Mosaic ImmunoEngineering Inc 10-Q for FY2022 Q2
Mosaic ImmunoEngineering Inc. (CPMV)
About this 10-Q
Mosaic ImmunoEngineering Inc filed this 10-Q on August 4, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $929.63K
- compared with a net loss of $979.42K a year earlier
- Diluted EPS
- -$0.13
- compared with -$0.14 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| 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
(Exact name of registrant as specified in its charter)
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
(Registrant’s telephone number, including
area code):
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. ☒ 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). ☒ 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 ☐ | Accelerated 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 ☐
On August 4, 2022, shares of common stock, par value $0.00001 per share, were outstanding.
INDEX
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| Item 1. Financial Statements | 4 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 25 |
| Item 4. Controls and Procedures | 25 |
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| Item 1. Legal Proceedings | 26 |
| Item 1A. Risk Factors | 26 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 44 |
| Item 3. Defaults Upon Senior Securities | 44 |
| Item 4. Mine Safety Disclosures | 44 |
| Item 5. Other Information | 44 |
| Item 6. Exhibits | 44 |
| SIGNATURES | 45 |
| i |
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 a reverse merger in August 2020.
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. In this Report, the words “anticipates,” “believes,” “expects,” “intends,” “future,” “estimates,” “may,” “could,” “should,” “would,” “will,” “shall,” “propose,” “continue,” “predict,” “plan” or the negative versions of these terms and other similar expressions are generally intended to identify certain of these forward-looking statements.
These forward-looking statements are subject to certain risks and uncertainties, and actual results may differ materially from those in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” in Part II, Item 1A of this Quarterly Report on Form 10-Q as well as information provided elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission (the SEC) on January 26, 2022. You should carefully consider that information before you make an investment decision.
You should not place undue reliance on these types of forward-looking statements, which speak only as of the date that they were made. These forward-looking statements are based on the beliefs and assumptions of the Company’s management based on information currently available to management and should be considered in connection with any written or oral forward-looking statements that the Company may issue in the future as well as other cautionary statements the Company has made and may make. Except as required by law, the Company does not undertake any obligation to release publicly any revisions to these forward-looking statements after completion of the filing of this Report to reflect later events or circumstances or the occurrence of unanticipated events.
The discussion of the Company’s financial condition and results of operations should be read in conjunction with the Company’s Unaudited Condensed Consolidated Financial Statements and the related Notes thereto included in this Report.
| 1 |
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. |
| 2 |
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. | |
| · | 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. |
| 3 |
PART I- FINANCIAL INFORMATION
| Item 1. | Financial Statements |
Mosaic ImmunoEngineering, Inc.
Condensed Consolidated Balance Sheets
June 30, 2022 | December 31, 2021 | |||||||
| unaudited | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Derivative liability | ||||||||
| Accrued compensation | ||||||||
| Accrued expenses and other | ||||||||
| Total current liabilities | ||||||||
| Convertible notes | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock, $ par value; shares authorized: | ||||||||
| Series A Convertible Voting Preferred Stock; shares designated; shares issued and outstanding | ||||||||
| Series B Convertible Voting Preferred Stock; shares designated; shares issued and outstanding | ||||||||
| Common stock, $ par value: shares authorized: shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 4 |
Mosaic ImmunoEngineering, Inc.
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2022 and 2021
(Unaudited)
Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Change in valuation of derivative liability | ( | ) | ( | ) | ||||||||||||
| Non-cash interest expense on convertible notes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Accretion to redemption value on convertible notes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding – basic | ||||||||||||||||
| Weighted average number of common shares outstanding – diluted | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 5 |
Mosaic ImmunoEngineering, Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
For the Three and Six Months Ended June 30, 2022 and 2021
(Unaudited)
For the Three Months Ended June 30, 2022
Series
A 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, March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation | – | – | – | |||||||||||||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balances, June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
For the Three Months Ended June 30, 2021
Series
A 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, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation | – | – | – | |||||||||||||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balances, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| 6 |
For the Six Months Ended June 30, 2022
Series
A 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, December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation | – | – | – | |||||||||||||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balances, June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
For the Six Months Ended June 30, 2021
Series
A 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, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Conversion of Series A Convertible Voting Preferred Stock | ( | ) | ( | ) | – | ( | ) | |||||||||||||||||||||||||||||
| Share-based compensation | – | – | – | |||||||||||||||||||||||||||||||||
| Net loss | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balances, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 7 |
Mosaic ImmunoEngineering, Inc.
Condensed Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 2022 and 2021
(Unaudited)
Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Share-based compensation | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Non-cash interest on convertible notes | ||||||||
| Accretion to redemption value on convertible notes | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Refundable income taxes | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued compensation | ||||||||
| Accrued expenses and other | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Proceeds from dissolution of affiliate | ||||||||
| Net cash provided by investing activities | ||||||||
| Financing activities: | ||||||||
| Proceeds from the issuance of convertible notes | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| ||||||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Conversion of Series A Convertible Voting Preferred Stock to common stock: | $ | $ | ||||||
| Conversion of accrued payable to founder to convertible note | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 8 |
| Mosaic ImmunoEngineering, Inc. |
|
Notes to Unaudited Condensed Consolidated Financial Statements For the Six Months Ended June 30, 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 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 development-stage biotechnology company focused on developing 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 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 result in anti-tumor effects in treated tumors and systemically at other sites of disease through immune activation. MIE-101 is currently in late-stage preclinical development and our goal is to advance MIE-101 into veterinary studies and into Phase I clinical trials in 2023, provided we are able to raise sufficient funding.
The Company has two wholly owned subsidiaries: Mosaic ImmunoEngineering Development Company (formerly referred to as Private Mosaic in connection with the 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.
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 June 30, 2022, the Company had cash
and cash equivalents of $
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.
| 9 |
| Mosaic ImmunoEngineering, Inc. |
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Notes to Unaudited Condensed Consolidated Financial Statements For the Six Months Ended June 30, 2022 (continued) |
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 transactions have been eliminated. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 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.
Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies during the three and six months ended June 30, 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 year ended December 31, 2021.
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 (“FASB”) during the three and 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.
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 CWRU (see Note 6). The anti-dilution issuance rights meet the definition of a derivative under FASB’s 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). |
| 10 |
| Mosaic ImmunoEngineering, Inc. |
|
Notes to Unaudited Condensed Consolidated Financial Statements For the Six Months Ended June 30, 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 at June 30, 2022 and December 31, 2021:
| Schedule of fair value of financial assets and liabilities | ||||||||||||||||
| Fair Value Measurements at June 30, 2022 Using | ||||||||||||||||
| Fair Value at June 30, 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 | $ | $ | $ | $ | ||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Anti-dilution issuance rights derivative liability | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| Fair Value Measurements at December 31, 2021 Using | ||||||||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Anti-dilution issuance rights derivative liability | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| 11 |
| Mosaic ImmunoEngineering, Inc. |
|
Notes to Unaudited Condensed Consolidated Financial Statements For the Six Months Ended June 30, 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 we raise approximately $626,000 from the sale of common or preferred stock, or a combination 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. At June 30, 2022 and December 31, 2021, the estimated fair value of the anti-dilution issuance rights was $
The primary inputs used in valuing the anti-dilution issuance rights liability at June 30, 2022 and December 31, 2021 were as follows:
| Schedule of assumptions used | ||||||||
June 30, 2022 | December 31, 2021 | |||||||
| Fair value of common stock (per share) | $ | $ | ||||||
| Estimated additional shares of common stock | ||||||||
| Expected volatility | % | % | ||||||
| Expected term (years) | ||||||||
| Risk-free interest rate | % | % | ||||||
The fair value of the common stock was determined by management with the assistance of an independent third-party specialist. The computation of expected volatility was estimated using available information about the historical volatility of stocks of similar publicly traded companies for a period matching the expected term assumption. In addition, the Company incorporated the estimated number of shares, timing, and probability of future equity financings in the calculation of the anti-dilution issuance rights liability.
4. Investment in Affiliated Companies
Phoenix Digital Solutions, LLC (“PDS”)
PDS was formed by PTSC
to pursue licensing of its intellectual property and we own
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| Mosaic ImmunoEngineering, Inc. |
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Notes to Unaudited Condensed Consolidated Financial Statements For the Six Months Ended June 30, 2022 (continued) |
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| Schedule of accrued expenses and other current liabilities | ||||||||
| June 30, 2022 | December 31, 2021 | |||||||
| Accrued consulting | $ | $ | ||||||
| Crossflo acquisition liability | ||||||||
| Accrued patent expenses | ||||||||
| Other accrued expenses | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
In September 2008, PTSC acquired Patriot
Data Solutions Group, Inc. formerly known as Crossflo Systems, Inc. (“PDSG”). In connection with the acquisition of
Crossflo by PTSC, we have accrued $
6. License Agreements
License Option and Agreement with CWRU
On July 1, 2020, we signed a License Option Agreement with CWRU, granting the Company the exclusive right to license certain technology covering 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.
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, 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 in August 2020 of approximately $374,000 was applied against the Capital Threshold. As of June
30, 2022, the remaining Capital Threshold was approximately $
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| Mosaic ImmunoEngineering, Inc. |
|
Notes to Unaudited Condensed Consolidated Financial Statements For the Six Months Ended June 30, 2022 (continued) |
On May 4, 2022, we exercised our rights under
the License Option Agreement and entered into a license agreement with CWRU (“License 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
$
In addition, we are responsible for the reimbursement
of all past, current and future patent fees incurred by CWRU under the License Agreement. During the three and six months ended June 30,
2022, we incurred $
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.
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 $
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 product candidate. These plant virus
protein nanoparticles can be loaded with other 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 $
For the three and six months ended June 30, 2022,
we expensed $
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| Mosaic ImmunoEngineering, Inc. |
|
Notes to Unaudited Condensed Consolidated Financial Statements For the Six Months Ended June 30, 2022 (continued) |
7. Convertible Notes
On May 7, 2021, we entered into a convertible
note purchase agreement (“May Note Agreement”) with five (5) accredited investors, including three (3) members of our Board
of Directors (“Board”) that participated on the same terms as other accredited investors. Pursuant to the Note Agreement,
we received $
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
$
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 (
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 for the May Convertible Notes (“May Conversion Price”) or $1.00 for the February Convertible Notes (“February Conversion Price”). 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 June 30, 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 Convertible Notes, a Qualified Financing represents a single transaction or series of transactions whereby the Company receives aggregate gross proceeds of at least $5 million from the sale of equity securities following the issuance 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 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) the May or February Conversion Price, as applicable.
