to salaries and related costs for personnel in research and development functions and related consulting fees associated with lower overall interest rates. Our investmentadvancing the platform technologies of approximately $1,041,000, including approximately $124,000 in PDS continuesshare-based compensation. We believe our research and development expenses will increase significantly over time, provided we are able to be accounted for in accordance with the equity method of accounting for investments.

raise sufficient capital to advance our lead program.

 

 

 

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  May 31, 2020  May 31, 2019 
Loss before provision for income taxes $(1,058,928) $(796,863)

General and Administrative Expenses

 

Loss before provision for income taxes increased fromGeneral and administrative expenses of approximately $796,863$964,000 for the fiscal year ended MayDecember 31, 20192023 consist principally of salaries and related costs for personnel and consultants in executive and administrative functions of approximately $790,000, accounting and filing fees of approximately $53,000, legal fees related to $1,058,928 for the fiscal year ended May 31, 2020 primarily due to increasesintellectual property rights of approximately $49,000, director and officer insurance of approximately $43,000, investor and public relation fees of approximately $15,000, and other expenses of approximately $14,000. The decrease in selling, general and administrative expenses as discussed above.

Provision for income taxes

During each of the fiscal years ended May 31, 2020 and 2019, we recorded a provision for income taxes of $1,600 related to California state taxes.

Net loss

Net loss increased from $798,463approximately $615,000 for the fiscal year ended MayDecember 31, 20192023 as compared to $1,060,528 for the fiscalsame prior year ended May 31, 2020period was primarily due to increases(i) a decrease in selling,legal fees related to intellectual property rights of approximately $298,000 primarily related to amounts due related to the life-to-date patent fees owed under the license agreement with Case Western Reserve University executed in the same prior year period, (ii) a decrease in share-based compensation expense of approximately $171,000 as all outstanding share-based awards have been fully expensed in prior periods, (iii) a decrease in payroll and consulting fees of approximately $88,000 due to a reduced time commitment by certain employees and consultants, (iv) a decrease in legal fees of approximately $20,000, (v) a decrease in accounting and filing fees of approximately $27,000 due to fewer filings with the Securities and Exchange Commission, and (vi) a decrease in other expenses of approximately $11,000.

General and administrative expenses of approximately $1,579,000 for the year ended December 31, 2022 consist principally of salaries and related costs for personnel and consultants in executive and administrative functions of approximately $1,050,000, including approximately $171,000 in share-based compensation expense, fees for outside legal counsel of approximately $20,000, legal fees related to intellectual property rights of approximately $347,000, audit, tax, accounting and filing fees of approximately $80,000, director and officer insurance of approximately $45,000, investor and public relation fees of approximately $21,000, and other fees and expenses of approximately $16,000. We believe our general and administrative expenses will increase over time as discussed above.we hire new employees to support key administrative functions and the planned expansion of research and development personnel, provided we are able to raise sufficient capital to advance our lead program.

 

LIQUIDITY AND CAPITAL RESOURCESOther Income (Expense)

 

Our cash and cash equivalents and investments in marketable securities balances decreased from approximately $1,537,086 asGain on Sale of May 31, 2019 to $571,921 as of May 31, 2020. We also have restricted cash of $198,843 and $177,247 as of May 31, 2019 and 2020, respectively. Total current assets decreased from $1,790,010 as of May 31, 2019 to $785,408 as of May 31, 2020. Total current liabilities were $228,212 and $182,595 as of May 31, 2019 and 2020, respectively. The decrease in our net working capital during fiscal year 2020 was primarily due to our reported net loss for the fiscal year ended May 31, 2020 as PDS was unable to generate revenues and provide partnership distributions sufficient to cover our operating expenses.Holocom Preferred Stock

PDS has not generated significant license revenues since September 2013. Furthermore, on November 4, 2019, the Supreme Court of the United States denied our application to review a lower court’s decision that was adverse to our patented microprocessor technologies. As result of this denial to review the lower court’s decision, our patented microprocessor technologies were no longer enforceable, and we have no other options to appeal the lower court’s adverse decision. As a result, there are no future licensing opportunities or sources of revenue from PDS and we need to either pursue a new line of business, liquidate the Company in a dissolution under Delaware law, or seek protection under the provisions of the U.S. Bankruptcy Code.

On August 19, 2020, Patriot Scientific Corporation (referred to as “Parent” in the transaction),July 6, 2022, we entered into a stock purchase agreement (the “Stock Purchase Agreement”) among Parent, PTSC Sub One Inc., a Delaware corporation (as “Buyer” and togetherRedemption Agreement with the Parent, the “Buyer Parties”), Mosaic ImmunoEngineering Inc., a Delaware corporation (the “Target”), certain stockholders of the Target set for therein (as “Sellers”), and Steven King (as the “Sellers’ Representative” and together with the Target and Sellers, the “Seller Parties”)Holocom, as amended on June 21, 2023, pursuant to which Buyer will buy from Sellers 630,000we requested full redemption of our 2,100,000 shares of its ClassSeries A common stock (“Class A Stock”), par value $0.0001 per share, and 70,000Preferred Stock of Holocom. During the year ended December 31, 2023, we received cash proceeds of $433,000 upon the redemption of 1,242,500 shares of its Class B common stock (“Class B Stock”), par value $0.0001 per share, togetherSeries A Preferred Stock. During the Classyear ended December 31, 2022, we received cash proceeds in the amount of $343,000 upon the redemption of 857,500 shares of Series A StockPreferred Stock.

Interest Income

Interest income of approximately $3,000 for the year ended December 31, 2023 is primarily related to interest earned and Class B Stock shall collectively be referred to as “Target Common Stock”, representing 100%received on monthly past due redemption installments from Holocom under the Redemption Agreement.

Change in Valuation of Derivative Liability

The change in valuation of the issuedderivative liability of approximately $47,000 and outstanding common stock$58,000 for the years ended December 31, 2023 and 2022, respectively, pertains to a decrease in the estimated fair value of the Target as of August 19, 2020. Upon closing, in exchange for the Target Common Stock, the holders of the Class A Stock shall receive 630,000 shares of the Parent’s preferred stockanti-dilution issuance rights pursuant to be designated Series A Convertible Preferred Stock (“Series A Preferred”) and holders of the Class B Stock shall receive 70,000 shares of the Parent’s preferred stock to be designated Series B Convertible Preferred Stock (“Series B Preferred”). Each share of the Series A Preferred; shall (a) convert into 5,097.053 shares of common stock of the Parent, (b) possess full voting rights, on an as-converted basis, as the common stock of the Parent, and (c) have no dividend rate. Each share of the Series B Preferred; shall (a) convert into 5,734.185 sharesPreferred.

Interest Expense and Accretion to Redemption Value on Convertible Notes

Non-cash interest expense of common stock ofapproximately $73,000 and $70,000 for the Parent, (b) possess full voting rights,years ended December 31, 2023 and 2022, respectively, represents interest expense on an as-converted basis, as the common stock of the Parent, (c) have no dividend rate, and (d) shall possess certain anti-dilution protections as defined in the Series B Certificate of Designations. On a fully diluted, as converted basis, the Sellers shall own 90% of the issued and outstanding common stock of the Parent (see Note 10 to Patriot’s consolidated financial statements included elsewhere herein).

convertible notes.

 

 

 

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Therefore, ourAccretion to redemption value on convertible notes of approximately $16,000 and $82,000 for the years ended December 31, 2023 and 2022, respectively, pertains to the accretion of the convertible notes to their redemption value using the effective interest method.

Liquidity and Capital Resources

On August 21, 2020, we completed a reverse merger with PTSC, which provided us $605,215 in cash, cash equivalents, and restricted cash. During May 2021, we raised $575,000 from the issuance of convertible notes, which included $49,997 of accrued payable to founder that was invested in convertible notes. During February 2022, we raised an additional $341,632 from the issuance of convertible notes. During the years ended December 31, 2023 and 2022, we received $433,000 and $343,000 from the redemption of Holocom Series A Preferred Stock. As of December 31, 2023, we had cash and cash equivalents of $156,178. Our ability to continue our operations and new line of business is highly dependent on the amount of cash and cash equivalents on hand combined with our ability to raise additional capital to fund future operations. We anticipate, based on currently proposed plans and assumptions, that our cash on hand will not satisfy our operational and capital requirements through twelve months from the filing date of filingthis Report.

Our primary uses of capital to date are primarily related to payroll, consulting and related costs, corporate formation and ongoing public company expenses, fees associated with license agreements, including patent related expenses, and costs of the Reverse Merger. On a go forward basis, we will need significant additional capital to support our research and development efforts, compensation and related expenses, and hiring additional staff (including clinical, scientific, operational, financial, and management personnel) and to reduce our accrued liabilities. We expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of product candidates, provided we are able to raise sufficient capital.

We plan to continue to fund losses from operations and future funding needs through our cash on this Form 10-K.hand and future equity and/or debt offerings, as well as potential collaborations or licensing arrangements with other companies.

 

There are a number of uncertainties associated with our ability to raise additional capital and we have no current arrangements with respect to any additional financing. If we raise funds from the issuance of equity securities (which will be challenging in light of current market conditions combined with our early stage of development), substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing (also challenging in light of current market conditions combined with our early stage of development), the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business. Further, any contracts or license arrangements we enter into to raise funds may require us to relinquish rights to products or technology, and we may not be able to enter into any such contracts or license arrangements on favorable terms, or at all. Since the closing date of the Reverse Merger, our limited cash position has required us to perform only limited development activities and to delay and scale back our development programs and other activities to remain afloat. If we continue to have insufficient funds, we may be required to cease our operations altogether.

In addition, the continuation of disruptions caused by COVID-19 or other related variants, broad-based inflation, and various economic indicators that the United States economy may be entering a recession in upcoming quarters may cause investors to slow down or delay their decision to deploy capital based on volatile market conditions which will adversely impact our ability to fund future operations. Consequently, there can be no assurance that any additional financing on commercially reasonable terms, or at all, will be available when needed. The inability to obtain additional capital will delay our ability to continue to conduct our business operations. Any additional equity financing may involve substantial dilution to our then existing stockholders. If we are unable to raise additional capital and continue to have insufficient funds, we may either liquidate the Company in a dissolution under Delaware law, or seek protection under the provisions of the U.S. Bankruptcy Code.be required to cease our operations altogether. The above matters raise substantial doubt regarding our ability to continue as a going concern.

 

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Cash Flow Summary

The following table provides a summary of our net cash flow activity for the years ended December 31, 2023 and 2022:

  Year Ended December 31, 2023  Year Ended December 31, 2022 
Net cash used in operating activities $(497,467) $(690,129)
Net cash provided by investing activities  433,000   343,000 
Net cash provided by financing activities     341,632 
Net decrease in cash and cash equivalents $(64,467) $(5,497)

Cash Flows From Operating Activities

 

CashNet cash used in operating activities for the fiscal yearsyear ended MayDecember 31, 2020 and 2019 was $986,761 and $760,766, respectively. The principal components2023 consisted of the current fiscal year included aour net loss of $1,060,528$1,008,235 combined with a decrease in accounts payable, accrued expensesthe fair value of the derivative liability of $46,700 and othera gain on redemption of $45,617. These current fiscal yearpreferred stock of Holocom of $433,000, which amounts were offset by (i) non-cash share-based compensation expense of $21,935, (ii) non-cash interest expense of $73,333, (iii) the accretion to redemption value on convertible notes of $15,842, and (iv) a net change in operating assets and liabilities of $879,358 primarily due to an increase in accrued compensation, accrued consulting, and other accrued expenses of $877,067, in aggregate.

Net cash used in operating activities for the year ended December 31, 2022 consisted of our net loss of $2,380,870 combined with a decrease in prepaid expenses and other current assets of $17,841, a decrease in deferred income taxes of $26,078, and by equity in loss of affiliated company of $74,977. The principal componentsthe fair value of the prior fiscal year were the net lossderivative liability of $798,463 combined with an increase in prepaid expenses and other current assets of $22,716$57,600 and a decreasegain on redemption of preferred stock of Holocom of $343,000, which amounts were offset by (i) non-cash share-based compensation expense of $295,123, (ii) non-cash interest expense of $69,738, (iii) the accretion to redemption value on convertible notes of $81,843, and (iv) a net change in operating assets and liabilities of $1,644,637 primarily due to an increase in accounts payable, accrued expensescompensation, accrued consulting, and other accrued expenses of $33,873. These prior fiscal year amounts were offset by decrease$1,641,917, in prepaid income tax of $2,285 and by equity in loss of affiliated company of $91,512.aggregate.

 

Cash Flows From Investing Activities

 

CashNet cash provided by investing activities for the fiscal yearyears ended MayDecember 31, 2020 was $750,0002023 and attributable to net sales2022 consisted of marketable securities. proceeds received from our redemption of Holocom’s Series A Preferred Stock of $433,000 and $343,000, respectively.

Cash used in investingFlows From Financing Activities

Net cash provided by financing activities for the fiscal year ended MayDecember 31, 2019 was $572,754 comprised2022 consisted of net proceeds received from the purchaseissuance of marketable securitiesconvertible notes of $750,000 offset by the receipt of $177,246 in restricted cash that was previously held by a third party in conjunction with the Company’s acquisition of Crossflo.$341,632.

 

RECENT ACCOUNTING PRONOUNCEMENTSRecent Accounting Pronouncements

 

In May 2014, the FinancialFor a detailed description of recent accounting pronouncements, see Note 2, Summary of Significant Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which was subsequently amended by ASUs 2015-14, 2016-08, 2016-10, 2016-12, and 2016-20. ASU 2014-09, as amended, supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”Policies, and creates a new ASC Topic 606 (“ASC 606”). ASU 2014-09, as amended, implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Our adoptionconsolidated financial statements included in Part IV, Item 15 of this guidance effective June 1, 2018 did not have a significant impactReport and begin on page F-1 with the financial statements of PDS.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance intendedindex to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The issue addressed in ASU 2016-15 that will affect the Company is classifying distributions received from equity method investments. The guidance provides an accounting policy election for classifying distributions received from equity method investments using either a cumulative earnings approach or a nature of distributions approach. The Company adopted this standard on June 1, 2018. The adoption did not have a material effect on our consolidated financial statements.

 

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In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard on June 1, 2018 by using the retrospective transition method.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this item.

 

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements and supplementary data required by this item are included in Part IV, Item 15 of this Report and begin on page F-1 with the index to consolidated financial statements.

 

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

 

ITEM 9A.CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision andOur management, with the participation of our management, including our InterimPresident and Chief Executive Officer and our Interim Chief Financial Officer we conducted an evaluation(our principal executive officer and principal financial and accounting officer, respectively), evaluated the effectiveness of our disclosuredisclosures controls and procedures, as such term is defined in RuleRules 13a-15(e) ofand 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on this evaluation, our Interim Chief Executive Officer and our Interim Chief Financial Officer concluded that our disclosureDecember 31, 2023. The term “disclosure controls and procedures, were effective” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assuranceensure that information required to be disclosed by usa company in the reports we filethat it files or submitsubmits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms,forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to ourthe company’s management, including our Interim Chief Executive Officerits principal executive and our Interim Chief Financial Officer,principal financial officers, as appropriate, to allow timely decisions regarding required disclosures.disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2023, our principal executive officer and principal financial and accounting officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our InterimPresident and Chief Executive Officer and our Interim Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of MayDecember 31, 20202023 based on the criteria set forth in Internal Control — Integrated Framework – 2013 update issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, and after considering the controls implemented to mitigate the impact resulting from insufficient accounting personnel discussed below, our management concluded that our internal control over financial reporting was effective as of MayDecember 31, 2020.2023.

 

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this Annual Report.

 

 

 

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Changes in Internal Controls over Financial Reporting

 

ThereManagement has determined that, as of December 31, 2023, there were no significant changes in our internal control over financial reporting that occurred during the fourth quarter of the year ended MayDecember 31, 2020,2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Inherent Limitations on Internal Control

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

In addition, projections of any evaluation of effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

 

ITEM 9B.OTHER INFORMATION

 

None.

During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.

 

 

 

 

 

 

 

 

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PART III

 

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

On June 14, 2021, by written consent of the holders of 80% of the voting power of our issued and outstanding capital stock (“Majority Shareholders”), the Majority Shareholders voted in favor of six directors to the Company’s Board of Directors (the “Board”) to serve until the first annual meeting of stockholders to occur following the first date on which our common stock is listed or quoted on a national securities exchange or until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. Executive officers, subject in each case to the terms and conditions of their respective offer letter or consulting agreement, serve at the discretion of the Board, and are appointed to serve by the Compensation Committee of the Board. The following table and text set forth below contain the names and ages of each person serving as our directors and/or executive officers as of December 31, 2023. The business address of each of the directors and executive officers is 9114 Adams Avenue, #202, Huntington Beach, California 92646.

NameAgePosition and Term
Steven King59Director (since August 21, 2020); President and CEO (since August 31, 2020)
Robert Baffi, Ph.D.68Director (since July 15, 2021)
Gloria H. Felcyn81Director (since October 2002)
Robert Garnick, Ph.D.74Director (since August 21, 2020)
Carlton M. Johnson, Jr.64Director (since August 2001); former Interim Chief Executive Officer (April 1, 2019 to August 28, 2020) and Interim Chief Financial Officer (October 3, 2019 to August 28, 2020)
Paul Lytle55Director (since August 21, 2020); EVP, Chief Financial Officer, Corporate Secretary (since August 31, 2020)

 

Director Qualifications

We believe that individuals who serve on our Board should possess the requisite education and experience to make a significant contribution to the Board and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and should have the highest ethical standards, a strong sense of professionalism and dedication to serving the interests of our stockholders. The following are qualifications, experience and skills for Boardboard members which are important to our business:

 

··Leadership Experience – We seek directors who demonstrate extraordinary leadership qualities. Strong leaders bring vision, diverse perspectives, and broad business insight to the company.Company. They demonstrate practical management experience, skills for managing change, and knowledge of industries, geographies and risk management strategies relevant to the Company.Company;

··Finance Experience – We believe that all directors should possess an understanding of finance and related reporting processes. We also seek directors who qualify as “audit committee financial experts” as defined in rules of the SEC for service on the Audit Committee.Committee; and

··Industry Experience – We seek directors who have relevant industry experience including: existing and new technologies, new or expanding businesses and a deep understanding of the Company’s business environments.

 

The following table and biographical summaries set forth below contain certain information including principal occupation, business experience, other directorships and director qualifications concerning the members of our Board of Directors and our executive officerofficers as of MayDecember 31, 2020.2022, including principal occupation, business experience, other directorships, and director qualifications. There is no blood or other familial relationship between or among our directors or executive officer.officers.

 

NAMEAGEPOSITION and TERM
Carlton M. Johnson, Jr.60

Interim Chief Executive Officer (since April 1, 2019) and Interim Chief Financial Officer (since October 3, 2019)

Director (since August 2001)

Gloria H. Felcyn73Director (since October 2002)

 

CARLTON M. JOHNSON, JR.

Carlton Johnson became our Interim

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Steven King. Mr. King was nominated to serve as a director on August 21, 2020 and was appointed President and Chief Executive Officer on April 1, 2019August 31, 2020. Mr. King has served as President and appointed Interim Chief FinancialExecutive Officer since October 3, 2019,of Peregrine Pharmaceuticals, Inc. (now known as Avid Bioservices, Inc.) (Nasdaq: CDMO) and its wholly owned biomanufacturing subsidiary Avid Bioservices, Inc., for over 15 years, during which time the company advanced its lead compound through Phase III clinical development, while growing revenues to over $55 million. Prior to joining Peregrine, Mr. King was employed at Vascular Targeting Technologies, Inc., which was acquired by Peregrine in 1997. Mr. King served in a variety of executive roles at Peregrine and Avid Bioservices, Inc., including Chief Executive Officer and board member of Peregrine (2003 to 2017), and President and board member of Avid Bioservices (2002-2017). Mr. King also serves as a member of the board of directors of Oncotelic Therapeutics Inc.

The Board concluded that Mr. King should serve as a director because of his extensive scientific understanding of technologies in development and expertise in developing and manufacturing biotechnology products, combined with the perspective and experience he brings from having served on the boards of public companies.

Robert A. Baffi, Ph.D. Dr. Baffi was nominated to serve as a director on June 10, 2021 and brings more than 35 years of biologics manufacturing experience. He has contributed to more than 25 regulatory submissions for product approvals in the United States, Europe and Japan, along with more than 50 regulatory submissions for investigational new drug testing. Dr. Baffi joined BioMarin Pharmaceutical Inc. in May 2000 and last served as President of Global Manufacturing & Technical Operations at BioMarin Pharmaceutical Inc., where he spent 20 years in various capacities overseeing the manufacturing, process development, quality, analytical chemistry, logistics and engineering departments. Prior to BioMarin, Dr. Baffi worked for Genentech, Cooper BioMedical and Becton Dickinson Research Center. He currently serves on the board for the National Institute for Bioprocessing Research & Training (“NIBRT”) and Neurogene Inc. Dr. Baffi received a Ph.D., M. Phil and a B.S. in biochemistry from the City University of New York and an M.B.A. from Regis University.

