Document_and_Entity_Informatio
Document and Entity Information | 3 Months Ended | |
Aug. 31, 2013 | Oct. 09, 2013 | |
Document And Entity Information | ||
Entity Registrant Name | PATRIOT SCIENTIFIC CORP | |
Entity Central Index Key | 836564 | |
Document Type | 10-Q | |
Document Period End Date | 31-Aug-13 | |
Amendment Flag | FALSE | |
Current Fiscal Year End Date | -26 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 404,798,797 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2014 |
Condensed_Consolidated_Balance
Condensed Consolidated Balance Sheets (USD $) | Aug. 31, 2013 | 31-May-13 |
Current assets: | ||
Cash and cash equivalents | $7,059,005 | $7,572,887 |
Restricted cash and cash equivalents | 21,044 | 21,018 |
Marketable securities | 194,155 | 194,463 |
Accounts receivable - affiliated company | 33,400 | 16,538 |
Prepaid expenses and other current assets | 150,803 | 194,901 |
Current assets of discontinued operations | 70,358 | 40,682 |
Total Current Assets | 7,528,765 | 8,040,489 |
Property and equipment, net | 4,502 | 5,078 |
Other assets | 3,036 | 3,036 |
Investment in affiliated company | 274,869 | 366,304 |
Total assets | 7,811,172 | 8,414,907 |
Current liabilities: | ||
Accounts payable | 52,574 | 219,213 |
Accrued expenses and other | 43,497 | 58,521 |
Income taxes payable | 2,400 | 0 |
Total current liabilities | 98,471 | 277,734 |
Total liabilities | 98,471 | 277,734 |
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 405,247,405 shares outstanding at August 31, 2013 and May 31, 2013 | 4,382 | 4,382 |
Additional paid-in capital | 77,400,852 | 77,338,434 |
Accumulated deficit | -55,288,139 | -54,801,249 |
Common stock held in treasury, at cost - 32,995,213 shares at August 31, 2013 and May 31, 2013 | -14,404,394 | -14,404,394 |
Total stockholders' equity | 7,712,701 | 8,137,173 |
Total liabilities and stockholders' equity | $7,811,172 | $8,414,907 |
Condensed_Consolidated_Balance1
Condensed Consolidated Balance Sheets (Parenthetical) (USD $) | Aug. 31, 2013 | 31-May-13 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (in Dollars per share) | $0.00 | $0.00 |
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) | $0.00 | $0.00 |
Common stock, shares authorized | 600,000,000 | 600,000,000 |
Common stock, shares issued | 438,242,618 | 438,242,618 |
Common stock, shares outstanding | 405,247,405 | 405,247,405 |
Common stock held in treasury, at cost | 32,995,213 | 32,995,213 |
Condensed_Consolidated_Stateme
Condensed Consolidated Statements of Operations (USD $) | 3 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | |
Operating expenses: | ||
Selling, general and administrative | $438,654 | $392,062 |
Total operating expenses | 438,654 | 392,062 |
Other income (expense): | ||
Interest income | 490 | 4,147 |
Other income | 0 | 118 |
Realized recovery on marketable securities | 0 | 55,873 |
Equity in earnings (loss) of affiliated company | -85,184 | -557,068 |
Total other expense, net | -84,694 | -496,930 |
Loss from continuing operations before income taxes | -523,348 | -888,992 |
Provision for income taxes | 3,900 | 2,565 |
Loss from continuing operations | -527,248 | -891,557 |
Income (loss) from discontinued operations, net | 40,358 | -855 |
Net loss | ($486,890) | ($892,412) |
Basic and diluted income (loss) per common share: | ||
Loss from continuing operations | $0 | $0 |
Income (loss) from discontinued operations | $0 | $0 |
Net loss | $0 | $0 |
Weighted average number of common shares outstanding - basic and diluted | 402,402,775 | 402,796,509 |
Condensed_Consolidated_Stateme1
Condensed Consolidated Statements of Cash Flows (USD $) | 3 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | |
Operating activities: | ||
Net loss | ($486,890) | ($892,412) |
Less: Net income (loss) from discontinued operations | 40,358 | -855 |
Net loss from continuing operations | -527,248 | -891,557 |
Adjustments to reconcile net loss before discontinued operations to net cash used in operating activities: | ||
Depreciation | 576 | 666 |
Share-based compensation | 62,418 | 0 |
Accrued interest income added to investments | 0 | -2,438 |
Equity in loss of affiliated company | 85,184 | 557,068 |
Realized recovery on sale of marketable securities | 0 | -55,873 |
Changes in operating assets and liabilities: | ||
Accounts receivable - affiliated company | -16,862 | 0 |
Prepaid expenses and other current assets | 44,098 | 49,092 |
Accounts payable, accrued expenses, and other | -181,381 | -225,829 |
Income taxes payable | 2,400 | 2,565 |
Net cash used in operating activities of continuing operations | -530,815 | -566,306 |
Net cash provided by operating activities of discontinued operations | 10,683 | 4,401 |
Net cash used in operating activities | -520,132 | -561,905 |
Investing activities: | ||
Proceeds from sales of marketable securities | 0 | 2,263,210 |
Purchases of marketable securities | 0 | -1,374,000 |
Purchase of property and equipment | 0 | -539 |
Investment in affiliated company | 0 | -586,750 |
Distributions from affiliated company | 6,250 | 0 |
Net cash provided by investing activities | 6,250 | 301,921 |
Financing activities: | ||
Repurchase of common stock for treasury | 0 | -14,256 |
Net cash used in financing activities | 0 | -14,256 |
Net decrease in cash and cash equivalents | -513,882 | -274,240 |
Cash and cash equivalents, beginning of period | 7,572,887 | 4,699,174 |
Cash and cash equivalents, end of period | 7,059,005 | 4,424,934 |
Supplemental Disclosure of Cash Flow Information: | ||
Cash payments for income taxes | $1,500 | $0 |
1_Basis_of_Presentationa_and_S
1. Basis of Presentationa and Summary of Significant Accounting Policies | 3 Months Ended | ||||||||
Aug. 31, 2013 | |||||||||
Accounting Policies [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, 2013. | ||||||||
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 three month period ended August 31, 2013 are not necessarily indicative of the results that may be expected for the year ending May 31, 2014. | |||||||||
Subsequent events have been evaluated through the issuance date of these financial statements. | |||||||||
Basis of Consolidation | |||||||||
The condensed consolidated balance sheets at August 31, 2013 and May 31, 2013 and condensed consolidated statements of operations for the three months ended August 31, 2013 and 2012 includes 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” below for additional information. | |||||||||
Reclassification | |||||||||
Certain amounts presented in the prior periods’ condensed consolidated financial statements related to interest and other income have been reclassified to conform to the current period’s presentation. | |||||||||
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 August 31, 2013, the gain on the asset sale of PDSG is approximately $44,700. | |||||||||
Summarized operating results of discontinued operations for the three months ended August 31, 2013 and 2012 are as follows: | |||||||||
31-Aug-13 | 31-Aug-12 | ||||||||
Operating loss from discontinued operations | $ | – | $ | (1,387 | ) | ||||
