Document_and_Entity_Informatio
Document and Entity Information (USD $) | 12 Months Ended | ||
31-May-14 | Aug. 13, 2014 | Nov. 30, 2013 | |
Document And Entity Information | ' | ' | ' |
Entity Registrant Name | 'PATRIOT SCIENTIFIC CORP | ' | ' |
Entity Central Index Key | '0000836564 | ' | ' |
Document Type | '10-K | ' | ' |
Document Period End Date | 31-May-14 | ' | ' |
Amendment Flag | 'false | ' | ' |
Current Fiscal Year End Date | '--05-31 | ' | ' |
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 Public Float | ' | ' | $44,357,182 |
Entity Common Stock, Shares Outstanding | ' | 401,392,948 | ' |
Document Fiscal Period Focus | 'FY | ' | ' |
Document Fiscal Year Focus | '2014 | ' | ' |
Consolidated_Balance_Sheets
Consolidated Balance Sheets (USD $) | 31-May-14 | 31-May-13 |
Current assets: | ' | ' |
Cash and cash equivalents | $4,716,208 | $7,572,887 |
Restricted cash and cash equivalents | 21,123 | 21,018 |
Marketable securities | 1,701,647 | 194,463 |
Accounts receivable - affiliated company | 0 | 16,538 |
Prepaid expenses and other current assets | 203,146 | 194,901 |
Current assets of discontinued operations | 57,477 | 40,682 |
Total Current Assets | 6,699,601 | 8,040,489 |
Property and equipment, net | 2,775 | 5,078 |
Other assets | 3,036 | 3,036 |
Investment in affiliated company | 95,981 | 366,304 |
Total assets | 6,801,393 | 8,414,907 |
Current liabilities: | ' | ' |
Accounts payable | 224,059 | 219,213 |
Accrued expenses and other | 62,485 | 58,521 |
Income tax payable | 3,599 | ' |
Total current liabilities | 290,143 | 277,734 |
Total liabilities | 290,143 | 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 401,392,948 shares outstanding at May 31, 2014 and 438,242,618 shares issued and 405,247,405 shares outstanding at May 31, 2013 | 4,382 | 4,382 |
Additional paid-in capital | 77,400,852 | 77,338,434 |
Accumulated deficit | -56,268,116 | -54,801,249 |
Common stock held in treasury, at cost - 36,849,670 shares at May 31, 2014 and 32,995,213 shares at May 31, 2013 | -14,625,868 | -14,404,394 |
Total stockholders' equity | 6,511,250 | 8,137,173 |
Total liabilities and stockholders' equity | $6,801,393 | $8,414,907 |
Consolidated_Balance_Sheets_Pa
Consolidated Balance Sheets (Parenthetical) (USD $) | 31-May-14 | 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 | 401,392,948 | 405,247,405 |
Common stock held in treasury, at cost | 36,849,670 | 32,995,213 |
Consolidated_Statements_of_Ope
Consolidated Statements of Operations (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Operating expenses: | ' | ' |
Selling, general and administrative | $1,660,090 | $1,381,430 |
Total operating expenses | 1,660,090 | 1,381,430 |
Other income (expense): | ' | ' |
Interest income | 5,832 | 17,494 |
Other income | 0 | 217,618 |
Realized (loss) recovery on marketable securities | -347 | 55,873 |
Equity in earnings of affiliated company | 104,677 | 2,174,395 |
Total other income, net | 110,162 | 2,465,380 |
Income (loss) from continuing operations before income taxes | -1,549,928 | 1,083,950 |
Provision (benefit) for income taxes | 5,999 | -113 |
Income (loss) from continuing operations | -1,555,927 | 1,084,063 |
Income from discontinued operations, net | 89,060 | 12,152 |
Net income (loss) | ($1,466,867) | $1,096,215 |
Basic and diluted income (loss) per common share: | ' | ' |
Income (loss) from continuing operations | $0 | $0 |
Income from discontinued operations | $0 | $0 |
Net income (loss) | $0 | $0 |
Weighted average number of common shares outstanding - basic | 401,448,304 | 402,522,925 |
Weighted average number of common shares outstanding - diluted | 401,448,304 | 405,425,823 |
Consolidated_Statements_of_Sto
Consolidated Statements of Stockholders' Equity (USD $) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Total |
Beginning Balance, Amount at May. 31, 2012 | $4,381 | $77,330,935 | ($55,897,464) | ($14,347,254) | $7,090,598 |
Beginning Balance, Shares at May. 31, 2012 | 405,735,958 | ' | ' | ' | ' |
Exercise of options, Shares | 75,000 | ' | ' | ' | ' |
Exercise of options, Amount | 1 | 7,499 | ' | ' | 7,500 |
Purchase of common stock for treasury, Shares | -563,553 | ' | ' | ' | ' |
Purchase of common stock for treasury, Amount | ' | ' | ' | -57,140 | -57,140 |
Net income (loss) | ' | ' | 1,096,215 | ' | 1,096,215 |
Ending Balance, Amount at May. 31, 2013 | 4,382 | 77,338,434 | -54,801,249 | -14,404,394 | 8,137,173 |
Ending Balance, Shares at May. 31, 2013 | 405,247,405 | ' | ' | ' | ' |
Share-based compensation | ' | 62,418 | ' | ' | 62,418 |
Purchase of common stock for treasury, Shares | -3,854,457 | ' | ' | ' | ' |
Purchase of common stock for treasury, Amount | ' | ' | ' | -221,474 | -221,474 |
Net income (loss) | ' | ' | -1,466,867 | ' | -1,466,867 |
Ending Balance, Amount at May. 31, 2014 | $4,382 | $77,400,852 | ($56,268,116) | ($14,625,868) | $6,511,250 |
Ending Balance, Shares at May. 31, 2014 | 401,392,948 | ' | ' | ' | ' |
Consolidated_Statements_of_Cas
Consolidated Statements of Cash Flows (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Operating activities: | ' | ' |
Net income (loss) | ($1,466,867) | $1,096,215 |
Less: Net income from discontinued operations | 89,060 | 12,152 |
Net income (loss) from continuing operations | -1,555,927 | 1,084,063 |
Adjustments to reconcile net income (loss) before discontinued operations to net cash used in operating activities: | ' | ' |
Depreciation | 2,303 | 2,590 |
Share-based compensation | 62,418 | 0 |
Accrued interest income added to investments | -2,104 | -8,270 |
Equity in earnings of affiliated company | -104,677 | -2,174,395 |
Realized loss (recovery) on sale of marketable securities | 347 | -55,873 |
Loss on sale of assets | 0 | 2,036 |
Changes in operating assets and liabilities: | ' | ' |
Accounts receivable - affiliated company | 16,538 | 120,730 |
Prepaid expenses and other current assets | -8,245 | 27,140 |
Accounts payable, accrued expenses, and other | 8,809 | -26,456 |
Income taxes payable | 3,599 | -2,513 |
Net cash used in operating activities of continuing operations | -1,576,939 | -1,030,948 |
Net cash provided by operating activities of discontinued operations | 72,266 | 20,744 |
Net cash used in operating activities | -1,504,673 | -1,010,204 |
Investing activities: | ' | ' |
Proceeds from sales of marketable securities | 1,197,619 | 7,651,525 |
Purchases of marketable securities | -2,703,151 | -4,645,799 |
Purchases of property and equipment | 0 | -2,168 |
Investment in affiliated company | 0 | -1,097,809 |
Distributions from affiliated company | 375,000 | 2,027,808 |
Net cash (used in) provided by investing activities | -1,130,532 | 3,933,557 |
Financing activities: | ' | ' |
Repurchase of common stock for treasury | -221,474 | -57,140 |
Exercise of stock options | 0 | 7,500 |
Net cash used in financing activities | -221,474 | -49,640 |
Net increase (decrease) in cash and cash equivalents | -2,856,679 | 2,873,713 |
Cash and cash equivalents, beginning of year | 7,572,887 | 4,699,174 |
Cash and cash equivalents, end of year | 4,716,208 | 7,572,887 |
Supplemental Disclosure of Cash Flow Information: | ' | ' |
Cash payments for income taxes | 3,900 | 2,400 |
Cash receipts from income tax refunds | $1,500 | $0 |
1_Organization_and_Business
1. Organization and Business | 12 Months Ended |
31-May-14 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
1. Organization and Business | ' |
Patriot Scientific Corporation (the “Company”, “PTSC”, “we”, “us”, or “our”), was organized under Delaware law on March 24, 1992 and is the successor by merger to Patriot Financial Corporation, a Colorado corporation, incorporated on June 10, 1987. In June 2005, we entered into a joint venture agreement with Technology Properties Limited, Inc. (“TPL”) to form Phoenix Digital Solutions, LLC (“PDS”). In September 2008, we acquired Patriot Data Solutions Group, Inc. formerly known as Crossflo Systems, Inc. (“PDSG”) which engaged in data-sharing services and products primarily in the public safety/government sector. In January 2010, we sold the assets of Verras Medical, Inc. and in August 2010 we sold the Vigilys business line both formerly associated with PDSG. During April 2012, we sold substantially all of the assets of PDSG. | |
Through our joint venture PDS we pursue the commercialization of our patented microprocessor technologies through broad and open licensing and by litigating against those who may be infringing on our patents. | |
Liquidity and Management’s Plans | |
Cash shortfalls currently experienced by PDS will have an adverse effect on our liquidity. During the fiscal year ended May 31, 2013 we and 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 fiscal year ended May 31, 2014. 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 May 31, 2014, 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 $6,417,855 at May 31, 2014. | |
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 have been closely monitoring the progress in this matter as it relates to our interest in PDS. On July 18, 2014, TPL and the creditors’ committee announced that a term sheet serving as the basis for a Joint Plan of Reorganization (the “Plan”) has been agreed to with the expectation that the Plan will be presented to the Bankruptcy Court for approval on September 17, 2014. 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 consolidated financial statements. |
