CPMV 8-K/A
Mosaic ImmunoEngineering Inc. (CPMV)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): August 19, 2020
PATRIOT SCIENTIFIC CORPORATION
(Exact Name of Registrant as Specified in Charter)
| Delaware | 0-22182 | 84-1070278 | ||
|
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
19881 Brookhurst Street, Suite C-245,
Huntington Beach, CA 92646
(Address of Principal Executive Offices, and Zip Code)
(760) 795-8517
Registrant’s Telephone Number, Including Area Code
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Explanatory Note
On August 19, 2020, Patriot Scientific Corporation, a Delaware corporation (the “Company”) and privately held Mosaic ImmunoEngineering Inc. (“Private Mosaic”) entered into a Stock Purchase Agreement (“Stock Purchase Agreement”). The transaction closed on August 21, 2020 in accordance with the terms of the Stock Purchase Agreement, whereby one of the Company’s wholly owned subsidiaries merged with and into Private Mosaic, with Private Mosaic surviving as the Company’s wholly owned subsidiary (the “Reverse Merger”).
On August 24, 2020, the Company filed a Current Report on Form 8-K (the “Original Form 8-K”) reporting, among other items, the consummation of the Reverse Merger. This Amendment No. 1 to Current Report on Form 8-K amends the Original Form 8-K to include the historical audited financial statements of Private Mosaic and the pro forma condensed combined financial information required by Items 9.01(a) and 9.01(b) of Current Report on Form 8-K that were excluded from the Original Form 8-K in reliance on the instructions to such Items.
| Item 9.01. | Financial Statements and Exhibits. |
(a) Financial statements of business acquired.
The audited financial statements of Private Mosaic as of May 31, 2020 and for the period March 30, 2020 (date of inception) to May 31, 2020, are filed herewith as Exhibit 99.1.
(b) Pro forma financial information.
The unaudited pro forma condensed combined financial information of the Company as of and for the year ended May 31, 2020 and Private Mosaic as of May 31, 2020 and for the period March 30, 2020 (date of inception) to May 31, 2020, are filed herewith as Exhibit 99.2.
(d) Exhibits.
| 2 |
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 hereunto duly authorized.
| Patriot Scientific Corporation | ||
| Date: October 14, 2020 | By: /s/ Steven King | |
| Steven King, | ||
| President and Chief Executive Officer, Director |
| 3 |
Exhibit 99.1
Mosaic ImmunoEngineering Inc.
INDEX TO FINANCIAL STATEMENTS
FOR the period MARCH 30, 2020 (date of inception) to MAY 31, 2020
| Page | |||
| Report of Independent Registered Public Accounting Firm | 2 | ||
| Financial Statements: | |||
| Balance Sheet | 3 | ||
| Statement of Operations | 4 | ||
| Statement of Stockholders’ Deficit | 5 | ||
| Statement of Cash Flows | 6 | ||
| Notes to Financial Statements | 7 | ||
| 1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Mosaic ImmunoEngineering Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Mosaic ImmunoEngineering Inc. (the "Company") as of May 31, 2020, the related statements of operations, stockholders’ deficit, and cash flows for the period March 30, 2020 (date of inception) to May 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2020, and the results of its operations and its cash flows for the period March 30, 2020 (date of inception) to May 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has been recently formed with minimal cash on hand and has not yet generated any revenues. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ KMJ Corbin & Company LLP
We have served as the Company's auditor since 2020.
Irvine, California
October 14, 2020
| 2 |
Mosaic ImmunoEngineering Inc.