The Board concluded that Dr. Baffi should serve as a director because of his extensive drug development and commercialization experience with biotechnology products.

Gloria H. Felcyn, CPA (retired).  Ms. Felcyn has served as a director of the Company since 2001,October 2002 and is currently the Chairman of the ExecutiveAudit Committee of the Board. Since 1982, Ms. Felcyn has been the principal in her own certified public accounting firm, during which time she represented major individual and corporate clients in Silicon Valley including Helmut Falk Sr, a major shareholder and early developer of Patriot Scientific Corporation. Following Mr. Falk’s death, Ms. Felcyn represented his estate and family trust as Executrix and Trustee of the Falk Estate and The Falk Trust. Prior to establishing her firm, Ms. Felcyn worked for the national accounting firm of Hurdman and Cranston from 1969 through 1970 and Price Waterhouse & Co. in San Francisco and New York City from 1970 through 1976, during which period she represented major Fortune 500 companies. Subsequent to that, Ms. Felcyn worked in the field of international tax planning with a major real estate syndication company in Los Angeles until 1982 when she decided to start her own CPA practice in Northern California. A major portion of Ms. Felcyn’s CPA practice was “Forensic Accounting”, which involves valuation of business entities and investigation of assets. Ms. Felcyn has testified as a Tax Expert in Tax Court and District Court, on behalf of her personal clients in addition to testifying on behalf of Patriot Scientific Corporation in US District Court. Ms. Felcyn has published tax articles for “The Tax Advisor” and co-authored a book published in 1982, “International Tax Planning”. On June 4, 2020, Ms. Felcyn retired from her public accounting practice.

The Board of Directors.Directors concluded that Ms. Felcyn should serve as a director of the Company and as the chairperson of the Audit Committee in light of the extensive financial and accounting experience that she has obtained over her career.

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Robert Garnick, Ph.D. Dr. Garnick was nominated to serve as a director on August 21, 2020. Dr Garnick holds a Ph.D. in Natural Products / Organic Chemistry from Northeastern University in Boston. He was a Senior V.P. of Regulatory, Quality and Compliance at Genentech when he left in 2008. Dr. Garnick started at Genentech in 1984 and was directly responsible for the approval of a number of biotechnology products including such blockbusters as Rituxan®, Herceptin® and Avastin®. Dr. Garnick left Genentech in 2008 and founded Lone Mountain Biotechnology and Medical Devices Inc., a consulting company. Dr Garnick was co-founder of Bioanalytix in Boston and an early investor in Stemcentrx in San Francisco. Dr. Garnick has extensive drug and biologics development experience and was a frequent lecturer on biotechnology products and processes.

The Board concluded that Dr. Garnick should serve as a director because of his extensive drug development and commercialization experience with biotechnology products.

Carlton M. Johnson, Jr. Mr. Johnson has served as a director of the Company since 2001. From June 1996 through March 2013, Mr. Johnson served as in-house legal counsel for Roswell Capital Partners, LLC and related entities. Mr. Johnson has been admitted to the practice of law in Alabama since 1986, Florida since 1988 and Georgia since 1997. He has been a shareholder in the Pensacola, Florida AV- rated law firm of Smith, Sauer, DeMaria Johnson and was President-Elect of the 500 member Escambia-Santa Rosa Bar Association. He also served on the Florida Bar Young Lawyers Division Board of Governors. Mr. Johnson earned a degree in History/Political Science at Auburn University and a Juris Doctor at Samford University - Cumberland School of Law. Mr. Johnson served on the board of directors of Peregrine Pharmaceuticals, Inc (now known as Avid Bioservices, Inc., a publicly held biotechnology company) (Nasdaq: CDMO) from 1999 through November 2017. From May 2009 to March 2012, Mr. Johnson served on the board of directors of Cryoport, Inc., a publicly held company providing cost-efficient frozen shipping to biopharmaceutical and biotechnology industries. Mr. Johnson served as chairman of Cryoport’s compensation committee and as a member of its audit committee and nomination and governance committee. From November 2009 to December 2011, Mr. Johnson served on the board of directors of ECOtality, Inc., a leader in clean electric transportation and storage technologies. Mr. Johnson served on the audit committee and nominating committee of ECOtality.

 

The Board of Directors concluded that Mr. Johnson should serve as a director in light of the extensive public company finance and corporate governance experience that he has obtained through serving on the boards and audit committees of Peregrine Pharmaceuticals, Inc., Cryoport, Inc., and ECOtality, Inc.

 

Paul Lytle. Mr. Lytle was nominated to serve as a director on August 21, 2020, and was appointed Executive Vice President, Chief Financial Officer on August 31, 2020. Mr. Lytle has over 25 years of finance and accounting experience, including over 20 years of public company experience and CFO experience in the field of biotechnology and medical devices. Mr. Lytle served as Executive Vice President, Chief Financial Officer of Breathe Technologies, Inc. (“Breathe”), a private venture-backed medical device company with an approved portable ventilator, from September 2018 to December 2019. During this period, Mr. Lytle played a key role in preparing the company for a successful exit for investors and in September 2019, Breathe was acquired by Hillrom Holding, Inc. through a reverse merger. Prior to Breathe, Mr. Lytle served as Chief Financial Officer of Peregrine Pharmaceuticals, Inc. (now known as Avid Bioservices, Inc.) (Nasdaq: CDMO) for 18 years, during which time the company advanced multiple products in oncology and infectious diseases, while starting and expanding its biomanufacturing business to over $55 million in revenue. Prior to joining Peregrine, Mr. Lytle was employed by Deloitte.

The Board concluded that Mr. Lytle should serve as a director because of his extensive experience with public companies in the biotechnology field along with his experience with product development, corporate financing, mergers and acquisitions, and corporate governance.

Corporate Governance

Meetings and Committees of the Board

We have three (3) standing committees of the Board, consisting of the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee. Our committees operate under written charters adopted by the Board in November 2020, a copy of which is available on our website at www.mosaicie.com under the Corporate Governance section of our Investors page or by written request to the Company at Mosaic ImmunoEngineering, Inc., 9114 Adams Avenue, #202, Huntington Beach, California 92646, Attention: Corporate Secretary.

 

 

 

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GLORIA H. FELCYNAudit Committee

The three members of our audit committee are Ms. Gloria Felcyn, Dr. Robert Baffi, and Dr. Robert Garnick. Ms. Felcyn is the chair of our audit committee and was deemed our audit committee “financial expert”, as that term is defined under the SEC rules, and possesses financial sophistication, as defined under the rules of the Nasdaq Stock Market. Our audit committee oversees our corporate accounting and financial reporting process and assists our board of directors in monitoring our financial systems. Our audit committee will also:

·elect and hire the independent registered public accounting firm to audit our financial statements;
·help to ensure the independence and performance of the independent registered public accounting firm;
·approve audit and non-audit services and fees;
·review financial statements and discuss with management and the independent registered public accounting firm our annual audited and quarterly financial statements, the results of the independent audit and the quarterly reviews and the reports and certifications regarding internal controls over financial reporting and disclosure controls, as applicable;
·prepare the audit committee report that the SEC requires to be included in our annual report or proxy statement;
·review reports and communications from the independent registered public accounting firm;
·review the adequacy and effectiveness of our internal controls and disclosure controls and procedures;
·review our policies on risk assessment and risk management;
·review related party transactions; and
·establish and oversee procedures for the receipt, retention, and treatment of accounting related complaints and the confidential submission by our employees of concerns regarding questionable accounting or auditing matters.

Compensation Committee

The members of our compensation committee are Ms. Gloria Felcyn and Dr. Robert Garnick. Dr. Garnick is the chair of our compensation committee. Our compensation committee oversees our compensation policies, plans, and benefits programs. The compensation committee will also:

·oversee our overall compensation philosophy and compensation policies, plans, and benefit programs;
·review and approve compensation for our executive officers and directors; and
·administer our equity compensation plans.

Corporate Governance and Nominating Committee

The members of our corporate governance and nominating committee are Ms. Gloria Felcyn, Dr. Robert Baffi, and Dr. Robert Garnick. No chair has servedbeen appointed to our corporate governance and nominating committee. Our corporate governance and nominating committee oversees and assists our board of directors in reviewing and recommending nominees for election as directors. Specifically, the corporate governance and nominating committee will:

·identify, evaluate, and make recommendations to our board of directors regarding nominees for election to our board of directors and its committees;
·consider and make recommendations to our board of directors regarding the composition of our board of directors and its committees;
·review developments in corporate governance practices;
·evaluate the adequacy of our corporate governance practices and reporting; and
·evaluate the performance of our board of directors and of individual directors.

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Meetings of the Board

Our Board held frequent telephonic meetings with the executive officers and management. The Audit Committee held four (4) meetings during the year ended December 31, 2023 and, pre-approved all audit and audited related services and fees, reviewed all Company filings with the SEC, and was provided all required communications from our independent registered public accounting firm.

Director Independence

Our securities are not listed on a U.S. securities exchange and, therefore, are not subject to the corporate governance requirements of any such exchange, including those related to the independence of directors. Notwithstanding the foregoing, our Board has determined that Dr. Baffi, Ms. Felcyn, and Dr. Garnick, are “independent directors” within the meaning of Nasdaq Marketplace Rule 5605(a)(2). Under Nasdaq Marketplace Rule 5605(a)(2), a director will not be considered an “independent director” if, such director at any time during the past three years was an employee of the Company, since October 2002 and isor if a director (or a director’s family member) accepted compensation from the ChairmanCompany (other than compensation for board or board committee service) in excess of $120,000 during any twelve month period within the Audit Committeethree years preceding the determination of the Board of Directors. From 1982 through April 2018, Ms. Felcyn was principal in her own certified public accounting firm, during which time she represented Helmut Falk Sr. and nanoTronics, along with other major individual and corporate clients in Silicon Valley. Following Mr. Falk’s death, Ms. Felcyn represented his estate and family trustindependence. In addition, a director will not qualify as Executrix and Trustee of the Falk Estate and The Falk Trust.  Prior to establishing her firm, Ms. Felcyn worked for the national accounting firm of Hurdman and Cranston from 1969 through 1970 and Price Waterhouse & Co. in San Francisco and New York City from 1970 through 1976, during which period she represented major Fortune 500 companies. Subsequent to that, Ms. Felcyn workedan “independent director” if, in the fieldopinion of international tax planning with a major real estate syndication company in Los Angeles until 1982 when she decided to start her own practice in Northern California.  Ms. Felcyn retired from public accounting effective April 2018. A major portion of Ms. Felcyn’s past practice was “Forensic Accounting”, which involves valuation of business entities and investigation of assets. Ms. Felcyn has published tax articles for “The Tax Advisor” and co-authored a book published in 1982, “International Tax Planning”. Ms. Felcyn has a degree in Business Economics from Trinity University and is a retired member of the American Institute of CPAs. Ms. Felcyn remains a substantial shareholder in the Company and is currently serving as an unpaid director.  

Theour Board of Directors, concluded that Ms. Felcyn should serve asperson has a directorrelationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Certain Relationships

There are no family relationships between or among the Board or executive officers.

Annual Meeting Attendance

Our policy is to invite and encourage each member of our Board to be present at any annual meetings of stockholders. During the chairpersonyear ended December 31, 2023, there was no annual meeting of stockholders.

Director Compensation

We did not pay any compensation, make any equity awards or non-equity awards to or pay any other compensation to any of our non-employee directors during the Audit Committeeyear ended December 31, 2023. In addition, we reimburse all directors for travel and other necessary business expenses incurred in lightthe performance of the extensive financial and accounting experience that she has obtained over her career.their services for us.

 

Board Leadership Structure

 

Our bylaws provide thatIn accordance with our Amended and Restated Bylaws (“Bylaws”), our Chief Executive Officer serves as the Chairman of the Board. The Board shall preside over all meetingsdetermined that in the best interest of the BoardCompany, the most effective leadership structure at this time is not to separate the roles of Directors. Our bylaws also state that the Chairman of the Board shall serve as theand Chief Executive Officer unless determined otherwise bypursuant to the Bylaws. A combined structure will provide the Company with a single leader who represents the Company to our Board. Ourstockholders, regulators, business partners and other stakeholders. In addition, this structure will create efficiency in the preparation of the meeting agendas and related Board of Directors has not appointed a Chairman. During meetings of our Board of Directors, Mr. Johnson, who is our Interimmaterials as the Company’s Chief Executive Officer works directly with those individuals preparing the necessary Board materials and Interim Chief Financial Officer, acts as Chairmanis more connected to the overall daily operations of the Board. WeCompany. Agendas will also be prepared with the permitted input of the full Board allowing for any concerns or risks of any individual director to be discussed as deemed appropriate. The Board believes that the Company will benefit from this structure, and Mr. King’s continuation in the combined role of the Chairman and President and Chief Executive Officer is in the best interest of the stockholders.

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In addition, the Board does not currently have not appointed a lead independent director.

The Board has determined that its currentthis structure is in the best interestsmost effective leadership structure for our Company at this time based on its size. In addition, our Audit, Compensation and Corporate Governance and Nominating Committees, which oversee critical matters such as our accounting principles, financial reporting practices and system of the Companydisclosure controls and its stockholders. We believe that Ms. Felcyn’s independence and participation on the Audit Committeeinternal controls over financial reporting, our executive compensation program and the Compensation Committee maintains a levelselection and evaluation of our directors and director nominees, each consist entirely of independent oversight of management that is appropriate for the Company.directors.

 

Board Risk Oversight

 

OurThe Board overseesdoes not have a standing risk management committee, but rather administers this oversight function directly through the Board as a whole, as well as through committees of the Board. For example, the Audit Committee assists the Board in its risk oversight function by reviewing and maintainsdiscussing with management our accounting principles, financial reporting practices and system of disclosure controls and internal controls over financial reporting. The Corporate Governance and Nominating Committee will assist the Board in its risk oversight function by periodically reviewing and discussing with management important corporate governance principles and compliance processespractices and proceduresby considering risks related to promoteour director nominee evaluation process. The Compensation Committee assists the conductBoard in its risk oversight function by considering risks relating to the design of our executive compensation programs and arrangements. The full Board considers strategic risks and opportunities from the committees regarding risk oversight in their areas of responsibility, as necessary. We believe the Board leadership structure facilitates the division of risk management oversight responsibilities among the Board and its committees and enhances the Board’s efficiency in fulfilling its oversight function with respect to different areas of our business in accordance with applicable lawsrisks and regulationsour risk mitigation practices.

Code of Business Conduct and withEthics

We have adopted a code of business conduct and ethics for directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees, known as the highest standardsCode of responsibility, ethicsBusiness Conduct and integrity. As partEthics. The Code of its oversight responsibility,Business Conduct and Ethics is available on our Board is responsible forwebsite at www.mosaicie.com under the oversightCorporate Governance section of risks facingour Investors page. We will promptly disclose on our website (i) the Company and seeks to provide guidance with respectnature of any amendment to the management and mitigation of those risks. Our board also delegates specific areas of risk to the Audit Committee which is responsible for the oversight of risk policies and processes relatingpolicy that applies to our principal executive officer, principal financial statementsofficer, principal accounting officer or controller, or persons performing similar functions and financial reporting processes. The Audit Committee reviews and discusses with management(ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the independent auditors significant risks and exposuresdate of the waiver.

Director Legal Proceedings

During the past ten years, no director or executive officer has been involved in any legal proceedings that are material to the Company and steps management has takenan evaluation of their ability or plansintegrity to take to minimizebecome our director or manage such risks.executive officer.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish us with copies of all reports filed by them in compliance with Section 16(a).

 

18

Based solely on our review of the copies of such forms received by us, or written representations from reporting persons, we believe that our insiders complied with all applicable Section 16(a) filing requirements during fiscalthe year 2020.ended December 31, 2023.

 

Code of Ethics

 

We have adopted a Code

46

Communications with the Board of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our Code of Ethics is available on our website at www.ptsc.com under the link “Investors” and “Management Team”.Directors

 

Audit CommitteeStockholders who wish to communicate with the Board may do so by addressing their correspondence to Mosaic ImmunoEngineering, Inc., 9114 Adams Avenue, #202, Huntington Beach, California 92646, Attention: Board of Directors. The Corporate Secretary reviews and forwards correspondence to the appropriate director or group of directors for response.

 

We have an Audit Committee (the “Audit Committee”) established in accordance with Section 3(a)(58)(A) of the Exchange Act, currently comprised of: Gloria H. Felcyn (Committee Chair) and Carlton M. Johnson, Jr. Ms. Felcyn is independent as defined under the applicable rules of the SEC and NASDAQ Stock Market LLC (“NASDAQ”) listing standards. The Board of Directors has determined that Gloria H. Felcyn, who serves on the Audit Committee, is an “audit committee financial expert” as defined in applicable SEC rules. The Board of Directors has appointed Mr. Johnson to the Audit Committee, even though he is not independent, because it believes it is in the best interests of the Company to have two Directors on the Audit Committee at the current time due to the Company’s limited resources.

Director Legal Proceedings

During the past ten years, no director, executive officer or nominee for our Board of Directors has been involved in any legal proceedings that are material to an evaluation of their ability or integrity to become our director or executive officer.

ITEM 11.EXECUTIVE COMPENSATION

 

The following table summarizes the compensation of the named executive officers for the fiscal years ended MayDecember 31, 20202023 and 2019. For fiscal 2020 and 2019, the named executive officers are our Interim Chief Executive Officer and our Interim Chief Financial Officer.2022.

 

Summary Compensation Table

For Fiscal Years Ended May 31, 2020 and 2019

Name and Principal Position Year  Salary ($)  

 

Bonus ($)

  

 

Stock Awards ($)

  

All Other Compensation

($)

  

Total Compensation

($)

 
Steven King, President and Chief  2023  $250,000(1) $  $  $17,844(2) $267,844 
Executive Officer (“CEO”)  2022  $250,000(1) $  $  $16,322(2) $266,322 
                         
Paul Lytle, EVP, Chief Financial  2023  $250,000(1) $  $  $45,526(2) $295,526 
Officer (“CFO”)  2022  $250,000(1) $  $  $41,647(2) $291,647 

 

 

Name and Principal Position

 

 

 

Year

 

 

Salary ($)

  

 

Bonus ($)

  Option Awards ($)  

All Other Compensation

($)

  

Total Compensation

($)

 
Carlton M. Johnson, Jr., Interim CEO 2020 $122,400(1) $  $  $9,912(2) $132,312 
since April 1, 2019, Interim CFO since October 3, 2019 2019 $20,400(3) $  $  $102,000(4) $122,400 
                       
Clifford L. Flowers, Former CFO, 2020 $150,229(5) $  $  $330,640(6) $480,869 
(resigned effective September 30, 2019), and Former Interim CEO (effective March 31, 2019) 2019 $327,750(7) $  $  $  $327,750 

___________________

(1)RepresentsOf such amount, Mr. Johnson’s annual compensation for fiscal year 2020.King and Mr. Lytle have agreed to defer 85% of their base salary payable in cash until such a time that the Company is able to raise at least $4 million in funding.
(2)Represents the reimbursementcost of medical benefits paid directly to Mr. Johnson.
(3)Represents Mr. Johnson’s compensationon behalf of the named executive officer for 2019 as Interim CEO from April 1, 2019 to May 31, 2019.
(4)Represents director fees as a Company director in the amount of $72,000health, dental, and director fees from Phoenix Digital Solutions as a Managing Member in the amount of $30,000.
(5)Represents annual salary compensation through September 30, 2019, the effective date of Mr. Flower’s resignation.
(6)Includes severance costs of $327,750, in accordance with the terms of Mr. Flower’s Amended and Restated Employment Agreement as noted below under “Employment Contract”.
(7)Represents Mr. Flower’s annual compensation for fiscal year 2019.vision benefits.

 

Outstanding Equity Awards

The following table sets forth certain information regarding unexercised stock options and unvested stock awards held by our named executive officers as of December 31, 2023:

     Option Awards  Stock Awards 
Name 

Grant

Date

  

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

  

Number of

Securities

Underlying Unexercised

Options (#) Unexercisable(1)

  

Option

Exercise

Price ($)

  

Option

Expiration

Date

  Number of Shares or Units of Stock That Have Not Vested (#)  Market Value of Shares or Units of Stock That Have Not Vested ($)(3) 
Steven King  12/16/2020(1)              65,218   39,131 
   12/16/2020(2)              43,479   26,087 
Paul Lytle  12/16/2020(1)              42,392   25,435 
   12/16/2020(2)              37,772   22,663 

______________

(1)RSU award will vest 100% on the sooner of (i) August 31, 2026, provided the Company is listed on a national exchange such as the Nasdaq Stock Market prior to August 31, 2026 (ii) upon a merger or acquisition of the Company, provided the holder agrees to accept the underlying shares in writing, or (iii) upon the holders last date of employment, provided the holder agrees to accept the underlying shares in writing.
(2)RSU award will vest 100% on the sooner of (i) August 31, 2024, provided the Company is listed on a national exchange such as the Nasdaq Stock Market prior to August 31, 2024 (ii) upon a merger or acquisition of the Company, provided the holder agrees to accept the underlying shares in writing, or (iii) upon the holders last date of employment, provided the holder agrees to accept the underlying shares in writing.
(3)Market value is calculated based on the closing price of our common stock of $0.60 per share on December 31, 2023, times the number of shares subject to the RSU award. Each RSU represents the contingent right to receive, upon vesting, one share of our common stock.