2_Summary_of_Significant_Accou
2. Summary of Significant Accounting Policies | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Accounting Policies [Abstract] | ' | ||||||||
2. Summary of Significant Accounting Policies | ' | ||||||||
Basis of Consolidation | |||||||||
The consolidated balance sheets at May 31, 2014 and 2013 and consolidated statements of operations for the fiscal years ended May 31, 2014 and 2013 includes our accounts and those of our wholly owned subsidiary 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 consolidated statements of operations for all periods presented. See “Discontinued Operations” below for additional information. | |||||||||
Discontinued Operations | |||||||||
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, liabilities, 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, 2014, the gain on the asset sale of PDSG is approximately $93,000. | |||||||||
Summarized operating results of discontinued operations for the fiscal years ended May 31, 2014 and 2013 are as follows: | |||||||||
31-May-14 | 31-May-13 | ||||||||
Operating loss from discontinued operations | $ | – | $ | (3,224 | ) | ||||
Gain on sale of discontinued operations | $ | 89,060 | $ | 15,376 | |||||
Income before income taxes | $ | 89,060 | $ | 12,152 | |||||
Income from discontinued operations | $ | 89,060 | $ | 12,152 | |||||
PDSG activity for the fiscal year ended May 31, 2014 consists of PDSG royalty revenues. | |||||||||
PDSG activity for the fiscal year ended May 31, 2013 consists of operating expenses for: legal, insurance, taxes and bank fees offset by PDSG royalty revenues. | |||||||||
The following table summarizes the carrying amount of the major classes of assets and liabilities of PDSG classified as discontinued operations at May 31, 2014 and May 31, 2013: | |||||||||
31-May-14 | 31-May-13 | ||||||||
Current assets: | |||||||||
Other current assets | $ | 57,477 | $ | 40,682 | |||||
Financial Instruments and Concentrations of Credit Risk | |||||||||
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, cash equivalents, and investments in marketable securities. | |||||||||
At times, our balance of cash maintained with our bank may exceed the Federal Deposit Insurance Corporation’s (“FDIC”) insured limit of $250,000. At May 31, 2014 and 2013, our cash and cash equivalents balances subject to FDIC insurance exceeded the FDIC limit by $111,526 and $35,084, respectively. At May 31, 2014 and 2013, our cash and cash equivalents balance consisting of money market accounts not subject to FDIC insurance was $4,375,653 and $5,225,176, respectively. | |||||||||
We limit our exposure of loss by maintaining our cash with financially stable financial institutions. When we have excess cash, our cash equivalents are placed in certificates of deposit and high quality money market accounts with major financial institutions. We believe this investment policy limits our exposure to concentrations of credit risk. | |||||||||
At May 31, 2014 and 2013, investments in marketable securities consist of certificates of deposit with maturities greater than three months. Each certificate of deposit is invested with a financial institution for $250,000 or less so as not to exceed the FDIC insurance limit. | |||||||||
Fair Value of Financial Instruments | |||||||||
Our financial instruments consist principally of cash and cash equivalents, investments in marketable securities, accounts payable and accrued expenses and other. The carrying value of these financial instruments approximates fair value because of the immediate or short-term maturity of the instruments. The fair value of our cash equivalents is determined based on quoted prices in active markets for identical assets or Level 1 inputs. The fair value of our investments in marketable securities is determined based on quoted prices in non-active markets for identical assets or Level 2 inputs. We believe that the carrying values of all other financial instruments approximate their current fair values due to their nature and respective durations. | |||||||||
Cash Equivalents, Restricted Cash, and Short-Term Marketable Securities | |||||||||
We consider all highly liquid investments acquired with a maturity of three months or less to be cash equivalents. | |||||||||
Restricted cash and cash equivalents at May 31, 2014 and 2013 consist of a savings account held as collateral for our corporate credit card account. | |||||||||
At May 31, 2014 and 2013 our short-term marketable securities in the amount of $1,701,647 and $194,463 consist of certificates of deposit with various financial institutions, with maturity dates of twelve months or less. | |||||||||
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 consolidated statements of operations. | |||||||||
Property, Equipment and Depreciation | |||||||||
Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from three to five years. Major betterments and renewals are capitalized, while routine repairs and maintenance are charged to expense when incurred. | |||||||||
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 consolidated statements of operations in the caption “Equity in earnings 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. | |||||||||
Treasury Stock | |||||||||
We account for treasury stock under the cost method and include treasury stock as a component of stockholders’ equity. | |||||||||
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 not more likely than not that all of our deferred tax assets will 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. | |||||||||
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 fiscal year ended May 31, 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 year ended May 31, 2014 no additional shares of common stock would have been included in the calculation of diluted income per share for continuing and discontinued operations. For the fiscal year ended May 31, 2014, we excluded the PDSG escrow shares of 2,844,630 in the calculation of diluted loss per share for continuing and discontinued operations as we recorded a loss. | |||||||||
For the fiscal year ended May 31, 2013 potential common shares of 175,000 related to our outstanding options were not included in the calculation of diluted income per share for continuing and discontinued operations. For the fiscal year ended May 31, 2013, we included the PDSG escrow shares of 2,844,630 in the calculation of diluted income per share for continuing and discontinued operations. | |||||||||
In connection with our acquisition of Crossflo, which became a 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 9). We exclude these escrow shares from the basic income (loss) per share calculations and include the escrowed shares in the diluted income per share calculations. | |||||||||
Use of Estimates | |||||||||
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying footnotes. Actual results could differ from those estimates. On an ongoing basis we evaluate our estimates, including, but not limited to: fair values of investments in marketable securities, the use, recoverability, and /or realizability of certain assets, including investments in affiliated companies, deferred tax assets, and share-based compensation. | |||||||||
Share-Based Compensation | |||||||||
Share-based compensation expense recognized during the year is based on the grant date fair value of the portion of share-based payment awards ultimately expected to vest during the year. As share-based compensation expense recognized in the 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. | |||||||||
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. There are currently two unexpired U.S. patents issued dating back to 1998 on our microprocessor technology in addition to three European and two Japanese patents. The U.S. patents will expire in 2015 and the European and Japanese patents will expire in 2016. There are also five U.S. patents, six European, and one Japanese patent all of which expired between August 2009 and August 19, 2014. 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. |
3_Cash_Cash_Equivalents_Restri
3. Cash, Cash Equivalents, Restricted Cash and Marketable Securities | 12 Months Ended | ||||||||||||||||
31-May-14 | |||||||||||||||||
Cash and Cash Equivalents [Abstract] | ' | ||||||||||||||||
3. 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 May 31, 2014 and 2013 consist of deposits in a savings account required to be held as collateral for our corporate credit card. | |||||||||||||||||
At May 31, 2014 and 2013, our current portion of marketable securities in the amount of $1,701,647 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 May 31, 2014 Using | |||||||||||||||||
Quoted Prices | Significant | ||||||||||||||||
in Active | Other | Significant | |||||||||||||||
Fair Value at | Markets for | Observable | Unobservable | ||||||||||||||
May 31, | Identical Assets | Inputs | Inputs | ||||||||||||||
2014 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Cash and cash equivalents: | |||||||||||||||||
Cash | $ | 340,555 | $ | 340,555 | $ | – | $ | – | |||||||||
Money market funds | 4,375,653 | 4,375,653 | – | – | |||||||||||||
Restricted cash and cash equivalents | 21,123 | 21,123 | – | – | |||||||||||||
Marketable securities: | |||||||||||||||||
Short-term: | |||||||||||||||||
