Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Feb. 28, 2015 | Apr. 09, 2015 | |
Document And Entity Information | ||
Entity Registrant Name | PATRIOT SCIENTIFIC CORP | |
Entity Central Index Key | 836564 | |
Document Type | 10-Q | |
Document Period End Date | 28-Feb-15 | |
Amendment Flag | FALSE | |
Current Fiscal Year End Date | -26 | |
Is Entity a Well-known Seasoned Issuer | No | |
Is Entity a Voluntary Filer | No | |
Is Entity's Reporting Status Current | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 401,392,948 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2015 |
Condensed_Consolidated_Balance
Condensed Consolidated Balance Sheets (USD $) | Feb. 28, 2015 | 31-May-14 |
Current assets: | ||
Cash and cash equivalents | $3,012,444 | $4,716,208 |
Restricted cash and cash equivalents | 21,203 | 21,123 |
Marketable securities | 2,454,348 | 1,701,647 |
Prepaid income tax | 3,955 | 0 |
Prepaid expenses and other current assets | 66,997 | 203,146 |
Current assets of discontinued operations | 9,969 | 57,477 |
Total Current Assets | 5,568,916 | 6,699,601 |
Property and equipment, net | 2,440 | 2,775 |
Other assets | 3,036 | 3,036 |
Investment in affiliated company | 3,216 | 95,981 |
Total assets | 5,577,608 | 6,801,393 |
Current liabilities: | ||
Accounts payable | 23,400 | 224,059 |
Accrued expenses and other | 45,795 | 62,485 |
Income tax payable | 0 | 3,599 |
Total current liabilities | 69,195 | 290,143 |
Total liabilities | 69,195 | 290,143 |
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 February 28, 2015 and May 31, 2014 | 4,382 | 4,382 |
Additional paid-in capital | 77,400,852 | 77,400,852 |
Accumulated deficit | -57,270,953 | -56,268,116 |
Common stock held in treasury, at cost - 36,849,670 shares at February 28, 2015 and May 31, 2014 | -14,625,868 | -14,625,868 |
Total stockholders' equity | 5,508,413 | 6,511,250 |
Total liabilities and stockholders' equity | $5,577,608 | $6,801,393 |
Condensed_Consolidated_Balance1
Condensed Consolidated Balance Sheets (Parenthetical) (USD $) | Feb. 28, 2015 | 31-May-14 |
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 | 401,392,948 |
Common stock held in treasury, at cost | 36,849,670 | 36,849,670 |
Condensed_Consolidated_Stateme
Condensed Consolidated Statements of Operations (USD $) | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2015 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | |
Operating expenses: | ||||
Selling, general and administrative | $247,668 | $379,004 | $977,666 | $1,191,149 |
Total operating expenses | 247,668 | 379,004 | 977,666 | 1,191,149 |
Other income (expense): | ||||
Interest income | 2,667 | 2,458 | 7,299 | 3,623 |
Other income | 0 | 0 | 60 | 0 |
Realized loss on marketable securities | 0 | 0 | 0 | -347 |
Equity in earnings (loss) of affiliated company | 269,314 | -29,889 | -34,364 | 356,930 |
Total other income (expense), net | 271,981 | -27,431 | -27,005 | 360,206 |
Income (loss) from continuing operations before income taxes | 24,313 | -406,435 | -1,004,671 | -830,943 |
Provision (benefit) for income taxes | -10,425 | 2,400 | 25,288 | |
Income (loss) from continuing operations | 24,313 | -396,010 | -1,007,071 | -856,231 |
Income from discontinued operations, net | 969 | 0 | 4,234 | 40,583 |
Net income (loss) | $25,282 | ($396,010) | ($1,002,837) | ($815,648) |
Basic and diluted income (loss) per common share: | ||||
Income (loss) from continuing operations | $0 | $0 | $0 | $0 |
Income from discontinued operations | $0 | $0 | $0 | $0 |
Net income (loss) | $0 | $0 | $0 | $0 |
Weighted average number of common shares outstanding - basic | 398,548,318 | 401,933,416 | 398,548,318 | 402,122,360 |
Weighted average number of common shares outstanding - diluted | 401,392,948 | 401,933,416 | 398,548,318 | 402,122,360 |
Condensed_Consolidated_Stateme1
Condensed Consolidated Statements of Cash Flows (USD $) | 9 Months Ended | |
Feb. 28, 2015 | Feb. 28, 2014 | |
Operating activities: | ||
Net loss | ($1,002,837) | ($815,648) |
Less: Net income from discontinued operations | 4,234 | 40,583 |
Loss from continuing operations | -1,007,071 | -856,231 |
Adjustments to reconcile net loss before discontinued operations to net cash used in operating activities: | ||
Depreciation | 1,577 | 1,728 |
Share-based compensation | 0 | 62,418 |
Accrued interest income added to investments | -3,859 | -967 |
Equity in (earnings) loss of affiliated company | 34,364 | -356,930 |
Realized loss on sale of marketable securities | 0 | 347 |
Changes in operating assets and liabilities: | ||
Accounts receivable - affiliated company | 0 | -64,207 |
Prepaid income tax | -3,955 | 0 |
Prepaid expenses and other current assets | 136,148 | 136,722 |
Income tax payable | -3,599 | 21,388 |
Accounts payable, accrued expenses, and other | -217,347 | -206,768 |
Net cash used in operating activities of continuing operations | -1,063,742 | -1,262,500 |
Net cash provided by operating activities of discontinued operations | 51,742 | 66,266 |
Net cash used in operating activities | -1,012,000 | -1,196,234 |
Investing activities: | ||
Proceeds from sales of marketable securities | 1,451,078 | 1,197,619 |
Purchases of marketable securities | -2,200,000 | -2,003,151 |
Purchase of property and equipment | -1,242 | 0 |
Distributions from affiliated company | 58,400 | 375,000 |
Net cash used in investing activities | -691,764 | -430,532 |
Financing activities: | ||
Repurchase of common stock for treasury | 0 | -84,129 |
Net cash used in financing activities | 0 | -84,129 |
Net decrease in cash and cash equivalents | -1,703,764 | -1,710,895 |
Cash and cash equivalents, beginning of period | 4,716,208 | 7,572,887 |
Cash and cash equivalents, end of period | 3,012,444 | 5,861,992 |
Supplemental Disclosure of Cash Flow Information: | ||
Cash paid for income taxes | $9,954 | $3,900 |
1_Basis_of_Presentation_and_Su
1. Basis of Presentation and Summary of Significant Accounting Policies | 9 Months Ended | ||||||||||||||||
Feb. 28, 2015 | |||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||
1. Basis of Presentation and Summary of Significant Accounting Policies | The unaudited condensed consolidated financial statements of Patriot Scientific Corporation (the “Company”, “PTSC”, “Patriot”, “we”, “us” or “our”) presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Report on Form 10-K for our fiscal year ended May 31, 2014. | ||||||||||||||||
In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of the results for the interim period presented. Operating results for the nine month period ended February 28, 2015 are not necessarily indicative of the results that may be expected for the year ending May 31, 2015. | |||||||||||||||||
Basis of Consolidation | |||||||||||||||||
The condensed consolidated balance sheets at February 28, 2015 and May 31, 2014, condensed consolidated statements of operations for the three and nine months ended February 28, 2015 and 2014 and condensed consolidated statements of cash flows for the nine months ended February 28, 2015 and 2014 include our accounts and those of our wholly owned subsidiary Patriot Data Solutions Group, Inc. (“PDSG”) which includes Crossflo Systems, Inc. (“Crossflo”), and our inactive subsidiary Plasma Scientific Corporation. All significant intercompany accounts and transactions have been eliminated. | |||||||||||||||||
PDSG is being presented as discontinued operations in the condensed consolidated statements of operations and cash flows for all periods presented. See “Discontinued Operations and Assets Held for Sale” below for additional information. | |||||||||||||||||
Liquidity and Management’s Plans | |||||||||||||||||
Cash shortfalls currently experienced by Phoenix Digital Solutions, LLC (“PDS”) will have an adverse effect on our liquidity. To date, we have determined that it is in the best interests of the Moore Microprocessor Patent (“MMP”) licensing program that we provide our 50% share of capital to provide for PDS expenses including legal retainers, and litigation related payments in the event license revenues received by PDS are insufficient to meet these needs. We believe it is likely that contributions to PDS to fund working capital will continue to be required. | |||||||||||||||||
PDS had been incurring significant third-party costs for expert testimony, depositions and other related litigation costs. We could be required to make capital contributions to PDS for any future litigation related costs in the event that PDS does not receive sufficient licensing revenues to pay these expenses. | |||||||||||||||||
Our current liquid cash resources as of February 28, 2015, are expected to provide the funds necessary to support our operations through at least the next twelve months. The cash flows from our interest in PDS represent our only significant source of cash generation. In the event of a continued decrease or interruption in MMP portfolio licensing we will incur a significant reduction to our cash position. It is highly unlikely that we would be able to obtain any additional sources of financing to supplement our cash and cash equivalents and short-term investment position of $5,466,792 at February 28, 2015. | |||||||||||||||||
