UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One)
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly
period ended November 30, 2015
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 0-22182
PATRIOT SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its
charter)
Delaware
(State or other jurisdiction
of incorporation or organization) |
84-1070278
(I.R.S. Employer Identification No.) |
701 Palomar Airport Road, Suite 170,
Carlsbad, California
(Address of principal executive offices) |
92011
(Zip Code) |
(Registrant’s telephone number, including
area code): (760) 547-2700
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. YES [X ] NO [ ]
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Website, if any, 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). YES [X] NO [ ]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer [ ] |
Accelerated
filer [ ] |
Non-accelerated filer [ ] (do not check if smaller reporting company) |
Smaller reporting company [X] |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
On January 11, 2016, 401,392,948 shares
of common stock, par value $0.00001 per share were outstanding.
INDEX
|
Page |
PART I. FINANCIAL INFORMATION |
|
ITEM 1. Financial Statements |
3 |
Condensed consolidated Balance Sheets as of November 30, 2015 (unaudited) and May 31, 2015 |
3 |
Condensed consolidated Statements of Operations for the three and six months ended November 30, 2015 and November 30, 2014 (unaudited) |
4 |
Condensed consolidated Statements of Cash Flows for the six months ended November 30, 2015 and November 30, 2014 (unaudited) |
5 |
Notes to condensed consolidated Financial Statements (unaudited) |
6-19 |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20-30 |
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk |
30 |
ITEM 4. Controls and Procedures |
30 |
|
|
PART II. OTHER INFORMATION |
|
ITEM 1. Legal Proceedings |
31 |
ITEM 1A. Risk Factors |
31 |
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds |
31 |
ITEM 3. Defaults Upon Senior Securities |
31 |
ITEM 4. Mine Safety Disclosures |
31 |
ITEM 5. Other Information |
31 |
ITEM 6. Exhibits |
32-35 |
|
|
SIGNATURES |
36 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Patriot Scientific Corporation
Condensed Consolidated Balance Sheets
| |
November 30, 2015 | | |
May 31, 2015 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 1,878,131 | | |
$ | 2,679,360 | |
Restricted cash and cash equivalents | |
| 21,283 | | |
| 21,229 | |
Marketable securities, current portion | |
| 2,205,664 | | |
| 2,455,106 | |
Prepaid income tax | |
| 2,385 | | |
| 4,785 | |
Prepaid expenses and other current assets | |
| 115,604 | | |
| 15,582 | |
Total current assets | |
| 4,223,067 | | |
| 5,176,062 | |
| |
| | | |
| | |
Property and equipment, net | |
| 1,505 | | |
| 2,440 | |
Marketable securities, net of current portion | |
| 250,226 | | |
| – | |
Other assets | |
| 3,036 | | |
| 3,036 | |
Investment
in affiliated company | |
| 447,281 | | |
| – | |
Total assets | |
$ | 4,925,115 | | |
$ | 5,181,538 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 11,577 | | |
$ | 38,459 | |
Accrued expenses and other | |
| 58,756 | | |
| 57,305 | |
Total current liabilities | |
| 70,333 | | |
| 95,764 | |
| |
| | | |
| | |
Cumulative losses in excess of investment in affiliated company | |
| – | | |
| 69,342 | |
Total liabilities | |
| 70,333 | | |
| 165,106 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | |
Preferred stock, $0.00001 par value; 5,000,000 shares authorized: none outstanding | |
| – | | |
| – | |
Common stock, $0.00001 par value: 600,000,000 shares authorized: 438,242,618 shares issued and 401,392,948 shares outstanding at November 30, 2015 and May 31, 2015 | |
| 4,382 | | |
| 4,382 | |
Additional paid-in capital | |
| 77,444,062 | | |
| 77,444,062 | |
Accumulated deficit | |
| (57,967,794 | ) | |
| (57,806,144 | ) |
Common stock held in treasury, at cost – 36,849,670 shares at November 30, 2015 and May 31, 2015 | |
| (14,625,868 | ) | |
| (14,625,868 | ) |
Total stockholders’ equity | |
| 4,854,782 | | |
| 5,016,432 | |
Total liabilities and stockholders’ equity | |
$ | 4,925,115 | | |
$ | 5,181,538 | |
See accompanying notes to unaudited condensed
consolidated financial statements.
Patriot Scientific
Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
| |
Three Months Ended | | |
Six Months Ended | |
| |
November 30, 2015 | | |
November 30, 2014 | | |
November 30, 2015 | | |
November 30, 2014 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative | |
$ | 342,198 | | |
$ | 357,373 | | |
$ | 740,364 | | |
$ | 729,997 | |
Total operating expenses | |
| 342,198 | | |
| 357,373 | | |
| 740,364 | | |
| 729,997 | |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 3,415 | | |
| 2,384 | | |
| 6,491 | | |
| 4,632 | |
Other income | |
| – | | |
| – | | |
| – | | |
| 60 | |
Equity in earnings (loss) of affiliated company | |
| 252,364 | | |
| (79,642 | ) | |
| 574,623 | | |
| (303,678 | ) |
Total other income (expense), net | |
| 255,779 | | |
| (77,258 | ) | |
| 581,114 | | |
| (298,986 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss from continuing operations before income taxes | |
| (86,419 | ) | |
| (434,631 | ) | |
| (159,250 | ) | |
| (1,028,983 | ) |
| |
| | | |
| | | |
| | | |
| | |
Provision for income taxes | |
| – | | |
| – | | |
| 2,400 | | |
| 2,400 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from continuing operations | |
| (86,419 | ) | |
| (434,631 | ) | |
| (161,650 | ) | |
| (1,031,383 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income from discontinued operations, net | |
| – | | |
| 465 | | |
| – | | |
| 3,265 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (86,419 | ) | |
$ | (434,166 | ) | |
$ | (161,650 | ) | |
$ | (1,028,118 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted income (loss) per common share: | |
| | | |
| | | |
| | | |
| | |
Loss from continuing operations | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | |
Income from discontinued operations | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | |
Net loss | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding-basic and diluted | |
| 398,548,318 | | |
| 398,548,318 | | |
| 398,548,318 | | |
| 398,548,318 | |
See accompanying
notes to unaudited condensed consolidated financial statements.
Patriot Scientific Corporation
Condensed Consolidated Statements of Cash
Flows
(Unaudited)
| |
Six months ended | |
| |
November 30, 2015 | | |
November 30, 2014 | |
| |
| | |
| |
Operating activities: | |
| | | |
| | |
Net loss | |
$ | (161,650 | ) | |
$ | (1,028,118 | ) |
Less: Net income from discontinued operations | |
| – | | |
| 3,265 | |
Net loss from continuing operations | |
| (161,650 | ) | |
| (1,031,383 | ) |
Adjustments to reconcile net loss before discontinued operations to net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 935 | | |
| 1,139 | |
Accrued interest income added to investments | |
| (838 | ) | |
| (3,314 | ) |
Equity in (earnings) loss of affiliated company | |
| (574,623 | ) | |
| 303,678 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other current assets | |
| (100,022 | ) | |
| 87,334 | |
Prepaid income tax | |
| 2,400 | | |
| (501 | ) |
Accounts payable, accrued expenses and other | |
| (25,431 | ) | |
| (204,081 | ) |
Income tax payable | |
| – | | |
| (3,599 | ) |
Net cash used in operating activities of continuing operations | |
| (859,229 | ) | |
| (850,727 | ) |
Net cash provided by operating activities of discontinued operations | |
| – | | |
| 51,276 | |
Net cash used in operating activities | |
| (859,229 | ) | |
| (799,451 | ) |
| |
| | | |
| | |
Investing activities: | |
| | | |
| | |
Proceeds from sales of marketable securities | |
| 1,250,000 | | |
| 951,078 | |
Purchases of marketable securities | |
| (1,250,000 | ) | |
| (1,250,000 | ) |
Purchase of property and equipment | |
| – | | |
| (1,242 | ) |
Distributions from affiliated company | |
| 58,000 | | |
| 800 | |
Net cash provided by (used in) investing activities | |
| 58,000 | | |
| (299,364 | ) |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (801,229 | ) | |
| (1,098,815 | ) |
Cash and cash equivalents, beginning of period | |
| 2,679,360 | | |
| 4,716,208 | |
Cash and cash equivalents, end of period | |
$ | 1,878,131 | | |
$ | 3,617,393 | |
| |
| | | |
| | |
Supplemental Disclosure of Cash Flow Information: | |
| | | |
| | |
Cash paid for income taxes | |
$ | – | | |
$ | 6,500 | |
See accompanying
notes to unaudited condensed consolidated financial statements.
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
1. Basis of Presentation and Summary of Significant Accounting
Policies
The unaudited condensed consolidated financial
statements of Patriot Scientific Corporation (the “Company”, “PTSC”, “Patriot”, “we”,
“us” or “our”) presented herein 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. These unaudited condensed consolidated financial statements
should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Report on Form
10-K for our fiscal year ended May 31, 2015.
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. Operating results for the six month period ended November 30, 2015 are not necessarily
indicative of the results that may be expected for the year ending May 31, 2016.
Basis of Consolidation
The condensed consolidated balance sheets at
November 30, 2015 and May 31, 2015 and condensed consolidated statements of operations for the three and six months ended November
30, 2015 and 2014 and condensed consolidated statements of cash flows for the six months ended November 30, 2015 and 2014 include
our accounts and those of our wholly owned subsidiary Patriot Data Solutions Group, Inc. (“PDSG”) which includes Crossflo
Systems, Inc. (“Crossflo”), and our inactive subsidiary Plasma Scientific Corporation. All significant intercompany
accounts and transactions have been eliminated.
PDSG is being presented as discontinued operations
in the condensed consolidated statements of operations for all periods presented. See “Discontinued Operations and Assets
Held for Sale” below for additional information.
Liquidity and Management’s Plans
Cash shortfalls currently experienced by Phoenix
Digital Solutions, LLC (“PDS”) will have an adverse effect on our liquidity. To date, we have determined that it is
in the best interests of the Moore Microprocessor Patent (“MMP”) licensing program that we provide our 50% share of
capital to provide for PDS expenses including legal retainers, and litigation related payments in the event license revenues received
by PDS are insufficient to meet these needs. We believe it is likely that contributions to PDS to fund working capital will continue
to be required.
PDS had been incurring significant third-party
costs for expert testimony, depositions and other related litigation costs. We could be required to make capital contributions
to PDS for any future litigation related costs in the event that PDS does not receive sufficient licensing revenues to pay these
expenses.
Our current liquid cash resources as of November
30, 2015, are expected to provide the funds necessary to support our operations through at least the next twelve months. The cash
flows from our interest in PDS represent our only significant source of cash generation. In the event of a continued
decrease or interruption in MMP portfolio licensing we will incur a significant reduction to our cash position. It is highly unlikely
that we would be able to obtain any additional sources of financing to supplement our cash and cash equivalents and short-term
investment position of $4,083,795 at November 30, 2015.
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
Liquidity and Management’s Plans (continued)
On March 20, 2013, Technology Properties Limited,
Inc. (“TPL”) filed a petition under Chapter 11 of the United States Bankruptcy Code. We have been appointed to the
creditors’ committee and have been closely monitoring the progress in this matter as it relates to our interest in PDS. A
Joint Plan of Reorganization (the “Joint Plan”) between TPL and the creditor’s committee was confirmed by the
Bankruptcy Court on February 11, 2015 with the entered confirmation order becoming final on April 2, 2015. In the event
we are required to provide funding to PDS that is not reciprocated by TPL, our ownership percentage in PDS will increase and we
will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our condensed consolidated financial
statements.
Discontinued Operations and Assets Held
for Sale
On February 17, 2012, our board of directors
authorized management to sell the assets of PDSG due to the inability of PDSG to meet its business plan and continuing projected
negative cash flows. In accordance with authoritative guidance we have classified the assets, operations and cash flows of PDSG
as discontinued operations for all periods presented. During March 2012, we entered into an interim agreement with the purchaser
of the assets of PDSG which required the purchaser to pay PDSG $93,450 to subsidize the April 2012 expenses of PDSG during the
sale transaction negotiations. On April 30, 2012, we negotiated a sale transaction in which we sold substantially all of the assets
of PDSG in exchange for a royalty on PDSG revenues for a period of three years. From April 30, 2012 to May 31, 2015, the gain on
the asset sale of PDSG is approximately $101,000.
Summarized operating results of discontinued
operations for the three and six months ended November 30, 2015 and 2014 are as follows:
| |
Three Months Ended | | |
Six Months Ended | |
| |
November 30, 2015 | | |
November 30, 2014 | | |
November 30, 2015 | | |
November 30, 2014 | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
Gain on sale of discontinued operations | |
$ | – | | |
$ | 465 | | |
$ | – | | |
$ | 3,265 | |
Income before income taxes | |
$ | – | | |
$ | 465 | | |
$ | – | | |
$ | 3,265 | |
Income from discontinued operations | |
$ | – | | |
$ | 465 | | |
$ | – | | |
$ | 3,265 | |
PDSG activity for the three and six months
ended November 30, 2014 consists of PDSG royalty revenues.
Investments in Marketable Securities
We determine the appropriate
classification of our investments at the time of purchase and reevaluate such designation at each balance sheet date. Our
investments in marketable securities have been classified and accounted for as held-to-maturity based on management’s
investment intentions relating to these securities. Held-to-maturity marketable securities are stated at amortized cost.
Unrealized gains and losses, net of deferred taxes, are recorded as a component of other comprehensive income (loss). We
follow the authoritative guidance to assess whether our investments with unrealized loss positions are other than temporarily
impaired. Realized gains and losses and declines in fair value judged to be other than temporary are determined based on the
specific identification method and are reported in other income (expense), net in the condensed consolidated statements of
operations.
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
Investment in Affiliated Company
We have a 50% interest in PDS (see Note 3).
We account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant
influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest
in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s
Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method
of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the
investee and is recognized in the condensed consolidated statements of operations in the caption “Equity in earnings (loss)
of affiliated company” and also is adjusted by contributions to and distributions from PDS.
PDS, as an unconsolidated equity investee,
recognizes revenue from technology license agreements at the time a contract is entered into, the license method is determined
(paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of
revenue is assured, which is generally upon the receipt of the license proceeds. PDS may at times enter into license agreements
whereby contingent revenues are recognized as one or more contractual milestones have been met.
We review our investment in PDS to
determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors
we consider in our determination are the financial condition, operating performance and near term prospects of PDS. If a decline
in value is deemed to be other than temporary, we would recognize an impairment loss.
Earnings (Loss) Per Share
Basic earnings per share for continuing and
discontinued operations includes no dilution and is computed by dividing earnings available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per share for continuing and discontinued operations
reflect the potential dilution of securities that could share in the earnings of an entity.
For the three and six months ended November
30, 2015, potential common shares of 2,760,000 related to our outstanding options were not included in the calculation of diluted
loss per share for continuing and discontinued operations as we recorded a loss. Had we reported net income for the three and six
months ended November 30, 2015, no shares of common stock would have been included in the calculation of diluted income per share
for continuing and discontinued operations using the treasury stock method.
For the three and six months ended November
30, 2014, potential common shares of 1,335,000 related to our outstanding options were not included in the calculation of diluted
loss per share for continuing and discontinued operations as we recorded a loss. Had we reported net income for the three and six
months ended November 30, 2014, no shares of common stock would have been included in the calculation of diluted income per share
for continuing and discontinued operations using the treasury stock method.
In connection with our acquisition of Crossflo,
which is part of PDSG, we issued escrow shares that are contingent upon certain representations and warranties made by Crossflo
at the time of the merger agreement (see Note 6). We exclude these escrow shares from the basic loss per share calculations and
include the escrowed shares in the diluted loss per share calculations.
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
Income Taxes
We follow authoritative guidance in accounting
for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement requirement for
the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax return and also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under
this guidance we may only recognize tax positions that meet a “more likely than not” threshold.
We follow authoritative guidance to evaluate
whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available
evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence
that can be objectively verified. We assess our deferred tax assets annually under more likely than not scenarios in which they
may be realized through future income.
We have determined that it was more likely
than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable losses.
As a result of this determination we have placed a full valuation allowance against our deferred tax assets.
We follow authoritative guidance to adjust
our effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We are also required to record
the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment about valuation allowances
and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected
loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective
tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based
upon the mix and timing of actual earnings or losses versus annual projections.
Assessment of Contingent Liabilities
We are 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.
Intellectual Property Rights
PDS, our investment in affiliated company,
relies on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements
to protect our intellectual property rights. We have three European and two Japanese patents all expiring in October 2016. We also
have seven U.S. patents, six European, and one Japanese patent all of which expired between August 2009 and September 15, 2015.
These patents, while expired, may have certain retrospective statutory benefits that will fully diminish six years after the patent
expiration date. The patent useful life for purposes of negotiating licenses is finite and these patents are subject to legal challenges,
which in combination with the limited life, could adversely impact the stream of revenues. A successful challenge to the ownership
of the technology or the proprietary nature of the intellectual property would materially damage business prospects. Any issued
patent may be challenged and invalidated.
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards
Board issued Accounting Standards Update (“ASU”) No. 2014-15, "Presentation of Financial Statements – Going
Concern." ASU 2014-15 provides guidance in generally accepted accounting principles about management’s responsibility
to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related
footnote disclosures. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016 and for annual periods
and interim periods thereafter (fiscal year 2017 for the Company). Early adoption is permitted. We have not yet determined the
potential effects of the adoption of ASU 2014-15 on our condensed consolidated financial statements.
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities
We consider all highly liquid investments with
original maturities of three months or less to be cash equivalents.
Restricted cash and cash equivalents at November
30, 2015 and May 31, 2015 consist of deposits in a savings account required to be held as collateral for our corporate credit card.