Certificates of deposit | 1,701,647 | – | 1,701,647 | – | |||||||||||||
Total | $ | 6,438,978 | $ | 4,737,331 | $ | 1,701,647 | $ | – | |||||||||
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 and cash equivalents | 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 | $ | – | |||||||||
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 May 31, 2014: | |||||||||||||||||
May 31, 2014 | |||||||||||||||||
Cost | Gross Unrealized Gains/(Losses) | Fair | |||||||||||||||
Value | |||||||||||||||||
Maturity | |||||||||||||||||
Due in one year or less | $ | 1,701,647 | $ | – | $ | 1,701,647 | |||||||||||
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 |
4_Property_and_Equipment
4. Property and Equipment | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Property, Plant and Equipment [Abstract] | ' | ||||||||
4. Property and Equipment | ' | ||||||||
Property and equipment consisted of the following at May 31, 2014 and 2013: | |||||||||
2014 | 2013 | ||||||||
Computer equipment and software | $ | 25,767 | $ | 28,741 | |||||
Furniture and fixtures | 21,176 | 21,176 | |||||||
46,943 | 49,917 | ||||||||
Less: accumulated depreciation | (44,168 | ) | (44,839 | ) | |||||
Net property and equipment | $ | 2,775 | $ | 5,078 | |||||
Depreciation expense related to property and equipment was $2,303 and $2,590 for the years ended May 31, 2014 and 2013, respectively. |
5_Investment_in_Affiliated_Com
5. Investment in Affiliated Company | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Equity Method Investments and Joint Ventures [Abstract] | ' | ||||||||
5. Investment in Affiliated Company | ' | ||||||||
Phoenix Digital Solutions, LLC | |||||||||
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 although we have initiated arbitration seeking the appointment of a third member (see Note 9). 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. During the fiscal year ended May 31, 2013 we and TPL each contributed $1,097,809 to fund the remaining portions of the legal retainer and the operations of PDS. No such contributions were made during the fiscal year ended May 31, 2014. Distributable cash and allocation of profits and losses have been 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 fiscal year ended May 31, 2013, PDS expensed $185,000 pursuant to this commitment. This expense is recorded in the accompanying PDS statement of income for the fiscal year ended May 31, 2013 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 fiscal years ended May 31, 2014 and 2013, PDS expensed $2,300,323 and $3,367,294, respectively pursuant to the agreement. These expenses are recorded in the accompanying PDS statements of income presented below net of $400,708 and $376,049, respectively, of legal fee reversals previously expensed and recorded as accounts payable to TPL during the fiscal years ended May 31, 2014 and 2013 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 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 that may impact the continuity of their services. The Novation Agreement also provides for the addition of a second licensing company to complement the MMP licensing commercialization. | |||||||||
On July 17, 2012, we entered into an Agreement with PDS, TPL, and Alliacense whereby we agreed to certain additional allocations of obligations relating to the Program Agreement. | |||||||||
Pursuant to the Program Agreement, PDS had committed to Alliacense a quarterly amount of $500,000 which represented the licensing services fees due Alliacense, subject to a contingency arrangement which provided for a percentage on future revenues, for its efforts to secure licensing agreements on behalf of PDS. During fiscal 2014, PDS discontinued these payments which were formally eliminated by terms of the Novation Agreement. These payments had replaced the quarterly amounts previously paid to TPL pursuant to the Commercialization Agreement. During the fiscal year ended May 31, 2014 PDS expensed $956,353 pursuant to this commitment and during the fiscal year ended May 31, 2013 Alliacense earned $1,858,647 pursuant to this commitment. These expenses are recorded in the accompanying PDS statements of income for the fiscal years ended May 31, 2014 and 2013 presented below. | |||||||||
Pursuant to the Program Agreement, PDS had committed 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 fiscal years ended May 31, 2014 and 2013, PDS expensed $184,435 and $1,786,414, respectively, pursuant to this commitment. Future litigation support payments to Alliacense relating to the ITC litigation had been subject to a contingency arrangement which provided for a percentage of future recoveries in these actions. The Novation Agreement eliminated the Program Agreement’s litigation support activity by Alliacense. These expenses are recorded in the accompanying PDS statements of income for the fiscal years ended May 31, 2014 and 2013 presented below. | |||||||||
During the fiscal year ended May 31, 2014, PDS paid Alliacense $300,000 against multiple outstanding disputed items and accrued $323,000 in connection with a settlement of these items (see Note 9). | |||||||||
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 fiscal years ended May 31, 2014 and 2013, PDS paid Moore $183,334 and $150,000, respectively, pursuant to this contractual obligation. These expenses are recorded in the accompanying PDS statements of income for the fiscal years ended May 31, 2014 and 2013 presented below. | |||||||||
During the fiscal year ended May 31, 2014, we expensed $92,050 of legal fees on behalf of PDS. | |||||||||
We are accounting for our investment in PDS under the equity method of accounting, and accordingly have recorded our share of PDS’s net income during the fiscal years ended May 31, 2014 and 2013 of $104,677 and $2,174,395, respectively, as an increase in our investment. Cash distributions of $375,000 and $2,027,808 received from PDS during the years ended May 31, 2014 and 2013, respectively, have been recorded as a reduction in our investment. Cash contributions of $1,097,809 made during the fiscal year ended May 31, 2013 have been recorded as in increase in our investment. We have recorded our share of PDS’s net income as “Equity in earnings of affiliated company” in the accompanying consolidated statements of operations for the years ended May 31, 2014 and 2013, respectively. | |||||||||
During the fiscal years ended May 31, 2014 and 2013, PDS entered into licensing agreements with third parties, pursuant to which PDS recognized revenues of $5,022,000 and $10,620,000, respectively. | |||||||||
During the fiscal year ended May 31, 2013, PDS recognized revenues of $1,500,000 for license agreements previously entered into by TPL. | |||||||||
During the fiscal year ended May 31, 2013, TPL entered into licensing agreements with third parties, pursuant to which PDS recorded license revenues of approximately $450,000. | |||||||||
At May 31, 2014, PDS had accounts payable balances of approximately $666,000, $25,000 and $92,000 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. | |||||||||
At May 31, 2014, PDS had a settlement fee payable to Alliacense of $323,000 related to licensing fee disputes. | |||||||||
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 have been closely monitoring the progress in this matter as it relates to our interest in PDS. On July 18, 2014, TPL and the creditors’ committee announced that a term sheet serving as the basis for a Joint Plan of Reorganization (the “Plan”) has been agreed to with the expectation that the Plan will be presented to the Bankruptcy Court for approval on September 17, 2014. 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 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 May 31, 2014 and 2013 and statements of income for the years ended May 31, 2014 and 2013 are as follows: | |||||||||
Balance Sheets | |||||||||
Assets: | |||||||||
2014 | 2013 | ||||||||
Cash | $ | 1,063,536 | $ | 1,320,932 | |||||
Prepaid expenses | 247,776 | 717,540 | |||||||
Licenses receivable | – | 250,000 | |||||||
Total assets | $ | 1,311,312 | $ | 2,288,472 | |||||
Liabilities and Members’ Equity: | |||||||||
2014 | 2013 | ||||||||
Related party payables and accrued expenses | $ | 1,107,560 | $ | 1,544,075 | |||||
Income tax payable | 11,790 | 11,790 | |||||||
Members’ equity | 191,962 | 732,607 | |||||||
Total liabilities and members’ equity | $ | 1,311,312 | $ | 2,288,472 | |||||
Statements of Income | |||||||||
2014 | 2013 | ||||||||
Revenues | $ | 5,022,000 | $ | 12,570,000 | |||||
Expenses | 4,393,655 | 7,548,619 | |||||||
Operating income | 628,345 | 5,021,381 | |||||||
Income before provision for income taxes and foreign taxes | 628,345 | 5,021,381 | |||||||
Provision for income taxes and foreign taxes | 418,990 | 672,590 | |||||||
Net income | $ | 209,355 | $ | 4,348,791 | |||||
PDS Related Party Balances And Transactions | |||||||||
Balances with related parties as of May 31, 2014 and 2013 are summarized as follows: | |||||||||
31-May-14 | 31-May-13 | ||||||||
Assets: | |||||||||
Prepaid expenses (Advances to Alliacense) | $ | – | $ | 456,353 | |||||
Liabilities: | |||||||||
Related party payables and accrued expenses (TPL) (1) | $ | 666,412 | $ | 1,493,775 | |||||
Related party payables (PTSC) | 92,050 | 16,538 | |||||||
Related party payables (Alliacense) | 24,598 | 33,762 | |||||||