Balance Sheet
| May 31, 2020 | ||||
| ASSETS | ||||
| Current assets: | ||||
| Cash | $ | 500 | ||
| Receivable from founders | 63 | |||
| Total current assets | 563 | |||
| Total assets | $ | 563 | ||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||
| Current liabilities: | ||||
| Accrued payable to founders | $ | 1,011 | ||
| Total current liabilities | 1,011 | |||
| Total liabilities | 1,011 | |||
| Commitments and contingencies | ||||
| Stockholders’ deficit: | ||||
| Common Stock, $0.0001 par value; 1,000,000 shares authorized, no shares issued and outstanding at May 31, 2020 | – | |||
| Common Stock subscribed and not yet issued | 63 | |||
| Additional paid-in capital | – | |||
| Accumulated deficit | (511 | ) | ||
| Total stockholders’ deficit | (448 | ) | ||
| Total liabilities and stockholders’ deficit | $ | 563 | ||
See accompanying notes to financial statements
| 3 |
Mosaic ImmunoEngineering Inc.
Statement of Operations
| For the Period March 30, 2020 (date of inception) to May 31, 2020 | ||||
| Operating expenses: | ||||
| General and administrative | $ | 511 | ||
| Total operating expenses | 511 | |||
| Loss before provision for income taxes | (511 | ) | ||
| Provision for income taxes | – | |||
| Net loss | $ | (511 | ) | |
| 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 financial statements.
| 4 |
Mosaic ImmunoEngineering Inc.
Statement of Stockholders’ Deficit
| Common Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||
Shares | Amount | Subscribed | Capital | Deficit | Deficit | |||||||||||||||||||
| Balance, March 30, 2020 (date of inception) | – | $ | – | $ | – | $ | – | $ | – | $ | – | |||||||||||||
| Common stock subscribed and not yet issued to founders | – | – | 63 | – | – | 63 | ||||||||||||||||||
| Net loss | – | – | – | – | (511 | ) | (511 | ) | ||||||||||||||||
| Balance, May 31, 2020 | – | $ | – | $ | 63 | $ | – | $ | (511 | ) | $ | (448 | ) | |||||||||||
See accompanying notes to financial statements.
-
| 5 |
Mosaic ImmunoEngineering Inc.
Statement of Cash Flows
| For the Period March 30, 2020 (date of inception) to May 31, 2020 | ||||
| Operating activities: | ||||
| Net loss | (511 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||
| Changes in operating assets and liabilities: | ||||
| Accrued payable to founders | 1,011 | |||
| Net cash provided by operating activities | 500 | |||
| Net increase in cash | 500 | |||
| Cash, March 30, 2020 (date of inception) | – | |||
| Cash, May 31, 2020 | $ | 500 | ||
| Supplemental Disclosure of Cash Flow Information: | ||||
| Cash paid for income taxes | – | |||
| Supplemental Disclosure of Non-Cash Financing Activities: | ||||
| Common stock subscribed and not yet issued | $ | 63 | ||
See accompanying notes to financial statements.
| 6 |
Mosaic ImmunoEngineering Inc.
Notes to Financial Statements
1. Organization and Business
Mosaic ImmunoEngineering Inc. (the “Company”, “Mosaic”, “we”, “us”, or “our”), a private biotechnology company based in Novato, California, was organized under Delaware law on March 30, 2020 (date of inception). On July 1, 2020, the Company signed a two-year option agreement with Case Western Reserve University (“Option Agreement”), granting the Company the exclusive right to license a novel platform technology using nanotechnology-based immunostimulatory agents for the treatment and prevention of cancer and infectious diseases (see Note 5).
Liquidity and Management’s Plans
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. At May 31, 2020, the Company had cash of $500 and has not yet generated any revenues. Therefore, our ability to continue our operations is highly dependent on our ability to raise capital to fund future operations. We anticipate, based on currently proposed plans and assumptions that our cash on hand will not satisfy our operational and capital requirements through twelve months from the date of this report.
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.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements and the related disclosures as of May 31, 2020 and for the period March 30, 2020 (date of inception) to May 31, 2020 have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP” or “GAAP”) and include the accounts of Mosaic. As of May 31, 2020, Mosaic had no subsidiaries.