At November 30, 2015 and May 31, 2015, the
current portion of our marketable securities in the amount of $2,205,664 and $2,455,106, respectively, consists of the par value
plus accrued interest of our time deposits with original maturities of greater than three months and less than one year. At November
30, 2015, the non-current portion of our marketable securities in the amount of $250,226 consists of the par value plus accrued
interest of our time deposits with original maturities of more than one year. These marketable securities are classified as held-to-maturity
and are reported at amortized cost, which approximates fair market value.
We follow authoritative guidance to
account for our marketable securities as held-to-maturity. 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).
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
Cash, Cash Equivalents, Restricted Cash
and Marketable Securities (continued)
The following tables detail the fair
value measurements within the fair value hierarchy of our cash, cash equivalents and investments in marketable securities:
| |
| | |
Fair Value Measurements at November 30, 2015 Using | |
| |
| | |
Quoted Prices | | |
Significant | | |
| |
| |
| | |
in Active | | |
Other | | |
Significant | |
| |
Fair Value at | | |
Markets for | | |
Observable | | |
Unobservable | |
| |
November 30, | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| |
2015 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Cash and cash equivalents: | |
| | | |
| | | |
| | | |
| | |
Cash | |
$ | 40,376 | | |
$ | 40,376 | | |
$ | – | | |
$ | – | |
Money market funds | |
| 1,837,755 | | |
| 1,837,755 | | |
| – | | |
| – | |
Restricted cash and cash equivalents | |
| 21,283 | | |
| 21,283 | | |
| – | | |
| – | |
Marketable securities: | |
| | | |
| | | |
| | | |
| | |
Short-term: | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit | |
| 2,205,664 | | |
| – | | |
| 2,205,664 | | |
| | |
Long-term: | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit | |
| 250,226 | | |
| – | | |
| 250,226 | | |
| – | |
Total | |
$ | 4,355,304 | | |
$ | 1,899,414 | | |
$ | 2,455,890 | | |
$ | – | |
| |
| | |
Fair Value Measurements at May 31, 2015 Using | |
| |
| | |
Quoted Prices | | |
Significant | | |
| |
| |
| | |
in Active | | |
Other | | |
Significant | |
| |
Fair Value at | | |
Markets for | | |
Observable | | |
Unobservable | |
| |
May 31, | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| |
2015 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Cash and cash equivalents: | |
| | | |
| | | |
| | | |
| | |
Cash | |
$ | 297,259 | | |
$ | 297,259 | | |
$ | – | | |
$ | – | |
Money market funds | |
| 2,382,101 | | |
| 2,382,101 | | |
| – | | |
| – | |
Restricted cash and cash equivalents | |
| 21,229 | | |
| 21,229 | | |
| – | | |
| – | |
Marketable securities: | |
| | | |
| | | |
| | | |
| | |
Short-term: | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit | |
| 2,455,106 | | |
| – | | |
| 2,455,106 | | |
| – | |
Total | |
| 5,155,695 | | |
$ | 2,700,589 | | |
| 2,455,106 | | |
$ | – | |
We purchase certificates of deposit with varying
maturity dates greater than three months. The following table summarizes the maturities, gross unrealized gains or losses and fair
value of the certificates of deposit as of November 30, 2015:
| |
November 30, 2015 (Unaudited) | |
| |
Cost | | |
Gross Unrealized Gains/(Losses) | | |
Fair Value | |
Maturity | |
| | | |
| | | |
| | |
Due in one year or less | |
$ | 2,205,664 | | |
$ | – | | |
$ | 2,205,664 | |
Due in one year or more | |
$ | 250,226 | | |
$ | – | | |
$ | 250,226 | |
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
Cash, Cash Equivalents, Restricted Cash
and Marketable Securities (continued)
The following table summarizes the maturities,
gross unrealized gains or losses and fair value of the certificates of deposit as of May 31, 2015:
| |
May 31, 2015 | |
| |
Cost | | |
Gross Unrealized Gains/(Losses) | | |
Fair Value | |
Maturity | |
| | | |
| | | |
| | |
Due in one year or less | |
$ | 2,455,106 | | |
$ | – | | |
$ | 2,455,106 | |
3. Investment in Affiliated Company
On June 7, 2005, we entered into a Master Agreement
(the “Master Agreement”) with TPL, and Charles H. Moore (“Moore”), the co-inventor of the technology which
is the subject of the MMP Portfolio of microprocessor patents, pursuant to which the parties resolved all legal disputes between
them. Pursuant to the Master Agreement, we and TPL entered into the Limited Liability Company Operating Agreement of PDS (the “LLC
Agreement”) into which we and Moore contributed our rights to certain of our technologies.
We and TPL each own 50% of the membership interests
of PDS, and each member has the right to appoint one member of the three member management committee. The two appointees are required
to select a mutually acceptable third member of the management committee. There had not been a third management committee member
since May 2010; however, as a result of our initiating arbitration seeking the appointment of a third member, on December 16, 2014,
an independent manager to the PDS management committee was selected by the arbitrator. Pursuant to the LLC Agreement, we and TPL
initially agreed to establish a working capital fund for PDS of $4,000,000, of which our contribution was $2,000,000. The working
capital fund was increased to a maximum of $8,000,000 as license revenues are achieved. We and TPL are obligated to fund future
working capital requirements at the discretion of the management committee of PDS in order to maintain working capital of not more
than $8,000,000. If the management committee determines that additional capital is required, neither we nor TPL are required to
contribute more than $2,000,000 in any fiscal year. No such contributions were made during the three and six months ended November
30, 2015 and 2014. Distributable cash and allocation of profits and losses have been allocated to the members in the priority defined
in the LLC Agreement.
Previously,
pursuant to our June 7, 2005 agreement with PDS and TPL to license the MMP Portfolio (“Commercialization Agreement”),
PDS reimbursed TPL for payment of all legal and third-party expert fees and other related third-party costs and expenses. Presently
the majority of third-party costs are paid directly by PDS. During the three months ended November 30, 2015 and 2014, PDS expensed
$(305,862) and $103,125, respectively, pursuant to the Commercialization Agreement and the July 11, 2012 Program Agreement (see
below). These expenses are recorded in the accompanying PDS statements of operations presented below net
of $530,044 and $0, respectively, of legal fee reversals previously expensed and recorded as accounts payable to TPL during the
three months ended November 30, 2015 and 2014 as the statute of limitations had expired. During the six months ended November
30, 2015 and 2014, PDS expensed $5,257 and $505,068, respectively, pursuant to the agreements. These expenses are recorded in
the accompanying PDS statements of operations presented below net of $531,033 and $0, respectively,
of legal fee reversals previously expensed and recorded as accounts payable to TPL during the six months ended
November 30, 2015 and 2014 as the statute of limitations had expired.
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
Investment in Affiliated Company (continued)
On July 11, 2012, we entered into the
Program Agreement with PDS, TPL, and Alliacense, and an Agreement (the “TPL Agreement”) with TPL. Pursuant to the Program
Agreement, PDS engaged Alliacense to negotiate MMP portfolio licenses and to pursue claims against violators of the MMP portfolio
on behalf of PDS, TPL, and the Company. The Program Agreement continued through the useful life of the MMP portfolio patents. Pursuant
to the TPL Agreement, we and TPL agreed to certain allocations of obligations in connection with the engagement of Alliacense.
On July 24, 2014, the Program Agreement was amended with PDS and Alliacense entering into the Amended Alliacense Services and Novation
Agreement (the “Novation Agreement”). Pursuant to the Novation Agreement certain performance goals and incentives were
established for Alliacense. The Novation Agreement also provided for the addition of a second licensing company, which was engaged
on October 10, 2014, to complement the MMP licensing commercialization. However, Alliacense fulfilled only a portion of its obligations
under the Novation Agreement associated with the deployment of the second licensing company and on May 11, 2015, Alliacense was
terminated by PDS.
Pursuant to the Program Agreement, PDS was
contractually obligated to pay Alliacense litigation support fees relating to Alliacense’s special work and effort regarding
internal costs related to MMP maintenance and litigation support including support in the U.S. District Court and the complaints
filed on behalf of TPL, PDS and us with the ITC. During the six months ended November 30, 2014, PDS reversed $(24,598) pursuant
to this contractual obligation. The Novation Agreement eliminated the Program Agreement’s litigation support activity by
Alliacense. This reversal is recorded net of expenses in the accompanying PDS statement of operations for the six months ended
November 30, 2014 presented below.
During January 2013, TPL and Moore settled
their litigation. Terms of the settlement include the payment by PDS to Moore of a consulting fee of $250,000 for four years or
until the completion of all outstanding MMP litigation whichever comes first. Per terms of the agreement PDS paid Moore $150,000
on the settlement date and paid Moore $16,667 per month from August 2013 through January 2014 and will pay $20,833 per month beginning
February 2014 through January 2017. During the three months ended November 30, 2015 and 2014, PDS expensed $62,499 and $62,499,
respectively, pursuant to this commitment and during the six months ended November 30, 2015 and 2014, PDS expensed $124,998 and
$124,998, respectively, pursuant to this commitment. These expenses are recorded in the accompanying PDS statements of operations
presented below.
Based on our analysis of current authoritative
accounting guidance with respect to our investment in PDS, we continue to account for our investment in PDS under the equity method
of accounting, and accordingly have recorded our share of PDS’s net income during the three and six months ended November
30, 2015 of $252,364 and $574,623, respectively, as an increase in our investment and we have recorded our share of PDS’s
net loss during the three and six months ended November 30, 2014 of $79,642 and $303,678, respectively, as a decrease in our investment.
We received distributions of $58,000 and $800, respectively, from PDS during the six months ended November 30, 2015 and 2014 and
we have recorded these distributions as a decrease in our investment.
We have recorded our share of PDS’s net
income and loss for the three and six months ended November 30, 2015 and 2014 as “Equity in earnings (loss) of affiliated
company” in the accompanying condensed consolidated statements of operations.
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
Investment in Affiliated Company (continued)
During the three and six months ended November
30, 2015, PDS entered into licensing agreements with third parties, pursuant to which PDS received aggregate proceeds of $400,000
and $1,450,000, respectively.
During the three and six months ended November
30, 2014, PDS entered into a licensing agreement with a third party, pursuant to which PDS received proceeds of $20,000.
On March 20, 2013, TPL filed a petition under
Chapter 11 of the United States Bankruptcy Code. A Joint Plan of Reorganization (the “Joint Plan”) between TPL and
the creditor’s committee was confirmed by the Bankruptcy Court on February 11, 2015 with the entered confirmation order
becoming final on April 2, 2015. We have been appointed to the creditors’ committee and have been closely monitoring
the progress in this matter as it relates to our interest in PDS. In the event we are required to provide funding to PDS that is
not reciprocated by TPL, our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS,
in which case, we will consolidate PDS in our condensed consolidated financial statements. If we determine that it is appropriate
to consolidate PDS, we would measure the assets, liabilities and noncontrolling interests of PDS at their fair values at the date
that we have the controlling financial interest.
PDS’s balance sheets at November 30,
2015 and May 31, 2015 and statements of operations for the three and six months ended November 30, 2015 and 2014 are as follows:
Balance Sheets
Assets:
| |
November 30, 2015 | | |
May 31, 2015 | |
| |
(Unaudited) | | |
(Audited) | |
Cash | |
$ | 1,024,096 | | |
$ | 442,621 | |
Prepaid expenses | |
| 10,518 | | |
| 26,644 | |
Total assets | |
$ | 1,034,614 | | |
$ | 469,265 | |
Liabilities and Members’ Equity (Deficit):
| |
November 30, 2015 | | |
May 31, 2015 | |
| |
(Unaudited) | | |
(Audited) | |
Payables | |
$ | 140,052 | | |
$ | 607,949 | |
Members’ equity (deficit) | |
| 894,562 | | |
| (138,684 | ) |
Total liabilities and members’ equity (deficit) | |
$ | 1,034,614 | | |
$ | 469,265 | |
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
Investment in Affiliated Company (continued)
Statements of Operations
| |
Three Months Ended | | |
Six Months Ended | |
| |
November 30, 2015 | | |
November 30, 2014 | | |
November 30, 2015 | | |
November 30, 2014 | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
Revenues | |
$ | 400,000 | | |
$ | 20,000 | | |
$ | 1,450,000 | | |
$ | 20,000 | |
Expenses | |
| (104,729 | ) | |
| 179,284 | | |
| 300,754 | | |
| 627,356 | |
Operating income (loss) | |
| 504,729 | | |
| (159,284 | ) | |
| 1,149,246 | | |
| (607,356 | ) |
Net income (loss) | |
$ | 504,729 | | |
$ | (159,284 | ) | |
$ | 1,149,246 | | |
$ | (607,356 | ) |
We review our investment in PDS to
determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors
we consider in our determination are the financial condition, operating performance and near term prospects of PDS. If a decline
in value is deemed to be other than temporary, we would recognize an impairment loss.
4.
Income Taxes
We have determined that it was more likely
than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable losses.
As a result of this determination we have placed a full valuation allowance against our deferred tax assets. There have been no
changes to our determination during the current fiscal year.
5. Stockholders’ Equity
Share-based Compensation
Summary of Assumptions and Activity
The fair value of share-based awards to employees
and directors is calculated using the Black-Scholes option pricing model, even though this model was developed to estimate the
fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from our stock
options.
The Black-Scholes model also requires subjective
assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values.
The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination
behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the
pricing term of the grant effective as of the date of the grant. The expected volatility is based on the historical volatilities
of our common stock. These factors could change in the future, affecting the determination of share-based compensation expense
in future periods.
No stock options were
granted during the three and six months ended November 30, 2015 and 2014.
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
Stockholders’ Equity (continued)
A summary of option
activity as of November 30, 2015 and changes during the six months then ended, is presented below:
| |
Shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term (Years) | | |
Aggregate Intrinsic Value | |
Options outstanding at June 1, 2015 | |
| 3,335,000 | | |
$ | 0.06 | | |
| | | |
| | |
Options granted | |
| – | | |
$ | – | | |
| | | |
| | |
Options exercised | |
| – | | |
$ | – | | |
| | | |
| | |
Options forfeited/expired | |
| (575,000 | ) | |
$ | 0.10 | | |
| | | |
| | |
Options outstanding at November 30, 2015 | |
| 2,760,000 | | |
$ | 0.05 | | |
| 3.90 | | |
$ | – | |
Options vested and expected to vest at November 30, 2015 | |
| 2,760,000 | | |
$ | 0.05 | | |
| 3.90 | | |
$ | – | |
Options exercisable at November 30, 2015 | |
| 2,760,000 | | |
$ | 0.05 | | |
| 3.90 | | |
$ | – | |
There were no options granted or exercised
during the six months ended November 30, 2015.
The aggregate intrinsic
value represents the differences in market price at the close of the quarter ($0.0045 per share on November 30, 2015) and the exercise
price of outstanding, in-the-money options (those options with exercise prices below $0.0045 per share) on November 30, 2015.
6. Commitments and Contingencies
Litigation
Patent Litigation
We, TPL, and PDS (collectively referred to
as “Plaintiffs”) are Plaintiffs in ongoing proceedings in the U.S. District Court for the Northern District of California
where the Plaintiffs allege infringement of the US 5,809,336 patent (the “‘336 patent”) by: Huawei Technologies
Co. Ltd., LG Electronics, Nintendo Co. Ltd., Samsung Electronics Co. Ltd., and ZTE Corporation. This litigation is proceeding in
front of District Court Judge Vince Chhabria with U.S. Magistrate Judge Paul Grewal handling all pretrial matters.
These ongoing proceedings relate to the proceedings
filed by the Plaintiffs in February 2008 in the U.S. District Court for the Northern District of California alleging infringement
of the US 5,440,749 patent (the “‘749 patent”), the US 5,530,890 patent (the “‘890 patent”)
and the ‘336 patent against Amazon.com Inc., Barnes & Noble Inc., Garmin Ltd., Huawei Technologies Co. Ltd., Kyocera
Corporation, LG Electronics, Nintendo Co. Ltd., Novatel Wireless Inc., Samsung Electronics Co. Ltd., Sierra Wireless Inc., and
ZTE Corporation. We have settled with all defendants except those named in the first paragraph to this footnote. Litigation and
settlement activity for the quarter ended August 31, 2015 and through the date of this filing is detailed below.
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
Commitments and Contingencies (continued)
On February 4, 2015, Barnes & Noble, Inc.
filed a motion asserting that our cause of action on the ‘336 patent was barred by the Kessler doctrine because of the ITC’s
finding of non-infringement in 2013. A hearing was held on March 17, 2015 in the U.S. District Court for the Northern District
of California regarding the matter. On May 31, 2015, U.S. Magistrate Judge Grewal denied this motion. Barnes & Noble asked
District Court Judge Chhabria to reconsider this ruling but on July 22, 2015, Plaintiffs and Barnes & Noble filed a notice
of settlement stating that Plaintiffs and Barnes & Noble had reached a settlement in principle. This mooted a hearing in front
of District Court Judge Chhabria regarding Barnes & Noble’s motion.
On April 10, 2015, multiple defendants in the
District Court action filed a motion arguing for invalidity of the ‘749 patent. A hearing was held on May 19, 2015 regarding
this matter. On July 27, 2015, Plaintiffs voluntarily dismissed their claims and on July 28, 2015, U.S. Magistrate Judge Grewal
denied this motion as moot.
On June 30, 2015, a hearing was held on Samsung
and LG’s motion to strike Plaintiffs’ infringement contentions. On July 11, 2015, U.S. Magistrate Judge Grewal granted
in part Samsung and LG’s motion and ordered Plaintiffs to provide amended infringement contentions in accordance with the
Court’s order. The Plaintiffs thereafter amended their infringement contentions.