On March 20, 2013, Technology Properties Limited, Inc. (“TPL”) filed a petition under Chapter 11 of the United States Bankruptcy Code. 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 “Joint Plan”) had been agreed to. The Joint Plan was confirmed by the Bankruptcy Court on February 11, 2015 with the entered confirmation order becoming final on April 2, 2015. The Joint Plan provides that the Effective Date will be the later of (i) the first business day that is at least 30 days after the entry of the confirmation order or (ii) the first Business Day on which the reorganized company has sufficient cash to make all payments required under the Plan on the Effective Date. We have been appointed to the creditors’ committee and have been closely monitoring the progress in this matter as it relates to our interest in PDS. In the event we are required to provide funding to PDS that is not reciprocated by TPL, our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our consolidated financial statements. | |||||||||||||||||
Discontinued Operations and Assets Held for Sale | |||||||||||||||||
On February 17, 2012, our board of directors authorized management to sell the assets of PDSG due to the inability of PDSG to meet its business plan and continuing projected negative cash flows. In accordance with authoritative guidance we have classified the assets, operations and cash flows of PDSG as discontinued operations for all periods presented. During March 2012, we entered into an interim agreement with the purchaser of the assets of PDSG which required the purchaser to pay PDSG $93,450 to subsidize the April 2012 expenses of PDSG during the sale transaction negotiations. On April 30, 2012, we negotiated a sale transaction in which we sold substantially all of the assets of PDSG in exchange for a royalty on PDSG revenues for a period of three years. From April 30, 2012 to February 28, 2015, the gain on the asset sale of PDSG is approximately $98,000. | |||||||||||||||||
Summarized operating results of discontinued operations for the three and nine months ended February 28, 2015 and 2014 are as follows: | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
28-Feb-15 | 28-Feb-14 | 28-Feb-15 | 28-Feb-14 | ||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Gain on sale of discontinued operations | $ | 969 | $ | – | $ | 4,234 | $ | 40,583 | |||||||||
Income before income taxes | $ | 969 | $ | – | $ | 4,234 | $ | 40,583 | |||||||||
Income from discontinued operations | $ | 969 | $ | – | $ | 4,234 | $ | 40,583 | |||||||||
PDSG activity for the three and nine months ended February 28, 2015 and 2014 consists of PDSG royalty revenues. | |||||||||||||||||
The following table summarizes the carrying amount at February 28, 2015 and May 31, 2014 of the major classes of assets of PDSG classified as discontinued operations: | |||||||||||||||||
28-Feb-15 | 31-May-14 | ||||||||||||||||
(Unaudited) | |||||||||||||||||
Current assets: | |||||||||||||||||
Other current assets | $ | 9,969 | $ | 57,477 | |||||||||||||
Investments in Marketable Securities | |||||||||||||||||
We classify our investments in marketable securities in certificates of deposit at the time of purchase as held-to-maturity and reevaluate such classifications at each balance sheet date. Held-to-maturity investments consist of securities that we have the intent and ability to retain until maturity. These securities are recorded at cost and adjusted for the amortization of premiums and discounts, which approximates fair value. Cash inflows and outflows related to the sale and purchase of investments are classified as investing activities in our condensed consolidated statements of cash flows. | |||||||||||||||||
Investment in Affiliated Company | |||||||||||||||||
We have a 50% interest in PDS (see Note 3). We account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and is recognized in the condensed consolidated statements of operations in the caption “Equity in earnings (loss) of affiliated company” and also is adjusted by contributions to and distributions from PDS. | |||||||||||||||||
PDS, as an unconsolidated equity investee, recognizes revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of revenue is assured which is generally upon the receipt of the license proceeds. PDS may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones are met. | |||||||||||||||||
We review our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near term prospects of PDS. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss. | |||||||||||||||||
Earnings (Loss) Per Share | |||||||||||||||||
Basic earnings per share for continuing and discontinued operations includes no dilution and is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share for continuing and discontinued operations reflect the potential dilution of securities that could share in the earnings of an entity. | |||||||||||||||||
For the three months ended February 28, 2015 potential common shares of 1,335,000 related to our outstanding options were not included in the calculation of diluted income per share for continuing and discontinued operations as they were anti-dilutive. For the three months ended February 28, 2015 we included the PDSG escrow shares of 2,844,630 in the calculation of diluted income per share for continuing and discontinued operations. | |||||||||||||||||
For the nine months ended February 28, 2015 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 nine months ended February 28, 2015, 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 three and nine months ended February 28, 2014 potential common shares of 1,335,000 related to our outstanding options were not included in the calculation of basic and diluted loss per share for continuing and discontinued operations as we recorded a loss. Had we reported net income for the three and nine months ended February 28, 2014, 0 and 575,000, respectively, additional shares of common stock would have been included in the calculation of diluted income per share for continuing and discontinued operations using the treasury stock method. | |||||||||||||||||
In connection with our acquisition of Crossflo, which is part of PDSG, we issued escrow shares that are contingent upon certain representations and warranties made by Crossflo at the time of the merger agreement (see Note 6). We exclude these escrow shares from the basic and diluted loss per share calculations and include the escrowed shares in the diluted earnings per share calculations. | |||||||||||||||||
Income Taxes | |||||||||||||||||
We follow authoritative guidance in accounting for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement requirement for the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under this guidance we may only recognize tax positions that meet a “more likely than not” threshold. | |||||||||||||||||
We follow authoritative guidance to evaluate whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. We are assessing our deferred tax assets under more likely than not scenarios in which they may be realized through future income. | |||||||||||||||||
We have determined that it was more likely than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable losses. As a result of this determination we have placed a full valuation allowance against our deferred tax assets. | |||||||||||||||||
We follow authoritative guidance to adjust our effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We are also required to record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections. | |||||||||||||||||
Assessment of Contingent Liabilities | |||||||||||||||||
We are involved in various legal matters, disputes, and patent infringement claims which arise in the ordinary course of our business. We accrue for any estimated losses at the time when we can make a reliable estimate of such loss and it is probable that it has been incurred. By their very nature, contingencies are difficult to estimate. We continually evaluate information related to all contingencies to determine that the basis on which we have recorded our estimated exposure is appropriate. | |||||||||||||||||
Intellectual Property Rights | |||||||||||||||||
PDS, our investment in 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 July and September 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. | |||||||||||||||||
Recent Accounting Pronouncements | |||||||||||||||||
In August 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-15, "Presentation of Financial Statements – Going Concern." ASU 2014-15 provides guidance in generally accepted accounting principles about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016 and for annual periods and interim periods thereafter (fiscal year 2017 for the Company). Early adoption is permitted. We have not yet determined the potential effects of the adoption of ASU 2014-15 on our condensed consolidated financial statements. |
2_Cash_Cash_Equivalents_Restri
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities | 9 Months Ended | ||||||||||||||||
Feb. 28, 2015 | |||||||||||||||||
Cash and Cash Equivalents [Abstract] | |||||||||||||||||
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities | We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. | ||||||||||||||||