Financial Instruments and Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash. Cash is maintained with a high quality financial institution. As of May 31, 2020, deposits held with a financial institution did not exceed the amount of insurance provided by the Federal Deposit Insurance Corporation or FDIC. We perform an ongoing evaluation of the financial institution to limit our concentration of risk exposure.
| 7 |
Fair Value of Financial Instruments
Our financial instruments consist of cash and accrued payable to founders. The carrying value of these financial instruments approximates fair value because of the immediate or short-term maturity of the instruments.
Income Taxes
We follow authoritative guidance in accounting for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement requirement for the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under this guidance we may only recognize tax positions that meet a “more likely than not” threshold.
Assessment of Contingent Liabilities
We may be involved in various legal matters, disputes, and patent infringement claims which arise in the ordinary course of our business. We accrue for any estimated losses at the time when we can make a reliable estimate of such loss and it is probable that it has been incurred. By their very nature, contingencies are difficult to estimate. We continually evaluate information related to all contingencies to determine that the basis on which we have recorded our estimated exposure is appropriate.
Income (Loss) Per Share
Basic income (loss) per share includes no dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. As of May 31, 2020, there were no options, warrants, or other securities outstanding that could share in the earnings of Mosaic.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in the financial statements and accompanying footnotes. Actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, if any.
Intellectual Property Rights
Pursuant to the Option Agreement, we have up to two years to obtain a full license agreement from Case Western Reserve University, including rights to the underlying intellectual property, provided we achieve certain milestones (see Note 5).
| 8 |
3. Accrued Payable to Founders
At May 31, 2020, accrued payable to founders of $1,011 represents advances to the Company to establish the Company and a bank account for operations. Such amount does not earn interest and is not convertible into any other security.
4. Stockholders’ Equity
Authorized Capital
At May 31, 2020, the Company had 1,000,000 shares of common stock authorized, par value of $0.0001, and no shares issued and outstanding. In connection with the License Option Agreement (see Note 5), in August 2020, the Company filed an amended and restated certificate of incorporation (“Amended Certificate”), which designated two classes of common stock identified as Class A Common Stock and Class B Common Stock, of which, 900,000 shares of Class A Common Stock were authorized and 100,000 shares Class B Common Stock were authorized, each with a par value of $0.0001. Both classes of Common Stock are identical, except the Class B Common Stock included certain anti-dilution rights, as required under the License Option Agreement (see Note 5).
Stock Option Plan
We have not adopted any stock option or compensation plan as of May 31, 2020.
Common Stock Subscribed and Not Yet Issued to Founders
The Company reserved 630,000 shares as common stock subscribed and not yet issued for founders of the Company that were predetermined. The fair market value, representing the par value of the aggregate shares of Common Stock, was $63. During July 2020, the receivable from founders of $63 at May 31, 2020 was received in full.
5. Subsequent Events
License Option Agreement
On July 1, 2020, we signed an option agreement (“License Option Agreement”) with Case Western Reserve University (“CWRU”), granting the Company the exclusive right to license technology for a novel platform technology using virus-like nanoparticles to treat and prevent cancer and infectious diseases in humans and for veterinary use. Under the License Option Agreement, CWRU granted the Company the exclusive option for a period of two (2) years to negotiate and enter into a license agreement with CWRU, provided that we meet certain diligence milestones, including but not limited to, (i) delivering a development plan within 18 months, (ii) raising $3 million in either equity, debt, or grant funding, or a combination thereof within 18 months, (iii) generating sufficient pre-clinical data to support the identification of the initial field of use to support the initial planned clinical indication for the technology, (iv) determining manufacturing processes and cGMP requirements to manufacture the initial product for use in toxicology studies, and (v) identifying required toxicology studies required to support Phase I clinical trials in the initial field of use. In addition, the parties agreed to the royalty rates payable on net sales of licensed products to fall within the range of 4% to 8% and the parties agree to negotiate in good faith the final licensing terms.
| 9 |
Under the License Option Agreement, Mosaic issued CWRU 70,000 shares of Class B Common Stock, representing 10% of the fully diluted shares of common stock outstanding of Mosaic. The Class B Stock includes certain anti-dilution protections (“anti-dilution issuance rights”), whereby CWRU 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 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 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 Option Agreement, any net working capital acquired under a reverse merger or acquisition shall be applied against the Capital Threshold.