On July 1, 2015, the parties in the Novatel
Wireless, Inc. action filed a stipulated motion to voluntarily dismiss all claims and counterclaims on the basis of a settlement
agreement having been reached. The California district court granted that motion on July 14, 2015.
On July 22, 2015, Plaintiffs and Barnes &
Noble filed a notice of settlement stating that Plaintiffs and Barnes & Noble had reached a settlement in principle.
On July 27, 2015, Plaintiffs and defendants
filed a stipulation whereby each party withdrew their claims regarding the ‘749 and ‘890 patents with prejudice.
On August 26, 2015, Plaintiffs and Garmin entered
into a settlement and license agreement.
On August 31, 2015, Plaintiffs and Barnes &
Noble entered into a settlement and license agreement.
On September 18, 2015, a Markman hearing was
held before U.S. Magistrate Judge Grewal and, on September 22, 2015, he issued a claim construction report and recommendation.
On September 25, 2015, as a result of the claim construction report and recommendation, Plaintiffs and defendants, with the exception
of Huawei Technologies Co. Ltd., (“Huawei”) agreed to stay all proceedings pending resolution of Plaintiffs’
objections to the claim construction report and recommendation. Plaintiffs further stipulated that, under the claim construction
provided by the report and recommendation, defendants’ products do not infringe the ‘336 patent, and, in the event
that the district judge did not materially modify the claim construction, Plaintiffs and defendants agreed to ask that the Court
enter a final judgment of non-infringement to facilitate proceeding to appeal. After Plaintiffs and Huawei filed opposing letter
briefs with the Court, U.S. Magistrate Judge Grewal stayed the action against Huawei pending resolution of Plaintiffs’ objections
to the claim construction. On October 6, 2015, Plaintiffs filed objections to the claim construction with District Court Judge
Chhabria. Judge Chhabria rejected those objections on November 9, 2015. Based on that order, the parties stipulated to a judgment
of non-infringement as to the ‘336 patent and such judgment was entered on November 13, 2015.
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
Commitments and Contingencies (continued)
On December 7, 2015, Plaintiffs filed notices
of appeal with the U.S. Federal Circuit appealing the district court’s claim construction. The appeal is pending.
PDS Arbitration - Alliacense Performance
In June 2015, our representative to the
PDS management committee filed with the Judicial Arbitration and Mediation Services (“JAMS”) a demand for
arbitration pursuant to Alliacense’s non-performance under terms of the Novation Agreement. The demand seeks a
declaration of the respective rights and obligations of the parties under the Novation Agreement. This matter is set for
three days of arbitration currently commencing on May 17, 2016.
401(k) Plan
We have a retirement plan that complies with
Section 401(k) of the Internal Revenue Code. All employees are eligible to participate in the plan. We match 100% of elective deferrals
subject to a maximum of 4% of the participant’s eligible earnings. Our participants vest 33% per year over a three year period
in their matching contributions. Our matching contributions during the three months ended November 30, 2015 and 2014 were $4,734
and $3,208, respectively. Our matching contributions during the six months ended November 30, 2015 and 2014 were $9,935 and $6,949,
respectively.
Guarantees and Indemnities
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. In connection with our facility lease, we have
indemnified our lessor for certain claims arising from the use of the facility. 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 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 2,844,630 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 the 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.
Patriot Scientific Corporation
Notes to Unaudited Condensed Consolidated
Financial Statements
7. Subsequent Events
We have evaluated subsequent events after the
balance sheet date and based on our evaluation, management has determined that no subsequent events have occurred that would require
recognition in the accompanying condensed consolidated financial statements or disclosure in the notes thereto other than as disclosed
in the accompanying notes.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
THE FOLLOWING DISCUSSION AND THE REST OF THIS
QUARTERLY REPORT ON FORM 10-Q INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY OF FACTORS, INCLUDING
THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "RISK FACTORS". SEE ALSO OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
MAY 31, 2015.
Overview
In June 2005, we entered into a series of agreements
with TPL and others to facilitate the pursuit of unlicensed users of our intellectual property. Over the years we, TPL and TPL’s
affiliate, Alliacense, have entered into various agreements regarding licensing and litigation of the MMP portfolio. Pursuant to
a July 2014 Novation Agreement with Alliacense PDS engaged a second licensing agent for the MMP portfolio in October 2014 and on
May 11, 2015 PDS terminated Alliacense as licensing agent due to the inability of Alliacense to fulfill its obligations under the
Novation Agreement. PDS is currently pursuing a litigation strategy, which includes an action in the U.S. District Court against
multiple companies alleged to be infringers of the MMP portfolio. We continue to believe that the significant investment in legal
effort and costs incurred to date at PDS is necessary for the protection of our interests in the MMP portfolio and its future success,
although to date it has generated mixed results.
Management expects to continue to incur significant
legal expenses for the continued operation of PDS. PDS has been incurring significant third-party costs for expert testimony, depositions
and other related legal costs pursuant to litigation in U.S. District Court. We could be required to make capital contributions
to PDS for any future litigation related costs in the event that PDS does not receive sufficient licensing revenues to pay these
expenses.
On March 20, 2013, TPL filed a petition under
Chapter 11 of the United States Bankruptcy Code. A Joint Plan of Reorganization (the “Joint Plan”) between TPL and
the creditor’s committee was confirmed by the Bankruptcy Court on February 11, 2015 with the entered confirmation order
becoming final on April 2, 2015. We have been appointed to the creditors’ committee and have been closely monitoring
the progress in this matter as it relates to our interest in PDS. In the event we are required to provide funding to PDS that is
not reciprocated by TPL, our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS,
in which case, we will consolidate PDS in our condensed consolidated financial statements.
To the extent MMP portfolio license proceeds
are insufficient; we expect working capital contributions may need to be made to PDS in the future. Cash shortfalls currently experienced
by PDS will have an adverse effect on our liquidity. To date, we have determined that it is in the best interests of the MMP licensing
program that we contribute our 50% share of additional capital to PDS in the event license revenues received by PDS are insufficient.
On January 11, 2016, PDS’s cash balance
was $983,588. Management’s plans for the continued operation of PDS rely on the ability of PDS to obtain license agreements
to cover its operational costs. PDS has experienced a decline in licensing revenues and has not obtained significant license revenues
since September 2013 and it is unclear when any additional licensing revenues may be generated.
Critical Accounting Policies and Estimates
Our 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. We believe the following critical accounting policies affect
our most significant estimates and judgments used in the preparation of our condensed consolidated financial statements.
1. Investments
in Marketable Securities
We classify our investments in marketable securities
in certificates of deposit at the time of purchase as held-to-maturity and reevaluate such classifications at each balance sheet
date. Held-to-maturity investments consist of securities that we have the intent and ability to retain until maturity. These securities
are recorded at cost and adjusted for the amortization of premiums and discounts, which approximates fair value. Cash inflows and
outflows related to the sale and purchase of investments are classified as investing activities in our condensed consolidated statements
of cash flows.
2. Investment
in Affiliated Company
We have a 50% interest in PDS. We account for
our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence,
but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the
voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board
of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of
accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee
and is recognized in the condensed consolidated statements of operations in the caption “Equity in earnings (loss) of affiliated
company” and also is adjusted by contributions to and distributions from PDS.
PDS, as an unconsolidated equity investee,
recognizes revenue from technology license agreements at the time a contract is entered into, the license method is determined
(paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of
revenue is assured, which is generally upon the receipt of the license proceeds. PDS may at times enter into license agreements
whereby contingent revenues are recognized as one or more contractual milestones have been met.
We review our investment in PDS to
determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors
we consider in our determination are the financial condition, operating performance and near term prospects of PDS. If a decline
in value is deemed to be other than temporary, we would recognize an impairment loss.
3. Share-Based Compensation
Share-based compensation expense recognized
during the period is based on the grant date fair value of the portion of share-based payment awards ultimately expected to vest
during the period. As share-based compensation expense recognized in the condensed consolidated statements of operations
is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the
time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeiture rates
are based on historical forfeiture experience and estimated future employee forfeitures.
4. Income Taxes
We follow authoritative guidance in accounting
for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement requirement for
the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax return and also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under
this guidance we may only recognize tax positions that meet a “more likely than not” threshold.
We follow authoritative guidance to evaluate
whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available
evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence
that can be objectively verified. We are assessing our deferred tax assets under more likely than not scenarios in which they may
be realized through future income.
We have determined that it was more likely
than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable losses.
As a result of this determination we have placed a full valuation allowance against our deferred tax assets.
5. Assessment of Contingent Liabilities
We are 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.
Results of Operations
Comparison of the Three Months Ended November 30, 2015 and Three
Months Ended November 30, 2014.
| |
Three months ended | |
| |
November 30, 2015 | | |
November 30, 2014 | |
Selling, general and administrative | |
$ | 342,198 | | |
$ | 357,373 | |
Selling, general and administrative expenses
decreased from approximately $357,000 for the three months ended November 30, 2014 to approximately $342,000 for the three months
ended November 30, 2015. The decrease consisted primarily of approximately $10,000 in accounting fees.
| |
Three months ended | |
| |
November 30, 2015 | | |
November 30, 2014 | |
Other income (expense): | |
| | | |
| | |
Interest income | |
$ | 3,415 | | |
$ | 2,384 | |
Equity in earnings (loss) of affiliated company | |
| 252,364 | | |
| (79,642 | ) |
Total other income
(expense), net | |
$ | 255,779 | | |
$ | (77,258 | ) |
Our other income and expense for the three
months ended November 30, 2015 and 2014 included equity in the earnings (loss) of PDS of approximately $252,000 and $(80,000),
respectively. Our investment in PDS is accounted for in accordance with the equity method of accounting for investments. The change
in the earnings of PDS is due to the increase in licensing revenues during the three months ended November 30, 2015 as compared
to the prior period.
| |
Three months ended | |
| |
November 30, 2015 | | |
November 30, 2014 | |
Loss from continuing operations before income taxes | |
$ | (86,419 | ) | |
$ | (434,631 | ) |
Loss from continuing operations before income
taxes decreased from approximately $(435,000) for the three months ended November 30, 2014 to approximately $(86,000) for the three
months ended November 30, 2015 due to the increase in equity in earnings of PDS.
Results of Discontinued Operations
Comparison of the Three Months Ended November 30, 2015 and Three
Months Ended November 30, 2014.
| |
Three months ended | |
| |
November 30, 2015 | | |
November 30, 2014 | |
Other income: | |
| | | |
| | |
Royalty income | |
$ | – | | |
$ | 465 | |
Total other income | |
$ | – | | |
$ | 465 | |
Royalty income for the three months ended November
30, 2014 of approximately $500 consists of royalties earned for the period related to PDSG. On April 30, 2012, we negotiated a
sale transaction in which we sold substantially all of the assets of PDSG in exchange for a royalty on PDSG revenues for a period
of three years which ended April 30, 2015.
Income from discontinued operations, net
We recorded net income from discontinued operations
for the three months ended November 30, 2014 of $465.
Net loss
Our net loss for the three months ended November
30, 2015 and 2014 was $(86,419) and $(434,166) respectively.
Comparison of the Six Months Ended November 30, 2015 and Six
Months Ended November 30, 2014.
| |
Six months ended | |
| |
November 30, 2015 | | |
November 30, 2014 | |
Selling, general and administrative | |
$ | 740,364 | | |
$ | 729,997 | |
Selling, general and administrative expenses
increased from approximately $730,000 for the six months ended November 30, 2014 to approximately $740,000 for the six months ended
November 30, 2015. The increase consisted primarily of approximately $37,000 in legal fees due to the TPL bankruptcy matter and
PDS Northern District of California cases. This increase was offset by a decrease of approximately $23,000 in accounting and auditing
fees.
| |
Six months ended | |
| |
November 30, 2015 | | |
November 30, 2014 | |
Other income (expense): | |
| | | |
| | |
Interest income | |
$ | 6,491 | | |
$ | 4,632 | |
Other income | |
| – | | |
| 60 | |
Equity in earnings (loss) of affiliated company | |
| 574,623 | | |
| (303,678 | ) |
Total other income (expense), net | |
$ | 581,114 | | |
$ | (298,986 | ) |
Our other income and expense for the six months
ended November 30, 2015 and 2014 included equity in the earnings (loss) of PDS of approximately $575,000 and $(304,000), respectively.
Our investment in PDS is accounted for in accordance with the equity method of accounting for investments. The change in the earnings
of PDS is due to the increase in licensing revenues during the six months ended November 30, 2015 as compared to the prior period.
| |
Six months ended | |
| |
November 30, 2015 | | |
November 30, 2014 | |
Loss from continuing operations before income taxes | |
$ | (159,250 | ) | |
$ | (1,028,983 | ) |
Loss from continuing operations before income
taxes decreased from approximately $(1,029,000) for the six months ended November 30, 2014 to approximately $(159,000) for the
six months ended November 30, 2015 due to the increase in equity in earnings of PDS.
Provision for income taxes
During the six months ended November 30, 2015
and 2014, we recorded a provision for income taxes related to federal and California taxes of $2,400 and $2,400, respectively.
Results of Discontinued Operations
Comparison of the Six Months Ended November 30, 2015 and Six
Months Ended November 30, 2014.
| |
Six months ended | |
| |
November 30, 2015 | | |
November 30, 2014 | |
Other income: | |
| | | |
| | |
Royalty income | |
$ | – | | |
$ | 3,265 | |
Total other income | |
$ | – | | |
$ | 3,265 | |
Royalty income for the six months ended November
30, 2014 of approximately $3,000 consists of royalties earned for the period related to PDSG. On April 30, 2012, we negotiated
a sale transaction in which we sold substantially all of the assets of PDSG in exchange for a royalty on PDSG revenues for a period
of three years which ended April 30, 2015.
Income from discontinued operations, net
We recorded net income from discontinued operations
for the six months ended November 30, 2014 of $3,265.
Net loss
Our net loss for the six months ended November
30, 2015 and 2014 was $(161,650) and $(1,028,118) respectively.
Liquidity and Capital Resources
Liquidity
Our cash and cash equivalents and short-term
investment balances decreased from approximately $5,134,000 as of May 31, 2015 to approximately $4,084,000 as of November 30 2015.
We also have restricted cash balances amounting to approximately $21,000 as of May 31, 2015 and November 30, 2015. Total current
assets decreased from approximately $5,176,000 as of May 31, 2015 to approximately $4,223,000 as of November 30, 2015. Total current
liabilities amounted to approximately $96,000 and approximately $70,000 as of May 31, 2015 and November 30, 2015, respectively.
The change in our working capital position as of November 30, 2015 as compared with May 31, 2015 results primarily from the fact
that we did not receive sufficient distributions from PDS to cover our operating expenses and utilized cash on hand to pay such
expenses.
Cash shortfalls currently experienced by PDS
will have an adverse effect on our liquidity. To date we have determined that it is in the best interests of the MMP licensing
program that we provide our 50% share of capital to provide for PDS expenses including legal retainers and litigation related payments
in the event license revenues received by PDS are insufficient to meet these needs. We believe it is likely that contributions
to PDS to fund working capital will continue to be required.
PDS had been incurring significant third-party
costs for expert testimony, depositions and other related litigation costs. We could be required to make capital contributions
to PDS for any future litigation related costs in the event that PDS does not receive sufficient licensing revenues to pay these
expenses.
On March 20, 2013, TPL filed a petition under
Chapter 11 of the United States Bankruptcy Code. A Joint Plan of Reorganization (the “Joint Plan”) between TPL and
the creditor’s committee was confirmed by the Bankruptcy Court on February 11, 2015 with the entered confirmation order
becoming final on April 2, 2015. We have been appointed to the creditors’ committee and have been closely monitoring the
progress in this matter as it relates to our interest in PDS. In the event we are required to provide funding to PDS that is not
reciprocated by TPL, our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS, in
which case, we will consolidate PDS in our condensed consolidated financial statements.
Cash Flows From Operating Activities
Cash used in operating activities of continuing
operations was approximately $859,000 and $851,000 for the six months ended November 30, 2015 and 2014, respectively. The principal
components of the current period amount were net loss from continuing operations of approximately $162,000, equity in the earnings
of affiliated company of approximately $575,000, changes in prepaid expenses and other current assets of approximately $100,000
and changes in accounts payable and accrued expenses of approximately $25,000. The principal components of the prior period are
the prior period net loss from continuing operations and changes in accounts payable and accrued expenses offset by equity in loss
of affiliated company.
Cash provided by operating activities of discontinued
operations was approximately $51,000 for the six months ended November 30, 2014. Cash provided by discontinued operations activities
relates to royalty revenue received during the period. In April 2015, the royalty agreement made between PDSG and the purchaser
of PDSG’s assets expired.
Cash Flows From Investing Activities
Cash provided by (used in) investing activities
for the six months ended November 30, 2015 and 2014 was approximately $58,000 and $(299,000), respectively. Cash activities for
the current period were attributable to distributions from PDS. Cash activities for the prior period were primarily attributable
to purchases and sales of marketable securities.
Capital Resources
Our current liquid cash resources as of November
30, 2015, are expected to provide the funds necessary to support our operations through at least the next twelve months. The cash
flows from our interest in PDS represent our only significant source of cash generation. In the event of a continued
decrease or interruption in MMP portfolio licensing we will incur a significant reduction to our cash position. It is highly unlikely
that we would be able to obtain any additional sources of financing to supplement our cash and cash equivalents and short-term
investment position of $4,083,795 at November 30, 2015.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards
Board issued Accounting Standards Update (“ASU”) No. 2014-15, "Presentation of Financial Statements – Going
Concern." ASU 2014-15 provides guidance in generally accepted accounting principles about management’s responsibility
to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related
footnote disclosures. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016 and for annual periods
and interim periods thereafter (fiscal year 2017 for the Company). Early adoption is permitted. We have not yet determined the
potential effects of the adoption of ASU 2014-15 on our condensed consolidated financial statements.
