UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2021~~March 31, 2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number 0-22182

MOSAIC IMMUNOENGINEERING, INC.

(Exact name of registrant as specified in its charter)

Delaware

~~84-1070278~~

(State or other jurisdiction of

incorporation or organization)

84-1070278

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

1537 South Novato Blvd, #5, Novato, California

~~94947~~

(Address of principal executive offices)

94947

(Zip Code)

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

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

Title of each class		Trading Symbol		Name of each exchange on which registered
None		None		None

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~~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~~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~~filer ☐	Accelerated ~~Filer~~filer ☐
Non-accelerated ~~Filer~~filer ☒	Smaller reporting company ☒
	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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

On ~~November 1, 2021,~~May 10, 2022, ~~7,228,093~~7,241,137 shares of common stock, par value $0.00001 per share, were outstanding.

INDEX

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	34
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2419
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2923
Item 4. Controls and Procedures	3023
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	3124
Item 1A. Risk Factors	3124
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4643
Item 3. Defaults Upon Senior Securities	4643
Item 4. Mine Safety Disclosures	4643
Item 5. Other Information	4643
Item 6. Exhibits	4744

SIGNATURES	4845

~~EXPLANATORY NOTE REGARDING THE REVERSE MERGER~~

Unless the context otherwise requires, references to the “Company,” the “combined company,” “Mosaic,” “we,” “our,” or “us” in this Quarterly Report on Form 10-Q refer to Mosaic ImmunoEngineering, Inc. and its subsidiaries (formerly known as Patriot Scientific Corporation). References to “PTSC” and “Private Mosaic” refer to Patriot Scientific Corporation and privately held Mosaic ImmunoEngineering, Inc., respectively, prior to the completion of ~~the Reverse Merger (as discussed below) and references to “Private Mosaic” refer to privately held Mosaic ImmunoEngineering, Inc. prior to the completion of the Reverse Merger.~~

~~Reverse Merger~~

As reported in our Current Report on Form 8-K, filed with the Securities and Exchange Commission (the “SEC”) on August 24, 2020 (“Original Form 8-K”), PTSC and Private Mosaic, a Delaware corporation organized on March 30, 2020 (date of inception), entered into a stock purchase agreement (“Stock Purchase Agreement”) on August 19, 2020, whereby one of PTSC’s wholly-owned subsidiaries merged with and into Private Mosaic, with Private Mosaic surviving as the Company’s wholly owned subsidiary (the “Reverse Merger”). On August 21, 2020, the transaction closed (“Closing Date”) in accordance with the terms of the Stock Purchase Agreement.

On the Closing Date, PTSC acquired 100% of the issued and outstanding common stock of Private Mosaic, representing 630,000 shares of its Class A common stock (“Class A Stock”) and 70,000 shares of its Class B common stock (“Class B Stock”) (collectively referred to as “Target Common Stock”). In exchange for the Target Common Stock, the holders of the Class A Stock received 630,000 shares of the Company’s Series A Convertible Voting Preferred Stock (“Series A Preferred”) and holders of the Class B Stock received 70,000 shares of the Company’s Series B Convertible Voting Preferred Stock (“Series B Preferred”). Each share of Series A Preferred converted into 10.194106 shares of common stock of the Company pursuant to the Series A Certificate of Designation. Each share of Series B Preferred converts into 11.46837 shares of common stock of the Company, possesses full voting rights, on an as-converted basis, as the common stock of the Company and contains certain anti-dilution rights, as defined in the Series B Certificate of Designation. On a fully diluted, as converted basis, the holders of Series A Preferred and Series B Preferred, in aggregate, owned 90% of the issued and outstanding common stock of the combined company 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 is 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 of director 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. The Reverse Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.August 2020.

Based on the inception of Private Mosaic on March 30, 2020, the financial condition and results of operations of the Company for the periods presented in this Quarterly Report on Form 10-Q bear no relationship to the future business, financial condition and results of operations of the Company, and are not indicative of the business, financial condition and results of operations of the Company, for any future period.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“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,~~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 ~~the~~these 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~~statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” in Part II, Item 1A of this Quarterly Report on Form 10-Q as ~~a result of various factors, including, but not limited to those items shown under~~ ~~“Part I. Item 2. Management’s Discussion~~well as information provided elsewhere in this Quarterly Report on Form 10-Q and ~~Analysis of Financial Condition~~our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and ~~Results of Operations - Cautionary Note Regarding Forward-Looking Statements”.~~Exchange Commission (the SEC) on January 26, 2022. You should ~~read this report completely~~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 ~~understanding that our actual results~~Company may ~~differ~~ ~~materially from what we expect. Unless~~issue in the future as well as other cautionary statements the Company has made and may make. Except as required by law, wethe Company does not undertake noany obligation to release publicly ~~disclose the result of~~ any ~~revision of~~revisions to these forward-looking statements after completion of the filing of this Report to reflect later events or circumstances ~~after the date they are made~~ or ~~to reflect~~ 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

The following is a summary of the principal risks that could adversely affect our business, financial condition, operating results, cash flows or stock price. Discussion of the risks listed below, and other risks that we face, are discussed in the section titled “Risk Factors” in Part II, Item 1A of this Report.

Risks Related to Our Operations

	·	The Company’s financial statements have been prepared on a going concern basis, and do not include adjustments that might be necessary if the Company is unable to continue as a going concern.
	·	We expect that we will incur significant losses over the next several years and may never achieve or maintain profitability.
	·	We are early in our development efforts and our product candidates are 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.
	·	Business interruptions resulting from the coronavirus disease (COVID-19) outbreak or similar public health crises could cause a disruption of the development of our product candidates and adversely impact our business.
	·	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 our product candidates.
	·	If serious adverse events or unacceptable side effects are identified during the development of our product candidates, we may need to abandon or limit our development of some of our product candidates.
	·	Our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our or third parties’ cyber security.
	·	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 will need substantial additional funding. If we are unable to raise capital when needed, we would be compelled to delay, reduce or eliminate our product development programs or commercialization efforts.
	·	Raising capital will cause dilution to our stockholders, restrict our operations, or require us to relinquish rights to our technologies or product candidates.
	·	Because the reverse merger in August 2020 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.

Risks Related to the Commercialization of Our Product Candidates

	·	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.

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 our 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 our 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 have not been independently verified and could turn out to be inaccurate, misleading, or incomplete.

Risks Related to Our Intellectual Property

	·	If we or Case Western Reserve University (“CWRU”) are unable to obtain and maintain intellectual property protection for technology and products under the License Agreement or if the scope of the intellectual property protection obtained by CWRU 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 in the License Agreement with CWRU 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 the option to license those rights or other rights that are important to our business.
	·	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

	·	Our common stock is quoted on the OTCQB tier of the OTC Markets, which could adversely affect the market price and liquidity of our common stock.
	·	If we fail to meet the eligibility requirements of OTCQB, we could be removed from the OTCQB which would limit the ability of broker-dealers to sell our securities in the secondary market.
	·	Our Board has discretionary authority to implement a Discretionary Reverse Stock Split at a ratio ranging from 1-for-2 to 1-for-4 at any time on or before June 25, 2022.
	·	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.

PART I- FINANCIAL INFORMATION

Item 1.

Financial Statements

Mosaic ImmunoEngineering, Inc.

Condensed Consolidated Balance Sheets

September 30,
2021

December 31,
2020

unaudited
ASSETS
Current assets:
Cash and cash equivalents $ 393,121 $ 352,738
Prepaid expenses and other current assets 52,536 51,349
Investment in affiliated company 0 27,637
Refundable income taxes 0 26,078
Total current assets 445,657 457,802
Total assets $ 445,657 $ 457,802

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable $ 114,296 $ 86,014
Accrued payable to founders 0 49,997
Derivative liability 104,300 83,500
Accrued expenses and other 1,718,974 660,832
Total current liabilities 1,937,570 880,343

Convertible notes 709,831 0

Total liabilities 2,647,401 880,343

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; 0 shares and 630,000 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 0 6
Series B Convertible Voting Preferred Stock; 70,000 shares designated; 70,000 shares issued and outstanding as of September 30, 2021 and December 31, 2020 1 1
Common stock, $0.00001 par value: 100,000,000 shares authorized: 7,228,093 and 805,803 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 72 8
Additional paid-in capital 1,475,147 420,198
Accumulated deficit (3,676,964 ) (842,754 )
Total stockholders’ deficit (2,201,744 ) (422,541 )
Total liabilities and stockholders’ deficit $ 445,657 $ 457,802


	March 31, 2022			December 31, 2021
		unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	378,055		$	226,142
Prepaid expenses and other current assets		25,535			43,352
Total current assets		403,590			269,494
Total assets	$	403,590		$	269,494

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	133,393		$	113,513
Derivative liability		103,800			104,300
Accrued compensation		1,647,153			1,391,297
Accrued expenses and other		830,999			724,247
Total current liabilities		2,715,345			2,333,357

Convertible notes		1,111,735			735,148

Total liabilities		3,827,080			3,068,505

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; 0 shares issued and outstanding		0			0
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: 7,241,137 shares issued and outstanding		72			72
Additional paid-in capital		1,867,153			1,728,148
Accumulated deficit		(5,290,716	)		(4,527,232	)
Total stockholders’ deficit		(3,423,490	)		(2,799,011	)

Total liabilities and stockholders’ deficit	$	403,590		$	269,494

See accompanying notes to unaudited condensed consolidated financial ~~statements~~statements.

Mosaic ImmunoEngineering, Inc.

Condensed Consolidated Statements of Operations

For the Three Months Ended March 31, 2022 and 2021

(Unaudited)


	Three months ended September 30, 2021			Three months ended September 30, 2020			Nine months ended September 30, 2021			For the Period March 30, 2020⁽¹⁾ to September 30, 2020
													Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Operating expenses:
Research and development	$	439,926		$	220,083		$	1,062,841		$	220,083		$	327,659		$	246,148
General and administrative		521,131			162,344			1,613,366			162,855			401,377			558,300
Total operating expenses		961,057			382,427			2,676,207			382,938			729,036			804,448

Other income (expense):
Interest income		12			55			28			55			7			5
Change in valuation of derivative liability		0			0			(20,800	)		0			500			0
Non-cash interest expense on convertible notes		(11,595	)		0			(18,526	)		0			(14,488	)		0
Equity in loss of affiliated company		0			(4,153	)		0			(4,153	)
Accretion to redemption value on convertible notes		(75,303	)		0			(116,305	)		0			(20,467	)		0
Total other expense, net		(86,886	)		(4,098	)		(155,603	)		(4,098	)
Total other income (expense), net														(34,448	)		5

Loss before income taxes		(1,047,943	)		(386,525	)		(2,831,810	)		(387,036	)

Loss before provision for income taxes														(763,484	)		(804,443	)

Provision for income taxes		0			0			2,400			0			0			2,400

Net loss	$	(1,047,943	)	$	(386,525	)	$	(2,834,210	)	$	(387,036	)	$	(763,484	)	$	(806,843	)


Basic and diluted loss per common share	$	(0.15	)	$	(0.52	)	$	(0.43	)	$	(1.05	)	$	(0.11	)	$	(0.15	)

Weighted average number of common shares outstanding – basic and diluted		7,222,403			743,271			6,540,182			369,627			7,235,447			5,224,357

⁽¹⁾

~~Private Mosaic was incorporated on March 30, 2020.~~

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, 2021~~

Series A Convertible Series B Convertible Voting Preferred Class A Class B Common Stock Common Stock Additional Paid-in Accumulated Total Stockholders’
Voting Preferred Common Stock Common Stock
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Subscribed Capital Deficit Deficit

Balances, June 30, 2021 – $ – 70,000 $ 1 – – 7,228,093 $ 72 $ – $ 1,115,162 $ (2,629,021 ) $ (1,513,786 )

Share-based compensation – – – – – – – – – 359,985 – 359,985

Net loss – – – – – – – – – – (1,047,943 ) (1,047,943 )

Balances, September 30, 2021 – $ – 70,000 $ 1 – – 7,228,093 $ 72 $ – $ 1,475,147 $ (3,676,964 ) $ (2,201,744 )

~~For the Three Months Ended September 30, 2020~~

Series A Convertible Voting Preferred Series B Convertible Voting Preferred Common Stock Subscribed
Class A
Common Stock

Shares Amount Shares Amount Amount Shares Amount

Balances, June 30, 2020 ⁽¹⁾ – $ – – $ – $ 63 – $ –

Issuance of Class A Common Stock to founders – – – – (63 ) 630,000 63

Issuance of Class B Common Stock under License Option Agreement – – – – – – –

Exchange of Class A and Class B Common Stock for Series A and Series B Convertible Voting Preferred Stock under Reverse Merger 630,000 6 70,000 1 – (630,000 ) (63 )

Net assets acquired under Reverse Merger – – – – – – –

Net loss – – – – – – –

Balances, September 30, 2020 630,000 $ 6 70,000 $ 1 $ – – $ –

Class B
Common Stock
Common Stock Additional Paid-in Accumulated Total Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit

Balances, June 30, 2020 ⁽¹⁾ – $ – – $ – $ – $ (511 ) $ (448 )

Issuance of Class A Common Stock to founders – – – – – – –

Issuance of Class B Common Stock under License Option Agreement 70,000 7 – – – – 7

Exchange of Class A and Class B Common Stock for Series A and Series B Convertible Voting Preferred Stock under Reverse Merger (70,000 ) (7 ) – – 63 – –

Net assets acquired under Reverse Merger – – 802,786 8 374,427 – 374,435
��
Net loss – – – – – (386,525 ) (386,525 )

Balances, September 30, 2020 – $ – 802,786 $ 8 $ 374,490 $ (387,036 ) $ (12,531 )

Mosaic ImmunoEngineering Inc.