The anti-dilution issuance rights under the Option Agreement meet the definition of a derivative instrument under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging. We will initially record the fair value as a derivative liability with a corresponding charge to research and development expense and mark-to-market at each reporting period, with changes in fair value recognized in other income (expense) in the statement of operations at each period-end while this derivative instrument is outstanding. The liability will be valued using a Monte Carlo simulation model, which models the value of the liability based on the change of several key variables, including the time to the capital raise, the probability of the capital raise, as well as the fair value of our common stock.
In addition, if we enter into a license agreement with CWRU, we would be responsible for the reimbursement of all past patent costs incurred by CWRU though the date of the License Option Agreement, which amount has been estimated to be approximately $267,000.
Stock Purchase Agreement
On August 19, 2020, we entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Patriot Scientific Corporation (“Patriot”), PTSC Sub One Inc., (as “Buyer” and together with the Patriot, the “Buyer Parties”), and Mosaic (defined as “Target”), and certain stockholders of the Target set for therein (as “Sellers”), and together with the Target and Sellers, the “Seller Parties”) pursuant to which, Buyer will buy from Sellers 630,000 shares of its Class A common stock (“Class A Stock”), par value $0.0001 per share, and 70,000 shares of its Class B common stock (“Class B Stock”), par value $0.0001 per share, together the Class A Stock and Class B Stock shall collectively be referred to as “Target Common Stock”, representing 100% of the issued and outstanding common stock of the Target as of August 19, 2020. The transaction closed on August 21, 2020, and in exchange for the Target Common Stock, the holders of the Class A Stock received 630,000 shares of the Patriot’s Series A Convertible Preferred Stock (“Series A Preferred”) and holders of the Class B Stock received 70,000 shares of the Patriot’s Series B Convertible Preferred Stock (“Series B Preferred”). Each share of the Series A Preferred; shall (a) convert into 5,097.053 shares of common stock of Patriot, (b) possess full voting rights, on an as-converted basis, as the common stock of Patriot, and (c) have no dividend rate. Each share of the Series B Preferred; shall (a) convert into 5,734.185 shares of common stock of Patriot, (b) possess full voting rights, on an as-converted basis, as the common stock of Patriot, (c) have no dividend rate, and (d) shall possess certain anti-dilution protections as defined in the Series B Certificate of Designations. On a fully diluted, as converted basis, the Sellers shall own 90% of the issued and outstanding common stock of the Patriot.
We have evaluated subsequent events after the balance sheet date and through the filing date of these financial statements, and based on our evaluation, management has determined that no subsequent events have occurred that would require recognition in the accompanying financial statements or disclosure in the notes thereto other than as disclosed in the accompanying notes.
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Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FNANCIAL INFORMATION
On August 19, 2020, Patriot Scientific Corporation, a Delaware corporation (the “Company” or “Patriot”) and privately held Mosaic ImmunoEngineering Inc. (“Private Mosaic”) entered into a stock purchase agreement (“Stock Purchase Agreement”). The transaction closed on August 21, 2020 (“Closing Date”) in accordance with the terms of the Stock Purchase Agreement, whereby one of the Company’s wholly owned subsidiaries merged with and into Private Mosaic, with Private Mosaic surviving as the Company’s wholly owned subsidiary (the “Reverse Merger”).