Risk Factors
We urge you to carefully consider the following
discussion of risks as well as other information regarding our common stock. We believe the following to be our most significant
risk factors as of the date this report is being filed. The risks and uncertainties described below are not the only ones we face.
Please refer to our risk factors contained in our Form 10-K for the year ended May 31, 2015 for additional risk factors.
Delays In Deploying A Licensing Agent Are
Adversely Effecting Us.
PDS’s sole licensing agent implementing
the MMP licensing program is Dominion Harbor Group, LLC (“Dominion”), which was appointed in October 2014. Since PDS’s
previous licensing agent did not cooperate with the appointment of Dominion, Dominion has been redeveloping information and strategies
that should have been transferred from the previous licensing agent. Accordingly, it has taken a significant amount of time for
Dominion to develop such information and strategies. As a result, Dominion has not been able to commence revenue generating activities
under the licensing program, which is having an adverse effect on our ability to generate revenues from the MMP portfolio. We
do not know when Dominion will complete the development of information and strategies. Until such development is completed, we
do not expect to be able to generate significant licensing revenues.
We May Be Required To Fund Our Joint Venture’s
Legal Costs.
On March 20, 2013 TPL filed a petition under
Chapter 11 of the United States Bankruptcy Code. While TPL’s bankruptcy and reorganization does not at present affect the
licensing agreement between PDS and Alliacense, PDS has incurred significant legal costs in ongoing matters before the U.S. District
Court. If PDS does not receive sufficient licensing revenues to pay these expenses, we may be required to pay these expenses. In
the event the cost of legal actions exceeds our ability to fund these efforts, our options for additional sources of financing
may be limited.
The Impact Of TPL’s Bankruptcy And
Reorganization On PDS And The Future Success Of The Licensing Program Is Uncertain.
While TPL’s bankruptcy and reorganization
does not appear to affect the licensing agreement between PDS and Alliacense, the consequences should the reorganization under
Chapter 11 be unsuccessful, which could include lawsuits from creditors or a motion to convert the case to Chapter 7, would be
uncertain and potentially adverse to PDS and the licensing program. For example, if the case is converted, a trustee may propose
the sale of TPL’s interest in PDS to be sold to an unknown third party if allowed by applicable law and approved by the
bankruptcy court. It is unclear how that may affect the operation of PDS or the licensing program, but it may be adverse.
We Have Reported Licensing Income In Prior
Fiscal Years Which May Not Be Indicative Of Our Future Income.
We have entered into license agreements through
our joint venture with TPL and have reported income from the joint venture for the fiscal years 2006 to 2011, 2013 to 2014 and
the six months ended November 30, 2015. However, the joint venture has not generated significant licensing revenues since September
2013 and the joint venture has recorded a loss for the fiscal year ended May 31, 2015. Because of the uncertain nature of the negotiations
that lead to license revenues, pending litigation with companies which we allege have infringed on our patent portfolio, the possibility
of legislative action regarding patent rights, the possible effect of new judicial interpretations of patent laws, and delays in
obtaining information necessary for the successful deployment of licensing companies to represent the MMP Portfolio, we may not
receive revenues from such agreements in the future consistent with amounts received in the past, and we may not receive future
revenues from license agreements at all.
We Are Dependent Upon A Joint Venture For
Substantially All Of Our Income.
In June 2005, we entered into the PDS joint
venture with TPL, which as a result of agreements entered into in June 2005, July 2012 and July 2014, TPL and its licensing company
affiliate Alliacense had been responsible for the licensing and enforcement of our microprocessor patent portfolio. This joint
venture has been the source of substantially all of our income since June 2005. While the joint venture remains in place, Alliacense
was terminated by PDS on May 11, 2015. Therefore, in light of the absence of significant revenue from other sources and until one
or more replacement licensing entities have been successfully deployed and demonstrate an ability to generate significant cash
flows, we should be regarded as highly dependent on the success or failure of licensing and settlements occurring in conjunction
with existing litigation efforts.
We Have Been Involved In Multiple Disputes
With Our Joint Venture Partner.
We have been involved in multiple disputes
with our joint venture partner TPL and its affiliate Alliacense. During times when there are only two appointed managers of the
joint venture, a deadlock can exist on important issues that may not be resolved quickly. In the event of a protracted deadlock,
the joint venture may not be able to take actions when appropriate or necessary. Previously we have had to initiate formal arbitration
proceedings seeking the appointment of an independent manager to the management committee of the joint venture (see footnote 6).
Although an independent manager is currently in place, we have concluded that any future absences of an independent manager may
have a negative impact on the licensing program and PDS’s business.
Our Joint Venture Is At Risk For Going Concern
And An Inability To Meet Certain Obligations.
PDS, our joint venture with TPL, which received
a going concern opinion since its May 31, 2011 financial statements, has experienced significant declines in revenues while at
the same time incurring significant legal costs associated with pending litigation with companies which we allege have infringed
on our patent portfolio.
PDS’s licensing revenues have declined
over recent years to a point where PDS’s ability to make future payments is in substantial doubt unless licensing revenues
substantially increase in the near term. In the event that PDS does not have the funds to pay one or more of the aforementioned
costs, we and TPL must decide whether to contribute additional capital to PDS to fund such payments and due to TPL’s bankruptcy
and reorganization, we may be required to pay these expenses without any contribution from TPL.
Our Microprocessor Patents Are In The Process
Of Expiring.
We have three European and two Japanese patents
expiring in October 2016. We also have seven U.S. patents, six European, and one Japanese patent that expired between August 2009
and September 15, 2015. While expired patents may have certain retrospective statutory benefits, their value as assets for licensing
and cash generation is significantly diminished.
A Successful Challenge To Our Intellectual
Property Rights Could Have A Significant And Adverse Effect On Us.
A successful challenge to our ownership of
our technology or the proprietary nature of our intellectual property could materially damage our business prospects. We rely on
a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect
our intellectual property rights. With respect to our core technologies, we currently have three European and two Japanese unexpired
patents issued. Any issued patent may be challenged and invalidated. Any claims allowed from existing patents may not be of sufficient
scope or strength to provide significant protection. Our competitors may also be able to design around our patents.
Vigorous protection and pursuit of intellectual
property rights or positions characterize the fiercely competitive semiconductor industry, which has resulted in significant and
often protracted and expensive litigation. Therefore, our competitors and others may assert that our technologies infringe on their
patents or proprietary rights. Persons we believe are infringing our patents are likely to vigorously defend their actions and
assert that our patents are invalid. Problems with patents or other rights could result in significant costs, and limit future
license revenue. If infringement claims against us are deemed valid or if our infringement claims are successfully opposed, we
may not be able to obtain appropriate licenses on acceptable terms or at all. Litigation could be costly and time-consuming but
may be necessary to protect our future patent and/or technology license positions or to defend against infringement claims. From
time to time parties have petitioned the USPTO to re-examine certain of our patents. An adverse decision in litigation or in the
re-examination process could have a very significant and adverse effect on our business.
We are party to a lawsuit regarding the MMP
portfolio and have had mixed results in our litigation efforts to date. See footnote 6 to our condensed consolidated financial
statements and Part II, Item 1. “Legal Proceedings” in this quarterly report on Form 10-Q for more information.
In the event that the lawsuit regarding the
MMP portfolio is not resolved in our favor, such outcome (or lack of an outcome) could weaken the MMP portfolio which would have
a negative effect on PDS's ability to procure future license revenues and, therefore, adversely affect PDS’s and our cash
flows.
A New Law Firm Has Recently Been Engaged
To Defend And Enforce Our Intellectual Property Rights.
On April 13, 2015, PDS engaged a law firm to
replace the former law firm in connection with the defense and enforcement of our intellectual property rights. The new law
firm has been required to spend time and resources to understand our intellectual property rights and status of the lawsuits currently
in progress. The new law firm may not make the same recommendations as our former law firm and our strategies with respect
to the lawsuits may change. The inability of the new law firm to quickly understand our intellectual property rights and
status of the lawsuits currently in progress and implement a cohesive strategy with respect thereto could have a material adverse
effect on our ability to defend and prosecute such lawsuits and, therefore, have a material adverse effect on our business, financial
condition and result of operations.
We Are Dependent On A Single Law Firm To
Defend And Enforce Our Intellectual Property Rights.
PDS has recently engaged a new law firm to
defend and enforce our intellectual property rights. Any significant interruption in their services, or the loss of their
services for any reason, would have a material adverse effect on our ability to defend and prosecute such lawsuits and, therefore,
have a material adverse effect on our business, financial condition and result of operations. The law firm’s services
could be disrupted for a variety of reasons, and any disruption would have a material adverse effect on our business. Our
inability to engage the services of a new law firm in a timely manner could have a substantial negative effect on our business.
A Change In Our Relationship With PDS Could
Change The Way We Account For Our Interest In The Future.
Our investment in PDS is accounted for under
the equity method, we record as part of other income or expense our share of the increase or decrease in the equity of this company
in which we have invested. It is possible that, in the future, our relationships and/or our interests in or with this equity method
investee could change. Such potential future changes could result in consolidation of such entity which could result in changes
in our reported results.
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. 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. If we seek capital for our business,
such capital may be raised through the issuance of preferred stock.
If A Large Number Of Our Shares Are Sold
All At Once Or In Blocks, The Market Price Of Our Shares Would Most Likely Decline.
Most of 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.
The Failure To Maintain Compliance With
OTCQB Listing Standards Could Result In Delisting And Adversely Affect The Market Price And Liquidity Of Our Common Stock.
Our common stock currently trades on the OTCQB
marketplace. To maintain that listing, we must satisfy the continued listing requirements of the OTCQB Standards, including among
other things, having proprietary priced quotations published by a Market Maker in OTC Link with a minimum closing bid price of
$0.01 per share on at least one of the prior thirty consecutive calendar days.
On November 10, 2015, the closing bid price
of our common stock dropped below $0.01. On December 14, 2015, we received a letter from the OTC Markets Group notifying us that
we were not in compliance with the minimum bid price requirement set forth in the Standards for Continued Eligibility for OTCQB
pursuant to the OTCQB Standards Section 2.3(2). Pursuant to such section, we have a 180 calendar day grace period to regain compliance.
In order to regain compliance, the minimum closing bid price of our common stock must be $0.01 or greater for ten consecutive trading
days. If we do not regain compliance by the end of such 180-day period, or by June 11, 2016, our common stock will be removed from
the OTCQB marketplace.
We are evaluating various alternative courses
of action to regain compliance with the OTCQB minimum bid price requirement, including submitting a proposal at our next annual
meeting for our shareholders to approve a reverse stock split.
There can be no assurance that we will be able
to implement our plan, regain and maintain compliance with the continued listing requirements or that our common stock will not
be delisted from OTCQB in the future. If our common stock is delisted by OTCQB, we expect prices for our common stock to be quoted
on the OTC Pink marketplace. Under such circumstances, stockholders may find it more difficult to sell, or to obtain accurate quotations,
for our common stock, and our common stock would become substantially less attractive to certain purchasers such as financial institutions,
hedge funds and other similar investors. There is no assurance, however, that prices for our common stock would be quoted on one
of these other trading systems or that an active trading market for our common stock would thereafter exist, which would materially
and adversely impact the market value of our common stock.
The Market For Our 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 listed for trading
in the OTCQB operated by OTC Markets, Inc. and is 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 if we decide
to do so.
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 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.
Our Future Success Depends In Significant
Part Upon The Continued Services Of Our Key Senior Management.
Our future success depends in significant part
upon the continued services of our senior management. The competition for highly qualified personnel is intense, and we may not
be able to retain our key employees or attract and retain additional highly qualified personnel in the future. None of our employees
are represented by a labor union, and we consider our relations with our employees to be good. None of our employees are covered
by key man life insurance policies.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Not applicable.
Item 4. Controls and Procedures
As required by Rule 13a-15(b) under
the Exchange Act, as of November 30, 2015, 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 Interim Chief Executive Officer and our 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 Interim Chief Executive Officer and 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 November 30, 2015, our management, with the participation of our Interim Chief Executive Officer and 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 fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Patent Litigation
Our patent litigation with TPL and PDS in the
United States District Court for the Northern District of California against Huawei Technologies Co. Ltd., LG Electronics, Nintendo
Co. Ltd., Samsung Electronics Co. Ltd., and ZTE Corporation, as described in Item 3 – “Legal Proceedings” in
our Annual Report on Form 10-K for the year ended May 31, 2015, is still ongoing.
On September 18, 2015, a Markman hearing was
held before U.S. Magistrate Judge Grewal and, on September 22, 2015, he issued a claim construction report and recommendation.
On September 25, 2015, as a result of the claim construction report and recommendation, Plaintiffs and defendants, with the exception
of Huawei Technologies Co. Ltd., (“Huawei”) agreed to stay all proceedings pending resolution of Plaintiffs’
objections to the claim construction report and recommendation. Plaintiffs further stipulated that, under the claim construction
provided by the report and recommendation, defendants’ products do not infringe the ‘336 patent, and, in the event
that the district judge did not materially modify the claim construction, Plaintiffs and defendants agreed to ask that the Court
enter a final judgment of non-infringement to facilitate proceeding to appeal. After Plaintiffs and Huawei filed opposing letter
briefs with the Court, U.S. Magistrate Judge Grewal stayed the action against Huawei pending resolution of Plaintiffs’ objections
to the claim construction. On October 6, 2015, Plaintiffs filed objections to the claim construction with District Court Judge
Chhabria. Judge Chhabria rejected those objections on November 9, 2015. Based on that order, the parties stipulated to a judgment
of non-infringement as to the ‘336 patent and such judgment was entered on November 13, 2015.
On December 7, 2015, Plaintiffs filed notices
of appeal with the U.S. Federal Circuit appealing the district court’s claim construction. The appeal is pending.
Item 1A. Risk Factors
Please see Part I, Item 2, above, for our risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
Those exhibits marked with an asterisk (*)
refer to exhibits filed herewith. The other exhibits are incorporated herein by reference, as indicated in the following list.
Those exhibits marked with a cross (†)
refer to management contracts or compensatory plans or arrangements.
Exhibit No. |
Document |
|
|
2.1 |
Agreement and Plan of Merger dated August 4,
2008, among Patriot Scientific Corporation, PTSC Acquisition 1 Corp, Crossflo Systems, Inc. and the Crossflo principal officers,
incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed August 11, 2008 (Commission file No. 000-22182)
|
3.1
|
Original Articles of incorporation of
Patriot Scientific Corporation’s predecessor, Patriot Financial Corporation, incorporated by reference to Exhibit 3.1
to Registration Statement on Form S-18, (Commission file No. 33-23143-FW)
|
3.2
|
Articles of Amendment of Patriot Financial
Corporation, as filed with the Colorado Secretary of State on July 21, 1988, incorporated by reference to Exhibit 3.2
to Registration Statement on Form S-18, (Commission file No. 33-23143-FW)
|
3.3
|
Certificate of Incorporation of Patriot Scientific
Corporation, as filed with the Delaware Secretary of State on March 24, 1992, incorporated by reference to Exhibit 3.3
to our Current Report on Form 8-K dated May 12, 1992 (Commission file No. 33-23143-FW)
|
3.3.1
|
Certificate of Amendment to the Certificate
of Incorporation of Patriot Scientific Corporation, as filed with the Delaware Secretary of State on April 18, 1995, incorporated
by reference to Exhibit 3.3.1 to our Annual Report on Form 10-KSB for the fiscal year ended May 31, 1995 (Commission
file No. 000-22182)
|
3.3.2
|
Certificate of Amendment to the Certificate
of Incorporation of Patriot Scientific Corporation, as filed with the Delaware Secretary of State on June 24, 1997, incorporated
by reference to Exhibit 3.3.2 to our Annual Report on Form 10-KSB for the fiscal year ended May 31, 1997, filed
July 18, 1997 (Commission file No. 000-22182)
|
3.3.3
|
Certificate of Amendment to the Certificate
of Incorporation of Patriot Scientific Corporation, as filed with the Delaware Secretary of State on April 28, 2000,
incorporated by reference to Exhibit 3.3.3 to Registration Statement on Form S-3 filed May 5, 2000 (Commission file No.