Settlement fee payable (Alliacense) | 323,000 | – | |||||||
Total liabilities | $ | 1,106,060 | $ | 1,544,075 | |||||
Transactions with related parties for the fiscal years ended May 31, 2014 and 2013 are as follows: | |||||||||
31-May-14 | 31-May-13 | ||||||||
Expenses paid or accrued (TPL) | $ | 2,300,323 | $ | 3,552,294 | |||||
Expenses paid or accrued (Alliacense) | $ | 1,763,788 | $ | 3,645,061 | |||||
-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 legal fees 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 May 31, 2014 and 2013 were $92,289 and $518,694, respectively. | |||||||||
Transactions with this law firm and legal subcontractors for the fiscal years ended May 31, 2014 and 2013 were as follows: | |||||||||
31-May-14 | 31-May-13 | ||||||||
Legal costs | $ | 2,541,502 | $ | 3,689,419 | |||||
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 fiscal years ended May 31, 2014 and 2013, PDS expensed $183,334 and $150,000, respectively, related to this agreement. | |||||||||
In connection with the Program Agreement, PDS was required to make payments to Alliacense of $500,000 no later than three days prior to the start of each calendar quarter. Such payments were non-accountable and non-recoupable, but were offset against the licensing services fees owed to Alliacense pursuant to the Program Agreement. During fiscal 2014, PDS discontinued these payments. During the fiscal years ended May 31, 2014 and 2013, PDS expensed $956,353 and $1,815,000, respectively, pursuant to this contractual obligation. | |||||||||
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. |
6_Accrued_Expenses_and_Other
6. Accrued Expenses and Other | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Payables and Accruals [Abstract] | ' | ||||||||
6. Accrued Expenses and Other | ' | ||||||||
At May 31, 2014 and 2013, accrued expenses and other consisted of the following: | |||||||||
2014 | 2013 | ||||||||
Accrued lease obligation | $ | 2,088 | $ | 1,814 | |||||
Compensation and benefits | 60,397 | 56,707 | |||||||
$ | 62,485 | $ | 58,521 |
7_Stockholders_Equity
7. Stockholders' Equity | 12 Months Ended | ||||||||||||||||
31-May-14 | |||||||||||||||||
Equity [Abstract] | ' | ||||||||||||||||
7. Stockholders' Equity | ' | ||||||||||||||||
Share Repurchases | |||||||||||||||||
During July 2006, we commenced our Board of Director approved stock buyback program in which we repurchase our outstanding common stock from time to time on the open market. The repurchase plan has no maximum number of shares and is solely at the discretion of the Board of Directors. The repurchase plan has no set expiration date. | |||||||||||||||||
The following table summarizes share repurchases during the years ended May 31, 2014 and 2013: | |||||||||||||||||
2014 | 2013 | ||||||||||||||||
Number of shares repurchased | 3,854,457 | 563,553 | |||||||||||||||
Aggregate cost | $ | 221,474 | $ | 57,140 | |||||||||||||
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 fiscal year ended May 31, 2014 is based on the historical volatilities of our common stock. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods. | |||||||||||||||||
Year Ended | Year Ended | ||||||||||||||||
31-May-14 | 31-May-13 | ||||||||||||||||
Expected term | 5 yrs | * | |||||||||||||||
Expected volatility | 88% | * | |||||||||||||||
Risk-free interest rate | 1.05% | * | |||||||||||||||
* No stock options were granted during the fiscal year ended May 31, 2013. | |||||||||||||||||
A summary of option activity as of May 31, 2014 and changes during the fiscal year then ended, is presented below: | |||||||||||||||||
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||
Options outstanding at June 1, 2013 | 750,000 | $ | 0.1 | ||||||||||||||
Options granted | 760,000 | $ | 0.12 | ||||||||||||||
Options exercised | – | $ | – | ||||||||||||||
Options forfeited | (175,000 | ) | $ | 0.12 | |||||||||||||
1,335,000 | $ | 0.11 | 2.72 | $ | – | ||||||||||||
Options outstanding at May 31, 2014 | |||||||||||||||||
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||
Options vested and expected to vest at May 31, 2014 | 1,335,000 | $ | 0.11 | 2.72 | $ | – | |||||||||||
Options exercisable at May 31, 2014 | 1,335,000 | $ | 0.11 | 2.72 | $ | – | |||||||||||
The weighted average grant date fair value of options granted during the fiscal year ended May 31, 2014 was $0.08 per option. | |||||||||||||||||
The aggregate intrinsic value in the table above represents the differences in market price at the close of the fiscal year ($0.05 per share on May 31, 2014) and the exercise price of outstanding, in-the-money options (those options with exercise prices below $0.05) on May 31, 2014. | |||||||||||||||||
The following table summarizes employee and director stock-based compensation expense for the fiscal years ended May 31, 2014 and 2013, which was recorded as follows: | |||||||||||||||||
Year Ended | Year Ended | ||||||||||||||||
31-May-14 | 31-May-13 | ||||||||||||||||
Selling, general and administrative expense | $ | 62,418 | $ | – | |||||||||||||
2006 Stock Option Plan | |||||||||||||||||
The 2006 Stock Option Plan, as amended, which expires in March 2016, provides for the granting of options to acquire up to 10,000,000 shares, with a limit of 8,000,000 Incentive Stock Option (“ISO”) shares of our common stock to either full or part time employees, directors and our consultants at a price not less than the fair market value on the date of grant. In the case of a significant stockholder, the option price of the share is not less than 110 percent of the fair market value of the shares on the date of grant. Any option granted under the 2006 Stock Option Plan must be exercised within ten years of the date they are granted (five years in the case of a significant stockholder). During the fiscal year ended May 31, 2014, we granted options to employees and directors to purchase 760,000 shares of our common stock under this plan, none of which were ISOs. There were no grants made under the 2006 Stock Option Plan during the fiscal year ended May 31, 2013. As of May 31, 2014, options to purchase 1,335,000 shares of common stock are outstanding under the 2006 Stock Option Plan. |
8_Income_Taxes
8. Income Taxes | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Income Tax Disclosure [Abstract] | ' | ||||||||
8. Income Taxes | ' | ||||||||
The provision (benefit) for income taxes from continuing operations is as follows for the years ended May 31: | |||||||||
2014 | 2013 | ||||||||
Current: | |||||||||
Federal | $ | 1,170 | $ | (2,513 | ) | ||||
State | 4,829 | 2,400 | |||||||
Total current | 5,999 | (113 | ) | ||||||
Deferred: | |||||||||
Federal | (492,332 | ) | 571,104 | ||||||
State | (129,766 | ) | 146,377 | ||||||
Total deferred | (622,098 | ) | 717,481 | ||||||
Valuation allowance | 622,098 | (717,481 | ) | ||||||
Total deferred | – | – | |||||||
Total provision (benefit) | $ | 5,999 | $ | (113 | ) | ||||
The reconciliation of the effective income tax rate to the Federal statutory rate is as follows for the years ended May 31: | |||||||||
2014 | 2013 | ||||||||
Statutory federal income tax rate | 35.00% | 35.00% | |||||||
State income tax rate, net of Federal effect | (0.2% | ) | 0.20% | ||||||
Change in tax rate | (1.0% | ) | (1.0% | ) | |||||
Stock option expense | (0.3% | ) | 7.60% | ||||||
FIN 48 liability | -% | (0.2% | ) | ||||||
Other | (0.1% | ) | 7.00% | ||||||
Change in valuation allowance | (33.8% | ) | (48.6% | ) | |||||
Effective income tax rate | (0.4% | ) | 0.00% | ||||||
Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of our deferred tax assets from continuing operations are as follows as of May 31: | |||||||||
2014 | 2013 | ||||||||
Current deferred tax assets: | |||||||||
State taxes | $ | 1,642 | $ | 815 | |||||
Accrued expenses | 16,441 | 14,751 | |||||||
Prepaids | (1,448 | ) | – | ||||||
Less: valuation allowance | (16,635 | ) | (15,566 | ) | |||||
Total net current deferred tax asset | – | – | |||||||
Long-term deferred tax assets (liabilities): | |||||||||
Investment in affiliated company | 1,242,400 | (106,419 | ) | ||||||
Basis difference in property and equipment | (718 | ) | (2,166 | ) | |||||
Basis difference in intangibles | 18,334 | 18,334 | |||||||
Stock based compensation expense | 247,688 | 227,284 | |||||||
Impairment of note receivable | 331,896 | 331,896 | |||||||
Capital loss carryover | 225,454 | 643,144 | |||||||
Net operating loss carryforwards | 9,156,427 | 9,491,977 | |||||||
Credit carryover | 110,615 | 107,017 | |||||||
Valuation allowance | (11,332,096 | ) | (10,711,067 | ) | |||||
Total net long-term deferred tax asset | – | – | |||||||
Net deferred tax asset | $ | – | $ | – | |||||
We have federal and state net operating loss carryforwards available to offset future taxable income of approximately $20,841,000 and $23,420,000, respectively, at May 31, 2014. These carryforwards begin to expire in the years ending May 31, 2023 and 2013, respectively. | |||||||||
We follow authoritative guidance which defines criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in a company’s financial statements and also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense. As of May 31, 2014, we are subject to U.S. Federal income tax examinations for the tax years May 31, 1997 through May 31, 2014, and we are subject to state and local income tax examinations for the tax years May 31, 2005 through May 31, 2014 due to the carryover of net operating losses related to PDSG from previous years. | |||||||||