 

 

 

 1947 

 

 

Outstanding Equity Awards

As of May 31, 2020, there are no outstanding equity awards.

Option Exercises and Stock Vested

During fiscal year 2020, no stock options were exercised and there was no vesting of stock awards.

Employment Contract

In connection with Cliff Flowers’ appointment as the Chief Financial Officer of the Company, and commencing on September 17, 2007, we entered into an employment agreement with Mr. Flowers for an initial 120-day term if not terminated pursuant to the agreement, with an extension period of one year and on a continuing basis thereafter. On December 30, 2016, we entered into an amended and restated employment agreement (“Amended and Restated Employment Agreement”) with Mr. Flowers. Pursuant to the Amended and Restated Employment Agreement dated December 30, 2016, if Mr. Flowers was terminated without cause or resigns with good reason any time after two years of continuous employment, he was entitled to receive an amount equal to 1.25 times his annual base salary. Mr. Flowers was also entitled to certain payments upon a change of control of the Company if the surviving corporation did not retain him. All such payments were conditional upon the execution of a general release. On October 1, 2019, Mr. Flowers and the Company signed a Separation Agreement and General Release of all Claims (“Separation Agreement”). Pursuant to the Separation Agreement, Mr. Flowers resigned on September 30, 2019 and agreed to severance compensation of $327,750, in lieu if any amounts owed under his Amended and Restated Employment Agreement, payable in seven equal monthly installments commencing October 30, 2019. As of May 31, 2020, all amounts have been paid to Mr. Flowers.

Director Compensation

No director compensation was paid or accrued during fiscal year 2020. In addition, directors did not receive any equity compensation or equity awards during fiscal year 2020.  

Director Outstanding Equity Awards

As of May 31, 2020, there are no outstanding equity awards to directors.

Other

We reimburse all directors for travel and other necessary business expenses incurred in the performance of their services for us. 

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Share Ownership

 

The following table sets forth information, as of August 24, 2020,March 29, 2024, regarding the stockbeneficial ownership of our common stock and Series B Preferred by:

·Each person known by us to be a beneficial owner of more than five percent (5%) of our outstanding common stock;
·each person known by us to be a beneficial owner of more than five percent (5%) of our Series B Preferred Stock;
·each of our directors;
·each of our named executive officers; and
·all current directors and named executive officers as a group.

The amounts and percentage of our officerscommon stock and directors,Series B Preferred beneficially owned are reported on the basis of all our officersregulations of the Securities and directors asExchange Commission (“SEC”) governing the determination of beneficial ownership of securities. Under the rules of the SEC, a group, andperson is deemed to be a “beneficial owner” of eacha security if that person knownhas or shares “voting power,” which includes the power to usvote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of 5%any securities of which that person has a right to acquire beneficial ownership within 60 days of March 29, 2024, including, but not limited to, any right to acquire the security upon vesting of a restricted stock units (“RSUs”) or morethrough the exercise of our Common Stock. The numberany option or warrant or through the conversion of sharesa security. Any securities not outstanding that are subject to outstanding RSUs, options, warrants or other convertible securities shall be deemed to be outstanding for the purpose of Common Stockcomputing the percentage of outstanding as of August 24, 2020, was 401,392,948. Except as otherwise noted, each person listed below is the sole beneficial ownersecurities of the shares and has sole investment and voting power over such shares. Each individual’s address is 2038 Corte Del Nogal, Suite 141, Carlsbad, California 92011.

Name

Amount & Nature of

Beneficial Ownership

Percent of Class
Gloria H. Felcyn951,690*
Carlton M. Johnson, Jr.525,000*
All directors & officers as a group (2 persons)1,476,690*

* Less than 1%class owned by that person, but shall not be deemed to be outstanding for the purpose of computing the percentage of the class owned by any other person.

 

 

 

 2048 

 

 

Unless otherwise indicated, each person named below holds sole investment and voting power, other than the powers that may be shared with the person’s spouse under applicable law. Unless otherwise noted below, each individual’s address is 9114 Adams Avenue, #202, Huntington Beach, California 92646.

Title of ClassName of Beneficial OwnerAmount and Nature of Ownership (1)

Percent of Class

(1)

Common Stock, $0.00001 par value:  
 Nicole Steinmetz, Ph.D. (2)2,223,81030.66%
 Steven King (3)1,664,62722.91%
 Paul Lytle1,641,25222.66%
 Case Western Reserve University (4)802,7869.98%
 Steven Fiering, Ph.D.570,8707.88%
 Robert Garnick, Ph.D. (5)538,3997.25%
 Robert A. Baffi, Ph.D. (5)181,6052.45%
 Gloria H. Felcyn (6)61,915*
 Carlton M. Johnson, Jr.1,050*
    
 All officers and directors as a group4,088,84844.8%
 (six individuals in total)  
    
Series B Preferred, $0.00001 par value:  
 

Case Western Reserve University

10900 Euclid Avenue

Adelbert Hall, Suite 4

Cleveland, OH 44106-7014

70,000100.0%

 _____________

* Represents less than 1%

(1)Applicable percentage ownership of common stock computed on the basis of 7,242,137 shares of common stock and 70,000 shares of Series B Preferred outstanding at March 29, 2024.
(2)Includes 570,870 shares of common stock held by spouse and 11,688 shares of common stock to be issued upon the conversion of unsecured convertibles notes and accrued interest thereon.
(3)Includes 23,375 shares of common stock to be issued upon the conversion of unsecured convertibles notes and accrued interest thereon.
(4)Represents the conversion of 70,000 shares of our Series B Preferred, whereby each share of the Series B Preferred shall initially convert into 11.46837 shares of common stock of the Company.
(5)Includes 181,605 shares of common stock to be issued upon the conversion of unsecured convertibles notes and accrued interest thereon.
(6)Includes 60,011 shares of common stock to be issued upon the conversion of unsecured convertibles notes and accrued interest thereon.

49

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions With Directors, Executive Officers and Principal Stockholders

 

Our Audit Committee Charter provides that the Audit Committee of the Board of Directors will review and approve all related party transactions involving directors or executive officers and will review and monitor conflicts of interest situations involving such individuals where appropriate, and approve or prohibit any involvement of such persons in matters that may involve a conflict of interest or taking of a corporate opportunity. There were no transactions, or series of transactions during the fiscal yearsyear ended MayDecember 31, 2020 or 2019,2023, nor are there any currently proposed transactions, or series of transactions, to which we are a party, in which the amount exceeds $120,000, and in which to our knowledge any director, executive officer, nominee, five percent or greater stockholder, or any member of the immediate family of any of the foregoing persons, has or will have any direct or indirect material interest otherinterest.

Notwithstanding the foregoing, during April 2021, we entered into consulting agreements (retroactive to September 1, 2020) with Nicole Steinmetz, Ph.D., acting Chief Scientific Officer, Jonathan Pokorski, Ph.D. (Dr. Steinmetz’s spouse), and Steve Fiering, Ph.D., each a co-founder of Private Mosaic and greater than 5% shareholder of the Company (“Related Parties”), for their scientific contributions towards advancing the technology platforms. During the year ended December 31, 2023, we incurred related party consulting expenses for Dr. Steinmetz, Dr. Pokorski, and Dr. Fiering in the aggregate amount of $20,000, $10,000 and $500, respectively, included in research and development expenses in the accompanying consolidated financial statements. Pursuant to the consulting agreements, Dr. Steinmetz, Dr. Pokorski, and Dr. Fiering are initially paid 15% of their monthly amounts up and until the Company is able to raise at least $4 million in new funding. In exchange for the deferral of consulting payments, the Company agreed to grant each of the Related Parties RSU’s with a fair market value equal to 20% of their deferred cash compensation as described below.of the closing date of the financing (the “20% Deferral”). The number of RSU’s to be granted will be calculated based on the closing price of the Company’s common stock on the closing date of the financing and will vest one-year from the date of grant. There was no share-based compensation expense recorded for year ended December 31, 2023 pertaining to the 20% Deferral as the terms are unknown and are based on a future performance trigger.

 

Director Independence

 

Our BoardUnder Nasdaq Marketplace Rule 5605(a)(2), a director will not be considered an “independent director” if, such director at any time during the past three years was an employee of Directors has determined that Gloria H. Felcyn qualifiesthe Company, or if a director (or a director’s family member) accepted compensation from the Company (other than compensation for board or board committee service) in excess of $120,000 during any twelve month period within the three years preceding the determination of independence. In addition, a director will not qualify as an “independent” as defined by director” if, in the listing standards of NASDAQ. Our other director, Carlton M. Johnson, Jr., is no longer independent because he is currently serving as the Company’s Interim Chief Executive Officer and Interim Chief Financial Officer.  Mr. Johnson, who is not independent, is a member of our Audit Committee and our Compensation Committeeopinion of our Board of Directors.Directors, that person has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board has determined that Dr. Baffi, Ms. Felcyn, Dr. Garnick, and Dr. Steinmetz are “independent directors” within the meaning of Nasdaq Marketplace Rule 5605(a)(2).

 

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Pursuant to the Policy on Engagement of Independent Auditor, the Audit Committee is directly responsible for the appointment, compensation and oversight of the independent auditor. The Audit Committee pre-approves all audit services and non-audit services to be provided by the independent auditor and has approved 100% of the audit, audit-related and tax fees listed below. The Audit Committee may delegate to one or more of its members the authority to grant the required approvals, provided that any exercise of such authority is presented at the next Audit Committee meeting for ratification.Registered Public Accounting Firm Fees

 

Each audit, non-audit and tax service that is approved by the Audit Committee will be reflected in a written engagement letter or in writing specifying the services to be performed and the cost of such services, which will be signed by either a member of the Audit Committee or by one of our officers authorized by the Audit Committee to sign on our behalf.behalf of the Audit Committee. The Audit Committee has approved all audit, audit-related and tax fees listed below.

50

 

The Audit Committee will not approve any prohibited non-audit service or any non-audit service that individually or infollowing table presents fees for professional services rendered by KMJ Corbin & Company LLP for the aggregate may impair, in the Audit Committee’s opinion, the independenceaudit of the independent auditor.Company’s consolidated financial statements for the years ended December 31, 2023 and 2022 and fees billed for other services rendered by KMJ Corbin & Company LLP for those periods.

  Year Ended December 31, 2023  Year Ended December 31, 2022 
Audit fees (1) $42,680  $44,150 
Audit-related fees (2)      
Tax fees (3)  4,500   8,500 
All other fees      
Total fees $47,180  $52,650 

 _____________

(1)Audit fees pertain to the aggregate fees by our principal accountants for professional services rendered for the audit of our annual consolidated financial statements on Form 10-K, and reviews of quarterly consolidated financial statements included in our reports on Form 10-Q, and audit services provided in connection with other statutory or regulatory filings, such as registration statements.
(2)This category of services would include, among others: employee benefit plan audits, due diligence related to mergers and acquisitions, accounting consultations and audits in connection with acquisitions, internal control reviews, attest services related to financial reporting that are not required by statute or regulation and consultation concerning financial accounting and reporting standards.
(3)This category consists of fees for professional services rendered for tax compliance and tax advice.

 

In addition, KMJ Corbin & Company LLP, our independent auditor, may not provide any services to our officers or Audit Committee members, including financial counseling or tax services.

 

Audit Fees

 

During the fiscal years ended May 31, 2020 and 2019, the aggregate fees billed by our principal accountants for professional services rendered for the audit of our annual consolidated financial statements, and reviews of quarterly consolidated financial statements included in our reports on Form 10-Q, and audit services provided in connection with other statutory or regulatory filings were $63,800 and $62,700, respectively.

 

Audit-Related Fees

 

None.

Tax Fees

During the fiscal years ended May 31, 2020 and 2019, the aggregate fees billed by our principal accountants for tax compliance, tax advice and tax planning rendered on our behalf were $9,537 and $9,295, respectively, which are related to the preparation of federal and state income tax returns.

All Other Fees

Our principal accountants billed no additional fees for the fiscal years ended May 31, 2020 and 2019, except as disclosed above.

 

 

 

 2151 

 

 

PART IV

 

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)    The following documents are filed as a part of this report:Report on Form 10-K:

 

 1.Financial Statements. The following consolidated financial statements and Report of Independent Registered Public Accounting Firm are included starting on page F-1 of this Report:

 

Patriot Scientific Corporation

Report of KMJ Corbin & Company LLP, Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of May 31, 2020 and 2019

Consolidated Statements of Operations for the Years Ended May 31, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, 2020 and 2019

Consolidated Statements of Cash Flows for the Years Ended May 31, 2020 and 2019

Notes to Consolidated Financial Statements

Phoenix Digital Solutions, LLC

Report of KMJ Corbin & Company LLP, Independent Registered Public Accounting Firm

Balance Sheets as of May 31, 2020 and 2019

Statements of Operations for the Years Ended May 31, 2020 and 2019

Statements of Members’ Equity for the Years Ended May 31, 2020 and 2019

Statements of Cash Flows for the Years Ended May 31, 2020 and 2019

Notes to Financial Statements

-Report of KMJ Corbin & Company LLP, Independent Registered Public Accounting Firm (KMJ Corbin & Company LLP PCAOB ID#: 170)
-Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022
-Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022
-Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2023 and 2022
-Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022
-Notes to Consolidated Financial Statements

  

 2.Financial Statement Schedules. All financial statement schedules have been omitted since the information is either not applicable or required or is included in the consolidated financial statements or notes thereof.

 

 3.Exhibits. Those exhibits marked with a (*) refer to exhibits filed herewith. The other exhibits are incorporated herein by reference, as indicated in the following list. Those exhibits marked with a (†) refer to management contracts or compensatory plans or arrangements.

 

22

Exhibit No.Number

DocumentDescription
  
2.1

Agreement and Plan of Merger dated August 4, 2008, among the Company, PTSC Acquisition 1 Corp, Crossflo Systems, Inc. and the Crossflo principal officers incorporated (incorporated by reference to Exhibit 99.1 to Form 8-K filed August 11, 2008 (Commission file No. 000-22182)

2008)
3.1 

3.1

Original ArticlesAmended and Restated Certificate of incorporationIncorporation of the Company’s predecessor, Patriot Financial Corporation, incorporatedMosaic ImmunoEngineering, Inc. (incorporated by reference to Exhibit 3.1 to registration statement on Form S-18, (Commission file No. 33-23143-FW)

3.2

Articles of Amendment of Patriot Financial Corporation, as8-K filed with the Colorado SecretarySEC on December 1, 2020).

3.2Amended and Restated Bylaws of State on July 21, 1988, incorporatedMosaic ImmunoEngineering, Inc. (incorporated by reference to Exhibit 3.2 to registration statement on Form S-18, (Commission file No. 33-23143-FW)

3.3

Certificate of Incorporation of the Company, as8-K filed with the Delaware SecretarySEC on December 1, 2020).

3.3.1Certificate of State on March 24, 1992, incorporatedDesignation of Series A Convertible Voting Preferred Stock (“Series A Preferred”) (incorporated by reference to Exhibit 3.33.3.9 to Form 8-K dated May 12, 1992 (Commission file No. 33-23143-FW)

filed on August 25, 2020).
3.3.2 

3.3.1

Certificate of Amendment to the CertificateDesignation of Incorporation of the Company, as filed with the Delaware Secretary of State on April 18, 1995, incorporatedSeries B Convertible Voting Preferred Stock (“Series B Preferred”) (incorporated by reference to Exhibit 3.3.13.3.10 to Form 10-KSB for the fiscal year ended May 31, 1995 (Commission file No. 000-22182)

8-K filed on August 25, 2020).
3.3.3 

3.3.2

CertificateInvestor Rights Agreement dated August 19, 2020, among Company and holders of Amendment to the Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on June 24, 1997, incorporatedSeries A and Series B Preferred Stock (incorporated by reference to Exhibit 3.3.23.3.11 to Form 10-KSB for the fiscal year ended May 31, 1997,8-K filed July 18, 1997 (Commission file No. 000-22182)

on August 25, 2020).
3.3.4 

3.3.3

CertificateVoting Agreement dated August 19, 2020, among Company and holders of Amendment to the Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on April 28, 2000, incorporatedSeries A and Series B Preferred Stock (incorporated by reference to Exhibit 3.3.33.3.12 to Registration StatementForm 8-K filed on Form S-3 filed May 5, 2000 (Commission file No. 333-36418)

August 25, 2020).
4.1 

3.3.4

Specimen of Common Stock Certificate of Amendment to the Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on May 6, 2002, incorporatedMosaic ImmunoEngineering, Inc. (incorporated by reference to Exhibit 3.3.44.1 to Form 10-Q for the quarterly period ended February 28, 2009, filed April 9, 2009 (Commission file No. 000-22182)

3.3.5

Certificate of Amendment to the Certificate of Incorporation of the Company, as8-K filed with the Delaware SecretarySEC on December 1, 2020)

4.2+2020 Omnibus Incentive Plan of StateMosaic ImmunoEngineering, Inc. (incorporated by reference to Appendix C to our Information Statement on October 16, 2003, incorporatedSchedule 14C filed with the SEC on November 2, 2020).
10.1Stock Purchase Agreement dated August 19, 2020 among Patriot Scientific Corporation (now known as Mosaic ImmunoEngineering, Inc.), PTSC Sub One Inc., private Mosaic ImmunoEngineering, Inc., certain stockholders of private Mosaic ImmunoEngineering, Inc. set forth therein, and Steven King (incorporated by reference to Exhibit 3.3.510.13 to Registration StatementForm 8-K filed on Form SB-2 filed May 21, 2004 (Commission file No. 333-115752)

August 25, 2020).
10.2 

3.3.6

Certificate of Amendment to the Certificate of Incorporation of theMaterials Transfer, Evaluation and Exclusion Option Agreement dated July 1, 2020 between Company as filed with the Delaware Secretary of State on April 29, 2005, incorporatedand Case Western Reserve University (incorporated by reference to Exhibit 3.3.610.14 to Form 10-Q for the quarterly period ended February 28, 2009, filed April 9, 2009 (Commission file No. 000-22182)

3.3.7

Certificate of Amendment to the Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on November 14, 2005, incorporated by reference to Exhibit 3.3.7 to Form 10-Q for the quarterly period ended February 28, 2009, filed April 9, 2009 (Commission file No. 000-22182)

October 15, 2020).