Condensed Consolidated Statements of Stockholders’ Deficit

For the Three Months Ended March 31, 2022 and 2021

(Unaudited) ~~(Continued)~~

For the ~~Nine~~Three Months Ended ~~September 30, 2021~~March 31, 2022

Series A Convertible Voting Preferred Stock Series B Convertible Voting Preferred Stock Class A Common Stock Class B Common Stock Common Stock Common Stock Subscribed Additional Paid-in Accumulated Total Stockholders’
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Amount Capital Deficit Deficit
Balances, December 31, 2020 630,000 $ 6 70,000 $ 1 – – 805,803 $ 8 – $ 420,198 $ (842,754 ) $ (422,541 )

Conversion of Series A Convertible Voting Preferred Stock (630,000 ) (6 ) – – – – 6,422,290 64 – (58 ) – –

Share-based compensation – – – – – – – – – 1,055,007 – 1,055,007

Net loss – – – – – – – – – – (2,834,210 ) (2,834,210

Balances, September 30, 2021 – $ – 70,000 $ 1 – – – 7,228,093 $ 72 – $ 1,475,147 $ (3,676,964 ) $ (2,201,744 )


	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, January 1, 2022	–	$	–	70,000	$	1	7,241,137	$	72	$	1,728,148	$	(4,527,232	)	$	(2,799,011	)

Share-based compensation	–		–	–		–	–		–		139,005		–			139,005

Net loss	–		–	–		–	–		–		–		(763,484	)		(763,484	)

Balances, March 31, 2022	–	$	–	70,000	$	1	7,241,137	$	72	$	1,867,153	$	(5,290,716	)	$	(3,423,490	)

For the ~~Period~~Three Months Ended March ~~30, 2020 (date of inception) to September 30, 2020~~31, 2021

Series A Convertible Voting Preferred Stock Series B Convertible Voting Preferred Stock Common Stock Subscribed
Class A
Common Stock

Shares Amount Shares Amount Amount Shares Amount

Balances, March 30, 2020 ⁽¹⁾ – $ – – $ – $ – – $ –

Common stock subscribed and not yet issued to founders – – – – 63 – –

Issuance of Class A Common Stock to founders – – – – (63 ) 630,000 63

Issuance of Class B Common Stock under License Option Agreement – – – – – – –

Exchange of Class A and Class B Common Stock for Series A and Series B Convertible Voting Preferred Stock under Reverse Merger 630,000 6 70,000 1 – (630,000 ) (63 )

Net assets acquired under Reverse Merger – – – – – – –

Net loss – – – – – – –

Balances, September 30, 2020 630,000 $ 6 70,000 $ 1 $ – – $ –

Class B
Common Stock
Common Stock Additional Paid-in Accumulated Total Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit

Balances, March 30, 2020 ⁽¹⁾ – $ – – $ – $ – $ – $ –

Common stock subscribed and not yet issued to founders – – – – – – 63

Issuance of Class A Common Stock to founders – – – – – – –

Issuance of Class B Common Stock under License Option Agreement 70,000 7 – – – – 7

Exchange of Class A and Class B Common Stock for Series A and Series B Convertible Voting Preferred Stock under Reverse Merger (70,000 ) (7 ) – – 63 – –

Net assets acquired under Reverse Merger – – 802,786 8 374,427 – 374,435

Net loss – – – – – (387,036 ) (387,036 )

Balances, September 30, 2020 – $ – 802,786 $ 8 $ 374,490 $ (387,036 ) $ (12,531 )

⁽¹⁾

~~Private Mosaic was incorporated on March 30, 2020.~~

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Mosaic ImmunoEngineering, Inc.~~

~~Condensed Consolidated Statement of Cash Flows~~

~~(Unaudited)~~

Nine Months Ended
September 30, 2021

For the Period
March 30, 2020⁽¹⁾to
September 30, 2020

Operating activities:
Net loss $ (2,834,210 ) $ (387,036 )
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation 1,055,007 0
Equity in loss of affiliated company 0 4,153
Fair value of common stock issued under License Option Agreement 0 7
Anti-dilution rights derivative liability expense 0 83,500
Change in fair value of derivative liability 20,800 0
Non-cash interest on convertible notes 18,526 0
Accretion to redemption value on convertible notes 116,305 0
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (1,187 ) (4,753 )
Refundable income taxes 26,078 0
Accounts payable 28,282 (77,956 )
Accrued payable to founders 0 51,152
Accrued expenses and other 1,058,142 262,945
Net cash used in operating activities (512,257 ) (67,988 )

Investing activities:
Proceeds from dissolution of affiliate 27,637 0
Net cash, cash equivalents and restricted cash acquired in Reverse Merger 0 605,215
Net cash provided by investing activities 27,637 605,215

Financing activities:
Proceeds from the issuance of convertible notes 525,003 0
Proceeds from the issuance of Class A common stock 0 63
Net cash provided by financing activities 525,003 63

Net increase in cash and cash equivalents 40,383 537,290

Cash and cash equivalents, beginning of period 352,738 0

Cash and cash equivalents, end of period $ 393,121 $ 537,290

Supplemental disclosure of non-cash financing activities:
Conversion of Series A Convertible Voting Preferred Stock to common stock $ 64 $ 0
Conversion of accrued payable to founder to convertible note $ 49,997 $ 0
Net liabilities assumed in Reverse Merger, net of cash and restricted cash acquired $ 0 $ 230,780

Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 2,400 $ 0

⁽¹⁾

~~Private Mosaic was incorporated on March 30, 2020.~~

	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, January 1, 2021	630,000		$	6		70,000	$	1	805,803	$	8	$	420,198		$	(842,754	)	$	(422,541	)

Conversion of Series A Convertible Voting Preferred Stock	(630,000	)		(6	)	–		–	6,422,290		64		(58	)		–			–

Share-based compensation	–			–		–		–	–		–		274,243			–			274,243

Net loss	–			–		–		–	–		–		–			(806,843	)		(806,843	)

Balances, March 31, 2021	–		$	–		70,000	$	1	7,228,093	$	72	$	694,383		$	(1,649,597	)	$	(955,141	)

See accompanying notes to unaudited condensed consolidated financial statements.

Mosaic ImmunoEngineering, Inc.

Condensed Consolidated Statement of Cash Flows

For the Three Months Ended March 31, 2022 and 2021

(Unaudited)


	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Operating activities:
Net loss	$	(763,484	)	$	(806,843	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation		139,005			274,243
Change in fair value of derivative liability		(500	)		0
Non-cash interest on convertible notes		14,488			0
Accretion to redemption value on convertible notes		20,467			0
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		17,817			19,897
Accounts payable		19,880			4,430
Accrued compensation		255,856			221,530
Accrued expenses and other		106,752			116,368
Net cash used in operating activities		(189,719	)		(170,375	)

Investing activities:
Proceeds from dissolution of affiliate		0			27,637
Net cash provided by investing activities		0			27,637

Financing activities:
Proceeds from the issuance of convertible notes		341,632			0
Net cash provided by financing activities		341,632			0

Net change in cash and cash equivalents		151,913			(142,738	)

Cash and cash equivalents, beginning of period		226,142			352,738

Cash and cash equivalents, end of period	$	378,055		$	210,000

Supplemental disclosure of non-cash financing activities:
Conversion of Series A Convertible Voting Preferred Stock to common stock:	$	0		$	64

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	0		$	0
Cash paid for interest	$	0		$	0

See accompanying notes to unaudited condensed consolidated financial statements.

Mosaic ImmunoEngineering, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022

Unless the context otherwise requires, references to the “Company,” the “combined company,” “Mosaic,” “we,” “our,” or “us” in this quarterly report on Form 10-Q refer to Mosaic ImmunoEngineering, Inc. and its subsidiaries (formerly known as Patriot Scientific Corporation). References to “PTSC” and “Private Mosaic” refer to Patriot Scientific Corporation and privately held Mosaic ImmunoEngineering Inc., respectively, prior to the completion of the ~~Reverse Merger (as discussed below) and references to “Private Mosaic” refer to privately held Mosaic ImmunoEngineering, Inc. prior to the completion of the Reverse Merger.~~reverse merger in August 2020.

1. Organization and Business

Organization

Mosaic ImmunoEngineering, Inc. (the “Company,” “combined 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 ~~preclinical,~~ development-stage biotechnology company focused on developing and eventually commercializing our proprietary ~~technology designed to activate the innate immune system to treat and prevent cancer and infectious diseases.~~immunomodulator platform technology. Our lead immunomodulator product candidate, MIE-101, is based on a naturally occurring plant virus ~~that~~known as Cowpea mosaic virus (or CPMV) which is believed to be non-infectious in ~~animals~~humans and ~~humans but has been~~animals. However, because of its virus protein characteristics 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 administration of CPMV to ~~act as strong adjuvant that activates multiple Toll-like receptors (“TLRs”)~~result in anti-tumor effects in treated tumors and systemically at other sites of disease through ~~its natural~~ immune ~~recognition. When injected into a tumor,~~activation. MIE-101 ~~naturally triggers the body’s innate immune system, thereby altering the tumor microenvironment~~is currently in late-stage preclinical development and ~~directing activated anti-tumor T cells to attack both the injected tumor as well as other tumors throughout the body. Our~~our goal is to advance MIE-101 into ~~human and~~ veterinary studies in 2022 ifand into Phase I clinical trials in 2023, provided we are able to raise sufficient ~~funding becomes available.~~funding.

The Company has two wholly owned subsidiaries: Mosaic ImmunoEngineering Development Company (formerly referred to as Private Mosaic in connection with the ~~Reverse Merger)~~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. Patriot Data Solutions Group (formerly known as Crossflo Systems, Inc.) was acquired in September 2008 and was previously engaged in data-sharing services and products primarily in the public safety and government sector. During April 2012, PTSC sold substantially all of the assets in Patriot Data Solutions Group.

On August 21, 2020, we completed a reverse merger transaction pursuant to a stock purchase agreement by and between PTSC (now known as Mosaic ImmunoEngineering Inc.) and Private Mosaic as further described below.

~~Stock Purchase Agreement~~

On August 19, 2020, Patriot Scientific Corporation (now known as Mosaic ImmunoEngineering, Inc.) and Private Mosaic entered into a stock purchase agreement (“Stock Purchase Agreement”), whereby one of the wholly owned subsidiaries of Patriot Scientific Corporation merged with and into Private Mosaic, with Private Mosaic surviving as a wholly owned subsidiary of Patriot Scientific Corporation (the “Reverse Merger”) (see Note 2). The transaction closed on August 21, 2020 (“Closing Date”) in accordance with the terms of the Stock Purchase Agreement.

~~On the Closing Date, Patriot Scientific Corporation acquired 100% of the issued and outstanding common stock of Private Mosaic, representing~~ ~~630,000~~ ~~shares of its Class A common stock (“Class A Stock”) and~~ ~~70,000~~ ~~shares of its Class B common stock (“Class B Stock”) (collectively referred to as “Target Common Stock”). In exchange for the Target Common Stock, the holders of the Class A Stock received~~ ~~630,000~~ shares of Patriot Scientific Corporation’s (now known as Mosaic ImmunoEngineering, Inc.) Series A Convertible Voting Preferred Stock (“Series A Preferred”) and holders of the Class B Stock received ~~70,000~~ shares of Patriot Scientific Corporation’s (now known as Mosaic ImmunoEngineering, Inc.) Series B Convertible Voting Preferred Stock (“Series B Preferred”). Each share of Series A Preferred converted into ~~10.194106~~ ~~shares of common stock of the Company pursuant to the Series A Certificate of Designation (see Note 8). Each share of Series B Preferred converts into~~ ~~11.46837~~ shares of common stock of the Company, possesses full voting rights, on an as-converted basis, as the common stock of the Company and contains certain anti-dilution rights, as defined in the Series B Certificate of Designation. On a fully diluted, as converted basis, the holders of Series A Preferred and Series B Preferred, in aggregate, owned approximately 90% of the issued and outstanding shares of common stock of the Company as of the Closing Date.

Private Mosaic was determined to be the accounting acquirer based upon the terms of the Stock Purchase Agreement and other factors including: (i) Private Mosaic stockholders owned 90% of the combined organization immediately following the Closing Date, (ii) Private Mosaic directors held a majority of board seats in the combined organization and (iii) Private Mosaic management held all key positions in the management of the combined company.