Restricted cash and cash equivalents at February 28, 2015 and May 31, 2014 consist of deposits in a savings account required to be held as collateral for our corporate credit card. | |||||||||||||||||
At February 28, 2015 and May 31, 2014, our marketable securities in the amount of $2,454,348 and $1,701,647, respectively, consist of the par value plus accrued interest of our time deposits. These marketable securities are classified as held-to-maturity and are reported at amortized cost, which approximates fair market value. | |||||||||||||||||
We follow authoritative guidance to account for our marketable securities as held-to-maturity. Under this authoritative guidance we are required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We determine fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment or valuations by third party professionals. The three levels of inputs that we may use to measure fair value are: | |||||||||||||||||
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; | |||||||||||||||||
Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and | |||||||||||||||||
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity). | |||||||||||||||||
The following tables detail the fair value measurements within the fair value hierarchy of our cash, cash equivalents and investments in marketable securities: | |||||||||||||||||
Fair Value Measurements at February 28, 2015 | |||||||||||||||||
(Unaudited) Using | |||||||||||||||||
Quoted Prices | Significant | ||||||||||||||||
in Active | Other | Significant | |||||||||||||||
Fair Value at | Markets for | Observable | Unobservable | ||||||||||||||
February 28, | Identical Assets | Inputs | Inputs | ||||||||||||||
2015 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Cash and cash equivalents: | |||||||||||||||||
Cash | $ | 182,341 | $ | 182,341 | $ | – | $ | – | |||||||||
Money market funds | 2,830,103 | 2,830,103 | – | – | |||||||||||||
Restricted cash and cash equivalents | 21,203 | 21,203 | – | – | |||||||||||||
Marketable securities: | |||||||||||||||||
Short-term: | |||||||||||||||||
Certificates of deposit | 2,454,348 | – | 2,454,348 | – | |||||||||||||
Total | $ | 5,487,995 | $ | 3,033,647 | $ | 2,454,348 | $ | – | |||||||||
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 | $ | – | |||||||||
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 February 28, 2015: | |||||||||||||||||
February 28, 2015 | |||||||||||||||||
(Unaudited) | |||||||||||||||||
Cost | Gross Unrealized Gains/(Losses) | Fair | |||||||||||||||
Value | |||||||||||||||||
Maturity | |||||||||||||||||
Due in one year or less | $ | 2,454,348 | $ | – | $ | 2,454,348 | |||||||||||
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 |
3_Investment_in_Affiliated_Com
3. Investment in Affiliated Company | 9 Months Ended | ||||||||||||||||
Feb. 28, 2015 | |||||||||||||||||
Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||
3. Investment in Affiliated Company | On June 7, 2005, we entered into a Master Agreement (the “Master Agreement”) with TPL, and Charles H. Moore (“Moore”), the co-inventor of the technology which is the subject of the MMP Portfolio of microprocessor patents, pursuant to which the parties resolved all legal disputes between them. Pursuant to the Master Agreement, we and TPL entered into the Limited Liability Company Operating Agreement of PDS (the “LLC Agreement”) into which we and Moore contributed our rights to certain of our technologies. | ||||||||||||||||
We and TPL each own 50% of the membership interests of PDS, and each member has the right to appoint one member of the three member management committee. The two appointees are required to select a mutually acceptable third member of the management committee. There had not been a third management committee member since May 2010, however, as a result of our initiating arbitration seeking the appointment of a third member, on December 16, 2014, an independent manager to the PDS management committee was selected by the arbitrator (see Note 6). 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. PDS working capital contributions would require the approval of a majority of the management committee members. Any distributable cash and allocation of profits and losses will be allocated to the members in the priority defined in the LLC Agreement. | |||||||||||||||||
Previously, pursuant to our June 7, 2005 agreement with PDS and TPL to license the MMP Portfolio (“Commercialization Agreement”), PDS reimbursed TPL for payment of all legal and third-party expert fees and other related third-party costs and expenses. Presently the majority of third-party costs are paid directly by PDS. During the three months ended February 28, 2015 and 2014, PDS expensed $669,987 and reversed $(7,432), respectively, pursuant to the Commercialization Agreement and the July 11, 2012 Program Agreement (see below). These expenses are recorded in the accompanying PDS statements of operations presented below net of $20,215 and $7,432, respectively, of legal fee reversals previously expensed and recorded as accounts payable to TPL during the three months ended February 28, 2015 and 2014 as the statute of limitations had expired. During the nine months ended February 28, 2015 and 2014, PDS expensed $1,175,054 and $2,211,003, respectively, pursuant to the agreements. These expenses are recorded in the accompanying PDS statements of operations presented below net of $20,215 and $397,739, respectively, of legal fee reversals previously expensed and recorded as accounts payable to TPL during the nine months ended February 28, 2015 and 2014 as the statute of limitations had expired. | |||||||||||||||||
On July 11, 2012, we entered into the Program Agreement (“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, which was engaged on October 10, 2014, to complement the MMP licensing commercialization. However, to-date Alliacense has fulfilled only a portion of its obligations under the Novation Agreement associated with the deployment of the second licensing company despite our repeated demands. | |||||||||||||||||
On July 17, 2012, we entered into an agreement with PDS and TPL whereby we agreed to certain additional allocations of obligations relating to the Program Agreement. | |||||||||||||||||
Pursuant to the Program Agreement, PDS 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 three and nine months ended February 28, 2014, PDS expensed $0 and $956,353, respectively, pursuant to this commitment. These expenses are recorded in the accompanying PDS statements of operations 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 U.S. International Trade Commission (“ITC”) on July 24, 2012. During the nine months ended February 28, 2015 and 2014, PDS reversed $(24,598) in connection with the Novation Agreement, and expensed $180,413, 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 amounts are recorded in the accompanying PDS statements of operations presented below. | |||||||||||||||||
Pursuant to the Novation Agreement, PDS paid Alliacense licensing fees of $151,600 and $155,600, respectively, during the three and nine months ended February 28, 2015. | |||||||||||||||||
During the fiscal year ended May 31, 2014 and the three months ended August 31, 2014, PDS paid Alliacense $300,000 and $323,000, respectively, pursuant to the terms of the Novation Agreement (see Note 6). | |||||||||||||||||
During January 2013, TPL and Moore settled their litigation. Terms of the settlement include the payment by PDS to Moore of a consulting fee of $250,000 for four years or until the completion of all outstanding MMP litigation whichever comes first. Per terms of the agreement PDS paid Moore $150,000 on the settlement date and paid Moore $16,667 per month from August 2013 through January 2014, and will pay $20,833 per month beginning February 2014 through January 2017. During the three months ended February 28, 2015 and 2014, PDS expensed $62,499 and $54,167, respectively, pursuant to this commitment and during the nine months ended February 28, 2015 and 2014, PDS expensed $187,497 and $120,835, respectively, pursuant to this commitment. These expenses are recorded in the accompanying PDS statements of operations presented below. | |||||||||||||||||
Based on our analysis of current authoritative accounting guidance with respect to our investment in PDS, we continue to account for our investment in PDS under the equity method of accounting, and accordingly have recorded our share of PDS’s net loss during the nine months ended February 28, 2015 and three months ended February 28, 2014 of $34,364 and $29,889, respectively, as a decrease in our investment and recorded our share of PDS’ net income during the three months ended February 28, 2015 and nine months ended February 28, 2014 of $269,314 and $356,930, respectively, as an increase in our investment. We received distributions of $58,400 and $375,000, respectively, from PDS during the nine months ended February 28, 2015 and 2014 and we have recorded these distributions as a decrease in our investment. | |||||||||||||||||
We have recorded our share of PDS’ net income and loss for the three and nine months ended February 28, 2015 and 2014 as “Equity in earnings (loss) of affiliated company” in the accompanying condensed consolidated statements of operations. | |||||||||||||||||