Gain on sale of discontinued operations | $ | 40,358 | $ | 532 | |||||
Income (loss) before income taxes | $ | 40,358 | $ | (855 | ) | ||||
Income (loss) from discontinued operations | $ | 40,358 | $ | (855 | ) | ||||
PDSG activity for the three months ended August 31, 2013 consists of PDSG royalty revenues. | |||||||||
PDSG activity for the three months ended August 31, 2012 consists of operating expenses for: insurance, taxes and bank fees offset by PDSG royalty revenues. | |||||||||
The following table summarizes the carrying amount at August 31, 2013 and May 31, 2013 of the major classes of assets of PDSG classified as discontinued operations: | |||||||||
31-Aug-13 | 31-May-13 | ||||||||
Current assets: | |||||||||
Other current assets | $ | 70,358 | $ | 40,682 | |||||
Liquidity and Management’s Plans | |||||||||
Cash shortfalls currently experienced by Phoenix Digital Solutions, LLC (“PDS”) will have an adverse effect on our liquidity. During the fiscal year ended May 31, 2013, we and Technology Properties Limited, Inc. (“TPL”) each contributed $1,097,809 in additional capital to fund the operations of PDS. We and TPL have made no such contributions for the three months ended August 31, 2013. 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 retainer payments, as well as licensing and litigation support payments to Alliacense Limited, LLC (“Alliacense”, an affiliate of TPL), 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 has 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 (see Note 6). | |||||||||
Our current liquid cash resources as of August 31, 2013, 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 $7,253,160 at August 31, 2013. | |||||||||
On March 20, 2013, TPL filed a petition under Chapter 11 of the United States Bankruptcy Code. We have been appointed to the creditors’ committee and will be closely monitoring the progress in this matter as it relates to our interest in PDS. If we 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 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. | |||||||||
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 available-for-sale based on management’s investment intentions relating to these securities. Available-for-sale marketable securities are stated at fair market value. 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 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 are 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 net loss per share for continuing and discontinued operations includes no dilution and is computed by dividing loss 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. | |||||||||
At August 31, 2013 and 2012 potential common shares of 1,510,000 and 1,575,000, respectively, 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 months ended August 31, 2013 and 2012, an additional 575,000 and 650,000, respectively, 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 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. | |||||||||
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 affiliate, relies on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. PDS currently licenses four unexpired U.S. patents issued dating back to 1997 on our microprocessor technology in addition to three European and two Japanese patents. The U.S. patents will expire between 2014 and 2015 and the European and Japanese patents will expire in 2016. PDS also licenses three U.S. patents, six European, and one Japanese patent all of which expired between August 2009 and June 2013. These patents, while expired, may have certain retrospective statutory benefits that will fully diminish six years after the patent expiration date (e.g. for the expired U.S. patents). 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. |
2_Cash_Cash_Equivalents_Restri
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities | 3 Months Ended | ||||||||||||||||
Aug. 31, 2013 | |||||||||||||||||
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 August 31, 2013 and May 31, 2013 consist of deposits in a savings account required to be held as collateral for our corporate credit card. | |||||||||||||||||
At August 31, 2013 and May 31, 2013, our marketable securities in the amount of $194,155 and $194,463, respectively, consists of the par value plus accrued interest of our time deposits. These marketable securities are classified as available for sale and are reported at fair market value. | |||||||||||||||||
We follow authoritative guidance to account for our marketable securities as available for sale. 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 August 31, 2013 Using | |||||||||||||||||
Quoted Prices | Significant | ||||||||||||||||
in Active | Other | Significant | |||||||||||||||
Fair Value at | Markets for | Observable | Unobservable | ||||||||||||||
August 31, | Identical Assets | Inputs | Inputs | ||||||||||||||
2013 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Cash and cash equivalents: | |||||||||||||||||
Cash | $ | 108,210 | $ | 108,210 | $ | – | $ | – | |||||||||
Money market funds | 6,950,795 | 6,950,795 | – | – | |||||||||||||
Restricted cash | 21,044 | 21,044 | – | – | |||||||||||||
Marketable securities: | |||||||||||||||||
Short-term: | |||||||||||||||||
Certificates of deposit | 194,155 | – | 194,155 | – | |||||||||||||
Total | $ | 7,274,204 | $ | 7,080,049 | $ | 194,155 | $ | – | |||||||||
Fair Value Measurements at May 31, 2013 Using | |||||||||||||||||
Quoted Prices | Significant | ||||||||||||||||
in Active | Other | Significant | |||||||||||||||
Fair Value at | Markets for | Observable | Unobservable | ||||||||||||||
May 31, | Identical Assets | Inputs | Inputs | ||||||||||||||
2013 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Cash and cash equivalents: | |||||||||||||||||
Cash | $ | 197,862 | $ | 197,862 | $ | – | $ | – | |||||||||
Money market funds | 5,225,176 | 5,225,176 | – | – | |||||||||||||
Certificates of deposit | 2,149,849 | – | 2,149,849 | – | |||||||||||||
Restricted cash | 21,018 | 21,018 | – | – | |||||||||||||
Marketable securities: | |||||||||||||||||
Short-term: | |||||||||||||||||
Certificates of deposit | 194,463 | – | 194,463 | – | |||||||||||||
Total | $ | 7,788,368 | $ | 5,444,056 | $ | 2,344,312 | $ | – | |||||||||
Beginning in fiscal 2011, we purchased 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 August 31, 2013: | |||||||||||||||||
August 31, 2013 | |||||||||||||||||
Cost | Gross Unrealized Gains/(Losses) | Fair | |||||||||||||||
Value | |||||||||||||||||
Maturity | |||||||||||||||||
Due in one year or less | $ | 194,155 | $ | – | $ | 194,155 | |||||||||||
The following table summarizes the maturities, gross unrealized gains or losses and fair value of the certificates of deposit as of May 31, 2013: | |||||||||||||||||
May 31, 2013 | |||||||||||||||||
Cost | Gross Unrealized Gains/(Losses) | Fair | |||||||||||||||
Value | |||||||||||||||||
Maturity | |||||||||||||||||
Due in three months or less | $ | 2,149,849 | $ | – | $ | 2,149,849 | |||||||||||
Due in one year or less | $ | 194,463 | $ | – | $ | 194,463 | |||||||||||
3_Investment_in_Affiliated_Com
3. Investment in Affiliated Company | 3 Months Ended | ||||||||