~~Reverse Stock Split~~

On October 21, 2020 and October 22, 2020, our Board of Directors and majority shareholders, respectively, approved the Reverse Stock Split of one (1) share of our common stock for every 500 shares of our common stock (“~~1-for-500~~”). On November 30, 2020, we filed the Amended and Restated Certificate to effect a Reverse Stock Split on December 2, 2020, whereby every 500 shares of the Company’s issued and outstanding common stock were combined into one share of its common stock, except to the extent that the Reverse Stock Split resulted in any of the Company’s stockholders owning a fractional share, which was rounded up to the next highest whole share. In connection with the Reverse Stock Split, there was no change in the par value per share of $0.00001. The accompanying unaudited condensed consolidated financial statements and notes give retroactive effect to the reverse stock split for all periods presented.

In addition, on June 10, 2021 and June 14, 2021, our Board of Directors and majority shareholders, respectively, approved a discretionary reverse stock split whereby our Board of Directors have broad authority to implement a future reverse stock split at a ratio ranging from 1-for-2 to 1-for-4 at any time on or before June 25, 2022 in order to meet the initial listing bid price requirement and other listing regulations of the Nasdaq Stock Market or other national exchanges. The Board believes that listing our common stock on a national exchange will increase the liquidity of our common stock by providing us with a market for our common stock that is more accessible than if our common stock were to continue to trade on the OTCQB or on the “pink sheets” maintained by the OTC Markets Group, Inc. If the Board of Directors believes that a discretionary reverse stock split is in the best interests of the Company and its shareholders, it will consider certain factors in selecting the specific reverse stock split ratio, including prevailing market conditions, the trading price of our common stock and the steps that we will need to take in order to meet the initial listing bid price requirement and other listing regulations of the Nasdaq Stock Market or other national exchanges. We currently do not expect to list our securities on the Nasdaq Stock Market or other national exchange until after we have filed our Annual Report on Form 10-K for the year ending December 31, 2021.

Liquidity 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, 2021,~~March 31, 2022, the Company had cash and cash equivalents of $~~393,121~~378,055 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. In addition, the continuation of disruptions caused by COVID-19 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 conduct our business operations. 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.

118

Mosaic ImmunoEngineering, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 (continued)

2. 2.Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements 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. The accompanying unaudited condensed consolidated financial statements should therefore be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Certain reclassifications have been made to amounts in prior periods to conform to the current period presentation. All reclassifications have been applied consistently to the periods presented. Such reclassifications have no effect on net loss as previously reported. All intercompany ~~accounts and~~ transactions have been eliminated.

~~In conjunction with the Reverse Merger, Private Mosaic’s historical results of operations replaced PTSC’s historical~~ The results of operations for all periods prior to the Reverse Merger and, for all periods following the Reverse Merger, the results of operations of the combined company are included in the Company’s unaudited condensed consolidated financial statements. Since Private Mosaic was incorporated on March 30, 2020, prior year financial information covers the period March 30, 2020 (date of inception) to September 30, 2020. In addition, operating results for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 are not necessarily indicative of the results that may be expected for the ~~full~~fiscal year ending December 31, ~~2021.~~2022 or any other period.

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.

~~Segment Reporting~~Significant Accounting Policies

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

~~Reverse Merger~~

~~On August 21, 2020, Private Mosaic completed a Reverse Merger with PTSC pursuant to which Private Mosaic merged into PTSC (see Note 1). Due~~no material changes to the nominal assets and limited operations of PTSC prior to the Reverse Merger, the transaction was treated as a reverse acquisition under the provision of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 whereby Private Mosaic became theCompany’s significant accounting acquirer (legal acquiree) and PTSC was treated as the accounting acquiree (legal acquirer). As the transaction was treated as a reverse asset acquisition, no intangibles, including goodwill, were recognized. The net tangible assets acquired and liabilities assumed totaled $374,435 which were acquired by Private Mosaic in connection with the transaction and were recorded at their estimated acquisition date fair values as of the Closing Date, as follows:

Schedule of assets acquired and liabilities assumed
Cash and cash equivalents $ 427,971
Restricted cash and cash equivalents 177,244
Refundable income taxes 26,078
Prepaid expenses and other current assets 10,402
Investment in affiliated company 32,739
Accounts payable, accrued expenses and other (299,999 )
Net assets acquired $ 374,435

~~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~~

~~We had a~~ 50% interest in Phoenix Digital Solutions LLC (“PDS”). On September 29, 2020, the managing members of PDS agreed to wind up and dissolve PDS as the underlying intellectual property was not deemed enforceable by the managing members. In January 2021, the remaining assets of PDS were distributed to its members (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.~~

We invest our cash and cash equivalents primarily in money market funds. Cash and cash equivalents are maintained with high quality financial institutions, 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.

~~Fair Value of Financial Instruments~~

Our financial instruments consist principally of cash and cash equivalents, accounts payable, accrued payable to founders, derivative liability, accrued expenses and 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. We record the derivative liability at fair value (see Note 3). The convertible notes are initially recorded at their amortized cost and are being accreted to their redemption value over the estimated conversion period using the effective interest method (see Note 7).

~~Use of Estimates~~

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make 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 expensespolicies during the reporting period. Significant estimates in these unaudited condensed 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 benefit 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 making such accounting estimates and assumptions, the actual financial statement results could differ materially from such accounting estimates and assumptions.

~~Convertible Notes~~

The Company follows 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 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 (see Note 7).

~~Assessment of Contingent Liabilities~~

We 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 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.

~~Share-Based Compensation~~

We account for restricted stock units (“RSUs”) and other share-based awards granted under our equity compensation plan in accordance with the authoritative 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 is recognized as expense on a straight-line basis over the period of vesting. Forfeitures are recognized as a reduction of share-based compensation expense as they occur. At September 30, 2021, 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 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 Series 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 A and Series B Preferred outstanding during the period is calculated using the if-converted method assuming the conversion of Convertible Notes and Series A 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 three and nine months ended September 30, 2021 and~~ the three months ended ~~September 30, 2020 and~~March 31, 2022, as compared to the significant accounting policies disclosed in Note 2 – Summary of Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the ~~period March 30, 2020 (date of inception) to September 30, 2020, as the effect of their inclusion would have been anti-dilutive during periods of net loss:~~

Schedule of anti-dilutive shares

Three months
ended
September 30, 2021

Three months
ended
September 30, 2020

Nine months
ended
September 30, 2021

For the Period
March 30,
2020⁽¹⁾ to
September 30, 2020

Convertible Notes 241,955 0 130,283 0
Series A and Series B Preferred 802,786 3,219,871 802,786 1,601,233
Unvested RSUs 510,400 0 451,547 0
Total 1,555,141 3,219,871 1,384,616 1,601,233

~~Moreover, in connection with an acquisition of Crossflo by PTSC (see Note 1),~~ ~~5,690~~ escrow shares 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.year ended December 31, 2021.

Recently Adopted Accounting Standards

~~In December 2019,~~There have been no new accounting pronouncements adopted by the Company or new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) ~~issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying~~during the ~~Accounting for Income Taxes” (“ASU 2019-12”), which simplifies~~three months ended March 31, 2022, as compared to the recent accounting ~~for income taxes by removing certain exceptions and improving consistent application~~pronouncements described in ~~certain areas~~Note 2 of Topic 740. ASU 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, however, early adoption is permitted. The Company adopted ASU 2018-13 effective January 1, 2021. Implementation of this guidance did not have a material impact on the Company’s ~~unaudited condensed consolidated financial statements.~~Annual Report on Form 10-K for the year ended December 31, 2021, 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 (“CWRU”)~~CWRU (see Note 6). The anti-dilution issuance rights meet the definition of a derivative under FASB’s ~~ASC~~Accounting Standards Codification (“ASC”) Topic 815, “Derivatives and Hedging”, and the liability is carried at fair value.

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-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).~~

	·	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).

159

Mosaic ImmunoEngineering, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 (continued)

The following tables set forth the fair value of the Company’s financial assets and liabilities by level within the fair value hierarchy ~~as of September 30, 2021~~at March 31, 2022 and December 31, ~~2020:~~2021:

Schedule of fair value of financial assets and liabilities
			Fair Value Measurements at September 30, 2021 Using								Fair Value Measurements at March 31, 2022 Using
	Fair Value at September 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at March 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	$	393,121	$	393,121	$	0	$	0	$	378,055	$	378,055	$	0	$	0
Total assets	$	393,121	$	393,121	$	0	$	0	$	378,055	$	378,055	$	0	$	0

Liabilities:
Anti-dilution issuance rights liability	$	104,300	$	0	$	0	$	104,300
Anti-dilution issuance rights derivative liability									$	103,800	$	0	$	0	$	103,800
Total liabilities	$	104,300	$	0	$	0	$	104,300	$	103,800	$	0	$	0	$	103,800

			Fair Value Measurements at December 31, 2020 Using								Fair Value Measurements at December 31, 2021 Using
	Fair Value at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at December 31, 2021		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	$	352,738	$	352,738	$	0	$	0	$	226,142	$	226,142	$	0	$	0
Total assets	$	352,738	$	352,738	$	0	$	0	$	226,142	$	226,142	$	0	$	0

Liabilities:
Anti-dilution issuance rights liability	$	83,500	$	0	$	0	$	83,500
Anti-dilution issuance rights derivative liability									$	104,300	$	0	$	0	$	104,300
Total liabilities	$	83,500	$	0	$	0	$	83,500	$	104,300	$	0	$	0	$	104,300

Mosaic ImmunoEngineering, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 (continued)

Anti-Dilution Issuance Rights Derivative Liability

Pursuant 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 Board approved employee stock option plan reserving for issuance no more than ten percent (10%) of the outstanding common stock of the Company) until ~~the Company raises~~we raise approximately $626,000 from the sale of common or preferred stock, or a combination ~~thereof (see Note 6).~~thereof.

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 several key variables. ~~The~~At March 31, 2022 and December 31, 2021, the estimated fair value of the anti-dilution issuance rights ~~at the date of issuance on August 21, 2020 (at inception), December 31, 2020,~~was $103,800 and ~~September 30, 2021, was $83,500, $83,500 and $104,300,~~$104,300, respectively. 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 ~~inception,~~March 31, 2022 and December 31, ~~2020 and September 30,~~ 2021 were as follows:

Schedule of assumptions used
	At inception		December 31, 2020		September 30, 2021		March 31, 2022		December 31, 2021
Fair value of common stock (per share)	$	3.30	$	3.25	$	1.50	$	0.77	$	1.02
Estimated additional shares of common stock		57,462		31,353		85,847		234,243		134,229
Expected volatility		135%		90%		65%		105%		105%
Expected term (years)		0.45		0.25		0.50		0.50		0.25
Risk-free interest rate		0.11%		0.09%		0.05%		1.06%		0.06%

The fair value of the ~~derivative liability~~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 Companies

Phoenix Digital Solutions, LLC (“PDS”)

PDS was formed by PTSC to pursue licensing of its intellectual property and we own 50% of the membership interests of PDS. On September 29, 2020, the members of PDS agreed to wind up and dissolve PDS as the underlying intellectual property was deemed no longer enforceable. In January 2021, the remaining cash on hand of $55,274 was equally distributed to its two members according to the dissolution plan, of which we received proceeds of $27,637 in January 2021. There were no expenses incurred during the ~~nine~~three months ended ~~September 30,~~March 31, 2022 or 2021.

Mosaic ImmunoEngineering, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 (continued)

5. Accrued Expenses and Other Current ~~Liabilities; Accrued Payable to Founders~~Liabilities

Accrued expenses and other current liabilities consisted of the ~~following at September 30, 2021 and December 31, 2020:~~following:

Schedule of accrued expenses and other current liabilities
	September 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Accrued compensation	$	1,120,496	$	393,431
Accrued consulting		370,000		40,000	$	570,243	$	474,275
Crossflo acquisition liability		177,244		177,244		177,244		177,244
Other accrued expenses		51,234		50,157		83,512		72,728
Total accrued expenses and other current liabilities	$	1,718,974	$	660,832	$	830,999	$	724,247

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

~~Accrued Payable to Founders~~

At December 31, 2020, accrued payable to founders of $49,997 represented the overpayment of common stock subscribed. Amounts payable to founders did not earn interest and were not convertible into any other security. During May 2021, the amount payable to founders was invested in the Company’s convertible notes (see Note 7).

6. ~~Licensing~~

License Option Agreement ~~with CWRU~~

On July 1, 2020, we signed a ~~Material Transfer, Evaluation, and Exclusive~~License Option Agreement ~~(“License Option Agreement”)~~ with CWRU, granting the Company the exclusive right to license certain technology covering ~~immunostimulatory nanotechnology-based therapeutics and vaccines~~an immunomodulator platform technology to treat and prevent cancer and infectious diseases in humans and for veterinary use, including MIE-101, our lead clinical candidate. Under the License Option Agreement, CWRU granted the Company 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, including but not limited to, (i) delivering~~milestones. On May 4, 2022, we exercised our rights under the License Option Agreement and entered into a development plan within 18 months, (ii) raising $3 million in either equity, debt, or grant funding, or a combination thereof within 18 months, (iii), generating sufficient preclinical data to support the identification of the initial field of use to support the initial planned clinical indication for the technology, (iv) determining manufacturing processes and cGMP requirements to manufacture the initial product for use in toxicology studies, and (v) identifying required toxicology studies required to support Phase I clinical trials in the initial field of use. In addition, the parties agreed to the royalty rates payable on net sales of licensed products to fall within the range of 4% to 8% and the parties agree to negotiate in good faith on the final licensing terms.license agreement with CWRU (“License Agreement”) (see Note 11).