During the three and nine months ended February 28, 2015, PDS entered into licensing agreements with third parties, pursuant to which PDS received proceeds of $1,800,000 and $1,820,000, respectively. | |||||||||||||||||
During the three and nine months ended February 28, 2014, PDS entered into licensing agreements with third parties, pursuant to which PDS received aggregate proceeds of $0 and $5,022,000, respectively. | |||||||||||||||||
At February 28, 2015, PDS had an accounts payable balance of approximately $554,000 to TPL. | |||||||||||||||||
PDS’ balance sheets at February 28, 2015 and May 31, 2014 and statements of operations for the three and nine months ended February 28, 2015 and 2014 are as follows: | |||||||||||||||||
Balance Sheets | |||||||||||||||||
Assets: | |||||||||||||||||
28-Feb-15 | 31-May-14 | ||||||||||||||||
(Unaudited) | (Audited) | ||||||||||||||||
Cash | $ | 640,470 | $ | 1,063,536 | |||||||||||||
Prepaid expenses and other current assets | 2,629 | 247,776 | |||||||||||||||
Total assets | $ | 643,099 | $ | 1,311,312 | |||||||||||||
Liabilities and Members’ Equity: | |||||||||||||||||
28-Feb-15 | 31-May-14 | ||||||||||||||||
(Unaudited) | (Audited) | ||||||||||||||||
Payables | $ | 636,666 | $ | 1,107,560 | |||||||||||||
Income tax payable | – | 11,790 | |||||||||||||||
Members’ equity | 6,433 | 191,962 | |||||||||||||||
Total liabilities and members’ equity | $ | 643,099 | $ | 1,311,312 | |||||||||||||
Statements of Operations | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
28-Feb-15 | 28-Feb-14 | 28-Feb-15 | 28-Feb-14 | ||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Revenues | $ | 1,800,000 | $ | – | $ | 1,820,000 | $ | 5,022,000 | |||||||||
Expenses | 901,372 | 59,777 | 1,528,729 | 3,901,740 | |||||||||||||
Operating income (loss) | 898,628 | (59,777 | ) | 291,271 | 1,120,260 | ||||||||||||
Income (loss) before provision for income taxes and foreign taxes | 898,628 | (59,777 | ) | 291,271 | 1,120,260 | ||||||||||||
Provision for income taxes and foreign taxes | (360,000 | ) | – | (360,000 | ) | (406,400 | ) | ||||||||||
Net income (loss) | $ | 538,628 | $ | (59,777 | ) | $ | (68,729 | ) | $ | 713,860 | |||||||
PDS Related Party Balances And Transactions | |||||||||||||||||
Balances with related parties as of February 28, 2015 and May 31, 2014 are summarized as follows: | |||||||||||||||||
28-Feb-15 | 31-May-14 | ||||||||||||||||
(Unaudited) | (Audited) | ||||||||||||||||
Liabilities: | |||||||||||||||||
Related party payables and accrued expenses (TPL) (1) | $ | 553,624 | $ | 666,412 | |||||||||||||
Related party payables (PTSC) | – | 92,050 | |||||||||||||||
Related party payables (Alliacense) | – | 24,598 | |||||||||||||||
Settlement fee payable (Alliacense) | – | 323,000 | |||||||||||||||
Total liabilities | $ | 553,624 | $ | 1,106,060 | |||||||||||||
-1 | Pursuant to the terms of the Commercialization Agreement, PDS reimbursed 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 had occurred. | ||||||||||||||||
Transactions with related parties for the three and nine months ended February 28, 2015 and 2014 are as follows: | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
28-Feb-15 | 28-Feb-14 | 28-Feb-15 | 28-Feb-14 | ||||||||||||||
Expenses (reversed), paid or accrued (TPL) | $ | 669,987 | $ | (7,432 | ) | $ | 1,175,054 | $ | 2,211,003 | ||||||||
Expenses paid or accrued (Alliacense) | 151,600 | – | 131,002 | 1,440,788 | |||||||||||||
Significant Contractual Legal Relationship | |||||||||||||||||
PTSC, through its unconsolidated affiliate, PDS has incurred litigation related costs from an unrelated law firm and legal subcontractors with respect to 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 February 28, 2015 and May 31, 2014 were $81,542 and $92,289, respectively. | |||||||||||||||||
Transactions with this law firm and legal subcontractors for the three and nine months ended February 28, 2015 and 2014 were as follows: | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
28-Feb-15 | 28-Feb-14 | 28-Feb-15 | 28-Feb-14 | ||||||||||||||
Legal costs | $ | 690,202 | $ | – | $ | 1,195,269 | $ | 2,449,214 | |||||||||
Contractual Commitments | |||||||||||||||||
In January 2013, PDS entered into a contractual commitment with a related party to provide consulting services at a cost of $250,000 per year for a duration of four years or the completion of all outstanding MMP litigation, whichever comes first. | |||||||||||||||||
For the three and nine months ended February 28, 2015, PDS expensed $62,499 and $187,497, respectively, related to this agreement. | |||||||||||||||||
For the three and nine months ended February 28, 2014, PDS expensed $54,167 and $120,835, respectively, related to this agreement. | |||||||||||||||||
We review our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near term prospects of PDS. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss. |
4_Income_Taxes
4. Income Taxes | 9 Months Ended |
Feb. 28, 2015 | |
Income Tax Disclosure [Abstract] | |
4. Income Taxes | We have determined that it was more likely than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable losses. As a result of this determination we have placed a full valuation allowance against our deferred tax assets. There have been no changes to our determination during the current fiscal year. |
5_Stockholders_Equity
5. Stockholders' Equity | 9 Months Ended | ||||||||||||||||||||
Feb. 28, 2015 | |||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||
5. Stockholders' Equity | Equity Transactions | ||||||||||||||||||||
The following table summarizes equity transactions during the nine months ended February 28, 2015: | |||||||||||||||||||||
Common Stock | Additional Paid-in | Accumulated | Treasury | ||||||||||||||||||
Shares | Amounts | Capital | Stock | Stock | |||||||||||||||||
Balance June 1, 2014 | 401,392,948 | $ | 4,382 | $ | 77,400,852 | $ | (56,268,116 | ) | $ | (14,625,868 | ) | ||||||||||
Net loss | – | – | – | (1,002,837 | ) | – | |||||||||||||||
Balance February 28, 2015 | 401,392,948 | $ | 4,382 | $ | 77,400,852 | $ | (57,270,953 | ) | $ | (14,625,868 | ) | ||||||||||
Stock Option Activity | |||||||||||||||||||||
As of February 28, 2015, we had 1,335,000 fully vested options outstanding pursuant to our 2006 Stock Option Plan exercisable at a range of $0.10 to $0.12 per share expiring through 2018. | |||||||||||||||||||||
Share-based Compensation | |||||||||||||||||||||
Summary of Assumptions and Activity | |||||||||||||||||||||
The fair value of share-based awards to employees and directors is calculated using the Black-Scholes option pricing model, even though this model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from our stock options. | |||||||||||||||||||||
The Black-Scholes model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the pricing term of the grant effective as of the date of the grant. The expected volatility is based on the historical volatilities of our common stock. These factors could change in the future, affecting the determination of share-based compensation expense in future periods. | |||||||||||||||||||||
Three Months Ended | Nine Months Ended February 28, 2015 (Unaudited) | Three Months Ended | Nine Months Ended | ||||||||||||||||||
28-Feb-15 | 28-Feb-14 | 28-Feb-14 | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
Expected term | * | * | * | 5 | Years | ||||||||||||||||
Expected volatility | * | * | * | 88 | % | ||||||||||||||||
Risk-free interest rate | * | * | * | 1.05 | % | ||||||||||||||||
* No stock options were granted during these periods. | |||||||||||||||||||||
A summary of option activity as of February 28, 2015 and changes during the nine months then ended, is presented below: | |||||||||||||||||||||
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||||
Options outstanding at June 1, 2014 | 1,335,000 | $ | 0.11 | ||||||||||||||||||
Options granted | – | $ | – | ||||||||||||||||||
Options exercised | – | $ | – | ||||||||||||||||||
Options forfeited/expired | – | $ | – | ||||||||||||||||||
Options outstanding at February 28, 2015 | 1,335,000 | $ | 0.11 | 1.97 | $ | – | |||||||||||||||
Options vested and expected to vest at February 28, 2015 | 1,335,000 | $ | 0.11 | 1.97 | $ | – | |||||||||||||||
Options exercisable at February 28, 2015 | 1,335,000 | $ | 0.11 | 1.97 | $ | – | |||||||||||||||
There were no options granted or exercised during the nine months ended February 28, 2015. | |||||||||||||||||||||
The aggregate intrinsic value represents the differences in market price at the close of the quarter ($0.06 per share on February 28, 2015) and the exercise price of outstanding, in-the-money options (those options with exercise prices below $0.06) on February 28, 2015. | |||||||||||||||||||||
The following table summarizes our employee share-based compensation for the three and nine months ended February 28, 2015 and 2014, which was recorded in selling, general and administrative expense as follows: | |||||||||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | ||||||||||||||||||
28-Feb-15 | February 28 2015 | 28-Feb-14 | 28-Feb-14 | ||||||||||||||||||