 

 

 

 2352 

 

3.3.8

10.3+

Certificate of Amendment toOffer Letter, dated November 13, 2020, by and between the Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on March 18, 2009, incorporatedRegistrant and Mr. Steven King (incorporated by reference to Exhibit 3.3.810.3 to Form 10-K for the fiscal year ended May 31, 2009,10-Q filed August 14, 2009 (Commission file No. 000-22182)

on December 29, 2020)
10.4+ 
3.4

ArticlesOffer Letter, dated November 13, 2020, by and Certificate of Merger of Patriot Financial Corporation intobetween the Company dated May 1, 1992, with AgreementRegistrant and Plan of Merger attached thereto as Exhibit A, incorporatedMr. Paul Lytle (incorporated by reference to Exhibit 3.410. 4 to Form 8-K dated May 12, 1992 (Commission file No. 33-23143-FW)

10-Q filed on December 29, 2020)
10.5 
3.5

CertificateCode of Merger issued by the Delaware Secretary of StateBusiness Conduct and Ethics, as adopted on May 8, 1992, incorporatedNovember 3, 2020 (incorporated by reference to Exhibit 3.510.5 to Form 8-K dated May 12, 1992 (Commission file No. 33-23143-FW)

10-KT filed on March 2, 2021)
10.6+ 
3.6

CertificateForm of Merger issued byIncentive Stock Option Award Agreement under the Colorado Secretary of State on May 12, 1992, incorporated2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 3.610.6 to Form 8-K dated May 12, 1992 (Commission file No. 33-23143-FW)

10-KT filed on March 2, 2021)
10.7+ 
3.7

BylawsForm of Non-Qualified Stock Option Award Agreement under the Company, incorporated2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 3.710.7 to Form 8-K dated May 12, 1992 (Commission file No. 33-23143-FW)

10-KT filed on March 2, 2021)
10.8+ 
3.7.1

Amendment to bylawsForm of Restricted Stock Award Agreement under the Company, incorporated2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 3.7.110.8 to our Current ReportForm 10-KT filed on Form 8-K dated November 4, 2010 (Commission file No. 000-22182)

March 2, 2021)
10.9+ 
4.1

Specimen common stock certificate, incorporatedForm of Restricted Stock Unit Award Agreement under the 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 4.110.9 to Form 8-K dated May 12, 1992 (Commission file No. 33-23143-FW)

10-KT filed on March 2, 2021)
10.10+ 
4.2†

2006Form of Stock OptionAppreciation Rights Award Agreement under the 2020 Omnibus Incentive Plan of the Company as amended and restated, incorporated by reference to Appendix C to the Company Proxy Statement filed September 22, 2008 (Commission file No. 000-22182)

10.1

Master Agreement, dated as of June 7, 2005, by and among the Company, Technology Properties Limited Inc., a California corporation and Charles H. Moore, an individual, incorporated(incorporated by reference to Exhibit 10.4010.10 to Form 8-K10-KT filed June 15, 2005 (Commission file No. 000-22182)

on March 2, 2021)
10.11+ 
10.2

Commercialization Agreement dated as of June 7, 2005 by and among the JV LLC, Technology Properties Limited Inc., a California corporation, and the Company, incorporated by reference to Exhibit 10.41 to Form 8-K filed June 15, 2005 (Commission file No. 000-22182)

10.3

Limited Liability Company Operating Agreement of JV LLC, a Delaware limited liability company, dated as of June 7, 2005, incorporated by reference to Exhibit 10.42 to Form 8-K filed June 15, 2005 (Commission file No. 000-22182)

10.4†

Employment Agreement dated September 17, 2007 by and between the Company and Clifford L. Flowers, incorporated by reference to Exhibit 10.1 to Form 8-K filed September 19, 2007 (Commission file No. 000-22182)

10.5

Form of Indemnification Agreement by and between the Company and the Officers and Board of Directors incorporatedof the Company (incorporated by reference to Exhibit 10.610.11 to Form 10-K10-KT filed on March 2, 2021)

10.12+Consulting agreement signed April 29, 2021 by and between Registrant and Dr. Nicole Steinmetz (incorporated by reference to Exhibit 10.1 to Form 10-Q filed on May 5, 2021)
10.13Form of Convertible Note Purchase Agreement dated May 7, 2021 (incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on May 10, 2021)
10.14Form of Convertible Note Purchase Agreement dated February 18, 2022 (incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on February 22, 2022)
10.15Redemption Agreement by and between Mosaic ImmunoEngineering, Inc. and Holocom, Inc. dated July 6, 2022 (incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on July 12, 2022)
10.16**License Agreement by and between Mosaic ImmunoEngineering, Inc. and Case Western Reserve University dated May 4, 2022 (incorporated by reference to Exhibit 10.1 to Form 10-Q filed on August 29, 20114, 2022)
21.1*List of subsidiaries of the Company
23.1*Consent of KMJ Corbin & Company LLP
24*Power of Attorney (Commission file No. 000-22182)

(included on signature page of this Annual Report)
31.1*Certification of Steven King, President and Chief Executive Officer, pursuant to Rule 13a-15(e) or Rule 15d-15(e)
31.2*Certification of Paul Lytle, EVP, Chief Financial Officer, pursuant to Rule 13a-15(e) or Rule 15d-15(e)
32.1*Certification of Steven King, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350
32.2*Certification of Paul Lytle, EVP, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350
101.INS*Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File (formatted in iXBRL, and included in exhibit 101).
*Filed herewith.
**Portions of this exhibit have been redacted in compliance with Item 601(b)(10) of Regulation S-K
+Indicates a management contract or compensatory plan or arrangement.

ITEM 16.FORM 10-K SUMMARY

None.

 

 

 

 24

10.6

Licensing Program Services Agreement effective July 11, 2012 among Phoenix Digital Solutions, LLC, Alliacense Limited, LLC, Technology Properties Limited, LLC and the Company, incorporated by reference to Exhibit 10.7 to Form 8-K filed July 17, 2012 (Commission file No. 000-22182) (Confidential treatment has been requested with respect to portions of this agreement.)

10.7

Agreement effective July 11, 2012 between Technology Properties Limited, LLC and the Company, incorporated by reference to Exhibit 10.8 to Form 8-K filed July 17, 2012 (Commission file No. 000-22182) (Confidential treatment has been requested with respect to portions of this agreement.)

10.8

Agreement effective July 17, 2012 among Phoenix Digital Solutions, LLC, Alliacense Limited, LLC, Technology Properties Limited, LLC and the Company, incorporated by reference to Exhibit 10.9 to Form 8-K filed July 17, 2012 (Commission file No. 000-22182) (Confidential treatment has been requested with respect to portions of this agreement.)

10.9

Agreement effective July 24, 2014 among Phoenix Digital Solutions, LLC and Alliacense Limited, LLC, incorporated by reference to Exhibit 10.10 to Form 8-K filed July 30, 2014 (Commission file No. 000-22182) (Confidential treatment has been requested with respect to portions of this agreement.)

10.10

Letter agreement dated October 10, 2014 between Phoenix Digital Solutions, LLC and Dominion Harbor Group, LLC, incorporated by reference to Exhibit 10.10 to Form 8-K filed October 16, 2014 (Commission file No. 000-22182) (Confidential treatment has been requested with respect to portions of this agreement.)

10.11

Agreement effective August 10, 2016 among Phoenix Digital Solutions, LLC, MMP Licensing LLC and Alliacense Limited, LLC, incorporated by reference to Exhibit 10.1 to Form 8-K filed August 16, 2016 (Commission file No. 000-22182) (Confidential treatment has been requested with respect to portions of this agreement.)

10.12†

Amended and Restated Employment Agreement dated December 30, 2016 by and between the Company and Clifford L. Flowers, incorporated by reference to Exhibit 10.1 to Form 8-K filed January 6, 2017 (Commission file No. 000-22182)

14.1

Code of Ethics for Senior Financial Officers incorporated by reference to Exhibit 14.1 to Form 10-K for the fiscal year ended May 31, 2003, filed August 29, 2003 (Commission file No. 000-22182)

21*

List of subsidiaries of the Company

31.1*

Certification of Carlton M. Johnson Jr., Interim CEO, pursuant to Rule 13a-15(e) or Rule 15d-15(e)

31.2*

Certification of Carlton  M. Johnson Jr., Interim CFO, pursuant to Rule 13a-15(e) or Rule 15d-15(e)

32.1*

Certification of Carlton M. Johnson Jr., Interim CEO and Interim CFO, pursuant to 18 U.S.C. Section 1350

99.1

Form of Incentive Stock Option Agreement to the Company’s 2006 Stock Option Plan incorporated by reference to Exhibit 99.10 on Form 10-K for the fiscal year ended May 31, 2009, filed August 14, 2009 (Commission file No. 000-22182)

99.2

Form of Non-Qualified Stock Option Agreement to the Company’s 2006 Stock Option Plan incorporated by reference to Exhibit 99.11 on Form 10-K for the fiscal year ended May 31, 2009, filed August 14, 2009 (Commission file No. 000-22182)

101.INSXBRL Instance Document
101.SCHXBRL Schema Document
101.CALXBRL Calculation Linkbase Document
101.DEFXBRL Definition Linkbase Document
101.LABXBRL Label Linkbase Document
101.PREXBRL Presentation Linkbase Document

2553 

 

 

SIGNATURES

 

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

 

DATED:  August 24, 2020

Dated:  April 15, 2024

PATRIOT SCIENTIFIC CORPORATION

MOSAIC IMMUNOENGINEERING, INC.

/s/ Steven King                                                   

Steven King. President and Chief Executive Officer, Director

(Principal Executive Officer)

POWER OF ATTORNEY

Know all persons by these presents, that each person whose signature appears below constitutes and appoints Steven King and Paul Lytle, and each of them, as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him/her and in his/her name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report, 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, and each of them, 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 to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his/her substitute or substituted, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

SignatureTitleDate

/s/ Steven King

President and Chief Executive Officer, DirectorApril 15, 2024
Steven King(Principal Executive Officer)

/s/ Paul Lytle

EVP, Chief Financial Officer, Director

April 15, 2024

Paul Lytle(Principal Financial and Accounting Officer)

/s/ Robert Baffi Ph.D.

DirectorApril 15, 2024
Robert Baffi, Ph.D.  
  
  
 /S/ CARLTON M. JOHNSON JR.Director
Gloria Felcyn
 Carlton M. Johnson Jr.

/s/ Robert Garnick, Ph.D.

DirectorApril 15, 2024
Robert Garnick, Ph.D.
 Interim Chief Executive Officer and Interim Chief Financial Officer

/s/ Carlton Johnson

DirectorApril 15, 2024
Carlton Johnson

 (Duly Authorized and Principal Financial Officer)54

Mosaic ImmunoEngineering, Inc.

Index to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Page
  
Report of Independent Registered Public Accounting Firm (KMJ Corbin & Company LLP PCAOB ID#: 170)F-2

Financial Statements:

Consolidated Balance SheetsF-4
Consolidated Statements of OperationsF-5
Consolidated Statements of Stockholders’ DeficitF-6
Consolidated Statements of Cash FlowsF-7
Notes to Consolidated Financial StatementsF-8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 26

Patriot Scientific Corporation

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
Report of Independent Registered Public Accounting FirmF-2
Financial Statements:
Consolidated Balance SheetsF-3
Consolidated Statements of OperationsF-4
Consolidated Statements of Stockholders’ EquityF-5
Consolidated Statements of Cash FlowsF-6
Notes to Consolidated Financial StatementsF-7

F-1 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Stockholders and Board of Directors

Patriot Scientific CorporationMosaic ImmunoEngineering, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Patriot Scientific CorporationMosaic ImmunoEngineering, Inc. and subsidiaries (the "Company"“Company”) as of MayDecember 31, 20202023 and 2019,2022, the related consolidated statements of operations, stockholders’ equity,deficit, and cash flows for each of the two years thenin the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of MayDecember 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of two years in the years thenperiod ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has an accumulated deficit of $62.2 million at May 31, 2020, has incurred recurring losses and used significant amounts ofminimal cash in its operations,on hand and has no potential source of cash generation.not yet generated any revenue. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. 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.

 

We conducted our audits 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 consolidated 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 audits, 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

KMJ Corbin & Company LLP

We have served as the Company's auditor since 2005.

Irvine, California

August 24, 2020

 

 F-2 

 

 

Patriot Scientific CorporationCritical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Consolidated Balance Sheets

Accounting for Convertible Note Agreements

Critical Audit Matter Description

As described further in Notes 2 and 7 to the consolidated financial statements, the terms of the Company’s convertible note agreements (“Convertible Notes”) entered into with certain investors contain no maturity or repayment terms and are only convertible upon a future financing.

Auditing management’s accounting for the Convertible Notes and the appropriate classification was challenging due to the complex nature of the relevant accounting guidance, as well as the extent of management’s judgments in the application of the guidance. Management determined that it was appropriate to account for the Convertible Notes as share-settled debt as the instruments embody a conditional obligation to issue a variable number of the Company’s equity shares and at inception, the monetary value of the obligation is based solely on a fixed value known at inception.

How the Critical Audit Matter Was Addressed in the Audit

We obtained an understanding of management’s assessment of the accounting treatment of the Convertible Notes through inspection of the underlying agreements and evaluation of the Company’s analysis of the significant terms of the Convertible Notes, the related accounting guidance and their conclusions. Our audit procedures related to the accounting for the Convertible Notes included, among others, the following: we evaluated management’s conclusions regarding the accounting and classification of the Convertible Notes, assessed the reasonableness of management’s estimated life of the Convertible Notes, recalculated the accretion to the redemption value during the year ended December 31, 2023, performed a sensitivity analysis on management’s estimated life of the Convertible Notes, and assessed the completeness and accuracy of management’s disclosure of the Convertible Notes.

 

 

  May 31, 2020  May 31, 2019 
       
ASSETS        
Current assets:        
Cash and cash equivalents $571,921  $787,086 
Restricted cash and cash equivalents  177,247   198,843 
Investments in marketable securities     750,000 
Prepaid expenses and other current assets  10,162   28,003 
Refundable income taxes  26,078   26,078 
Total current assets  785,408   1,790,010 
         
Property and equipment, net  326   814 
Deferred income taxes     26,078 
Investment in affiliated company  32,884   107,861 
Total assets $818,618  $1,924,763 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable $2,444  $8,868 
Accrued expenses and other  180,151   219,344 
Total current liabilities  182,595   228,212 
Total liabilities  182,595   228,212 
         
Commitments and contingencies        
         
Stockholders’ equity:        
Preferred stock, $0.00001 par value; 5,000,000 shares authorized: none outstanding      
Common stock, $0.00001 par value: 600,000,000 shares authorized: 438,242,618 shares issued and 401,392,948 shares outstanding at May 31, 2020 and 2019  4,382   4,382 
Additional paid-in capital  77,444,062   77,444,062 
Accumulated deficit  (62,186,553)  (61,126,025)
Common stock held in treasury, at cost – 36,849,670 shares at May 31, 2020 and 2019  (14,625,868)  (14,625,868)
Total stockholders’ equity  636,023   1,696,551 
Total liabilities and stockholders’ equity $818,618  $1,924,763 

/s/ KMJ Corbin & Company LLP

 

See accompanying notes to consolidated financial statementsWe have served as the Company’s auditor since 2020.

Irvine, California

April 15, 2024

 

 

 

 

 F-3 

 

 

Patriot Scientific CorporationMosaic ImmunoEngineering, Inc.

Consolidated Statements of OperationsBalance Sheets

 

 

  Year Ended May 31, 
  2020  2019 
Operating expenses:        
Selling, general and administrative $996,019  $734,062 
Total operating expenses  996,019   734,062 
         
Other income (expense):        
Interest income  12,068   28,711 
Equity in loss of affiliated company  (74,977)  (91,512)
Total other expense, net  (62,909)  (62,801)
         
Loss before provision for income taxes  (1,058,928)  (796,863)
         
Provision for income taxes  1,600   1,600 
         
Net loss $(1,060,528) $(798,463)
         
Basic loss per common share $  $ 
         
Diluted loss per common share $  $ 
         
Weighted average number of common shares outstanding – basic  398,548,318   398,548,318 
Weighted average number of common shares outstanding – diluted  398,548,318   398,548,318 

         
  December 31, 2023  December 31, 2022 
       
ASSETS        
Current assets:        
Cash and cash equivalents $156,178  $220,645 
Prepaid expenses and other current assets  23,355   40,632 
Total current assets  179,533   261,277 
Total assets $179,533  $261,277 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
Current liabilities:        
Accounts payable $118,478  $133,464 
Derivative liability     46,700 
Accrued compensation  3,184,911   2,399,132 
Accrued consulting  787,903   753,570 
Accrued expenses and other  641,763   584,808 
Total current liabilities  4,733,055   3,917,674 
         
Convertible notes, net  1,317,536   1,228,361 
         
Total liabilities  6,050,591   5,146,035 
         
Commitments and contingencies      
         
Stockholders’ deficit:        
Preferred stock, $0.00001 par value; 5,000,000 shares authorized:        
Series A Convertible Voting Preferred Stock; 630,000 shares designated; no shares issued and outstanding      
Series B Convertible Voting Preferred Stock; 70,000 shares designated; 70,000 shares issued and outstanding  1   1 
Common stock, $0.00001 par value: 100,000,000 shares authorized: 7,242,137 shares issued and outstanding  72   72 
Additional paid-in capital  2,045,206   2,023,271 
Accumulated deficit  (7,916,337)  (6,908,102)
Total stockholders’ deficit  (5,871,058)  (4,884,758)
Total liabilities and stockholders’ deficit $179,533  $261,277 

 

See accompanying notes to consolidated financial statements.

 

 

 

 F-4 

 

 

Patriot Scientific CorporationMosaic ImmunoEngineering, Inc.

Consolidated Statements of Stockholders’ EquityOperations

 

  Common Stock  Additional
Paid-in
  Accumulated  Treasury  Stockholders’ 
  Shares  Amounts  Capital  Deficit  Stock  Equity 
Balance, May 31, 2018  401,392,948  $4,382  $77,444,062  $(60,327,562) $(14,625,868) $2,495,014 
Net loss           (798,463)     (798,463)
Balance, May 31, 2019  401,392,948   4,382   77,444,062   (61,126,025)  (14,625,868)  1,696,551 
Net loss           (1,060,528)     (1,060,528)
Balance, May 31, 2020  401,392,948  $4,382  $77,444,062  $(62,186,553) $(14,625,868) $636,023 

         
  For the Year Ended December 31, 2023  For the Year Ended December 31, 2022 
       
Operating expenses:        
Research and development $435,449  $1,048,457 
General and administrative  964,319   1,579,065 
Total operating expenses  1,399,768   2,627,522 
         
Loss from operations  (1,399,768)  (2,627,522)
         
Other income (expense):        
Gain on redemption of preferred stock of Holocom  433,000   343,000 
Interest income  3,408   33 
Change in valuation of derivative liability  46,700   57,600 
Non-cash interest expense on convertible notes  (73,333)  (69,738)
Accretion to redemption value on convertible notes  (15,842)  (81,843)
Total other income, net  393,933   249,052 
         
Loss before provision for income taxes  (1,005,835)  (2,378,470)
         
Provision for income taxes  2,400   2,400 
         
Net loss $(1,008,235) $(2,380,870)
         
Basic loss per common share $(0.14) $(0.33)
Diluted loss per common share $(0.14) $(0.33)
         
Weighted average number of common shares outstanding – basic and diluted  7,236,447   7,235,609 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 F-5 

 

 

Patriot Scientific CorporationMosaic ImmunoEngineering, Inc.

Consolidated Statements of Cash FlowsStockholders’ Deficit

 

  Year Ended May 31, 
  2020  2019 
Operating activities:        
Net loss $(1,060,528) $(798,463)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation  488   489 
Equity in loss of affiliated company  74,977   91,512 
Deferred income taxes  26,078   26,078 
Changes in operating assets and liabilities:        
Prepaid income tax     2,285 
Prepaid expenses and other current assets  17,841   (22,716)
Refundable income taxes     (26,078)
Accounts payable, accrued expenses and other  (45,617)  (33,873)
Net cash used in operating activities  (986,761)  (760,766)
         
Investing activities:        
Proceeds from sales of marketable securities  1,000,000    
Purchases of marketable securities  (250,000)  (750,000)
Crossflo acquisition liability     177,246 
Net cash provided by (used in) investing activities  750,000   (572,754)
         
Net decrease in cash, cash equivalents and restricted cash  (236,761)  (1,333,520)
Cash, cash equivalents, and restricted cash, beginning of year  985,929   2,319,449 
Cash, cash equivalents, and restricted cash, end of year $749,168  $985,929 
         
Reconciliation of cash, cash equivalents and restricted cash at end of year:        
Cash and cash equivalents $571,921  $787,086 
Restricted cash  177,247   198,843 
  $749,168  $985,929 
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid for income taxes $1,600  $1,600 

 

For the Year Ended December 31, 2023

                                     
  Series A
Convertible Voting Preferred Stock
  Series B
Convertible Voting Preferred Stock
  Common Stock  Additional Paid-in  

 

 

Accumulated

  

 

Total

Stockholders’

 
  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Deficit 
Balances, December 31, 2022    $   70,000  $1   7,242,137  $72  $2,023,271  $(6,908,102) $(4,884,758)
                                     
Share-based compensation                    21,935      21,935 
                                     
Net loss                       (1,008,235)  (1,008,235)
                                     
Balances, December 31, 2023    $   70,000  $1   7,242,137  $72  $2,045,206  $(7,916,337) $(5,871,058)

For the Year Ended December 31, 2022

  Series A
Convertible Voting Preferred Stock
  Series B
Convertible Voting Preferred Stock
  Common Stock  Additional Paid-in  

 

 

Accumulated

  

 

Total

Stockholders’

 
  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Deficit 
Balances, December 31, 2021    $   70,000  $1   7,241,137  $72  $1,728,148  $(4,527,232) $(2,799,011)
                                     
Issuance of common stock upon vesting of Restricted Stock Units              1,000             
                                     
Share-based compensation                    295,123      295,123 
                                     
Net loss                       (2,380,870)  (2,380,870)
                                     
Balances, December 31, 2022    $   70,000  $1   7,242,137  $72  $2,023,271  $(6,908,102) $(4,884,758)

See accompanying notes to consolidated financial statements.

 

 

 F-6 

 

 

Patriot Scientific CorporationMosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements of Cash Flows

 

1. Organization and Business

         
  

Year Ended

December 31, 2023

  

Year Ended

December 31, 2022

 
       
Operating activities:        
Net loss $(1,008,235) $(2,380,870)
Adjustments to reconcile net loss to net cash used in operating activities:        
Share-based compensation  21,935   295,123 
Gain on redemption of preferred stock of Holocom  (433,000)  (343,000)
Change in fair value of derivative liability  (46,700)  (57,600)
Non-cash interest on convertible notes  73,333   69,738 
Accretion to redemption value on convertible notes  15,842   81,843 
Changes in operating assets and liabilities:        
Prepaid expenses and other current assets  17,277   2,720 
Accounts payable  (14,986)  19,951 
Accrued compensation  785,779   1,007,835 
Accrued consulting  34,333   279,295 
Accrued expenses and other  56,955   334,836 
Net cash used in operating activities  (497,467)  (690,129)
         
Investing activities:        
Proceeds from redemption of preferred stock of Holocom  433,000   343,000 
Net cash provided by investing activities  433,000   343,000 
         
Financing activities:        
Proceeds from the issuance of convertible notes     341,632 
Net cash provided by financing activities     341,632 
         
Net change in cash and cash equivalents  (64,467)  (5,497)
         
Cash and cash equivalents, beginning of period  220,645   226,142 
         
Cash and cash equivalents, end of period $156,178  $220,645 
         
Supplemental disclosure of cash flow information:        
Cash paid for income taxes $2,400  $2,400 
Cash paid for interest $  $ 

 

Patriot Scientific Corporation (the “Company”, “Patriot”, “we”, “us”, or “our”), was organized under Delaware law on March 24, 1992 and is the successor by mergerSee accompanying notes to Patriot Financial Corporation, a Colorado corporation, incorporated on June 10, 1987.