On the Closing Date of the Reverse Merger, Patriot acquired 100% of the issued and outstanding common stock of Private Mosaic, representing 630,000 shares of its Class A common stock (“Class A Stock”) and 70,000 shares of its Class B common stock (“Class B Stock”) (collectively referred to as “Target Common Stock”). In exchange for the Target Common Stock, the holders of the Class A Stock received 630,000 shares of Patriot’s Series A Convertible Voting Preferred Stock (“Series A Preferred”) and holders of the Class B Stock received 70,000 shares of Patriot’s Series B Convertible Voting Preferred Stock (“Series B Preferred”). Each share of Series A Preferred converts into 5,097.053 shares of common stock of Patriot and possesses full voting rights, on an as-converted basis, as the common stock of Patriot, as defined in the Series A Certificate of Designations. Each share of Series B Preferred converts into 5,734.185 shares of common stock of Patriot, possesses full voting rights, on an as-converted basis, as the common stock of the Patriot, and contains certain anti-dilution protections, as defined in the Series B Certificate of Designations. On a fully diluted, as converted basis, the holders of Series A Preferred and Series B Preferred, in aggregate, own 90% of the issued and outstanding common stock of Patriot.
The following unaudited pro forma condensed combined financial statements give effect to the Reverse Merger and were prepared in accordance with the regulations of the Securities and Exchange Commission (“SEC”). The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting under U.S. GAAP. For accounting purposes, Private Mosaic is considered to be acquiring Patriot in the Reverse Merger. Private Mosaic was determined to be the accounting acquirer based upon the terms of the Stock Purchase Agreement and other factors including: (i) Private Mosaic stockholders owned 90% of the combined organization immediately following the Closing Date, (ii) Private Mosaic directors held a majority of board seats in the combined organization and (iii) Private Mosaic management held all key positions in the management of the combined organization. For the purpose of these unaudited pro forma condensed combined financial statements, management of Patriot and Private Mosaic have determined a preliminary purchase price, calculated as described in Note 2 to these unaudited pro forma condensed combined financial statements. The net tangible assets acquired and liabilities assumed in connection with the transaction are recorded at their estimated acquisition date fair values. A final determination of these estimated fair values will be based on the actual net tangible assets of Patriot that exist as of the date of completion of the transaction.
The unaudited pro forma condensed combined balance sheet as of May 31, 2020 assumes that the Reverse Merger took place on May 31, 2020 and combines the historical balance sheets of Patriot and Private Mosaic as of May 31, 2020. The unaudited pro forma condensed combined statement of operations of Patriot for the year ended May 31, 2020 and Private Mosaic for the period March 30, 2020 (date of inception) to May 31, 2020, assume that the Reverse Merger took place as of March 30, 2020 (inception of Private Mosaic), and combines the historical results of Patriot for the fiscal year ended May 31, 2020 and Private Mosaic for the period March 30, 2020 (date of inception) to May 31, 2020. The historical financial statements of Patriot and Private Mosaic have been adjusted to give pro forma effect to events that are (i) directly attributable to the Reverse Merger, (ii) factually supportable, and (iii) with respect to the statement of operations, expected to have a continuing impact on the combined results.
The unaudited pro forma condensed combined financial statements are based on the assumptions and adjustments that are described in the accompanying notes. The unaudited pro forma condensed combined financial statements and pro forma adjustments have been prepared based on preliminary estimates of the fair value of assets acquired and liabilities assumed. Differences between these preliminary estimates and the final fair value of assets and liabilities acquired may occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined organization’s future results of operations and financial position.
The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had Patriot and Private Mosaic been a combined organization during the specified period. The unaudited pro forma condensed combined financial statements, including the notes thereto, should be read in conjunction with the Patriot and Private Mosaic historical audited financial statements for the periods ended May 31, 2020, included elsewhere in this Form 8-K or previously filed with the SEC.