Selling, general and administrative expense | $ | – | $ | – | $ | – | $ | 62,418 | |||||||||||||
6_Commitments_and_Contingencie
6. Commitments and Contingencies | 9 Months Ended |
Feb. 28, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |
6. Commitments and Contingencies | Litigation |
Patent Litigation | |
On February 8, 2008, we, TPL and Alliacense Ltd. were named as defendants in separate lawsuits filed in the United States District Court for the Northern District of California by HTC Corporation, and Acer, Inc., and affiliated entities of each of them. (Those cases were deemed related and are referred to herein as the “N.D. Cal. Case”). HTC and Acer sought declaratory relief that their products did not infringe enforceable claims of the '336 patent. We alleged counterclaims for patent infringement of the '336 and '890 patents as to certain of their products. | |
The Court issued a first claim construction ruling in the N.D. Cal. Case on June 12, 2012, which preserved our ability to proceed on our infringement claims against Acer and HTC. Thereafter, Chief District Judge James Ware retired and the N.D. Cal. Case was reassigned to Magistrate Judge Paul S. Grewal, who held a supplemental claim construction hearing on November 30, 2012. Judge Grewal then issued a supplemental claim construction ruling on December 5, 2012, which preserved our ability to proceed with our infringement claims. On September 6, 2013 Acer entered into an MMP portfolio license agreement that also provided for the dismissal of all claims in the N.D. Cal Case, as well as the filing of a joint motion to terminate Acer as a respondent in the ITC 853 Investigation (described more fully below). On September 19, 2013 the ‘890 patent was dropped from the N.D. Cal Case pursuant to stipulation by all parties. A jury trial was held in the N.D. Cal. Case against HTC, beginning on September 23, 2013. On October 3, 2013, the jury returned a verdict in favor of us and TPL, finding that HTC had infringed the ‘336 patent with damages of $958,560. HTC appealed the jury verdict and we filed cross appeals regarding the period available for infringement damages related to the ‘890 patent. On December 30, 2014, the parties filed a joint motion requesting continuance of oral arguments and advised the court that a settlement which would result in the dismissal of the pending appeals had been reached. On January 7, 2015, the parties filed a stipulated motion to voluntarily dismiss the HTC appeal and our cross appeals on the basis of the settlement agreement. The Federal Circuit granted that motion and dismissed the appeal the same day. | |
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 are proceeding. | |
On February 4, 2015 Barnes & Noble, Inc. filed a motion asserting that our cause of action on the ‘336 patent was barred by the Kessler doctrine because of the ITC’s finding of non-infringement. A hearing was held on March 17, 2015 in the U.S. District Court for the Northern District of California regarding the matter. A ruling is expected shortly. | |
On April 10, 2015 multiple defendants in the District Court action filed a motion arguing for invalidity of the ‘749 patent. The court has scheduled a hearing for May 19, 2015 in regards to this matter. | |
Alliacense 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 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. The Novation Agreement also provided for the addition of a second licensing company, however, to-date Alliacense has fulfilled only a portion of its obligations under the Novation Agreement associated with the deployment of the second licensing company despite our repeated demands. The PDS Management Committee is undertaking actions to compel Alliacense to perform, which if unsuccessful, could lead to the termination of the Alliacense agreements. | |
PDS Arbitration- Independent Managing Member | |
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 sought the appointment of third member, referred to as the independent manager member to the PDS management committee. On December 16, 2014, the AAA appointed arbitrator selected an independent managing member from one of the nominees submitted by Patriot, thereby filling the open management committee seat. | |
401(k) Plan | |
Patriot has a retirement plan that complies with Section 401(k) of the Internal Revenue Code. All employees are eligible to participate in the plan. Patriot matches 100% of elective deferrals subject to a maximum of 4% of the participant’s eligible earnings. Patriot’s participants vest 33% per year over a three year period in their matching contributions. Patriot’s matching contributions during the three months ended February 28, 2015 and 2014 were $4,370 and $3,642, respectively. Patriot’s matching contributions during the nine months ended February 28, 2015 and 2014 were $11,327 and $10,612, respectively. | |
Guarantees and Indemnities | |
We have made certain guarantees and indemnities, under which we may be required to make payments to a guaranteed or indemnified party. We indemnify our directors, officers, employees and agents to the maximum extent permitted under the laws of the State of Delaware. In connection with our facility lease, we have indemnified our lessor for certain claims arising from the use of the facility. The duration of the guarantees and indemnities varies, and in many cases is indefinite. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments we could be obligated to make. Historically, we have not been obligated to make any payments for these obligations and no liabilities have been recorded for these guarantees and indemnities in the accompanying condensed consolidated balance sheets. | |
Escrow Shares | |
On August 31, 2009 we gave notice to the former shareholders of Crossflo and Union Bank of California (the “Escrow Agent”) under Section 2.5 of the Agreement and Plan of Merger between us and Crossflo (the “Agreement”), outlining damages incurred by us in conjunction with the acquisition of Crossflo, and seeking the return of 2,844,630 shares of our common stock held by the Escrow Agent. Subsequently, former shareholders of Crossflo representing a majority of the escrowed shares responded in protest to our claim, delaying the release of the escrowed shares until a formal resolution is reached. In the event we fail to prevail in our claim against the escrowed shares, we may be obligated to deposit into escrow approximately $256,000 of cash consideration due to the decline in our average stock price over the one year escrow period, calculated in accordance with the Section 2.5 of the Agreement. We have evaluated the potential for loss regarding our claim and believe that it is probable that the resolution of this issue will not result in a material obligation to the Company, although there is no assurance of this. Accordingly, we have not recorded a liability for this matter. |
7_Subsequent_Events
7. Subsequent Events | 9 Months Ended |
Feb. 28, 2015 | |
Subsequent Events [Abstract] | |
7. Subsequent Events | We have evaluated subsequent events after the balance sheet date and based on our evaluation, management has determined that no subsequent events have occurred that would require recognition in the accompanying condensed consolidated financial statements or disclosure in the notes thereto other than as disclosed in the accompanying notes. |
1_Summary_of_Significant_Accou
1. Summary of Significant Accounting Policies (Policies) | 9 Months Ended | ||||||||||||||||
Feb. 28, 2015 | |||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||
Basis of Consolidation | The condensed consolidated balance sheets at February 28, 2015 and May 31, 2014, condensed consolidated statements of operations for the three and nine months ended February 28, 2015 and 2014 and condensed consolidated statements of cash flows for the nine months ended February 28, 2015 and 2014 include our accounts and those of our wholly owned subsidiary Patriot Data Solutions Group, Inc. (“PDSG”) which includes Crossflo Systems, Inc. (“Crossflo”), and our inactive subsidiary Plasma Scientific Corporation. All significant intercompany accounts and transactions have been eliminated. | ||||||||||||||||
PDSG is being presented as discontinued operations in the condensed consolidated statements of operations and cash flows for all periods presented. See “Discontinued Operations and Assets Held for Sale” below for additional information. | |||||||||||||||||
Liquidity and Management's Plans | Cash shortfalls currently experienced by Phoenix Digital Solutions, LLC (“PDS”) will have an adverse effect on our liquidity. To date, we have determined that it is in the best interests of the Moore Microprocessor Patent (“MMP”) licensing program that we provide our 50% share of capital to provide for PDS expenses including legal retainers, and litigation related payments in the event license revenues received by PDS are insufficient to meet these needs. We believe it is likely that contributions to PDS to fund working capital will continue to be required. | ||||||||||||||||
PDS had been incurring significant third-party costs for expert testimony, depositions and other related litigation costs. We could be required to make capital contributions to PDS for any future litigation related costs in the event that PDS does not receive sufficient licensing revenues to pay these expenses. | |||||||||||||||||