333-36418)
|
3.3.4
|
Certificate of Amendment to the Certificate
of Incorporation of Patriot Scientific Corporation, as filed with the Delaware Secretary of State on May 6, 2002, incorporated
by reference to Exhibit 3.3.4 to our Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2009, filed April
9, 2009 (Commission file No. 000-22182)
|
3.3.5
|
Certificate of Amendment to the Certificate
of Incorporation of Patriot Scientific Corporation, as filed with the Delaware Secretary of State on October 16, 2003, incorporated
by reference to Exhibit 3.3.5 to Registration Statement on Form SB-2 filed May 21, 2004 (Commission file No. 333-115752)
|
3.3.6
|
Certificate of Amendment to the Certificate
of Incorporation of Patriot Scientific Corporation, as filed with the Delaware Secretary of State on April 29, 2005, incorporated
by reference to Exhibit 3.3.6 to our Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2009, filed April
9, 2009 (Commission file No. 000-22182)
|
3.3.7
|
Certificate of Amendment to the Certificate
of Incorporation of Patriot Scientific Corporation, as filed with the Delaware Secretary of State on November 14, 2005, incorporated
by reference to Exhibit 3.3.7 to our Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2009, filed April
9, 2009 (Commission file No. 000-22182)
|
3.3.8 |
Certificate of Amendment to the Certificate
of Incorporation of Patriot Scientific Corporation, as filed with the Delaware Secretary of State on March 18, 2009, incorporated
by reference to Exhibit 3.3.8 to our Annual Report on Form 10-K for the year ended May 31, 2009, filed August 14, 2009 (Commission
file No. 000-22182)
|
3.4 |
Articles and Certificate of Merger of
Patriot Financial Corporation into Patriot Scientific Corporation dated May 1, 1992, with Agreement and Plan of Merger attached
thereto as Exhibit A, incorporated by reference to Exhibit 3.4 to our Current Report on Form 8-K dated May 12, 1992
(Commission file No. 33-23143-FW)
|
3.5 |
Certificate of Merger issued by the Delaware
Secretary of State on May 8, 1992, incorporated by reference to Exhibit 3.5 to our Current Report on Form 8-K dated May 12,
1992 (Commission file No. 33-23143-FW)
|
3.6 |
Certificate of Merger issued by the Colorado
Secretary of State on May 12, 1992, incorporated by reference to Exhibit 3.6 to our Current Report on Form 8-K dated
May 12, 1992 (Commission file No. 33-23143-FW)
|
3.7 |
Bylaws of the Company, incorporated by reference
to Exhibit 3.7 to our Current Report on Form 8-K dated May 12, 1992 (Commission file No. 33-23143-FW)
|
3.7.1 |
Amendment to bylaws of the Company, incorporated
by reference to Exhibit 3.7.1 to our Current Report on Form 8-K dated November 4, 2010 (Commission file No. 000-22182)
|
4.1 |
Specimen common stock certificate, incorporated
by reference to Exhibit 4.1 Form 8-K dated May 12, 1992 (Commission file No. 33-23143-FW)
|
4.2† |
2006 Stock Option Plan of the Company as amended
and restated, incorporated by reference to Appendix C to the Company Proxy Statement filed September 22, 2008 (Commission file
No. 000-22182)
|
10.1 |
Master Agreement, dated as of June 7,
2005, by and among the Company, Technology Properties Limited Inc., a California corporation and Charles H. Moore, an individual,
incorporated by reference to Exhibit 10.40 to Form 8-K filed June 15, 2005 (Commission file No. 000-22182)
|
10.2 |
Commercialization Agreement dated as of June 7,
2005 by and among the JV LLC, Technology Properties Limited Inc., a California corporation, and the Company, incorporated by reference
to Exhibit 10.41 to Form 8-K filed June 15, 2005 (Commission file No. 000-22182)
|
10.3 |
Limited Liability Company Operating Agreement
of JV LLC, a Delaware limited liability company, dated as of June 7, 2005, incorporated by reference to Exhibit 10.42
to Form 8-K filed June 15, 2005 (Commission file No. 000-22182)
|
10.4† |
Employment Agreement dated September 17, 2007
by and between the Company and Clifford L. Flowers, incorporated by reference to Exhibit 10.1 to Form 8-K filed September 19, 2007
(Commission file No. 000-22182)
|
10.5 |
Form of Indemnification Agreement by and between
the Company and the Board of Directors, incorporated by reference to Exhibit 10.6 to Form 10-K filed August 29, 2011 (Commission
file No. 000-22182)
|
10.6 |
Licensing Program Services Agreement
effective July 11, 2012 among Phoenix Digital Solutions, LLC, Alliacense Limited, LLC, Technology Properties Limited, LLC, and
the Company, incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K dated July 11, 2012 (Commission file No.
000-22182) (Confidential treatment has been requested with respect to portions of this agreement)
|
10.7
|
Agreement effective July 11, 2012 between Technology
Properties Limited, LLC and the Company, incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K dated July
11, 2012 (Commission file No. 000-22182)(Confidential treatment has been requested with respect to portions of this agreement)
|
10.8 |
Agreement effective July 17, 2012
among Phoenix Digital Solutions, LLC, Alliacense Limited, LLC, Technology Properties Limited, LLC, and the Company, incorporated
by reference to Exhibit 10.9 to our Current Report on Form 8-K dated July 11, 2012 (Commission file No. 000-22182) (Confidential
treatment has been requested with respect to portions of this agreement)
|
10.9 |
Agreement effective July 24, 2014 among Phoenix
Digital Solutions, LLC and Alliacense Limited, LLC, incorporated by reference to Exhibit 10.10 to Form 8-K filed July 30, 2014
(Commission file No. 000-22182) (Confidential
treatment has been requested with respect to portions of this agreement)
|
10.10 |
Letter agreement dated October 10, 2014 between
Phoenix Digital Solutions, LLC and Dominion Harbor Group, LLC, incorporated by reference to Exhibit 10.10 to Form 10-Q filed April
14, 2015 (Commission file No. 000-22182) (Confidential treatment has been requested with respect to portions of this agreement.)
|
31.1*
|
Certification of Clifford L. Flowers, Interim CEO, pursuant to Rule 13a-14(a)/15d-14(a) |
31.2*
|
Certification of Clifford L. Flowers, CFO, pursuant Rule 13a-14(a)/15d-14(a) |
32.1*
|
Certification of Clifford L. Flowers, CFO and
Interim CEO, pursuant to Section 1350 of Chapter 63 Title 18 of the United States Code
|
99.1 |
Form of Incentive Stock Option Agreement to
the Company’s 2006 Stock Option Plan incorporated by reference to Exhibit 99.10 on Form 10-K for the fiscal year ended May
31, 2009, filed August 14, 2009 (Commission file No. 000-22182)
|
99.2 |
Form of Non-Qualified Stock Option Agreement
to the Company’s 2006 Stock Option Plan incorporated by reference to Exhibit 99.11 on Form 10-K for the fiscal year ended
May 31, 2009, filed August 14, 2009 (Commission file No. 000-22182)
|
101.INS |
XBRL Instance Document |
|
|
101.SCH |
XBRL Schema Document |
|
|
101.CAL |
XBRL Calculation Linkbase Document |
|
|
101.DEF |
XBRL Definition Linkbase Document |
|
|
101.LAB |
XBRL Label Linkbase Document |
|
|
101.PRE |
XBRL Presentation Linkbase Document |
|
|
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: January 14, 2016 |
PATRIOT SCIENTIFIC CORPORATION
/S/ CLIFFORD L. FLOWERS
Clifford L. Flowers
Interim Chief Executive Officer and Chief Financial Officer
(Duly Authorized and Principal Financial Officer)
|
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER
Rule 13a–14(a)/15d–14(a) Certification
I, Clifford L. Flowers, Interim Chief Executive
Officer of the registrant, certify that:
1. I have reviewed
this quarterly report on Form 10-Q for the quarterly period ended November 30, 2015 of Patriot Scientific Corporation;
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. I am 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 fiscal quarter (the registrant's fourth fiscal 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. 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: January 14, 2016
/s/ Clifford L.
Flowers
Clifford L. Flowers
Interim Chief Executive Officer Principal Executive Officer
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL
OFFICER
Rule 13a–14(a)/15d–14(a) Certification
I, Clifford L. Flowers, Chief Financial Officer
of the registrant, certify that:
1. I have reviewed
this quarterly report on Form 10-Q for the quarterly period ended November 30, 2015 of Patriot Scientific Corporation;
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. I am 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 fiscal quarter (the registrant's fourth fiscal 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. 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: January 14, 2016
/s/ Clifford L. Flowers
Clifford L. Flowers
Chief Financial Officer Principal Financial Officer
Exhibit 32.1
CERTIFICATION FURNISHED 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
of Patriot Scientific Corporation (the “Company”) on Form 10-Q for the period ended November 30, 2015, as filed
with the Securities and Exchange Commission and to which this Certification is an exhibit (the “Report”), the undersigned
officer of the Company does hereby certify, pursuant to Rule 13a–14(b) or Rule 15d–14(b) of the Securities and Exchange
Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code, 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, as amended; 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: January 14, 2016
/s/ Clifford L. Flowers
Clifford L. Flowers
Interim Chief Executive Officer
and Chief Financial Officer
Principal Executive Officer and Principal Financial Officer
A signed original of this written statement
required by Section 906 has been provided to Patriot Scientific Corporation and will be retained by Patriot Scientific Corporation
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.
v3.3.1.900
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v3.3.1.900
Condensed Consolidated Balance Sheets - USD ($)
|
Nov. 30, 2015 |
May. 31, 2015 |
Current assets: |
|
|
Cash and cash equivalents |
$ 1,878,131
|
$ 2,679,360
|
Restricted cash and cash equivalents |
21,283
|
21,229
|
Marketable securities, current portion |
2,205,664
|
2,455,106
|
Prepaid income tax |
2,385
|
4,785
|
Prepaid expenses and other current assets |
115,604
|
15,582
|
Total current assets |
4,223,067
|
5,176,062
|
Property and equipment, net |
1,505
|
2,440
|
Marketable securities, net of current portion |
250,226
|
0
|
Other assets |
3,036
|
3,036
|
Investment in affiliated company |
447,281
|
0
|
Total assets |
4,925,115
|
5,181,538
|
Current liabilities: |
|
|
Accounts payable |
11,577
|
38,459
|
Accrued expenses and other |
58,756
|
57,305
|
Total current liabilities |
70,333
|
95,764
|
Cumulative losses in excess of investment in affiliated company |
0
|
69,342
|
Total liabilities |
$ 70,333
|
$ 165,106
|
Commitments and contingencies |
|
|
Stockholders' equity |
|
|
Preferred stock, $0.00001 par value; 5,000,000 shares authorized: none outstanding |
$ 0
|
$ 0
|
Common stock, $0.00001 par value: 600,000,000 shares authorized: 438,242,618 shares issued and 401,392,948 shares outstanding at November 30, 2015 and May 31, 2015 |
4,382
|
4,382
|
Additional paid-in capital |
77,444,062
|
77,444,062
|
Accumulated deficit |
(57,967,794)
|
(57,806,144)
|
Common stock held in treasury, at cost - 36,849,670 shares at November 30, 2015 and May 31, 2015 |
(14,625,868)
|
(14,625,868)
|
Total stockholders' equity |
4,854,782
|
5,016,432
|
Total liabilities and stockholders' equity |
$ 4,925,115
|
$ 5,181,538
|
X |
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v3.3.1.900
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
|
Nov. 30, 2015 |
May. 31, 2015 |
Statement of Financial Position [Abstract] |
|
|
Preferred stock, par value (in Dollars per share) |
$ .00001
|
$ .00001
|
Preferred stock, shares authorized |
5,000,000
|
5,000,000
|
Preferred stock, shares issued |
0
|
0
|
Preferred stock, shares outstanding |
0
|
0
|
Common stock, par value (in Dollars per share) |
$ .00001
|
$ .00001
|
Common stock, shares authorized |
600,000,000
|
600,000,000
|
Common stock, shares issued |
438,242,618
|
438,242,618
|
Common stock, shares outstanding |
401,392,948
|
401,392,948
|
Common stock held in treasury, at cost |
36,849,670
|
36,849,670
|
X |
- DefinitionFace amount or stated value per share of common stock.
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v3.3.1.900
Condensed Consolidated Statements of Operations - USD ($)
|
3 Months Ended |
6 Months Ended |
Nov. 30, 2015 |
Nov. 30, 2014 |
Nov. 30, 2015 |
Nov. 30, 2014 |
Operating expenses: |
|
|
|
|
Selling, general and administrative |
$ 342,198
|
$ 357,373
|
$ 740,364
|
$ 729,997
|
Total operating expenses |
342,198
|
357,373
|
740,364
|
729,997
|
Other income (expense): |
|
|
|
|
Interest income |
3,415
|
2,384
|
6,491
|
4,632
|
Other income |
0
|
0
|
0
|
60
|
Equity in earnings (loss) of affiliated company |
252,364
|
(79,642)
|
574,623
|
(303,678)
|
Total other income (expense), net |
255,779
|
(77,258)
|
581,114
|
(298,986)
|
Loss from continuing operations before income taxes |
(86,419)
|
(434,631)
|
(159,250)
|
(1,028,983)
|
Provision for income taxes |
0
|
0
|
2,400
|
2,400
|
Loss from continuing operations |
(86,419)
|
(434,631)
|
(161,650)
|
(1,031,383)
|
Income from discontinued operations, net |
0
|
465
|
0
|
3,265
|
Net loss |
$ (86,419)
|
$ (434,166)
|
$ (161,650)
|
$ (1,028,118)
|
Basic and diluted income (loss) per common share: |
|
|
|
|
Loss from continuing operations |
$ 0
|
$ 0
|
$ 0
|
$ 0
|
Income from discontinued operations |
0
|
0
|
0
|
0
|
Net loss |
$ 0
|
$ 0
|
$ 0
|
$ 0
|
Weighted average number of common shares outstanding - basic and diluted |
398,548,318
|
398,548,318
|
398,548,318
|
398,548,318
|
X |
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v3.3.1.900
Condensed Consolidated Statements of Cash Flows - USD ($)
|
6 Months Ended |
Nov. 30, 2015 |
Nov. 30, 2014 |
Operating activities: |
|
|
Net loss |
$ (161,650)
|
$ (1,028,118)
|
Less: Net income from discontinued operations |
0
|
3,265
|
Net loss from continuing operations |
(161,650)
|
(1,031,383)
|
Adjustments to reconcile net loss before discontinued operations to net cash used in operating activities: |
|
|
Depreciation |
935
|
1,139
|
Accrued interest income added to investments |
(838)
|
(3,314)
|
Equity in (earnings) loss of affiliated company |
(574,623)
|
303,678
|
Changes in operating assets and liabilities: |
|
|
Prepaid expenses and other current assets |
(100,022)
|
87,334
|
Prepaid income tax |
2,400
|
(501)
|
Accounts payable, accrued expenses and other |
(25,431)
|
(204,081)
|
Income tax payable |
0
|
(3,599)
|
Net cash used in operating activities of continuing operations |
(859,229)
|
(850,727)
|
Net cash provided by operating activities of discontinued operations |
0
|
51,276
|
Net cash used in operating activities |
(859,229)
|
(799,451)
|
Investing activities: |
|
|
Proceeds from sales of marketable securities |
1,250,000
|
951,078
|
Purchases of marketable securities |
(1,250,000)
|
(1,250,000)
|
Purchase of property and equipment |
0
|
(1,242)
|
Distributions from affiliated company |
58,000
|
800
|
Net cash provided by (used in) investing activities |
58,000
|
(299,364)
|
Net decrease in cash and cash equivalents |
(801,229)
|
(1,098,815)
|
Cash and cash equivalents, beginning of period |
2,679,360
|
4,716,208
|
Cash and cash equivalents, end of period |
1,878,131
|
3,617,393
|
Supplemental Disclosure of Cash Flow Information: |
|
|
Cash paid for income taxes |
$ 0
|
$ 6,500
|
X |
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v3.3.1.900
1. Basis of Presentation and Summary of Significant Accounting Policies
|
6 Months Ended |
Nov. 30, 2015 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
|
Basis of Presentation and Summary of Significant Accounting Policies |
The unaudited
condensed consolidated financial statements of Patriot Scientific Corporation (the Company, PTSC,
Patriot, we, us or our) presented herein 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. These
unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements
and notes thereto included in our Report on Form 10-K for our fiscal year ended May 31, 2015.
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. Operating results for the six month period ended November
30, 2015 are not necessarily indicative of the results that may be expected for the year ending May 31, 2016.
Basis of Consolidation
The condensed
consolidated balance sheets at November 30, 2015 and May 31, 2015 and condensed consolidated statements of operations for the
three and six months ended November 30, 2015 and 2014 and condensed consolidated statements of cash flows for the six months ended
November 30, 2015 and 2014 include our accounts and those of our wholly owned subsidiary Patriot Data Solutions Group, Inc. (PDSG)
which includes Crossflo Systems, Inc. (Crossflo), and our inactive subsidiary Plasma Scientific Corporation. All
significant intercompany accounts and transactions have been eliminated.
PDSG is being
presented as discontinued operations in the condensed consolidated statements of operations for all periods presented. See Discontinued
Operations and Assets Held for Sale below for additional information.
Liquidity
and Managements Plans
Cash shortfalls
currently experienced by Phoenix Digital Solutions, LLC (PDS) will have an adverse effect on our liquidity. To date,
we have determined that it is in the best interests of the Moore Microprocessor Patent (MMP) licensing program that
we provide our 50% share of capital to provide for PDS expenses including legal retainers, and litigation related payments in
the event license revenues received by PDS are insufficient to meet these needs. We believe it is likely that contributions to
PDS to fund working capital will continue to be required.
PDS had been
incurring significant third-party costs for expert testimony, depositions and other related litigation costs. We could be required
to make capital contributions to PDS for any future litigation related costs in the event that PDS does not receive sufficient
licensing revenues to pay these expenses.
Our current liquid
cash resources as of November 30, 2015, are expected to provide the funds necessary to support our operations through at least
the next twelve months. The cash flows from our interest in PDS represent our only significant source of cash generation. In
the event of a continued decrease or interruption in MMP portfolio licensing we will incur a significant reduction to our cash
position. It is highly unlikely that we would be able to obtain any additional sources of financing to supplement our cash and
cash equivalents and short-term investment position of $4,083,795 at November 30, 2015.
On March 20,
2013, Technology Properties Limited, Inc. (TPL) filed a petition under Chapter 11 of the United States Bankruptcy
Code. We have been appointed to the creditors committee and have been closely monitoring the progress in this matter as
it relates to our interest in PDS. A Joint Plan of Reorganization (the Joint Plan) between TPL and the creditors
committee was confirmed by the Bankruptcy Court on February 11, 2015 with the entered confirmation order becoming final on
April 2, 2015. In the event we are required to provide funding to PDS that is not reciprocated by TPL, our ownership percentage
in PDS will increase and we will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our condensed
consolidated financial statements.