| 1 |
Unaudited Pro Forma Condensed Combined Balance Sheet
as of May 31, 2020
| Patriot (1) |
Private Mosaic (2) | Pro Forma Merger Adjustments | Pro Forma Combined | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 571,921 | $ | 500 | $ | – | $ | 572,421 | ||||||||
| Restricted cash and cash equivalents | 177,247 | – | – | 177,247 | ||||||||||||
| Receivable from founders | – | 63 | – | 63 | ||||||||||||
| Prepaid expenses and other current assets | 10,162 | – | – | 10,162 | ||||||||||||
| Refundable income taxes | 26,078 | – | – | 26,078 | ||||||||||||
| Total current assets | 785,408 | 563 | – | 785,971 | ||||||||||||
| Property and equipment, net | 326 | – | – | 326 | ||||||||||||
| Investment in affiliated company | 32,884 | – | – | 32,884 | ||||||||||||
| Total assets | $ | 818,618 | $ | 563 | $ | – | $ | 819,181 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable | $ | 2,444 | $ | – | $ | – | $ | 2,444 | ||||||||
| Accrued payable to founders | – | 1,011 | – | 1,011 | ||||||||||||
| Derivative liability | – | – | 83,500 | (f) | 83,500 | |||||||||||
| Accrued expenses and other | 180,151 | – | 64,416 | (a) | 244,567 | |||||||||||
| Total current liabilities | 182,595 | 1,011 | 147,916 | 331,522 | ||||||||||||
| Total liabilities | 182,595 | 1,011 | 147,916 | 331,522 | ||||||||||||
| Commitments and contingencies | ||||||||||||||||
| Stockholders’ equity (deficit): | ||||||||||||||||
| Preferred stock, $0.00001 par value | – | – | – | – | ||||||||||||
| Series A Convertible Voting Preferred Stock | – | – | 6 | (b) | 6 | |||||||||||
| Series B Convertible Voting Preferred Stock | – | – | 1 | (b) | 1 | |||||||||||
| Common stock, $0.00001 par value | 4,382 | – | – | 4,382 | ||||||||||||
| Common stock subscribed and not yet issued | 63 | (63 | ) (g) | – | ||||||||||||
| Class A common stock | – | – | 63 | (g) | – | |||||||||||
| (63 | ) (b) | |||||||||||||||
| Class B common stock | – | – | 7 | (e) | – | |||||||||||
| (7 | ) (b) | |||||||||||||||
| Additional paid-in capital | 77,444,062 | – | (62,186,553 | ) (c) | 483,781 | |||||||||||
| (14,773,784 | ) (c) | |||||||||||||||
| (7 | ) (b) | |||||||||||||||
| 63 | (b) | |||||||||||||||
| Accumulated deficit | (62,186,553 | ) | (511 | ) | 62,186,553 | (c) | (511 | ) | ||||||||
| (64,416 | ) (a) | |||||||||||||||
| 64,416 | (c) | |||||||||||||||
| (83,500 | ) (f) | |||||||||||||||
| 83,500 | (c) | |||||||||||||||
| Common stock held in treasury, at cost | (14,625,868 | ) | – | 14,625,868 | (c) | – | ||||||||||
| Total stockholders’ equity (deficit) | 636,023 | (448 | ) | (147,916 | ) | 487,659 | ||||||||||
| Total liabilities and stockholders’ equity | $ | 818,618 | $ | 563 | $ | – | $ | 819,181 | ||||||||
______________________________
| (1) | Derived from Patriot’s audited consolidated balance sheet as of May 31, 2020. |
| (2) | Derived from Private Mosaic’s audited balance sheet as of May 31, 2020. |
See accompanying notes to unaudited pro forma condensed combined financial statements.
| 2 |
Unaudited Pro Forma Condensed Combined Statement of Operations
For the fiscal year ended May 31, 2020 (Patriot) and for the period March 30, 2020 (date of inception) through May 31, 2020 (Private Mosaic)
| Patriot (1) |
Private Mosaic (2) | Pro Forma Merger Adjustments | Pro Forma Combined | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | – | $ | – | $ | 83,500 | (f) | $ | 83,500 | |||||||
| Selling, general and administrative | 996,019 | 511 | 64,416 | (a) | 1,060,946 | |||||||||||
| Total operating expenses | 996,019 | 511 | 147,916 | 1,144,446 | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 12,068 | – | – | 12,068 | ||||||||||||
| Equity in loss of affiliated company | (74,977 | ) | – | – | (74,977 | ) | ||||||||||
| Total other expense, net | (62,909 | ) | – | – | (62,909 | ) | ||||||||||
| Loss before provision for income taxes | (1,058,928 | ) | (511 | ) | (147,916 | ) | (1,207,355 | ) | ||||||||
| Provision for income taxes | 1,600 | – | – | 1,600 | ||||||||||||
| Net loss | $ | (1,060,528 | ) | $ | (511 | ) | $ | (147,916 | ) | $ | (1,208,955 | ) | ||||
| Basic loss per common share | $ | – | $ | – | $ | – | $ | – | ||||||||
| Diluted loss per common share | $ | – | $ | – | $ | – | $ | – | ||||||||
| Weighted average number of common shares outstanding – basic | 398,548,318 | – | – | (d) | 398,548,318 | |||||||||||
| Weighted average number of common shares outstanding – diluted | 398,548,318 | – | – | (d) | 398,548,318 | |||||||||||
_____________________
| (1) | Derived from Patriot’s audited consolidated statement of operations for the year ended May 31, 2020. |
| (2) | Derived from Private Mosaic’s audited statement of operations for the period March 30, 2020 (inception) to May 31, 2020. |
See accompanying notes to unaudited pro forma condensed combined financial statements.
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Description of Transactions and Basis of Presentation
Description of Transactions
On August 19, 2020, Patriot Scientific Corporation, a Delaware corporation (the “Company” or “Patriot”) and privately held Mosaic ImmunoEngineering Inc. (“Private Mosaic”) entered into a stock purchase agreement (“Stock Purchase Agreement”). The transaction closed on August 21, 2020 (“Closing Date”) in accordance with the terms of the Stock Purchase Agreement, whereby one of the Company’s wholly owned subsidiaries merged with and into Private Mosaic, with Private Mosaic surviving as the Company’s wholly owned subsidiary (the “Reverse Merger”).
On the Closing Date of the Reverse Merger, Patriot acquired 100% of the issued and outstanding common stock of Private Mosaic, representing 630,000 shares of its Class A common stock (“Class A Stock”) and 70,000 shares of its Class B common stock (“Class B Stock”) (collectively referred to as “Target Common Stock”). In exchange for the Target Common Stock, the holders of the Class A Stock received 630,000 shares of Patriot’s Series A Convertible Voting Preferred Stock (“Series A Preferred”) and holders of the Class B Stock received 70,000 shares of Patriot’s Series B Convertible Voting Preferred Stock (“Series B Preferred”). Each share of Series A Preferred converts into 5,097.053 shares of common stock of Patriot and possesses full voting rights, on an as-converted basis, as the common stock of Patriot, as defined in the Series A Certificate of Designations. Each share of Series B Preferred converts into 5,734.185 shares of common stock of Patriot, possesses full voting rights, on an as-converted basis, as the common stock of the Patriot, and contains certain anti-dilution protections, as defined in the Series B Certificate of Designations. On a fully diluted, as converted basis, the holders of Series A Preferred and Series B Preferred, in aggregate, own 90% of the issued and outstanding common stock of the fully-diluted common stock of the combined companies as of the Closing Date.
Basis of Presentation
The following unaudited pro forma condensed combined financial statements give effect to the Merger and were prepared in accordance with the regulations of the Securities and Exchange Commission (“SEC”). The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting under U.S. GAAP. For accounting purposes, Private Mosaic is considered to be acquiring Patriot in the Reverse Merger. Private Mosaic was determined to be the accounting acquirer based upon the terms of the Stock Purchase Agreement and other factors including: (i) Private Mosaic stockholders owned 90% of the combined organization immediately following the Closing Date, (ii) Private Mosaic directors held a majority of board seats in the combined organization and (iii) Private Mosaic management held all key positions in the management of the combined organization. For the purpose of these unaudited pro forma condensed combined financial statements, management of Patriot and Private Mosaic have determined a preliminary purchase price, calculated as described in Note 2 to these unaudited pro forma condensed combined financial statements. The net tangible assets acquired and liabilities assumed in connection with the transaction are recorded at their estimated acquisition date fair values. A final determination of these estimated fair values will be based on the actual net tangible assets of Patriot that exist as of the date of completion of the transaction.