The table below summarizes our liability relating to unrecognized tax benefits under the authoritative guidance for the fiscal years ended May 31, 2014 and 2013: | |||||||||
Balance at June 1, 2012 | $ | 2,513 | |||||||
Increase in unrecognized tax benefit liability | – | ||||||||
Decrease in unrecognized tax benefit liability | (2,513 | ) | |||||||
Accrual of interest related to unrecognized tax benefits | – | ||||||||
Balance at May 31, 2013 | $ | – | |||||||
Increase in unrecognized tax benefit liability | – | ||||||||
Decrease in unrecognized tax benefit liability | – | ||||||||
Accrual of interest related to unrecognized tax benefits | – | ||||||||
Balance at May 31, 2014 | $ | – | |||||||
Our continuing practice is to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. We do not expect our unrecognized tax benefits to change significantly over the next twelve months. |
9_Commitments_and_Contingencie
9. Commitments and Contingencies | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Commitments and Contingencies Disclosure [Abstract] | ' | ||||||||
9. Commitments and Contingencies | ' | ||||||||
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. HTC has appealed the jury verdict and we have filed cross appeals regarding the period available for infringement damages related to the ‘890 patent. The parties participated in magistrate-supervised settlement activity and continue to engage in settlement discussions. However, we cannot opine regarding whether HTC will ultimately enter into a license on the MMP portfolio. | |||||||||
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 Co., 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 US 5,440,749 patent (the “‘749 patent”), and the ‘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 (“ID”) 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 ID with the full ITC on September 23, 2013. On February 20, 2014, the ITC provided notice affirming the September 6, 2013 ID. We have chosen not to file an appeal of the ITC decision to the United States Court of Appeals for the Federal Circuit. All of the district court actions against the new parties (i.e., all respondents other than Acer and HTC) that have not previously settled and which had been stayed pending resolution of the 853 Investigation will now proceed. | |||||||||
Licensing Fee Disputes | |||||||||
PDS and Alliacense had been involved in multiple disputes regarding amounts asserted by Alliacense as owed by PDS. The disputed amounts included sums for past services and advances. On July 24, 2014, PDS and Alliacense entered into the Amended Alliacense Services and Novation Agreement, which included provisions for resolving all of the claims in dispute for $623,000. Of that amount, $300,000 was paid by PDS to Alliacense in November 2013, with the balance paid by PDS to Alliacense in two payments of $161,500 each on June 20, 2014 and July 25, 2014. | |||||||||
PDS Management Committee Arbitration | |||||||||
In January 2014, our representative to the PDS management committee filed with the American Arbitration Association (“AAA”) a demand for arbitration pursuant to the terms of the LLC Agreement. The demand seeks the appointment of a third member, referred to as the independent manager member, to the PDS management committee. The AAA appointed an arbitrator who has determined that the parties in action need to be amended to reflect the PDS owners as opposed to its managers. Therefore we are seeking a lifting of the Bankruptcy Court’s stay so that TPL can be made a party to the arbitration process, after which the arbitrator will be responsible for selecting the independent manager from a listing of candidates supplied by TPL and PTSC. We believe the appointment of the independent manager will facilitate decision-making in the best interests of PDS. | |||||||||
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 fiscal years ended May 31, 2014 and 2013 were $10,610 and $10,801, respectively. | |||||||||
Employment Contracts | |||||||||
In connection with Mr. Flowers’ appointment as the Chief Financial Officer, and commencing on September 17, 2007, we entered into an employment agreement with Mr. Flowers for an initial 120-day term if not terminated pursuant to the agreement, with an extension period of one year and on a continuing basis thereafter. Pursuant to the agreement, if Mr. Flowers is terminated without cause or resigns with good reason any time after two years of continuous employment, he is entitled to receive an amount equal to twelve months of his annual base salary. Mr. Flowers is also entitled to certain payments upon a change of control of the Company if the surviving corporation does not retain him. All such payments are conditional upon the execution of a general release. | |||||||||
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 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. | |||||||||
Operating Lease | |||||||||
We lease our facility through an operating lease that expires in February 2015. Rental expense is presented in the following table: | |||||||||
Year Ended | Year Ended | ||||||||
31-May-14 | 31-May-13 | ||||||||
Rental expense | $ | 36,444 | $ | 34,791 | |||||
Future minimum payments under our operating lease commitment as of May 31, 2014 amount to $27,146. |
10_Subsequent_Events
10. Subsequent Events | 12 Months Ended |
31-May-14 | |
Subsequent Events [Abstract] | ' |
10. 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 consolidated financial statements or disclosure in the notes thereto other than as disclosed herein and in the accompanying notes. | |
On July 24, 2014, PDS amended the Licensing Program Services Agreement with Alliacense (see Note 9). |
2_Summary_of_Significant_Accou1
2. Summary of Significant Accounting Policies (Policies) | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Accounting Policies [Abstract] | ' | ||||||||
Basis of Consolidation | ' | ||||||||
The consolidated balance sheets at May 31, 2014 and 2013 and consolidated statements of operations for the fiscal years ended May 31, 2014 and 2013 includes our accounts and those of our wholly owned subsidiary 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 consolidated statements of operations for all periods presented. See “Discontinued Operations” below for additional information. | |||||||||
Discontinued Operations | ' | ||||||||
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, liabilities, 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, 2014, the gain on the asset sale of PDSG is approximately $93,000. | |||||||||
Summarized operating results of discontinued operations for the fiscal years ended May 31, 2014 and 2013 are as follows: | |||||||||
31-May-14 | 31-May-13 | ||||||||
Operating loss from discontinued operations | $ | – | $ | (3,224 | ) | ||||
Gain on sale of discontinued operations | $ | 89,060 | $ | 15,376 | |||||
Income before income taxes | $ | 89,060 | $ | 12,152 | |||||
Income from discontinued operations | $ | 89,060 | $ | 12,152 | |||||
PDSG activity for the fiscal year ended May 31, 2014 consists of PDSG royalty revenues. | |||||||||
PDSG activity for the fiscal year ended May 31, 2013 consists of operating expenses for: legal, insurance, taxes and bank fees offset by PDSG royalty revenues. | |||||||||
The following table summarizes the carrying amount of the major classes of assets and liabilities of PDSG classified as discontinued operations at May 31, 2014 and May 31, 2013: | |||||||||
31-May-14 | 31-May-13 | ||||||||
Current assets: | |||||||||
Other current assets | $ | 57,477 | $ | 40,682 | |||||
Financial Instruments and Concentrations of Credit Risk | ' | ||||||||
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, cash equivalents, and investments in marketable securities. | |||||||||
At times, our balance of cash maintained with our bank may exceed the Federal Deposit Insurance Corporation’s (“FDIC”) insured limit of $250,000. At May 31, 2014 and 2013, our cash and cash equivalents balances subject to FDIC insurance exceeded the FDIC limit by $111,526 and $35,084, respectively. At May 31, 2014 and 2013, our cash and cash equivalents balance consisting of money market accounts not subject to FDIC insurance was $4,375,653 and $5,225,176, respectively. | |||||||||
We limit our exposure of loss by maintaining our cash with financially stable financial institutions. When we have excess cash, our cash equivalents are placed in certificates of deposit and high quality money market accounts with major financial institutions. We believe this investment policy limits our exposure to concentrations of credit risk. | |||||||||
At May 31, 2014 and 2013, investments in marketable securities consist of certificates of deposit with maturities greater than three months. Each certificate of deposit is invested with a financial institution for $250,000 or less so as not to exceed the FDIC insurance limit. | |||||||||
Fair Value of Financial Instruments | ' | ||||||||