Aug. 31, 2013 | |||||||||
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 has not been a third management committee member since May 2010. 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. Since there is currently not a third member of the management committee, working capital contributions made to PDS require the approval of both management committee members. Distributable cash and allocation of profits and losses will be allocated to the members in the priority defined in the LLC Agreement. | |||||||||
Pursuant to our June 7, 2005 agreement with PDS and TPL to license the MMP Portfolio (“Commercialization Agreement”), PDS had committed to pay a quarterly amount ranging between $500,000 and $1,000,000 (based upon a percentage of the working capital fund balance of PDS) for supporting efforts to secure licensing agreements by TPL on behalf of PDS. During the three months ended August 31, 2012, PDS expensed $185,000, pursuant to this commitment. This expense is recorded in the accompanying PDS statement of operations for the three months ended August 31, 2012 presented below. These expenses concluded with the execution of the July 11, 2012 Licensing Program Services Agreement (the “Program Agreement”). | |||||||||
PDS reimburses TPL for payment of all legal and third-party expert fees and other related third-party costs and expenses, although the majority of third-party costs are paid directly by PDS. During the three months ended August 31, 2013 and 2012, PDS expensed $973,531 and $117,877, respectively, to TPL pursuant to the agreement. These expenses are recorded in the accompanying PDS statements of operations presented below net of $309,892 and $3,838, respectively, of legal fee reversals previousl expensed and recorded as accounts payable to TPL during the three months ended August 31, 2013 and 2012 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 continues 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 17, 2012, we entered into an Agreement with PDS and TPL whereby we agreed to certain additional allocations of obligations relating to the Program Agreement. | |||||||||
Pursuant to the Program Agreement, PDS has committed to Alliacense a quarterly amount of $500,000 which represents the licensing services fees due Alliacense, subject to a contingency arrangement which provides for a percentage on future revenues, for its efforts to secure licensing agreements on behalf of PDS. These payments can be capped at $2,000,000 pursuant to six-month notice from PDS, at which time the PDS management committee will review and decide the warranting of future payments. These payments replace the quarterly amounts previously paid to TPL pursuant to the Commercialization Agreement. During the three months ended August 31, 2013 and 2012, PDS expensed $481,353 and $315,000, respectively, pursuant to this commitment. These expenses are recorded in the accompanying PDS statements of operations presented below. Certain terms of the Program Agreement and the TPL Agreement if enacted could provide for some reductions and/or limitations to the amount of the quarterly advances provided to Alliacense. | |||||||||
Pursuant to the Program Agreement PDS has committed to pay Alliacense litigation support fees relating to Alliacense’s special work and effort 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 U.S. International Trade Commission (“ITC”) on July 24, 2012. During the three months ended August 31, 2013 and 2012, PDS expensed $122,578 and $943,103, respectively, pursuant to this commitment. Future litigation support payments to Alliacense relating to the ITC litigation are subject to a contingency arrangement which provides for a percentage of future recoveries in these actions. These expenses are recorded in the accompanying PDS statements of operations 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 will pay Moore $16,667 per month from August 2013 through January 2014 and $20,833 per month beginning February 2014 through January 2017. During the three months ended August 31, 2013, PDS expensed $16,667 pursuant to this commitment. This expense is recorded in the accompanying PDS statement of operations for the three months ended August 31, 2013 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’ net loss during the three months ended August 31, 2013 of $85,184 as a decrease in our investment. We received distributions of $6,250 from PDS during the three months ended August 31, 2013 and we have recorded these distributions as a decrease in our investment. | |||||||||
We have recorded our share of PDS’ net loss for the three months ended August 31, 2013 and 2012 as “Equity in loss of affiliated company” in the accompanying condensed consolidated statements of operations. | |||||||||
During the three months ended August 31, 2013, PDS entered into licensing agreements with third parties, pursuant to which PDS recognized revenues of $1,490,000. | |||||||||
During the three months ended August 31, 2012, TPL entered into licensing agreements with third parties, pursuant to which PDS recognized revenues of $450,000. | |||||||||
At August 31, 2013, PDS had accounts payable balances of approximately $690,000, $18,000, and $33,400 to TPL, Alliacense, and PTSC, respectively. | |||||||||
At May 31, 2013, PDS had a prepaid balance to Alliacense of approximately $456,000 for advance payment of the June 1, 2013 quarterly payment less license fees earned. At May 31, 2013, PDS had accounts payable balances of approximately $1,494,000, $34,000, and $17,000 to TPL, Alliacense, and PTSC, respectively. | |||||||||
PDS’ balance sheets at August 31, 2013 and May 31, 2013 and statements of operations for the three months ended August 31, 2013 and 2012 are as follows: | |||||||||
Balance Sheets | |||||||||
Assets: | |||||||||
31-Aug-13 | 31-May-13 | ||||||||
(Unaudited) | (Audited) | ||||||||
Cash | $ | 1,679,938 | $ | 1,320,932 | |||||
Prepaid expenses | 200,104 | 717,540 | |||||||
Licenses receivable | – | 250,000 | |||||||
Total assets | $ | 1,880,042 | $ | 2,288,472 | |||||
Liabilities and Members’ Equity: | |||||||||
31-Aug-13 | 31-May-13 | ||||||||
(Unaudited) | (Audited) | ||||||||
Related party payables | $ | 1,330,304 | $ | 1,544,075 | |||||
Income tax payable | – | 11,790 | |||||||
Members’ equity | 549,738 | 732,607 | |||||||
Total liabilities and members’ equity | $ | 1,880,042 | $ | 2,288,472 | |||||
Statements of Operations | |||||||||
Three Months Ended | |||||||||
August 31, | |||||||||
2013 | 2012 | ||||||||
(Unaudited) | (Unaudited) | ||||||||
Revenues | $ | 1,490,000 | $ | 450,000 | |||||
Expenses | 1,660,369 | 1,564,136 | |||||||
Operating loss | (170,369 | ) | (1,114,136 | ) | |||||
Net loss | $ | (170,369 | ) | $ | (1,114,136 | ) | |||
PDS Related Party Balances And Transactions | |||||||||
Balances with related parties as of August 31, 2013 and May 31, 2013 are summarized as follows: | |||||||||
31-Aug-13 | 31-May-13 | ||||||||
Assets: | |||||||||
Prepaid expenses (Advances to Alliacense) | $ | – | $ | 456,353 | |||||
Liabilities: | |||||||||