In September 2008, we acquired Patriot Data Solutions Group, Inc. formerly known as Crossflo Systems, Inc. (“PDSG”) which engaged in data-sharing services and products primarily in the public safety and government sector. During April 2012, we sold substantially all of the assets of PDSG.

In June 2005, we entered into a joint venture agreement with Technology Properties Limited, Inc. (“TPL”) to form Phoenix Digital Solutions, LLC (“PDS”), a Delaware limited liability company organized on June 7, 2005. Through a commercialization agreement dated June 7, 2005, as amended in July 2012, PDS holds the rights to certain patents contributed by its two members, Patriot and TPL. Pursuant to the commercialization agreement, PDS would pursue the commercialization of our patented microprocessor technologies through broad and open licensing and by litigating against those who may be infringing on the members patents. License fees received by PDS would be distributed to its members, as defined in the commercialization agreement. While PDS has not generated significant license revenues since September 2013, on November 4, 2019, the Supreme Court of the United States denied our application to review a lower court’s decision that was adverse to our patented microprocessor technologies. As result of this denial to review the lower court’s decision, our patented microprocessor technologies are no longer enforceable, and we have no other options to appeal the lower court’s adverse decision. As a result, there are no future licensing opportunities or sources of revenue from PDS and we need to either pursue a new line of business, liquidate the Company in a dissolution under Delaware law, or seek protection under the provisions of the U.S. Bankruptcy Code.

On April 12, 2019, we entered into an agreement with Artius Bioconsulting LLC (“Artius”), to evaluate the potential of establishing a systems integration company that develops a blockchain-based technology platform that could be implemented throughout the drug development process. Pursuant to the agreement, during fiscal year 2019 and 2020, we paid Artius $58,000 and $83,597, respectively, for its consulting services to evaluate the potential new line of business. Based on the Company’s evaluation of multiple strategic alternatives, including blockchain-based technologies, the Company determined that the merger with Mosaic ImmunoEngineering, as discussed below, would provide the best opportunity for its shareholders moving forward.

On August 19, 2020, Patriot Scientific Corporation (referred to as “Parent” in the transaction), entered into a stock purchase agreement (the “Stock Purchase Agreement”) among Parent, PTSC Sub One Inc., a Delaware corporation (as “Buyer” and together with the Parent, the “Buyer Parties”), Mosaic ImmunoEngineering Inc., a Delaware corporation (the “Target”), certain stockholders of the Target set for therein (as “Sellers”), and Steven King (as the “Sellers’ Representative” and together with the Target and Sellers, the “Seller Parties”) pursuant to which, Buyer will buy from Sellers 630,000 shares of its Class A common stock (“Class A Stock”), par value $0.0001 per share, and 70,000 shares of its Class B common stock (“Class B Stock”), par value $0.0001 per share, together the Class A Stock and Class B Stock shall collectively be referred to as “Target Common Stock”, representing 100% of the issued and outstanding common stock of the Target as of August 19, 2020. Upon closing, in exchange for the Target Common Stock, the holders of the Class A Stock shall receive 630,000 shares of the Parent’s preferred stock to be designated Series A Convertible Preferred Stock (“Series A Preferred”) and holders of the Class B Stock shall receive 70,000 shares of the Parent’s preferred stock to be designated Series B Convertible Preferred Stock (“Series B Preferred”). Each share of the Series A Preferred; shall (a) convert into 5,097.053 shares of common stock of the Parent, (b) possess full voting rights, on an as-converted basis, as the common stock of the Parent, and (c) have no dividend rate. Each share of the Series B Preferred; shall (a) convert into 5,734.185 shares of common stock of the Parent, (b) possess full voting rights, on an as-converted basis, as the common stock of the Parent, (c) have no dividend rate, and (d) shall possess certain anti-dilution protections as defined in the Series B Certificate of Designations. On a fully diluted, as converted basis, the Sellers shall own 90% of the issued and outstanding common stock of the Parent (see Note 10).

consolidated financial statements.

 

 

 

 F-7 

 

 

ReclassificationsMosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

 

Certain reclassifications have been madeUnless the context otherwise requires, references to the prior period consolidated financial statements“Company,” “Mosaic,” “we,” “our,” or “us” in this Annual Report on Form 10-K (“Report”) refer to conformMosaic ImmunoEngineering, Inc. and its subsidiaries.

1.        Organization and Business

Mosaic ImmunoEngineering, Inc. (the “Company,” “Mosaic,” “we,” “us,” or “our”), formerly known as Patriot Scientific Corporation, is a corporation organized under Delaware law on March 24, 1992. We are a development-stage biotechnology company focused on advancing and eventually commercializing immunotherapies for the treatment of cancer. We have historically advanced an early-stage product candidate, MIE-101, that is based on a naturally occurring plant virus licensed from Case Western Reserve University (“CWRU”) (see Note 12). In addition, we are pursuing new product candidates and platforms to the classifications used in the current year. These reclassifications had no net impactexpand our pipeline based on consolidated net lossa deep understanding of immunotherapies and financial position.our license agreements with University of California San Diego.

The Company has two inactive wholly owned subsidiaries: Mosaic ImmunoEngineering Development Company, a corporation organized under Delaware law on March 30, 2020 and Patriot Data Solutions Group, Inc.

 

Liquidity and Management’s Plans

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. At MayDecember 31, 2020, the Company has an accumulated deficit of $62,186,553, and has incurred recurring losses and used significant amounts of cash in its operations. As of May 31, 2020,2023, the Company had cash and cash equivalents of $571,921$156,178 and working capital of $602,813. In addition, PDS has not yet generated significant license revenues since September 2013 and we do not expect any future license revenue from PDS.revenue. Therefore, our ability to continue our operations and new line of business is highly dependent on the amount of cash and cash equivalents on hand combined with our ability to raise additional capital to fund future operations. We anticipate, based on currently proposed plans and assumptions that our cash and cash equivalents on hand will not satisfy our operational and capital requirements through twelve months from the filing date of filingthis Annual Report on this Form 10-K.

 

There are a number of uncertainties associated with our ability to raise additional capital and we have no current arrangements with respect to any additional financing. In addition, the continuation of disruptions caused by COVID-19 or other variants or pandemics, broad-based inflation, and various economic indicators that the United States economy may be entering a recession in upcoming quarters may cause investors to slow down or delay their decision to deploy capital based on volatile market conditions which will adversely impact our ability to fund future operations. Consequently, there can be no assurance that any additional financing on commercially reasonable terms, or at all, will be available when needed. The inability to obtain additional capital will delay our ability to continue to conduct our business operations. Any additional equity financing may involve substantial dilution to our then existing stockholders. If we are unable to raise additional capital, we may either liquidate the Company in a dissolution under Delaware law, or seek protection under the provisions of the U.S. Bankruptcy Code. The above matters raise substantial doubt regarding our ability to continue as a going concern.

 

2.        Summary of Significant Accounting Policies

 

Basis of ConsolidationPresentation

 

The accompanying consolidated balance sheets at May 31, 2020financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and 2019include the accounts of Mosaic ImmunoEngineering, Inc. and consolidated statements of operations for the fiscal years ended May 31, 2020 and 2019 include our accounts and those of our wholly owned and inactive subsidiary PDSG which includes Crossflo Systems, Inc. (“Crossflo”).subsidiaries. All significant intercompany accounts and transactions among the consolidated entities have been eliminated.eliminated in the consolidated financial statements.

 

F-8

Mosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022 (continued)

Segment Reporting

The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. No revenue has been generated since inception, and all tangible assets are held in the United States.

Cash and Cash Equivalents

We consider all highly liquid investments acquired with a maturity of three months or less from the purchase date to be cash equivalents.

Investment in Affiliated Company

In February 2007, we invested an aggregate of $370,000 in Holocom, Inc. (“Holocom”), a California corporation that manufactures products that protect information transmitted over secure networks, in exchange for 2,100,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”), which represented an approximate 46% ownership interest in Holocom, on an as-converted basis. Prior to impairment, this investment was accounted for at cost since we did not have the ability to exercise significant influence over the operating and financial policies of Holocom. On July 6, 2022, we entered into a redemption agreement (the “Redemption Agreement”) with Holocom, pursuant to which we requested full redemption of our Series A Preferred Stock at a redemption price equal to $0.40 per share or $840,000 in aggregate. We recognized the initial and monthly redemption of shares of Series A Preferred Stock using a cash basis of accounting rather than an accrual method as we were unable to assert that collection of amounts due under the Redemption Agreement was probable, regardless of the terms of the Redemption Agreement (see Note 4).

Financial Instruments and Concentrations of Credit Risk

 

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, and investments in marketable securities.equivalents.

 

We invest our cash and cash equivalents primarily in money market funds and certificates of deposit.funds. Cash and cash equivalents are maintained with high quality financial institutions, the composition and maturities of which are regularly monitored by management. At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation. We perform ongoing evaluations of these financial institutions to limit our concentration of risk exposure.

 

F-8

Fair Value of Financial Instruments

 

Our financial instruments consist principally of cash and cash equivalents, investments in marketable securities, accounts payable, andderivative liability, accrued compensation, accrued consulting, accrued expenses and other.other, and convertible notes. The carrying value of these financial instruments, except for the derivative liability and convertible notes, approximates fair value because of the immediate or short-term maturity of the instruments. TheWe record the derivative liability at fair value of certain of our cash equivalents is determined based on quoted prices in active markets for identical assets or Level 1 inputs.(see Note 3). The fair value of our investments in certificates of deposit is determined based on quoted prices in non-active markets for identical assets or Level 2 inputs. We believe that the carrying values of all other financial instruments approximateconvertible notes are initially recorded at their current fair values due to their nature and respective durations.

Cash Equivalents, Restricted Cash, and Marketable Securities

We consider all highly liquid investments acquired with a maturity of three months or less from the purchase date to be cash equivalents.

Restricted cash and cash equivalents at May 31, 2020 is comprised of amounts previously held by a third party in conjunction with the Company’s acquisition of Crossflo. Restricted cash and cash equivalents at May 31, 2019 consist of a savings account held as collateral for our corporate credit card account plus amounts previously held by a third party in conjunction with the Company’s acquisition of Crossflo.

Investments in Marketable Securities

We determine the appropriate classification of our investments at the time of purchase and reevaluate such designation at each balance sheet date. Our investments in marketable securities have been classified and accounted for as held-to-maturity based on management’s investment intentions relating to these securities. Held-to-maturity marketable securities are stated at amortized cost which approximates fair value. We follow the authoritative guidance to assess whether our investments with unrealized loss positions are other than temporarily impaired. Realized gains and losses and declines in fair value judged to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net in the consolidated statements of operations.

Property, Equipment and Depreciation

Property and equipment are stated at cost and are depreciated using the straight-line methodaccreted to their redemption value over the estimated useful lives of the assets, ranging from three to five years.  Repairs and maintenance are charged to expense when incurred.

Investment in Affiliated Companies

We have a 50% ownership interest in PDS. We account for our investmentconversion period using the equityeffective interest method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and is recognized in the consolidated statements of operations in the caption “Equity in earnings (loss) of affiliated company” and also is adjusted by contributions to and distributions from PDS.

PDS, as an unconsolidated equity investee, recognizes revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of revenue is assured which is generally upon the receipt of the license proceeds. PDS may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones are met.

(see Note 7).

 

 

 

 F-9 

 

 

We review our investmentMosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022 (continued)

Use of Estimates

The preparation of consolidated financial statements in PDSaccordance with U.S. GAAP requires management to determine whether eventsmake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates in these consolidated financial statements include those related to the fair value of the anti-dilution issuance rights liability (derivative liability), the timing of conversion of the convertible notes, the provision or changesbenefit for income taxes and the corresponding valuation allowance on deferred tax assets. In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. On an ongoing basis, the Company evaluates its estimates, judgments, and methodologies. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Due to the inherent uncertainty involved in circumstances indicatemaking such accounting estimates and assumptions, the actual financial statement results could differ materially from such accounting estimates and assumptions.

Convertible Notes

The Company follows FASB’s Accounting Standards Codification (“ASC”) 480-10, “Distinguishing Liabilities from Equity” in its evaluation of the accounting for share-settled debt. ASC 480-10-25-14 requires liability accounting for certain financial instruments, including shares that embody an unconditional obligation to transfer a variable number of shares, provided that the carrying amount maymonetary value of the obligation is based solely or predominantly on one of the following three characteristics:

a)A fixed monetary amount known at inception;
b)Variations in something other than the fair value of the issuer’s equity shares; or
c)Variations in the fair value of the issuer’s equity shares, but the monetary value to the counterparty moves in the opposite direction as the value of the issuer’s shares

Moreover, equity classification was not be recoverable. The primary factors we consider in our determinationan appropriate classification for the convertible notes because the underlying terms of the convertible notes do not expose the investors to risks and rewards similar to those of an owner and, therefore, do not create a shareholder relationship. Pursuant to ASC 835-30, the convertible notes were initially recorded at their amortized cost and are accreted to their redemption value over the financial condition, operating performance and near term prospectsestimated conversion period using the effective interest method (see Note 7).

Assessment of PDS. If the decline in value is deemed to be other than temporary, we would recognize an impairment loss.Contingent Liabilities

 

We own 100%may be involved in various legal matters, disputes, and patent infringement claims which arise in the ordinary course of our business. We accrue for any estimated losses at the preferred stocktime when we can make a reliable estimate of Holocom (see Note 5). Priorsuch loss and it is probable that it has been incurred. By their very nature, contingencies are difficult to impairment, this investment was accounted for at cost sinceestimate. We continually evaluate information related to all contingencies to determine that the basis on which we do not have the ability to exercise significant influence over the operating and financial policies of Holocom.recorded our estimated exposure is appropriate.

 

Treasury StockPatent Costs

Patent fees and patent related costs in connection with filing and prosecuting patent applications are expensed as incurred and are classified as general and administrative expenses in the accompanying consolidated financial statements.

F-10

Mosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022 (continued)

Share-Based Compensation

 

We account for treasuryrestricted stock units (“RSUs”) and other share-based awards granted under our equity compensation plan in accordance with the cost methodauthoritative guidance for share-based compensation. The fair value of RSUs is measured at the grant date based on the closing market price of our common stock on the date of grant, and include treasury stockis recognized as expense on a straight-line basis over the period of vesting. Forfeitures are recognized as a componentreduction of stockholders’ equity.share-based compensation expense as they occur. At December 31, 2023 and 2022, there were no outstanding share-based awards with market or performance conditions.

 

In addition, we periodically grant RSUs to non-employee consultants, which we account for in accordance with the authoritative guidance for share-based compensation. The cost of non-employee services received in exchange for share-based awards are measured based on either the fair value of the consideration received, or the fair value of the share-based award issued, whichever is more reliably measurable.

Basic and Diluted Income (Loss) Per Common Share

Basic income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing our net income (loss) available to common stockholders by the sum of the weighted average number of common shares outstanding during the period, plus the potential dilutive effects of unvested RSUs and shares of common stock expected to be issued under our Convertible Notes and Series A and B Preferred during the period.

The potential dilutive effect of unvested RSUs outstanding during the period are calculated in accordance with the treasury stock method, but are excluded if their effect is anti-dilutive. The potential dilutive effect of our Convertible Notes and Series B Preferred Stock outstanding during the period is calculated using the if-converted method assuming the conversion of Convertible Notes and Series B Preferred as of the earliest period reported or at the date of issuance, if later, but are excluded if their effect is anti-dilutive.

The following table presents common share equivalents excluded from the calculation of diluted net income (loss) per share for the years ended December 31, 2023 and 2022, as the effect of their inclusion would have been anti-dilutive during periods of net loss: 

Schedule of anti dilutive shares        
  

Year Ended

December 31, 2023

  

Year Ended

December 31, 2022

 
       
Convertible Notes  1,054,508   899,579 
Series B Preferred  802,786   802,786 
Unvested RSUs  541,957   533,597 
Total  2,399,251   2,235,962 

Moreover, in connection with an acquisition of Crossflo by PTSC (see Note 10), 5,690 escrow shares of common stock were issued that are contingent upon certain representations and warranties made by Crossflo. We exclude these escrow shares from the basic income (loss) per share calculations and would have included the escrowed shares in the diluted income per share calculations if we reported net income.

F-11

Mosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022 (continued)

Income Taxes

 

We follow authoritative guidance in accounting for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement requirement for the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under this guidance, we may only recognize tax positions that meet a “more likely than not” threshold.

 

We follow authoritative guidance to evaluate whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. We assess our deferred tax assets annually under more likely than not scenarios in which they may be realized through future income.

 

WeIn addition, utilization of our net operating loss carryforwards may be subject to an annual limitation due to ownership change limitations that may have occurred as a result of the reverse merger that closed in August 2020, or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These ownership changes may limit the amount of the net operating loss carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a Company by certain stockholders. Moreover, since we will need to raise substantial additional funding to finance our operations, we may undergo further ownership changes in the future, which could further limit our ability to use net operating loss carryforwards. As a result, if we generate taxable income, our ability to use some of our net operating loss carryforwards to offset U.S. federal taxable income may be subject to limitations, which could result in increased future tax liability to us.

With the exception of refundable income taxes, we have determined that it was more likely than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable losses.losses in addition to the potential loss of deferred tax assets as a result of the reverse merger that closed in August 2020. As a result of this determination, we have recorded a full valuation allowance against our deferred tax assets.

 

Assessment of Contingent LiabilitiesRecently Issued Accounting Standards Not Yet Adopted

 

WeAs of December 31, 2023, there are no recently issued accounting standards not yet adopted that may be involved in various legal matters, disputes, and patent infringement claims which arise inhave a material effect on the ordinary course of our business. We accrue for any estimated losses at the time when we can make a reliable estimate of such loss and it is probable that it has been incurred. By their very nature, contingencies are difficult to estimate. We continually evaluate information related to all contingencies to determine that the basis on which we have recorded our estimated exposure is appropriate.Company’s consolidated financial statements other than as follows:

 

Income (Loss) Per Share

Basic income (loss) per share includes no dilutionIn August 2020, the FASB issued Accounting Standards Updates (“ASU”) 2020-06, Debt — Debt with Conversion and is computed by dividing income (loss) availableOther Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40). The guidance simplifies the accounting for certain financial instruments, eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments, and simplifies the derivative scope exception guidance pertaining to common stockholders byequity classification of contracts in an entity’s own equity. It also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity and amends the weighted average number of common shares outstanding for the period. Diluteddiluted earnings per share reflectguidance, including the potential dilutionrequirement to use the if-converted method for all convertible instruments. The guidance is effective for public business entities that meet the definition of securities that could share ina Securities and Exchange Commission filer, excluding entities eligible to be smaller reporting companies as defined by the earningsSecurities and Exchange Commission, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted the guidance as of an entity.

January 1, 2024 and is currently assessing the impact of the adoption of this standard on its consolidated financial statements.

 

 

 

 F-10F-12 

 

Mosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the fiscal year ended MayYears Ended December 31, 2019, potential common shares of 1,600,000 related to our outstanding options were not included in the calculation of diluted loss per share as we recorded a net loss. Had we reported net income for the year ended May 31, 2019, no shares of common stock would have been included in the calculation of diluted income per share using the treasury stock method. There were no outstanding options as of May 31, 2020.2023 and 2022 (continued)

 

In connection with our acquisition3.        Fair Value of Crossflo, which became a part of PDSG, we issued 2,844,630 escrow shares that are contingent upon certain representations and warranties made by Crossflo at the time of the merger agreement (see Note 9). We exclude these escrow shares from the basic income (loss) per share calculations and would have included the escrowed shares in the diluted income per share calculations if we reported net income.

Use of EstimatesFinancial Instruments

 

The preparationCompany’s financial instruments consist of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying footnotes. Actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, including, but not limited to, fair values of investments in marketable securities, the use, recoverability, and /or realizability of certain assets, including investments in affiliated companies, and deferred tax assets.

Intellectual Property Rights

PDS historically relied on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We have seven U.S., nine European, and three Japanese patents all of which expired between August 2009 and October 4, 2016. On November 4, 2019, the Supreme Court of the United States denied our application to review a lower court’s decision that was adverse to our patents. As result of this denial to review the lower court’s decision, our patented microprocessor technologies are no longer enforceable, and we have no other options to appeal the lower court’s adverse decision.