Our financial instruments consist principally of cash and cash equivalents, investments in marketable securities, accounts payable and accrued expenses and other. The carrying value of these financial instruments approximates fair value because of the immediate or short-term maturity of the instruments. The fair value of our cash equivalents is determined based on quoted prices in active markets for identical assets or Level 1 inputs. The fair value of our investments in marketable securities is determined based on quoted prices in non-active markets for identical assets or Level 2 inputs. We believe that the carrying values of all other financial instruments approximate their current fair values due to their nature and respective durations. | |||||||||
Cash Equivalents, Restricted Cash, and Short-Term Marketable Securities | ' | ||||||||
We consider all highly liquid investments acquired with a maturity of three months or less to be cash equivalents. | |||||||||
Restricted cash and cash equivalents at May 31, 2014 and 2013 consist of a savings account held as collateral for our corporate credit card account. | |||||||||
At May 31, 2014 and 2013 our short-term marketable securities in the amount of $1,701,647 and $194,463 consist of certificates of deposit with various financial institutions, with maturity dates of twelve months or less. | |||||||||
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 consolidated statements of operations. | |||||||||
Property, Equipment and Depreciation | ' | ||||||||
Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from three to five years. Major betterments and renewals are capitalized, while routine repairs and maintenance are charged to expense when incurred. | |||||||||
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 consolidated statements of operations in the caption “Equity in earnings 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. | |||||||||
Treasury Stock | ' | ||||||||
We account for treasury stock under the cost method and include treasury stock as a component of stockholders’ equity. | |||||||||
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 not more likely than not that all of our deferred tax assets will 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. | |||||||||
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 fiscal year ended May 31, 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 year ended May 31, 2014 no additional shares of common stock would have been included in the calculation of diluted income per share for continuing and discontinued operations. For the fiscal year ended May 31, 2014, we excluded the PDSG escrow shares of 2,844,630 in the calculation of diluted loss per share for continuing and discontinued operations as we recorded a loss. | |||||||||
For the fiscal year ended May 31, 2013 potential common shares of 175,000 related to our outstanding options were not included in the calculation of diluted income per share for continuing and discontinued operations. For the fiscal year ended May 31, 2013, we included the PDSG escrow shares of 2,844,630 in the calculation of diluted income per share for continuing and discontinued operations. | |||||||||
In connection with our acquisition of Crossflo, which became a 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 9). We exclude these escrow shares from the basic income (loss) per share calculations and include the escrowed shares in the diluted income per share calculations. | |||||||||
Use of Estimates | ' | ||||||||
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying footnotes. Actual results could differ from those estimates. On an ongoing basis we evaluate our estimates, including, but not limited to: fair values of investments in marketable securities, the use, recoverability, and /or realizability of certain assets, including investments in affiliated companies, deferred tax assets, and share-based compensation. | |||||||||
Share-Based Compensation | ' | ||||||||
Share-based compensation expense recognized during the year is based on the grant date fair value of the portion of share-based payment awards ultimately expected to vest during the year. As share-based compensation expense recognized in the 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. | |||||||||
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. There are currently two unexpired U.S. patents issued dating back to 1998 on our microprocessor technology in addition to three European and two Japanese patents. The U.S. patents will expire in 2015 and the European and Japanese patents will expire in 2016. There are also five U.S. patents, six European, and one Japanese patent all of which expired between August 2009 and August 19, 2014. 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. |
2_Summary_of_Significant_Accou2
2. Summary of Significant Accounting Policies (Tables) | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Accounting Policies [Abstract] | ' | ||||||||
Summary of Operating results of discontinued operations | ' | ||||||||
31-May-14 | 31-May-13 | ||||||||
Operating loss from discontinued operations | $ | – | $ | (3,224 | ) | ||||
Gain on sale of discontinued operations | $ | 89,060 | $ | 15,376 | |||||
Income before income taxes | $ | 89,060 | $ | 12,152 | |||||
Income from discontinued operations | $ | 89,060 | $ | 12,152 | |||||
Carrying amount of assets and liability as discontinued operations | ' | ||||||||
31-May-14 | 31-May-13 | ||||||||
Current assets: | |||||||||
Other current assets | $ | 57,477 | $ | 40,682 |
3_Cash_Cash_Equivalents_Restri1
3. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Tables) | 12 Months Ended | ||||||||||||||||
31-May-14 | |||||||||||||||||
Cash and Cash Equivalents [Abstract] | ' | ||||||||||||||||
Schedule of fair value of cash, cash equivalents and investments in marketable securities | ' | ||||||||||||||||
Fair Value Measurements at May 31, 2014 Using | |||||||||||||||||
Quoted Prices | Significant | ||||||||||||||||
in Active | Other | Significant | |||||||||||||||
Fair Value at | Markets for | Observable | Unobservable | ||||||||||||||
May 31, | Identical Assets | Inputs | Inputs | ||||||||||||||
2014 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Cash and cash equivalents: | |||||||||||||||||
Cash | $ | 340,555 | $ | 340,555 | $ | – | $ | – | |||||||||
Money market funds | 4,375,653 | 4,375,653 | – | – | |||||||||||||
Restricted cash and cash equivalents | 21,123 | 21,123 | – | – | |||||||||||||
Marketable securities: | |||||||||||||||||
Short-term: | |||||||||||||||||
Certificates of deposit | 1,701,647 | – | 1,701,647 | – | |||||||||||||
Total | $ | 6,438,978 | $ | 4,737,331 | $ | 1,701,647 | $ | – | |||||||||
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 and cash equivalents | 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 | ' | ||||||||||||||||
May 31, 2014 | |||||||||||||||||
Cost | Gross Unrealized Gains/(Losses) | Fair | |||||||||||||||
Value | |||||||||||||||||
Maturity | |||||||||||||||||
Due in one year or less | $ | 1,701,647 | $ | – | $ | 1,701,647 | |||||||||||
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 |
4_Property_and_Equipment_Table
4. Property and Equipment (Tables) | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Property, Plant and Equipment [Abstract] | ' | ||||||||
Schedule of property and equipment | ' | ||||||||
2014 | 2013 | ||||||||
Computer equipment and software | $ | 25,767 | $ | 28,741 | |||||
Furniture and fixtures | 21,176 | 21,176 | |||||||
46,943 | 49,917 | ||||||||
Less: accumulated depreciation | (44,168 | ) | (44,839 | ) | |||||
Net property and equipment | $ | 2,775 | $ | 5,078 |
5_Investment_in_Affiliated_Com1
5. Investment in Affiliated Company (Tables) | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Equity Method Investments and Joint Ventures [Abstract] | ' | ||||||||
Balance Sheets of Affiliates | ' | ||||||||
Balance Sheets | |||||||||
Assets: | |||||||||
2014 | 2013 | ||||||||
Cash | $ | 1,063,536 | $ | 1,320,932 | |||||
Prepaid expenses | 247,776 | 717,540 | |||||||
Licenses receivable | – | 250,000 | |||||||
Total assets | $ | 1,311,312 | $ | 2,288,472 | |||||
Liabilities and Members’ Equity: | |||||||||
2014 | 2013 | ||||||||
Related party payables and accrued expenses | $ | 1,107,560 | $ | 1,544,075 | |||||
Income tax payable | 11,790 | 11,790 | |||||||
Members’ equity | 191,962 | 732,607 | |||||||
Total liabilities and members’ equity | $ | 1,311,312 | $ | 2,288,472 | |||||
Statements of Income | |||||||||
2014 | 2013 | ||||||||
Revenues | $ | 5,022,000 | $ | 12,570,000 | |||||
Expenses | 4,393,655 | 7,548,619 | |||||||
Operating income | 628,345 | 5,021,381 | |||||||
Income before provision for income taxes and foreign taxes | 628,345 | 5,021,381 | |||||||
Provision for income taxes and foreign taxes | 418,990 | 672,590 | |||||||
Net income | $ | 209,355 | $ | 4,348,791 | |||||
PDS Related Party Balances and Transactions | ' | ||||||||
31-May-14 | 31-May-13 | ||||||||
Assets: | |||||||||
Prepaid expenses (Advances to Alliacense) | $ | – | $ | 456,353 | |||||
Liabilities: | |||||||||
Related party payables and accrued expenses (TPL) (1) | $ | 666,412 | $ | 1,493,775 | |||||
Related party payables (PTSC) | 92,050 | 16,538 | |||||||
Related party payables (Alliacense) | 24,598 | 33,762 | |||||||
Settlement fee payable (Alliacense) | 323,000 | – | |||||||
Total liabilities | $ | 1,106,060 | $ | 1,544,075 | |||||
Transactions with related parties for the fiscal years ended May 31, 2014 and 2013 are as follows: | |||||||||
31-May-14 | 31-May-13 | ||||||||