Our current liquid cash resources as of February 28, 2015, are expected to provide the funds necessary to support our operations through at least the next twelve months. The cash flows from our interest in PDS represent our only significant source of cash generation. In the event of a continued decrease or interruption in MMP portfolio licensing we will incur a significant reduction to our cash position. It is highly unlikely that we would be able to obtain any additional sources of financing to supplement our cash and cash equivalents and short-term investment position of $5,466,792 at February 28, 2015. | |||||||||||||||||
On March 20, 2013, Technology Properties Limited, Inc. (“TPL”) filed a petition under Chapter 11 of the United States Bankruptcy Code. 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 “Joint Plan”) had been agreed to. The Joint Plan was confirmed by the Bankruptcy Court on February 11, 2015 with the entered confirmation order becoming final on April 2, 2015. The Joint Plan provides that the Effective Date will be the later of (i) the first business day that is at least 30 days after the entry of the confirmation order or (ii) the first Business Day on which the reorganized company has sufficient cash to make all payments required under the Plan on the Effective Date. We have been appointed to the creditors’ committee and have been closely monitoring the progress in this matter as it relates to our interest in PDS. In the event we are required to provide funding to PDS that is not reciprocated by TPL, our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our consolidated financial statements. | |||||||||||||||||
Discontinued Operations and Assets Held for Sale | On February 17, 2012, our board of directors authorized management to sell the assets of PDSG due to the inability of PDSG to meet its business plan and continuing projected negative cash flows. In accordance with authoritative guidance we have classified the assets, operations and cash flows of PDSG as discontinued operations for all periods presented. During March 2012, we entered into an interim agreement with the purchaser of the assets of PDSG which required the purchaser to pay PDSG $93,450 to subsidize the April 2012 expenses of PDSG during the sale transaction negotiations. On April 30, 2012, we negotiated a sale transaction in which we sold substantially all of the assets of PDSG in exchange for a royalty on PDSG revenues for a period of three years. From April 30, 2012 to February 28, 2015, the gain on the asset sale of PDSG is approximately $98,000. | ||||||||||||||||
Summarized operating results of discontinued operations for the three and nine months ended February 28, 2015 and 2014 are as follows: | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
28-Feb-15 | 28-Feb-14 | 28-Feb-15 | 28-Feb-14 | ||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Gain on sale of discontinued operations | $ | 969 | $ | – | $ | 4,234 | $ | 40,583 | |||||||||
Income before income taxes | $ | 969 | $ | – | $ | 4,234 | $ | 40,583 | |||||||||
Income from discontinued operations | $ | 969 | $ | – | $ | 4,234 | $ | 40,583 | |||||||||
PDSG activity for the three and nine months ended February 28, 2015 and 2014 consists of PDSG royalty revenues. | |||||||||||||||||
The following table summarizes the carrying amount at February 28, 2015 and May 31, 2014 of the major classes of assets of PDSG classified as discontinued operations: | |||||||||||||||||
28-Feb-15 | 31-May-14 | ||||||||||||||||
(Unaudited) | |||||||||||||||||
Current assets: | |||||||||||||||||
Other current assets | $ | 9,969 | $ | 57,477 | |||||||||||||
Investments in Marketable Securities | We classify our investments in marketable securities in certificates of deposit at the time of purchase as held-to-maturity and reevaluate such classifications at each balance sheet date. Held-to-maturity investments consist of securities that we have the intent and ability to retain until maturity. These securities are recorded at cost and adjusted for the amortization of premiums and discounts, which approximates fair value. Cash inflows and outflows related to the sale and purchase of investments are classified as investing activities in our condensed consolidated statements of cash flows. | ||||||||||||||||
Investment in Affiliated Company | We have a 50% interest in PDS (see Note 3). We account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and is recognized in the condensed consolidated statements of operations in the caption “Equity in earnings (loss) of affiliated company” and also is adjusted by contributions to and distributions from PDS. | ||||||||||||||||
PDS, as an unconsolidated equity investee, recognizes revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of revenue is assured which is generally upon the receipt of the license proceeds. PDS may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones are met. | |||||||||||||||||
We review our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near term prospects of PDS. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss. | |||||||||||||||||
Earnings (Loss) Per Share | Basic earnings per share for continuing and discontinued operations includes no dilution and is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share for continuing and discontinued operations reflect the potential dilution of securities that could share in the earnings of an entity. | ||||||||||||||||
For the three months ended February 28, 2015 potential common shares of 1,335,000 related to our outstanding options were not included in the calculation of diluted income per share for continuing and discontinued operations as they were anti-dilutive. For the three months ended February 28, 2015 we included the PDSG escrow shares of 2,844,630 in the calculation of diluted income per share for continuing and discontinued operations. | |||||||||||||||||
For the nine months ended February 28, 2015 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 nine months ended February 28, 2015, 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 three and nine months ended February 28, 2014 potential common shares of 1,335,000 related to our outstanding options were not included in the calculation of basic and diluted loss per share for continuing and discontinued operations as we recorded a loss. Had we reported net income for the three and nine months ended February 28, 2014, 0 and 575,000, respectively, additional shares of common stock would have been included in the calculation of diluted income per share for continuing and discontinued operations using the treasury stock method. | |||||||||||||||||
In connection with our acquisition of Crossflo, which is part of PDSG, we issued escrow shares that are contingent upon certain representations and warranties made by Crossflo at the time of the merger agreement (see Note 6). We exclude these escrow shares from the basic and diluted loss per share calculations and include the escrowed shares in the diluted earnings per share calculations. | |||||||||||||||||
Income Taxes | We follow authoritative guidance in accounting for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement requirement for the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under this guidance we may only recognize tax positions that meet a “more likely than not” threshold. | ||||||||||||||||
We follow authoritative guidance to evaluate whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. We are assessing our deferred tax assets under more likely than not scenarios in which they may be realized through future income. | |||||||||||||||||
We have determined that it was more likely than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable losses. As a result of this determination we have placed a full valuation allowance against our deferred tax assets. | |||||||||||||||||
We follow authoritative guidance to adjust our effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We are also required to record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections. | |||||||||||||||||
Assessment of Contingent Liabilities | We are involved in various legal matters, disputes, and patent infringement claims which arise in the ordinary course of our business. We accrue for any estimated losses at the time when we can make a reliable estimate of such loss and it is probable that it has been incurred. By their very nature, contingencies are difficult to estimate. We continually evaluate information related to all contingencies to determine that the basis on which we have recorded our estimated exposure is appropriate. | ||||||||||||||||
Intellectual Property Rights | PDS, our investment in 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 July and September 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. | ||||||||||||||||