Related party payables and accrued expenses (TPL) (1) | $ | 1,279,088 | $ | 1,493,775 | |||||
Related party payables (PTSC) | 33,400 | 16,538 | |||||||
Related party payables (Alliacense) | 17,816 | 33,762 | |||||||
Total liabilities | $ | 1,330,304 | $ | 1,544,075 | |||||
Transactions with related parties for the three months ended August 31, 2013 and 2012 are as follows: | |||||||||
31-Aug-13 | 31-Aug-12 | ||||||||
Expenses paid or accrued (TPL) | $ | 973,531 | $ | 302,877 | |||||
Expenses paid or accrued (Alliacense) | $ | 603,931 | $ | 1,258,103 | |||||
-1 | Pursuant to the terms of the Commercialization Agreement, PDS will reimburse TPL for the payment of all legal and third party expert fees and other related third party costs and expenses upon TPL’s submission of documentation supporting that payment by them has occurred. | ||||||||
Significant Contractual Legal Relationship | |||||||||
PTSC through its unconsolidated affiliate, PDS has incurred litigation related costs from an unrelated law firm and legal subcontractors to provide substantial legal services for the commercialization of the MMP portfolio of microprocessor patents. | |||||||||
Accounts payable balances due this law firm and legal subcontractors as of August 31, 2013 and May 31, 2013 were $589,420 and $518,694, respectively. | |||||||||
Transactions with this law firm and legal subcontractors for the three months ended August 31, 2013 and 2012 were as follows: | |||||||||
31-Aug-13 | 31-Aug-12 | ||||||||
Legal costs | $ | 1,123,916 | $ | 108,090 | |||||
Contractual Commitments | |||||||||
In January 2013, PDS entered into a contractual commitment with a related party entity to provide consulting services at a cost of $250,000 per year for a duration of four years or the completion of all outstanding MMP litigation, whichever comes first. | |||||||||
For the three months ended August 31, 2013, PDS expensed $16,667 related to this agreement. | |||||||||
In connection with the Program Agreement, PDS is required to make payments to Alliacense of $500,000 no later than three days prior to the start of each calendar quarter. Such payments are non-accountable and non-recoupable, but are offset against the licensing series fees owed to Alliacense pursuant to the Program Agreement. Upon six-months notice to Alliacense, and in conjunction with a proportionate reduction in the scope of the Project Description, as defined, PDS may determine to implement a maximum of advances not-yet-offset of $2,000,000. | |||||||||
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
4. Income Taxes | 3 Months Ended |
Aug. 31, 2013 | |
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. |
5_Stockholders_Equity
5. Stockholders' Equity | 3 Months Ended | ||||||||||||||||||||
Aug. 31, 2013 | |||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||
Stockholders' Equity | Equity Transactions | ||||||||||||||||||||
The following table summarizes equity transactions during the three months ended August 31, 2013: | |||||||||||||||||||||
Common Stock | Additional | Accumulated | Treasury | ||||||||||||||||||
Shares | Amounts | Paid-in Capital | Deficit | Stock | |||||||||||||||||
Balance June 1, 2013 | 405,247,405 | $ | 4,382 | $ | 77,338,434 | $ | (54,801,249 | ) | $ | (14,404,394 | ) | ||||||||||
Share-based compensation | – | – | 62,418 | – | – | ||||||||||||||||
Net loss | – | – | – | (486,890 | ) | – | |||||||||||||||
Balance August 31, 2013 | 405,247,405 | $ | 4,382 | $ | 77,400,852 | $ | (55,288,139 | ) | $ | (14,404,394 | ) | ||||||||||
Stock Option Activity | |||||||||||||||||||||
As of August 31, 2013, we had 1,510,000 fully vested options outstanding pursuant to our 2006 Stock Option Plan exercisable at a range of $0.10 to $0.12 per share expiring through 2018. | |||||||||||||||||||||
On June 4, 2013, we issued 760,000 stock options from our 2006 Stock Option Plan with an exercise price of $0.12 to our employees and directors. The options vested immediately upon issuance. | |||||||||||||||||||||
During the three months ended August 31, 2013, we recorded $62,418 of share-based compensation expense related to the stock options granted to PTSC directors and employees. | |||||||||||||||||||||
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 for the three months ended August 31, 2013 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. | |||||||||||||||||||||
Three Months Ended | Three Months Ended | ||||||||||||||||||||
August 31, | August 31, | ||||||||||||||||||||
2013 | 2012 | ||||||||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||||||
Expected term | 5 | years | * | years | |||||||||||||||||
Expected volatility | 88 | % | * | % | |||||||||||||||||
Risk-free interest rate | 1.05 | % | * | % | |||||||||||||||||
* No stock options were granted during this period. | |||||||||||||||||||||
A summary of option activity as of August 31, 2013 and changes during the three months then ended, is presented below: | |||||||||||||||||||||
Shares | Weighted Average | Weighted Average Remaining Contractual | Aggregate Intrinsic | ||||||||||||||||||
Exercise | Term | Value | |||||||||||||||||||
Price | (Years) | ||||||||||||||||||||
Options outstanding at June 1, 2013 | 750,000 | $ | 0.1 | ||||||||||||||||||
Options granted | 760,000 | $ | 0.12 | ||||||||||||||||||
Options exercised | – | $ | – | ||||||||||||||||||
Options forfeited | – | $ | – | ||||||||||||||||||
1,510,000 | $ | 0.11 | 3.11 | $ | 5,750 | ||||||||||||||||
Options outstanding at August 31, 2013 | |||||||||||||||||||||
1,510,000 | $ | 0.11 | 3.11 | $ | 5,750 | ||||||||||||||||
Options vested and expected to vest at August 31, 2013 | |||||||||||||||||||||
1,510,000 | $ | 0.11 | 3.11 | $ | 5,750 | ||||||||||||||||
Options exercisable at August 31, 2013 | |||||||||||||||||||||
The weighted average grant date fair value of options granted during the three months ended August 31, 2013 was $0.08 per option. There were no options granted during the three months ended August 31, 2012. | |||||||||||||||||||||
There were no options exercised during the three months ended August 31, 2013 or 2012. | |||||||||||||||||||||
The aggregate intrinsic value represents the differences in market price at the close of the quarter ($0.11 per share on August 31, 2013) and the exercise price of outstanding, in-the-money options (those options with exercise prices below $0.11) on August 31, 2013. | |||||||||||||||||||||
The following table summarizes our employee share-based compensation for the three months ended August 31, 2013 and 2012, which was recorded in selling, general and administrative expense as follows: | |||||||||||||||||||||
Three Months Ended | Three Months Ended | ||||||||||||||||||||
31-Aug-13 | 31-Aug-12 | ||||||||||||||||||||
Selling, general and administrative expense | $ | 62,418 | $ | – | |||||||||||||||||
6_Commitments_and_Contingencie
6. Commitments and Contingencies | 3 Months Ended |
Aug. 31, 2013 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Litigation |
Patent Litigation | |
