Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended NovemberSeptember 30, 20172023

OROr

For the transition period from ____________________ to ________________________

Commission File Number 0-22182000-22182

PATRIOT SCIENTIFIC CORPORATIONMOSAIC IMMUNOENGINEERING, INC.

(Exact name of registrant as specified in its charter)

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

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

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 and posted on its corporate Website, if any, 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.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [_]  NO [X]Yes ☐   No ☒

On January 11, 2018, 401,392,948November 2, 2023, 7,242,137 shares of common stock, par value $0.00001 per share, were outstanding.

INDEX

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Report” or Quarterly 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. In this Report, the words “anticipates,” “believes,” “expects,” “intends,” “future,” “estimates,” “may,” “could,” “should,” “would,” “will,” “shall,” “propose,” “continue,” “predict,” “plan” or the negative versions of these terms and other similar expressions are generally intended to identify certain of these forward-looking statements.

These forward-looking statements are subject to certain risks and uncertainties, and actual results may differ materially from those in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” in Part II, Item 1A of this Report as well as information provided elsewhere in this Report and our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission (the SEC) on March 2, 2023. You should carefully consider that information before you make an investment decision.

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.

The discussion of the Company’s financial condition and results of operations should be read in conjunction with the Company’s Unaudited Condensed Consolidated Financial Statements and the related Notes thereto included in this Report.

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 II, Item 1A of this Quarterly 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 II, Item 1A of this Quarterly Report as part of your evaluation of an investment in our common stock.

Risks Related to Our Operations

Risks Related to Our Financial Position and Need for Additional Capital

Risks Related to the Commercialization of Our Product Candidates

Risks Related to Our Dependence on Third Parties

Risks Related to Our Intellectual Property

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

Risks Related to Our Common Stock

PART I- FINANCIAL INFORMATION

Item 1. Financial StatementsMosaic ImmunoEngineering, Inc.

Patriot Scientific Corporation

Condensed Consolidated Balance Sheets

See accompanying notes to unaudited condensed consolidated financial statements

Patriot Scientific Corporation

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements

Patriot Scientific Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

Mosaic ImmunoEngineering, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

Mosaic ImmunoEngineering, Inc.

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)

For the Three Months Ended September 30, 2023

For the Three Months Ended September 30, 2022

For the Nine Months Ended September 30, 2023

For the Nine Months Ended September 30, 2022

See accompanying notes to unaudited condensed consolidated financial statements.

Mosaic ImmunoEngineering, Inc.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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

1.Organization and Business

Organization

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 our proprietary immunotherapy platform technology. Our lead immunotherapy product candidate, MIE-101, is based on a naturally occurring plant virus known as Cowpea mosaic virus (or CPMV) which is believed to be non-infectious in humans and animals. However, because of its virus structure and genetic composition, CPMV elicits a strong immune response when delivered directly into tumors as shown in our preclinical studies. Data from numerous mouse cancer models and in companion dogs with naturally occurring tumors show the ability of intratumoral (“IT”) administration of CPMV to result in anti-tumor effects in treated tumors and systemically at other sites of disease through immune activation. MIE-101 is currently in late-stage preclinical development and our goal is to advance MIE-101 into veterinary studies and into Phase I clinical trials within 18 to 24 months from the date we are able to raise sufficient funding.

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.

Going Concern and Management’s Plans

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. At September 30, 2023, the Company had cash and cash equivalents of $252,898 and has not yet generated any revenues. Therefore, our ability to continue our operations is highly dependent on our ability to raise 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 this Quarterly Report on Form 10-Q.

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. 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 conduct our business operations and may require us to cease our operations altogether. In addition, any additional equity financing may involve substantial dilution to our then existing stockholders. The above matters raise substantial doubt regarding our ability to continue as a going concern.