Under the License Option Agreement, Private Mosaic issued CWRU 70,000 shares of Class B Common Stock at the fair market value of $7 on the date of issuance, representing 10% of the fully diluted shares of common stock outstanding of Private Mosaic. On August 21, 2020, the Class B Stock was exchanged for shares of Series B Preferred, ~~under the Reverse Merger,~~ which included certain anti-dilution rights. Pursuant to the Certificate of Designation, the Series B Preferred holder will continue to 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 plans reserving for issuance no more than ten percent (10%) of the outstanding common stock of the Company then outstanding, until we initially raise at least $1 million from the sale of either preferred or common stock, or a combination thereof (“Capital Threshold”). In addition, pursuant to the License Option Agreement, net working capital acquired under the ~~Reverse Merger~~reverse merger in August 2020 of approximately $374,000 was applied against the Capital ~~Threshold (see Note 2).~~Threshold. As of ~~September 30, 2021,~~March 31, 2022, the remaining Capital Threshold was approximately $626,000. The anti-dilution issuance rights under the License Option Agreement meet the definition of a derivative instrument under ~~FASB’s~~ ASC Topic 815 ~~“Derivatives and Hedging”~~ (see Note 3)3).

In addition, we are responsible for the reimbursement of all patent fees incurred by CWRU under the License Option Agreement from the effective date of the License Option Agreement. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, we incurred $~~8,993~~18,021 and $~~31,810~~11,379, respectively, in patent legal fees associated with the License Option Agreement which are included in general and administrative expenses in the accompanying unaudited condensed consolidated ~~financial statements. During the three months ended September 30, 2020, we incurred $9,278~~ ~~in patent legal fees associated with~~statement of operations. Pursuant to the License Option ~~Agreement. In addition, if~~Agreement and the License Agreement (see Note 11), we ~~enter into a license agreement with CWRU, we would be~~are responsible for the reimbursement of all past patent costs incurred by CWRU though the effective date of the License Option Agreement ~~which~~in the amount ~~has been estimated to be~~of approximately ~~$267,000. This~~$278,000, which amount will be expensed ~~when~~as general and administrative expenses during the ~~Company enters into a license agreement with CWRU.~~three months ending June 30, 2022.

Mosaic ImmunoEngineering, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 (continued)

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

During July 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 effective date of the license agreement, (iii) annual license maintenance fees, (iv) aggregate future milestone payments based on potential clinical development and regulatory milestones of up to $165,000through 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 the three months ended September 30, 2021, we expensed $14,400~~ ~~associated with the upfront fee and historical patent costs, of which, $500~~ ~~was included in research and development expense and $13,900~~ ~~was included in general and administrative expense in the accompanying unaudited condensed consolidated statement of operations.~~

During September 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, including the ability to load these molecules into MIE-101, our lead ~~clinical~~product candidate. These plant virus protein nanoparticles can be loaded with other ~~Toll-like receptor (“TLR”)~~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 license agreement, (iii) annual license maintenance fees, (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. ~~During~~

For the three months ended ~~September 30, 2021,~~March 31, 2022, we expensed $~~7,360~~12,538 in intellectual property costs associated with the ~~upfront fee and historical patent costs, of~~aforementioned license agreements with UC San Diego, which $~~5,000~~ ~~was included in research and development expense and $2,360~~ ~~was~~amount is included in general and administrative expense in the accompanying unaudited condensed consolidated statement of operations.

7. Convertible Notes

On May 7, 2021, ~~(“Effective Date”),~~ we entered into a convertible note purchase agreement (“May Note Agreement”) with five (5) accredited investors, including ~~two (2)~~three (3) members of our Board of Directors (“Board”) that participated on the same terms as other accredited ~~investors (collectively, the “Investors”).~~investors. Pursuant to the Note Agreement, ~~the Company~~we received $525,003 in ~~gross~~ proceeds in addition to $49,997 in accrued payable to founder that was ~~converted into~~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 ~~Investors,~~holder, into the same equity securities issued for cash in a Smaller Financing (as described below). Interest on the Convertible Notes will be accreted and added to the unpaid principal balance prior to conversion. During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, the Company recorded non-cash interest expense on the Convertible Notes in the amount of $~~11,595~~14,488 ~~and $18,526, respectively.~~.

Mosaic ImmunoEngineering, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 (continued)

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~~$2.377 for the May Convertible Notes (“May Conversion Price”) or $1.00 for the February Convertible Notes (“February Conversion Price”). ~~The~~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 March 31, 2022, 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.

Pursuant to the ~~Note Agreement,~~Convertible Notes, a Qualified Financing represents a single transaction or series or transactions whereby the Company receives aggregate gross proceeds of at least $5 million from the sale of equity securities following the ~~Effective Date~~issuance date (excluding proceeds from the issuance of any future ~~Convertible Notes)~~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)~~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) ~~$2.377.~~the May or February Conversion Price, as applicable.

	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 as we are instead using our equity shares as the currency to settle our obligation. In addition, pursuantPursuant to ASC Topic 835-30, “Imputation of Interest”, the Convertible Notes were initially recorded at their amortized cost of $~~575,000~~916,632 and are being accreted to their redemption value of $~~718,750~~ 1,145,790over the estimated conversion period ~~of approximately six months~~ending September 30, 2022 using the effective interest method. During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, the Company recorded $~~75,303~~20,467 ~~and $116,305, respectively,~~ in accretion to redemption value on the Convertible Notes.

8. Stockholders’ Equity and Share-Based Compensation

Stockholders’ Equity

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”). Under the Reverse Merger (see Notes 1 and 2), we designated and issued 630,000 shares of Series A Convertible Voting Preferred Stock (“Series A Preferred”) and 70,000 shares of Series B Convertible Voting Preferred Stock (“Series B Preferred”).

Series A Preferred

On August 21, 2020, the Company issued 630,000 shares of Series A Preferred (classified as permanent equity), in exchange for 630,000 shares of Class A Common Stock of Private ~~Mosaic. Each share of Series A Preferred has~~Mosaic in connection with a par value of $0.00001 per share, no dividend rate, a stated value of $6.50 per share, and each share of Series A Preferred converts into 10.194106 shares of common stock of the Company (“Series A Conversion Number”). In addition, the Series A Preferred possessed full voting rights prior to conversion, on an as-converted basis, as the common stock of the Company, as definedreverse merger in ~~the Series A Certificate of Designation.~~

August 2020. On January 29, 2021, 630,000 shares of Series A Preferred automatically converted into an aggregate 6,422,290 shares of common stock upon the effectiveness of a registration statement registering the resale of the underlying shares. The registration statement on Form S-3 was declared effective by the SEC on January 29, 2021.

Mosaic ImmunoEngineering, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 (continued)

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 of Private ~~Mosaic.~~Mosaic in connection with a 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 we raise at least $1 million from the sale of either preferred or common stock, or a combination thereof (“Capital Threshold”). In addition, pursuant to the License Option Agreement, any net working capital acquired under a reverse merger or acquisition shall be applied against the Capital Threshold. The net working capital of PTSC on the ~~Closing Date~~closing date of the reverse merger in August 2020 was approximately $374,000 ~~(see Note 2). As such,~~and the remaining Capital Threshold was approximately $626,000 as of ~~September 30, 2021.~~March 31, 2022. The anti-dilution issuance rights meet the definition of a derivative instrument under FASB’s ASC Topic 815 (see Note 3).

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 the first anniversary date from the adoption date of the 2020 Plan (or October 21, 2021), the number of shares of common stock reserved for issuance under the 2020 Plan ~~shall automatically increase~~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 Series B Preferred, as calculated on an as-converted basis.~~securities. As of ~~September 30, 2021,~~March 31, 2022, we have reserved ~~802,785~~1,661,966 shares of common stock for issuance under the 2020 Plan, of which ~~518,236~~541,957 were subject to outstanding RSUs and ~~284,549~~1,106,965 shares were available for future grants of share-based awards.

Mosaic ImmunoEngineering, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 (continued)

The cost of all share-based awards will be recognized in the unaudited condensed 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 three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 was comprised of the following:

Schedule of Share-based compensation expense

Three months
ended
September 30,
2021

Nine months
ended
September 30,
2021

Research and development $ 144,234 $ 369,246
General and administrative 215,751 685,761
Total $ 359,985 $ 1,055,007

~~There was no share-based compensation expense recognized during the prior periods ended September 30, 2020.~~

Schedule of share-based compensation expense
	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Research and development	$	71,650	$	40,536
General and administrative		67,355		233,707
Total	$	139,005	$	274,243

The following summarizes our ~~RSUs~~ transaction activity related to RSUs for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

Schedule of Restricted Stock Unit Activity
Schedule of RSU activity
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2021		336,328	$	3.30
Outstanding at January 1, 2022						505,192	$	3.15
Granted		181,908		2.86		36,765		1.19
Vested		0		–		0		0
Forfeited		0		–		0		0
Nonvested at September 30, 2021		518,236	$	3.15
Outstanding at March 31, 2022						541,957	$	3.09

As of ~~September 30, 2021,~~March 31, 2022, the total estimated unrecognized compensation cost related to non-vested RSUs was approximately $~~530,000~~182,000. This cost is expected to be recognized over the remaining weighted average vesting period of ~~0.44~~0.55 years. As of ~~September 30, 2021, there are no~~March 31, 2022, a total of 13,044 RSUs have vested ~~RSUs.~~under the 2020 Plan.

9. Commitments and Contingencies

Legal Matters

While the Company is not involved in any litigation as of ~~September 30, 2021,~~March 31, 2022, the Company may be involved in various lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. Any litigation could have a material adverse effect on the Company’s business, financial condition, results of operations, and/or cash flows in the period in which the unfavorable outcome occurs or becomes probable, and potentially in future periods.

Mosaic ImmunoEngineering, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 (continued)

Indemnification

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, and 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 unaudited condensed 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 5,690 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 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 a liability for this matter.

Patent Expenses

~~Under~~Pursuant to the License Option Agreement and the License Agreement (see Note 6)11), if we ~~enter into a license agreement with CWRU, we would be~~are responsible for the reimbursement of all past patent costs incurred by CWRU though the effective date of the License Option Agreement ~~which~~in the amount ~~has been estimated to be~~of approximately $~~267,000~~278,000~~. This~~, which amount will be expensed ~~when~~as general and administrative expenses during the ~~Company enters into a license agreement with CWRU.~~three months ending June 30, 2022.

10. Related Parties

During the ~~seven months~~period ended December 31, 2020, the Company’s Board of Directors approved to enter into consulting agreements with Nicole Steinmetz, Ph.D., acting Chief Scientific Officer, 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, in the monthly amounts of $5,000, $2,500, and $2,500, respectively. During April 2021, we entered into consulting agreements with the Related Parties retroactive to September 1, 2020. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, we expensed in aggregate $30,000 and $~~90,000~~30,000, respectively, in related party consulting fees included in research and development expenses in the accompanying unaudited condensed consolidated financial statements. Pursuant to the consulting agreements, Dr. Steinmetz, her spouse, and Dr. Fiering are to be 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 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 the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 pertaining to the 20% Deferral as the terms are unknown and are based on a future performance trigger. As of ~~September 30,~~March 31, 2022 and December 31, 2021, $~~19,500~~ ~~in aggregate has been paid to the Related Parties and~~ we have accrued $~~110,500~~144,500 and $137,500, respectively, in ~~aggregate in~~accrued consulting fees provided by the Related Parties, which ~~amount is~~amounts are included in accrued expenses and other in the accompanying unaudited condensed consolidated financial statements. ~~During~~

Mosaic ImmunoEngineering, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2022 (continued)

In addition, 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 ~~three and nine months ended September 30, 2020, we accrued~~same terms as other accredited investors, in the aggregate principal amount of $341,632. Of such amount, the five (5) members of our Board invested $~~10,000~~155,000 in ~~related party expenses for the Related Parties.~~aggregate (see Note 7).

11. Subsequent Events

On May 4, 2022, we entered into the License Agreement with CWRU pursuant to our rights granted under the License Option Agreement. Pursuant to the terms of the 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, the Company agreed to reimburse CWRU for all intellectual property fees incurred since inception of the portfolio through the date of the License Option Agreement in the amount of approximately $278,000, 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. The License Agreement will remain in effect until the later of (i) twenty (20) years from the date of the License Agreement, (ii) on the expiration date of the last-to-expire patent under the License Agreement or (iii) at the expiry of all Market Exclusivity Periods for a licensed product.

We have evaluated subsequent events after the consolidated balance sheet date and through the filing date of this Quarterly Report on Form 10-Q, and based on our evaluation, management has determined that no other subsequent events have occurred that would require recognition in the accompanying unaudited condensed consolidated financial statements or disclosure in the notes thereto other than as disclosed herein and in the accompanying notes.

