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-K for the year ended December 31, 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 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 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 development-stage biotechnology company focused on advancing and
eventually commercializing our proprietary immunomodulator platform technology.
Our lead immunomodulator product candidate, MIE-101, is based on a naturally
occurring plant virus known as Cowpea mosaic virus (or CPMV) which is believed
to be non-infectious in humans and animals. However, because of its virus
structure and genetic composition, CPMV elicits a strong immune response when
delivered directly into tumors as shown in our preclinical studies. Data from
numerous mouse cancer models and in companion dogs with naturally occurring
tumors show the ability of intratumoral 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 was supported by numerous grants from federal
and private funding agencies. Published preclinical data from our co-founders'
studies and ongoing research support the potential anti-cancer activity of
MIE-101 as a monotherapy. In addition, preclinical data generated further
support the potential of MIE-101 to improve anti-tumor effects of standard
cancer treatments including chemotherapy, radiation therapy and 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.
MIE-101 is currently in late-stage preclinical development and our goal is to
advance MIE-101 into veterinary studies and into Phase I clinical trials in
2023, provided we are able to raise sufficient funding.
20
Summary of Significant Events
During the quarter ended March 31, 2022, we filed 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 a public float
with a market value of at least $15 million. In addition, we filed a
registration statement on Form S-1 with the SEC on February 4, 2022 to
potentially raise up to $15 million. There can be no assurances that we will be
listed on the Nasdaq Stock Market or achieve all initial listing standards of
the Nasdaq Stock Market.
On May 4, 2022, we entered into the License Agreement with CWRU pursuant to our
rights granted under the License Option Agreement (see Note 6 to the
accompanying unaudited condensed consolidated financial statements).
On July 6, 2022, we entered into a redemption agreement (the "Redemption
Agreement") with Holocom, Inc. pursuant to which we requested full redemption of
our 2,100,000 shares of Series A Preferred Stock at a redemption price of $0.40
per share (see Note 11 to the accompanying unaudited condensed consolidated
financial statements).
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 six months ended June 30,
2022, there have been no material changes to the Company's significant
accounting policies 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 year ended December 31, 2021.
Results of Operation
Three Months Ended June 30, 2022 and 2021:
Research and Development Expenses
Research and development expenses of approximately $303,000 for the three months
ended June 30, 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
$30,000 in share-based compensation. We believe our research and development
expenses will increase significantly over time, provided we are able to raise
sufficient capital to advance our programs.
Research and development expenses of approximately $377,000 for the three months
ended June 30, 2021 are 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 $184,000 in
share-based compensation.
General and Administrative Expenses
General and administrative expenses of approximately $581,000 for the three
months ended June 30, 2022 consist principally of salaries and related costs for
personnel and consultants in executive and administrative functions of
approximately $277,000, including approximately $68,000 in share-based
compensation expense, legal fees related to intellectual property rights of
approximately $275,000 primarily related to the license agreement with Case
Western Reserve University, accounting and filing fees of approximately $9,000,
director and officer insurance of approximately $11,000, investor and public
relation fees of approximately $5,000, and other fees and expenses of
approximately $4,000. 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,
provided we are able to raise sufficient capital.
21
General and administrative expenses of approximately $534,000 for the three
months ended June 30, 2021 consist principally of salaries and related costs for
personnel and consultants in executive and administrative functions of
approximately $462,000, including approximately $236,000 in share-based
compensation, fees for outside legal counsel of approximately $9,000, fees
related to intellectual property rights of approximately $11,000, audit and
related fees of approximately $13,000, director and officer insurance of
approximately $14,000, and other fees and expenses of approximately $25,000.
Other Income (Expense)
Change in Valuation of Derivative Liability
The change in valuation of the derivative liability of $800 for the three months
ended June 30, 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 Accretion to Redemption Value on Convertible Notes
Non-cash interest expense of approximately $18,000 for the three months ended
June 30, 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 $26,000 for
the for the three months ended June 30, 2022 pertains to the accretion of the
convertible notes to their redemption value of $1,145,790 over the estimated
conversion period ending December 31, 2022 using the effective interest method
(see Note 7 to the accompanying unaudited condensed consolidated financial
statements).
Six Months Ended June 30, 2022 and 2021:
Research and Development Expenses
Research and development expenses of approximately $630,000 for the six months
ended June 30, 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
$102,000 in share-based compensation.
Research and development expenses of approximately $623,000 for the six months
ended June 30, 2021 are 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 $225,000 in
share-based compensation.
General and Administrative Expenses
General and administrative expenses of approximately $982,000 for the six months
ended June 30, 2022 consist principally of salaries and related costs for
personnel and consultants in executive and administrative functions of
approximately $572,000, including approximately $135,000 in share-based
compensation expense, fees for outside legal counsel of approximately $20,000,
legal fees related to intellectual property rights of approximately $305,000,
audit, tax, accounting and filing fees of approximately $46,000, director and
officer insurance of approximately $23,000, investor and public relation fees of
approximately $11,000, and other fees and expenses of approximately $5,000.
General and administrative expenses of approximately $1,092,000 for the six
months ended June 30, 2021 consist principally of salaries and related costs for
personnel and consultants in executive and administrative functions of
approximately $932,000, including approximately $470,000 in share-based
compensation, fees for outside legal counsel of approximately $19,000, fees
related to intellectual property rights of approximately $23,000, audit and
related fees of approximately $52,000, director and officer insurance of
approximately $28,000, and other fees and expenses of approximately $38,000.
22
Other Income (Expense)
Change in Valuation of Derivative Liability
The change in valuation of the derivative liability of $1,300 for the six months
ended June 30, 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 Accretion to Redemption Value on Convertible Notes
Non-cash interest expense of approximately $33,000 for the six months ended June
30, 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 $46,000 for
the for the six months ended June 30, 2022 pertains to the accretion of the
convertible notes to their redemption value of $1,145,790 over the estimated
conversion period ending December 31, 2022 using the effective interest method
(see Note 7 to the accompanying unaudited condensed consolidated financial
statements).
Liquidity and Capital Resources
On August 21, 2020, we completed a reverse merger with PTSC, which provided us
$605,215 in cash, cash equivalents, and restricted cash. During May 2021, we
raised $575,000 from the issuance of convertible notes, which included $49,997
of accrued payable to founder that was invested in convertible notes. During
February 2022, we raised an additional $341,632 from the issuance of convertible
notes. As of June 30, 2022, we had cash and cash equivalents of $205,994. 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 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 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). 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 offerings, as well as
potential collaborations or strategic partnerships with other companies.
There are a number of uncertainties associated with our ability to raise
additional capital and we have no current arrangements with respect to any
additional financing. 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.
23
Cash Flow Summary
The following table provides a summary of our net cash flow activity for the six
months ended June 30, 2022 and 2021:
Six Months Six Months
Ended June 30, Ended June 30,
2022 2021
Net cash used in operating activities $ (361,780 ) $ (323,074 )
Net cash provided by investing activities - 27,637
Net cash provided by financing activities 341,632 525,003
Net change in cash and cash equivalents $ (20,148 ) $ 229,566
Cash Flows From Operating Activities
Net cash used in operating activities for the six months ended June 30, 2022
consisted of our net loss of $1,693,116 combined with a change in the fair value
of the derivative liability of $1,300, which amounts were offset by (i) non-cash
share-based compensation expense of $237,002, (ii) non-cash interest expense of
$32,770, (iii) the accretion to redemption value on convertible notes of $46,498
and (iv) a net change in operating assets and liabilities of $1,016,366.
Net cash used in operating activities for the six months ended June 30, 2021
consisted of our net loss of $1,786,267 offset by (i) share-based compensation
expense of $695,022, (ii) non-cash interest on convertible notes of $6,931,
(iii) accretion to redemption value on convertible notes of $41,002, (iv) an
increase in the fair value of the derivative liability of $20,800, (v) and a net
change in operating assets and liabilities of $699,438.
Cash Flows From Investing Activities
Net cash provided by investing activities for the six months ended June 30, 2021
consisted of net proceeds received from the dissolution of Phoenix Digital
Solutions LLC ("PDS"), representing our 50% interest in PDS.
Cash Flows From Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2022
consisted of net proceeds received from the issuance of convertible notes of
$341,362 (see Note 7 to the accompanying unaudited condensed consolidated
financial statements).
Net cash provided by financing activities for the six months ended June 30, 2021
consisted of net proceeds received from the issuance of convertible notes of
$525,003, which amount excludes $49,997 that was payable to one of our
co-founders as of December 31, 2020 and invested in the convertible notes in May
2021.
24
Recently Adopted Accounting Standards
There have been no new accounting pronouncements adopted by the Company or new
accounting pronouncements issued by the Financial Accounting Standards Board
during the six months ended June 30, 2022, as compared to the recent accounting
pronouncements described in Note 2 of the Company's Annual Report on Form 10-K
for the year ended December 31, 2021, that the Company believes are of
significance or potential significance to the Company.
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