Pursuant to ASC Topic 835-30, “Imputation
of Interest”, the Convertible Notes were initially recorded at their amortized cost of $
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| Mosaic ImmunoEngineering, Inc. |
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Notes to Unaudited Condensed Consolidated Financial Statements For the Six Months Ended June 30, 2022 (continued) |
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”).
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 in connection with a reverse merger in 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.
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 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, net working capital acquired under the reverse merger in the amount of approximately $374,000 was applied against the Capital Threshold. The remaining Capital Threshold was approximately $626,000 as of June 30, 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.
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| Mosaic ImmunoEngineering, Inc. |
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Notes to Unaudited Condensed Consolidated Financial Statements For the Six Months Ended June 30, 2022 (continued) |
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 October 21, 2021, the first anniversary date from the adoption date of the 2020 Plan,
the number of shares of common stock reserved for issuance under the 2020 Plan increased to 20% of the fully diluted shares of common
stock outstanding, including shares of common stock reserved for issuance under convertible securities. As of June 30, 2022, we have reserved
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 are determined using the Black-Scholes valuation model on the date of grant. The fair value of restricted stock awards and RSUs are 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 six months ended June 30, 2022 and 2021 was comprised of the following:
| Schedule of share-based compensation expense | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The following summarizes our transaction activity related to RSUs for the six months ended June 30, 2022:
| Schedule of RSU activity | ||||||||
Shares | Weighted Average Grant Date Fair Value | |||||||
| Outstanding at January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Outstanding at June 30, 2022 | $ | |||||||
As of June 30, 2022, the total estimated unrecognized compensation cost related to non-vested RSUs was approximately $. This cost is expected to be recognized over the remaining weighted average vesting period of years. As of June 30, 2022, total awards have vested under the 2020 Plan.
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| Mosaic ImmunoEngineering, Inc. |
|
Notes to Unaudited Condensed Consolidated Financial Statements For the Six Months Ended June 30, 2022 (continued) |
9. Commitments and Contingencies
Legal Matters
While the Company is not involved in any litigation as of June 30, 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.
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.
10. Related Parties
During the 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, Jonathan Pokorski, Ph.D. (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 $
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 same terms as other accredited investors, in the aggregate principal amount of $
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| Mosaic ImmunoEngineering, Inc. |
|
Notes to Unaudited Condensed Consolidated Financial Statements For the Six Months Ended June 30, 2022 (continued) |
11. Subsequent Events
In February 2007, we invested an aggregate
of $
On July 6, 2022, we entered into a redemption
agreement (the “Redemption Agreement”) with Holocom, pursuant to which we requested full redemption of our Series A Preferred
Stock. Pursuant to the Redemption Agreement, we received cash proceeds in the amount of $
| Schedule of series A preferred stock to be redeemed over a period | ||||
|
Period |
Shares of Series A Preferred Stock to be Redeemed each Month |
Monthly Redemption Proceeds to the Company | ||
| Months 1-12 | $ | |||
| Months 13-24 | $ | |||
| Months 25-30 | $ |
Notwithstanding the foregoing, Holocom also agreed
to expedite the redemption of the Series A Preferred Stock in the event that Holocom has excess cash on hand, which amount shall be calculated
at each calendar month end period date (“Month End Date”), equal to an amount of (i) total cash on hand of Holocom and Scripps
Ventures, Inc. (a related party entity of Holocom) (ii) less $
The Redemption Agreement further provides that any amounts not paid within fifteen (15) days of its respective due date shall accrue interest at a rate of 8% per annum until fully paid and retroactively adjusted to 12% per annum from its original due date for amounts not paid within 90 days of its original due date.
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.
| 19 |
| 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-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.
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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.
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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.
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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.
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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 Ended June 30, 2022 | Six Months Ended June 30, 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.
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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.
| 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 June 30, 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 June 30, 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.
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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 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 June 30, 2022, the Company had incurred operating losses since inception, and continues to generate losses from operations, and had an accumulated deficit of $6,220,348. 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.
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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; therefore, we have limited operating history. We have not raised any capital other than $575,000 and $341,632 from the issuance of our convertible notes in May 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 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 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”.
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.
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.
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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.
In March 2020, the World Health Organization 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. |
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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. 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 rapidly evolve. The extent to which the COVID-19 pandemic impacts our business will depend on future developments such as the rate of the spread of the disease, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain 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 United States as compared to the rest of the world and 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 financial results is uncertain, a continued and prolonged public health crisis such as the COVID-19 pandemic could have 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 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.
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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 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 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. |
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If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, or if we are unable to successfully complete clinical trials of our product candidates or other testing, or 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.
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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.
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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.
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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.
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.
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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.
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 that may 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.
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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.
Risks Related to Our Intellectual Property
If we or 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.
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 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 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 Agreement may have a material adverse effect on our business, operating results, and financial position.
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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.
On July 1, 2020, we signed a 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. On May 4, 2022, we exercised our right to license the technology from CWRU and entered into a License Agreement. If we fail to comply with our obligations under the License Agreement, or any other future agreement, including the payment of all amounts due under the License Agreement, we may lose the rights to developed and potentially commercialize our technology, and CWRU may have the right to terminate the License Agreement or restrict our rights, in which event we would not be able to develop or market products covered by the License Agreement, which are the products upon which our business depends. Additionally, all milestones and other payments associated with 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 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.
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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.
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.
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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 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 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.
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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.
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.
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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 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 twelve months ended June 30, 2022, the low and high trading prices of our common stock has ranged from $0.10 to $3.00 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 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 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.
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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, of which, 4,300,000 have been undesignated as of June 30, 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.
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.”
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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. |
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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
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
None.
| 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 | |
| 10.1* | License Agreement by and between Mosaic ImmunoEngineering, Inc. and Case Western Reserve University dated May 4, 2022 (Portions of this exhibit have been redacted in compliance with Item 601(b)(10) of Regulation S-K) | |
| 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.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (formatted in inline XBRL, and included in exhibit 101). |
| * | Filed herewith. |
| 44 |
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: August 4, 2022 |
MOSAIC IMMUNOENGINEERING, INC.
/s/ Steven King
Steven King. President and Chief Executive Officer, Director (Principal Executive Officer)
|
|
Dated: August 4, 2022 |
MOSAIC IMMUNOENGINEERING, INC.
/s/ Paul Lytle
Paul Lytle. EVP, Chief Financial Officer, Director (Principal Financial Officer and Principal Accounting Officer)
|
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Exhibit 10.1
CERTAIN INFORMATION IN THIS DOCUMENT, MARKED BY [**], HAS BEEN EXCLUDED PURSUANT TO REGULATION S-K, ITEM 601(b)(10)(iv). SUCH EXCLUDED INFORMATION IS NOT MATERIAL AND IS THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL
LICENSE AGREEMENT
Case Western Reserve University – Mosaic ImmunoEngineering, Inc.
This License Agreement (hereinafter “Agreement”) entered into as of this 4th day of May, 2022 (“Effective Date”) by and between Case Western Reserve University, an Ohio non-profit corporation, having a principal place of business at 10900 Euclid Avenue, Cleveland, Ohio 44106 (“CWRU”) and Mosaic ImmunoEngineering, Inc., a Delaware for-profit corporation, having a place of business at 1537 South Novato Blvd #5, Novato CA 94947 (“Licensee”).
WITNESSETH
WHEREAS, CWRU owns certain rights in certain technology relating to novel immunostimulatory nanoparticles and applications thereof and is interested in licensing same;
WHEREAS, Licensee desires to license the rights in and to the technology upon the terms and conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants contained herein and intending to be legally bound hereby, the parties agree as follows:
1. DEFINITIONS
1.1 The term “Approval” shall mean FDA approval or Foreign Equivalent that is necessary for the commercial sale of a Licensed Product in the Field of Use in the applicable country or regulatory jurisdiction.
1.2 The term “Biological Materials” shall mean any biological materials created through use of any Patent or supplied by CWRU together with any Progeny, or Unmodified Derivatives thereof created by Licensee. CWRU may supply Biological Materials to Licensee pursuant to a separate materials transfer agreement to be negotiated in good faith by the parties that, among other terms, will incorporate the license terms of this Agreement by reference. For the avoidance of doubt, CWRU has not supplied any Biological Materials to Licensee as of the Effective Date. Notwithstanding the foregoing, the parties agree that cowpea mosaic virus in its natural form is not deemed a Biological Material.
1.3 The term “BLA” shall mean a Biological License Application submitted under 21 C.F.R. §601.2.
1.4 The term “BLA Approval” shall mean the grant by the FDA under 21 C.F.R. §601.20 or §601.40 of the right to market commercially and distribute a Licensed Product(s) within the United States.
1.5 The term “Clinical Trial” shall mean the use of a Licensed Product(s) in human subjects in accordance with 21 C.F.R. Part 312.
1.6 The term “Complete Phase I” shall mean the date on which the FDA permits the initiation of a Phase II Clinical Trial of a Licensed Product(s).
1.7 The term “Complete Phase II” shall mean the date on which the FDA permits the initiation of a Phase III Clinical Trial or similar pivotal Clinical Trial of a Licensed Product(s).
1.8 The term “Complete Phase III” shall mean the date on which the FDA permits the initiation of a BLA of a Licensed Product(s).
1.9 The term “Copyrights” shall mean any works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. Works of authorship include, without limitation, the following categories: (a) literary works; (b) musical works, including any accompanying words; (c) dramatic works, including any accompanying music; (d) pantomimes and choreographic works; (e) pictorial, graphic, and sculptural works; (f) motion pictures and other audiovisual works; (g) sound recordings; (h) architectural works; (i) code. For the avoidance of doubt, CWRU has not provided or supplied any Copyrights to Licensee as of the Effective Date.
1.10 The term “Dispose” or “Disposition” shall mean the sale, lease or other transfer of Licensed Product(s).
1.11 The term “Dollar”, “U.S. Dollar” and “U.S. $” shall mean lawful money of the United States of America.
1.12 The term “Equity Securities” shall mean any Common Stock, or any securities convertible or exchangeable into Common Stock, whether debt or equity, but not including any Excluded Issuances.
1.13 The term “Excluded Issuances” shall mean issuances or sale by Licensee after the effective date of the Option Agreement of shares of Common Stock issued directly or upon the exercise of options under customary Board approved plans for the benefit of key employees and consultants of Licensee and issued pursuant to Licensee’s 2020 Equity Incentive Plan.