On February 8, 2008, we, TPL and Alliacense Ltd. were named as defendants in separate lawsuits filed in the United States District Court for the Northern District of California by HTC Corporation, and Acer, Inc., and affiliated entities of each of them. (Those cases were deemed related and are referred to herein as the “N.D. Cal. Case”). HTC and Acer sought declaratory relief that their products did not infringe enforceable claims of the '336 patent. We alleged counterclaims for patent infringement of the '336 and '890 patents as to certain of their products. | |
The Court issued a first claim construction ruling in the N.D. Cal. Case on June 12, 2012, which preserved our ability to proceed on our infringement claims against Acer and HTC. Thereafter, Chief District Judge James Ware retired and the N.D. Cal. Case was reassigned to Magistrate Judge Paul S. Grewal, who held a supplemental claim construction hearing on November 30, 2012. Judge Grewal then issued a supplemental claim construction ruling on December 5, 2012, which preserved our ability to proceed with our infringement claims. On September 6, 2013 Acer entered into an MMP Portfolio license agreement that also provided for the dismissal of all claims in the N.D. Cal Case, as well as the filing of a joint motion to terminate Acer as a respondent in the ITC 853 Investigation (described more fully below). On September 19, 2013 the ‘890 patent was dropped from the N.D. Cal Case pursuant to stipulation by all parties. A jury trial was held in the N.D. Cal. Case against HTC, beginning on September 23, 2013. On October 3, 2013, the jury returned a verdict in favor of us and TPL, finding that HTC had infringed the ‘336 patent with damages of $958,560. | |
On July 24, 2012 complaints were filed on behalf of us, TPL, and PDS against Acer, Inc., Amazon.com, Inc., Barnes & Noble, Inc., Garmin, Ltd., HTC Corporation, Huawei Technologies Co., Ltd., Kyocera Corporation, LG Electronics, Nintendo C., Ltd., Novatel Wireless, Inc., Samsung Electronics Co., Ltd., Sierra Wireless, Ltd. and ZTE Corporation with the U.S. International Trade Commission ("ITC") (ITC Investigation No. 337-TA-853, or the “853 Investigation”) alleging infringement of the ‘336 patent. We also filed new parallel proceedings in the U.S. District Court for the Northern District of California alleging infringement of the ‘749, ‘890 and ‘336 patents 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 subsequently reached a settlement with Sierra Wireless, Inc. Trial proceedings before the ITC began on June 3, 2013 and concluded the following week. Settlements were subsequently reached with Kyocera Corporation, Amazon.com, Inc., and Acer, Inc. An Initial Determination was rendered on September 6, 2013 finding that none of the remaining Respondents had infringed the ‘336 patent. We filed a petition for review of the Initial Determination with the full ITC on September 23, 2013. We expect to learn within 45 days of the date of the Initial Determination if the petition for review will be granted. If granted, the ITC could potentially reconsider the finding of noninfringement. If we prevail in a review by the full ITC such that the ‘336 is found to be infringed, then the target date in the ITC proceeding in which the ITC could potentially issue an importation ban on infringing products, is January 6, 2014. All of the district court actions against the new parties (i.e., all respondents other than Acer and HTC) that have not previously settled are currently stayed pending resolution of the 853 Investigation. | |
Licensing Fee Disputes | |
In February 2013, PDS received a license fee installment attributable to the January 2013 satisfaction of a contingency contained in an MMP license agreement entered into in May 2012. Alliacense has asserted a claim against PDS for $300,000 under the premise that it is owed a percentage of the license fee installment pursuant to the Program Agreement it entered into with PDS, TPL and us in July 2012. TPL has also asserted a claim against PDS for $225,000 under the premise that it is owed a percentage of the license fee installment pursuant to the terms of the June 2005 Commercialization Agreement between PDS, TPL and us. Our position is that no percentage is due Alliacense as it had not been engaged for services at the time the May 2012 license agreement was entered into, and that it had no role in the satisfaction of the contingency that triggered the installment fee. Regarding TPL, our position is that a percentage to TPL could be justified, subject to, and fully offset by, advances previously made to it by PDS. We intend to vigorously defend our interest in PDS against the assertions made by Alliacense and TPL. While no amounts have been accrued in regards to these matters, we believe pursuant to the criteria defined in Accounting Standards Codification 450-20-50 Disclosure of Certain Loss Contingencies, it is reasonably possible PDS could recognize a charge to earnings in the range of $0 to $300,000. | |
In September 2013, Alliacense asserted it was owed amounts pursuant to a contingency provision of the Program Agreement it entered into with PDS, TPL and us in July 2012. We have requested Alliacense provide additional supporting information. Until such additional information is made available to us we cannot determine if the amounts as requested are owed. While no amounts have been accrued in regards to these matters, we believe pursuant to the criteria defined in Accounting Standards Codification 450-20-50 Disclosure of Certain Loss Contingencies, it is reasonably possible that as a result of the amounts asserted by Alliacense, PDS could recognize a charge to earnings in the range of $0 to $201,150 relating to the quarter ended August 31, 2013 and $0 to $421,956 relating to the quarter ended November 30, 2013. | |
401(k) Plan | |
Patriot has a retirement plan that complies with Section 401(k) of the Internal Revenue Code. All employees are eligible to participate in the plan. Patriot matches 100% of elective deferrals subject to a maximum of 4% of the participant’s eligible earnings. Patriot’s participants vest 33% per year over a three year period in their matching contributions. Patriot’s matching contributions during the three months ended August 31, 2013 and 2012 were $3,754 and $3,753, 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. |
7_Subsequent_Events
7. Subsequent Events | 3 Months Ended |
Aug. 31, 2013 | |
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. |
During the period September 1, 2013 through October 9, 2013, we purchased 448,608 shares of our common stock at an aggregate cost of $40,009 pursuant to our stock buyback program. |
1_Summary_of_Significant_Accou
1. Summary of Significant Accounting Policies (Policies) | 3 Months Ended | ||||||||
Aug. 31, 2013 | |||||||||
Accounting Policies [Abstract] | |||||||||
Basis of Presentation | 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, 2013. | |||||||||
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 three month period ended August 31, 2013 are not necessarily indicative of the results that may be expected for the year ending May 31, 2014. | |||||||||