Discontinued
Operations and Assets Held for Sale
On February 17,
2012, our board of directors authorized management to sell the assets of PDSG due to the inability of PDSG to meet its business
plan and continuing projected negative cash flows. In accordance with authoritative guidance we have classified the assets, operations
and cash flows of PDSG as discontinued operations for all periods presented. During March 2012, we entered into an interim agreement
with the purchaser of the assets of PDSG which required the purchaser to pay PDSG $93,450 to subsidize the April 2012 expenses
of PDSG during the sale transaction negotiations. On April 30, 2012, we negotiated a sale transaction in which we sold substantially
all of the assets of PDSG in exchange for a royalty on PDSG revenues for a period of three years. From April 30, 2012 to May 31,
2015, the gain on the asset sale of PDSG is approximately $101,000.
Summarized operating
results of discontinued operations for the three and six months ended November 30, 2015 and 2014 are as follows:
| |
Three
Months Ended | | |
Six
Months Ended | |
| |
November
30, 2015 | | |
November
30, 2014 | | |
November
30, 2015 | | |
November
30, 2014 | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
Gain on sale of discontinued operations | |
$ | | | |
$ | 465 | | |
$ | | | |
$ | 3,265 | |
Income before income taxes | |
$ | | | |
$ | 465 | | |
$ | | | |
$ | 3,265 | |
Income from discontinued operations | |
$ | | | |
$ | 465 | | |
$ | | | |
$ | 3,265 | |
PDSG activity
for the three and six months ended November 30, 2014 consists of PDSG royalty revenues.
Investments
in Marketable Securities
We determine
the appropriate classification of our investments at the time of purchase and reevaluate such designation at each balance sheet
date. Our investments in marketable securities have been classified and accounted for as held-to-maturity based on managements
investment intentions relating to these securities. Held-to-maturity marketable securities are stated at amortized cost. Unrealized
gains and losses, net of deferred taxes, are recorded as a component of other comprehensive income (loss). We follow the authoritative
guidance to assess whether our investments with unrealized loss positions are other than temporarily impaired. Realized gains
and losses and declines in fair value judged to be other than temporary are determined based on the specific identification method
and are reported in other income (expense), net in the condensed consolidated statements of operations.
Investment
in Affiliated Company
We have a 50%
interest in PDS (see Note 3). We account for our investment using the equity method of accounting since the investment provides
us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed
to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors,
such as representation on the investees Board of Directors, are considered in determining whether the equity method of
accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to
recognize our share of net earnings or losses of the investee and is recognized in the condensed consolidated statements of operations
in the caption Equity in earnings (loss) of affiliated company and also is adjusted by contributions to and distributions
from PDS.
PDS, as an unconsolidated
equity investee, recognizes revenue from technology license agreements at the time a contract is entered into, the license method
is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the
realization of revenue is assured, which is generally upon the receipt of the license proceeds. PDS may at times enter into license
agreements whereby contingent revenues are recognized as one or more contractual milestones have been met.
We review
our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable.
The primary factors we consider in our determination are the financial condition, operating performance and near term prospects
of PDS. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss.
Earnings (Loss)
Per Share
Basic earnings
per share for continuing and discontinued operations includes no dilution and is computed by dividing earnings available to common
stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share for continuing
and discontinued operations reflect the potential dilution of securities that could share in the earnings of an entity.
For the three
and six months ended November 30, 2015, potential common shares of 2,760,000 related to our outstanding options were not included
in the calculation of diluted loss per share for continuing and discontinued operations as we recorded a loss. Had we reported
net income for the three and six months ended November 30, 2015, no shares of common stock would have been included in the calculation
of diluted income per share for continuing and discontinued operations using the treasury stock method.
For the three
and six months ended November 30, 2014, potential common shares of 1,335,000 related to our outstanding options were not included
in the calculation of diluted loss per share for continuing and discontinued operations as we recorded a loss. Had we reported
net income for the three and six months ended November 30, 2014, no shares of common stock would have been included in the calculation
of diluted income per share for continuing and discontinued operations using the treasury stock method.
In connection
with our acquisition of Crossflo, which is part of PDSG, we issued escrow shares that are contingent upon certain representations
and warranties made by Crossflo at the time of the merger agreement (see Note 6). We exclude these escrow shares from the basic
loss per share calculations and include the escrowed shares in the diluted loss per share calculations.
Income Taxes
We follow authoritative
guidance in accounting for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement
requirement for the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax
return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. Under this guidance we may only recognize tax positions that meet a more likely than not threshold.
We follow authoritative
guidance to evaluate whether a valuation allowance should be established against our deferred tax assets based on the consideration
of all available evidence using a more likely than not standard. In making such judgments, significant weight is
given to evidence that can be objectively verified. We assess our deferred tax assets annually under more likely than not scenarios
in which they may be realized through future income.
We have determined
that it was more likely than not that all of our deferred tax assets will not be realized in the future due to our continuing
pre-tax and taxable losses. As a result of this determination we have placed a full valuation allowance against our deferred tax
assets.
We follow authoritative
guidance to adjust our effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We are also
required to record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment
about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition,
jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from
the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate
during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections.
Assessment of Contingent Liabilities
We are 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.
Intellectual
Property Rights
PDS, our investment
in affiliated company, relies on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures
and licensing arrangements to protect our intellectual property rights. We have three European and two Japanese patents all expiring
in October 2016. We also have seven U.S. patents, six European, and one Japanese patent all of which expired between August 2009
and September 15, 2015. These patents, while expired, may have certain retrospective statutory benefits that will fully diminish
six years after the patent expiration date. The patent useful life for purposes of negotiating licenses is finite and these patents
are subject to legal challenges, which in combination with the limited life, could adversely impact the stream of revenues. A
successful challenge to the ownership of the technology or the proprietary nature of the intellectual property would materially
damage business prospects. Any issued patent may be challenged and invalidated.
Recent Accounting Pronouncements
In August 2014,
the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-15, "Presentation
of Financial Statements Going Concern." ASU 2014-15 provides guidance in generally accepted accounting principles
about managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue
as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual reporting periods ending after
December 15, 2016 and for annual periods and interim periods thereafter (fiscal year 2017 for the Company). Early adoption is
permitted. We have not yet determined the potential effects of the adoption of ASU 2014-15 on our condensed consolidated financial
statements.
|
X |
- DefinitionThe entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity.
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v3.3.1.900
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities
|
6 Months Ended |
Nov. 30, 2015 |
Cash and Cash Equivalents [Abstract] |
|
Cash, Cash Equivalents, Restricted Cash and Marketable Securities |
We consider all
highly liquid investments with original maturities of three months or less to be cash equivalents.
Restricted cash
and cash equivalents at November 30, 2015 and May 31, 2015 consist of deposits in a savings account required to be held as collateral
for our corporate credit card.
At November 30,
2015 and May 31, 2015, the current portion of our marketable securities in the amount of $2,205,664 and $2,455,106, respectively,
consists of the par value plus accrued interest of our time deposits with original maturities of greater than three months and
less than one year. At November 30, 2015, the non-current portion of our marketable securities in the amount of $250,226 consists
of the par value plus accrued interest of our time deposits with original maturities of more than one year. These marketable securities
are classified as held-to-maturity and are reported at amortized cost, which approximates fair market value.
We follow authoritative
guidance to account for our marketable securities as held-to-maturity. 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).
The
following tables detail the fair value measurements within the fair value hierarchy of our cash, cash equivalents and investments
in marketable securities:
| |
| | |
Fair Value Measurements at November 30, 2015 Using | |
| |
| | |
Quoted Prices | | |
Significant | | |
| |
| |
| | |
in Active | | |
Other | | |
Significant | |
| |
Fair Value at | | |
Markets for | | |
Observable | | |
Unobservable | |
| |
November 30, | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| |
2015 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Cash and cash equivalents: | |
| | | |
| | | |
| | | |
| | |
Cash | |
$ | 40,376 | | |
$ | 40,376 | | |
$ | | | |
$ | | |
Money market funds | |
| 1,837,755 | | |
| 1,837,755 | | |
| | | |
| | |
Restricted cash and cash equivalents | |
| 21,283 | | |
| 21,283 | | |
| | | |
| | |
Marketable securities: | |
| | | |
| | | |
| | | |
| | |
Short-term: | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit | |
| 2,205,664 | | |
| | | |
| 2,205,664 | | |
| | |
Long-term: | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit | |
| 250,226 | | |
| | | |
| 250,226 | | |
| | |
Total | |
$ | 4,355,304 | | |
$ | 1,899,414 | | |
$ | 2,455,890 | | |
$ | | |
| |
| | |
Fair Value Measurements at May 31, 2015 Using | |
| |
| | |
Quoted Prices | | |
Significant | | |
| |
| |
| | |
in Active | | |
Other | | |
Significant | |
| |
Fair Value at | | |
Markets for | | |
Observable | | |
Unobservable | |
| |
May 31, | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| |
2015 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Cash and cash equivalents: | |
| | | |
| | | |
| | | |
| | |
Cash | |
$ | 297,259 | | |
$ | 297,259 | | |
$ | | | |
$ | | |
Money market funds | |
| 2,382,101 | | |
| 2,382,101 | | |
| | | |
| | |
Restricted cash and cash equivalents | |
| 21,229 | | |
| 21,229 | | |
| | | |
| | |
Marketable securities: | |
| | | |
| | | |
| | | |
| | |
Short-term: | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit | |
| 2,455,106 | | |
| | | |
| 2,455,106 | | |
| | |
Total | |
| 5,155,695 | | |
$ | 2,700,589 | | |
| 2,455,106 | | |
$ | | |
We purchase certificates
of deposit with varying maturity dates greater than three months. The following table summarizes the maturities, gross unrealized
gains or losses and fair value of the certificates of deposit as of November 30, 2015:
| |
November 30,
2015 (Unaudited) | |
| |
Cost | | |
Gross
Unrealized Gains/(Losses) | | |
Fair
Value | |
Maturity | |
| | | |
| | | |
| | |
Due in one year or less | |
$ | 2,205,664 | | |
$ | | | |
$ | 2,205,664 | |
Due in one year or more | |
$ | 250,226 | | |
$ | | | |
$ | 250,226 | |
The following
table summarizes the maturities, gross unrealized gains or losses and fair value of the certificates of deposit as of May 31,
2015:
| |
May 31,
2015 | |
| |
Cost | | |
Gross
Unrealized Gains/(Losses) | | |
Fair
Value | |
Maturity | |
| | | |
| | | |
| | |
Due in one year or less | |
$ | 2,455,106 | | |
$ | | | |
$ | 2,455,106 | |
|
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v3.3.1.900
3. Investment in Affiliated Company
|
6 Months Ended |
Nov. 30, 2015 |
Equity Method Investments and Joint Ventures [Abstract] |
|
Investment in Affiliated Company |
On June 7, 2005,
we entered into a Master Agreement (the Master Agreement) with TPL, and Charles H. Moore (Moore),
the co-inventor of the technology which is the subject of the MMP Portfolio of microprocessor patents, pursuant to which the parties
resolved all legal disputes between them. Pursuant to the Master Agreement, we and TPL entered into the Limited Liability Company
Operating Agreement of PDS (the LLC Agreement) into which we and Moore contributed our rights to certain of our
technologies.
We and TPL each
own 50% of the membership interests of PDS, and each member has the right to appoint one member of the three member management
committee. The two appointees are required to select a mutually acceptable third member of the management committee. There had
not been a third management committee member since May 2010; however, as a result of our initiating arbitration seeking the appointment
of a third member, on December 16, 2014, an independent manager to the PDS management committee was selected by the arbitrator.
Pursuant to the LLC Agreement, we and TPL initially agreed to establish a working capital fund for PDS of $4,000,000, of which
our contribution was $2,000,000. The working capital fund was increased to a maximum of $8,000,000 as license revenues are achieved.
We and TPL are obligated to fund future working capital requirements at the discretion of the management committee of PDS in order
to maintain working capital of not more than $8,000,000. If the management committee determines that additional capital is required,
neither we nor TPL are required to contribute more than $2,000,000 in any fiscal year. No such contributions were made during
the three and six months ended November 30, 2015 and 2014. Distributable cash and allocation of profits and losses have been allocated
to the members in the priority defined in the LLC Agreement.
Previously, pursuant
to our June 7, 2005 agreement with PDS and TPL to license the MMP Portfolio (Commercialization Agreement), PDS reimbursed
TPL for payment of all legal and third-party expert fees and other related third-party costs and expenses. Presently the majority
of third-party costs are paid directly by PDS. During the three months ended November 30, 2015 and 2014, PDS expensed $(305,862)
and $103,125, respectively, pursuant to the Commercialization Agreement and the July 11, 2012 Program Agreement (see below). These
expenses are recorded in the accompanying PDS statements of operations presented below net of $530,044 and $0, respectively, of
legal fee reversals previously expensed and recorded as accounts payable to TPL during the three months ended November 30, 2015
and 2014 as the statute of limitations had expired. During the six months ended November 30, 2015 and 2014, PDS expensed $5,257
and $505,068, respectively, pursuant to the agreements. These expenses are recorded in the accompanying PDS statements of operations
presented below net of $531,033 and $0, respectively, of legal fee reversals previously expensed and recorded as accounts payable
to TPL during the six months ended November 30, 2015 and 2014 as the statute of limitations had expired.
On July
11, 2012, we entered into the Program Agreement with PDS, TPL, and Alliacense, and an Agreement (the TPL Agreement)
with TPL. Pursuant to the Program Agreement, PDS engaged Alliacense to negotiate MMP portfolio licenses and to pursue claims against
violators of the MMP portfolio on behalf of PDS, TPL, and the Company. The Program Agreement continued through the useful life
of the MMP portfolio patents. Pursuant to the TPL Agreement, we and TPL agreed to certain allocations of obligations in connection
with the engagement of Alliacense. On July 24, 2014, the Program Agreement was amended with PDS and Alliacense entering into the
Amended Alliacense Services and Novation Agreement (the Novation Agreement). Pursuant to the Novation Agreement
certain performance goals and incentives were established for Alliacense. The Novation Agreement also provided for the addition
of a second licensing company, which was engaged on October 10, 2014, to complement the MMP licensing commercialization. However,
Alliacense fulfilled only a portion of its obligations under the Novation Agreement associated with the deployment of the second
licensing company and on May 11, 2015, Alliacense was terminated by PDS.
Pursuant to the
Program Agreement, PDS was contractually obligated to pay Alliacense litigation support fees relating to Alliacenses special
work and effort regarding internal costs related to MMP maintenance and litigation support including support in the U.S. District
Court and the complaints filed on behalf of TPL, PDS and us with the ITC. During the six months ended November 30, 2014, PDS reversed
$(24,598) pursuant to this contractual obligation. The Novation Agreement eliminated the Program Agreements litigation
support activity by Alliacense. This reversal is recorded net of expenses in the accompanying PDS statement of operations for
the six months ended November 30, 2014 presented below.
During January
2013, TPL and Moore settled their litigation. Terms of the settlement include the payment by PDS to Moore of a consulting fee
of $250,000 for four years or until the completion of all outstanding MMP litigation whichever comes first. Per terms of the agreement
PDS paid Moore $150,000 on the settlement date and paid Moore $16,667 per month from August 2013 through January 2014 and will
pay $20,833 per month beginning February 2014 through January 2017. During the three months ended November 30, 2015 and 2014,
PDS expensed $62,499 and $62,499, respectively, pursuant to this commitment and during the six months ended November 30, 2015
and 2014, PDS expensed $124,998 and $124,998, respectively, pursuant to this commitment. These expenses are recorded in the accompanying
PDS statements of operations presented below.
Based on our
analysis of current authoritative accounting guidance with respect to our investment in PDS, we continue to account for our investment
in PDS under the equity method of accounting, and accordingly have recorded our share of PDSs net income during the three
and six months ended November 30, 2015 of $252,364 and $574,623, respectively, as an increase in our investment and we have recorded
our share of PDSs net loss during the three and six months ended November 30, 2014 of $79,642 and $303,678, respectively,
as a decrease in our investment. We received distributions of $58,000 and $800, respectively, from PDS during the six months ended
November 30, 2015 and 2014 and we have recorded these distributions as a decrease in our investment.
We have recorded
our share of PDSs net income and loss for the three and six months ended November 30, 2015 and 2014 as Equity in
earnings (loss) of affiliated company in the accompanying condensed consolidated statements of operations.
During the three
and six months ended November 30, 2015, PDS entered into licensing agreements with third parties, pursuant to which PDS received
aggregate proceeds of $400,000 and $1,450,000, respectively.
During the three
and six months ended November 30, 2014, PDS entered into a licensing agreement with a third party, pursuant to which PDS received
proceeds of $20,000.
On March 20,
2013, TPL filed a petition under Chapter 11 of the United States Bankruptcy Code. A Joint Plan of Reorganization (the Joint
Plan) between TPL and the creditors committee was confirmed by the Bankruptcy Court on February 11, 2015 with
the entered confirmation order becoming final on April 2, 2015. We have been appointed to the creditors committee
and have been closely monitoring the progress in this matter as it relates to our interest in PDS. In the event we are required
to provide funding to PDS that is not reciprocated by TPL, our ownership percentage in PDS will increase and we will have a controlling
financial interest in PDS, in which case, we will consolidate PDS in our condensed consolidated financial statements. If we determine
that it is appropriate to consolidate PDS, we would measure the assets, liabilities and noncontrolling interests of PDS at their
fair values at the date that we have the controlling financial interest.