1.14 The term “FDA” shall mean the U.S. Food & Drug Administration.
1.15 The term “FDC Act” shall mean the Federal Food, Drug and Cosmetic Act of 1938, as amended.
1.16 The term “Field of Use” shall mean preparative, manufacturing, therapeutic, diagnostic, vaccine and preventive uses of Licensed Technology and/or Licensed Products for all applications, including veterinary and human applications.
1.17 The term “Fiscal Quarter” or “Quarter” shall refer to the normal quarterly accounting periods of Licensee; if Licensee does not have normal quarterly accounting periods, then “Fiscal Quarters” shall mean the calendar three months periods commencing with January of each year.
1.18 The term “Foreign Equivalent” shall mean the performance or occurrence of activities in non-U.S. jurisdictions similar to the performance or occurrence of activities in the United States covered by the terms “Clinical Trial,” “Initiate Phase I Clinical Trial,” “Complete Phase I Clinical Trial,” “Phase II Clinical Trial,” “Initiate Phase II Clinical Trial,” “Complete Phase II,” “Phase III Clinical Trial,” “Initiate Phase III Clinical Trial,” “Complete Phase III Clinical Trial,” “BLA,” “BLA Approval,” and “Regulatory Approval,” as each such term is defined in this Article.
1.19 The term “Initiate Phase I Clinical Trial” shall mean the date a human subject is first dosed in a Phase I Clinical Trial.
1.20 The term “Initiate Phase II Clinical Trial” shall mean the date a human subject is first dosed in a Phase II Clinical Trial.
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1.21 The term “Initiate Phase III Clinical Trial” shall mean the date a human subject is first dosed in a Phase III Clinical Trial.
1.22 The term “Know-How” shall mean any and all technical information, Trade Secrets, formulas, prototypes, specifications, directions, instructions, test protocols, procedures, results, studies, analyses, data, conceptions, ideas, innovations, discoveries, inventions, processes, methods, materials, machines, devices, formulae, equipment, enhancements, modifications, technological developments, techniques, systems, tools, designs, drawings, plans, software, documentation, data, programs, and other knowledge, information, skills, and materials owned or controlled by CWRU. For avoidance of doubt, Know-How does not include information that was in the public domain before the effective date of the Option Agreement.
1.23 The term “Launch” shall mean the same as Product Launch.
1.24 The term “Licensed Product” or “Product” shall mean any composition, product, device, service, method and/or process which constitutes, is based on, incorporates or utilizes, wholly or in part, Licensed Technology, any and all Licensee Improvements and/or any and all Biological Materials.
1.25 The term “Licensed Technology” or “Technology” shall mean (i) the technology described in Attachment A on an “AS IS” basis on the Effective Date; (ii) the Trade Secrets of CWRU, Know-How of CWRU, design architecture and the software and algorithm related to the technology described in Attachment A, including, without limitation, all related code, on an “AS IS” basis on the Effective Date; (iii) any claims issuing on Patents covering the foregoing parts i or ii; and (iv) any Copyrights of CWRU or its licensors in any of the foregoing, or any portion thereof. For the avoidance of doubt, as of the Effective Date, Attachment A does not describe any (i) Technology other than Patent(s) (including the invention disclosures related thereto) or (ii) Trade Secrets or Know-How not related to the Patents, design architecture, software, algorithms or code.
1.26 The term “Licensee Improvement(s)” shall mean intellectual property developed by Licensee individually or jointly with any sublicensee or any Third Party(ies) that constitute any product or component part thereof, other than a Licensed Product, that in whole or in part uses the Licensed Technology for its discovery, development, manufacture, use or sale. (For clarity, intellectual property developed solely by a Third Party (i.e., not jointly by Licensee and a Third Party) is not a Licensee Improvement.) Licensee Improvements shall be added to Attachment B, which Licensee shall promptly (but no less frequently than once per year) update upon development of any Licensee Improvements. Notwithstanding the foregoing, in order for any of the aforementioned intellectual property to be considered a Licensee Improvement, it must be derived from the Licensed Technology. Licensee shall be the sole owner of Licensee Improvements and shall be entitled to establish all proprietary rights for itself in the intellectual property included in Licensee Improvements (but not the Licensed Technology incorporated therein which is not itself a Licensee Improvement), whether in the nature of Trade Secrets, copyrights, patent applications, patents or other rights, provided that: (a) Licensee Improvements shall be considered Licensed Technology and subject to the terms of this Agreement, including but not limited to, Royalties, and (b) products incorporating Licensee Improvements may not be made, used, or disposed of in conjunction with any use of or product based on the Licensed Technology prior to the end of twenty (20) years from the Effective Date or the expiration date of the last to expire Patent whichever comes later, unless the license granted under 2.1 of this Agreement is then in effect. For the avoidance of doubt, (i) Licensee is not restricted from making, using, or disposing of any products incorporating Licensee Improvements for any purpose outside of any use of or product based on the Licensed Technology; and (ii) the Term shall not be extended for any Licensee patents that include Licensee Improvements. CWRU, and any non-profit health care institutions affiliated with CWRU, shall have the right to use Licensee Improvements (except for Licensee Improvements that are and continue to be Trade Secrets of Licensee) on a royalty-free, nonexclusive basis for research, educational, academic and administrative purposes. If this Agreement terminates or is terminated before the term specified in Section 3, all of Licensee’s right, title, and interest in Licensee Improvements shall be transferred to CWRU; provided, however, that in such event CWRU will grant a royalty-free exclusive license to Licensee to use such Licensee Improvements for any purpose outside of any use of or product based on the Licensed Technology, with the other terms and conditions of such royalty-free exclusive license (such as the allocation of responsibility for the control and direction of the prosecution and maintenance of any patents included within such Licensee Improvements) to be negotiated in good faith by the parties.
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1.27 The term “Market Exclusivity Period” shall mean any exclusive marketing rights granted by the FDA or another regulatory agency in any country in the Territory for a specified period based on Approval of a Licensed Product, including but not limited to exclusive marketing rights as may be granted under New Product Exclusivity, Orphan Drug Exclusivity and/or Pediatric Exclusivity.
1.28 The term “Melt Processing Patents” shall mean any application or patent described in Attachment C, or continuation, continuation-in-part, divisional, reissue, reexamination, or extension thereof, in the U.S.A. or in any other country, which issues to CWRU and is based on intellectual property in existence at the date of the signing of this Agreement.
1.29 The term “Melt Processing License” shall mean that certain license that CWRU and Licensee desire to enter into regarding the Melt Processing Patents.
1.30 The term “Net Sales” shall mean the total Revenues received from the manufacture use or Disposition of Licensed Products, less the total of all:
a. discounts or rebates allowed in amounts customary in the trade; b. sales tariffs, duties and/or taxes imposed on the Licensed Products; c. transportation prepaid or allowed; and d. amounts allowed or credited on returns |
No deduction shall be made for commissions paid to individuals (whether independent sales agents or persons regularly employed by Licensee).
Notwithstanding the foregoing, Licensed Products distributed as free promotional samples in limited and commercially reasonable amounts, consistent with prevailing pharmaceutical industry standards, or in any compassionate use program (provided such Licensed Products are provided without charge), or used or transferred for use in bona fide research activities directly related to Licensed Products, including clinical trials, shall be disregarded in determining Net Sales.
1.31 The term “New Product Exclusivity” shall mean and refer to any exclusivity granted by (i) the FDA pursuant to § 505(c)(3)(E) or § 505(j)(5)(F) of the FDC Act or § 351(k) of the Public Health Service Act of 1944, as amended or (ii) any equivalent exclusivity granted by the applicable government agencies authorized to grant Market Exclusivity in a country or territory.
1.32 The term “Non Royalty Sublicensing Income” or “NRSI” shall mean all non-royalty considerations received by Licensee related to a sublicense agreement. NRSI would include but not be limited to all sublicense issue fees, maintenance fees and non-sales related sublicense milestone payments received by Licensee directly related to the sublicensing by Licensee of rights to commercialize Licensed Product(s). NRSI excludes consideration received by Licensee in the following categories:
1.32.1 Bona fide support for future research, development and manufacturing activities directly related to the development of Licensed Products pursuant to a written, verifiable contractual arrangement therefor and an applicable work plan or budget;
1.32.2 Proceeds derived from debt financing, to the extent such financing is at market rates;
1.32.3 Consideration received for the purchase of an equity interest in Licensee to the extent that the price per share of such equity does not exceed by more than ten percent (10%) the fair market value of such equity; or
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1.32.4 As reimbursement of Licensee’s patent costs incurred for Patents.
1.33 The term “Option Agreement” shall mean the Materials Transfer, Evaluation and Exclusive Option Agreement entered into by and between CWRU and Licensee on July 1, 2020.
1.34 The term “Orphan Drug Exclusivity” shall mean and refer to any exclusivity granted by the FDA to the sponsor of a marketing application for a designated orphan drug in the rare disease or condition for which the drug was designated, or for select indications or uses within the rare disease or condition for which the orphan drug was designated pursuant to 21 C.F.R. § 316.31 or any equivalent exclusivity granted by the applicable government agencies authorized to grant Market Exclusivity in a country or territory.
1.35 The term “Patent(s)” shall mean any application or patent described in Attachment A, or continuation, continuation-in-part, divisional, reissue, reexamination, or extension thereof, in the U.S.A. or in any other country, which issues to CWRU and is based on intellectual property in existence at the date of the signing of this Agreement.
1.36 The term “Pediatric Exclusivity” shall mean and refer to any exclusivity granted by the FDA for pediatric studies pursuant to § 505A of the FDC Act or any equivalent exclusivity granted by the applicable government agencies authorized to grant Market Exclusivity in a country or territory.
1.37 The term “Phase I Clinical Trial” shall mean a Clinical Trial of a Licensed Product in which human subjects are exposed to or treated with such Licensed Product primarily for the purpose of evaluating safety and tolerability.
1.38 The term “Phase II Clinical Trial” shall mean a Clinical Trial either (i) designed to provide a preliminary evaluation of the activity or effectiveness, common short-term side effects, risks, or other characteristics of a Licensed Product for particular indications; or (ii) as otherwise indicated as being a Phase II Clinical Trial in its protocol.
1.39 The term “Phase III Clinical Trial” shall mean the agreement by the FDA and the Licensee that a Clinical Trial which the FDA and Licensee agree is “adequate and well-controlled” as those terms are defined in 21 C.F.R. § 314.126 in its design and conduct to demonstrate whether a Licensed Product(s) has sufficient safety and effectiveness as necessary for BLA Approval of such Licensed Product(s).
1.40 The term “Prime Rate” shall mean the interest rate per annum announced from time to time by Key Bank, Cleveland, Ohio, as its prime rate.