Expenses paid or accrued (TPL) | $ | 2,300,323 | $ | 3,552,294 | |||||
Expenses paid or accrued (Alliacense) | $ | 1,763,788 | $ | 3,645,061 | |||||
-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 fiscal years ended May 31, 2014 and 2013 were as follows: | |||||||||
31-May-14 | 31-May-13 | ||||||||
Legal costs | $ | 2,541,502 | $ | 3,689,419 |
6_Accrued_Expenses_and_Other_T
6. Accrued Expenses and Other (Tables) | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Payables and Accruals [Abstract] | ' | ||||||||
Schedule of accrued expenses and other | ' | ||||||||
2014 | 2013 | ||||||||
Accrued lease obligation | $ | 2,088 | $ | 1,814 | |||||
Compensation and benefits | 60,397 | 56,707 | |||||||
$ | 62,485 | $ | 58,521 |
7_Stockholders_Equity_Tables
7. Stockholders' Equity (Tables) | 12 Months Ended | ||||||||||||||||
31-May-14 | |||||||||||||||||
Equity [Abstract] | ' | ||||||||||||||||
Schedule of Share Repurchases | ' | ||||||||||||||||
2014 | 2013 | ||||||||||||||||
Number of shares repurchased | 3,854,457 | 563,553 | |||||||||||||||
Aggregate cost | $ | 221,474 | $ | 57,140 | |||||||||||||
Share-based compensation assumptions | ' | ||||||||||||||||
Year Ended | Year Ended | ||||||||||||||||
31-May-14 | 31-May-13 | ||||||||||||||||
Expected term | 5 yrs | * | |||||||||||||||
Expected volatility | 88% | * | |||||||||||||||
Risk-free interest rate | 1.05% | * | |||||||||||||||
* No stock options were granted during the fiscal year ended May 31, 2013. | |||||||||||||||||
Schedule of Stock Options Activity | ' | ||||||||||||||||
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||
Options outstanding at June 1, 2013 | 750,000 | $ | 0.1 | ||||||||||||||
Options granted | 760,000 | $ | 0.12 | ||||||||||||||
Options exercised | – | $ | – | ||||||||||||||
Options forfeited | (175,000 | ) | $ | 0.12 | |||||||||||||
1,335,000 | $ | 0.11 | 2.72 | $ | – | ||||||||||||
Options outstanding at May 31, 2014 | |||||||||||||||||
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||
Options vested and expected to vest at May 31, 2014 | 1,335,000 | $ | 0.11 | 2.72 | $ | – | |||||||||||
Options exercisable at May 31, 2014 | 1,335,000 | $ | 0.11 | 2.72 | $ | – | |||||||||||
Schedule of Share-based Compensation, Allocation of Recognized Period Cost | ' | ||||||||||||||||
Year Ended | Year Ended | ||||||||||||||||
31-May-14 | 31-May-13 | ||||||||||||||||
Selling, general and administrative expense | $ | 62,418 | $ | – |
8_Income_Taxes_Tables
8. Income Taxes (Tables) | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Income Tax Disclosure [Abstract] | ' | ||||||||
Schedule of provisions for income taxes | ' | ||||||||
2014 | 2013 | ||||||||
Current: | |||||||||
Federal | $ | 1,170 | $ | (2,513 | ) | ||||
State | 4,829 | 2,400 | |||||||
Total current | 5,999 | (113 | ) | ||||||
Deferred: | |||||||||
Federal | (492,332 | ) | 571,104 | ||||||
State | (129,766 | ) | 146,377 | ||||||
Total deferred | (622,098 | ) | 717,481 | ||||||
Valuation allowance | 622,098 | (717,481 | ) | ||||||
Total deferred | – | – | |||||||
Total provision (benefit) | $ | 5,999 | $ | (113 | ) | ||||
Schedule of effective income tax rate | ' | ||||||||
2014 | 2013 | ||||||||
Statutory federal income tax rate | 35.00% | 35.00% | |||||||
State income tax rate, net of Federal effect | (0.2% | ) | 0.20% | ||||||
Change in tax rate | (1.0% | ) | (1.0% | ) | |||||
Stock option expense | (0.3% | ) | 7.60% | ||||||
FIN 48 liability | -% | (0.2% | ) | ||||||
Other | (0.1% | ) | 7.00% | ||||||
Change in valuation allowance | (33.8% | ) | (48.6% | ) | |||||
Effective income tax rate | (0.4% | ) | 0.00% | ||||||
Schedule of deferred tax assets and liabilities | ' | ||||||||
2014 | 2013 | ||||||||
Current deferred tax assets: | |||||||||
State taxes | $ | 1,642 | $ | 815 | |||||
Accrued expenses | 16,441 | 14,751 | |||||||
Prepaids | (1,448 | ) | – | ||||||
Less: valuation allowance | (16,635 | ) | (15,566 | ) | |||||
Total net current deferred tax asset | – | – | |||||||
Long-term deferred tax assets (liabilities): | |||||||||
Investment in affiliated company | 1,242,400 | (106,419 | ) | ||||||
Basis difference in property and equipment | (718 | ) | (2,166 | ) | |||||
Basis difference in intangibles | 18,334 | 18,334 | |||||||
Stock based compensation expense | 247,688 | 227,284 | |||||||
Impairment of note receivable | 331,896 | 331,896 | |||||||
Capital loss carryover | 225,454 | 643,144 | |||||||
Net operating loss carryforwards | 9,156,427 | 9,491,977 | |||||||
Credit carryover | 110,615 | 107,017 | |||||||
Valuation allowance | (11,332,096 | ) | (10,711,067 | ) | |||||
Total net long-term deferred tax asset | – | – | |||||||
Net deferred tax asset | $ | – | $ | – | |||||
Schedule of liability relating to unrecognized tax benefits | ' | ||||||||
Balance at June 1, 2012 | $ | 2,513 | |||||||
Increase in unrecognized tax benefit liability | – | ||||||||
Decrease in unrecognized tax benefit liability | (2,513 | ) | |||||||
Accrual of interest related to unrecognized tax benefits | – | ||||||||
Balance at May 31, 2013 | $ | – | |||||||
Increase in unrecognized tax benefit liability | – | ||||||||
Decrease in unrecognized tax benefit liability | – | ||||||||
Accrual of interest related to unrecognized tax benefits | – | ||||||||
Balance at May 31, 2014 | $ | – |
9_Commitments_and_Contingencie1
9. Commitments and Contingencies (Tables) | 12 Months Ended | ||||||||
31-May-14 | |||||||||
Commitments and Contingencies Disclosure [Abstract] | ' | ||||||||
Schedule of operating leases | ' | ||||||||
Year Ended | Year Ended | ||||||||
31-May-14 | 31-May-13 | ||||||||
Rental expense | $ | 36,444 | $ | 34,791 |
1_Organization_and_Business_De
1. Organization and Business (Details Narrative) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' | ' |
Capital contributed to affiliate | $1,097,809 | $0 |
2_Summary_of_Significant_Accou3
2. Summary of Significant Accounting Policies (Details) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Accounting Policies [Abstract] | ' | ' |
Operating loss from discontinued operations | $0 | ($3,224) |
Gain on sale of discontinued operations | 89,060 | 15,376 |
Income before income taxes | 89,060 | 12,152 |
Income from discontinued operations | $89,060 | $12,152 |
2_Summary_of_Significant_Accou4
2. Summary of Significant Accounting Policies (Details 1) (USD $) | 31-May-14 | 31-May-13 |
Accounting Policies [Abstract] | ' | ' |
Other current assets | $57,477 | $40,682 |
2_Summary_of_Significant_Accou5
2. Summary of Significant Accounting Policies (Details Narrative) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Gain on sale of assets of discontinued operations | 93,000 | ' |
Uninsured cash balances | 4,375,653 | 5,225,176 |
Marketable securities | 1,701,647 | 194,463 |
Estimated life of Property, Equipment | '3-5 years | ' |
Options [Member] | ' | ' |
Common shares not included in calculation of diluted net loss per share | 1,335,000 | 175,000 |
PDSG Escrow shares | ' | ' |
Common shares not included in calculation of diluted net loss per share | 2,844,630 | 2,844,630 |
PDS | ' | ' |
Ownership interest | 50.00% | ' |
3_Cash_Cash_Equivalents_Restri2
3. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Details) (USD $) | 31-May-14 | 31-May-13 |
Cash and cash equivalents: | ' | ' |
Cash | $340,555 | $197,862 |
Money market funds | 4,375,653 | 5,225,176 |
Certificates of deposit | ' | 2,149,849 |
Restricted cash and cash equivalents | 21,123 | 21,018 |
Short-term: | ' | ' |
Certificates of deposit | 1,701,647 | 194,463 |
Total | 6,438,978 | 7,788,368 |
Fair Value Inputs Level 1 | ' | ' |
Cash and cash equivalents: | ' | ' |
Cash | 340,555 | 197,862 |
Money market funds | 4,375,653 | 5,225,176 |
Certificates of deposit | ' | 0 |
Restricted cash and cash equivalents | 21,123 | 21,018 |
Short-term: | ' | ' |
Certificates of deposit | 0 | 0 |
Total | 4,737,331 | 5,444,056 |
Fair Value Inputs Level 2 | ' | ' |
Cash and cash equivalents: | ' | ' |
Cash | 0 | 0 |
Money market funds | 0 | 0 |
Certificates of deposit | ' | 2,149,849 |
Restricted cash and cash equivalents | 0 | 0 |
Short-term: | ' | ' |
Certificates of deposit | 1,701,647 | 194,463 |
Total | 1,701,647 | 2,344,312 |
Fair Value Inputs Level 3 | ' | ' |
Cash and cash equivalents: | ' | ' |
Cash | 0 | 0 |
Money market funds | 0 | 0 |
Certificates of deposit | ' | 0 |
Restricted cash and cash equivalents | 0 | 0 |
Short-term: | ' | ' |
Certificates of deposit | 0 | 0 |
Total | $0 | $0 |
3_Cash_Cash_Equivalents_Restri3
3. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Detail 1) (USD $) | 31-May-14 | 31-May-13 |
Due in one year or less | ' | ' |
Certificates of deposit | ' | ' |
Cost | $1,701,647 | $194,463 |
Gross Unrealized Gains/(Losses) | 0 | 0 |
Fair Value | 1,701,647 | 194,463 |
Due in three months or less | ' | ' |
Certificates of deposit | ' | ' |
Cost | ' | 2,149,849 |
Gross Unrealized Gains/(Losses) | ' | 0 |
Fair Value | ' | $2,149,849 |
3_Cash_Cash_Equivalents_Restri4
3. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Details Narrative) (USD $) | 31-May-14 | 31-May-13 |
Cash and Cash Equivalents [Abstract] | ' | ' |
Current portion of marketable securities | $1,701,647 | $194,463 |
4_Property_and_Equipment_Detai
4. Property and Equipment (Details) (USD $) | 31-May-14 | 31-May-13 |
Property and Equipment, Gross | $46,943 | $49,917 |
