| Summary of Significant Accounting Policies | 2. Summary
of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements
have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the accounts
of Mosaic ImmunoEngineering Inc. (formerly known as Patriot Scientific Corporation) and our subsidiaries. All intercompany accounts
and transactions among the consolidated entities have been eliminated in the consolidated financial statements. In conjunction with the Reverse Merger, 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 Reverse Merger, the results of operations of the combined company are included
in the Company’s 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 May 31, 2020. In addition, operating results for the seven
months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the full year ending December
31, 2021. Segment Reporting The Company manages its operations as a single
operating segment for the purposes of assessing performance and making operating decisions. No revenue has been generated since
inception, and all tangible assets are held in the United States. 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 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 the 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:
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 have a 50% interest in Phoenix Digital Solutions
LLC (“PDS”). We account for our investment using the equity method of accounting since the investment provides us the
ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist
if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation
on the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate.
Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings
or losses of the investee and is recognized in the consolidated statements of operations in the caption “Equity in earnings
(loss) of affiliated company” and also is adjusted by contributions to and distributions from PDS. We review our investment
in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. If the
decline in value is deemed to be other than temporary, we would recognize an impairment loss. 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 (see Note 4). We own 100% of the preferred stock of Holocom
(see Note 4). Prior to impairment, this investment was accounted for at cost since we do not have the ability to exercise significant
influence over the operating and financial policies of Holocom. 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, and accrued expenses and other.
The carrying value of these financial instruments, except for the derivative liability, 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). 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 expenses during the reporting period. Significant estimates in these consolidated financial statements include those related
to the fair value of the anti-dilution issuance rights liability (derivative liability), investment in affiliated company, 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. 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. Patent Costs Patent fees and patent related costs in connection
with filing and prosecuting patent applications are expensed as incurred and are classified as general and administrative expenses
in the accompanying consolidated financial statements. 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 December 31, 2020 and May 31, 2020, 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 A Preferred and Series B Preferred outstanding 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 Series A Preferred and Series B Preferred outstanding during the period
is calculated using the if-converted method assuming the conversion of Series A Preferred 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. Since the impact of potentially
dilutive securities are anti-dilutive during periods of net loss, there was no difference between basic and diluted loss per common
share for the seven months ended December 31, 2020 and the period March 30, 2020 (date of inception) to May 31, 2020. For the seven months ended December 31, 2020,
the issuance of 7,225,076 shares of common stock upon the conversion of Series A Preferred and Series B Preferred were excluded
in the calculation of diluted loss per share as the impact was anti-dilutive during periods of net loss. In addition, for the seven
months ended December 31, 2020, 336,328 RSUs were also excluded in the calculation of diluted loss per share as the impact was
anti-dilutive during periods of net loss. 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. Income Taxes We follow authoritative guidance in accounting
for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement requirement for
the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax return and also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under
this guidance, we may only recognize tax positions that meet a “more likely than not” threshold. We follow authoritative guidance to evaluate
whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available
evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence
that can be objectively verified. We assess our deferred tax assets annually under more likely than not scenarios in which they
may be realized through future income. In addition, utilization of our net operating
loss carryforwards may be subject to an annual limitation due to ownership change limitations that may have occurred as a result
of the Reverse Merger, or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended
(the “Code”). These ownership changes may limit the amount of the net operating loss carryforwards that can be utilized
annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section
382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change
of more than 50 percentage points of the outstanding stock of a Company by certain stockholders. Moreover, since we will need to
raise substantial additional funding to finance our operations, we may undergo further ownership changes in the future, which could
further limit our ability to use net operating loss carryforwards. As a result, if we generate taxable income, our ability to use
some of our net operating loss carryforwards to offset U.S. federal taxable income may be subject to limitations, which could result
in increased future tax liability to us. With the exception of refundable income taxes,
we have determined that it was more likely than not that all of our deferred tax assets will not be realized in the future due
to our continuing pre-tax and taxable losses in addition to the potential loss of deferred tax assets as a result of the Reverse
Merger (see Note 1). As a result of this determination, and with the exception for the aforementioned refundable income taxes,
we have recorded a full valuation allowance against our deferred tax assets. Recently Adopted Accounting Standards In August 2016, the FASB issued ASU No. 2016-15,
“Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”).
ASU 2016-15 provides guidance intended to reduce diversity in practice in how certain transactions are classified in the statement
of cash flows. The issue addressed in ASU 2016-15 that will affect the Company is classifying distributions received from equity
method investments. The guidance provides an accounting policy election for classifying distributions received from equity method
investments using either a cumulative earnings approach or a nature of distributions approach. The Company adopted this standard
on March 30, 2020 (date of inception). The adoption did not have a material effect on the Company’s consolidated financial
statements. In November 2016, the FASB issued ASU No. 2016-18,
“Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). ASU 2016-18 requires that a statement
of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents
should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The Company adopted this standard on March 30, 2020 (date of inception). Implementation of this
guidance did not have a material impact on the Company’s consolidated financial statements. In January 2016, the FASB issued ASU No. 2016-01,
“Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”
(“ASU 2016-01”). ASU 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized
in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring
a qualitative assessment to identify impairment. The accounting standard update also updates certain presentation and disclosure
requirements. The Company adopted ASU 2016-01 on March 30, 2020 (date of inception). Implementation of this guidance did not have
a material impact on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02,
“Leases (Topic 842)”, as amended, which modifies lease accounting for lessees to increase transparency and comparability
by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements (“ASU
2016-02”). ASU 2016-02 is effective for fiscal years and interim periods within those fiscal years beginning after December
15, 2018. The Company adopted ASU 2016-02 effective March 30, 2020 (date of inception). As permitted under the transition guidance,
the Company will carry forward the assessment of whether its contracts contain or are leases, classification of its leases and
remaining lease terms. Implementation of this guidance did not have a material impact on the Company’s consolidated financial
statements. In August 2018, the FASB issued ASU No. 2018-13,
“Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”
(“ASU 2018-13”), which removes, modifies, and adds various disclosure requirements on fair value measurements in Topic
820. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019.
The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used
to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively
for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should
be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this
update. The Company adopted ASU 2018-13 effective March 30, 2020 (date of inception). Implementation of this guidance did not have
a material impact on the Company’s consolidated financial statements. Recently Issued Accounting Standards Not
Yet Adopted In December 2019, the FASB issued ASU No. 2019-12,
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies
the accounting for income taxes by removing certain exceptions and improving consistent application in certain areas 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. We are currently evaluating the timing and impact of adopting ASU 2019-12 on our consolidated financial
statements and related disclosures. |