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

1. 2.Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Patriot Scientific Corporation (the “Company”, “PTSC”, “Patriot”, “we”, “us” or “our”) presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America. TheseThe accompanying unaudited condensed consolidated financial statements should therefore be read in conjunction with our auditedthe consolidated financial statements and notes thereto for the fiscal year ended December 31, 2022 included in ourthe Company’s Annual Report on Form 10-K for our fiscal year ended May 31, 2017.

10-K. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of the results for the interim period presented. Operating results for

Significant Accounting Policies

There have been no material changes to the six month periodCompany’s significant accounting policies during the three and nine months ended NovemberSeptember 30, 2017 are not necessarily indicative2023, as compared to the significant accounting policies disclosed in Note 2 – Summary of Significant Accounting Policies included in the results that may be expectedCompany’s Annual Report on Form 10-K for the year ending Mayended December 31, 2018.2022.

Basis of ConsolidationRecently Adopted Accounting Standards

The condensed consolidated balance sheets at November 30, 2017 and May 31, 2017 and condensed consolidated statements of operations and condensed consolidated statements of cash flows for the six months ended November 30, 2017 and 2016 include our accounts and those of our inactive subsidiaries: Patriot Data Solutions Group, Inc. (“PDSG”) which includes Crossflo Systems, Inc. (“Crossflo”), and Plasma Scientific Corporation. All significant intercompany accounts and transactionsThere have been eliminated.

Liquidity and Management’s Plans

Cash shortfalls currently experienced by Phoenix Digital Solutions, LLC (“PDS”) will have an adverse effect on our liquidity. To date, we have determined that it is in the best interests of the Moore Microprocessor Patent (“MMP”) licensing program that we provide our 50% share of capital to provide for PDS expenses including legal retainers, and litigation related payments in the event license revenues received by PDS are insufficient to meet these needs. We believe it is likely that contributions to PDS to fund working capital will continue to be required.

PDS had been incurring significant third-party costs for expert testimony, depositions and other related litigation costs. We could be required to make capital contributions to PDS for any future litigation related costs in the event that PDS does not receive sufficient licensing revenues to pay these expenses.

Our current liquid cash resources are expected to provide the funds necessary to support our operations through at least the next twelve months from the date of this report. The cash flows from our interest in PDS represent our only significant source of cash generation.  In the event of a continued decrease or interruption in MMP portfolio licensing we will incur a significant reduction to our cash position. It is highly unlikely that we would be able to obtain any additional sources of financing to supplement our cash and cash equivalents and short-term investment position.

On March 20, 2013, Technology Properties Limited, Inc. (“TPL”) filed a petition under Chapter 11 of the United States Bankruptcy Code. We have been appointed to the creditors’ committee. A Joint Plan of Reorganization (the “Joint Plan”) between TPL and the creditor’s committee was confirmedno new accounting pronouncements adopted by the Bankruptcy Court on February 11, 2015 with the entered confirmation order becoming final on April 2, 2015. In the event we are required to provide funding to PDS that is not reciprocatedCompany or new accounting pronouncements issued by TPL, our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our condensed consolidated financial statements.

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. Unrealized gains and losses, net of deferred taxes, are recorded as a component of other comprehensive income (loss). 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 condensed consolidated statements of operations.

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

Investment in Affiliated Company

We have a 50% interest in PDS (see Note 3). We account for our investment using 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 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 condensed 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.

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.

Earnings (Loss) Per Share

Basic earnings per share includes no dilution and is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity.

For the three and six months ended November 30, 2017, potential common shares of 2,600,000 related to our outstanding options were not included in the calculation of diluted loss per share as we recorded a loss. Had we reported net income for the three and six months ended November 30, 2017, no shares of common stock would have been included in the calculation of diluted income per share using the treasury stock method.

For the three and six months ended November 30, 2016, potential common shares of 2,600,000 related to our outstanding options were not included in the calculation of diluted income per share as their inclusion would be anti-dilutive. For the three and six months ended November 30, 2016, we included the PDSG escrow shares of 2,844,630 in the calculation of diluted income per share.