Less: accumulated depreciation | -44,168 | -44,839 |
Net property and equipment | 2,775 | 5,078 |
Computer equipment and software | ' | ' |
Property and Equipment, Gross | 25,767 | 28,741 |
Furniture and Fixtures | ' | ' |
Property and Equipment, Gross | $21,176 | $21,176 |
4_Property_and_Equipment_Detai1
4. Property and Equipment (Details Narrative) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Property, Plant and Equipment [Abstract] | ' | ' |
Depreciation expense | $2,303 | $2,590 |
5_Investment_in_Affiliated_Com2
5. Investment in Affiliated Company (Details - balance sheet) (USD $) | 31-May-14 | 31-May-13 |
Total assets | $1,311,312 | $2,288,472 |
Total liabilities and members' equity | 1,311,312 | 2,288,472 |
Cash [Member] | ' | ' |
Total assets | 1,063,536 | 1,320,932 |
Prepaid Expenses and Other Current Assets [Member] | ' | ' |
Total assets | 247,776 | 717,540 |
Licenses Receivable [Member] | ' | ' |
Total assets | 0 | 250,000 |
Accounts Payable and Accrued Liabilities [Member] | ' | ' |
Total liabilities and members' equity | 1,107,560 | 1,544,075 |
Income tax payable [Member] | ' | ' |
Total liabilities and members' equity | 11,790 | 11,790 |
Members equity [Member] | ' | ' |
Total liabilities and members' equity | $191,962 | $732,607 |
5_Investment_in_Affiliated_Com3
5. Investment in Affiliated Company (Details - Income) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Equity Method Investments and Joint Ventures [Abstract] | ' | ' |
Revenues | $5,022,000 | $12,570,000 |
Expenses | 4,393,655 | 7,548,619 |
Operating income | 628,345 | 5,021,381 |
Income before provision for income taxes and foreign taxes | 628,345 | 5,021,381 |
Provision for income taxes and foreign taxes | 418,990 | 672,590 |
Net income | $209,355 | $4,348,791 |
5_Investment_in_Affiliated_Com4
5. Investment in Affiliated Company (Details - Related party transactions) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Due to related party | $1,106,060 | $1,544,075 |
Alliacense | ' | ' |
Prepaid expenses | 0 | 456,353 |
Due to related party | 24,598 | 33,762 |
Expenses paid or accrued | 1,763,788 | 3,645,061 |
TPL | ' | ' |
Due to related party | 666,412 | 1,493,775 |
Expenses paid or accrued | 2,300,323 | 3,552,294 |
PTSC | ' | ' |
Due to related party | 92,050 | 16,538 |
Alliacense One | ' | ' |
Due to related party | $323,000 | $0 |
5_Investment_in_Affiliated_Com5
5. Investment in Affiliated Company (Details - other expenses) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Equity Method Investments and Joint Ventures [Abstract] | ' | ' |
Legal costs | $2,541,502 | $3,689,419 |
5_Investment_in_Affiliated_Com6
5. Investment in Affiliated Company (Details Narrative) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
TPL | ' | ' |
Investment in Affiliated Company | ' | ' |
Licensing agreements | ' | $185,000 |
Legal fees paid | 2,300,323 | 3,367,294 |
Legal fees reversed | 400,708 | 376,049 |
Accounts payable | 666,000 | 1,494,000 |
Alliacense | ' | ' |
Investment in Affiliated Company | ' | ' |
Licensing agreements | 956,353 | 1,858,647 |
Legal fees paid | 184,435 | 1,786,414 |
Litigation fees paid | 300,000 | ' |
Litigation settlement accrued | 323,000 | ' |
Accounts payable | 25,000 | 34,000 |
Prepaid expense | ' | 456,353 |
PTSC | ' | ' |
Investment in Affiliated Company | ' | ' |
Accounts payable | $92,000 | $17,000 |
5_Investment_in_Affiliated_Com7
5. Investment in Affiliated Company (Details Narrative PDS) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Net income from PDS | $104,677 | $2,174,395 |
Unrelated law firm | ' | ' |
Accounts payable | 92,289 | 518,694 |
TPL | ' | ' |
Legal fees paid | 2,300,323 | 3,367,294 |
PDS | ' | ' |
Legal fees paid | 92,050 | ' |
Net income from PDS | 104,677 | 2,174,395 |
Cash distributions received from PDS | 375,000 | 2,027,808 |
Cash contribution made to PDS | ' | 1,097,809 |
Consulting fees | $183,334 | $150,000 |
6_Accrued_Expenses_and_Other_D
6. Accrued Expenses and Other (Details) (USD $) | 31-May-14 | 31-May-13 |
Payables and Accruals [Abstract] | ' | ' |
Accrued lease obligation | $2,088 | $1,814 |
Compensation and benefits | 60,397 | 56,707 |
Accrued Expenses and Other, Total | $62,485 | $58,521 |
7_Stockholders_Equity_Details_
7. Stockholders' Equity (Details - shares repurchased) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Equity [Abstract] | ' | ' |
Number of shares repurchased | 3,854,457 | 563,553 |
Aggregate cost | $221,474 | $57,140 |
7_Stockholders_Equity_Details_1
7. Stockholders' Equity (Details - assumptions) | 12 Months Ended |
31-May-14 | |
Stockholders Equity Details - Assumptions | ' |
Expected term | '5 years |
Expected volatility | 88.00% |
Risk-free interest rate | 1.05% |
7_Stockholders_Equity_Details_2
7. Stockholders' Equity (Details - Option activity) (Options [Member], USD $) | 12 Months Ended |
31-May-14 | |
Options [Member] | ' |
Number of Options Outstanding, Beginning | 750,000 |
Number of Options Granted | 760,000 |
Number of Options Exercised | 0 |
Number of Options Forfeited | -175,000 |
Number of Options Outstanding, Ending | 1,335,000 |
Options vested and expected to vest, Ending | 1,335,000 |
Number of Options Exercisable, Ending | 1,335,000 |
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 | $0.12 |
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 | '2 years 8 months 19 days |
Weighted Average Remaining Contractual Life (in years) Options vested and expected to vest | '2 years 8 months 19 days |
Weighted Average Remaining Contractual Life (in years) Exercisable | '2 years 8 months 19 days |
Aggregate Intrinsic Value Outstanding, Ending | ' |
Aggregate Intrinsic Value Options vested and expected to vest | ' |
Aggregate Intrinsic Value Exercisable | ' |
7_Stockholders_Equity_Details_3
7. Stockholders' Equity (Details - Share based compensation expense) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Equity [Abstract] | ' | ' |
Selling, general, and administrative expense | $62,418 | $0 |
7_Stockholders_Equity_Details_4
7. Stockholders' Equity (Details Narrative) (USD $) | 12 Months Ended |
31-May-14 | |
Stockholders Equity Details Narrative | ' |
Weighted average grant date fair value of options granted | $0.08 |
8_Income_Taxes_Details_Provisi
8. Income Taxes (Details - Provision) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Current: | ' | ' |
Federal | $1,170 | ($2,513) |
State | 4,829 | 2,400 |
Total current | 5,999 | -113 |
Deferred: | ' | ' |
Federal | -492,332 | 571,104 |
State | -129,766 | 146,377 |
Total deferred | -622,098 | 717,481 |
Valuation allowance | 622,098 | -717,481 |
Total provision (benefit) | $5,999 | ($113) |
8_Income_Taxes_Details_Reconci
8. Income Taxes (Details - Reconcilation) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Income Tax Disclosure [Abstract] | ' | ' |
Statutory federal income tax rate | 35.00% | 35.00% |
State income tax rate, net of Federal effect | -0.20% | 0.20% |
Change in tax rate | -1.00% | -1.00% |
Stock option expense | -0.30% | 7.60% |
FIN 48 liability | 0.00% | -0.20% |
Other | -0.10% | 7.00% |
Change in valuation allowance | -33.80% | -48.60% |
Effective income tax rate | -0.40% | 0.00% |
8_Income_Taxes_Details_Deferre
8. Income Taxes (Details - Deferred tax assets) (USD $) | 31-May-14 | 31-May-13 |
Current deferred tax assets: | ' | ' |
State taxes | $1,642 | $815 |
Accrued expenses | 16,441 | 14,751 |
Prepaids | -1,448 | 0 |
Less: valuation allowance | -16,635 | -15,566 |
Total net current deferred tax asset | 0 | 0 |
Long-term deferred tax assets (liabilities): | ' | ' |
Investment in affiliated company | 1,242,400 | -106,419 |
Basis difference in property and equipment | -718 | -2,166 |
Basis difference in intangibles | 18,334 | 18,334 |
Stock based compensation expense | 247,688 | 227,284 |
Impairment of note receivable | 331,896 | 331,896 |
Capital loss carryover | 225,454 | 643,144 |
Net operating loss carryforwards | 9,156,427 | 9,491,977 |
Credit carryover | 110,615 | 107,017 |
Valuation allowance | -11,332,096 | -10,711,067 |
Total net long-term deferred tax asset | $0 | $0 |
8_Income_Taxes_Details_Unrecog
8. Income Taxes (Details - Unrecognized tax benefits) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Income Tax Disclosure [Abstract] | ' | ' |
Beginning Balance | $0 | $2,513 |
Increase in unrecognized tax benefit liability | 0 | 0 |
Decrease in unrecognized tax benefit liability | 0 | -2,513 |
Accrual of interest related to unrecognized tax benefits | 0 | 0 |
Ending Balance | $0 | $0 |
8_Income_Taxes_Details_Narrati
8. Income Taxes (Details Narrative) (USD $) | 12 Months Ended |
31-May-14 | |
Income Tax Disclosure [Abstract] | ' |
Federal Operating loss carryforwards | $20,841,000 |
State Operating loss carryforwards | $23,420,000 |
Federal Operating loss carryforwards, expiration date | 31-May-23 |
State Operating loss carryforwards, expiration date | 31-May-13 |
9_Commitments_and_Contingencie2
9. Commitments and Contingencies (Details) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Commitments and Contingencies Disclosure [Abstract] | ' | ' |
Rental expense | $36,444 | $34,791 |
9_Commitments_and_Contingencie3
9. Commitments and Contingencies (Details Narrative) (USD $) | 12 Months Ended | |
31-May-14 | 31-May-13 | |
Commitments and Contingencies Disclosure [Abstract] | ' | ' |
Patriot's matching contributions to the 401K plan | $10,610 | $10,801 |