Subsequent events have been evaluated through the issuance date of these financial statements. | |||||||||
Basis of Consolidation | Basis of Consolidation | ||||||||
The condensed consolidated balance sheets at August 31, 2013 and May 31, 2013 and condensed consolidated statements of operations for the three months ended August 31, 2013 and 2012 includes 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” below for additional information. | |||||||||
Reclassifications | Reclassification | ||||||||
Certain amounts presented in the prior periods’ condensed consolidated financial statements related to interest and other income have been reclassified to conform to the current period’s presentation. | |||||||||
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 August 31, 2013, the gain on the asset sale of PDSG is approximately $44,700. | |||||||||
Summarized operating results of discontinued operations for the three months ended August 31, 2013 and 2012 are as follows: | |||||||||
31-Aug-13 | 31-Aug-12 | ||||||||
Operating loss from discontinued operations | $ | – | $ | (1,387 | ) | ||||
Gain on sale of discontinued operations | $ | 40,358 | $ | 532 | |||||
Income (loss) before income taxes | $ | 40,358 | $ | (855 | ) | ||||
Income (loss) from discontinued operations | $ | 40,358 | $ | (855 | ) | ||||
PDSG activity for the three months ended August 31, 2013 consists of PDSG royalty revenues. | |||||||||
PDSG activity for the three months ended August 31, 2012 consists of operating expenses for: insurance, taxes and bank fees offset by PDSG royalty revenues. | |||||||||
The following table summarizes the carrying amount at August 31, 2013 and May 31, 2013 of the major classes of assets of PDSG classified as discontinued operations: | |||||||||
31-Aug-13 | 31-May-13 | ||||||||
Current assets: | |||||||||
Other current assets | $ | 70,358 | $ | 40,682 | |||||
Liquidity and Management's Plans | Liquidity and Management’s Plans | ||||||||
Cash shortfalls currently experienced by Phoenix Digital Solutions, LLC (“PDS”) will have an adverse effect on our liquidity. During the fiscal year ended May 31, 2013, we and Technology Properties Limited, Inc. (“TPL”) each contributed $1,097,809 in additional capital to fund the operations of PDS. We and TPL have made no such contributions for the three months ended August 31, 2013. 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 retainer payments, as well as licensing and litigation support payments to Alliacense Limited, LLC (“Alliacense”, an affiliate of TPL), 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 has 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 (see Note 6). | |||||||||
Our current liquid cash resources as of August 31, 2013, 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 $7,253,160 at August 31, 2013. | |||||||||
On March 20, 2013, TPL filed a petition under Chapter 11 of the United States Bankruptcy Code. We have been appointed to the creditors’ committee and will be closely monitoring the progress in this matter as it relates to our interest in PDS. If we 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 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. | |||||||||
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 available-for-sale based on management’s investment intentions relating to these securities. Available-for-sale marketable securities are stated at fair market value. 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 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 are 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 net loss per share for continuing and discontinued operations includes no dilution and is computed by dividing loss 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. | |||||||||
At August 31, 2013 and 2012 potential common shares of 1,510,000 and 1,575,000, respectively, 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 months ended August 31, 2013 and 2012, an additional 575,000 and 650,000, respectively, 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 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. | |||||||||
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 affiliate, relies on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. PDS currently licenses four unexpired U.S. patents issued dating back to 1997 on our microprocessor technology in addition to three European and two Japanese patents. The U.S. patents will expire between 2014 and 2015 and the European and Japanese patents will expire in 2016. PDS also licenses three U.S. patents, six European, and one Japanese patent all of which expired between August 2009 and June 2013. These patents, while expired, may have certain retrospective statutory benefits that will fully diminish six years after the patent expiration date (e.g. for the expired U.S. patents). 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. |
1_Summary_of_Significant_Accou1
1. Summary of Significant Accounting Policies (Tables) | 3 Months Ended | ||||||||
Aug. 31, 2013 | |||||||||
Accounting Policies [Abstract] | |||||||||
Summary of operating results of discontinued operations | 31-Aug-13 | 31-Aug-12 | |||||||
Operating loss from discontinued operations | $ | – | $ | (1,387 | ) | ||||
Gain on sale of discontinued operations | $ | 40,358 | $ | 532 | |||||
Income (loss) before income taxes | $ | 40,358 | $ | (855 | ) | ||||
Income (loss) from discontinued operations | $ | 40,358 | $ | (855 | ) | ||||
Carrying amount of assets and liability as discontinued operations | 31-Aug-13 | 31-May-13 | |||||||
Current assets: | |||||||||
Other current assets | $ | 70,358 | $ | 40,682 |
2_Cash_Cash_Equivalents_Restri1
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Tables) | 3 Months Ended | ||||||||||||||||
Aug. 31, 2013 | |||||||||||||||||
Cash and Cash Equivalents [Abstract] | |||||||||||||||||
Schedule of fair value of cash, cash equivalents and investments in marketable securities | 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 August 31, 2013 Using | |||||||||||||||||
Quoted Prices | Significant | ||||||||||||||||
in Active | Other | Significant | |||||||||||||||
Fair Value at | Markets for | Observable | Unobservable | ||||||||||||||
August 31, | Identical Assets | Inputs | Inputs | ||||||||||||||
2013 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Cash and cash equivalents: | |||||||||||||||||
Cash | $ | 108,210 | $ | 108,210 | $ | – | $ | – | |||||||||
Money market funds | 6,950,795 | 6,950,795 | – | – | |||||||||||||
Restricted cash | 21,044 | 21,044 | – | – | |||||||||||||
Marketable securities: | |||||||||||||||||
Short-term: | |||||||||||||||||
Certificates of deposit | 194,155 | – | 194,155 | – | |||||||||||||
Total | $ | 7,274,204 | $ | 7,080,049 | $ | 194,155 | $ | – | |||||||||
Fair Value Measurements at May 31, 2013 Using | |||||||||||||||||
Quoted Prices | Significant | ||||||||||||||||
in Active | Other | Significant | |||||||||||||||
Fair Value at | Markets for | Observable | Unobservable | ||||||||||||||
May 31, | Identical Assets | Inputs | Inputs | ||||||||||||||