1.41 The term “Product Launch” shall mean the initial delivery to an end user of a Licensed Product(s) that is subject to, and in accordance with, a BLA Approval for such Licensed Product(s).
1.42 The term “Progeny” shall mean an unmodified descendant of Biological Material, such as virus from virus, cell from cell, or organism from organism, and any immediate or remote progeny of or descendant from organisms or cell lines containing the same genetic mutation(s) or lesion(s) as the Biological Material.
1.43 The term “Regulatory Approval” shall mean FDA approval or Foreign Equivalent.
1.44 The term “Revenue” shall mean the U.S. Dollar value of all consideration realized by Licensee for the Disposition of Licensed Product(s).
1.45 The term “Royalties” shall mean Disposition royalties which are calculated as a percentage of Net Sales and will be payable by Licensee to CWRU under the provisions of this Agreement.
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1.46 The term “Submit a BLA” shall mean the initial filing of a BLA with the FDA or Foreign Equivalent.
1.47 The term “Territory” shall mean the entire world.
1.48 The term “Third Party(ies)” shall mean any person or entity other than the Licensee or CWRU.
1.49 The term “Trade Secret” shall mean information, including a formula, pattern, compilation, program, device, method, technique, or process (as defined by the Uniform Trade Secrets Act) that:
| · | Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and |
| · | Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. |
1.50 The term “Unmodified Derivative” shall mean substances created by Licensee which constitute an important unmodified functional sub-unit or expression product of Biological Material, e.g., subclones of unmodified cell lines, purified or fractionated sub-sets of Biological Material such as novel plasmids or vectors, proteins expressed as DNA or RNA, or antibodies secreted by a hybridoma.
1.51 The term “Year” refers to contract years of the License Agreement, i.e., a 12-month period starting with the date (or anniversary) of the Effective Date of the License Agreement.
2. LICENSE GRANT
2.1 CWRU hereby grants to Licensee, and Licensee hereby accepts, an exclusive, world-wide, and terminable (in accordance with this Agreement) right and license to use the Licensed Technology to make, have made, use, offer for sale, import and Dispose of Licensed Products and to create Licensee Improvements and/or Biological Materials for the Field of Use, subject to the terms of this Agreement.
2.2 CWRU hereby grants to Licensee the right to grant sublicenses, provided that: (i) the sublicensee agrees to abide by and be subject to all the terms and provisions of this Agreement applicable to Licensee and that the economic return to CWRU from the Disposition of Licensed Products be not less than the economic returns would be if such Disposition had been by Licensee; (ii) the sublicensee shall have no further right to grant sublicenses under this Agreement; (iii) in the event any sublicensee (or any entity or person acting on its behalf) initiates any proceeding or otherwise asserts any claim challenging the validity or enforceability of any Patent in any court, administrative agency or other forum, Licensee shall, upon written request by CWRU, terminate forthwith the sublicense agreement with such sublicensee, and the sublicense agreement shall provide for such right of termination by Licensee; (iv) the sublicense agreement shall provide that, in the event of any inconsistency between the sublicense agreement and this Agreement, this Agreement shall control; (v) Licensee remains fully liable for the performance of its and its sublicensee’s obligations hereunder; (vi) Licensee notifies CWRU of any proposed grant of a sublicense and provides to CWRU, upon request, a copy of any proposed sublicense agreement seven (7) business days prior to execution thereof; and (vii) no such sublicense or attempt to obtain a sublicensee shall relieve Licensee of its obligations under Section 4 hereof, nor relieve Licensee of its obligations to pay CWRU any and all license fees, royalties and other payments due under the Agreement. In addition, Licensee shall also provide CWRU with a copy of the executed sublicense within seven (7) days after its execution.
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2.3 CWRU, and any non-profit health care institutions affiliated with CWRU, shall have, and Licensee hereby grants to CWRU, the perpetual, worldwide, irrevocable right to make, have made, use, and import, free of charge, any product or process, developed by Licensee which contains or is based on any of Licensed Technology, and/or Licensee Improvements, for research (including but not limited to clinical research by itself or in conjunction with a healthcare institution), educational, academic, or administrative purposes.
2.4 No provision of this Agreement shall restrict CWRU’s ability to conduct further research and development in the area of Licensed Technology or other areas.
2.5 All Licensed Products shall be manufactured, sold and performed by Licensee in compliance with all applicable governmental laws, rules and regulations. Licensee shall keep CWRU fully informed of, and shall move expeditiously to resolve, any complaint by a governmental body relevant to Licensed Products, except for complaints subject to the Section of this Agreement entitled “Infringement”.
2.6 If Licensed Technology was supported under a United States Government funding agreement, then (a) the United States Government has been or will be granted licensing rights as required under the terms of those federal agreements, (b) all rights and requirements of the United States Government and others under Public Law 96-517, and Public Law 98-620, including but not limited to government purpose license, march-in rights, and obligations to provide materials to other researchers shall remain and shall in no way be affected by this Agreement and any right granted in this Agreement greater than that permitted under Public Law 96-517, or Public Law 98-620, shall be subject to modification as may be required to conform to the provisions of those statutes, and (c) products sold in the United States of America, embodying or produced through use of Licensed Technology, will be manufactured substantially in the United States of America, unless a waiver has been obtained from the federal funding agency under whose funding agreement the Licensed Technology was generated.
2.7 Retained Rights to the Licensed Technology. Notwithstanding the license granted in this Agreement, CWRU, and any non-profit health care institutions affiliated with CWRU, shall retain all rights to use the Licensed Technology for non-commercial research (excluding clinical research unless approved by Licensee), educational, academic, or administrative purposes, even in the Field of Use.
2.8 Supply of Research Materials. Subject to a materials transfer and confidentiality agreement to be negotiated in good faith by the parties, Licensee will provide to CWRU reasonable quantities of all research materials produced, or in the future developed, by the Licensee for the use by CWRU in a manner consistent with Section 2.7 above. CWRU shall not use such research materials in a manner detrimental to the Licensee’s legitimate commercial interests in the Licensed Technology granted under this Agreement or transfer such research materials to any Third Party(ies) obtained under this Section 2.8 without the prior written consent of the Licensee. Commercializing or seeking to commercialize such research materials and their derivatives within the Field of Use shall be deemed “detrimental to the Licensee’s commercial interests” within the intent of this Section.
2.9 Right of First Consideration for CWRU-based Clinical Studies. CWRU will have an opportunity to discuss with Licensee the terms pursuant to which CWRU may participate in the conduct of the first Clinical Trial of Licensed Products conducted following the Effective Date. Licensee will consider in good faith including CWRU as a site in any such Clinical Trial. CWRU will have thirty (30) days after receiving such notice and information to demonstrate CWRU’s ability to conduct such Clinical Trial by providing any reasonably requested information to Licensee such as, but not limited to historical enrollment capabilities in the relevant indication, comparable data collection and recordation processes, and the expertise of investigators and staff relevant to such Clinical Trial. If Licensee determines in its sole discretion that CWRU has appropriate capabilities for such activities, it shall notify CWRU. Thereafter, the parties shall negotiate in good faith the terms pursuant to which CWRU may participate in such Clinical Trial for up to sixty (60) days, provided that neither party will be obligated to enter into any agreement governing such activities. For clarity, nothing in this Section 2.9 shall prohibit Licensee from negotiating with Third Party(ies) in connection with conducting such Clinical Trial of the Licensed Product(s) at other sites at any time.
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3. TERM OF THIS AGREEMENT
The term of this Agreement shall conclude (i) at the end of twenty (20) years from the Effective Date, (ii) on the expiration date of the last-to-expire Patent or (iii) at the expiry of all Market Exclusivity Periods for a Licensed Product, whichever comes later, unless otherwise terminated pursuant to another provision of this Agreement. In no event shall the term be extended beyond the aforementioned period as a result of any Licensee Improvements.
4. DUE DILIGENCE
4.1 Licensee shall use its best efforts to effect introduction of Licensed Technology into the commercial market as soon as possible; thereafter, until the termination of this Agreement, Licensee shall use its best efforts to market and maintain reasonable availability of the Licensed Technology for distribution to, and use by, the public.
4.2 Licensee shall, at a minimum, achieve the following milestones (“Diligence Milestones”):
(a) [**].
(b) [**].
(c) [**].
(d) [**].
(e) [**].
4.3 Licensee’s default in performance in accordance with Section 4 herein shall be grounds for CWRU to terminate this Agreement pursuant to the Section entitled “Termination”. If Licensee deliberately fails to perform any of its performance obligations as specified in Section 4 and such performance obligations are within Licensee’s control, then CWRU shall have the right and option, in addition to any other rights CWRU has under this Agreement, at law, or in equity, to either amend the description of the Field of Use, terminate this Agreement, or change Licensee’s exclusive license under Licensed Technology to a nonexclusive license, subject to Section 5.8.
5. ROYALTIES
5.1 Subject to Section 5.2 below, on a Licensed Product-by-Licensed Product basis, Licensee shall pay to CWRU the following tiered royalties on annual Net Sales of such Licensed Product:
Licensed Products in Human Applications
| Annual Global Net Sales Amount | Royalty Rate |
| Up to $500 Million | [**] |
| >$500 million up to $2 Billion | [**] |
| Greater than $2 Billion | [**] |
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Licensed Products in Non-Human Applications
| Annual Global Net Sales Amount | Royalty Rate |
| Up to $5 Million | [**] |
| >$5 Million up to $50 Million | [**] |
| Greater than $50 Million | [**] |
No multiple royalties shall be due or payable because any Licensed Product is covered, in a given country, by more than one Patent, or by more than one claim of a Patent, within the Patent(s) as described in Attachment A. For the avoidance of doubt, the Royalties shall not be cumulative based on the number of Patents or claims covering a Licensed Product in a given country.
