Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Nov. 30, 2015 | Jan. 11, 2016 | |
Document And Entity Information | ||
Entity Registrant Name | PATRIOT SCIENTIFIC CORP | |
Entity Central Index Key | 836,564 | |
Document Type | 10-Q | |
Document Period End Date | Nov. 30, 2015 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --05-31 | |
Is Entity a Well-known Seasoned Issuer | No | |
Is Entity a Voluntary Filer | No | |
Is Entity's Reporting Status Current | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 401,392,948 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,016 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Nov. 30, 2015 | May. 31, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 1,878,131 | $ 2,679,360 |
Restricted cash and cash equivalents | 21,283 | 21,229 |
Marketable securities, current portion | 2,205,664 | 2,455,106 |
Prepaid income tax | 2,385 | 4,785 |
Prepaid expenses and other current assets | 115,604 | 15,582 |
Total current assets | 4,223,067 | 5,176,062 |
Property and equipment, net | 1,505 | 2,440 |
Marketable securities, net of current portion | 250,226 | 0 |
Other assets | 3,036 | 3,036 |
Investment in affiliated company | 447,281 | 0 |
Total assets | 4,925,115 | 5,181,538 |
Current liabilities: | ||
Accounts payable | 11,577 | 38,459 |
Accrued expenses and other | 58,756 | 57,305 |
Total current liabilities | 70,333 | 95,764 |
Cumulative losses in excess of investment in affiliated company | 0 | 69,342 |
Total liabilities | $ 70,333 | $ 165,106 |
Commitments and contingencies | ||
Stockholders' equity | ||
Preferred stock, $0.00001 par value; 5,000,000 shares authorized: none outstanding | $ 0 | $ 0 |
Common stock, $0.00001 par value: 600,000,000 shares authorized: 438,242,618 shares issued and 401,392,948 shares outstanding at November 30, 2015 and May 31, 2015 | 4,382 | 4,382 |
Additional paid-in capital | 77,444,062 | 77,444,062 |
Accumulated deficit | (57,967,794) | (57,806,144) |
Common stock held in treasury, at cost - 36,849,670 shares at November 30, 2015 and May 31, 2015 | (14,625,868) | (14,625,868) |
Total stockholders' equity | 4,854,782 | 5,016,432 |
Total liabilities and stockholders' equity | $ 4,925,115 | $ 5,181,538 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Nov. 30, 2015 | May. 31, 2015 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (in Dollars per share) | $ .00001 | $ .00001 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in Dollars per share) | $ .00001 | $ .00001 |
Common stock, shares authorized | 600,000,000 | 600,000,000 |
Common stock, shares issued | 438,242,618 | 438,242,618 |
Common stock, shares outstanding | 401,392,948 | 401,392,948 |
Common stock held in treasury, at cost | 36,849,670 | 36,849,670 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations - USD ($) | 3 Months Ended | 6 Months Ended | ||
Nov. 30, 2015 | Nov. 30, 2014 | Nov. 30, 2015 | Nov. 30, 2014 | |
Operating expenses: | ||||
Selling, general and administrative | $ 342,198 | $ 357,373 | $ 740,364 | $ 729,997 |
Total operating expenses | 342,198 | 357,373 | 740,364 | 729,997 |
Other income (expense): | ||||
Interest income | 3,415 | 2,384 | 6,491 | 4,632 |
Other income | 0 | 0 | 0 | 60 |
Equity in earnings (loss) of affiliated company | 252,364 | (79,642) | 574,623 | (303,678) |
Total other income (expense), net | 255,779 | (77,258) | 581,114 | (298,986) |
Loss from continuing operations before income taxes | (86,419) | (434,631) | (159,250) | (1,028,983) |
Provision for income taxes | 0 | 0 | 2,400 | 2,400 |
Loss from continuing operations | (86,419) | (434,631) | (161,650) | (1,031,383) |
Income from discontinued operations, net | 0 | 465 | 0 | 3,265 |
Net loss | $ (86,419) | $ (434,166) | $ (161,650) | $ (1,028,118) |
Basic and diluted income (loss) per common share: | ||||
Loss from continuing operations | $ 0 | $ 0 | $ 0 | $ 0 |
Income from discontinued operations | 0 | 0 | 0 | 0 |
Net loss | $ 0 | $ 0 | $ 0 | $ 0 |
Weighted average number of common shares outstanding - basic and diluted | 398,548,318 | 398,548,318 | 398,548,318 | 398,548,318 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Cash Flows - USD ($) | 6 Months Ended | |
Nov. 30, 2015 | Nov. 30, 2014 | |
Operating activities: | ||
Net loss | $ (161,650) | $ (1,028,118) |
Less: Net income from discontinued operations | 0 | 3,265 |
Net loss from continuing operations | (161,650) | (1,031,383) |
Adjustments to reconcile net loss before discontinued operations to net cash used in operating activities: | ||
Depreciation | 935 | 1,139 |
Accrued interest income added to investments | (838) | (3,314) |
Equity in (earnings) loss of affiliated company | (574,623) | 303,678 |
Changes in operating assets and liabilities: | ||
Prepaid expenses and other current assets | (100,022) | 87,334 |
Prepaid income tax | 2,400 | (501) |
Accounts payable, accrued expenses and other | (25,431) | (204,081) |
Income tax payable | 0 | (3,599) |
Net cash used in operating activities of continuing operations | (859,229) | (850,727) |
Net cash provided by operating activities of discontinued operations | 0 | 51,276 |
Net cash used in operating activities | (859,229) | (799,451) |
Investing activities: | ||
Proceeds from sales of marketable securities | 1,250,000 | 951,078 |