PDSs balance
sheets at November 30, 2015 and May 31, 2015 and statements of operations for the three and six months ended November 30, 2015
and 2014 are as follows:
Balance Sheets
Assets:
| |
November 30, 2015 | | |
May 31, 2015 | |
| |
(Unaudited) | | |
(Audited) | |
Cash | |
$ | 1,024,096 | | |
$ | 442,621 | |
Prepaid expenses | |
| 10,518 | | |
| 26,644 | |
Total assets | |
$ | 1,034,614 | | |
$ | 469,265 | |
Liabilities and Members Equity
(Deficit):
| |
November 30, 2015 | | |
May 31, 2015 | |
| |
(Unaudited) | | |
(Audited) | |
Payables | |
$ | 140,052 | | |
$ | 607,949 | |
Members equity (deficit) | |
| 894,562 | | |
| (138,684 | ) |
Total liabilities and members equity
(deficit) | |
$ | 1,034,614 | | |
$ | 469,265 | |
Statements of Operations
| |
Three
Months Ended | | |
Six
Months Ended | |
| |
November
30, 2015 | | |
November
30, 2014 | | |
November
30, 2015 | | |
November
30, 2014 | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
Revenues | |
$ | 400,000 | | |
$ | 20,000 | | |
$ | 1,450,000 | | |
$ | 20,000 | |
Expenses | |
| (104,729 | ) | |
| 179,284 | | |
| 300,754 | | |
| 627,356 | |
Operating income (loss) | |
| 504,729 | | |
| (159,284 | ) | |
| 1,149,246 | | |
| (607,356 | ) |
Net income (loss) | |
$ | 504,729 | | |
$ | (159,284 | ) | |
$ | 1,149,246 | | |
$ | (607,356 | ) |
We review
our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable.
The primary factors we consider in our determination are the financial condition, operating performance and near term prospects
of PDS. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss.
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- DefinitionThe entire disclosure for investment holdings. This includes the information required in the supplementary schedule applicable to management investment companies listing holdings of unaffiliated investments.
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v3.3.1.900
4. Income Taxes
|
6 Months Ended |
Nov. 30, 2015 |
Income Tax Disclosure [Abstract] |
|
Income Taxes |
We have determined that it was more
likely than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable
losses. As a result of this determination we have placed a full valuation allowance against our deferred tax assets. There have
been no changes to our determination during the current fiscal year.
|
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- DefinitionThe entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
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v3.3.1.900
5. Stockholders' Equity
|
6 Months Ended |
Nov. 30, 2015 |
Equity [Abstract] |
|
Stockholders' Equity |
Share-based Compensation
Summary of Assumptions and Activity
The fair value
of share-based awards to employees and directors is calculated using the Black-Scholes option pricing model, even though this
model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which
differ significantly from our stock options.
The Black-Scholes
model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly
affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting
employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate
that corresponds to the pricing term of the grant effective as of the date of the grant. The expected volatility is based on the
historical volatilities of our common stock. These factors could change in the future, affecting the determination of share-based
compensation expense in future periods.
No
stock options were granted during the three and six months ended November 30, 2015 and 2014.
A
summary of option activity as of November 30, 2015 and changes during the six months then ended, is presented below:
| |
Shares | | |
Weighted
Average Exercise Price | | |
Weighted
Average Remaining Contractual Term (Years) | | |
Aggregate
Intrinsic Value | |
Options outstanding at June 1,
2015 | |
| 3,335,000 | | |
$ | 0.06 | | |
| | | |
| | |
Options granted | |
| | | |
$ | | | |
| | | |
| | |
Options exercised | |
| | | |
$ | | | |
| | | |
| | |
Options
forfeited/expired | |
| (575,000 | ) | |
$ | 0.10 | | |
| | | |
| | |
Options outstanding
at November 30, 2015 | |
| 2,760,000 | | |
$ | 0.05 | | |
| 3.90 | | |
$ | | |
Options
vested and expected to vest at November 30, 2015 | |
| 2,760,000 | | |
$ | 0.05 | | |
| 3.90 | | |
$ | | |
Options exercisable
at November 30, 2015 | |
| 2,760,000 | | |
$ | 0.05 | | |
| 3.90 | | |
$ | | |
There were no
options granted or exercised during the six months ended November 30, 2015.
The
aggregate intrinsic value represents the differences in market price at the close of the quarter ($0.0045 per share on November
30, 2015) and the exercise price of outstanding, in-the-money options (those options with exercise prices below $0.0045 per share)
on November 30, 2015.
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- DefinitionThe entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.
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v3.3.1.900
6. Commitments and Contingencies
|
6 Months Ended |
Nov. 30, 2015 |
Commitments and Contingencies Disclosure [Abstract] |
|
Commitments and Contingencies |
Litigation
Patent Litigation
We, TPL, and
PDS (collectively referred to as Plaintiffs) are Plaintiffs in ongoing proceedings in the U.S. District Court for
the Northern District of California where the Plaintiffs allege infringement of the US 5,809,336 patent (the 336
patent) by: Huawei Technologies Co. Ltd., LG Electronics, Nintendo Co. Ltd., Samsung Electronics Co. Ltd., and ZTE Corporation.
This litigation is proceeding in front of District Court Judge Vince Chhabria with U.S. Magistrate Judge Paul Grewal handling
all pretrial matters.
These ongoing
proceedings relate to the proceedings filed by the Plaintiffs in February 2008 in the U.S. District Court for the Northern District
of California alleging infringement of the US 5,440,749 patent (the 749 patent), the US 5,530,890 patent
(the 890 patent) and the 336 patent against Amazon.com Inc., Barnes & Noble Inc., Garmin Ltd.,
Huawei Technologies Co. Ltd., Kyocera Corporation, LG Electronics, Nintendo Co. Ltd., Novatel Wireless Inc., Samsung Electronics
Co. Ltd., Sierra Wireless Inc., and ZTE Corporation. We have settled with all defendants except those named in the first paragraph
to this footnote. Litigation and settlement activity for the quarter ended August 31, 2015 and through the date of this filing
is detailed below.
On February 4,
2015, Barnes & Noble, Inc. filed a motion asserting that our cause of action on the 336 patent was barred by the Kessler
doctrine because of the ITCs finding of non-infringement in 2013. A hearing was held on March 17, 2015 in the U.S. District
Court for the Northern District of California regarding the matter. On May 31, 2015, U.S. Magistrate Judge Grewal denied this
motion. Barnes & Noble asked District Court Judge Chhabria to reconsider this ruling but on July 22, 2015, Plaintiffs and
Barnes & Noble filed a notice of settlement stating that Plaintiffs and Barnes & Noble had reached a settlement in principle.
This mooted a hearing in front of District Court Judge Chhabria regarding Barnes & Nobles motion.
On April 10,
2015, multiple defendants in the District Court action filed a motion arguing for invalidity of the 749 patent. A hearing
was held on May 19, 2015 regarding this matter. On July 27, 2015, Plaintiffs voluntarily dismissed their claims and on July 28,
2015, U.S. Magistrate Judge Grewal denied this motion as moot.
On June 30, 2015,
a hearing was held on Samsung and LGs motion to strike Plaintiffs infringement contentions. On July 11, 2015, U.S.
Magistrate Judge Grewal granted in part Samsung and LGs motion and ordered Plaintiffs to provide amended infringement contentions
in accordance with the Courts order. The Plaintiffs thereafter amended their infringement contentions.
On July 1, 2015,
the parties in the Novatel Wireless, Inc. action filed a stipulated motion to voluntarily dismiss all claims and counterclaims
on the basis of a settlement agreement having been reached. The California district court granted that motion on July 14, 2015.
On July 22, 2015,
Plaintiffs and Barnes & Noble filed a notice of settlement stating that Plaintiffs and Barnes & Noble had reached a settlement
in principle.
On July 27, 2015,
Plaintiffs and defendants filed a stipulation whereby each party withdrew their claims regarding the 749 and 890
patents with prejudice.
On August 26,
2015, Plaintiffs and Garmin entered into a settlement and license agreement.
On August 31,
2015, Plaintiffs and Barnes & Noble entered into a settlement and license agreement.
On September
18, 2015, a Markman hearing was held before U.S. Magistrate Judge Grewal and, on September 22, 2015, he issued a claim construction
report and recommendation. On September 25, 2015, as a result of the claim construction report and recommendation, Plaintiffs
and defendants, with the exception of Huawei Technologies Co. Ltd., (Huawei) agreed to stay all proceedings pending
resolution of Plaintiffs objections to the claim construction report and recommendation. Plaintiffs further stipulated
that, under the claim construction provided by the report and recommendation, defendants products do not infringe the 336
patent, and, in the event that the district judge did not materially modify the claim construction, Plaintiffs and defendants
agreed to ask that the Court enter a final judgment of non-infringement to facilitate proceeding to appeal. After Plaintiffs and
Huawei filed opposing letter briefs with the Court, U.S. Magistrate Judge Grewal stayed the action against Huawei pending resolution
of Plaintiffs objections to the claim construction. On October 6, 2015, Plaintiffs filed objections to the claim construction
with District Court Judge Chhabria. Judge Chhabria rejected those objections on November 9, 2015. Based on that order, the parties
stipulated to a judgment of non-infringement as to the 336 patent and such judgment was entered on November 13, 2015.
On December 7,
2015, Plaintiffs filed notices of appeal with the U.S. Federal Circuit appealing the district courts claim construction.
The appeal is pending.
PDS
Arbitration - Alliacense Performance
In June 2015,
our representative to the PDS management committee filed with the Judicial Arbitration and Mediation Services (JAMS)
a demand for arbitration pursuant to Alliacenses non-performance under terms of the Novation Agreement. The demand seeks
a declaration of the respective rights and obligations of the parties under the Novation Agreement. This matter is set for three
days of arbitration currently commencing on May 17, 2016.
401(k)
Plan
We have a retirement
plan that complies with Section 401(k) of the Internal Revenue Code. All employees are eligible to participate in the plan. We
match 100% of elective deferrals subject to a maximum of 4% of the participants eligible earnings. Our participants vest
33% per year over a three year period in their matching contributions. Our matching contributions during the three months ended
November 30, 2015 and 2014 were $4,734 and $3,208, respectively. Our matching contributions during the six months ended November
30, 2015 and 2014 were $9,935 and $6,949, respectively.
Guarantees
and Indemnities
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.
In connection with our facility lease, we have indemnified our lessor for certain claims arising from the use of the facility.
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 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 2,844,630 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 the 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.
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v3.3.1.900
7. Subsequent Events
|
6 Months Ended |
Nov. 30, 2015 |
Subsequent Events [Abstract] |
|
Subsequent Events |
We have evaluated
subsequent events after the balance sheet date and based on our evaluation, management has determined that no subsequent events
have occurred that would require recognition in the accompanying condensed consolidated financial statements or disclosure in
the notes thereto other than as disclosed in the accompanying notes.
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v3.3.1.900
1. Summary of Significant Accounting Policies (Policies)
|
6 Months Ended |
Nov. 30, 2015 |
Accounting Policies [Abstract] |
|
Basis of Presentation |
1. Basis of Presentation and Summary
of Significant Accounting Policies
The unaudited
condensed consolidated financial statements of Patriot Scientific Corporation (the Company, PTSC,
Patriot, we, us or our) presented herein 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. These
unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements
and notes thereto included in our Report on Form 10-K for our fiscal year ended May 31, 2015.
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. Operating results for the six month period ended November
30, 2015 are not necessarily indicative of the results that may be expected for the year ending May 31, 2016.
|
Basis of Consolidation |
Basis of Consolidation
The condensed
consolidated balance sheets at November 30, 2015 and May 31, 2015 and condensed consolidated statements of operations for the
three and six months ended November 30, 2015 and 2014 and condensed consolidated statements of cash flows for the six months ended
November 30, 2015 and 2014 include our accounts and those of our wholly owned subsidiary Patriot Data Solutions Group, Inc. (PDSG)
which includes Crossflo Systems, Inc. (Crossflo), and our inactive subsidiary Plasma Scientific Corporation. All
significant intercompany accounts and transactions have been eliminated.
PDSG is being
presented as discontinued operations in the condensed consolidated statements of operations for all periods presented. See Discontinued
Operations and Assets Held for Sale below for additional information.
|
Liquidity and Management's Plans |
Liquidity
and Managements Plans
Cash shortfalls
currently experienced by Phoenix Digital Solutions, LLC (PDS) will have an adverse effect on our liquidity. To date,
we have determined that it is in the best interests of the Moore Microprocessor Patent (MMP) licensing program that
we provide our 50% share of capital to provide for PDS expenses including legal retainers, and litigation related payments in
the event license revenues received by PDS are insufficient to meet these needs. We believe it is likely that contributions to
PDS to fund working capital will continue to be required.
PDS had been
incurring significant third-party costs for expert testimony, depositions and other related litigation costs. We could be required
to make capital contributions to PDS for any future litigation related costs in the event that PDS does not receive sufficient
licensing revenues to pay these expenses.
Our current liquid
cash resources as of November 30, 2015, are expected to provide the funds necessary to support our operations through at least
the next twelve months. The cash flows from our interest in PDS represent our only significant source of cash generation. In
the event of a continued decrease or interruption in MMP portfolio licensing we will incur a significant reduction to our cash
position. It is highly unlikely that we would be able to obtain any additional sources of financing to supplement our cash and
cash equivalents and short-term investment position of $4,083,795 at November 30, 2015.
On March 20,
2013, Technology Properties Limited, Inc. (TPL) filed a petition under Chapter 11 of the United States Bankruptcy
Code. We have been appointed to the creditors committee and have been closely monitoring the progress in this matter as
it relates to our interest in PDS. A Joint Plan of Reorganization (the Joint Plan) between TPL and the creditors
committee was confirmed by the Bankruptcy Court on February 11, 2015 with the entered confirmation order becoming final on
April 2, 2015. In the event we are required to provide funding to PDS that is not reciprocated by TPL, our ownership percentage
in PDS will increase and we will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our condensed
consolidated financial statements.
|
Discontinued Operations and Assets Held for Sale |
Discontinued
Operations and Assets Held for Sale
On February 17,
2012, our board of directors authorized management to sell the assets of PDSG due to the inability of PDSG to meet its business
plan and continuing projected negative cash flows. In accordance with authoritative guidance we have classified the assets, operations
and cash flows of PDSG as discontinued operations for all periods presented. During March 2012, we entered into an interim agreement
with the purchaser of the assets of PDSG which required the purchaser to pay PDSG $93,450 to subsidize the April 2012 expenses
of PDSG during the sale transaction negotiations. On April 30, 2012, we negotiated a sale transaction in which we sold substantially
all of the assets of PDSG in exchange for a royalty on PDSG revenues for a period of three years. From April 30, 2012 to May 31,
2015, the gain on the asset sale of PDSG is approximately $101,000.
Summarized operating
results of discontinued operations for the three and six months ended November 30, 2015 and 2014 are as follows:
| |
Three
Months Ended | | |
Six
Months Ended | |
| |
November
30, 2015 | | |
November
30, 2014 | | |
November
30, 2015 | | |
November
30, 2014 | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
Gain on sale of discontinued operations | |
$ | | | |
$ | 465 | | |
$ | | | |
$ | 3,265 | |
Income before income taxes | |
$ | | | |
$ | 465 | | |
$ | | | |
$ | 3,265 | |
Income from discontinued operations | |
$ | | | |
$ | 465 | | |
$ | | | |
$ | 3,265 | |
PDSG activity
for the three and six months ended November 30, 2014 consists of PDSG royalty revenues.
|
Investments in Marketable Securities |
Investments
in Marketable Securities
We determine
the appropriate classification of our investments at the time of purchase and reevaluate such designation at each balance sheet
date. Our investments in marketable securities have been classified and accounted for as held-to-maturity based on managements
investment intentions relating to these securities. Held-to-maturity marketable securities are stated at amortized cost. Unrealized
gains and losses, net of deferred taxes, are recorded as a component of other comprehensive income (loss). We follow the authoritative
guidance to assess whether our investments with unrealized loss positions are other than temporarily impaired. Realized gains
and losses and declines in fair value judged to be other than temporary are determined based on the specific identification method
and are reported in other income (expense), net in the condensed consolidated statements of operations.
|
Investment in Affiliated Company |
Investment
in Affiliated Company
We have a 50%
interest in PDS (see Note 3). We account for our investment using the equity method of accounting since the investment provides
us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed
to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors,
such as representation on the investees Board of Directors, are considered in determining whether the equity method of
accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to
recognize our share of net earnings or losses of the investee and is recognized in the condensed consolidated statements of operations
in the caption Equity in earnings (loss) of affiliated company and also is adjusted by contributions to and distributions
from PDS.
PDS, as an unconsolidated
equity investee, recognizes revenue from technology license agreements at the time a contract is entered into, the license method
is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the
realization of revenue is assured, which is generally upon the receipt of the license proceeds. PDS may at times enter into license
agreements whereby contingent revenues are recognized as one or more contractual milestones have been met.
We review
our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable.
The primary factors we consider in our determination are the financial condition, operating performance and near term prospects
of PDS. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss.
|
Earnings (Loss) Per Share |
Earnings (Loss)
Per Share
Basic earnings
per share for continuing and discontinued operations includes no dilution and is computed by dividing earnings available to common
stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share for continuing
and discontinued operations reflect the potential dilution of securities that could share in the earnings of an entity.
For the three
and six months ended November 30, 2015, potential common shares of 2,760,000 related to our outstanding options were not included
in the calculation of diluted loss per share for continuing and discontinued operations as we recorded a loss. Had we reported
net income for the three and six months ended November 30, 2015, no shares of common stock would have been included in the calculation
of diluted income per share for continuing and discontinued operations using the treasury stock method.
For the three
and six months ended November 30, 2014, potential common shares of 1,335,000 related to our outstanding options were not included
in the calculation of diluted loss per share for continuing and discontinued operations as we recorded a loss. Had we reported
net income for the three and six months ended November 30, 2014, no shares of common stock would have been included in the calculation
of diluted income per share for continuing and discontinued operations using the treasury stock method.