| 5.1.1 | Determining Net Sales on Combination Products. In the event that any Licensed Product is sold for a single price with one or more separate and discrete products which (i) contains an active pharmaceutical ingredient (as such term is defined in 21 CFR § 207.1), and(ii) are themselves not Licensed Products under this Agreement, the Net Sales for such Licensed Product shall be calculated by multiplying the sales price of such combination sale by the fraction A/(A+B) where A is the fair market value of the Licensed Product and B is the fair market value of the other product(s) in the combination sale. In the event the fair market values cannot determined based on the above methodology, the fair market values shall be determined in good faith by mutual agreement of the parties. In addition, in the event that any Licensed Product is sold with any other product(s) or if any giveaways, discounts, rebates or charge-backs (whether as part of a customer loyalty, bundling or “loss leader” program, or otherwise) are provided for any Licensed Product to promote or sell other products or otherwise, the Net Sales for such Licensed Product shall be no less than the fair market value of such Licensed Product on a stand-alone basis (excluding any such discounts, rebates or charge-backs). |
| 5.1.2 | Royalty Rate Reduction. Notwithstanding the foregoing, in the event Licensee is required to pay royalties to one or more third parties for patent rights necessary to make, have made, use, sell, offer for sale, or import Licensed Product, Licensee may deduct $0.50 from the Royalties for every $1.00 Licensee actually pays to said third parties, provided that in no event shall the Royalty Rate be reduced by more than fifty percent (50%). For clarity, “necessary” in the preceding sentence means that, in the reasonable opinion of patent legal counsel, the third party patent rights are required to practice the Licensed Technology and to make, have made, use, sell, offer for sale, or import a Licensed Product. |
5.2 If, at the time of sale, on a country-by-country basis and Licensed Product-by-Licensed Product basis, there is no Patent that covers the Licensed Product as described in Section 5.1, then Licensee shall pay to CWRU, in lieu of the royalty rates set forth in Section 5.1, a know-how royalty on Net Sales of such Licensed Product in such country at a royalty rate equal to fifty percent (50%) of the applicable royalty rate set forth in Section 5.1. If, at the time of sale, on a country-by-country basis and Licensed Product-by-Licensed Product basis, there is no Patent that covers the Licensed Product as described in Section 5.1 and there is a biosimilar or bio-equivalent product on the market that directly completes with the Licensed Product, then Licensee shall pay to CWRU, in lieu of the royalty rates set forth in Section 5.1, a know-how royalty on Net Sales of such Licensed Product in such country at a royalty rate equal to twenty five percent (25%) of the applicable royalty rate set forth in Section 5.1.
5.3 Licensee shall pay CWRU [X]% of all NRSI according to the following schedule:
Sublicense for any application other than veterinary application:
| Event | [X] Percentage |
| Prior to the IND filing of a Licensed Product | [**] |
| Prior to the Completion of the first Phase I Clinical Trial of a Licensed Product | [**] |
| After Completion of a Phase I Clinical Trial but prior to Completion of the first Phase II Clinical Trial or a Licensed Product | [**] |
| After Completion of a Phase II Clinical Trial of a Licensed Product and thereafter | [**] |
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Sublicense solely for veterinary applications
| Event | [X] Percentage |
| Prior to submitting an Outline of Production to the USDA for a Licensed Product | [**] |
| After submitting an Outline of Production to the USDA but prior to receiving a True Name and associated product code from the USDA or similar from the FDA | [**] |
| After Completion of a target animal efficacy field study for a Licensed Product and thereafter | [**] |
5.4 Licensee and CWRU acknowledge and agree that this Agreement supersedes the Option Agreement except those rights granted to CWRU under Section 5.2 of the Option Agreement. For clarification purposes, Section 5.2 of the Option Agreement shall survive termination or expiration of the Option Agreement, and is hereby incorporated into this Agreement by reference as Attachment D.
5.5 Licensee shall pay CWRU a minimum royalty per year (“Annual Minimum Royalty”), payable on each anniversary of the Effective Date according to the following schedule:
| (a) | [**] due and payable on each anniversary of the Effective Date, beginning upon the second (2nd) anniversary of the Effective Date. |
| (b) | If Licensee’s Net Sales for a Year equal or exceed $[**] the Annual Minimum Royalty per year shall increase to $[**] per year on the following anniversary of the Effective Date and subsequent Years. |
| (c) | If Licensee’s Net Sales for a Year equal or exceed $[**] the Annual Minimum Royalty per year shall increase to $[**] per year on the following anniversary of the Effective Date and subsequent Years. |
| (d) | If Licensee’s Net Sales for a Year equal or exceed $[**] the Annual Minimum Royalty per year shall increase to $[**] per year on the following anniversary of the Effective Date and subsequent Years. |
The Annual Minimum Royalty shall be credited against the Royalties payable in a Year.
5.6 Annual Minimum Royalty payments described in Sections 5.5 (b), 5.5(c) and 5.5(d) are to be adjusted by the cumulative percentage change in the CPI-W Consumer Price Index between the December preceding the Effective Date and the December preceding the date on which the payment in question is payable.
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5.7 Milestone Payment Amounts. The Licensee will make a payment to CWRU within thirty (30) days of each occurrence of the achievement of a Milestone as follows:
|
MILESTONE |
MILESTONE PAYMENT AMOUNT |
| Initiate a Phase I Clinical Trial of a Licensed Product | [**] |
| Initiate a Phase II Clinical Trial of a Licensed Product | [**] |
| Initiate a Phase III Clinical Trial of a Licensed Product | [**] |
| Regulatory Approval of a Licensed Product | [**] |
| Product Launch | [**] |
| Total (per Licensed Product) | $1,800,000 |
This Section shall be construed as requiring separate Milestone payments for each and every Licensed Product that is subject to Initiating a Clinical Trial, Regulatory Approval and/or Product Launch and shall not be construed as limiting the number of times each Milestone can be achieved and for which payment is required. For example, $[**] shall be paid to CWRU for each Phase II Clinical Trial that is Initiated on each separate Licensed Product. For avoidance of doubt, if Licensee commences multiple Phase II Clinical Trials with a single Licensed Product, then Licensee shall pay $[**] one time.
Notwithstanding the foregoing, all veterinary applications shall not be subject to any Milestone payments.
5.8. Milestone Cure. If the Licensee fails to achieve any Diligence Milestone under Section 4.2, the Licensee has the right to cure such failure as provided under Section 11.2 of this Agreement. Upon expiration of the pertinent cure period, and in lieu of termination, CWRU, at its sole option upon ninety (90) days prior written notice, may convert the Licensee’s exclusive license under this Agreement into a non-exclusive license and may grant non-exclusive licenses and other rights to the Licensed Technology to Third Parties, even in the Field of Use, whether such be commercial entities, academic institutions or other persons.
5.9. Royalty if Licensee Challenges the Patent(s). Notwithstanding the above, should Licensee bring an action seeking to invalidate any Patent included in the Licensed Technology, Licensee will pay Royalties to CWRU at the rate of two (2) times the then applicable Royalty Rate of Net Sales during the pendency of such action. These Royalties shall not be refundable. Moreover, should the outcome of such action determine that any claim of a Patent(s) challenged by Licensee is both valid and infringed by a Licensed Product, Licensee will pay Royalties at the rate of three (3) times the then applicable Royalty Rate of Net Sales thereafter. Further, during the pendency of any action seeking to invalidate any Patent(s) included in the Licensed Technology, Licensee shall not pay Royalties into any escrow or other similar account but shall continue to pay amounts due to CWRU.
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6. PAYMENT TERMS
6.1 Royalties shall be paid by Licensee to CWRU, as defined in the Section entitled “Royalties” for each Fiscal Quarter within sixty (60) days of the end of such Fiscal Quarter, until this Agreement expires or is terminated in accordance with this Agreement. If this Agreement terminates before the end of a Fiscal Quarter, the payment for that terminal fractional portion of a Fiscal Quarter shall be made within ninety (90) days of the date of termination of this Agreement.
6.2 All payments hereunder shall be paid in U.S. Dollars and shall be made by wire transfer to CWRU’s designated account, and making reference to A2022-16778 Key Bank’s Cleveland office, or by Licensee’s check sent in accordance with the Section entitled “Notices”.
6.3 All payments including but not limited to Royalties, Annual Minimum Royalties, and Milestone Payments payable hereunder which are overdue shall bear interest until paid at a rate equal to the Prime Rate in effect at the date such payments were due plus four percent (4%) per annum, but in no event to exceed the maximum rate of interest permitted by applicable law. This provision for interest shall not be construed as a waiver of any rights CWRU has as a result of Licensee’s failure to make timely payment of any amounts.
7. REPORTS AND AUDITS
7.1 Licensee shall report Quarterly to CWRU its Net Sales and Revenues, which are subject to Royalty payments.
7.2 No later than sixty (60) days after June 30 of each calendar year, Licensee shall provide to CWRU a written annual progress report (“Progress Report”) describing progress on research and development, regulatory approvals, manufacturing, sublicensing, marketing and sales during the most recent twelve (12) month period ending June 30 and plans for the forthcoming year. If multiple Licensed Products are being developed, the Progress Report shall provide the information set forth above for each Licensed Product.
7.3 No later than thirty (30) days after the completion of a Diligence Milestone, Licensee shall provide to CWRU a written report on the completion of said Diligence Milestone.
7.4 Licensee shall maintain accurate books and records such that the Royalties due and payable hereunder can be easily ascertained. Such books and records shall be maintained at Licensee’s principal place of business and shall be available for inspection by CWRU or its representatives during the normal business day upon not less than ten (10) days prior written notice, provided that CWRU or its representatives agree to protect the confidentiality of the information as to the customers of Licensee.
7.5 Licensee shall make available Licensee’s books and records for audit by an accounting firm or representative of CWRU’s selection, and Licensee agrees to cooperate fully in any such audit, provided that the auditors agree to protect the confidentiality of the information as to the customers of Licensee. Any such audit shall not be more frequent than annually. In the event that such audit determines that the amount of Royalties paid to CWRU was in error by more than five (5%) percent, Licensee shall pay the costs of the audit.
8. IMPROVEMENTS AND COLLABORATIONS
8.1 Discussion of technical matters with each other by the parties will not create any rights to ownership of patents, copyrights, mask work rights, Trade Secrets or other intellectual property rights in solutions to the problem developed solely by employees or agents of the other party hereto.
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8.2 Licensee will own all of the right, title and interest (including patents, copyrights, mask work rights, Trade Secrets and any other intellectual property rights, but excluding Patents) in and to results that are developed solely by Licensee employees or agents.
8.3 CWRU will own all of the right, title and interest (including patents, Patents, copyrights, mask work rights, Trade Secrets and any other intellectual property rights) in and to the results of the collaboration between the parties that are developed solely by CWRU employees or agents.