Purchases of marketable securities | (1,250,000) | (1,250,000) |
Purchase of property and equipment | 0 | (1,242) |
Distributions from affiliated company | 58,000 | 800 |
Net cash provided by (used in) investing activities | 58,000 | (299,364) |
Net decrease in cash and cash equivalents | (801,229) | (1,098,815) |
Cash and cash equivalents, beginning of period | 2,679,360 | 4,716,208 |
Cash and cash equivalents, end of period | 1,878,131 | 3,617,393 |
Supplemental Disclosure of Cash Flow Information: | ||
Cash paid for income taxes | $ 0 | $ 6,500 |
1. Basis of Presentation and Su
1. Basis of Presentation and Summary of Significant Accounting Policies | 6 Months Ended |
Nov. 30, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation and Summary of Significant Accounting Policies | The unaudited condensed consolidated financial statements of Patriot Scientific Corporation (the Company, PTSC, Patriot, we, us or our) presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (SEC) for quarterly reports on Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Report on Form 10-K for our fiscal year ended May 31, 2015. In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of the results for the interim period presented. Operating results for the six month period ended November 30, 2015 are not necessarily indicative of the results that may be expected for the year ending May 31, 2016. Basis of Consolidation The condensed consolidated balance sheets at November 30, 2015 and May 31, 2015 and condensed consolidated statements of operations for the three and six months ended November 30, 2015 and 2014 and condensed consolidated statements of cash flows for the six months ended November 30, 2015 and 2014 include our accounts and those of our wholly owned subsidiary Patriot Data Solutions Group, Inc. (PDSG) which includes Crossflo Systems, Inc. (Crossflo), and our inactive subsidiary Plasma Scientific Corporation. All significant intercompany accounts and transactions have been eliminated. PDSG is being presented as discontinued operations in the condensed consolidated statements of operations for all periods presented. See Discontinued Operations and Assets Held for Sale below for additional information. Liquidity and Managements Plans Cash shortfalls currently experienced by Phoenix Digital Solutions, LLC (PDS) will have an adverse effect on our liquidity. To date, we have determined that it is in the best interests of the Moore Microprocessor Patent (MMP) licensing program that we provide our 50% share of capital to provide for PDS expenses including legal retainers, and litigation related payments in the event license revenues received by PDS are insufficient to meet these needs. We believe it is likely that contributions to PDS to fund working capital will continue to be required. PDS had been incurring significant third-party costs for expert testimony, depositions and other related litigation costs. We could be required to make capital contributions to PDS for any future litigation related costs in the event that PDS does not receive sufficient licensing revenues to pay these expenses. Our current liquid cash resources as of November 30, 2015, are expected to provide the funds necessary to support our operations through at least the next twelve months. The cash flows from our interest in PDS represent our only significant source of cash generation. In the event of a continued decrease or interruption in MMP portfolio licensing we will incur a significant reduction to our cash position. It is highly unlikely that we would be able to obtain any additional sources of financing to supplement our cash and cash equivalents and short-term investment position of $4,083,795 at November 30, 2015. On March 20, 2013, Technology Properties Limited, Inc. (TPL) filed a petition under Chapter 11 of the United States Bankruptcy Code. We have been appointed to the creditors committee and have been closely monitoring the progress in this matter as it relates to our interest in PDS. A Joint Plan of Reorganization (the Joint Plan) between TPL and the creditors committee was confirmed by the Bankruptcy Court on February 11, 2015 with the entered confirmation order becoming final on April 2, 2015. In the event we are required to provide funding to PDS that is not reciprocated by TPL, our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our condensed consolidated financial statements. Discontinued Operations and Assets Held for Sale On February 17, 2012, our board of directors authorized management to sell the assets of PDSG due to the inability of PDSG to meet its business plan and continuing projected negative cash flows. In accordance with authoritative guidance we have classified the assets, operations and cash flows of PDSG as discontinued operations for all periods presented. During March 2012, we entered into an interim agreement with the purchaser of the assets of PDSG which required the purchaser to pay PDSG $93,450 to subsidize the April 2012 expenses of PDSG during the sale transaction negotiations. On April 30, 2012, we negotiated a sale transaction in which we sold substantially all of the assets of PDSG in exchange for a royalty on PDSG revenues for a period of three years. From April 30, 2012 to May 31, 2015, the gain on the asset sale of PDSG is approximately $101,000. Summarized operating results of discontinued operations for the three and six months ended November 30, 2015 and 2014 are as follows: Three Months Ended Six Months Ended November 30, 2015 November 30, 2014 November 30, 2015 November 30, 2014 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Gain on sale of discontinued operations $ $ 465 $ $ 3,265 Income before income taxes $ $ 465 $ $ 3,265 Income from discontinued operations $ $ 465 $ $ 3,265 PDSG activity for the three and six months ended November 30, 2014 consists of PDSG royalty revenues. Investments in Marketable Securities We determine the appropriate classification of our investments at the time of purchase and reevaluate such designation at each balance sheet date. Our investments in marketable securities have been classified and accounted for as held-to-maturity based on managements investment intentions relating to these securities. Held-to-maturity marketable securities are stated at amortized cost. Unrealized gains and losses, net of deferred taxes, are recorded as a component of other comprehensive income (loss). We follow the authoritative guidance to assess whether our investments with unrealized loss positions are other than temporarily impaired. Realized gains and losses and declines in fair value judged to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net in the condensed consolidated statements of operations. Investment in Affiliated Company We have a 50% interest in PDS (see Note 3). We account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investees Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and is recognized in the condensed consolidated statements of operations in the caption Equity in earnings (loss) of affiliated company and also is adjusted by contributions to and distributions from PDS. PDS, as an unconsolidated equity investee, recognizes revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of revenue is assured, which is generally upon the receipt of the license proceeds. PDS may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones have been met. We review our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near term prospects of PDS. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss. Earnings (Loss) Per Share Basic earnings per share for continuing and discontinued operations includes no dilution and is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share for continuing and discontinued operations reflect the potential dilution of securities that could share in the earnings of an entity. For the three and six months ended November 30, 2015, potential common shares of 2,760,000 related to our outstanding options were not included in the calculation of diluted loss per share for continuing and discontinued operations as we recorded a loss. Had we reported net income for the three and six months ended November 30, 2015, no shares of common stock would have been included in the calculation of diluted income per share for continuing and discontinued operations using the treasury stock method. For the three and six months ended November 30, 2014, potential common shares of 1,335,000 related to our outstanding options were not included in the calculation of diluted loss per share for continuing and discontinued operations as we recorded a loss. Had we reported net income for the three and six months ended November 30, 2014, no shares of common stock would have been included in the calculation of diluted income per share for continuing and discontinued operations using the treasury stock method. In connection with our acquisition of Crossflo, which is part of PDSG, we issued escrow shares that are contingent upon certain representations and warranties made by Crossflo at the time of the merger agreement (see Note 6). We exclude these escrow shares from the basic loss per share calculations and include the escrowed shares in the diluted loss per share calculations. Income Taxes We follow authoritative guidance in accounting for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement requirement for the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under this guidance we may only recognize tax positions that meet a more likely than not threshold. We follow authoritative guidance to evaluate whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a more likely than not standard. In making such judgments, significant weight is given to evidence that can be objectively verified. We assess our deferred tax assets annually under more likely than not scenarios in which they may be realized through future income. We have determined that it was more likely than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable losses. As a result of this determination we have placed a full valuation allowance against our deferred tax assets. We follow authoritative guidance to adjust our effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We are also required to record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections. Assessment of Contingent Liabilities We are involved in various legal matters, disputes, and patent infringement claims which arise in the ordinary course of our business. We accrue for any estimated losses at the time when we can make a reliable estimate of such loss and it is probable that it has been incurred. By their very nature, contingencies are difficult to estimate. We continually evaluate information related to all contingencies to determine that the basis on which we have recorded our estimated exposure is appropriate. Intellectual Property Rights PDS, our investment in affiliated company, relies on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We have three European and two Japanese patents all expiring in October 2016. We also have seven U.S. patents, six European, and one Japanese patent all of which expired between August 2009 and September 15, 2015. These patents, while expired, may have certain retrospective statutory benefits that will fully diminish six years after the patent expiration date. The patent useful life for purposes of negotiating licenses is finite and these patents are subject to legal challenges, which in combination with the limited life, could adversely impact the stream of revenues. A successful challenge to the ownership of the technology or the proprietary nature of the intellectual property would materially damage business prospects. Any issued patent may be challenged and invalidated. Recent Accounting Pronouncements In August 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-15, "Presentation of Financial Statements Going Concern." ASU 2014-15 provides guidance in generally accepted accounting principles about managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016 and for annual periods and interim periods thereafter (fiscal year 2017 for the Company). Early adoption is permitted. We have not yet determined the potential effects of the adoption of ASU 2014-15 on our condensed consolidated financial statements. |
2. Cash, Cash Equivalents, Rest
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities | 6 Months Ended |
Nov. 30, 2015 | |
Cash and Cash Equivalents [Abstract] | |
Cash, Cash Equivalents, Restricted Cash and Marketable Securities | We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. Restricted cash and cash equivalents at November 30, 2015 and May 31, 2015 consist of deposits in a savings account required to be held as collateral for our corporate credit card. At November 30, 2015 and May 31, 2015, the current portion of our marketable securities in the amount of $2,205,664 and $2,455,106, respectively, consists of the par value plus accrued interest of our time deposits with original maturities of greater than three months and less than one year. At November 30, 2015, the non-current portion of our marketable securities in the amount of $250,226 consists of the par value plus accrued interest of our time deposits with original maturities of more than one year. These marketable securities are classified as held-to-maturity and are reported at amortized cost, which approximates fair market value. We follow authoritative guidance Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity). The following tables detail the fair value measurements within the fair value hierarchy of our cash, cash equivalents and investments in marketable securities: Fair Value Measurements at November 30, 2015 Using Quoted Prices Significant in Active Other Significant Fair Value at Markets for Observable Unobservable November 30, Identical Assets Inputs Inputs 2015 (Level 1) (Level 2) (Level 3) Cash and cash equivalents: Cash $ 40,376 $ 40,376 $ $ Money market funds 1,837,755 1,837,755 Restricted cash and cash equivalents 21,283 21,283 Marketable securities: Short-term: Certificates of deposit 2,205,664 2,205,664 Long-term: Certificates of deposit 250,226 250,226 Total $ 4,355,304 $ 1,899,414 $ 2,455,890 $ Fair Value Measurements at May 31, 2015 Using Quoted Prices Significant in Active Other Significant Fair Value at Markets for Observable Unobservable May 31, Identical Assets Inputs Inputs 2015 (Level 1) (Level 2) (Level 3) Cash and cash equivalents: Cash $ 297,259 $ 297,259 $ $ Money market funds 2,382,101 2,382,101 Restricted cash and cash equivalents 21,229 21,229 Marketable securities: Short-term: Certificates of deposit 2,455,106 2,455,106 Total 5,155,695 $ 2,700,589 2,455,106 $ We purchase certificates of deposit with varying maturity dates greater than three months. The following table summarizes the maturities, gross unrealized gains or losses and fair value of the certificates of deposit as of November 30, 2015: November 30, 2015 (Unaudited) Cost Gross Unrealized Gains/(Losses) Fair Maturity Due in one year or less $ 2,205,664 $ $ 2,205,664 Due in one year or more $ 250,226 $ $ 250,226 The following table summarizes the maturities, gross unrealized gains or losses and fair value of the certificates of deposit as of May 31, 2015: May 31, 2015 Cost Gross Unrealized Gains/(Losses) Fair Maturity Due in one year or less $ 2,455,106 $ $ 2,455,106 |
3. Investment in Affiliated Com
3. Investment in Affiliated Company | 6 Months Ended |
Nov. 30, 2015 | |
Equity Method Investments and Joint Ventures [Abstract] | |