In connection
with our acquisition of Crossflo, which is part of PDSG, we issued escrow shares that are contingent upon certain representations
and warranties made by Crossflo at the time of the merger agreement (see Note 6). We exclude these escrow shares from the basic
loss per share calculations and include the escrowed shares in the diluted loss per share calculations.
|
Income Taxes |
Income Taxes
We follow authoritative
guidance in accounting for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement
requirement for the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax
return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. Under this guidance we may only recognize tax positions that meet a more likely than not threshold.
We follow authoritative
guidance to evaluate whether a valuation allowance should be established against our deferred tax assets based on the consideration
of all available evidence using a more likely than not standard. In making such judgments, significant weight is
given to evidence that can be objectively verified. We assess our deferred tax assets annually under more likely than not scenarios
in which they may be realized through future income.
We have determined
that it was more likely than not that all of our deferred tax assets will not be realized in the future due to our continuing
pre-tax and taxable losses. As a result of this determination we have placed a full valuation allowance against our deferred tax
assets.
We follow authoritative
guidance to adjust our effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We are also
required to record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment
about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition,
jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from
the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate
during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections.
|
Assessment of Contingent Liabilities |
Assessment of Contingent Liabilities
We are 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.
|
Intellectual Property Rights |
Intellectual
Property Rights
PDS, our investment
in affiliated company, relies on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures
and licensing arrangements to protect our intellectual property rights. We have three European and two Japanese patents all expiring
in October 2016. We also have seven U.S. patents, six European, and one Japanese patent all of which expired between August 2009
and September 15, 2015. These patents, while expired, may have certain retrospective statutory benefits that will fully diminish
six years after the patent expiration date. The patent useful life for purposes of negotiating licenses is finite and these patents
are subject to legal challenges, which in combination with the limited life, could adversely impact the stream of revenues. A
successful challenge to the ownership of the technology or the proprietary nature of the intellectual property would materially
damage business prospects. Any issued patent may be challenged and invalidated.
|
Recent Accounting Pronouncements |
Recent Accounting Pronouncements
In August 2014,
the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-15, "Presentation
of Financial Statements Going Concern." ASU 2014-15 provides guidance in generally accepted accounting principles
about managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue
as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual reporting periods ending after
December 15, 2016 and for annual periods and interim periods thereafter (fiscal year 2017 for the Company). Early adoption is
permitted. We have not yet determined the potential effects of the adoption of ASU 2014-15 on our condensed consolidated financial
statements.
|
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v3.3.1.900
1. Summary of Significant Accounting Policies (Tables)
|
6 Months Ended |
Nov. 30, 2015 |
Accounting Policies [Abstract] |
|
Summary of Operating results of discontinued operations |
| |
Three
Months Ended | | |
Six
Months Ended | |
| |
November
30, 2015 | | |
November
30, 2014 | | |
November
30, 2015 | | |
November
30, 2014 | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
Gain on sale of discontinued operations | |
$ | | | |
$ | 465 | | |
$ | | | |
$ | 3,265 | |
Income before income taxes | |
$ | | | |
$ | 465 | | |
$ | | | |
$ | 3,265 | |
Income from discontinued operations | |
$ | | | |
$ | 465 | | |
$ | | | |
$ | 3,265 | |
|
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v3.3.1.900
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Tables)
|
6 Months Ended |
Nov. 30, 2015 |
Cash and Cash Equivalents [Abstract] |
|
Schedule of fair value of cash, cash equivalents and investments in marketable securities |
| |
| | |
Fair Value Measurements at November 30, 2015 Using | |
| |
| | |
Quoted Prices | | |
Significant | | |
| |
| |
| | |
in Active | | |
Other | | |
Significant | |
| |
Fair Value at | | |
Markets for | | |
Observable | | |
Unobservable | |
| |
November 30, | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| |
2015 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Cash and cash equivalents: | |
| | | |
| | | |
| | | |
| | |
Cash | |
$ | 40,376 | | |
$ | 40,376 | | |
$ | | | |
$ | | |
Money market funds | |
| 1,837,755 | | |
| 1,837,755 | | |
| | | |
| | |
Restricted cash and cash equivalents | |
| 21,283 | | |
| 21,283 | | |
| | | |
| | |
Marketable securities: | |
| | | |
| | | |
| | | |
| | |
Short-term: | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit | |
| 2,205,664 | | |
| | | |
| 2,205,664 | | |
| | |
Long-term: | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit | |
| 250,226 | | |
| | | |
| 250,226 | | |
| | |
Total | |
$ | 4,355,304 | | |
$ | 1,899,414 | | |
$ | 2,455,890 | | |
$ | | |
| |
| | |
Fair Value Measurements at May 31, 2015 Using | |
| |
| | |
Quoted Prices | | |
Significant | | |
| |
| |
| | |
in Active | | |
Other | | |
Significant | |
| |
Fair Value at | | |
Markets for | | |
Observable | | |
Unobservable | |
| |
May 31, | | |
Identical Assets | | |
Inputs | | |
Inputs | |
| |
2015 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Cash and cash equivalents: | |
| | | |
| | | |
| | | |
| | |
Cash | |
$ | 297,259 | | |
$ | 297,259 | | |
$ | | | |
$ | | |
Money market funds | |
| 2,382,101 | | |
| 2,382,101 | | |
| | | |
| | |
Restricted cash and cash equivalents | |
| 21,229 | | |
| 21,229 | | |
| | | |
| | |
Marketable securities: | |
| | | |
| | | |
| | | |
| | |
Short-term: | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit | |
| 2,455,106 | | |
| | | |
| 2,455,106 | | |
| | |
Total | |
| 5,155,695 | | |
$ | 2,700,589 | | |
| 2,455,106 | | |
$ | | |
|
Schedule of maturities, gross unrealized gains or losses and fair value of certificates of deposit |
| |
November 30,
2015 (Unaudited) | |
| |
Cost | | |
Gross
Unrealized Gains/(Losses) | | |
Fair
Value | |
Maturity | |
| | | |
| | | |
| | |
Due in one year or less | |
$ | 2,205,664 | | |
$ | | | |
$ | 2,205,664 | |
Due in one year or more | |
$ | 250,226 | | |
$ | | | |
$ | 250,226 | |
The following
table summarizes the maturities, gross unrealized gains or losses and fair value of the certificates of deposit as of May 31,
2015:
| |
May 31,
2015 | |
| |
Cost | | |
Gross
Unrealized Gains/(Losses) | | |
Fair
Value | |
Maturity | |
| | | |
| | | |
| | |
Due in one year or less | |
$ | 2,455,106 | | |
$ | | | |
$ | 2,455,106 | |
|
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v3.3.1.900
3. Investment in Affiliated Company (Tables)
|
6 Months Ended |
Nov. 30, 2015 |
Equity Method Investments and Joint Ventures [Abstract] |
|
Financial statements of affiliates |
Assets:
| |
November 30, 2015 | | |
May 31, 2015 | |
| |
(Unaudited) | | |
(Audited) | |
Cash | |
$ | 1,024,096 | | |
$ | 442,621 | |
Prepaid expenses | |
| 10,518 | | |
| 26,644 | |
Total assets | |
$ | 1,034,614 | | |
$ | 469,265 | |
Liabilities and Members Equity
(Deficit):
| |
November 30, 2015 | | |
May 31, 2015 | |
| |
(Unaudited) | | |
(Audited) | |
Payables | |
$ | 140,052 | | |
$ | 607,949 | |
Members equity (deficit) | |
| 894,562 | | |
| (138,684 | ) |
Total liabilities and members equity
(deficit) | |
$ | 1,034,614 | | |
$ | 469,265 | |
Statements of Operations
| |
Three
Months Ended | | |
Six
Months Ended | |
| |
November
30, 2015 | | |
November
30, 2014 | | |
November
30, 2015 | | |
November
30, 2014 | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
Revenues | |
$ | 400,000 | | |
$ | 20,000 | | |
$ | 1,450,000 | | |
$ | 20,000 | |
Expenses | |
| (104,729 | ) | |
| 179,284 | | |
| 300,754 | | |
| 627,356 | |
Operating income (loss) | |
| 504,729 | | |
| (159,284 | ) | |
| 1,149,246 | | |
| (607,356 | ) |
Net income (loss) | |
$ | 504,729 | | |
$ | (159,284 | ) | |
$ | 1,149,246 | | |
$ | (607,356 | ) |
|
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v3.3.1.900
5. Stockholders' Equity (Tables)
|
6 Months Ended |
Nov. 30, 2015 |
Equity [Abstract] |
|
Schedule of Stock Option Activity |
| |
Shares | | |
Weighted
Average Exercise Price | | |
Weighted
Average Remaining Contractual Term (Years) | | |
Aggregate
Intrinsic Value | |
Options outstanding at June 1,
2015 | |
| 3,335,000 | | |
$ | 0.06 | | |
| | | |
| | |
Options granted | |
| | | |
$ | | | |
| | | |
| | |
Options exercised | |
| | | |
$ | | | |
| | | |
| | |
Options
forfeited/expired | |
| (575,000 | ) | |
$ | 0.10 | | |
| | | |
| | |
Options outstanding
at November 30, 2015 | |
| 2,760,000 | | |
$ | 0.05 | | |
| 3.90 | | |
$ | | |
Options
vested and expected to vest at November 30, 2015 | |
| 2,760,000 | | |
$ | 0.05 | | |
| 3.90 | | |
$ | | |
Options exercisable
at November 30, 2015 | |
| 2,760,000 | | |
$ | 0.05 | | |
| 3.90 | | |
$ | | |
|
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1. Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative)
|
3 Months Ended |
6 Months Ended |
37 Months Ended |
Nov. 30, 2015
USD ($)
Integer
shares
|
Nov. 30, 2014
shares
|
Nov. 30, 2015
USD ($)
Integer
shares
|
Nov. 30, 2014
shares
|
May. 31, 2015
USD ($)
|
Cash and cash equivalents and short-term investment | $ |
$ 4,083,795
|
|
$ 4,083,795
|
|
|
PDSG |
|
|
|
|
|
Gain on sale of assets of discontinued operations | $ |
|
|
|
|
$ 101,000
|
PDS | Europe [Member] |
|
|
|
|
|
Number of patents owned |
3
|
|
3
|
|
|
Expiration of patents |
|
|
October 2016
|
|
|
PDS | JAPAN |
|
|
|
|
|
Number of patents owned |
2
|
|
2
|
|
|
Expiration of patents |
|
|
October 2016
|
|
|
PDS | UNITED STATES |
|
|
|
|
|
Number of patents owned |
7
|
|
7
|
|
|
Expiration of patents |
|
|
August 2009 thru September 15, 2015
|
|
|
PDS | Europe [Member] |
|
|
|
|
|
Number of patents owned |
6
|
|
6
|
|
|
Expiration of patents |
|
|
August 2009 thru September 15, 2015
|
|
|
PDS | JAPAN |
|
|
|
|
|
Number of patents owned |
1
|
|
1
|
|
|
Expiration of patents |
|
|
August 2009 thru September 15, 2015
|
|
|
Options |
|
|
|
|
|
Common shares not included in calculation of diluted net loss per share | shares |
2,760,000
|
1,335,000
|
2,760,000
|
1,335,000
|
|
PDS |
|
|
|
|
|
Ownership interest |
50.00%
|
|
50.00%
|
|
|
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v3.3.1.900
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Details) - USD ($)
|
Nov. 30, 2015 |
May. 31, 2015 |
Cash and cash equivalents: |
|
|
Cash |
$ 40,376
|
$ 297,259
|
Money market funds |
1,837,755
|
2,382,101
|
Restricted cash and cash equivalents |
21,283
|
21,229
|
Short-term: |
|
|
Certificates of deposit |
2,205,664
|
2,455,106
|
Long-term: |
|
|
Certificates of deposit |
250,226
|
0
|
Total |
4,355,304
|
5,155,695
|
Fair Value Inputs Level 1 |
|
|
Cash and cash equivalents: |
|
|
Cash |
40,376
|
297,259
|
Money market funds |
1,837,755
|
2,382,101
|
Restricted cash and cash equivalents |
21,283
|
21,229
|
Short-term: |
|
|
Certificates of deposit |
0
|
0
|
Long-term: |
|
|
Certificates of deposit |
0
|
0
|
Total |
1,899,414
|
2,700,589
|
Fair Value Inputs Level 2 |
|
|
Cash and cash equivalents: |
|
|
Cash |
0
|
0
|
Money market funds |
0
|
0
|
Restricted cash and cash equivalents |
0
|
0
|
Short-term: |
|
|
Certificates of deposit |
2,205,664
|
2,455,106
|
Long-term: |
|
|
Certificates of deposit |
250,226
|
0
|
Total |
2,455,890
|
2,455,106
|
Fair Value Inputs Level 3 |
|
|
Cash and cash equivalents: |
|
|
Cash |
0
|
0
|
Money market funds |
0
|
0
|
Restricted cash and cash equivalents |
0
|
0
|
Short-term: |
|
|
Certificates of deposit |
0
|
0
|
Long-term: |
|
|
Certificates of deposit |
0
|
0
|
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$ 0
|
$ 0
|
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2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Details - Certificates of Deposit) - USD ($)
|
Nov. 30, 2015 |
May. 31, 2015 |
Due in one year or less |
|
|
Certificates of deposit |
|
|
Cost |
$ 2,205,664
|
$ 2,455,106
|
Gross Unrealized Gains/(Losses) |
0
|
0
|
Fair Value |
2,205,664
|
$ 2,455,106
|
Due in one year or more |
|
|
Certificates of deposit |
|
|
Cost |
250,226
|
|
Gross Unrealized Gains/(Losses) |
0
|
|
Fair Value |
$ 250,226
|
|
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3. Investment in Affiliated Company (Details - balance sheet) - USD ($)
|
Nov. 30, 2015 |
May. 31, 2015 |
Total assets |
$ 1,034,614
|
$ 469,265
|
Total liabilities and members' equity |
1,034,614
|
469,265
|
Cash |
|
|
Total assets |
1,024,096
|
442,621
|
Prepaid Expenses [Member] |
|
|
Total assets |
10,518
|
26,644
|
Payables [Member] |
|
|
Total liabilities and members' equity |
140,052
|
607,949
|
Members equity (deficit) [Member] |
|
|
Total liabilities and members' equity |
$ 894,562
|
$ (138,684)
|
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3. Investment in Affiliated Company (Details - Statement of Operations) - USD ($)
|
3 Months Ended |
6 Months Ended |
Nov. 30, 2015 |
Nov. 30, 2014 |
Nov. 30, 2015 |
Nov. 30, 2014 |
Equity Method Investments and Joint Ventures [Abstract] |
|
|
|
|
Revenues |
$ 400,000
|
$ 20,000
|
$ 1,450,000
|
$ 20,000
|
Expenses |
(104,729)
|
179,284
|
300,754
|
627,356
|
Operating income (loss) |
504,729
|
(159,284)
|
1,149,246
|
(607,356)
|
Net income (loss) |
$ 504,729
|
$ (159,284)
|
$ 1,149,246
|
$ (607,356)
|
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|
3 Months Ended |
6 Months Ended |
Nov. 30, 2015 |
Nov. 30, 2014 |
Nov. 30, 2015 |
Nov. 30, 2014 |
Net income (loss) from PDS |
$ 252,364
|
$ (79,642)
|
$ 574,623
|
$ (303,678)
|
Cash distributions received from PDS |
|
|
58,000
|
800
|
Alliacense |
|
|
|
|
Litigation fees reversed |
|
|
|
24,598
|
PDS |
|
|
|
|
Net income (loss) from PDS |
252,364
|
(79,642)
|
574,623
|
(303,678)
|
Proceeds from licensing agreement |
400,000
|
20,000
|
1,450,000
|
20,000
|
Legal fees paid |
(305,862)
|
103,125
|
5,257
|
505,068
|
PDS | Moore |
|
|
|
|
Litigation settlement expense |
$ 62,499
|
$ 62,499
|
$ 124,998
|
$ 124,998
|
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v3.3.1.900
5. Stockholders' Equity (Details - Option activity) - USD ($)
|
6 Months Ended |
Nov. 30, 2015 |
Nov. 30, 2014 |
Number of Options Granted |
0
|
0
|
Options |
|
|
Number of Options Outstanding, Beginning |
3,335,000
|
|
Number of Options Granted |
0
|
|
Number of Options Exercised |
0
|
|
Number of Options Forfeited |
(575,000)
|
|
Number of Options Outstanding, Ending |
2,760,000
|
|
Options vested and expected to vest, Ending |
2,760,000
|
|
Number of Options Exercisable, Ending |
2,760,000
|
|
Weighted Average Exercise Price Outstanding, Beginning |
$ .06
|
|
Weighted Average Exercise Price Granted |
0
|
|
Weighted Average Exercise Price Exercised |
0
|
|
Weighted Average Exercise Price Forfeited |
.10
|
|
Weighted Average Exercise Price Outstanding, Ending |
.05
|
|
Weighted Average Exercise Price, Options vested and expected to vest, Ending |
.05
|
|
Weighted Average Exercise Price Exercisable |
$ .05
|
|
Weighted Average Remaining Contractual Life (in years) Outstanding |
3 years 10 months 24 days
|
|
Weighted Average Remaining Contractual Life (in years) Options vested and expected to vest |
3 years 10 months 24 days
|
|
Weighted Average Remaining Contractual Life (in years) Exercisable |
3 years 10 months 24 days
|
|
Aggregate Intrinsic Value Outstanding |
$ 0
|
|
Aggregate Intrinsic Value Options vested and expected to vest |
0
|
|
Aggregate Intrinsic Value Exercisable |
$ 0
|
|
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