Recent Accounting Pronouncements

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The issue addressed in ASU 2016-15 that will affect the Company is classifying distributions received from equity method investments. The guidance provides an accounting policy election for classifying distributions received from equity method investments using either a cumulative earnings approach or a nature of distributions approach. The Company adopted this standard on June 1, 2018. The adoption did not have a material effect on our consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard on June 1, 2018 by using the retrospective transition method, which required the following disclosures and changes to the presentation of its consolidated financial statements: cash, cash equivalents and restricted cash reported on the consolidated statements of cash flows now includes restricted cash of $198,843 as of May 31, 2019,money market funds as well as previously reported cashan anti-dilution issuance rights liability pursuant to the License Option Agreement with Case Western Reserve University (“CWRU”) (see Note 6). The anti-dilution issuance rights met the definition of a derivative under ASC Topic 815, “Derivatives and cash equivalents.

F-11

In January 2016,Hedging”, and the FASB issued ASU 2016-01, “Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 requires equity investments to be measuredliability was carried at fair value with changes in fair value recognized in net income and simplifiesuntil the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. The accounting standard update also updates certain presentation and disclosure requirements. The Company adopted ASU 2016-01Capital Threshold (see Note 6) was met during June 2023, at which point the fiscal year ended May 31, 2019. Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements.anti-dilutions rights were extinguished.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, as amended ("ASC 842"), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASC 842 effective June 1, 2019 using a modified retrospective method and will not restate comparative periods. As permitted under the transition guidance, the Company will carry forward the assessment of whether its contracts contain or are leases, classification of its leases and remaining lease terms. Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which removes, modifies, and adds various disclosure requirements on fair value measurements in Topic 820. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The Company does not expect a significant impact from adopting this update on its consolidated financial statements.

3. Cash, Cash Equivalents, Restricted Cash and Marketable Securities

We follow authoritative guidance to account for our marketable securities as held-to-maturity. Under this authoritative guidance, we are required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We determine fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment or valuations by third partythird-party professionals. The three levels of inputs that we may use to measure fair value are:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

·F-12Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
·Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
·Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

 

The following tables detailset forth the fair value measurementsof the Company’s financial assets and liabilities by level within the fair value hierarchy of our cash, cash equivalentsat December 31, 2023 and investments in marketable securities:2022: 

     Fair Value Measurements at May 31, 2020 Using 
  Fair Value at
May 31,
2020
  Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
Cash and cash equivalents:                
Cash $571,921  $571,921  $  $ 
Restricted cash and cash equivalents  177,247   177,247       
Total $749,168  $749,168  $  $ 

     Fair Value Measurements at May 31, 2019 Using 
  Fair Value at
May 31,
2019
  Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
Cash and cash equivalents:                
Cash $49,149  $49,149  $  $ 
Money market funds  237,937   237,937       
Certificates of deposit  500,000      500,000    
Restricted cash and cash equivalents  198,843   198,843       
Investments in marketable securities:                
Certificates of deposit  750,000      750,000    
Total $1,735,929  $485,929  $1,250,000  $ 

We purchase certificates of deposit with varying maturity dates. The following table summarizes the purchase date maturities, gross unrealized gains or losses and fair value of the certificates of deposit as of May 31, 2019:

  May 31, 2019 
  Cost  Gross Unrealized
Gains/(Losses)
  Fair
Value
 
Maturity            
Due in three months or less $500,000  $  $500,000 
Due in greater than three months  750,000      750,000 
Total $1,250,000  $  $1,250,000 
Schedule of financial assets and liabilities            
     Fair Value Measurements at December 31, 2023 Using 
  Fair Value at
December 31,
2023
  Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
Assets:            
Cash and cash equivalents $156,178  $156,178  $  $ 
Total assets $156,178  $156,178  $  $ 

 

 

 

 

 F-13 

 

 

4. PropertyMosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and Equipment2022 (continued)

     Fair Value Measurements at December 31, 2022 Using 
  Fair Value at
December 31,
2022
  Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
Assets:                
Cash and cash equivalents $220,645  $220,645  $  $ 
Total assets $220,645  $220,645  $  $ 
                 
Liabilities:                
Anti-dilution issuance rights derivative liability $46,700  $  $  $46,700 
Total liabilities $46,700  $  $  $46,700 

Anti-Dilution Issuance Rights Derivative Liability

 

Property and equipment consisted of the following at May 31, 2020 and 2019:

  2020  2019 
Computer equipment and software $9,082  $9,082 
Furniture and fixtures  3,147   3,147 
   12,229   12,229 
Less: accumulated depreciation  (11,903)  (11,415)
Net property and equipment $326  $814 

Depreciation expense related to property and equipment was $488 and $489 for the fiscal years ended May 31, 2020 and 2019, respectively.

5. Investment in Affiliated Companies

Phoenix Digital Solutions, LLC

On June 7, 2005, we entered into a Master Agreement (the “Master Agreement”) with TPL, and Charles H. Moore, an individual co-inventor of the technology (“Moore”). Pursuant to the Master Agreement, we and TPL entered intoSeries B Preferred Certificate of Designation, the Limited Liability Company Operating Agreement of PDS (the “LLC Agreement”). PursuantSeries B Preferred included certain anti-dilution issuance rights, whereby the holder will continue to the Master Agreement, we caused certain of our respective interests in the Microprocessor Patentsmaintain equity ownership equal to be licensed to PDS, a joint venture limited liability company owned 50% by us and 50% by TPL, and PDS engaged TPL to commercialize the Microprocessor Patents pursuant to a Commercialization Agreement among PDS, TPL and us (the “Commercialization Agreement”). Under the Commercialization Agreement, PDS granted to TPL the exclusive right to grant licenses and sub-licenses10% of the Microprocessor Patentsfully diluted shares of common stock outstanding, calculated on an as converted basis, including all other convertible securities outstanding and to pursue claims against violatorsreserved for issuance (and excluding stock options issued and outstanding and reserved for issuance under a Board approved employee stock option plan reserving for issuance no more than ten percent (10%) of the Microprocessor Patents,outstanding common stock of the Company) until we raise the Capital Threshold under the License Agreement (see Note 6). As of June 2023, we received life-to-date aggregate proceeds in each case,excess of the Capital Threshold and therefore, we recorded no derivative liability as of December 31, 2023. As of December 31, 2022, the remaining Capital Threshold was $283,000.

To determine the estimated fair value of the anti-dilution issuance rights liability, the Company used a Monte Carlo simulation methodology, which models the future movement of stock prices based on behalfseveral key variables. At December 31, 2022, the estimated fair value of PDS, us, TPL and Moore, and TPL agreed to use reasonable best efforts to commercialize the Microprocessor Patents in accordanceanti-dilution issuance rights was $46,700. We initially recorded the fair value as a derivative liability with a mutually agreed business plan. Pursuantcorresponding charge to the Commercialization Agreement, PDS agreed to a reimbursement policy with regard to TPL’s expenses incurred in connection with the commercialization of the Microprocessor Patents. All proceeds generated by TPL in connection with the commercialization of the Microprocessor Patents were paid directly to PDS.

On March 20, 2013, TPL filed a petition under Chapter 11 of the United States Bankruptcy Code. On March 5, 2018, TPL’s Motion for Entry of Final Decree Closing Chapter 11 was granted. In the event we are required to provide funding to PDS that is not reciprocated by TPL, our ownership percentage in PDS will increaseresearch and development expense and we will have a controlling financial interestmarked-to-market at each reporting period, with changes in PDS,fair value recognized in which case, we will consolidate PDSother income (expense) in our consolidated financial statements. If we determine that it is appropriate to consolidate PDS, we would measure the assets, liabilities and noncontrolling interests of PDS at their fair values at the date that we have the controlling financial interest.

Based on our analysis of current authoritative accounting guidance with respect to our investment in PDS, we continue to account for our investment in PDS under the equity method of accounting, and accordingly have recorded our share of PDS’s net loss during the fiscal years ended May 31, 2020 and 2019 of $74,977 and $91,512, respectively, as a decrease in our investment. We have recorded our share of PDS’s net loss as “Equity in loss of affiliated company” in the accompanying consolidated statements of operations for the fiscal years ended May 31, 2020 and 2019.at each period-end while this derivative instrument was outstanding.

 

The primary inputs used in valuing the anti-dilution issuance rights liability at December 31, 2022 were as follows:

Schedule of assumptions used   
Fair value of common stock (per share) $0.99
Estimated additional shares of common stock  71,511
Expected volatility  130%
Expected term (years)  0.25
Risk-free interest rate  4.42%

 

 

 

 F-14 

 

 

PDS’s balance sheets at MayMosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 20202023 and 2019 and statements of operations for the years ended May 31, 2020 and 2019 are as follows:2022 (continued)

 

Balance SheetsThe fair value of the anti-dilution issuance rights liability as of December 31, 2022 was determined by management with the assistance of an independent third-party specialist. The computation of expected volatility was estimated using available information about the historical volatility of stocks of similar publicly traded companies for a period matching the expected term assumption. In addition, the Company incorporated the estimated number of shares, timing, and probability of future equity financings in the calculation of the anti-dilution issuance rights liability.

 

Assets:

  2020  2019 
Cash $68,531  $237,655 
Total assets $68,531  $237,655 

Liabilities and Members’ Equity:

  2020  2019 
Payables $2,763  $21,933 
Members’ equity  65,768   215,722 
Total liabilities and members’ equity $68,531  $237,655 

Statements of Operations

  2020  2019 
Expenses $149,154  $182,223 
Loss before provision for income taxes and foreign taxes  (149,154)  (182,223)
Provision for income taxes and foreign taxes  800   800 
Net loss $(149,954) $(183,023)

We review our investment4.        Investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near-term prospects of PDS. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss.Affiliated Companies

 

Holocom, Inc.

 

We currently own In February 2007, we invested an aggregate of $370,000 in Holocom in exchange for 2,100,000 shares of preferred stock, equivalent toSeries A Preferred Stock, which represented an approximate 46%46% ownership interest in Holocom, on an after converted basis, inas-converted basis. Pursuant to the articles of incorporation of Holocom, Inc. (“Holocom”), a California corporation that manufactures products that protect information transmitted over secure networks. The shares arethe Series A Preferred Stock is convertible at our option into shares of Holocom’s common stock on a one-to-one basis. The preferred stock entitles usbasis or is redeemable at any time after May 31, 2007 at a redemption price equal to receive non-cumulative dividends at the per annum rate of $0.04 per share, when and if declared by the Board of Directors of Holocom, as well as a liquidation preference of $0.40 per share plus an amount equalor $840,000 in aggregate, provided Holocom has sufficient funding to all declared but unpaid dividends.redeem our shares of Series A Preferred Stock.

 

In 2010,On July 6, 2022, we determinedentered into the Redemption Agreement with Holocom, pursuant to which we requested full redemption of our Series A Preferred Stock. Pursuant to the Redemption Agreement, we received cash proceeds in the amount of $336,000 upon the redemption of 840,000 shares of Series A Preferred Stock in July 2022 with the remaining shares of Series A Preferred Stock were to be redeemed over a period of thirty (30) months beginning August 1, 2022 based on the following redemption schedule: 

Schedule of series A preferred stock to be redeemed over a period    

 

 

Period

 

Shares of Series A

Preferred Stock to be

Redeemed each Month

 

Monthly Redemption

Proceeds to the Company

Months 1-12 35,000 $14,000
Months 13-24 43,750 $17,500
Months 25-30 52,500 $21,000

We recognized the initial and monthly redemption of shares of Series A Preferred Stock using a cash basis of accounting rather than an accrual method as we were unable to assert that collection of amounts due under the inabilityredemption agreement was probable, regardless of Holocomthe terms of the Redemption Agreement. Any amounts not paid within fifteen (15) days of its respective due date accrued interest at a rate of 8% per annum until fully paid and retroactively adjusted to meet12% per annum from its business plan, raise capital, and the general economic environment were indicatorsoriginal due date for amounts not paid within 90 days of impairment on our investment and we wrote-off our cost basis investment in Holocom. At May 31, 2020 and 2019, our investment in Holocom was valued at $0.its original due date.

 

During the year ended December 31, 2022, of the 175,000 shares of Series A Preferred Stock to be redeemed under the aforementioned redemption schedule, Holocom redeemed 17,500 shares of Series A Preferred Stock in exchange for proceeds of $7,000. During the three months ended March 31, 2023, 192,500 shares of Series A Preferred Stock were redeemed in exchange for proceeds of $77,000, including redemption amounts that were past due as of December 31, 2022. On June 21, 2023, we entered into an amendment to the Redemption Agreement (“Amendment No. 1”) to redeem the remaining 910,000 shares of Series A Preferred Stock outstanding in exchange for a lump sum payment of $300,000 (in lieu of monthly payments), representing a redemption price of approximately $0.33 per share. As of December 31, 2023, we redeemed in aggregate, 2,100,000 shares of Series A Preferred Stock, in exchange for aggregate net proceeds received by us of $776,000 as follows: 

Schedule of exchange for aggregate net proceeds received        
  Year Ended December 31, 2023  Year Ended December 31, 2022 
Proceeds received $433,000  $343,000 
Shares of Series A Preferred Stock redeemed  1,242,500   857,500 

 

 

 

 F-15 

 

 

6. Mosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022 (continued)

As of December 31, 2023, Holocom had no further obligations to us under the Redemption Agreement or any other arrangement.

5.        Accrued Expenses and Other Current Liabilities

 

At May 31, 2020 and 2019, accruedAccrued expenses and other current liabilities as of December 31, 2023 and 2022 consisted of the following:

  2020  2019 
Crossflo acquisition liability $177,244  $177,244 
Compensation and benefits  2,907   42,100 
Total $180,151  $219,344 
Schedule of accrued expenses        
  December 31, 2023  December 31, 2022 
Crossflo acquisition liability $177,244  $177,244 
Accrued patent expenses  430,873   382,207 
Other accrued expenses  33,646   25,357 
Total accrued expenses and other current liabilities $641,763  $584,808 

 

7. Stockholders’ EquityIn September 2008, PTSC acquired Patriot Data Solutions Group, Inc. formerly known as Crossflo Systems, Inc. (“PDSG”). In connection with the acquisition of Crossflo by PTSC, we have accrued $177,244 that could be payable to Crossflo investors.

 

Share Repurchases6.        License Agreements

 

During July 2006, we commenced our Board of Director approved stock buyback program in which we repurchase our outstanding common stock from time to time on the open market. The repurchase plan has no maximum number of sharesLicense Option and is solely at the discretion of the Board of Directors. The repurchase plan has no set expiration date. There were no share repurchases during the fiscal years ended May 31, 2020 and 2019.Agreement with CWRU

 

2006 StockOn July 1, 2020, we signed a License Option PlanAgreement with CWRU, granting the Company the exclusive right to license certain technology covering an immunotherapy platform technology to treat and prevent cancer in humans and for veterinary use, including MIE-101, our lead clinical candidate. Under the License Option Agreement, CWRU granted us the exclusive option for a period of two (2) years to negotiate and enter into a license agreement with CWRU, provided that we meet certain diligence milestones.

 

The 2006 StockUnder the License Option Plan, as amended, which expired in March 2016, provided for the granting of options to acquire up to 10,000,000 shares, with a limit of 8,000,000 Incentive Stock Option (“ISO”)Agreement, we issued CWRU 70,000 shares of our common stock to either full or part time employees, directors and our consultantsClass B Common Stock at a price not less than the fair market value on the date of grant. In the case of a significant stockholder, the option price of the share is not less than 110 percent of the fair market value of the shares$7 on the date of grant. Anyissuance. On August 21, 2020, the Class B Stock was exchanged for shares of Series B Preferred, which included certain anti-dilution rights. Pursuant to the Certificate of Designation, the Series B Preferred holder will maintain ownership equal to 10% of the fully diluted shares of common stock outstanding of the Company, including for such purposes all other convertible securities outstanding and reserved for issuance except stock options issued and outstanding and reserved for issuance under a board approved employee stock option grantedplans reserving for issuance no more than ten percent (10%) of the outstanding common stock of the Company then outstanding, until we raise at least $1 million from the sale of either preferred, common stock, or from the net working capital acquired under the 2006 Stockreverse merger in August 2020, or any combination thereof (“Capital Threshold”). The anti-dilution issuance rights under the License Option Plan must be exercised within ten yearsAgreement meet the definition of a derivative instrument under ASC Topic 815 (see Note 3). Initially, the net working capital acquired under the reverse merger in August 2020 of approximately $374,000 was applied against the Capital Threshold. Subsequent to the closing date of the date they are granted (five yearsreverse merger, we received additional net working capital under the reverse merger through aggregate payments received from the redemption of Holocom preferred stock (see Note 4) in the caseamount of a significant stockholder). As$776,000 since such investment existed as of May 31, 2020, there were no options outstanding under the 2006 Stock Option Plan and no additional grants can be made under the 2006 Stock Option Plan.

Share-based Compensation

The fair value of share-based awards to employees and directors is calculated using the Black-Scholes option pricing model, even though this model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from our stock options.

The Black-Scholes model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any individual grant is based on the U.S. Treasury rate that corresponds to the pricing termclosing date of the grant effectivereverse merger in August 2020 and was not included in net working capital as of the dateclosing date. Therefore, as of June 2023, we received in excess of $1 million in net working capital under the grant. The expected volatilityreverse merger and have met the Capital Threshold. As such, there is based on the historical volatilitiesno remaining derivative liability as of our common stock. These factors could change in the future, affecting the determination of share-based compensation expense in future periods.

December 31, 2023.

 

 

 

 F-16 

 

 

A summaryMosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022 (continued)

On May 4, 2022, we exercised our rights under the License Option Agreement and entered into a license agreement with CWRU (“License Agreement”). Pursuant to the terms of option activitythe License Agreement, we agreed to pay CWRU for each licensed product used in human applications (i) development milestones of up to $1.8 million in aggregate dependent upon the progress of clinical trials, regulatory approvals, and initiation of product launch, (ii) tiered royalty on net sales beginning in the mid-single digits, (iii) annual minimum royalty of $10,000 beginning on the second anniversary date of the Agreement with the minimum amount rising based on net sales of the licensed product, and (iv) a declining percentage of all non-royalty sublicensing income based on the escalating stage of development upon a sublicensing event, if applicable. In addition, we agreed to pay CWRU for each licensed product used in veterinarian applications (i) a tiered royalty on net sales beginning in the low single digits and (ii) a declining percentage of all non-royalty sublicensing income based on the escalating stage of development upon a sublicensing event, if applicable.

In addition, we are responsible for the fiscal year ended May 31, 2020 is presented below:

  Shares  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Term (Years)
  Aggregate
Intrinsic Value
 
Options outstanding at June 1, 2019  1,600,000  $0.03     $ 
Options granted            
Options exercised            
Options forfeited/expired  (1,600,000)  0.03       
Options outstanding at May 31, 2020    $     $ 
Options vested and expected to vest at May 31, 2020    $     $ 
Options exercisable at May 31, 2020    $     $ 

8. Income Taxes

The provision (benefit) for income taxes is as follows forreimbursement of all past, current and future patent fees incurred by CWRU under the License Agreement. During the years ended May 31:December 31, 2023 and 2022, we incurred $42,467 and $327,922, respectively, in patent legal fees associated with the License Agreement, which amounts are included in general and administrative expenses in the accompanying consolidated statements of operations.

 

  2020  2019 
Current:        
Federal $(26,078) $(26,078)
State  1,600   1,600 
Total current  (24,478)  (24,478)
         
Deferred:        
Federal  26,078   26,078 
State      
Total deferred  26,078   26,078 
         
Total provision $1,600  $1,600 

Furthermore, we agreed to reimburse CWRU for all intellectual property fees incurred since inception of the portfolio through the date of the License Agreement in the amount of approximately $303,000 (included in Accrued expenses and other in the accompanying condensed consolidated balance sheets) in four (4) equal quarterly installments beginning upon the sooner of (i) August 31, 2022 or (ii) upon the Company closing a financing in the amount of $5 million or more. Due to our limited cash position, as of December 31, 2023, we have not paid any amounts owed to CWRU and we continue to seek additional time to raise sufficient capital in order to pay amounts due to CWRU. While CWRU has previously provided us additional time to pay amounts due under the License Agreement beyond the initial August 31, 2022 due date, there were no guarantees that CWRU will grant us any additional extension of time to pay amounts due under the License Agreement. If we fail to comply with our obligations under the License Agreement, including the payment of all amounts due under the License Agreement, we may lose the rights to develop and potentially commercialize our technology, and CWRU may have the right to terminate the License Agreement or restrict our rights, in which event we would not be able to develop or market products covered by the License Agreement, which are the products upon which our business depends. On March 22, 2024, we received a notice of termination from CWRU to terminate the License Agreement effective immediately (see Note 12). As of December 31, 2023 and 2022, we have accrued $406,973 and $364,507, respectively, in accrued patent fees under the License Agreement.