8.4 All intellectual property which results in Patents or Licensed Technology developed jointly by employees or agents of CWRU and Licensee, and which are not subject to another agreement between CWRU and Licensee, shall be owned by CWRU. Licensee may utilize such jointly developed property pursuant to the terms of this Agreement. CWRU may issue licenses to others regarding such jointly developed property which result in Patents or Licensed Technology, as long as such licenses do not violate any exclusive license to Licensee then existing under the Section entitled “License Grant”. If any other intellectual property is developed jointly by employees or agents of CWRU and Licensee which would not constitute a Patent or Licensed Technology and which are not subject to another agreement between CWRU and Licensee, CWRU and Licensee shall jointly own (without any duty to account to the other for profits) all right, title and interest (including patents, copyrights, mask work rights, Trade Secrets, and other intellectual property rights) therein. If any patentable invention which would not constitute a Patent or Licensed Technology arises out of such joint development by employees or agents of CWRU and Licensee, CWRU and Licensee will engage in good faith efforts to mutually agree on whether and how to pursue patent, copyright or mask work protection of the invention in the U.S. and elsewhere.
8.5 Except as provided in this Section, nothing herein shall be deemed to grant any license or rights in any other technology in addition to the Licensed Technology.
9. PATENTS AND OTHER INTELLECTUAL PROPERTY
9.1 CWRU Property. Intellectual property rights to Licensed Technology such as Patent(s), and Copyrights which may be obtainable will remain the property of CWRU, subject to the provisions in Section 1.25 concerning Licensee Improvements. CWRU Trademarks existing on the Effective Date of this Agreement belong to CWRU.
9.2 Licensee shall bear all patenting and other intellectual property protection costs for protection of Licensed Technology. Licensee and CWRU acknowledge and agree that Licensee has received all invoices submitted under the Option Agreement. Licensee will reimburse CWRU for all future fees and expenses related to such patenting, within thirty (30) days of the receipt of each notification or bill. CWRU has incurred [**] for patenting and other intellectual property protection costs for invoices received through March 31, 2022 (the “Past Expenses”). Licensee shall reimburse CWRU for Past Expenses, which shall be invoiced to Licensee in four equal quarterly installments commencing on the sooner of (i) the date Licensee receives of an equity investment of at least $5 million or (ii) August 31, 2022.
9.3 CWRU has applied for, and/or will diligently Licensee apply for, prosecute and maintain Patent(s), at Licensee’s expense, in any country if so requested by, for any and all Patents listed in Attachment A, and any continuation, continuation-in-part, divisional, reissue, reexamination, or extension thereof, to the extent that such protection is reasonably obtainable. CWRU shall provide Licensee with copies of all relevant documentation relating to such prosecution and maintenance, and CWRU shall take into consideration any filings and patent prosecution actions recommended by Licensee to protect the Licensed Products, including, but not limited to, recommendations concerning elections, amendments, responses to office actions, declarations, oppositions, interferences and any other ex parte or inter partes matters before a patent office. For the avoidance of doubt, while CWRU will in good faith take into consideration any filings and patent prosecution actions recommended by Licensee, CWRU has sole authority to control the prosecution of the Patents.
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9.4 CWRU may, at its option and sole discretion and at its own expense, pursue patent, copyright and/or trademark rights for Licensed Technology in any country for which coverage has not been requested by Licensee in accordance with Subsection 9.3 above. If Licensee does not reimburse CWRU for such fees within thirty (30) days of the receipt of each notification, then Licensee shall have no rights under any Patent in that country.
10. MARKINGS, TRADEMARKS AND TRADE NAMES
10.1 During the term of the Agreement, Licensee shall have included in all sales, marketing literature and invoices relating to Licensed Product, a statement to the effect that “this product or portions thereof is manufactured under license from Case Western Reserve University and Dartmouth College” and, if applicable, either “Patent Pending” or, if applicable, “U.S. Patent Number US <PATENT NUMBER>” provided however, Licensee shall not be obligated to include such product labeling information if it violates any regulatory requirement of the FDA or other Foreign Equivalents.
10.2 Licensee shall have marked the appropriate portions of all Licensed Product with any applicable United States of America and foreign Patent numbers in accordance with the applicable laws of the countries in which the materials are intended to be used. Licensee shall neither register nor use any CWRU trademarks or trade names. Licensee shall ensure that its use of any Licensed Product is marked with the appropriate copyright notices as specified and in the order and manner as provided by CWRU. Licensee shall abide by the copyright laws and what are considered to be sound practices for copyright notice provisions in an applicable jurisdiction. Licensee shall not use any copyright notices that conflict with, confuse, or negate the notices that CWRU requires, provided such copyright notices do not conflict with the requirements of the FDA or any other regulatory agency.
10.3 Licensee acknowledges that it does not have any rights or any title whatsoever in or to CWRU’s technology, trade name or in or to any of CWRU’s trademarks, except as provided under this Agreement. Any reference by Licensee to CWRU beyond the above may only be done with express written permission of CWRU’s Executive Director for Technology Management.
11. TERMINATION
11.1 In the event that Licensee defaults in the payment in full of any amount required to be paid under this Agreement on the date such payment is due, in addition to utilizing any other legal and/or equitable remedies, CWRU shall have the right by written notice to Licensee after such default either (i) to terminate the exclusivity, if any, of the license hereunder (by amending the word “exclusive” in the License Grant to read “non-exclusive”) without any reduction in any of the payments due from Licensee or (ii) to terminate this Agreement. If CWRU terminates this Agreement pursuant to this Section, Licensee shall still pay CWRU any Annual Minimum Royalties due for the next Year thereafter, notwithstanding termination of Licensee’s rights hereunder. In addition, and subject to Section 1.25, in the event of a termination under this Section, Licensee hereby grants to CWRU a fully paid up, perpetual license to use any Licensee Patent(s) necessary to practice any Patent(s) for research, educational and/or administrative purposes.
11.2 In the event that either party to this Agreement defaults in the performance of any of its obligations hereunder (other than the defaults referred to in Section 4 (Due Diligence) and Section 11.1. (Termination), hereof) and fails to cure such default within ninety (90) days after written notice of such default from such other party, the other party shall have the right by written notice to the defaulting party within sixty (60) days after the expiration of such ninety (90) day period to terminate this Agreement.
11.3 The termination of this Agreement shall not terminate (i) the obligation of Licensee to pay any amounts, which have accrued through the termination date or which are otherwise to be paid by Licensee under the terms of this Agreement, or (ii) the obligations of Licensee under the Sections entitled “Reports and Audits,” “Patents and Other Intellectual Property,” “Termination,” “Taxes,” “Confidentiality and Trade Secrets,” “Indemnification,” “Insurance,” “Dispute Resolution,” and “Infringement” hereunder.
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11.4 Upon termination of this Agreement, Licensee will immediately discontinue any further use of Licensed Technology and discontinue production of any Licensed Products.
11.5 Licensee may terminate this Agreement by giving ninety (90) days written notice to CWRU. In the event that Licensee terminates this Agreement pursuant to this Section 11.5; Licensee shall tender to CWRU the termination fee of $[**], provided the Agreement is terminated for convenience, and shall further pay any amounts due and owing to CWRU pursuant to this Agreement upon such termination. If Licensee terminates this Agreement because the Licensed Product did not demonstrate safety or efficacy in a Clinical Trial that would permit the Licensed Product to be approved for sale, or because a Patent is determined to be wholly invalid (or partly invalid to the extent that, after termination, the Patent would not be infringed by the Licensed Product), then Licensee shall not be obligated to pay any termination fee other than amounts previously owing to CWRU under this Agreement. A termination pursuant to this section shall be subject to the provisions of Section 11.3 as with all other terminations.
12. TAXES
Licensee shall pay all taxes which may be assessed or levied on, or on account of, the Licensed Technology, Licensed Product made, used or Disposed of hereunder and all taxes (other than taxes imposed by the United States of America or the State of Ohio or jurisdictions within such State) levied on or on account of the amounts payable to, or for the account of, CWRU under this Agreement.
13. LIMITED WARRANTY, WARRANTY DISCLAIMER; LIMITATION OF LIABILITY
13.1 Except for the rights, if any, of the United States Government, as set forth in Section 2.7, to the best of the knowledge of the Technology Transfer Office, CWRU represents and warrants (1) that it is the owner or joint owner of the entire right, title, and interest in and to the Licensed Technology, (2) whether as the owner or joint owner, that it has the sole right to grant licenses thereunder, and (3) its belief that it has not knowingly granted licenses thereunder to any other entity that would restrict rights granted to Licensee.
13.2 Licensee, by execution hereof, acknowledges, covenants and agrees that it has not been induced in any way by CWRU or its employees to enter into this Agreement.
13.3
A. ALL LICENSED TECHNOLOGY, INFORMATION, MATERIALS, SERVICES, INTELLECTUAL PROPERTY OR OTHER PROPERTY OR RIGHTS, GRANTED OR PROVIDED BY CWRU PURSUANT TO THIS AGREEMENT (“DELIVERABLES”) ARE PROVIDED ON AN “AS IS” BASIS. EXCEPT FOR THE LIMITED WARRANTIES SET FORTH IN SECTION 13.1, CWRU MAKES NO WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED, AS TO ANY MATTER INCLUDING, BUT NOT LIMITED TO, WARRANTY OF FITNESS FOR PARTICULAR PURPOSE, OR MERCHANTABILITY, EXCLUSIVITY OR RESULTS OBTAINED FROM USE. CWRU DOES NOT MAKE ANY WARRANTY OF ANY KIND WITH RESPECT TO FREEDOM FROM PATENT, TRADEMARK, OR COPYRIGHT INFRINGEMENT, OR THEFT OF TRADE SECRETS AND DOES NOT ASSUME ANY LIABILITY HEREUNDER FOR ANY INFRINGEMENT OF ANY PATENT, TRADEMARK, OR COPYRIGHT ARISING FROM THE USE OF DELIVERABLES. LICENSEE AGREES THAT IT WILL NOT MAKE ANY WARRANTY ON BEHALF OF CWRU, EXPRESSED OR IMPLIED, TO ANY ENTITY CONCERNING THE APPLICATION OF OR THE RESULTS TO BE OBTAINED WITH DELIVERABLES.
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B. IN NO EVENT SHALL CWRU BE LIABLE TO LICENSEE OR ANY THIRD PARTY FOR ANY DIRECT, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS OR INABILITY TO USE SAID INTELLECTUAL PROPERTY OR ANY APPLICATIONS AND DERIVATIONS THEREOF ARISING FROM OR RELATING THIS AGREEMENT AND THE LICENSED TECHNOLOGY ON ANY THEORY OF LIABILITY, WHETHER IN CONTRACT, TORT(INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE, EVEN IF CWRU HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
C. CWRU’S TOTAL LIABILITY UNDER THIS AGREEMENT OR FOR BREACH THEREOF, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR ANY OTHER LEGAL THEORY, SHALL NOT EXCEED THE TOTAL AMOUNTS PAID TO CWRU HEREUNDER DURING THE TWELVE (12) MONTHS PRIOR TO THE LAST EVENT GIVING RISE TO SUCH CLAIM. THE LIMITATIONS OF LIABILITY IN THIS SECTION 13 SHALL APPLY NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
14. COSTS
All costs and expenses incurred by Licensee in carrying out Licensee’s obligations under this Agreement shall be paid by Licensee, and Licensee shall not be entitled to reimbursement from Royalties hereunder or otherwise therefor from CWRU. Licensee shall possess or obtain at its own expense all necessary licenses and permits and shall comply with all laws, ordinances, rules or regulations affecting the exportation, use, and/or sale or transfer of the Licensed Product, Licensed Technology and/or Licensee Improvements.