The unaudited pro forma condensed combined balance sheet as of May 31, 2020 assumes that the Reverse Merger took place on May 31, 2020 and combines the historical balance sheets of Patriot and Private Mosaic as of May 31, 2020. The unaudited pro forma condensed combined statement of operations of Patriot for the year ended May 31, 2020 and Private Mosaic for the period March 30, 2020 (date of inception) to May 31, 2020, assume that the Reverse Merger took place as of March 30, 2020 (inception of Private Mosaic), and combines the historical results of Patriot for the fiscal year ended May 31, 2020 and Private Mosaic for the period March 30, 2020 (date of inception) to May 31, 2020. The historical financial statements of Patriot and Private Mosaic have been adjusted to give pro forma effect to events that are (i) directly attributable to the Reverse Merger, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results.
The unaudited pro forma condensed combined financial statements are based on the assumptions and adjustments that are described in the accompanying notes. The unaudited pro forma condensed combined financial statements and pro forma adjustments have been prepared based on preliminary estimates of the fair value of assets acquired and liabilities assumed. Differences between these preliminary estimates and the final fair value of assets and liabilities acquired may occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined organization’s future results of operations and financial position.
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2. Preliminary Purchase Price
The estimated purchase price of approximately $374,000 was determined using the estimated fair value of Patriot’s net assets on the Closing Date. Patriot’s net assets are comprised of cash and cash equivalents, restricted cash and cash equivalents, refundable income taxes, prepaid expenses and other current assets, and investment in affiliated company, offset by current liabilities.
The preliminary estimated acquired net assets of Patriot based on their estimated fair values are as follows:
| Purchase Consideration | ||||
| Cash and cash equivalents | $ | 427,971 | ||
| Restricted cash and cash equivalents | 177,244 | |||
| Refundable income taxes | 26,078 | |||
| Prepaid expenses and other current assets | 10,402 | |||
| Investment in affiliated company | 32,739 | |||
| Accounts payable, accrued expenses and other | (299,999 | ) | ||
| Total purchase consideration | $ | 374,435 |
The purchase price allocation will remain preliminary until Patriot has completed the final determination of the fair values of assets acquired and liabilities assumed as of the Closing Date. Therefore, the final amounts allocated to assets acquired and liabilities assumed could differ from the amounts presented in the unaudited pro forma condensed combined financial statements.
3. Pro Forma Adjustments
The unaudited pro forma condensed combined financial statements include pro forma adjustments to give effect to the acquisition of Patriot net assets by Mosaic Private. The pro forma adjustments reflecting the completion of the Reverse Merger are based upon the assumptions set forth below.
| (a) | To record Patriot's estimated transaction costs, such as advisory and legal fees that were not incurred as of May 31, 2020. |
| (b) | To reflect the exchange of all common stock of Private Mosaic to Series A Preferred and Series B Preferred of Patriot. |
| (c) | To reflect the elimination of Patriot's historical accumulated deficit and treasury stock, including the impact of the pro forma adjustments to Patriot's current liabilities. |
| (d) | Weighted average shares outstanding excludes 3,612,536,340 shares of common stock issuable upon the conversion of Series A Preferred and Series B Preferred, on an as-converted basis, as the impact is anti-dilutive during periods of net loss. The weighted average shares outstanding for Private Mosaic is calculated from March 30, 2020 (date of inception) through May 31, 2020. |
| (e) | To reflect the issuance of 70,000 shares of Class B common stock, par value, $.0001 per share, to Private Mosaic investor that was not issued as of May 31, 2020. |
| (f) | To reflect the estimated fair value of the anti-dilution issuance rights liability associated with the Series B Preferred. |
| (g) | To reflect the exchange of Private Mosaic’s common stock subscribed and not yet issued for Class A common stock. |
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