 

The reconciliationLicense Agreements with University of California San Diego (“UC San Diego”)

During July 2021, we licensed the exclusive rights from UC San Diego to develop and commercialize technology that involves the loading of immuno-stimulatory molecules into plant virus protein nanoparticles. These plant virus protein nanoparticles can be loaded with other TLR agonists to further tailor specific immune response parameters. Under the licensing agreement, we are obligated to pay (i) a nominal upfront license access fee, (ii) all patent costs incurred prior to the effective date of the effective income tax ratelicense agreement, (iii) annual license maintenance fees beginning on the second anniversary date of the agreement, (iv) aggregate future milestone payments based on potential clinical development and regulatory milestones of up to $165,000 through Phase III development plus additional milestones upon regulatory approval in the U.S. and other countries, (v) potential sales milestones upon achieving certain sales levels, and (vi) a low single digit royalty on net sales and/or a percentage of sublicense income.

During September 2021, we licensed the exclusive rights to develop and commercialize several novel vaccine candidates, including SARS-CoV-2 and other infectious disease applications from UC San Diego. Under the licensing agreement, we are obligated to pay (i) a nominal upfront license access fee, (ii) all patent costs incurred prior to the Federal statutory rate is as follows foreffective date of the years ended May 31:

  2020  2019 
Statutory federal income tax rate  21.00%  21.00%
State income tax rate, net of Federal effect  (0.12)%  (0.16)%
Stock option expense  (0.69)%  (1.77)%
Other     (0.04)%
Change in valuation allowance  (20.34)%  (19.23)%
Effective income tax rate  (0.15)%  (0.20)%

license agreement, (iii) annual license maintenance fees beginning on the second anniversary date of the agreement, (iv) aggregate future milestone payments based on potential clinical development and regulatory milestones of up to $1,250,000 through Phase III development plus additional milestones upon regulatory approval in the U.S. and other countries, and (v) a low single digit royalty on net sales and/or a percentage of sublicense income. On July 12, 2023, we provided notice to UC San Diego to terminate the September 2021 license agreement based on our evaluation of our licensed technology portfolio and our focus on advancing our lead oncology candidate, MIE-101.

 

 

 

 F-17 

 

Mosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022 (continued)

During the years ended December 31, 2023 and 2022, we incurred $6,200 and $19,080, respectively, in intellectual property costs associated with the license agreements with UC San Diego, which amount is included in general and administrative expense in the accompanying consolidated statements of operations. In addition, for the year ended December 31, 2023, we expensed $10,000 in aggregate associated with annual maintenance fees under the two license agreements with UC San Diego, which amount is included in research and development expense in the accompanying consolidated statements of operations.

As of December 31, 2023 and 2022, we have accrued $33,900 and $17,700, respectively, in accrued expenses under the license agreements with UC San Diego.

7.        Convertible Notes

On May 7, 2021, we entered into a convertible note purchase agreement (“May Note Agreement”) with five (5) accredited investors, including three (3) members of our Board of Directors (“Board”) that participated on the same terms as other accredited investors. Pursuant to the Note Agreement, we received $525,003 in proceeds in addition to $49,997 in accrued payable to founder that was invested in convertible notes and the Company issued unsecured convertible promissory notes (“May Convertible Notes”) in the aggregate principal amount of $575,000.

On February 18, 2022, we entered into additional convertible note purchase agreements (“February Note Agreement”) with sixteen (16) accredited investors, including five (5) members of our Board that participated on the same terms as other accredited investors. Pursuant to the February Note Agreement, we received $341,632 in proceeds and issued unsecured convertible promissory notes (“February Convertible Notes”) in the aggregate principal amount of $341,632. The February Convertible Notes were issued as part of a convertible note offering authorized by the Company’s Board (the “Convertible Notes Offering”) for raising up to $5 million from the issuance of convertible notes through June 30, 2022.

The May and February Convertible Notes (collectively, the “Convertible Notes”) have no stated maturity date; bear interest at a simple rate equal to eight percent (8.0%) per annum until converted; and automatically convert into the same equity securities issued for cash in the Qualified Financing (as described below), or at the option of the holder, into the same equity securities issued for cash in a Smaller Financing (as described below). Interest on the Convertible Notes is accreted and added to the unpaid principal balance prior to conversion of the Convertible Notes. During the years ended December 31, 2023 and 2022, the Company recorded non-cash interest expense on the Convertible Notes in the amount of $73,333 and $69,738, respectively.

The Convertible Notes will convert into the same equity securities offered in the Qualified Financing or Smaller Financing (“Conversion Shares”), as described below, at a conversion price equal to the lower of (i) the product equal to 80% times the lowest per unit purchase price of the equity securities issued for cash in the Qualified Financing or Smaller Financing, or (ii) $2.377 for the May Convertible Notes (“May Conversion Price”) or $1.00 for the February Convertible Notes (“February Conversion Price”). Pursuant to the February Note Agreement, for each holder of the May Convertible Notes that purchased a February Convertible Note in the amount of (a) $50,000 or (b) an amount equivalent to the principal amount of their May Convertible Note, the conversion price of the May Convertible Notes was adjusted to the February Conversion Price. As of December 31, 2023, the principal amount of Convertible Notes that may be converted at the February Conversion Price was $866,632. In addition, the conversion price may be reduced or increased proportionately as a result of stock splits, stock dividends, recapitalizations, reorganizations, and similar transactions. Upon any conversion of the Convertible Notes in connection with a Qualified Financing or a Smaller Financing, as applicable, the Convertible Notes shall convert immediately prior to the closing thereof, such that the investors paying cash in such Qualified Financing or Smaller Financing, as applicable, are not diluted by the conversion of the Convertible Notes.

F-18

Mosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022 (continued)

Pursuant to the Convertible Notes, a Qualified Financing represents a single transaction or series of transactions whereby the Company receives aggregate gross proceeds of at least $5 million from the sale of equity securities following the issuance date (excluding proceeds from the issuance of any future convertible notes). A Smaller Financing represents any sale of equity securities whereby the aggregate gross proceeds are less than $5 million (excluding proceeds from the issuance of any future convertible notes).

In addition, in the event of a corporate transaction covering the sale of all or substantially all of the Company’s assets, or merger or consolidation with or into another entity, or change in ownership of at least 50% in voting securities of the Company, the holder of the Convertible Note may elect that either: (a) the Company pay the holder of such Convertible Note an amount equal to the sum of (i) all accrued and unpaid interest due on such Convertible Note and (ii) one and one-half (1.5) times the outstanding principal balance of such Convertible Note; or (b) such Convertible Note will convert into that number of conversion shares equal to the quotient obtained by dividing (i) the outstanding principal balance and unpaid accrued interest of such Convertible Note on the date of conversion by (ii) the May or February Conversion Price, as applicable.

Pursuant to ASC Topic 835-30, “Imputation of Interest”, the Convertible Notes were initially recorded at their amortized cost of $916,632 and are being accreted to their redemption value of $1,145,790 over the estimated conversion period ending March 31, 2024 using the effective interest method. During the years ended December 31, 2023 and 2022, the Company recorded $15,842 and $81,843, respectively, in accretion to redemption value on the Convertible Notes.

8.        Stockholders’ Equity (Deficit) and Share-Based Compensation

Stockholders’ Equity (Deficit)

The Company’s authorized capital consists of 100,000,000 shares of common stock, par value $0.00001 per share, and 5,000,000 shares of preferred stock, par value $0.00001 per share (“Preferred Stock”). We designated 630,000 shares of Series A Convertible Voting Preferred Stock (“Series A Preferred”) and designated and issued 70,000 shares of Series B Convertible Voting Preferred Stock (“Series B Preferred”). As of December 31, 2023 and 2022, there are no shares of Series A Preferred outstanding and 70,000 shares of Series B Preferred outstanding.

Series B Preferred

On August 21, 2020, the Company issued 70,000 shares of Series B Preferred (classified as permanent equity), in exchange for 70,000 shares of Class B Common Stock in connection with the reverse merger in August 2020. Each share of Series B Preferred has a par value of $0.00001 per share, no dividend rate, a stated value of $6.50 per share, and each share of Series B Preferred initially converts into 11.46837 shares of common stock of the Company (“Series B Conversion Number”). In addition, the Series B Preferred possesses full voting rights, on an as-converted basis, as the common stock of the Company, as defined in the Series B Certificate of Designation. Furthermore, the Series B Preferred does not have any mandatory conversion rights and only converts upon written notice from the holder.

The Series B Preferred also includes certain anti-dilution rights (“anti-dilution issuance rights”), whereby the holder of Series B Preferred will continue to maintain ownership equal to 10% of the fully diluted shares of common stock outstanding, including for such purposes all other convertible securities outstanding and reserved for issuance except equity awards issued and outstanding and reserved for issuance under a board approved equity compensation plan reserving for issuance no more than ten percent (10%) of the outstanding common stock of the Company then outstanding, until the Capital Threshold is met. The anti-dilution issuance rights meet the definition of a derivative instrument under FASB’s ASC Topic 815 (see Note 3). As of December 31, 2023, the $1 million dollar Capital Threshold was achieved and therefore, there is no remaining derivative liability (see Note 6).

F-19

Mosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022 (continued)

In the event of any Liquidation Event, the Holders of Series B Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of common stock, an amount per share in cash equal to the greater of (x) the stated value of $6.50 for each share of Series B Preferred then held by the holder or (y) the amount payable per share of common stock which such holder of Series B Preferred would have received if such Holder had converted to common stock immediately prior to the Liquidation Event.

Share-Based Compensation

2020 Omnibus Incentive Plan

On October 21, 2020, we adopted our 2020 Omnibus Incentive Plan (the “2020 Plan”) and on October 22, 2020, the 2020 Plan was approved by our stockholders. The 2020 Plan was adopted to promote our long-term success and the creation of stockholder value by motivating participants, through equity incentive awards, to achieve long-term success in our business. The 2020 Plan permits the discretionary award of stock options, restricted stock, RSUs, and other equity awards to selected participants. On October 21, 2021, the first anniversary date from the adoption date of the 2020 Plan, the number of shares of common stock reserved for issuance under the 2020 Plan increased to 20% of the fully diluted shares of common stock outstanding, including shares of common stock reserved for issuance under convertible securities. As of December 31, 2023, we have reserved 1,661,966 shares of common stock for issuance under the 2020 Plan, of which 541,957 were subject to outstanding RSUs and 1,105,965 shares were available for future grants of share-based awards.

The cost of all share-based awards will be recognized in the consolidated financial statements based on the fair value of the awards. The fair value of stock option awards will be determined using the Black-Scholes valuation model on the date of grant. The fair value of restricted stock awards and RSUs will be equal to the closing market price of our common stock on the date of grant. The Company will generally recognize share-based compensation expense over the period of vesting or period that services will be provided for all time-based awards. Share-based compensation expense for the years ended December 31, 2023 and 2022 was comprised of the following:

Schedule of share-based compensation expense        
  

Year Ended

December 31, 2023

  

Year Ended

December 31, 2022

 
Research and development $21,935  $123,652 
General and administrative     171,471 
Total $21,935  $295,123 

The following summarizes our transaction activity related to RSUs for the year ended December 31, 2023:

Schedule of RSU activity        
  

 

Shares

  

Weighted Average

Grant Date

Fair Value

 
Nonvested at January 1, 2023  541,957  $3.01 
Granted      
Vested      
Forfeited      
Nonvested at December 31, 2023  541,957  $3.01 

F-20

Mosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022 (continued)

As of December 31, 2023, the total estimated unrecognized compensation cost related to non-vested RSUs was approximately $5,000. This cost is expected to be recognized over the remaining weighted average vesting period of 0.22 years. As of December 31, 2023, 14,044 RSUs have vested under the 2020 Plan since its adoption.

9.        Income Taxes

The provision (benefit) for income taxes for the years ended December 31, 2023 and 2022 is as follows: 

Schedule of provision (benefit) for income taxes        
  Year Ended December 31, 2023  Year Ended December 31, 2022 
Current:        
Federal $  $ 
State  2,400   2,400 
Total current  2,400   2,400 
         
Deferred:        
Federal      
State      
Total deferred      
         
Total provision $2,400  $2,400 

The reconciliation of the effective income tax rate to the Federal statutory rate for the years ended December 31, 2023 and 2022 is as follows: 

Schedule of effective income tax rate        
  December 31, 2023  December 31, 2022 
Statutory federal income tax rate  21.00%   21.00% 
State income tax rate, net of Federal effect  (0.19)%  (0.08)% 
Fair market value of derivative liability  0.98%   0.51% 
Other  (0.33)%   (0.72)% 
Change in valuation allowance  (21.76)%  (20.81)% 
Effective income tax rate  (0.30)%   (0.10)% 

F-21

Mosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022 (continued)

 

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of our deferred tax assets as of December 31, 2023 and 2022 are as follows as of May 31:follows: 

  2020  2019 
Deferred tax assets (liabilities):        
State taxes $336  $336 
Accrued expenses  (397)  9,570 
Investment in affiliated company  442,065   442,065 
Basis difference in property and equipment  (72)  (92)
Stock based compensation expense     10,315 
Impairment of note receivable  231,180   231,180 
Capital loss carryover     104 
Net operating loss carryforwards  7,691,740   7,330,976 
Credit carryover  31,552   83,708 
Valuation allowance  (8,396,404)  (8,082,084)
Net deferred tax asset $  $26,078 

Schedule of deferred tax assets and liabilities        
  December 31, 2023  December 31, 2022 
Deferred tax assets (liabilities):        
State taxes $504  $504 
Accrued expenses  1,313,837   953,175 
Investment in affiliated company  (6,701)  (6,701)
Share-based compensation expense  484,819   478,274 
Impairment of note receivable  215,261   215,261 
Capitalized research and development expenses  103,604   83,744 
382 limited net operating loss carryforwards  597,262   597,262 
Net operating loss carryforwards  442,275   504,945 
Valuation allowance  (3,150,861)  (2,826,464)
Net deferred tax asset $  $ 

 

We have federal and state net operating loss carryforwards available to offset future taxable income of approximately $27,239,000$3,939,000 and $22,303,000,$2,244,000 at December 31, 2023, respectively, at May 31, 2020. These carryforwards beginof which approximately $2,554,000 and $468,000, respectively, are subject to a limitation under IRS Section 382. Approximately $3,562,000 of the federal net operating losses can be carried forward indefinitely with $2,273,000 subject to a limitation under IRS Section 382. The remaining $281,000 of federal net operating losses will expire in the years ending May 31, from 2025 and through 2036. The state net operating losses will expire from 2028 respectively.

We have refundable alternative minimum tax credits of $26,078 and $52,156 at May 31, 2020 and 2019, respectively. During the year ended May 31, 2020, we collected $26,078 of such credits, and we expect to collect the remaining $26,078 during the year ending May 31, 2021.through 2042.

 

We follow authoritative guidance which defines criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in a company’s financial statements and also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense. Interest and penalties relating to underpayment of income taxes are recorded in general and administrative expense. As of MayDecember 31, 2020,2023, we are subject to U.S. Federal income tax examinations for the tax years May 31, 20072018 through MayDecember 31, 2019,2023, and we are subject to state and local income tax examinations for the tax years May 31, 20072020 through MayDecember 31, 20192023 due to the carryover of net operating losses related to PDSG from previous years.losses.

 

We have no liability relating to unrecognized tax benefits under the authoritative guidance for the fiscal yearsyear ended MayDecember 31, 20202023 and 2019.2022.

 

Our continuing practice is to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. We do not expect our unrecognized tax benefits to change significantly over the next twelve months.

 

9. Commitments and Contingencies

Patent Litigation

We, TPL, and PDS (collectively referred to as “Plaintiffs”) were Plaintiffs in proceedings in the U.S. District Court for the Northern District of California where the Plaintiffs allege infringement of the US 5,809,336 patent (the “‘336 patent”) by: Huawei Technologies Co. Ltd., LG Electronics, Nintendo Co. Ltd., Samsung Electronics Co. Ltd., and ZTE Corporation (collectively referred to as the “Defendants”). This litigation was proceeding in front of District Court Judge Vince Chhabria.

 

 

 

 F-18F-22 

 

 

These proceedings relateMosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the proceedings filed by the Plaintiffs in February 2008 in the U.S. District Court for the Northern District of California alleging infringement of the US 5,440,749 patent (the “‘749 patent”), the US 5,530,890 patent (the “‘890 patent”)Years Ended December 31, 2023 and the ‘336 patent against Amazon.com Inc., Barnes & Noble Inc., Garmin Ltd., Huawei Technologies Co. Ltd., Kyocera Corporation, LG Electronics, Nintendo Co. Ltd., Novatel Wireless Inc., Samsung Electronics Co. Ltd., Sierra Wireless Inc., and ZTE Corporation. We have settled with all defendants except those named in the first paragraph to this footnote. On September 18, 2015, a Markman hearing was held before U.S. Magistrate Judge Grewal and, on September 22, 2015, he issued a claim construction report and recommendation. On September 25, 2015, as a result of the claim construction report and recommendation, Plaintiffs and defendants, with the exception of Huawei Technologies Co. Ltd., (“Huawei”) agreed to stay all proceedings pending resolution of Plaintiffs’ objections to the claim construction report and recommendation. Plaintiffs further stipulated that, under the claim construction provided by the report and recommendation, defendants’ products do not infringe the ‘336 patent, and, in the event that the Court does not materially modify the claim construction, Plaintiffs and defendants ask that the Court enter a final judgment of non-infringement. After Plaintiffs and Huawei filed opposing letter briefs with the Court, U.S. Magistrate Judge Grewal stayed the action against Huawei pending resolution of Plaintiffs’ objections to the claim construction. On October 6, 2015, Plaintiffs filed objections to the claim construction with District Court Judge Chhabria. Judge Chhabria rejected those objections on November 9, 2015. Based on that order, the parties stipulated to a judgment of non-infringement as to the ‘336 patent and such judgment was entered on November 13, 2015.2022 (continued)

On December 7, 2015, Plaintiffs filed notices of appeal with the U.S. Federal Circuit appealing the district court’s claim construction. Plaintiffs filed their opening appellate brief on March 10, 2016. Defendants filed their response brief on May 23, 2016, with Plaintiffs filing their reply brief on June 23, 2016. On March 3, 2017, the U.S. Court of Appeals for the Federal Circuit rendered its decision modifying the claim construction that was issued in September 2016 by the U.S. District Court for the Northern District of California and has remanded the matter to the District Court for further proceedings.

On May 23, 2017, a case management conference was held in front of District Court Judge Chhabria, who ordered that Plaintiffs amend their infringement contentions on or before June 16, 2017. Judge Chhabria further ordered that Defendants submit any motion for summary judgment based on the amended infringement contentions and the modified claim construction by August 1, 2017. On June 5, 2017, the law firm of Banys, P.C., who had served as local counsel for PDS, withdrew as counsel. PDS continued to be represented by the law firm of Nelson Bumgardner, P.C. On June 16, 2017, Plaintiffs timely amended their infringement contentions. On July 13, 2017, all remaining counsel for each of Patriot, TPL, and PDS moved to withdraw as counsel and further moved to extend all currently pending case deadlines by 60 days for Plaintiffs to seek new counsel.

On September 13, 2017, the law firm of Bunsow De Mory LLP was entered before the U.S. District Court for the Northern District of California as successor counsel in representation of Patriot, PDS, and TPL.

The Defendants moved for summary judgment of non-infringement on September 29, 2017, and the Court held a hearing on Defendants’ motion on November 30, 2017. The Court granted Defendants’ motion and entered judgment of non-infringement on December 13, 2017.

Defendant Samsung submitted a bill of costs seeking $30,170 in taxable costs in the underlying district court proceedings; Plaintiffs filed an objection to significant portions of that request. On March 1, 2018, the Clerk of the District Court taxed costs in the amount $829.

Plaintiffs filed notices of appeal in these district court matters on January 5, 2018. The appeals were docketed and consolidated under lead case No. 18-1439, captioned as Technology Properties Limited v. Huawei Technologies Co., Ltd in the United States Court of Appeals for the Federal Circuit. Oral argument proceeded on February 4, 2019. The Court affirmed the lower court’s determination without written opinion pursuant to Federal Circuit Rule 36 on February 6, 2019. Plaintiffs filed a Petition for Rehearing En Banc on March 8, 2019 which was denied by the Court on April 10, 2019.

On September 6, 2019, Plaintiffs filed a petition for a writ of certiorari with the Supreme Court of the United States as a result of the United States Court of Appeals outcome.

 

 

10.        Commitments and Contingencies

 

Legal Matters

F-19

 

On November 4, 2019,While the Supreme CourtCompany is not involved in any litigation as of December 31, 2023, the United States denied our petition for a writCompany may be involved in various lawsuits and claims arising in the ordinary course of certioraribusiness, including actions with respect to patentintellectual property, employment, and contractual matters. Any litigation previously beforecould have a material adverse effect on the United States CourtCompany’s business, financial condition, results of Appeals foroperations, and/or cash flows in the Federal Circuit that alleged infringement ofperiod in which the ‘336 patent against the Defendants (see Note 1).unfavorable outcome occurs or becomes probable, and potentially in future periods.