Investment in Affiliated Company | On June 7, 2005, we entered into a Master Agreement (the Master Agreement) with TPL, and Charles H. Moore (Moore), the co-inventor of the technology which is the subject of the MMP Portfolio of microprocessor patents, pursuant to which the parties resolved all legal disputes between them. Pursuant to the Master Agreement, we and TPL entered into the Limited Liability Company Operating Agreement of PDS (the LLC Agreement) into which we and Moore contributed our rights to certain of our technologies. We and TPL each own 50% of the membership interests of PDS, and each member has the right to appoint one member of the three member management committee. The two appointees are required to select a mutually acceptable third member of the management committee. There had not been a third management committee member since May 2010; however, as a result of our initiating arbitration seeking the appointment of a third member, on December 16, 2014, an independent manager to the PDS management committee was selected by the arbitrator. Pursuant to the LLC Agreement, we and TPL initially agreed to establish a working capital fund for PDS of $4,000,000, of which our contribution was $2,000,000. The working capital fund was increased to a maximum of $8,000,000 as license revenues are achieved. We and TPL are obligated to fund future working capital requirements at the discretion of the management committee of PDS in order to maintain working capital of not more than $8,000,000. If the management committee determines that additional capital is required, neither we nor TPL are required to contribute more than $2,000,000 in any fiscal year. No such contributions were made during the three and six months ended November 30, 2015 and 2014. Distributable cash and allocation of profits and losses have been allocated to the members in the priority defined in the LLC Agreement. Previously, pursuant to our June 7, 2005 agreement with PDS and TPL to license the MMP Portfolio (Commercialization Agreement), PDS reimbursed TPL for payment of all legal and third-party expert fees and other related third-party costs and expenses. Presently the majority of third-party costs are paid directly by PDS. During the three months ended November 30, 2015 and 2014, PDS expensed $(305,862) and $103,125, respectively, pursuant to the Commercialization Agreement and the July 11, 2012 Program Agreement (see below). These expenses are recorded in the accompanying PDS statements of operations presented below net of $530,044 and $0, respectively, of legal fee reversals previously expensed and recorded as accounts payable to TPL during the three months ended November 30, 2015 and 2014 as the statute of limitations had expired. During the six months ended November 30, 2015 and 2014, PDS expensed $5,257 and $505,068, respectively, pursuant to the agreements. These expenses are recorded in the accompanying PDS statements of operations presented below net of $531,033 and $0, respectively, of legal fee reversals previously expensed and recorded as accounts payable to TPL during the six months ended November 30, 2015 and 2014 as the statute of limitations had expired. On July 11, 2012, we entered into the Program Agreement with PDS, TPL, and Alliacense, and an Agreement (the TPL Agreement) with TPL. Pursuant to the Program Agreement, PDS engaged Alliacense to negotiate MMP portfolio licenses and to pursue claims against violators of the MMP portfolio on behalf of PDS, TPL, and the Company. The Program Agreement continued through the useful life of the MMP portfolio patents. Pursuant to the TPL Agreement, we and TPL agreed to certain allocations of obligations in connection with the engagement of Alliacense. On July 24, 2014, the Program Agreement was amended with PDS and Alliacense entering into the Amended Alliacense Services and Novation Agreement (the Novation Agreement). Pursuant to the Novation Agreement certain performance goals and incentives were established for Alliacense. The Novation Agreement also provided for the addition of a second licensing company, which was engaged on October 10, 2014, to complement the MMP licensing commercialization. However, Alliacense fulfilled only a portion of its obligations under the Novation Agreement associated with the deployment of the second licensing company and on May 11, 2015, Alliacense was terminated by PDS. Pursuant to the Program Agreement, PDS was contractually obligated to pay Alliacense litigation support fees relating to Alliacenses special work and effort regarding internal costs related to MMP maintenance and litigation support including support in the U.S. District Court and the complaints filed on behalf of TPL, PDS and us with the ITC. During the six months ended November 30, 2014, PDS reversed $(24,598) pursuant to this contractual obligation. The Novation Agreement eliminated the Program Agreements litigation support activity by Alliacense. This reversal is recorded net of expenses in the accompanying PDS statement of operations for the six months ended November 30, 2014 presented below. During January 2013, TPL and Moore settled their litigation. Terms of the settlement include the payment by PDS to Moore of a consulting fee of $250,000 for four years or until the completion of all outstanding MMP litigation whichever comes first. Per terms of the agreement PDS paid Moore $150,000 on the settlement date and paid Moore $16,667 per month from August 2013 through January 2014 and will