15. CONFIDENTIALITY AND TRADE SECRETS
15.1 “Confidential Information” shall mean any information relating to the Licensed Technology, the terms of this Agreement (as from time to time amended), Patents, copyrights, algorithms, and software covered by this Agreement or information disclosed to Licensee in connection with performance of this Agreement, provided that such information is marked “Confidential” or designated in writing as “Confidential” within thirty (30) days after disclosure to Licensee. All such information shall be Confidential Information, including information disclosed to Licensee prior to the date of this Agreement, unless such information (i) was already in Licensee’s possession and without restriction prior to the disclosure thereof by CWRU as provided in this Section 15.1; (ii) has been published or is published hereafter, unless such publication is a breach of this Agreement; (iii) is received by Licensee from a Third Party not under an obligation of confidentiality with respect thereto; or (iv) is independently developed by Licensee’s employees who did not have access to Confidential Information. In the event that such information shall be established to have been known to Licensee prior to the disclosure thereof by CWRU by reference to any publication thereof by Licensee or by reference to any internal writing or other business record maintained by Licensee in the ordinary course of business, such information shall not be deemed to be Confidential Information for purposes of this Agreement following notification to CWRU of such fact.
15.2 Licensee shall maintain in confidence and shall not disclose to any person not a party hereto, nor shall Licensee use or exploit in any way without CWRU’s written agreement, any Confidential Information until three (3) years after the later of the date of the termination of this Agreement or the end of the term of the last to expire Patent, unless such information ceases to be Confidential Information prior to the end of such period through no fault of Licensee or Licensee and CWRU enter into an agreement authorizing same. Notwithstanding the foregoing, Licensee shall be able to disclose the terms of this Agreement as required under the rules and regulations of the Securities and Exchange Commission (“SEC”) or other government regulation; provided, however, that prior to any such disclosure, Licensee will consult with CWRU with respect to the scope and content of such disclosure. Notwithstanding the foregoing, CWRU understands that Licensee will be required to timely file a copy of this Agreement with the SEC.
15.3 Licensee shall maintain with respect to such Confidential Information a standard of care which is no less than that standard which Licensee maintains to prevent the disclosure of its own most valuable confidential information but in no event shall Licensee exercise less than reasonable care to prevent the disclosure of Confidential Information by its employees or representatives.
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15.4 Upon termination of this Agreement for any reason, Licensee agrees to return within sixty (60) days to CWRU, without copying, all originals and copies of all materials (other than this Agreement) containing any Confidential Information. Notwithstanding the foregoing, Licensee shall be able to retain one copy of Confidential Information for legal or regulatory purposes in addition to any computer records or files containing Confidential Information that have been created pursuant to automatic archiving and back-up procedures.
15.5 For purposes of this Section the term “CWRU” shall include inventors of the Licensed Technology and those working with or under them except that such persons do not have authority to execute an authorizing agreement under Section 15.2.
16. INDEMNIFICATION
Licensee hereby agrees to defend, indemnify and hold harmless CWRU, its trustees, officers, employees, attorneys and agents from any and all claims arising from or relating directly or indirectly to this Agreement (and any related damages, liabilities, costs, losses, expenses and attorney’s fees), including but not limited to all claims or demands made against them arising out of or relating to Licensee’s and/or any of its sublicensee’s use of or conduct regarding Licensed Products, Licensed Technology, Deliverables or Licensee Improvements, and (including but not limited to) any claims of product liability, personal injury, death, damage to property or violation of any laws or regulations.
17. INSURANCE
17.1 Throughout the term of this Agreement and for a period of five (5) years thereafter, Licensee shall obtain and maintain, in full force and effect and at Licensee’s sole cost and expense, one or more insurance policies providing:
(i) Commercial general liability insurance (including, without limitation any event, coverage and any necessary endorsements for products /completed operations, blanket broad form contractual liability as well as for clinical trials if any such trials are to be performed by or on behalf of Licensee) which provides, for each annual policy period, coverage and insurer’s liability of no less than the minimum limits specified in the Section below for injury, death and property damage resulting from each occurrence during the policy period; and
(ii) Worker’s compensation insurance in respect of all of Licensee’s employees with limits of liability and coverage as legally required in the jurisdiction in which the Licensee is doing business; and
(iii) Automobile liability insurance to cover owned and non-owned automobiles, if applicable.
17.2 Subject to the further provisions of this Section, the comprehensive commercial general liability coverage shall have the following minimum limits:
(i) From the Effective Date until the date immediately prior to the first Clinical Trial or Product Launch: $[**] for each occurrence; $[**] in general aggregate (other than product liability). Licensee shall have thirty (30) days following the Effective Date to obtain such coverage.
(ii) From the date immediately prior to the first Phase III Clinical Trial: $[**] each occurrence, $[**] general aggregate (other than product liability); $[**] product liability aggregate.
(iii) From the date immediately prior to the Product Launch: $[**] each occurrence, $[**] general aggregate (other than product liability); $[**] product liability aggregate.
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17.3 CWRU may periodically evaluate the adequacy of the minimum coverage of insurance and deductible limits specified in this Section 17. CWRU reserves the right to require Licensee to adjust the insurance coverage by modifying the types of required coverages, the limits and/or financial rating and/or the method of financial rating of Licensee’s insurers as such changes are required of CWRU by its insurance carrier. CWRU shall provide Licensee with reasonable notice, contingent on CWRU receiving timely notice from its insurance carrier, of any proposed modification and, if so requested by Licensee, discuss any proposed modifications in good faith. Should any of the requirements of this Section 17 not be available in the insurance market at commercially reasonable rates or at all, the parties shall work together in good faith to achieve a commercially reasonable resolution thereof.
17.4 Each policy of insurance which Licensee is required to obtain hereunder shall (a) be with reputable and financially secure insurance carriers having at least an A rating (A rating or above by A.M. Best) and an A.M. Best Class Size of at least VIII, (b) list each of CWRU, its trustees, officers, employees, faculty, staff, students, agents and their respective successors, heirs and assigns as additional insured, (c) be endorsed to provide that the insurer waives all subrogation rights which the insurer otherwise has or could have against any additional insured, (d) be primary in respect of all additional insured, and (e) provide that the identified insurer will not cancel or fail to renew the identified insurance without giving CWRU at least 30 days’ prior written notice thereof.
17.5 Within thirty (30) days following the Effective Date, and thereafter no later than the day on which any such policy of insurance is renewed or replaced, Licensee shall provide CWRU with a Certificate of Insurance from each such insurer which evidences compliance by Licensee with its obligations hereunder. Upon the from time to time request of CWRU, Licensee shall provide CWRU with a copy of the policy, status of claims and claims history respecting any of the insurance required to be maintained by Licensee hereunder.
17.6 For the avoidance of doubt, the minimum insurance coverage and limits set forth in this Agreement do not constitute a limitation on Licensee’s liability or obligations to indemnify or defend CWRU and any other additional insured under this Agreement.
18. BREACH
No acquiescence in any breach of this Agreement by either party shall operate to excuse any subsequent or prior breach.
19. PRIOR AGREEMENT
Except for any confidential disclosure agreement executed by the parties, this Agreement supersedes all previous agreements relating to the subject matter hereof, whether oral or in a writing, and constitutes the entire agreement of the parties hereto and shall not be amended or altered in any respect except in a writing executed by the parties.
20. INTERPRETATION
This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Ohio, United States of America, without regard to conflict of law principles.
21. DISPUTE RESOLUTION
The parties consent to the exclusive jurisdiction of the courts of Cuyahoga County, Ohio to resolve any and all disputes relating to this Agreement. Licensee hereby irrevocably and unconditionally:
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(i) Waives any objection which it may have at any time to the laying of venue of any lawsuit relating to the Agreement being brought in any court located in Cuyahoga County, Ohio, waives any claim that any such lawsuit has been brought in an inconvenient forum, and waives any right to object, with respect to any lawsuit brought in any such court, that such court does not have jurisdiction over Licensee; and
(ii) Consents and agrees to service of any summons, complaint or other legal process in any lawsuit by registered or certified mail, postage prepaid, to Licensee at the address for notices described in the Section entitled “Notices” hereof, and consents and agrees that such service shall constitute in every respect valid and effective service (but nothing herein shall affect the validity or effectiveness of process served in any other manner permitted by law).
22. INFRINGEMENT
22.1. Subject to Section 22.2, Licensee shall have the right but not the obligation, to initiate, control, defend and/or settle any proceedings involving the validity, enforceability or infringement of any Patent(s) when in its sole judgment such action may be necessary, proper, and justified. CWRU shall join in any such action, at Licensee’s request and expense.
22.2. Upon written notice to Licensee, CWRU may request that Licensee take steps to stop a Third Party who is selling a product that does or will compete with a Product sold or being developed by Licensee or any of its affiliates (but not a sublicensee, or sublicensee affiliate) (“Third Party Infringer”) from infringing an issued patent falling within the definition of Patent(s) by providing CWRU with written evidence demonstrating prima facie infringement of specific claims of such Patent in the Field of Use. CWRU shall have the right to initiate legal proceedings against any such Third-Party Infringer in its own name and at CWRU’s sole expense, unless Licensee, not later than one hundred and twenty (120) days after receipt of such notice, either (i) causes such infringement to cease or (ii) initiates legal proceedings against the Third-Party Infringer. Notwithstanding the foregoing, Licensee shall have no obligation to assert more than one Patent in one jurisdiction against the Third-Party Infringer. Any proposed disposition or settlement of a legal proceeding filed by CWRU to enforce any issued patent falling within the definition of Patent(s) within the Licensed Technology against any Third-Party Infringer shall be subject to Licensee’s prior written approval, which approval shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Licensee’s rights under this Section 22.2 shall apply only to claims of Patent(s) that are exclusively licensed to Licensee under this Agreement and only in the Field of Use and territory which are exclusively licensed to Licensee under this Agreement.