2318

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Mosaic ImmunoEngineering, Inc. included in Part I Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the related notes thereto included in our Annual Report on Form ~~10-KT~~10-K for the ~~seven months~~year ended December 31, ~~2020.~~2021.

Unless the context otherwise requires, references to the “Company,” the “combined company,” “Mosaic,” “we,” “our,” or “us” in this Quarterly Report refer to Mosaic ImmunoEngineering, Inc. and its subsidiaries (formerly known as Patriot Scientific Corporation). References to “PTSC” and “Private Mosaic” refer to Patriot Scientific Corporation and privately held Mosaic ImmunoEngineering Inc., respectively, 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.~~reverse merger in August 2020.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology.

In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please see Part II, 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 the full year or any other future period.

Any forward-looking statements in this Quarterly Report reflect our views and assumptions only as of the date that this ~~report.~~Quarterly Report. Future events or our future financial performance involves known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. 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.

We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

About Mosaic

We are a ~~preclinical,~~ development-stage biotechnology company focused on ~~developing~~advancing and eventually commercializing our proprietary ~~technology to activate the innate immune system.~~immunomodulator platform technology. Our lead immunomodulator product candidate, MIE-101, is based on a naturally occurring plant virus ~~that~~known as Cowpea mosaic virus (or CPMV) which is believed to be non-infectious in ~~animals~~humans and ~~humans but acts~~animals. However, because of its virus structure and genetic composition, CPMV elicits a strong immune response when delivered directly into tumors as ~~strong adjuvant~~shown in our preclinical studies. Data from numerous mouse cancer models and in companion dogs with naturally occurring tumors show the ability of intratumoral administration of CPMV to result in anti-tumor effects in treated tumors and systemically at other sites of disease through immune activation.

Our lead immuno-oncology candidate, MIE-101, resulted from years of research by our scientific co-founders that activates multiple Toll-like receptors (“TLRs”) through its natural immune recognition. When injected into a tumor, MIE-101 naturally triggers the innate immune system, thereby altering the tumor microenvironmentwas supported by numerous grants from federal and ~~directing activated anti-tumor T cells to attack both the injected tumor as well as other non-injected tumors.~~private funding agencies. Published preclinical data ~~in leading scientific journals~~ from our co-founders’ studies and ongoing research support the ~~anti-tumor~~potential anti-cancer activity of MIE-101 as a ~~monotherapy and have demonstrated its ability~~monotherapy. In addition, preclinical data generated further support the potential of MIE-101 to improve anti-tumor effects ~~when combined with~~of standard cancer treatments including chemotherapy, radiation therapy and ~~immunotherapy.~~checkpoint inhibitors. These studies include data from multiple preclinical tumor models, veterinary studies in companion animals with naturally occurring cancer, as well as showing the potential to activate human immune effector cells in ~~vitro~~~~. Our~~vitro. MIE-101 is currently in late-stage preclinical development and our goal is to advance MIE-101 into ~~human and~~ veterinary studies in 2022 ifand into Phase I clinical trials in 2023, provided we are able to raise sufficient ~~funding becomes available.~~funding.

Summary of Significant Events

~~We are also employing this same natural adjuvant to produce modular vaccines under our Modular Vaccine Platform (“MVP”) that can prevent diseases by linking~~During the virus directly to target antigens of interest. In preclinical studies, vaccination with these agents has been able to protect animals from both cancer and infectious diseases and has shown promise against SARS-CoV-2. Our MVP platform is designed to facilitate the rapid development of vaccine candidates due to its modular nature. The adjuvant and linking chemistry can be stockpiled and ready for the rapid identification of targets of interest which can be linked for preclinical testing within a few weeks. These vaccines also have a superior cold-chain profile that would potentially allow distribution to vaccination centers without refrigeration or freezing. The MVP platform combined with our proprietary trans-dermal delivery system could potentially allow for self-administration and shipment of materials at room temperature, which makes the platform ideal for rapid response situations.

~~Recent Developments~~

~~Private Mosaic, a Delaware corporation, was formed on~~three months ended 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 technology using proprietary nanotechnology to activate the innate immune system to treat and prevent cancer and infectious diseases in humans and for veterinary use. On August 21, 2020, we closed a Reverse Merger transaction by and between PTSC (now known as Mosaic ImmunoEngineering, Inc.) and Private Mosaic (“Reverse Merger”). On November 30, 2020,31, 2022, we filed ~~amended~~an application with The Nasdaq Stock Market requesting that our common stock be listed on the Nasdaq Capital Market, provided we meet all initial listing standards, including but not limited to, having a share price of at least $4.00 per share and ~~restated articles~~a public float with a market value of ~~incorporation~~at least $15 million. To potentially meet these requirements, we have filed a registration statement on Form S-1 with the ~~Secretary of State of the State of Delaware~~SEC on February 4, 2022 to ~~change the name of the Company~~potentially raise up to ~~Mosaic ImmunoEngineering, Inc., to implement a 1-for-500 reverse stock split,~~$15 million, 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.

~~In addition,~~ on June 10, 2021 and June 14, 2021, our Board of Directors and majority shareholders, respectively, approved a discretionary reverse stock split whereby our Board of Directors have broad authority to implement a future reverse stock split through June 25, 2022 at a ratio ranging from 1-for-2 to 1-for-4 ator any ~~time on or before June 25, 2022~~number in between in order to potentially ~~meet~~achieve compliance with the initial listing ~~bid price requirement and other listing regulations~~requirements of the Nasdaq Stock Market or other national exchanges. The Board believes that listing our common stock on a national exchange will increase the liquidity of our common stock by providing us with a market for our common stock that is more accessible than if our common stock were to continue to trade on the OTCQB or on the “pink sheets” maintained by the OTC Markets Group, Inc. If the Board of Directors believes that a discretionary reverse stock split is in the best interests of the Company and its shareholders, it will consider certain factors in selecting the specific reverse stock split ratio, including prevailing market conditions, the trading price of our common stock and the stepsMarket. There can be no assurances that we will need to take in order to meet the initial listing bid price requirement and other listing regulations of the Nasdaq Stock Market or other national exchanges. We currently do not expect to list our securitiesbe listed on the Nasdaq Stock Market or ~~other national exchange until after we have filed our Annual Report on Form 10-K for~~achieve all initial listing standards of the ~~year ending December 31, 2021.~~

~~Reverse Merger~~Nasdaq Stock Market.

On ~~August 19, 2020, PTSC (now known as Mosaic ImmunoEngineering, Inc.) and Private Mosaic~~May 4, 2022, we entered into ~~a stock purchase agreement (“Stock Purchase Agreement”), whereby one of~~ the wholly owned subsidiaries of PTSC merged with and into Private Mosaic, with Private Mosaic surviving as wholly owned subsidiary of PTSC (the “Reverse Merger”). The transaction closed on August 21, 2020 (“Closing Date”) in accordance with the terms of the Stock Purchase Agreement.

On the Closing Date, PTSC acquired 100% of the issued and outstanding common stock of Private Mosaic, representing 630,000 shares of its Class A common stock (“Class A Stock”) and 70,000 shares of its Class B common stock (“Class B Stock”) (collectively referred to as “Target Common Stock”). In exchange for the Target Common Stock, the holders of the Class A Stock received 630,000 shares of the Company’s Series A Convertible Voting Preferred Stock (“Series A Preferred”) and holders of the Class B Stock received 70,000 shares of the Company’s Series B Convertible Voting Preferred Stock (“Series B Preferred”). In January 2021, each share of Series A Preferred converted into 10.194106 shares of common stock of the Company, pursuant to the Series A Certificate of Designation. Each share of Series B Preferred converts into 11.46837 shares of common stock of the Company at the sole option of the holder, possesses full voting rights, on an as-converted basis, as the common stock of the Company and contains certain anti-dilution rights, as defined in the Series B Certificate of Designation. On a fully diluted, as converted basis, the holders of Series A Preferred and Series B Preferred, in aggregate, owned approximately 90% of the issued and outstanding common stock of the Company 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 is considered to have acquired PTSC as the accounting acquirer because: (i) Private Mosaic stockholders owned approximately 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 will be included in the Company’s financial statements.

Based on the inception of Private Mosaic on March 30, 2020, the comparative prior year financial information and the financial condition and results of operations of the Company for the periods presented in this Quarterly Report bear no relationship to the future business, financial condition and results of operations of the Company.

License ~~Option Agreement~~

~~On July 1, 2020, we signed a License Option~~ Agreement with CWRU ~~granting us the exclusive right~~pursuant to license technology for a novel platform technology using proprietary nanotechnology to activate the innate immune system to treat and prevent cancer and infectious diseases in humans and for veterinary use. Underour rights granted under the License Option Agreement CWRU granted us an 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, including but not limited to, (i) delivering a development plan within 18 months, (ii) raising $3 million in either equity, debt, or grant funding, or a combination thereof within 18 months, (iii), generating sufficient preclinical data to support the identification of the initial field of use to support the initial planned clinical indication for the technology, (iv) determining manufacturing processes and cGMP requirements to manufacture the initial product for use in toxicology studies, and (v) identifying required toxicology studies required to support Phase I clinical trials in the initial field of use.

~~Under the License Option Agreement, we issued CWRU 70,000 shares of Series B Preferred under the Reverse Merger, which included certain anti-dilution rights. Pursuant~~(see Note 11 to the Certificate of Designation, the Series B Preferred holder will continue to 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 plans reserving for issuance no more than ten percent (10%) of the outstanding common stock of the Company then outstanding, until we initially raise at least $1 million from the sale of either preferred or common stock, or a combination thereof (“Capital Threshold”)accompanying unaudited condensed consolidated financial statements). In addition, pursuant to the License Option Agreement, net working capital acquired under the Reverse Merger of approximately $374,000 was applied against the Capital Threshold. As of September 30, 2021, the remaining Capital Threshold was approximately $626,000.

Critical Accounting Policies and Estimates

Our unaudited condensed 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. During the three months ended ~~September 30, 2021,~~March 31, 2022, there ~~were~~have been no ~~significant~~material changes ~~in our critical~~to the Company’s significant accounting policies as ~~previously~~compared to the significant accounting policies disclosed ~~by us~~ in ~~Part II, Item 7~~Note 2 – Summary of ~~our Transition~~Significant Accounting Policies included in the Company’s Annual Report on Form ~~10-KT~~10-K for the ~~seven months~~year ended December 31, ~~2020, other than described below.~~2021.

~~A fixed monetary amount known at inception;~~

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

~~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~~

Results of Operation

Mosaic was incorporated on March 30, 2020 (date of inception). Therefore, limited comparative information is provided herein. Private Mosaic’s historical results of operations replaced PTSC’s historical results of operations for all periods prior to 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.

Three Months Ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:

Research and Development Expenses

Research and development expenses of approximately ~~$440,000~~$328,000 for the three months ended ~~September 30, 2021~~March 31, 2022 are primarily related to salaries and related costs for personnel in research and development functions and related consulting fees associated with advancing the platform technologies, including approximately ~~$144,000~~$72,000 in share-based compensation. We believe our research and development expenses will increase significantly over time as we raise sufficient capital to advance our programs.

Research and development expenses of approximately ~~$220,000~~$246,000 for the three months ended ~~September 30, 2020~~March 31, 2021 are related to ~~(i)~~ salaries and related costs for personnel in research and development functions and related consulting fees associated with advancing the platform technologies, ofincluding approximately $137,000 and (ii) the non-cash expense to gain access to the research and development technology of approximately $83,000 related to the recognition of the fair market value of the Class B common stock issued under the License Option Agreement and the estimated fair market value of the anti-dilution issuance rights issued under the License Option Agreement.$41,000 in share-based compensation expense.

General and Administrative Expenses

General and administrative expenses of approximately ~~$521,000~~$401,000 for the three months ended ~~September 30, 2021~~March 31, 2022 consist principally of salaries and related costs for personnel and consultants in executive and administrative functions of approximately ~~$450,000,~~$294,000, including approximately ~~$216,000~~$67,000 in share-based compensation expense, fees for outside legal counsel of approximately $19,000, fees related to intellectual property rights of approximately ~~$25,000,~~$31,000, audit, tax, accounting and ~~related~~filing fees of approximately ~~$9,000,~~$36,000, director and officer insurance of approximately ~~$13,000,~~$11,000, investor and public relation fees of approximately ~~$19,000,~~$5,000, and other fees and expenses of approximately $5,000. We believe our general and administrative expenses will increase over time as we hire new employees to support key administrative functions and the planned expansion of research and development ~~efforts.~~personnel, provided we are able to raise sufficient capital.

General and administrative expenses of approximately ~~$162,000~~$558,000 for the three months ended September 30, 2020 consist principally of salaries and related costs for personnel and consultants in executive and administrative functions of approximately $109,000, fees for outside legal counsel of approximately $23,000, legal fees related to intellectual property rights of approximately $9,000, audit and related fees of approximately $10,000, director and officer insurance of approximately $6,000, and other fees and expenses of approximately $5,000.

~~Nine Months Ended September 30, 2021 and Period~~ March ~~30, 2020 (date of inception) to September 30, 2020:~~

~~Research and Development Expenses~~

Research and development expenses of approximately $1,063,000 for the nine months ended September 30, 2021 are primarily related to salaries and related costs for personnel in research and development functions and related consulting fees associated with advancing the platform technologies, including approximately $369,000 in share-based compensation. We believe our research and development expenses will increase significantly over time as we raise sufficient capital to advance our programs.

Research and development expenses of approximately $220,000 for the period March 30, 2020 to September 30, 2020 are related to (i) salaries and related costs for personnel in research and development functions and related consulting fees associated with advancing the platform technologies of approximately $137,000 and (ii) the non-cash expense to gain access to the research and development technology of approximately $83,000 related to the recognition of the fair market value of the Class B common stock issued under the License Option Agreement and the estimated fair market value of the anti-dilution issuance rights issued under the License Option Agreement.

~~General and Administrative Expenses~~

~~General and administrative expenses of approximately $1,613,000 for the nine months ended September 30,~~31, 2021 consist principally of salaries and related costs for personnel and consultants in executive and administrative functions of approximately ~~$1,382,000,~~$470,000 including approximately ~~$686,000~~$234,000 in share-based compensation, fees for outside legal counsel of approximately ~~$20,000,~~$13,000, fees related to intellectual property rights of approximately ~~$48,000,~~$11,000, audit and related fees of approximately ~~$61,000,~~$35,000, director and officer insurance of approximately ~~$41,000, investor and public relation fees of approximately $46,000,~~$14,000, and other fees and expenses of approximately $15,000. We believe our general and administrative expenses will increase over time as we hire new employees to support key administrative functions and the planned expansion of research and development personnel.

~~General~~Other Income (Expense)

Change in Valuation of Derivative Liability

The change in valuation of the derivative liability of $500 for the three months ended March 31, 2022 pertains to a decrease in the estimated fair value of the anti-dilution issuance rights provided under the Series B Preferred (see Note 3 to the accompanying unaudited condensed consolidated financial statements).

Interest Expense and ~~administrative expenses~~Accretion to Redemption Value on Convertible Notes

Non-cash interest expense of approximately ~~$163,000~~$14,000 for the three months ended March 31, 2022 represents interest expense on convertible notes (see Note 7 to the accompanying unaudited condensed consolidated financial statements).

Accretion to redemption value on convertible notes of approximately $20,000 for the for the three months ended March 31, 2022 pertains to the accretion of the convertible notes to their redemption value of $1,145,790 over the estimated conversion period ~~March 30, 2020 to~~ending September 30, 2020 consist principally of salaries and related costs for personnel and consultants in executive and administrative functions of approximately $109,000, fees for outside legal counsel of approximately $23,000, legal fees related2022 using the effective interest method (see Note 7 to intellectual property rights of approximately $9,000, audit and related fees of approximately $10,000, director and officer insurance of approximately $6,000, and other fees and expenses of approximately $6,000.the accompanying unaudited condensed consolidated financial statements).

Liquidity and Capital Resources

On August 21, 2020, we completed ~~our Reverse Merger~~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 ~~converted into~~invested in convertible notes. During February 2022, we raised an additional $341,632 from the issuance of convertible notes. As of ~~September 30, 2021,~~March 31, 2022, we had cash and cash equivalents of ~~$393,121.~~$378,055. 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 on hand will not satisfy our operational and capital requirements through twelve months from the filing date of this ~~quarterly report~~Quarterly Report on Form 10-Q.

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 ~~the License Option Agreement~~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 costs associated with operating as a public company.~~. We expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of our product candidates, provided we are able to raise sufficient capital to advance our technologies.

We plan to continue to fund losses from operations and future funding needs through our cash on hand and future equity and/or debt ~~financings,~~offerings, as well as potential collaborations or strategic partnerships with other companies.

Cash Flow Summary

The following table ~~summarizes~~provides a summary of our ~~sources~~net cash flow activity for the three months ended March 31, 2022 and ~~uses of cash for each of the periods presented.~~2021:

	Nine Months Ended September 30, 2021			For the Period March 30, 2020 (inception) to September 30, 2021			Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Net cash used in operating activities	$	(512,257	)	$	(67,988	)	$	(189,719	)	$	(170,375	)
Net cash provided by investing activities		27,637			605,215			–			27,637
Net cash provided by financing activities		525,003			63			341,632			–
Net increase in cash and cash equivalents	$	40,383		$	537,290
Net change in cash and cash equivalents							$	151,913		$	(142,738	)

Cash Flows From Operating Activities

Net cash used in operating activities for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 consisted of our net loss of $2,834,210 offset by (i) share-based compensation expense of $1,055,007, (ii) non-cash interest on convertible notes of $18,526, (iii) accretion to redemption value on convertible notes of $116,305, (iv) an increase$763,484 combined with a change in the fair value of the derivative liability of ~~$20,800, (v)~~$500, which amounts were offset by (i) non-cash share-based compensation expense of $139,005, (ii) non-cash interest expense of $14,488, (iii) the accretion to redemption value on convertible notes of $20,467 and (iv) a net change in operating assets and liabilities of $400,305.

Net cash used in operating activities for the three months ended March 31, 2021 consisted of our net loss of $806,843 offset by non-cash share-based compensation expense of $274,243 and a net change in operating assets and liabilities of ~~$1,111,315 primarily due to an increase in accrued compensation and other accrued expenses of $1,058,142.~~$362,225.

Net cash used in operating activities for the period March 30, 2020 (inception) to September 30, 2020 consisted of our net loss of $387,036 offset by non-cash expenses of (i)) equity in loss of affiliated company of $4,153, (ii) the fair value of common stock issued under the License Option Agreement of $7, and (iii) the fair value of derivative liability associated with anti-dilution issuance rights of $83,500. Additionally, cash used in operating activities for the period ended September 30, 2020 was supplemented with a net change in operating assets and liabilities of $231,388 primarily due to an increase in accrued compensation and other accrued expenses of $262,945.

Cash Flows From Investing Activities

Net cash provided by investing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 consisted of net proceeds received from the dissolution of Phoenix Digital Solutions LLC (“PDS”), representing our 50% ~~interest PDS.~~interest.

Net cash provided by investing activities for the period March 30, 2020 (inception) to September 30, 2020 consisted of cash, cash equivalents, and restricted cash acquired in the Reverse Merger of $605,215.

Cash Flows From Financing Activities

Net cash provided by financing activities for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 consisted of net proceeds received from the issuance of convertible notes of ~~$525,003, which amount excludes $49,997 that was payable~~$341,362 (see Note 7 to ~~one of our co-founders as of December 31, 2020 and invested in~~ the ~~convertible notes in May 2021. As of September 30, 2021, the principal amount of the convertibles notes was $575,000.~~

Net cash provided by financing activities for the period March 30, 2020 (inception) to September 30, 2020 represents the proceeds received from the founders of Private Mosaic from the issuance of Class A Common Stock.accompanying unaudited condensed consolidated financial statements).

Recently Adopted Accounting Standards

~~In December 2019,~~There have been no new accounting pronouncements adopted by the Company or new accounting pronouncements issued by the Financial Accounting Standards Board ~~(“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying~~during the ~~Accounting for Income Taxes” (“ASU 2019-12”), which simplifies~~three months ended March 31, 2022, as compared to the recent accounting ~~for income taxes by removing certain exceptions and improving consistent application~~pronouncements described in ~~certain areas~~Note 2 of Topic 740. ASU 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, however, early adoption is permitted. The Company adopted ASU 2018-13 effective January 1, 2021. Implementation of this guidance did not have a material impact on the Company’s ~~unaudited condensed consolidated financial statements.~~Annual Report on Form 10-K for the year ended December 31, 2021, that the Company believes are of significance or potential significance to the Company.

Item 3.

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.

Item 4.

Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, as of ~~September 30, 2021,~~March 31, 2022, the end of the period to which this quarterly report relates, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our President and Chief Executive Officer and our EVP, Chief Financial Officer.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including the President and Chief Executive Officer and the EVP, Chief Financial Officer as appropriate, to allow timely decisions regarding required 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 ~~September 30, 2021,~~March 31, 2022, our management, with the participation of our President and Chief Executive Officer and our EVP, Chief Financial Officer, concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no significant changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3023

PART II- OTHER INFORMATION

Item 1.

Legal Proceedings

Information pertaining to legal proceedings is provided in Note 9, Commitments and Contingencies, to the unaudited condensed consolidated financial statements and is incorporated by reference herein.

Item 1A.

Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with our unaudited condensed consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q (this “Quarterly Report”) before making a decision to invest in our securities. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently believe are not material, also may become important factors that affect us and impair our business operations. The occurrence of any of the events or developments discussed in the risk factors below could have a material and adverse impact on our business, financial condition, results of operations and cash flows and, in such case, our future prospects would likely be materially and adversely affected.

Unless the context otherwise requires, references to the “Company,” the “combined company,” “Mosaic,” “we,” “our,” or “us” in this quarterly report refer to Mosaic ImmunoEngineering, Inc. and its subsidiaries (formerly known as Patriot Scientific Corporation). References to “PTSC” and “Private Mosaic” refer to Patriot Scientific Corporation and privately held Mosaic ImmunoEngineering, Inc., respectively, 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.~~a reverse merger in August 2020.

Risks Related to Our Operations

The Company’s financial statements have been prepared on a going concern basis, and do not include adjustments that might be necessary if the Company is unable to continue as a going concern.

The Company’s unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 2022, the Company had incurred operating losses since inception, and continues to generate losses from operations, and had an accumulated deficit of $5,290,716. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements 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 expect that we will incur significant losses over the next several years and may never achieve or maintain profitability.

Private Mosaic was formed on March 30, ~~2020, and~~2020; therefore, we have limited operating ~~history and we~~history. We have not raised any capital other than ~~the remaining net assets acquired under the Reverse Merger~~$575,000 and ~~$575,000~~$341,632 from the issuance of ~~unsecured~~our convertible ~~promissory~~ notes ~~(“Convertible Notes”)~~ in May ~~2021. Therefore, our~~2021 and February 2022, respectively. Our historical results do not reflect the significant costs required to develop our product candidates. In addition, our products are in preclinical development and therefore, we anticipate that our expenses will increase substantially over the next several years, if and as we:

develop product manufacturing processes under the Food and Drug Administration's (“FDA’s”) current Good Manufacturing Practice regulations (“cGMP”) for each of our product candidates and enter into manufacturing supply agreements to support toxicology studies and ~~initial~~our planned Phase I clinical trials;

contract preclinical toxicology studies to support the safety of our 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;

in-license our products and technologies from Case Western Reserve University and acquire rights to other technologies;

prepare regulatory filings, such as filing ~~Investigational New Drug (“IND”)~~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 our intellectual property portfolio;

hire additional personnel to support our research, development, and administrative efforts; and

operate as a public company.

We expect that it will be several years, if ever, before we have a product candidate ready for commercialization. If we are unable to advance our product candidates and begin to generate clinical data, 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 for additional capital, as further described below under the section titled “~~Risks Related to Our Financial Position and Need for Additional Capital”~~“RISKS RELATED TO OUR FINANCIAL POSITION AND NEED FOR ADDITIONAL CAPITAL”.

If we are able to raise sufficient capital, we 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 of our product candidates, obtaining marketing approval for these product candidates 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 able to sustain or increase profitability on a quarterly or annual basis. Our development efforts will take several years and will require significant capital, that will dilute the ownership interest of common stockholders. A decline in the value of the Company could also cause stockholders to lose all or part of their investment.

~~Our auditors have expressed substantial doubt about our ability to continue as a going concern.~~

The Report of Independent Registered Public Accounting Firm on our consolidated financial statements for the transition period ended December 31, 2020 on Form 10-KT included an explanatory paragraph stating that the Company’s limited cash on hand and its limited operating history raises substantial doubt about its ability to continue as a going concern. The unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021 do not include any adjustments that might result from the outcome of this uncertainty.

We are early in our development efforts and our product candidates are in preclinical development.

We currently do not have any products that have gained regulatory approval. 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 our product candidates. As a result, our business is substantially dependent on our ability to successfully complete the development of and obtain regulatory approval for our product candidates.

We have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the nanotechnology area. If we are unsuccessful in accomplishing the numerous and complex objectives in developing our product candidates, we may not be able to successfully develop and commercialize our two 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 our product candidates and adversely impact our business.

~~Public health crises such as pandemics or similar outbreaks could adversely impact our business.~~ In ~~December 2019, a new strain of coronavirus surfaced in Wuhan, China and has reached multiple other regions and countries, including the United States. On~~ March ~~11,~~ 2020, the World Health Organization ~~characterized~~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 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 the COVID-19 pandemic;

delays, difficulties or increased costs to comply with COVID-19 protocols;

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 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.

We will continue to assess the impact that COVID-19 may have on our ability to effectively conduct our business operations as planned and there can be no assurance that we will be able to avoid a material impact on our business from the spread of COVID-19 or its consequences, including disruption to our business and downturns in business sentiment generally or in our industry. Should COVID-19 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 the COVID-19 pandemic. ~~The~~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 COVID-19 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 COVID-19 on the costs and timing associated with the conduct of our panned clinical trial and other related business activities.