In connection with our acquisition of Crossflo, which is part of PDSG, we issued escrow shares that are contingent upon certain representations and warranties made by Crossflo at the time of the merger agreement (see Note 6). We excluded these escrow shares from the basic loss per share calculations and would have included the escrowed shares in the diluted income per share calculations if we reported net income for the three and six months ended November 30, 2017.

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.

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

Income Taxes (continued)

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. As a result of this determination we have recorded a full valuation allowance against our deferred tax assets.

We follow authoritative guidance to adjust our effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We are also required to record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections.

On December 22, 2017, the United States Government passed new tax legislation that, among other provisions, will lower the corporate tax rate from 35% to 21%. In addition to applying the new lower corporate tax rate in 2018 and thereafter to any taxable income we may have, the legislation affects the way we can use and carryforward net operating losses previously accumulated and results in a revaluation of deferred tax assets and liabilities recorded on our condensed consolidated balance sheet. Given that our current deferred tax assets are offset by a full valuation allowance, these changes will have no net impact on our condensed consolidated balance sheet. However, if we become profitable, we will receive a reduced benefit from such deferred tax assets.

Assessment of Contingent Liabilities

We are 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 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.

Intellectual Property Rights

PDS, our investment in affiliated company, relies 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. These patents, while expired, may have certain retrospective statutory benefits that will fully diminish six years after the patent expiration dates. The patent useful life for purposes of negotiating licenses is finite and these patents are subject to legal challenges, which in combination with the limited life, could adversely impact the stream of revenues. A successful challenge to the ownership of the technology or the proprietary nature of the intellectual property would materially damage business prospects. Any issued patent may be challenged and invalidated.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updateduring the three and nine months ended September 30, 2023, as compared to the recent accounting pronouncements described in Note 2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, that the Company believes are of significance or potential significance to the Company.

3.Fair Value of Financial Instruments

The Company’s financial instruments consist of money market funds as well as an anti-dilution issuance rights liability pursuant to the License Option Agreement with Case Western Reserve University (“ASU”CWRU”) 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(see Note 6). The anti-dilution issuance rights met the revenue recognition requirements indefinition of a derivative under ASC Topic 605, “Revenue Recognition”815, “Derivatives and Hedging”, 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 includeliability was carried at fair value until the capitalization and amortization of certain contract costs, ensuringCapital Threshold (see Note 6) was met during June 2023, at which point 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 new revenue standards are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period (fiscal year 2019 for the Company). Early adoption is permitted. We are currently assessing the potential impact of this standard on the revenues generated by PDS.anti-dilutions rights were extinguished.

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

Recent Accounting Pronouncements (continued)

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. ASU 2016-15 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years (fiscal 2019 for the Company). Early adoption is permitted. We have not yet determined the potential effects of the adoption of ASU 2016-15 on our condensed 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. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years (fiscal 2019 for the Company), with early adoption permitted. We are currently evaluating the effect ASU 2016-18 will have on our condensed consolidated statements of cash flows.

On December 22, 2017, the date the Tax Cuts and Jobs Act (“Tax Cuts Act”) was signed into law, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance regarding accounting for the income tax effects of the Tax Cuts Act, including the impact of the Tax Cuts Act on deferred tax assets and liabilities for financial statements issued in the reporting period that includes the enactment date of December 22, 2017. Given that our current deferred tax assets are offset by a full valuation allowance, these changes will have no net impact on our condensed consolidated financial statements. However, if we become profitable, we will receive a reduced benefit from such deferred tax assets.

2. Cash, 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 November 30, 2017 and May 31, 2017 consist of a savings account held as collateral for our corporate credit card account.

At November 30, 2017 and May 31, 2017, our short-term marketable securities in the amount of $2,256,105 and $2,203,396, respectively, consist of certificates of deposit with various financial institutions, with maturity dates between three months and twelve months from the purchase date.