 

Employment Contract

In connection with Cliff Flowers’ appointment as the Chief Financial Officer of the Company, and commencing on September 17, 2007, we entered into an employment agreement with Mr. Flowers for an initial 120-day term if not terminated pursuant to the agreement, with an extension period of one year and on a continuing basis thereafter. On December 30, 2016, we entered into an amended and restated employment agreement with Mr. Flowers. Pursuant to the amended December 30, 2016 agreement, if Mr. Flowers was terminated without cause or resigns with good reason any time after two years of continuous employment, he was entitled to receive an amount equal to 1.25 times his annual base salary. Mr. Flowers was also entitled to certain payments upon a change of control of the Company if the surviving corporation did not retain him. All such payments were conditional upon the execution of a general release. On October 1, 2019, Mr. Flowers and the Company signed a Separation Agreement and General Release of all Claims (“Separation Agreement”). Pursuant to the Separation Agreement, Mr. Flowers resigned on September 30, 2019 and agreed to severance compensation of $327,750 in lieu if any amounts owed under his amended and restated employment agreement, payable in seven equal monthly installments commencing October 30, 2019. As of May 31, 2020, all amounts have been paid to Mr. Flowers. There were no known disagreements with Mr. Flowers regarding our operations, policies or practices. The Board appointed Carlton M. Johnson to assume all management roles on an interim basis.

Guarantees and IndemnitiesIndemnification

 

We have made certain guarantees and indemnities, under which we may be required to make payments to a guaranteed or indemnified party. We indemnify our directors, officers, employees, consultants and other agents to the maximum extent permitted under the laws of the State of Delaware. The duration of the guarantees and indemnities varies, and in many cases is indefinite. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments we could be obligated to make. Historically, we have not been obligated to make any payments for these obligations and no liabilities have been recorded for these guarantees and indemnities in the accompanying consolidated balance sheets.

 

Escrow Shares

 

On August 31, 2009, we gave notice to the former shareholders of Crossflo and Union Bank of California (the “Escrow Agent”) under Section 2.5 of the Agreement and Plan of Merger between us and Crossflo (the “Agreement”), outlining damages incurred by us in conjunction with the acquisition of Crossflo, and seeking the return of 2,844,6305,690 shares of our common stock held by the Escrow Agent. Subsequently, former shareholders of Crossflo, representing a majority of the escrowed shares responded in protest to our claim, delaying the release of the escrowed shares until a formal resolution is reached.  In the event we fail to prevail in our claim against the escrowed shares, we may be obligated to deposit into escrow approximately $256,000 of cash consideration due to the decline in our average stock price over the one-year escrow period calculated in accordance with the Section 2.5 of the Agreement. We have evaluated the potential for loss regarding our claim and believe that it is probable that the resolution of this issue will not result in a material obligation to the Company, although there is no assurance of this. Accordingly, we have not recorded aany liability for this matter.

 

Operating Lease

 

Our current facility operatingWe have no lease is on a month to month basis. Rentobligations as of December 31, 2023 and there was no rent expense for fiscalthe years ended MayDecember 31, 20202023 and 2019 was $9,300 and $9,320, respectively.2022. Employees are working from home offices at no cost to the Company.

 

11.        Related Parties

During April 2021, we entered into consulting agreements (retroactive to September 1, 2020) with Nicole Steinmetz, Ph.D., former acting Chief Scientific Officer and former member of the Board of Directors, Jonathan Pokorski, Ph.D. (Dr. Steinmetz’s spouse), and Steve Fiering, Ph.D., each a co-founder of the company acquired in the reverse merger and greater than 5% shareholder of the Company (“Related Parties”), for their scientific contributions towards advancing the technology platforms. On May 2, 2023, Dr. Steinmetz resigned from the Board of Directors and her role as acting Chief Scientific Officer.

 

 

 

 F-20F-23 

 

 

10. Subsequent EventsMosaic ImmunoEngineering, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022 (continued)

 

On August 19, 2020, Patriot Scientific Corporation (referred to as “Parent”During the year ended December 31, 2023, we incurred related party consulting expenses for Dr. Steinmetz, Dr. Pokorski, and Dr. Fiering in the transaction)aggregate amount of $20,000, entered into a stock purchase agreement (the “Stock Purchase Agreement”) among Parent, PTSC Sub One Inc.$10,000 and $500, a Delaware corporation (as “Buyer”respectively, included in research and together withdevelopment expenses in the Parent,accompanying consolidated financial statements. Pursuant to the “Buyer Parties”), Mosaic ImmunoEngineering Inc., a Delaware corporation (the “Target”), certain stockholdersconsulting agreements, Dr. Steinmetz, Dr. Pokorski, and Dr. Fiering are initially paid 15% of their monthly amounts up and until the Target set for therein (as “Sellers”), and Steven King (as the “Sellers’ Representative” and together with the Target and Sellers, the “Seller Parties”) pursuantCompany is able to which, Buyer will buy from Sellers 630,000 shares of its Class A common stock (“Class A Stock”), par value $0.0001 per share, and 70,000 shares of its Class B common stock (“Class B Stock”), par value $0.0001 per share, together the Class A Stock and Class B Stock shall collectively be referred to as “Target Common Stock”, representing 100% of the issued and outstanding common stock of the Target as of August 19, 2020. Upon closing,raise at least $4 million in new funding. In exchange for the Target Common Stock,deferral of consulting payments, the holdersCompany agreed to grant each of the Class A Stock shall receive 630,000 sharesRelated Parties RSU’s with a fair market value equal to 20% of their deferred cash compensation as of the Parent’s preferred stockclosing date of the financing (the “20% Deferral”). The number of RSU’s to be designated Series A Convertible Preferred Stock (“Series A Preferred”) and holdersgranted will be calculated based on the closing price of the Class B Stock shall receive 70,000 sharesCompany’s common stock on the closing date of the Parent’s preferred stockfinancing and will vest one-year from the date of grant. There was no share-based compensation expense recorded for the years ended December 31, 2023 and 2022 pertaining to be designated Series B Convertible Preferred Stock (“Series B Preferred”). Each share of the Series A Preferred; shall (a) convert into 5,097.053 shares of common stock of the Parent, (b) possess full voting rights, on an as-converted basis,20% Deferral as the common stockterms are unknown and are based on a future performance trigger. As of December 31, 2023 and 2022, we have accrued $264,375 and $238,000, respectively, in accrued consulting fees provided by the Parent, and (c) have no dividend rate. Each share of the Series B Preferred; shall (a) convert into 5,734.185 shares of common stock of the Parent, (b) possess full voting rights, on an as-converted basis, as the common stock of the Parent, (c) have no dividend rate, and (d) shall possess certain anti-dilution protections as definedRelated Parties, which amounts are included in accrued consulting in the Series B Certificate of Designations. On a fully diluted, as converted basis, the Sellers shall own 90% of the issued and outstanding common stock of the Parent. Mr. Steven King, an affiliate of Artius (Note 1), is a founder of Mosaic ImmunoEngineering Inc. and owns 161,000 shares of Class A Stock of Sellers.accompanying consolidated balance sheets.

 

The Company’s new lineIn addition, on May 7, 2021, we entered into convertible note purchase agreements with five (5) accredited investors, including three (3) members of business will focusour Board of Directors that participated on biotechnologythe same terms as other accredited investors, in the aggregate principal amount of $575,000. Of such amount, the three members of our Board of Directors invested $225,000 in aggregate (see Note 7).

Moreover, on February 18, 2022, we entered into convertible note purchase agreements with sixteen (16) accredited investors, including five (5) members of our Board that participated on the same terms as other accredited investors, in the aggregate principal amount of $341,632. Of such amount, four members of our Board and the bridgingone former member of immunology and engineering to develop novel immunotherapies to treat and prevent cancer and infectious diseases. The technology has broad potential for the treatment of many different types of cancer and the lead product candidates are supported by numerous research publications and university grant funding.our Board invested $155,000 in aggregate (see Note 7).

12.        Subsequent Events

 

We have evaluated subsequent events after the consolidated balance sheet date and through the filing date of this Annual Report, and based on our evaluation, management has determined that no other subsequent events have occurred that would require recognition in the accompanying consolidated financial statements or disclosure in the notes thereto other than as disclosed herein and in the accompanying notes.

 

F-21

Phoenix Digital Solutions, LLC

INDEX TO FINANCIAL STATEMENTS

Page
Report of Independent Registered Public Accounting FirmF-23
Financial Statements:
Balance SheetsF-24
Statements of OperationsF-25
Statements of Members’ EquityF-26
Statements of Cash FlowsF-27
Notes to Financial StatementsF-28

F-22

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Members and Management Committee

Phoenix Digital Solutions, LLC

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Phoenix Digital Solutions, LLC (the "Company") as ofOn May 31, 2020 and 2019, the related statements of operations, members' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, because of the loss of enforceable patents that lead to license revenues, there is no assurance that the Company will receive any future revenues from license agreements, and the Company has no other sources of revenue. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. 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.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that4, 2022, 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 audits 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.

Our audits 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 audits 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 provide a reasonable basis for our opinion.

KMJ Corbin & Company LLP

We have served as the Company’s auditor since 2005.

Irvine, California

August 24, 2020

F-23

Phoenix Digital Solutions, LLC

Balance Sheets

  Year Ended May 31, 
  2020  2019 
       
ASSETS        
         
Current assets:        
Cash $68,531  $237,655 
Total assets $68,531  $237,655 
         
LIABILITIES AND MEMBERS’ EQUITY        
         
Current liabilities:        
Accounts payable and accrued expenses $2,763  $21,933 
         
Commitments and Contingencies        
         
Members’ equity  65,768   215,722 
         
Total liabilities and members’ equity $68,531  $237,655 

See accompanying notes to financial statements.

F-24

Phoenix Digital Solutions, LLC

Statements of Operations

  Years Ended May 31, 
  2020  2019 
       
Operating expenses:        
General and administrative $149,154  $182,223 
         
Loss before provision for income taxes and foreign taxes  (149,154)  (182,223)
         
Provision for income taxes and foreign taxes  800   800 
         
Net loss $(149,954) $(183,023)

See accompanying notes to financial statements.

F-25

Phoenix Digital Solutions, LLC

Statements of Members’ Equity

Years Ended May 31, 2020 and 2019

Balance June 1, 2018 $398,745 
Net loss  (183,023)
Balance May 31, 2019  215,722 
Net loss  (149,954)
Balance May 31, 2020 $65,768 

See accompanying notes to financial statements.

F-26

Phoenix Digital Solutions, LLC

Statements of Cash Flows

  Years Ended May 31, 
  2020  2019 
Operating activities:        
Net loss $(149,954) $(183,023)
Adjustments to reconcile net loss to net cash used in operating activities:        
Changes in operating assets and liabilities:        
Prepaid expenses     48,825 
Accounts payable and accrued expenses  (19,170)  20,107 
Net cash used in operating activities  (169,124)  (114,091)
         
Net decrease in cash  (169,124)  (114,091)
Cash, beginning of year  237,655   351,746 
Cash, end of year $68,531  $237,655 
         
Supplemental Disclosure of Cash Flow Information:        
Cash payments for income taxes $800  $800 

See accompanying notes to financial statements.

F-27

Phoenix Digital Solutions, LLC

Notes to Financial Statements

1. Organization and Business

Phoenix Digital Solutions, LLC (the “Company” or “PDS”) is a Delaware limited liability company organized on June 7, 2005. Through a commercialization agreement dated June 7, 2005, as amended in July 2012, the Company holds the rights to certain patents contributed by its two members, Patriot Scientific Corporation (“Patriot”) and Technology Properties Limited, Inc. (“TPL”). The Company historically received license fees from license agreements entered into between licensees and the Company and distributes those license fee proceeds to its members. PDS has not generated significant license revenues since September 2013 and on November 4, 2019, the Supreme Court of the United States denied its application to review a lower court’s decision that was adverse to the Company’s patented microprocessor technologies. As result of this denial to review the lower court’s decision, the Company’s patented microprocessor technologies are no longer enforceable, and it has no other options to appeal the lower court’s adverse decision. As a result, there are no future licensing opportunities or sources of revenue. While the Company has not formally approved to liquidate the Company, it is reviewing its options to liquidate its assets over the coming year in a dissolution under Delaware law, which is subject to the courts approval on behalf of TPL, which approval has not been received nor guaranteed. On March 20, 2013, TPL filed a petition under Chapter 11 of the United States Bankruptcy Code and on March 5, 2018, TPL’s Motion for Entry of Final Decree Closing Chapter 11 was granted.

Basis of Presentation

The Company’s financial statements have been prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business.

Going Concern and Management’s Plans

At May 31, 2020, the Company had cash and cash equivalents of $68,531. The ability of PDS to continue as a going concern is dependent on its ability to generate or obtain sufficient cash to meet its obligations on a timely basis. As mentioned above, the Company’s patents are no longer enforceable and therefore, the Company does not expect to generate any additional licensing revenue in the future. While the Company has not approved any formal plan to liquidate the Company, management is reviewing its options to liquidate its assets over the coming year in a dissolution under Delaware law, which is subject to the courts approval on behalf of TPL, which approval has not been received nor guaranteed.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed, the above conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

2. Summary of Significant Accounting Policies

Limited Liability Company Operating Agreement

As a limited liability company, each member’s liability is limited to the capital invested. Allocation of profits, losses and distributions is in accordance with the terms as defined in the operating agreement.

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The Company is treated as a partnership for federal income tax purposes. Consequently, federal income taxes are not payable by the Company. The Company’s net income or loss is allocated among the members in accordance with the operating agreement of the Company and members are taxed individually on their share of the Company’s earnings. The State of California assesses a limited liability company fee based on the Company’s income in addition to a flat limited liability company tax. Accordingly, the financial statements reflect a provision for these California taxes.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of revenue is assured which is generally upon the receipt of the license proceeds. The Company may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones are met.

Financial Instruments and Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash.

Cash is maintained with high quality financial institutions. At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation. The Company performs ongoing evaluations of these financial institutions to limit its concentration of risk exposure.

Legal Fees

For the fiscal years ended May 31, 2020 and 2019, the Company incurred legal costs associated with the litigation of the Moore Microprocessor Patent (“MMP”) portfolio of $143,825 and $76,463, respectively. These amounts are included in general and administrative expense in the accompanying statements of operations.  

Intellectual Property Rights

The Company has historically relied on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect its intellectual property rights. The Company licenses seven U.S., nine European, and three Japanese patents on PTSC’s microprocessor technology all of which expired between August 2009 and October 4, 2016. On November 4, 2019, the Supreme Court of the United States denied the Company’s application to review a lower court’s decision that was adverse to the Company’s intellectual property rights. As result of this denial to review the lower court’s decision, the Company’s patented microprocessor technologies are no longer enforceable, and it has no other options to appeal the lower court’s adverse decision.

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Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which was subsequently amended by ASUs 2015-14, 2016-08, 2016-10, 2016-12, and 2016-20. ASU 2014-09, as amended, supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”, and creates a new ASC Topic 606 (“ASC 606”). ASU 2014-09, as amended, implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company’s adoption of this guidance, effective June 1, 2018, did not have a significant impact on its financial statements.

3. Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and its accounts payable and accrued expenses. The carrying value of these financial instruments approximates fair value because of the immediate or short-term maturity of the instruments.

4. Formation of Joint Venture and Commercialization Agreement

The Company is a joint venture between two members, Patriot and TPL. Each member owns 50% of the membership interests of the Company. Each member has the right to appoint one member of the three-member management committee. The two appointees are required to select a mutually acceptable third member of the management committee. At May 31, 2020, there was not a third member in place.

Contribution Requirements

Pursuant to the Company’s Limited Liability Company Operating Agreement (the “LLC Agreement”), the members agreed to establish a working capital fund for the Company of $4,000,000, of which each member contributed $2,000,000. The working capital fund increased to a maximum of $8,000,000 as license revenues are achieved. The members are obligated to fund future working capital requirements at the discretion of the management committee of the Company in order to maintain working capital of not more than $8,000,000. If the management committee determines that additional capital is required, neither member is required to contribute more than $2,000,000 in any fiscal year. No contributions were made during the fiscal years ended May 31, 2020 and 2019. Distributable cash and allocation of profits and losses are allocated to the members in the priority defined in the LLC Agreement.

Joint Venture Contractual Agreements

On June 7, 2005, the Company entered into a CommercializationLicense Agreement (the “Commercialization Agreement”) with Patriot and TPL. This Commercialization Agreement allows TPL to commercialize the patent portfolio by entering into settlement and/or license agreements, litigating in the name of Patriot, TPL, the Company and Charles Moore (“Moore”), and manage the use of the patent portfolio by third parties.

On July 11, 2012, the Company entered into a Licensing Program Services Agreement (the “Program Agreement”) with Patriot, TPL, and Alliacense creating an amendment to the Commercialization Agreement, and an Agreement (the “TPL Agreement”) between TPL and Patriot. Pursuant to the Program Agreement, the Company engaged Alliacense to negotiate MMP portfolio licenses and to pursue claims against violators of the MMP portfolio on behalf of the Company, TPL, and Patriot. The Program Agreement continued through the useful life of the MMP portfolio patents. On July 24, 2014, the Program Agreement was amended with the Company and Alliacense entering into the Amended Alliacense Services and Novation Agreement (the “Novation Agreement”)CWRU (see Note 6). Pursuant to the NovationLicense Agreement, certain performance goalswe agreed to reimburse CWRU for all intellectual property fees incurred since inception of the portfolio through the date of the License Agreement in the amount of approximately $303,000 payable in four (4) equal quarterly installments beginning upon the sooner of (i) August 31, 2022 or (ii) upon the Company closing a financing in the amount of $5 million or more. Due to our limited cash position, as of December 31, 2023, we have not paid any amounts owed to CWRU. While CWRU has previously provided us additional time to pay amounts owed under the License Agreement beyond the initial August 31, 2022 due date, on March 22, 2024, we received a letter of termination from CWRU terminating our License Agreement effective immediately due to our financial default. In addition, CRWU did not relieve us of any amounts past due under the License Agreement and incentives were established for Alliacense. The Novation Agreement also providedrequested payment in full. As of December 31, 2023, we have accrued $406,973 in accrued patent fees under the License Agreement. Due to our limited cash position, we do not have sufficient capital to pay amounts owed under the License Agreement. We are evaluating strategic options for the addition ofCompany, which could include a second licensing company, which was engaged on October 10, 2014, to complement the MMP licensing commercialization. However, Alliacense fulfilled only a portion of its obligations under the Novation Agreement associated with the deployment of the second licensing companypossible merger, business combination, wind-down, liquidation and on May 11, 2015, Alliacense was terminated by PDS.

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On August 10, 2016, the Company entered into an agreement with Alliacense and MMP Licensing, LLC to settle matters relating to Alliacense’s non-performance under terms of the Novation Agreement. The August 10, 2016 agreement required Alliacense to provide the Company’s second licensing agent, Dominion Harbor Group (“DHG”), with certain materials and to cooperate with reasonable discovery requests relating to infringement litigation in the U.S. District Court for the Northern District of California. MMP Licensing, LLC will provide commercialization services to the Company for the MMP portfolio with respect to certain companies. The Company and Alliacense have agreed to cause the arbitration between the parties to be dismissed with prejudice. The August 10, 2016 agreement, and the agreement retaining DHG as PDS’s second licensing company, will both expire on October 4, 2022. Terms of the settlement agreement required the Company to pay Alliacense $84,000 within 24 hours after delivery of materials to the Company’s second licensing agent and to pay Alliacense $84,000 out of subsequent recoveries. The Company paid Alliacense $84,000 on each of August 11, 2016 and October 3, 2016.

During January 2013, TPL and Moore settled their litigation. Terms of the settlement included payment by the Company to Moore of a consulting fee of $250,000 for four yearsdissolution or until the completion of all outstanding MMP litigation whichever came first. Per terms of the agreement, the Company paid Moore $150,000 on the settlement date and paid Moore $16,667 per month from August 2013 through January 2014 and paid Moore $20,833 per month from February 2014 through January 2017. For the fiscal year ended May 31, 2017, the Company expensed $166,674 related to this agreement.

6. Commitments and Contingencies

Guarantees and Indemnities

Under the LLC Operating Agreement, the Company indemnifies its members, managers, officers and employees from any damages and liabilities by reason of their management or involvement in the affairs of the Company as long as the indemnitee acted in good faith and in the best interests of the Company.

Under the Commercialization Agreement, the Company and Patriot will hold harmless TPL and its representatives with respect to all claims of any nature by or on behalf of the Company and Patriot related to the preparation, execution and delivery of duties and responsibilities under the Commercialization Agreement.

The duration of the guarantees and indemnities varies, and in many cases is indefinite. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make.

Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded for these guarantees and indemnities in the accompanying balance sheets.

7. Subsequent Events

The Company has evaluated subsequent events after the balance sheet date and through the filing of this report, and based on its evaluation, management has determined that no subsequent events have occurred that would require recognition in the accompanying financial statements or disclosure in the notes thereto other than as disclosed in the accompanying notes.

strategic transaction.

 

 

 

 

 

 

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