As we continue to actively advance our clinical programs and discovery and research programs, we are assessing the impact of the COVID-19 pandemic on each of our programs, expected timelines and costs on an ongoing basis. In light of ongoing developments relating to the COVID-19 pandemic, the focus of healthcare providers and hospitals on fighting the virus, and consistent with the FDA’s industry guidance for conducting clinical trials issued in March 2020, as updated subsequently. We and our CROs have also made certain adjustments to the operation of such trials in an effort to ensure the monitoring and safety of patients and minimize risks to trial integrity during the pandemic in accordance with the guidance issued by the FDA on June 19, 2020 on good manufacturing practice considerations for responding to COVID-19 infection in employees in biopharmaceutical products manufacturing and generally and may need to make further adjustments in the future. Other COVID-related guidance recently released by FDA that apply to us and our third-party manufacturers include guidance addressing cGMP considerations for responding to COVID-19 infections in employees and statistical considerations for clinical trials during the COVID-19 public health emergency. Many of these adjustments are new and untested, may not be effective, and may have unforeseen effects on the enrollment, progress and completion of these trials and the findings from these trials. While we are currently continuing our clinical trial and seeking to add new clinical trial sites, we may not be successful in adding trial sites, may experience delays in patient enrollment or in the progression of our clinical trial, may need to suspend our clinical trial, and may encounter other negative impacts to our trials, due to the effects of the COVID-19 pandemic.

The global outbreak of COVID-19 continues to evolve, and to date has led to the implementation of various mitigation responses, including government-imposed quarantines, travel restrictions and other public health safety measures, as well as leading to reported adverse impacts on healthcare resources, facilities and providers across the United States and in other countries. COVID-19 may cause delays in our research activities, and while COVID-19 has not materially affected our operations to date, therapidly evolve. The extent to which the COVID-19 ~~could impact~~pandemic impacts our ~~operations or those of our third-party partners~~business will depend on future developments ~~which are highly uncertain and cannot be predicted with confidence, including~~such as the ~~duration~~rate of the ~~outbreak, a potential vaccine, additional~~spread of the disease, travel restrictions and social distancing in the United States and other countries, business closures or ~~modified government actions, new information that will emerge concerning the severity and impact of COVID-19~~business disruptions and the effectiveness of actions taken in the United States and other countries to contain ~~COVID-19 or~~and treat the disease and to address its impact, including on financial markets or otherwise. Further, a lack of coordinated response on risk mitigation and vaccination deployment with respect to the COVID-19 pandemic on a local or federal level could result in significant increases to the duration and severity of the pandemic in the ~~short~~United States as compared to the rest of the world and ~~long term, among others. Timely initiation~~could have a corresponding negative impact on our business. While the extent of the impact of the current COVID-19 pandemic on our business and ~~completion of planned preclinical studies~~financial results is ~~dependent upon the availability of, for example, preclinical study sites, university researchers~~uncertain, a continued and ~~investigators, regulatory agency personnel, and materials, which may be adversely affected by global~~prolonged public health ~~matters,~~crisis such as ~~pandemics. We plan to conduct preclinical and eventually clinical studies in geographies that are currently being affected by COVID-19. Additionally, concerns over~~ the ~~economic impact of~~ COVID-19 pandemic could have ~~caused extreme volatility~~a material negative impact on our business, financial condition and operating results.

To the extent the COVID-19 pandemic adversely affects our business, financial condition and operating results, it may also have the effect of heightening many of the risks described in ~~financial and other capital markets which may adversely impact our stock price and our ability to access the capital markets.~~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 with a high deductible. 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 plan to secure additional insurance coverage to better protect our business. There can no assurance that we will obtain sufficient insurance coverage to cover all possible risks and potential related losses.

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 our product candidates.

Given the early stage of development for both product candidates, the risk of failure for our product candidates is high. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete formulation development for our products, conduct nonclinical trials, and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates 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 inherently 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 of our 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 preclinical and clinical trials have nonetheless failed to obtain marketing approval of their products. It is impossible to predict when or if any of our product candidates will prove effective and safe in humans or will receive regulatory approval.

We may experience delays in our planned clinical trials, and we do not know whether 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 assurance that the FDA or any other foreign regulatory body will not put any of our product candidates 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 ability to receive marketing approval or commercialize our product candidates. Planned clinical trials may be 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;

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 our 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 our 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 our 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 ~~(“CROs”)~~ and study sites that can identify patients that our 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 cost of clinical trials of our product candidates may be greater than we anticipate;~~
	·	the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; or

there may be changes in governmental regulations or administrative actions.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results 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 our 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 our products or inhibit our ability to successfully commercialize our 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 any of our 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 our product candidates or may allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. In addition, enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of the Company to decline and limit our ability to obtain additional financing.

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

If our 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, our product candidates have not been 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 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 liability, our competitive position could be harmed and the further development and commercialization of our 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 the future, we cannot ensure that it 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 operations.

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.

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.

Risks Related to Our Financial Position and Need for Additional Capital

We will need substantial additional funding. If we are unable to raise capital when needed, we would be compelled to delay, reduce or eliminate our product development programs or commercialization efforts.

We expect our expenses to significantly increase in parallel with our ongoing activities, particularly as we initiate product manufacturing to support preclinical and clinical testing, preclinical studies, including toxicology studies, clinical development, and eventually, if successful, seek marketing approval for, our product candidates. If we are unable to raise capital when needed or on attractive terms, we would be forced to further delay our preclinical and clinical development programs or any future commercialization efforts.

Based upon current operating plans, our current working capital is insufficient to fund our operations for the next twelve months. We will require additional capital to support our development plans and eventually the commercialization of our product candidates, if approved, and may also need to raise additional funds to pursue other development activities related to additional product candidates. 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 our 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 our 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 our 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 our product candidates from Case Western Reserve University, and others if we acquire or in-license other products or technologies; and

revenue, if any, received from commercial sales of our product candidates, should any of our 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, our 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 financing may not be available to us on acceptable 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 and/or debt financings. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity and/or debt securities, the ownership interest of common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or restricting the use of proceeds for only certain operational activities.

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 our product development or future commercialization efforts.

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 Our 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 face competition with respect to our current product candidates, and 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 the disease indications for which we are developing our product candidates. Some of these competitive products and therapies are based on scientific approaches in immuno-oncology that are 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 are competing or 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 our 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 our 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 our product candidates are not ready for clinical testing in patients. When we secure product liability insurance, it 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 our 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.

For any of our product candidates, we may in the future determine to seek to collaborate with pharmaceutical and biotechnology companies for development of our 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 our product candidates or continue to develop our 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.

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We may contract with third parties for the manufacture of our 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 our 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 of our product candidates. In addition, these materials are 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 our 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.

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 our product candidates or commercialization of our 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 our 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, our product candidate, and 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 and that might be capable of manufacturing for us. Our anticipated future dependence upon others for the manufacture of our 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 have 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.

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Risks Related to Our Intellectual Property

If we or ~~Case Western Reserve University (“CWRU”)~~CWRU are unable to obtain and maintain intellectual property protection for technology and products under the License ~~Option~~ Agreement or if the scope of the intellectual property protection obtained by CWRU 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 and CWRU’s ability to obtain and maintain patent protection in the United States, the European Union, and other countries with respect to our proprietary technology and products. We or CWRU have and will seek to protect our proprietary position by filing patent applications in the United States and internationally that are related to our novel technologies and product candidates. We currently heavily rely on CWRU to assist with protecting the underlying patents and patent applications under the License ~~Option~~ Agreement.

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 or CWRU 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 or CWRU 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, 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 ~~Option~~ Agreement or narrow the scope of our patent protection.

Any inability by us or CWRU to protect adequately the underlying intellectual property covered by the License ~~Option~~ Agreement may have a material adverse effect on our business, operating results, and financial position.

If we fail to comply with our obligations in the License ~~Option~~ Agreement with CWRU 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 the option to license those rights or other rights that are important to our business.

On July 1, 2020, we signed a ~~Material Transfer, Evaluation, and Exclusive~~License Option Agreement ~~(“License Option Agreement”)~~ with CWRU, granting us the exclusive right to license technology and patent portfolios concerning certain immunostimulatory nanotechnology-based therapeutics and formulations to treat cancer and diseases in humans and for veterinary use. ~~Under~~On May 4, 2022, exercised our right to license the ~~License Option Agreement,~~technology from CWRU ~~granted us the exclusive option for a period of two (2) years to negotiate~~ and ~~enter~~entered into a license agreement with CWRU, provided that we meet certain diligence milestones, including but not limited to, (i) delivering a development plan within 18 months, (ii) raising $3 million in either equity, debt, or grant funding, or a combination thereof within 18 months, (iii), generating sufficient preclinical data to support the identification of the initial field of use to support the initial planned clinical indication for the technology, (iv) determining manufacturing processes and cGMP requirements to manufacture the initial product for use in toxicology studies, and (v) identifying required toxicology studies required to support Phase I clinical trials in the initial field of use. In addition, if we enter into a license agreement with CWRU, we would be responsible for the reimbursement of all past patent costs incurred by CWRU though the date of the License ~~Option Agreement, which amount has been estimated to be approximately $267,000.~~

Agreement. If we fail to comply with our obligations under the License ~~Option~~ Agreement, or any other future agreement, we may lose the ~~exclusivity of~~rights to developed and potentially commercialize our ~~License Option Agreement,~~technology, and CWRU may have the right to terminate the License ~~Option~~ Agreement or restrict our rights, in which event we would not be able to develop or market products covered by the License ~~Option Agreement.~~Agreement, which are the products upon which our business depends. Additionally, ~~any~~all milestones and other payments associated with ~~these future licenses~~this License Agreement will make it less profitable for us to develop our drug candidates than if we had developed the licensed technology internally.

Also, patent prosecution under the License ~~Option~~ Agreement is controlled by CWRU. If CWRU fails to obtain and maintain patent or other protection for the proprietary intellectual property we plan to license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the intellectual property. If disputes over intellectual property and other rights that we have licensed or plan to license prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

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 rights to patents of our licensors or other intellectual property. To counter infringement or unauthorized use, we or CWRU 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 or CWRU 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 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 agreements 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.

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 our products. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our 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 commercial success depends upon our ability, and the ability of our licensors and collaborators, to develop, manufacture, market and sell our product candidates and use our 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 our 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 or CWRU 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 our 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 our 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.

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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 some of our 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, or those to whom they communicate them, 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 highly dependent on the product development, clinical and business development expertise of the principal members of our 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.

In addition, our business plan relies significantly on the continued services of our President and Chief Executive Officer, Steven King. If we were to lose his services, including through death or disability, our ability to continue to execute our business plan would be materially impaired. The Company has not entered into an employment agreement with Mr. King, or any other officer of the Company.

Recruiting and retaining qualified scientific, clinical, regulatory, and manufacturing personnel is critical to our success. Due to the small size of the Company and the limited number of employees, each of our executives and key employees serves in a critical 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 experience 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 assist us in product manufacturing, preclinical development, clinical development, regulatory strategy, and commercial strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to provide services to us. If we are unable to continue to attract and retain high quality personnel, our ability 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 encounter difficulties in managing our growth, which could disrupt our operations.

We 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 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.

~~We will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.~~

We will incur significant legal, accounting and other expenses that Private Mosaic did not incur as a private company, including costs associated with public company reporting requirements. We will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act and rules and regulations promulgated by the SEC and The OTC Markets. These rules and regulations are expected to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. These rules and regulations may also make it difficult and expensive for the Company to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for the Company to attract and retain qualified individuals to serve on our board of directors or as executive officers of the Company, which may adversely affect investor confidence in the Company and could cause our business or stock price to suffer.

We 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

~~Our Board of Directors has discretionary authority to implement a reverse stock split at any time on or before June 25, 2022.~~

On June 10, 2021 and June 14, 2021, our Board of Directors and majority shareholders, respectively, approved a discretionary reverse stock split whereby our Board of Directors have broad authority to implement a future reverse stock split at a ratio ranging from 1-for-2 to 1-for-4 at any time on or before June 25, 2022 in order to meet the initial listing bid price requirement and other listing regulations of the Nasdaq Stock Market or other national exchanges.

There are many risks associated with the reverse stock split, if implemented. Shareholders should note that the effect of the reverse stock split, if any, on the market price of our common stock cannot be accurately predicted. In particular, we cannot assure you that the price per share of our common stock after the reverse stock split will be two (2) to four (4) times, as applicable, the prices for shares of our common stock immediately prior to the reverse stock split. Furthermore, even if the market price of our common stock does rise following the reverse stock split, we cannot assure you that the market price of our common stock immediately after the proposed reverse stock split will be maintained for any period of time. Even if an increased per-share price can be maintained, the reverse stock split may not achieve the desired results to meet the initial listing standing of a national exchange. Moreover, because some investors may view the reverse stock split negatively, we cannot assure you that the reverse stock split will not adversely impact the market price of our common stock.

If the reverse stock split is effected and the market price of our common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of a reverse stock split. The total market capitalization of our common stock after implementation of the reverse stock split when and if implemented may also be lower than the total market capitalization before the reverse stock split. Furthermore, the liquidity of the common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split.