Recent Accounting Pronouncements | In August 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-15, "Presentation of Financial Statements – Going Concern." ASU 2014-15 provides guidance in generally accepted accounting principles about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016 and for annual periods and interim periods thereafter (fiscal year 2017 for the Company). Early adoption is permitted. We have not yet determined the potential effects of the adoption of ASU 2014-15 on our condensed consolidated financial statements. |
1_Summary_of_Significant_Accou1
1. Summary of Significant Accounting Policies (Tables) | 9 Months Ended | ||||||||||||||||
Feb. 28, 2015 | |||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||
Summary of Operating results of discontinued operations | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
28-Feb-15 | 28-Feb-14 | 28-Feb-15 | 28-Feb-14 | ||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Gain on sale of discontinued operations | $ | 969 | $ | – | $ | 4,234 | $ | 40,583 | |||||||||
Income before income taxes | $ | 969 | $ | – | $ | 4,234 | $ | 40,583 | |||||||||
Income from discontinued operations | $ | 969 | $ | – | $ | 4,234 | $ | 40,583 | |||||||||
Carrying amount of assets and liability as discontinued operations | 28-Feb-15 | 31-May-14 | |||||||||||||||
(Unaudited) | |||||||||||||||||
Current assets: | |||||||||||||||||
Other current assets | $ | 9,969 | $ | 57,477 |
2_Cash_Cash_Equivalents_Restri1
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Tables) | 9 Months Ended | ||||||||||||||||
Feb. 28, 2015 | |||||||||||||||||
Cash and Cash Equivalents [Abstract] | |||||||||||||||||
Schedule of fair value of cash, cash equivalents and investments in marketable securities | Fair Value Measurements at February 28, 2015 | ||||||||||||||||
(Unaudited) Using | |||||||||||||||||
Quoted Prices | Significant | ||||||||||||||||
in Active | Other | Significant | |||||||||||||||
Fair Value at | Markets for | Observable | Unobservable | ||||||||||||||
February 28, | Identical Assets | Inputs | Inputs | ||||||||||||||
2015 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Cash and cash equivalents: | |||||||||||||||||
Cash | $ | 182,341 | $ | 182,341 | $ | – | $ | – | |||||||||
Money market funds | 2,830,103 | 2,830,103 | – | – | |||||||||||||
Restricted cash and cash equivalents | 21,203 | 21,203 | – | – | |||||||||||||
Marketable securities: | |||||||||||||||||
Short-term: | |||||||||||||||||
Certificates of deposit | 2,454,348 | – | 2,454,348 | – | |||||||||||||
Total | $ | 5,487,995 | $ | 3,033,647 | $ | 2,454,348 | $ | – | |||||||||
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 | $ | – | |||||||||
Schedule of maturities, gross unrealized gains or losses and fair value of certificates of deposit | February 28, 2015 | ||||||||||||||||
(Unaudited) | |||||||||||||||||
Cost | Gross Unrealized Gains/(Losses) | Fair | |||||||||||||||
Value | |||||||||||||||||
Maturity | |||||||||||||||||
Due in one year or less | $ | 2,454,348 | $ | – | $ | 2,454,348 | |||||||||||
May 31, 2014 | |||||||||||||||||
Cost | Gross Unrealized Gains/(Losses) | Fair | |||||||||||||||
Value | |||||||||||||||||
Maturity | |||||||||||||||||
Due in one year or less | $ | 1,701,647 | $ | – | $ | 1,701,647 |
3_Investment_in_Affiliated_Com1
3. Investment in Affiliated Company (Tables) | 9 Months Ended | ||||||||||||||||
Feb. 28, 2015 | |||||||||||||||||
Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||
Financial statements of affiliates | Balance Sheets | ||||||||||||||||
Assets: | |||||||||||||||||
28-Feb-15 | 31-May-14 | ||||||||||||||||
(Unaudited) | (Audited) | ||||||||||||||||
Cash | $ | 640,470 | $ | 1,063,536 | |||||||||||||
Prepaid expenses and other current assets | 2,629 | 247,776 | |||||||||||||||
Total assets | $ | 643,099 | $ | 1,311,312 | |||||||||||||
Liabilities and Members’ Equity: | |||||||||||||||||
28-Feb-15 | 31-May-14 | ||||||||||||||||
(Unaudited) | (Audited) | ||||||||||||||||
Payables | $ | 636,666 | $ | 1,107,560 | |||||||||||||
Income tax payable | – | 11,790 | |||||||||||||||
Members’ equity | 6,433 | 191,962 | |||||||||||||||
Total liabilities and members’ equity | $ | 643,099 | $ | 1,311,312 | |||||||||||||
Statements of Operations | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
28-Feb-15 | 28-Feb-14 | 28-Feb-15 | 28-Feb-14 | ||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Revenues | $ | 1,800,000 | $ | – | $ | 1,820,000 | $ | 5,022,000 | |||||||||
Expenses | 901,372 | 59,777 | 1,528,729 | 3,901,740 | |||||||||||||
Operating income (loss) | 898,628 | (59,777 | ) | 291,271 | 1,120,260 | ||||||||||||
Income (loss) before provision for income taxes and foreign taxes | 898,628 | (59,777 | ) | 291,271 | 1,120,260 | ||||||||||||
Provision for income taxes and foreign taxes | (360,000 | ) | – | (360,000 | ) | (406,400 | ) | ||||||||||
Net income (loss) | $ | 538,628 | $ | (59,777 | ) | $ | (68,729 | ) | $ | 713,860 | |||||||
PDS Related Party Balances and Transactions | 28-Feb-15 | 31-May-14 | |||||||||||||||
(Unaudited) | (Audited) | ||||||||||||||||
Liabilities: | |||||||||||||||||
Related party payables and accrued expenses (TPL) (1) | $ | 553,624 | $ | 666,412 | |||||||||||||
Related party payables (PTSC) | – | 92,050 | |||||||||||||||
Related party payables (Alliacense) | – | 24,598 | |||||||||||||||
Settlement fee payable (Alliacense) | – | 323,000 | |||||||||||||||
Total liabilities | $ | 553,624 | $ | 1,106,060 | |||||||||||||
-1 | Pursuant to the terms of the Commercialization Agreement, PDS reimbursed 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 had occurred. | ||||||||||||||||
Transactions with related parties for the three and nine months ended February 28, 2015 and 2014 are as follows: | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
28-Feb-15 | 28-Feb-14 | 28-Feb-15 | 28-Feb-14 | ||||||||||||||
Expenses (reversed), paid or accrued (TPL) | $ | 669,987 | $ | (7,432 | ) | $ | 1,175,054 | $ | 2,211,003 | ||||||||
Expenses paid or accrued (Alliacense) | 151,600 | – | 131,002 | 1,440,788 | |||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
28-Feb-15 | 28-Feb-14 | 28-Feb-15 | 28-Feb-14 | ||||||||||||||
Legal costs | $ | 690,202 | $ | – | $ | 1,195,269 | $ | 2,449,214 | |||||||||
5_Stockholders_Equity_Tables
5. Stockholders' Equity (Tables) | 9 Months Ended | ||||||||||||||||||||
Feb. 28, 2015 | |||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||
Summary of Equity Transactions | Common Stock | Additional Paid-in | Accumulated | Treasury | |||||||||||||||||
Shares | Amounts | Capital | Stock | Stock | |||||||||||||||||
Balance June 1, 2014 | 401,392,948 | $ | 4,382 | $ | 77,400,852 | $ | (56,268,116 | ) | $ | (14,625,868 | ) | ||||||||||
Net loss | – | – | – | (1,002,837 | ) | – | |||||||||||||||
Balance February 28, 2015 | 401,392,948 | $ | 4,382 | $ | 77,400,852 | $ | (57,270,953 | ) | $ | (14,625,868 | ) | ||||||||||
Share-based compensation assumptions | Three Months Ended | Nine Months Ended February 28, 2015 (Unaudited) | Three Months Ended | Nine Months Ended | |||||||||||||||||
28-Feb-15 | 28-Feb-14 | 28-Feb-14 | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||
Expected term | * | * | * | 5 | Years | ||||||||||||||||
Expected volatility | * | * | * | 88 | % | ||||||||||||||||
Risk-free interest rate | * | * | * | 1.05 | % | ||||||||||||||||
Schedule of Stock Option Activity | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||||||
Options outstanding at June 1, 2014 | 1,335,000 | $ | 0.11 | ||||||||||||||||||
Options granted | – | $ | – | ||||||||||||||||||
Options exercised | – | $ | – | ||||||||||||||||||
Options forfeited/expired | – | $ | – | ||||||||||||||||||
Options outstanding at February 28, 2015 | 1,335,000 | $ | 0.11 | 1.97 | $ | – | |||||||||||||||
Options vested and expected to vest at February 28, 2015 | 1,335,000 | $ | 0.11 | 1.97 | $ | – | |||||||||||||||
Options exercisable at February 28, 2015 | 1,335,000 | $ | 0.11 | 1.97 | $ | – | |||||||||||||||
Schedule of Share-based Compensation, Allocation of Recognized Period Cost | Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||
28-Feb-15 | February 28 2015 | 28-Feb-14 | 28-Feb-14 | ||||||||||||||||||
Selling, general and administrative expense | $ | – | $ | – | $ | – | $ | 62,418 |
1_Basis_of_Presentation_and_Su1
1. Basis of Presentation and Summary of Significant Accounting Policies (Details - Discontinued Operations) (USD $) | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2015 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | |
Accounting Policies [Abstract] | ||||
Gain on sale of discontinued operations | $969 | $0 | $4,234 | $40,583 |
Income before income taxes | 969 | 0 | 4,234 | 40,583 |
Income from discontinued operations | $969 | $0 | $4,234 | $40,583 |
1_Basis_of_Presentation_and_Su2
1. Basis of Presentation and Summary of Significant Accounting Policies (Details - Disposed assets) (USD $) | Feb. 28, 2015 | 31-May-14 |
Accounting Policies [Abstract] | ||
Other current assets | $9,969 | $57,477 |
1_Basis_of_Presentation_and_Su3
1. Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) (USD $) | 34 Months Ended | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2015 | Feb. 28, 2015 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | |
Gain on sale of assets of discontinued operations | $98,000 | ||||
Options [Member] | |||||
Common shares not included in calculation of diluted net loss per share | 1,335,000 | 1,335,000 | 1,335,000 | 1,335,000 | |