2013 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Cash and cash equivalents: | |||||||||||||||||
Cash | $ | 197,862 | $ | 197,862 | $ | – | $ | – | |||||||||
Money market funds | 5,225,176 | 5,225,176 | – | – | |||||||||||||
Certificates of deposit | 2,149,849 | – | 2,149,849 | – | |||||||||||||
Restricted cash | 21,018 | 21,018 | – | – | |||||||||||||
Marketable securities: | |||||||||||||||||
Short-term: | |||||||||||||||||
Certificates of deposit | 194,463 | – | 194,463 | – | |||||||||||||
Total | $ | 7,788,368 | $ | 5,444,056 | $ | 2,344,312 | $ | – | |||||||||
Schedule of maturities, gross unrealized gains or losses and fair value of certificates of deposit | The following table summarizes the maturities, gross unrealized gains or losses and fair value of the certificates of deposit as of August 31, 2013: | ||||||||||||||||
August 31, 2013 | |||||||||||||||||
Cost | Gross Unrealized Gains/(Losses) | Fair | |||||||||||||||
Value | |||||||||||||||||
Maturity | |||||||||||||||||
Due in one year or less | $ | 194,155 | $ | – | $ | 194,155 | |||||||||||
The following table summarizes the maturities, gross unrealized gains or losses and fair value of the certificates of deposit as of May 31, 2013: | |||||||||||||||||
May 31, 2013 | |||||||||||||||||
Cost | Gross Unrealized Gains/(Losses) | Fair | |||||||||||||||
Value | |||||||||||||||||
Maturity | |||||||||||||||||
Due in three months or less | $ | 2,149,849 | $ | – | $ | 2,149,849 | |||||||||||
Due in one year or less | $ | 194,463 | $ | – | $ | 194,463 | |||||||||||
3_Investment_in_Affiliated_Com1
3. Investment in Affiliated Company (Tables) | 3 Months Ended | ||||||||
Aug. 31, 2013 | |||||||||
Equity Method Investments and Joint Ventures [Abstract] | |||||||||
Balance sheets and statement of operations of affiliate | PDS’ balance sheets at August 31, 2013 and May 31, 2013 and statements of operations for the three months ended August 31, 2013 and 2012 are as follows: | ||||||||
Balance Sheets | |||||||||
Assets: | |||||||||
31-Aug-13 | 31-May-13 | ||||||||
(Unaudited) | (Audited) | ||||||||
Cash | $ | 1,679,938 | $ | 1,320,932 | |||||
Prepaid expenses | 200,104 | 717,540 | |||||||
Licenses receivable | – | 250,000 | |||||||
Total assets | $ | 1,880,042 | $ | 2,288,472 | |||||
Liabilities and Members’ Equity: | |||||||||
31-Aug-13 | 31-May-13 | ||||||||
(Unaudited) | (Audited) | ||||||||
Related party payables | $ | 1,330,304 | $ | 1,544,075 | |||||
Income tax payable | – | 11,790 | |||||||
Members’ equity | 549,738 | 732,607 | |||||||
Total liabilities and members’ equity | $ | 1,880,042 | $ | 2,288,472 | |||||
Statements of Operations | |||||||||
Three Months Ended | |||||||||
August 31, | |||||||||
2013 | 2012 | ||||||||
(Unaudited) | (Unaudited) | ||||||||
Revenues | $ | 1,490,000 | $ | 450,000 | |||||
Expenses | 1,660,369 | 1,564,136 | |||||||
Operating loss | (170,369 | ) | (1,114,136 | ) | |||||
Net loss | $ | (170,369 | ) | $ | (1,114,136 | ) | |||
Related Party Balances and Transactions | Balances with related parties as of August 31, 2013 and May 31, 2013 are summarized as follows: | ||||||||
31-Aug-13 | 31-May-13 | ||||||||
Assets: | |||||||||
Prepaid expenses (Advances to Alliacense) | $ | – | $ | 456,353 | |||||
Liabilities: | |||||||||
Related party payables and accrued expenses (TPL) (1) | $ | 1,279,088 | $ | 1,493,775 | |||||
Related party payables (PTSC) | 33,400 | 16,538 | |||||||
Related party payables (Alliacense) | 17,816 | 33,762 | |||||||
Total liabilities | $ | 1,330,304 | $ | 1,544,075 | |||||
Transactions with related parties for the three months ended August 31, 2013 and 2012 are as follows: | |||||||||
31-Aug-13 | 31-Aug-12 | ||||||||
Expenses paid or accrued (TPL) | $ | 973,531 | $ | 302,877 | |||||
Expenses paid or accrued (Alliacense) | $ | 603,931 | $ | 1,258,103 | |||||
-1 | Pursuant to the terms of the Commercialization Agreement, PDS will reimburse TPL for the payment of all legal and third party expert fees and other related third party costs and expenses upon TPL’s submission of documentation supporting that payment by them has occurred. | ||||||||
Transactions with this law firm and legal subcontractors for the three months ended August 31, 2013 and 2012 were as follows: | |||||||||
31-Aug-13 | 31-Aug-12 | ||||||||
Legal costs | $ | 1,123,916 | $ | 108,090 | |||||
5_Stockholders_Equity_Tables
5. Stockholders' Equity (Tables) | 3 Months Ended | ||||||||||||||||||||
Aug. 31, 2013 | |||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||
Summary of equity transactions | Common Stock | Additional | Accumulated | Treasury | |||||||||||||||||
Shares | Amounts | Paid-in Capital | Deficit | Stock | |||||||||||||||||
Balance June 1, 2013 | 405,247,405 | $ | 4,382 | $ | 77,338,434 | $ | (54,801,249 | ) | $ | (14,404,394 | ) | ||||||||||
Share-based compensation | – | – | 62,418 | – | – | ||||||||||||||||
Net loss | – | – | – | (486,890 | ) | – | |||||||||||||||
Balance August 31, 2013 | 405,247,405 | $ | 4,382 | $ | 77,400,852 | $ | (55,288,139 | ) | $ | (14,404,394 | ) | ||||||||||
Share-based compensation assumptions | Three Months Ended | Three Months Ended | |||||||||||||||||||
August 31, | August 31, | ||||||||||||||||||||
2013 | 2012 | ||||||||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||||||
Expected term | 5 | years | * | years | |||||||||||||||||
Expected volatility | 88 | % | * | % | |||||||||||||||||
Risk-free interest rate | 1.05 | % | * | % | |||||||||||||||||
Summary of option activity | Shares | Weighted Average | Weighted Average Remaining Contractual | Aggregate Intrinsic | |||||||||||||||||
Exercise | Term | Value | |||||||||||||||||||
Price | (Years) | ||||||||||||||||||||
Options outstanding at June 1, 2013 | 750,000 | $ | 0.1 | ||||||||||||||||||
Options granted | 760,000 | $ | 0.12 | ||||||||||||||||||
Options exercised | – | $ | – | ||||||||||||||||||
Options forfeited | – | $ | – | ||||||||||||||||||
1,510,000 | $ | 0.11 | 3.11 | $ | 5,750 | ||||||||||||||||
Options outstanding at August 31, 2013 | |||||||||||||||||||||
1,510,000 | $ | 0.11 | 3.11 | $ | 5,750 | ||||||||||||||||
Options vested and expected to vest at August 31, 2013 | |||||||||||||||||||||
1,510,000 | $ | 0.11 | 3.11 | $ | 5,750 | ||||||||||||||||
Options exercisable at August 31, 2013 | |||||||||||||||||||||
Summary of share-based compensation expenses | Three Months Ended | Three Months Ended | |||||||||||||||||||
31-Aug-13 | 31-Aug-12 | ||||||||||||||||||||
Selling, general and administrative expense | $ | 62,418 | $ | – |
1_Summary_of_Significant_Accou2
1. Summary of Significant Accounting Policies (Table 1) (USD $) | 3 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | |
Accounting Policies [Abstract] | ||
Operating loss from discontinued operations | $0 | ($1,387) |
Gain on sale of discontinued operations | 40,358 | 532 |
Income (loss) before income taxes | 40,358 | -855 |
Income (loss) from discontinued operations | $40,358 | ($855) |
1_Summary_of_Significant_Accou3
1. Summary of Significant Accounting Policies (Table 2) (USD $) | Aug. 31, 2013 | 31-May-13 |
Accounting Policies [Abstract] | ||
Other current assets | $70,358 | $40,682 |