While we aim that the reverse stock split will be sufficient to obtain our listing on the Nasdaq Stock Market or other national exchange, it is possible that, even if the reverse stock split results in a bid price for the common stock that exceeds the required price per share, another reverse split may be necessary in the future and we may not be able to continue to satisfy the other criteria for continued listing of the common stock on the Nasdaq Stock Market or other national exchange.

While we currently do not expect to list our securities on the Nasdaq Stock Market or other national exchange until after we have filed our Annual Report on Form 10-K for the year ending December 31, 2021, the Board of Directors may implement the reverse stock split at any time on or before June 25, 2022.

Our common stock is quoted on the OTCQB tier of the OTC Markets, which could adversely affect the market price and liquidity of our common stock.

Our common stock is quoted on OTCQB tier of the OTC Markets. The quotation of our shares on such marketplace may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

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.

If we fail to meet the eligibility requirements of OTCQB, we could be removed from the OTCQB which would limit the ability of broker-dealers to sell our securities in the secondary market.

The companies whose securities are quoted on the OTCQB Venture Market must maintain certain eligibility criteria, including having a minimum bid price for of $0.01, having at least 50 beneficial shareholders owning at least 100 shares of common stock, a public float of at least 10% of total issued and outstanding shares of common stock, as defined by OTC Markets, current in the payment of annual fees and certifications, among other requirements as defined by the OTC Markets, to continue to be quoted on the OTCQB. There is no guarantee that we will continue to meet OTCQB criteria to continue to have our common stock be quoted thereon. As a result, failure to be quoted on the OTCQB would cause the Company’s common stock to be quoted on the OTC Pink Open Market, which may severely adversely affect the market liquidity for our shares by limiting the ability of broker-dealers to sell such shares, and the ability of stockholders to sell their shares in the secondary market. In addition, if we are no longer quoted on the OTCQB, there can be no assurance that will meet the eligibility criteria and requalify for quotation on the OTCQB.

Although our stock is quoted on the OTCQB, we could subsequently be removed from the OTCQB if we fail to remain current with our financial reporting requirements.

Companies trading on the OTCQB must be reporting issuers under Section 12 of the Exchange Act and must be current in their reports under Section 13 in order to maintain price quotation privileges on the OTCQB. If we fail to remain current in our reporting requirements, we would be removed from the OTCQB. As a result, the market liquidity of our securities could be severely adversely affected by limiting the ability of broker-dealers to trade our securities and the ability of stockholders to sell their securities in the secondary market.

Our Board has discretionary authority to implement a Discretionary Reverse Stock Split at a ratio ranging from 1-for-2 to 1-for-4 at any time on or before June 25, 2022.

There are several risks associated with the Discretionary Reverse Stock Split, including that the Discretionary Reverse Stock Split may not result in a sustained increase in the per share price of our common stock. There is no assurance that:

the market price per share of the common stock after the Discretionary Reverse Stock Split will rise in proportion to the reduction in the number of shares of the common stock outstanding before the Discretionary Reverse Stock Split;

the Discretionary Reverse Stock Split will result in a per share price that will attract brokers and investors who do not trade in lower priced stocks;

the Discretionary Reverse Stock Split will result in a per share price that will increase our ability to attract and retain employees and other service providers; and

The Discretionary Reverse Stock Split will result in a sustained per share price that meets the initial listing requirements of Nasdaq.

Stockholders should note that the effect of the Discretionary Reverse Stock Split, if any, upon the market price for the common stock cannot be accurately predicted. In particular, we cannot assure you that prices for shares of the common stock after the Discretionary Reverse Stock Split will be two (2) to four (4) times, as applicable, the prices for shares of the common stock immediately prior to the Discretionary Reverse Stock Split. Furthermore, even if the market price of the common stock does rise following the Discretionary Reverse Stock Split, we cannot assure you that the market price of the common stock immediately after the proposed Discretionary Reverse Stock Split will be maintained for any period of time. Even if an increased per-share price can be maintained, the Discretionary Reverse Stock Split may not achieve the desired results of listing our common stock on The Nasdaq Stock Market. Moreover, because some investors may view the reverse stock split negatively, we cannot assure you that the reverse stock split will not adversely impact the market price of the common stock.

The market price of the common stock will also be based on our performance and other factors, some of which are unrelated to the Discretionary Reverse Stock Split or the number of shares outstanding. If the reverse stock split is effected and the market price of the common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of a reverse stock split. The total market capitalization of the common stock after implementation of the Discretionary Reverse Stock Split when and if implemented may also be lower than the total market capitalization before the Discretionary Reverse Stock Split. Furthermore, the liquidity of the common stock could be adversely affected by the reduced number of shares that would be outstanding after the Discretionary Reverse Stock Split.

While we aim that the reverse stock split will be sufficient to obtain our listing on the Nasdaq Stock Market, it is possible that, even if the Discretionary Reverse Stock Split results in a bid price for the common stock that exceeds the required price per share, another reverse split may be necessary in the future and we may not be able to continue to satisfy the other criteria for continued listing of the common stock on the Nasdaq Stock Market.

In addition, the Discretionary Reverse Stock Split may result in some stockholders owning “odd lots” of less than 100 shares of common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares.

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.

Our common 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-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 stock and may affect our ability to raise additional 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 after the Reverse Merger, the trading price of the common stock of the combined company could decline. Pursuant to the Reverse Merger, shareholders of Private Mosaic ~~own approximately~~owned 90% of the fully diluted shares of common stock outstanding as of the closing date, 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, 2021, the low and high trading prices of our common stock has ranged from $0.10 to $5.00 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 our product candidates, and delays or failures to obtain such approvals;

issues in manufacturing our product candidates;

the entry into, or termination of, key agreements, including our License ~~Option~~ Agreement with CWRU and any future license agreement;

the initiation of, material developments in, or conclusion of litigation to enforce or defend any of the underlying intellectual property rights under the License ~~Option~~ Agreement or defend against the intellectual property rights of others;

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; and

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.

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 his/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. Penny stocks which do not trade on an exchange, such as our 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.~~series, of which, 4,300,000 have been undesignated as of March 31, 2022. Our Board 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 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.

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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.

Shareholders of Private Mosaic beneficially own shares representing approximately 90% of our capital stock, 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.

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;

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 future earnings, if any, to fund the development and growth 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.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

~~None.~~On February 18, 2022, we issued unsecured convertible promissory notes (“February Convertible Notes”) in the aggregate principal amount of $341,632 to sixteen (16) accredited investors, including five (5) members of our Board of Directors that participated on the same terms as other accredited investors (collectively, the “Investors”) in exchange for $341,362 in proceeds to be used for general corporate purposes. 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 Investors, into the same equity securities issued for cash in a Smaller Financing (as described below). Interest on the February Convertible Notes will be accreted and added to the unpaid principal balance prior to conversion.

The February 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) $1.00 (“Conversion Price”). 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 February Convertible Notes in connection with a Qualified Financing or a Smaller Financing, as applicable, the February 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 February Convertible Notes.

Under the terms of the February Convertible Notes, a Qualified Financing represents a single transaction or series or transactions whereby the Company receives aggregate gross proceeds of at least $5 million from the sale of equity securities following the Effective 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 February Convertible Notes may elect that either: (a) the Company pay the holder of such February Convertible Note an amount equal to the sum of (i) all accrued and unpaid interest due on such February Convertible Note and (ii) one and one-half (1.5) times the outstanding principal balance of such February Convertible Note; or (b) such February 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 February Convertible Note on the date of conversion by (ii) $1.00.

In issuance of the February Convertible Notes and the underlying shares that were sold without registration, the Company relied on exemptions from registration available under Section 4(a)(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

4643

Item 6.

Exhibits

The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth below.

Exhibit No.		Description

31.1*		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2*		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1*		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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.SCH101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104104		Cover Page Interactive Data File (formatted in ~~iXBRL,~~inline XBRL, and included in exhibit 101).

*	Filed herewith.

4744

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: ~~November 2, 2021~~May 10, 2022

MOSAIC IMMUNOENGINEERING, INC.

/s/ Steven King

Steven King. President and Chief Executive Officer, Director

(Principal Executive Officer)

Dated: ~~November 2, 2021~~May 10, 2022

MOSAIC IMMUNOENGINEERING, INC.

/s/ Paul Lytle

Paul Lytle. EVP, Chief Financial Officer, Director

(Principal Financial Officer and Principal Accounting Officer)

4845


	Class B Common Stock						Common Stock					Additional Paid-in		Accumulated			Total Stockholders'
	Shares			Amount			Shares			Amount		Capital		Deficit			Deficit

Balances, June 30, 2020 ⁽¹⁾		–		$	–			–		$	–	$	–	$	(511	)	$	(448	)

Issuance of Class A Common Stock to founders		–			–			–			–		–		–			–

Issuance of Class B Common Stock under License Option Agreement		70,000			7			–			–		–		–			7

Exchange of Class A and Class B Common Stock for Series A and Series B Convertible Voting Preferred Stock under Reverse Merger		(70,000	)		(7	)		–			–		63		–			–

Net assets acquired under Reverse Merger		–			–			802,786			8		374,427		–			374,435
									��
Net loss		–			–			–			–		–		(386,525	)		(386,525	)

Balances, September 30, 2020		–		$	–			802,786		$	8	$	374,490	$	(387,036	)	$	(12,531	)


	Series A Convertible Voting Preferred Stock						Series B Convertible Voting Preferred Stock				Class A Common Stock			Class B Common Stock				Common Stock				Common Stock Subscribed		Additional Paid-in			Accumulated			Total Stockholders’
	Shares			Amount			Shares		Amount		Shares	Amount		Shares		Amount		Shares		Amount		Amount		Capital			Deficit			Deficit
Balances, December 31, 2020		630,000		$	6			70,000	$	1			–				–		805,803	$	8		–	$	420,198		$	(842,754	)	$	(422,541	)

Conversion of Series A Convertible Voting Preferred Stock		(630,000	)		(6	)		–		–			–				–		6,422,290		64		–		(58	)		–			–

Share-based compensation		–			–			–		–			–				–		–		–		–		1,055,007			–			1,055,007

Net loss		–			–			–		–			–				–		–		–		–		–			(2,834,210	)		(2,834,210

Balances, September 30, 2021		–		$	–			70,000	$	1			–		–		–		7,228,093	$	72		–	$	1,475,147		$	(3,676,964	)	$	(2,201,744	)


	Nine Months Ended September 30, 2021			For the Period March 30, 2020⁽¹⁾to September 30, 2020
Operating activities:
Net loss	$	(2,834,210	)	$	(387,036	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation		1,055,007			0
Equity in loss of affiliated company		0			4,153
Fair value of common stock issued under License Option Agreement		0			7
Anti-dilution rights derivative liability expense		0			83,500
Change in fair value of derivative liability		20,800			0
Non-cash interest on convertible notes		18,526			0
Accretion to redemption value on convertible notes		116,305			0
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(1,187	)		(4,753	)
Refundable income taxes		26,078			0
Accounts payable		28,282			(77,956	)
Accrued payable to founders		0			51,152
Accrued expenses and other		1,058,142			262,945
Net cash used in operating activities		(512,257	)		(67,988	)

Investing activities:
Proceeds from dissolution of affiliate		27,637			0
Net cash, cash equivalents and restricted cash acquired in Reverse Merger		0			605,215
Net cash provided by investing activities		27,637			605,215

Financing activities:
Proceeds from the issuance of convertible notes		525,003			0
Proceeds from the issuance of Class A common stock		0			63
Net cash provided by financing activities		525,003			63

Net increase in cash and cash equivalents		40,383			537,290

Cash and cash equivalents, beginning of period		352,738			0

Cash and cash equivalents, end of period	$	393,121		$	537,290

Supplemental disclosure of non-cash financing activities:
Conversion of Series A Convertible Voting Preferred Stock to common stock	$	64		$	0
Conversion of accrued payable to founder to convertible note	$	49,997		$	0
Net liabilities assumed in Reverse Merger, net of cash and restricted cash acquired	$	0		$	230,780

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	2,400		$	0

Schedule of assets acquired and liabilities assumed
Cash and cash equivalents	$	427,971
Restricted cash and cash equivalents		177,244
Refundable income taxes		26,078
Prepaid expenses and other current assets		10,402
Investment in affiliated company		32,739
Accounts payable, accrued expenses and other		(299,999	)
Net assets acquired	$	374,435

Schedule of anti-dilutive shares
	Three months ended September 30, 2021		Three months ended September 30, 2020		Nine months ended September 30, 2021		For the Period March 30, 2020⁽¹⁾ to September 30, 2020

Convertible Notes		241,955		0		130,283		0
Series A and Series B Preferred		802,786		3,219,871		802,786		1,601,233
Unvested RSUs		510,400		0		451,547		0
Total		1,555,141		3,219,871		1,384,616		1,601,233

Schedule of Share-based compensation expense
	Three months ended September 30, 2021		Nine months ended September 30, 2021
Research and development	$	144,234	$	369,246
General and administrative		215,751		685,761
Total	$	359,985	$	1,055,007