PDS [Member] | |||||
Ownership interest | 50.00% | 50.00% | 50.00% | ||
PDSG escrow [Member] | |||||
Common shares included in calculation of diluted income per share continuing and discontinued operations using the treasury stock method | 2,844,630 |
2_Cash_Cash_Equivalents_Restri2
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Details) (USD $) | Feb. 28, 2015 | 31-May-14 |
Cash and cash equivalents: | ||
Cash | $182,341 | $340,555 |
Money market funds | 2,830,103 | 4,375,653 |
Restricted cash and cash equivalents | 21,203 | 21,123 |
Short-term: | ||
Certificates of deposit | 2,454,348 | 1,701,647 |
Total | 5,487,995 | 6,438,978 |
Fair Value Inputs Level 1 | ||
Cash and cash equivalents: | ||
Cash | 182,341 | 340,555 |
Money market funds | 2,830,103 | 4,375,653 |
Restricted cash and cash equivalents | 21,203 | 21,123 |
Short-term: | ||
Certificates of deposit | 0 | 0 |
Total | 3,033,647 | 4,737,331 |
Fair Value Inputs Level 2 | ||
Cash and cash equivalents: | ||
Cash | 0 | 0 |
Money market funds | 0 | 0 |
Restricted cash and cash equivalents | 0 | 0 |
Short-term: | ||
Certificates of deposit | 2,454,348 | 1,701,647 |
Total | 2,454,348 | 1,701,647 |
Fair Value Inputs Level 3 | ||
Cash and cash equivalents: | ||
Cash | 0 | 0 |
Money market funds | 0 | 0 |
Restricted cash and cash equivalents | 0 | 0 |
Short-term: | ||
Certificates of deposit | 0 | 0 |
Total | $0 | $0 |
2_Cash_Cash_Equivalents_Restri3
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Details - Certificates of Deposit) (Due in one year or less, USD $) | Feb. 28, 2015 | 31-May-14 |
Due in one year or less | ||
Certificates of deposit | ||
Cost | $2,454,348 | $1,701,647 |
Gross Unrealized Gains/(Losses) | 0 | 0 |
Fair Value | $2,454,348 | $1,701,647 |
2_Cash_Cash_Equivalents_Restri4
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Details Narrative) (USD $) | Feb. 28, 2015 | 31-May-14 |
Cash and Cash Equivalents [Abstract] | ||
Current portion of marketable securities | $2,454,348 | $1,701,647 |
3_Investment_in_Affiliated_Com2
3. Investment in Affiliated Company (Details - balance sheet) (USD $) | Feb. 28, 2015 | 31-May-14 |
Total assets | $643,099 | $1,311,312 |
Total liabilities and members' equity | 643,099 | 1,311,312 |
Cash [Member] | ||
Total assets | 640,470 | 1,063,536 |
Prepaid expenses and other current assets [Member] | ||
Total assets | 2,629 | 247,776 |
Payables [Member] | ||
Total liabilities and members' equity | 636,666 | 1,107,560 |
Income tax payable [Member] | ||
Total liabilities and members' equity | 0 | 11,790 |
Members' equity [Member] | ||
Total liabilities and members' equity | $6,433 | $191,962 |
3_Investment_in_Affiliated_Com3
3. Investment in Affiliated Company (Details - Income) (USD $) | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2015 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | |
Equity Method Investments and Joint Ventures [Abstract] | ||||
Revenues | $1,800,000 | $0 | $1,820,000 | $5,022,000 |
Expenses | 901,372 | 59,777 | 1,528,729 | 3,901,740 |
Operating income (loss) | 898,628 | -59,777 | 291,271 | 1,120,260 |
Income (loss) before provision for income taxes and foreign taxes | 898,628 | -59,777 | 291,271 | 1,120,260 |
Provision for income taxes and foreign taxes | -360,000 | 0 | -360,000 | -406,400 |
Net income (loss) | $538,628 | ($59,777) | ($68,729) | $713,860 |
3_Investment_in_Affiliated_Com4
3. Investment in Affiliated Company (Details - Related party transactions) (USD $) | 3 Months Ended | 9 Months Ended | |||
Feb. 28, 2015 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | 31-May-14 | |
Total liabilities with related parties | $553,624 | $553,624 | $1,106,060 | ||
TPL | |||||
Related party payables | 553,624 | 553,624 | 666,412 | ||
Expenses paid (reversed) or accrued | 669,987 | -7,432 | 1,175,054 | 2,211,003 | |
PTSC | |||||
Related party payables | 0 | 0 | 92,050 | ||
Alliacense | |||||
Related party payables | 0 | 0 | 24,598 | ||
Settlement fee payable | 0 | 0 | 323,000 | ||
Expenses paid (reversed) or accrued | $151,600 | $0 | $131,002 | $1,440,788 |
3_Investment_in_Affiliated_Com5
3. Investment in Affiliated Company (Details - other expenses) (USD $) | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2015 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | |
Equity Method Investments and Joint Ventures [Abstract] | ||||
Legal costs | $690,202 | $0 | $1,195,269 | $2,449,214 |
3_Investment_in_Affiliated_Com6
3. Investment in Affiliated Company (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Feb. 28, 2015 | Aug. 31, 2014 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | 31-May-14 | |
TPL | ||||||
Legal fees paid | $669,987 | ($7,432) | $1,175,054 | $2,211,003 | ||
Legal fees reversed | 20,215 | 7,432 | 20,215 | 397,739 | ||
Alliacense | ||||||
Licensing agreements | 0 | 956,353 | ||||
Legal fees paid | 0 | -24,598 | 180,413 | |||
Legal fees reversed | 0 | 0 | 24,598 | 0 | ||
Litigation fees paid | 0 | 323,000 | 0 | 323,000 | 0 | 300,000 |
Licensing fees paid | $151,600 | $155,600 |
3_Investment_in_Affiliated_Com7
3. Investment in Affiliated Company (Details Narrative PDS) (USD $) | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2015 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | |
Net income (loss) from PDS | $269,314 | ($29,889) | ($34,364) | $356,930 |
Cash distributions received from PDS | 58,400 | 375,000 | ||
Moore | ||||
Consulting fees | 62,499 | 54,167 | 187,497 | 120,835 |
PDS [Member] | Third parties | ||||
Proceeds from licensing agreement | 1,800,000 | 0 | 1,820,000 | 5,022,000 |
PTSC | ||||
Net income (loss) from PDS | 269,314 | -29,889 | -34,364 | 356,930 |
Cash distributions received from PDS | $58,400 | $375,000 |
3_Investment_in_Affiliated_Com8
3. Investment in Affiliated Company (Details Narrative - Accounts Payable) (USD $) | 3 Months Ended | 9 Months Ended | |||
Feb. 28, 2015 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | 31-May-14 | |
PDS [Member] | |||||
Contractual commitment related party | $62,499 | $54,167 | $187,497 | $120,835 | |
Unrelated law firm | |||||
Accounts payable | $81,542 | $81,542 | $92,289 |
5_Stockholders_Equity_Details_
5. Stockholders Equity (Details - Equity transactions) (USD $) | Common Stock | Additional Paid-in Capital | Accumulated Stock | Treasury Stock |
Beginning balance - amount at May. 31, 2014 | $4,382 | $77,400,852 | ($56,268,116) | ($14,625,868) |
Beginning balance - shares at May. 31, 2014 | 401,392,948 | |||
Net loss | -1,002,837 | |||
Ending balance - amount at Feb. 28, 2015 | $4,382 | $77,400,852 | ($57,270,953) | ($14,625,868) |
Ending balance - shares at Feb. 28, 2015 | 401,392,948 |
5_Stockholders_Equity_Details_1
5. Stockholders' Equity (Details - assumptions) | 3 Months Ended | 9 Months Ended | |||||
Feb. 28, 2015 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | ||||
Stockholders Equity Details - Assumptions | |||||||
Expected term | 0 years | [1] | 0 years | [1] | 0 years | [1] | 5 years |
Expected volatility | 0.00% | [1] | 0.00% | [1] | 0.00% | [1] | 88.00% |
Risk-free interest rate | 0.00% | [1] | 0.00% | [1] | 0.00% | [1] | 1.05% |
[1] | No stock options were granted during this period. |
5_Stockholders_Equity_Details_2
5. Stockholders' Equity (Details - Option activity) (Options [Member], USD $) | 9 Months Ended |
Feb. 28, 2015 | |
Options [Member] | |
Number of Options Outstanding, Beginning | 1,335,000 |
Number of Options Granted | 0 |
Number of Options Exercised | 0 |
Number of Options forfeited/expired | 0 |
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 | $0.11 |
Weighted Average Exercise Price Granted | $0 |
Weighted Average Exercise Price Exercised | $0 |
Weighted Average Exercise Price forfeited/expired | $0 |
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 | 1 year 11 months 19 days |
Weighted Average Remaining Contractual Life (in years) Options vested and expected to vest | 1 year 11 months 19 days |
Weighted Average Remaining Contractual Life (in years) Exercisable | 1 year 11 months 19 days |
Aggregate Intrinsic Value Outstanding, Beginning | $0 |
Aggregate Intrinsic Value Outstanding, Ending | 0 |
Aggregate Intrinsic Value Options vested and expected to vest | 0 |
Aggregate Intrinsic Value Exercisable | $0 |
5_Stockholders_Equity_Details_3
5. Stockholders' Equity (Details - Share based compensation expense) (USD $) | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2015 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | |
Equity [Abstract] | ||||
Selling, general, and administrative expense | $0 | $0 | $0 | $62,418 |
5_Stockholders_Equity_Details_4
5. Stockholders' Equity (Details Narrative) (USD $) | 9 Months Ended |
Feb. 28, 2015 | |
Aggregate intrinsic value per share | $0 |
2006 Stock Option Plan [Member] | |
Vested options outstanding | 1,335,000 |
Vested options exercisable price range | $0.10 to $0.12 per share |
Vested options expired | 5/31/18 |
6_Commitments_and_Contingencie1
6. Commitments and Contingencies (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2015 | Feb. 28, 2014 | Feb. 28, 2015 | Feb. 28, 2014 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Patriot's matching contributions to the 401K plan | $4,370 | $3,642 | $11,327 | $10,612 |