22.3 Any recovery, whether by way of settlement or judgment, from a Third Party pursuant to a legal proceeding initiated in accordance with Section 22.1 or 22.2 shall first be used to reimburse the party initiating such legal proceedings for its actual fees, costs and expenses incurred in connection with such proceeding. The balance of such recovery shall be divided seventy-five percent (75%) to the party that initiated the legal proceeding and twenty-five percent (25%) to the other party.
22.4 In the event a party initiates or defends a legal proceeding concerning any patent pursuant to Section 22, the other party shall cooperate fully with and supply all assistance reasonably requested by the party initiating such proceeding, including without limitation, joining the proceeding as a party if requested (at the initiating party’s sole cost). The party that institutes any legal proceeding concerning any Patent pursuant to Section 22 shall have sole control of that proceeding.
22.5 In the event a party initiates or defends a legal proceeding concerning any Patent pursuant to Section 22, the other party shall cooperate fully with and supply all assistance reasonably requested by the party initiating such proceeding, including without limitation, joining the proceeding as a party if requested (at the initiating party’s sole cost). Subject to Section 22.2, the party that institutes any legal proceeding concerning any Patent pursuant to Section 22 shall have sole control of that proceeding.
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22.6 Notwithstanding the pendency of any infringement (or other) claim or action by or against Licensee, Licensee shall have no right to terminate or suspend (or escrow) payment of any amounts required to be paid to CWRU pursuant to this Agreement.
23. NOTICES
Any notice under any of the provisions of this Agreement shall be deemed given when deposited in the mail, postage prepaid, registered or certified first class mail and addressed to the applicable party at the address stated on the signature page hereof, or such other address as such party shall specify for itself by like notice to other party. Each party shall transmit to the other a facsimile copy or electronic communication of each such notice promptly after such deposit in the mail.
24. ASSIGNMENT
Licensee shall neither assign nor transfer this Agreement or any interest herein to a non-US entity, without the prior written consent of CWRU, provided, however, that Licensee may assign this Agreement and its rights and the license granted herein without CWRU’s prior written consent in conjunction with the sale or transfer of all, or substantially all of Licensee’s business or assets relating to this Agreement, provided assignees assume all obligations under the License Agreement, whether by sale of stock, sale of assets, merger, change of control, or otherwise.
25. HEADINGS
The section headings contained in this Agreement are set forth for the convenience of the parties only, do not form a part of this Agreement and are not to be considered a part hereof for the purpose of construction or interpretation hereof, or otherwise.
26. EXPORT CONTROLS
It is understood that CWRU is subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and other commodities (including the Arms Export Control Act, as amended and the Export Administration Act of 1979), and that its obligations hereunder are contingent on compliance with applicable United States export laws and regulations. The transfer of certain technical data and commodities may require a license from the cognizant agency of the United States Government and/or written assurances by Licensee that Licensee shall not export data or commodities to certain foreign countries without prior approval of such agency. CWRU neither represents that a license shall not be required nor that, if required, it shall be issued.
27. NO THIRD PARTY BENEFICIARY
Notwithstanding any other provision of this Agreement, no entity shall be considered a third party beneficiary of this Agreement.
28. FORCE MAJEURE
A party to this Agreement may be excused from any performance required herein if such performance is rendered impossible or unfeasible due to any catastrophe or other major event beyond its reasonable control, including, without limitation, war, riot, and insurrection; laws, proclamations, edicts, ordinances, or regulations; strikes, lockouts, or other serious labor disputes, and floods, fires, explosions, or other natural disasters, including pandemics. When such events have abated, the non-performing party’s obligations herein shall resume.
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29. BINDING AGREEMENT AND SEVERABILITY
Licensee and CWRU shall not attempt to invalidate or contest the validity of this Agreement.
In the event that any of the provisions contained in this Agreement is held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if the invalid, illegal, or unenforceable provisions had never been contained in it.
30. COUNTERPARTS
The parties agree that this Agreement may be executed by electronic copies and in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. The parties to this document agree that a copy of the original signature (including an electronic copy) may be used for any and all purposes for which the original signature may have been used. The parties further waive any right to challenge the admissibility or authenticity of this document in a court of law based solely on the presence of an electronic signature.
(The Balance Of This Page Intentionally Left Blank – Signature Page To Follow)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed in duplicate counterparts, each of which shall be deemed to constitute an original, effective as of the date first above written.
The undersigned verify subject to the penalties of Section 2921.13 of the Ohio Revised Code relating to unsworn falsification to authorities that they have the authority to bind to this Agreement the party on behalf of which they are executing below.
| Case Western Reserve University | Mosaic ImmunoEngineering, Inc. | |
| By: /s/ Michael J. Haag | By: /s/ Steven King | |
| Name: Michael J. Haag | Name: Steven King | |
| Title: Executive Director Technology | Title: President and CEO | |
Management, Technology Transfer Office, Case Western Reserve University |
||
| Date: 5/2/2022 | Date: 5/4/2022 | |
| By: /s/ Michael Lee | ||
| Name: Michael Lee | ||
| Title: Treasurer | ||
| Date: 5/4/2022 |
|
Address for Notices:
Technology Transfer Office Case Western Reserve University 10900 Euclid Avenue Cleveland, OH 44106 Attention: Executive Director for Technology Management Fax: 216-368-0196 |
Address for Notices:
Mosaic ImmunoEngineering, Inc. 9114 Adams Ave., #202 Huntington Beach, CA, 92646 Attention: Corporate Secretary
Email: info@mosaicie.com
|
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Attachment A
Description of Licensed Technology
CWRU intellectual property:
| • | Patents directed to CWRU Invention Disclosure Number 2015-2767 entitled “Immunotherapy using plant virus-based virus-like particles”, including |
| o | Patent or application numbers US 62/076,543, US 62/107,617, US 62/159,389, US 62/364,997, PCT/US2015/059675, US 10,639,363, AU 2015342790, CA 2,967,336, CN 201580063662.6, EP 3 215 520, JP 6731405, US 11,260,121, PCT/US2018/031661, US 16/612,214, EP 21201960.8, US 63/049,434, US 17/369,405 and US 17/680,813. |
| • | Patents directed to CWRU Invention Disclosure Number 2017-3235 entitled “Combination Therapy using Plant Virus Nanoparticle Vaccination and Chemotherapy”, including |
| o | Patent or application numbers US 62/469,869, PCT/US2018/022023, US 16/492,884 and EP 18764856.3. |
| • | Patents directed to CWRU Invention Disclosure Number 2019-3587 entitled “Freeze Drying to Produce Efficacious CPMV Virus-like Particles”, including |
| o | Patent or application numbers US 62/839,438 and US 16/859,400. |
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Attachment B
Licensed Improvements
[to be updated as Licensee Improvements are developed]
| 24 |
Attachment C
Melt Processing Patents
CWRU Melt Processing intellectual property:
| • | Patents directed to CWRU Invention Disclosure Number 2017-3151 entitled “Virus-Like Particle and Virus: Polymer Devices as Vaccines”, including |
| o | Patent or application numbers US 62/417,000, PCT/US2017/059935, US 16/347,503, EP 17868454.4, CA 3,042,695 and AU 2017354004. |
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Attachment D
Section 5.2 of the Option Agreement
5.2 In further consideration for the Evaluation License, the License Option, and other rights granted hereunder, COMPANY shall issue to CWRU Equity Securities comprised of a number of shares of Class B Common Stock in the COMPANY such that CWRU owns ten percent (10%) of the COMPANY as of the Effective Date on a fully diluted basis, which shares shall have the rights and preferences described in the Term Sheet and otherwise reasonably satisfactory to CWRU. Such shares of Class B Common Stock shall have the anti-dilution protections described in the Term Sheet. Such Shares issued to CWRU shall be reflected in capitalization table of the COMPANY as of the Effective Date and consistent with the Term Sheet and shall be considered issued as of the Effective Date for all purposes, including tax purposes. CWRU shall not, as a condition of this Agreement, require that additional Units be issued to CWRU by COMPANY to exercise the License Option. Further, until the cumulative fully-diluted ownership percentage of CWRU falls below three percent (3%) of COMPANY, CWRU shall have the right, but not the obligation, to appoint one observer to attend and participate in, but who will not have any voting rights with respect to, all meetings of the Board, all committees of the Board and all sub-committees of the Board (the “Board Observer”). The Board Observer will have the right to receive all meeting materials sent to the members of the Board, committee members and subcommittee members. The COMPANY shall promptly include the provisions of this Section 5 and the Term Sheet in the Certificate of Incorporation or other agreement, as appropriate, of the COMPANY, or an amendment thereto, to the reasonable satisfaction of CWRU. Within 90 days from the issuance of the Class B Common Stock, the Company shall pay all reasonable due diligence costs and outside legal fees and expenses incurred by CWRU in connection with the issuance of the Class B Common Stock up to a maximum reimbursable cap of $[**].
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Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven King, President and Chief Executive Officer of the registrant, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 of Mosaic ImmunoEngineering, Inc., a Delaware corporation (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent quarter (the Registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
| Date: August 4, 2022 | /s/ Steven King | |
|
Steven King President and Chief Executive Officer, Director (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul Lytle, EVP, Chief Financial Officer of the registrant, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 of Mosaic ImmunoEngineering, Inc., a Delaware corporation (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent quarter (the Registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
| Date: August 4, 2022 | /s/ Paul Lytle | |
|
Paul Lytle EVP, Chief Financial Officer, Director (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Mosaic ImmunoEngineering, Inc., a Delaware corporation (the “Company”) for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on August 4, 2022 (the “Report”), the undersigned officer of the Company does hereby certify, pursuant to Title 18 of the United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 4, 2022
| /s/ Steven King | ||||
|
Steven King President and Chief Executive Officer, Director (Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to Mosaic ImmunoEngineering, Inc. and will be retained by Mosaic ImmunoEngineering, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
This Certification is being furnished pursuant to Rule 15(d) and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. This Certification shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Mosaic ImmunoEngineering, Inc., a Delaware corporation (the “Company”) for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on August 4, 2022 (the “Report”), the undersigned officer of the Company does hereby certify, pursuant to Title 18 of the United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 4, 2022
| /s/ Paul Lytle | ||||
|
Paul Lytle EVP, Chief Financial Officer, Director (Principal Financial Officer and Principal Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to Mosaic ImmunoEngineering, Inc. and will be retained by Mosaic ImmunoEngineering, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
This Certification is being furnished pursuant to Rule 15(d) and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. This Certification shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference