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.









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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 in 2022 and into Phase I clinical trials in 2023, provided we are able to raise sufficient funding.

Summary of Significant Events

During the three months 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. To potentially meet these requirements, we have filed a registration statement on Form S-1 with the SEC on February 4, 2022 to potentially raise up to $15 million, and 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 or any number in between in order to potentially achieve compliance with the initial listing requirements of the Nasdaq Stock Market. 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 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 three months ended March 31, 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 March 31, 2022 and 2021:

Research and Development Expenses

Research and development expenses of approximately $328,000 for the three months ended 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 $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 $246,000 for the three months ended March 31, 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 $41,000 in share-based compensation expense.









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General and Administrative Expenses

General and administrative expenses of approximately $401,000 for the three months ended March 31, 2022 consist principally of salaries and related costs for personnel and consultants in executive and administrative functions of approximately $294,000, including approximately $67,000 in share-based compensation expense, fees for outside legal counsel of approximately $19,000, fees related to intellectual property rights of approximately $31,000, audit, tax, accounting and filing fees of approximately $36,000, director and officer insurance of approximately $11,000, investor and public relation fees of approximately $5,000, and other fees and expenses of approximately $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 personnel, provided we are able to raise sufficient capital.

General and administrative expenses of approximately $558,000 for the three months ended March 31, 2021 consist principally of salaries and related costs for personnel and consultants in executive and administrative functions of approximately $470,000 including approximately $234,000 in share-based compensation, fees for outside legal counsel of approximately $13,000, fees related to intellectual property rights of approximately $11,000, audit and related fees of approximately $35,000, director and officer insurance of approximately $14,000, and other fees and expenses of approximately $15,000.





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 Accretion to Redemption Value on Convertible Notes

Non-cash interest expense of approximately $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 ending September 30, 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 March 31, 2022, we had cash and cash equivalents of $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 on Form 10-Q.









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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.





Cash Flow Summary

The following table provides a summary of our net cash flow activity for the three months ended March 31, 2022 and 2021:





                                                        Three Months        Three Months
                                                       Ended March 31,     Ended March 31,
                                                            2022                2021
Net cash used in operating activities                  $      (189,719 )   $      (170,375 )
Net cash provided by investing activities                            -              27,637
Net cash provided by financing activities                      341,632                   -
Net change in cash and cash equivalents                $       151,913     $      (142,738 )

Cash Flows From Operating Activities

Net cash used in operating activities for the three months ended March 31, 2022 consisted of our net loss of $763,484 combined with a change in the fair value of the derivative liability of $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 $362,225.

Cash Flows From Investing Activities

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









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Cash Flows From Financing Activities

Net cash provided by financing activities for the three months ended March 31, 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).

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 three months ended March 31, 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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