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).

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

Cash, Cash Equivalents, Restricted Cash and Marketable Securities

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 September 30, 2023 and investments in marketable securities:December 31, 2022:

Patriot Scientific Corporation

Cash, Cash Equivalents, Restricted Cash and Marketable Securities (continued)Anti-Dilution Issuance Rights Derivative Liability

We purchase certificatesPursuant to the Series B Preferred Certificate of deposit with varying maturity dates. The following table summarizesDesignation, the purchase date maturities, gross unrealized gains or lossesSeries 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 Board approved employee stock option plan reserving for issuance no more than ten percent (10%) of the 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 excess of the Capital Threshold and therefore, we recorded no derivative liability as of September 30, 2023. As of December 31, 2022, the remaining Capital Threshold was $283,000.

To determine the estimated fair value of the certificatesanti-dilution issuance rights liability, the Company used a Monte Carlo simulation methodology, which models the future movement of deposit as of November 30, 2017:

We purchase certificates of deposit with varying maturity dates. The following table summarizesstock prices based on several key variables. At December 31, 2022, the purchase date maturities, gross unrealized gains or losses andestimated fair value of the certificatesanti-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 marked-to-market at each reporting period, with changes in fair value recognized in other income (expense) in the consolidated statements of deposit as of May 31, 2017:operations 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:

3. The fair value of the common stock 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.

4.Investment in Affiliated CompanyCompanies

On June 7, 2005,Holocom, Inc.

In February 2007, we entered into a Master Agreement (the “Master Agreement”) with TPL, and Charles H. Moore (“Moore”), the co-inventorinvested an aggregate of the technology$370,000 in Holocom in exchange for 2,100,000 shares of Series A Preferred Stock, which is the subject of the MMP Portfolio of microprocessor patents, pursuant to which the parties resolved all legal disputes between them.represented an approximate 46% ownership interest in Holocom, on an as-converted basis. Pursuant to the Master Agreement, we and TPL enteredarticles of incorporation of Holocom, the Series A Preferred Stock is convertible at our option into the Limited Liability Company Operating Agreementshares of PDS (the “LLC Agreement”) into which we and Moore contributedHolocom’s common stock 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 rights to certainshares of our technologies.

We and TPL each own 50% of the membership interests of PDS, and 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. There had not been a third management committee member since May 2010; however, as a result of our initiation of arbitration seeking the appointment of a third member, on December 16, 2014, an independent manager to the PDS management committee was selected by the arbitrator. Pursuant to the LLC Agreement, we and TPL initially agreed to establish a working capital fund for PDS of $4,000,000, of which our contribution was $2,000,000. The working capital fund was increased to a maximum of $8,000,000 as license revenues are achieved. We and TPL are obligated to fund future working capital requirements at the discretion of the management committee of PDS in order to maintain working capital of not more than $8,000,000. If the management committee determines that additional capital is required, neither we nor TPL are required to contribute more than $2,000,000 in any fiscal year. No such contributions were made during the three and six months ended November 30, 2017 and 2016. Distributable cash and allocation of profits and losses have been allocated to the members in the priority defined in the LLC Agreement.

On July 11, 2012, we entered into the Program Agreement with PDS, TPL, and Alliacense, and an Agreement (the “TPL Agreement”) with TPL. Pursuant to the Program Agreement, PDS engaged Alliacense to negotiate MMP portfolio licenses and to pursue claims against violators of the MMP portfolio on behalf of PDS, TPL, and the Company. The Program Agreement continued through the useful life of the MMP portfolio patents. Pursuant to the TPL Agreement, we and TPL agreed to certain allocations of obligations in connection with the engagement of Alliacense. On July 24, 2014, the Program Agreement was amended with PDS and Alliacense entering into the Amended Alliacense Services and Novation Agreement (the “Novation Agreement”). Pursuant to the Novation Agreement certain performance goals and incentives were established for Alliacense. The Novation Agreement also provided for the addition of 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 company and on May 11, 2015, Alliacense was terminated by PDS.