1_Summary_of_Significant_Accou4
1. Summary of Significant Accounting Policies (Narrative) (USD $) | 12 Months Ended | 16 Months Ended | 3 Months Ended | |||
31-May-13 | Aug. 31, 2013 | Aug. 31, 2013 | Aug. 31, 2012 | Aug. 31, 2013 | Aug. 31, 2012 | |
Options | Options | Options | Options | |||
Net Loss | Net Loss | Treasury Stock Method | Treasury Stock Method | |||
Gain on sale of assets of discontinued operations | $44,700 | |||||
Capital contributed to affiliate | $1,097,809 | $0 | ||||
Common shares not included in calculation of diluted net loss per share | 1,510,000 | 1,575,000 | 575,000 | 650,000 |
2_Cash_Cash_Equivalents_Restri2
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Table 1) (USD $) | Aug. 31, 2013 | 31-May-13 |
Cash | $108,210 | $197,862 |
Money market funds | 6,950,795 | 5,225,176 |
Certificates of deposit - cash and cash equivalents | 2,149,849 | |
Restricted cash | 21,044 | 21,018 |
Certificates of deposit - Marketable securities | 194,155 | 194,463 |
Total cash and cash equivalents, restricted cash and marketable securities | 7,274,204 | 7,788,368 |
Fair Value Inputs Level 1 | ||
Cash | 108,210 | 197,862 |
Money market funds | 6,950,795 | 5,225,176 |
Restricted cash | 21,044 | 21,018 |
Total cash and cash equivalents, restricted cash and marketable securities | 7,080,049 | 5,444,056 |
Fair Value Inputs Level 2 | ||
Certificates of deposit - cash and cash equivalents | 2,149,849 | |
Certificates of deposit - Marketable securities | 194,155 | 194,463 |
Total cash and cash equivalents, restricted cash and marketable securities | 194,155 | 2,344,312 |
Fair Value Inputs Level 3 | ||
Cash | ||
Money market funds | ||
Certificates of deposit - cash and cash equivalents | ||
Restricted cash | ||
Certificates of deposit - Marketable securities | ||
Total cash and cash equivalents, restricted cash and marketable securities |
2_Cash_Cash_Equivalents_Restri3
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Table 2) (USD $) | Aug. 31, 2013 | 31-May-13 |
Due in three months or less | ||
Certificates of deposit | ||
Cost | $2,149,849 | |
Fair Value | 2,149,849 | |
Due in one year or less | ||
Certificates of deposit | ||
Cost | 194,155 | 194,463 |
Fair Value | $194,155 | $194,463 |
3_Investment_in_Affiliated_Com2
3. Investment in Affiliated Company (Tables 1-2) (USD $) | Aug. 31, 2013 | 31-May-13 |
ASSETS: | ||
Total assets | $1,880,042 | $2,288,472 |
LIABILITIES AND MEMBERS' DEFICIT | ||
Total liabilities and members' equity | 1,880,042 | 2,288,472 |
Cash | ||
ASSETS: | ||
Total assets | 1,679,938 | 1,320,932 |
Prepaid Expenses | ||
ASSETS: | ||
Total assets | 200,104 | 717,540 |
Licenses receivable | ||
ASSETS: | ||
Total assets | 0 | 250,000 |
Related party payables | ||
LIABILITIES AND MEMBERS' DEFICIT | ||
Total liabilities and members' equity | 1,330,304 | 1,544,075 |
Income tax payable | ||
LIABILITIES AND MEMBERS' DEFICIT | ||
Total liabilities and members' equity | 0 | 11,790 |
Members' equity | ||
LIABILITIES AND MEMBERS' DEFICIT | ||
Total liabilities and members' equity | $549,738 | $732,607 |
3_Investment_in_Affiliated_Com3
3. Investment in Affiliated Company (Table 3) (USD $) | 3 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | |
Equity Method Investments and Joint Ventures [Abstract] | ||
Revenues | $1,490,000 | $450,000 |
Expenses | 1,660,369 | 1,564,136 |
Operating loss | -170,369 | -1,114,136 |
Net loss | ($170,369) | ($1,114,136) |
3_Investment_in_Affiliated_Com4
3. Investment in Affiliated Company (Table 4-5) (USD $) | 3 Months Ended | ||
Aug. 31, 2013 | Aug. 31, 2012 | 31-May-13 | |
Related party payables and accrued expenses | $1,330,304 | $1,544,075 | |
Alliacense | |||
Prepaid expenses | 456,353 | ||
Related party payables and accrued expenses | 17,816 | 33,762 | |
Expenses paid or accrued | 603,931 | 1,258,103 | |
TPL | |||
Related party payables and accrued expenses | 1,279,088 | 1,493,775 | |
Expenses paid or accrued | 973,531 | 302,877 | |
PTSC | |||
Related party payables and accrued expenses | $33,400 | $16,538 |
3_Investment_in_Affiliated_Com5
3. Investment in Affiliated Company (Table 6) (USD $) | 3 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | |
Equity Method Investments and Joint Ventures [Abstract] | ||
Legal costs | $1,123,916 | $108,090 |
5_Shareholders_Equity_Table_1
5. Shareholders' Equity (Table 1) (USD $) | Common Stock | Additional Paid-In Capital | Retained Earnings / Accumulated Deficit | Treasury Stock Method |
Beginning balance, value at May. 31, 2013 | $4,382 | $77,338,434 | ($54,801,249) | ($14,404,394) |
Beginning balance, shares at May. 31, 2013 | 405,247,405 | |||
Share-based compensation | 62,418 | |||
Net loss | -486,890 | |||
Ending balance, value at Aug. 31, 2013 | $4,382 | $77,400,852 | ($55,288,139) | ($14,404,394) |
Ending balance, shares at Aug. 31, 2013 | 405,247,405 |
5_Stockholders_Equity_Table_2
5. Stockholders' Equity (Table 2) | 3 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | |
Equity [Abstract] | ||
Expected term | 5 years | 0 years |
Expected volatility | 88.00% | 0.00% |
Risk-free interest rate | 1.05% | 0.00% |
5_Stockholders_Equity_Table_3
5. Stockholders' Equity (Table 3) (USD $) | 3 Months Ended |
Aug. 31, 2013 | |
Equity [Abstract] | |
Number of Options Outstanding, Beginning | 750,000 |
Number of Options Granted | 760,000 |
Number of Options Exercised | |
Number of Options Forfeited | |
Number of Options Outstanding, Ending | 1,510,000 |
Options vested and expected to vest, Ending | 1,510,000 |
Number of Options Exercisable, Ending | 1,510,000 |
Weighted Average Exercise Price Outstanding, Beginning | $0.10 |
Weighted Average Exercise Price Granted | $0.12 |
Weighted Average Exercise Price Exercised | |
Weighted Average Exercise Price Forfeited | |
Weighted Average Exercise Price Outstanding, Ending | $0.11 |
Weighted Average Exercise Price, Options vested and expected to vest, Ending | $0.11 |
Weighted Average Exercise Price Exercisable | $0.11 |
Weighted Average Remaining Contractual Life (in years) Outstanding | 3 years 1 month 10 days |
Weighted Average Remaining Contractual Life (in years) Options vested and expected to vest | 3 years 1 month 10 days |
Weighted Average Remaining Contractual Life (in years) Exercisable | 3 years 1 month 10 days |
Aggregate Intrinsic Value Outstanding, Ending | $5,750 |
Aggregate Intrinsic Value Options vested and expected to vest | 5,750 |
Aggregate Intrinsic Value Exercisable | $5,750 |
5_Stockholders_Equity_Table_4
5. Stockholders' Equity (Table 4) (Selling, general and administrative expense, USD $) | 3 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | |
Share-based compensation expense | $62,418 | $0 |
5_Stockholders_Equity_Narrativ
5. Stockholders' Equity (Narrative) (USD $) | 3 Months Ended |
Aug. 31, 2013 | |
Equity [Abstract] | |
Weighted average grant date fair value of options granted | $0.08 |
6_Commitments_and_Contingencie1
6. Commitments and Contingencies (Narrative) (USD $) | 3 Months Ended | |
Aug. 31, 2013 | Aug. 31, 2012 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Patriot's matching contributions to the 401K plan | $3,754 | $3,753 |