Series A Preferred Stock.

Patriot Scientific Corporation

InvestmentOn July 6, 2022, we entered 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 Affiliated Company (continued)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:

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. 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 12% per annum from its original due date for amounts not paid within 90 days of 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 August 10, 2016, PDSJune 21, 2023, we entered into an agreement with Alliacense and MMP Licensing, LLCamendment to settle matters relatingthe Redemption Agreement (“Amendment No. 1”) to Alliacense’s non-performance under termsredeem the remaining 910,000 shares of the Novation Agreement. The August 10, 2016 agreement requires Alliacense to provide PDS’s second licensing company with certain materials and to cooperate with reasonable discovery requests relating to infringement litigation currently pendingSeries A Preferred Stock outstanding in the U.S. District Courtexchange for the Northern Districta lump sum payment of California. MMP Licensing, LLC will provide commercialization services to PDS$300,000 (in lieu of monthly payments), representing a redemption price of approximately $0.33 per share. As of June 30, 2023, we redeemed in aggregate, 2,100,000 shares of Series A Preferred Stock, in exchange for the MMP portfolio with respect to certain companies. PDS and Alliacense have agreed to cause the arbitration between the parties to be dismissed with prejudice. The August 10, 2016 agreement will expire on October 4, 2022. Termsaggregate net proceeds received by us of the settlement agreement required PDS to pay Alliacense $84,000 within 24 hours after delivery of materials to PDS’s second licensing agent and to pay Alliacense $84,000 out of subsequent recoveries. On August 11, 2016, PDS paid Alliacense $84,000.$776,000 as follows:

During January 2013, TPL and Moore settled their litigation. TermsAs of the settlement included the payment by PDSJune 30, 2023, Holocom had no further obligations to Moore of a consulting fee of $250,000 for four years or until the completion of all outstanding MMP litigation whichever came first. Per terms of the agreement PDS paid Moore $150,000 on the settlement date and paid Moore $16,667 per month from August 2013 through January 2014 and paid $20,833 per month from February 2014 through January 2017. During the three and six months ended November 30, 2016, PDS expensed $62,499 and $124,998, respectively, pursuant to this commitment. These expenses are recorded in the accompanying PDS statements of operations presented below.

Based on our analysis of current authoritative accounting guidance with respect to our investment in PDS, we continue to account for our investment in PDSus under the equity method of accounting, and accordingly have recorded our share of PDS’s net loss during the three and six months ended November 30, 2017 of $104,690 and $117,892, respectively, as a decrease in our investment. We have recorded our share of PDS’s net income during the three and six months ended November 30, 2016 of $1,247,280 and $1,191,885, respectively, as an increase in our investment.Redemption Agreement or any other arrangement.

We have recorded our share of PDS’s net income and loss for the three and six months ended November 30, 2017 and 2016 as “Equity in earnings (loss) of affiliated company” in the accompanying condensed consolidated statements of operations.

On March 20, 2013, TPL filed a petition under Chapter 11 of the United States Bankruptcy Code. A Joint Plan of Reorganization (the “Joint Plan”) between TPL and the creditor’s committee was confirmed by the Bankruptcy Court on February 11, 2015 with the entered confirmation order becoming final on April 2, 2015.  We have been appointed to the creditors’ committee. In the event we are required to provide funding to PDS that is not reciprocated by TPL, our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our condensed 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.

PDS’s balance sheets at November 30, 2017 and May 31, 2017 and statements of operations for the three and six months ended November 30, 2017 and 2016 are as follows:

Balance Sheets

Assets:

Liabilities and Members’ Equity:

Patriot Scientific Corporation

Investment in Affiliated Company (continued)

Statements of Operations