pay $20,833 per month beginning February 2014 through January 2017. During the three months ended November 30, 2015 and 2014, PDS expensed $62,499 and $62,499, respectively, pursuant to this commitment and during the six months ended November 30, 2015 and 2014, PDS expensed $124,998 and $124,998, respectively, pursuant to this commitment. These expenses are recorded in the accompanying PDS statements of operations presented below. Based on our analysis of current authoritative accounting guidance with respect to our investment in PDS, we continue to account for our investment in PDS under the equity method of accounting, and accordingly have recorded our share of PDSs net income during the three and six months ended November 30, 2015 of $252,364 and $574,623, respectively, as an increase in our investment and we have recorded our share of PDSs net loss during the three and six months ended November 30, 2014 of $79,642 and $303,678, respectively, as a decrease in our investment. We received distributions of $58,000 and $800, respectively, from PDS during the six months ended November 30, 2015 and 2014 and we have recorded these distributions as a decrease in our investment. We have recorded our share of PDSs net income and loss for the three and six months ended November 30, 2015 and 2014 as Equity in earnings (loss) of affiliated company in the accompanying condensed consolidated statements of operations. During the three and six months ended November 30, 2015, PDS entered into licensing agreements with third parties, pursuant to which PDS received aggregate proceeds of $400,000 and $1,450,000, respectively. During the three and six months ended November 30, 2014, PDS entered into a licensing agreement with a third party, pursuant to which PDS received proceeds of $20,000. On March 20, 2013, TPL filed a petition under Chapter 11 of the United States Bankruptcy Code. A Joint Plan of Reorganization (the Joint Plan) between TPL and the creditors committee was confirmed by the Bankruptcy Court on February 11, 2015 with the entered confirmation order becoming final on April 2, 2015. We have been appointed to the creditors committee and have been closely monitoring the progress in this matter as it relates to our interest in PDS. In the event we are required to provide funding to PDS that is not reciprocated by TPL, our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our condensed consolidated financial statements. If we determine that it is appropriate to consolidate PDS, we would measure the assets, liabilities and noncontrolling interests of PDS at their fair values at the date that we have the controlling financial interest. PDSs balance sheets at November 30, 2015 and May 31, 2015 and statements of operations for the three and six months ended November 30, 2015 and 2014 are as follows: Balance Sheets Assets: November 30, 2015 May 31, 2015 (Unaudited) (Audited) Cash $ 1,024,096 $ 442,621 Prepaid expenses 10,518 26,644 Total assets $ 1,034,614 $ 469,265 Liabilities and Members Equity (Deficit): November 30, 2015 May 31, 2015 (Unaudited) (Audited) Payables $ 140,052 $ 607,949 Members equity (deficit) 894,562 (138,684 ) Total liabilities and members equity (deficit) $ 1,034,614 $ 469,265 Statements of Operations Three Months Ended Six Months Ended November 30, 2015 November 30, 2014 November 30, 2015 November 30, 2014 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues $ 400,000 $ 20,000 $ 1,450,000 $ 20,000 Expenses (104,729 ) 179,284 300,754 627,356 Operating income (loss) 504,729 (159,284 ) 1,149,246 (607,356 ) Net income (loss) $ 504,729 $ (159,284 ) $ 1,149,246 $ (607,356 ) We review our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near term prospects of PDS. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss. |
4. Income Taxes
4. Income Taxes | 6 Months Ended |
Nov. 30, 2015 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | We have determined that it was more likely than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable losses. As a result of this determination we have placed a full valuation allowance against our deferred tax assets. There have been no changes to our determination during the current fiscal year. |
5. Stockholders' Equity
5. Stockholders' Equity | 6 Months Ended |
Nov. 30, 2015 | |
Equity [Abstract] | |
Stockholders' Equity | Share-based Compensation Summary of Assumptions and Activity The fair value of share-based awards to employees and directors is calculated using the Black-Scholes option pricing model, even though this model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from our stock options. The Black-Scholes model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the pricing term of the grant effective as of the date of the grant. The expected volatility is based on the historical volatilities of our common stock. These factors could change in the future, affecting the determination of share-based compensation expense in future periods. No stock options were granted during the three and six months ended November 30, 2015 and 2014. A summary of option activity as of November 30, 2015 and changes during the six months then ended, is presented below: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Options outstanding at June 1, 2015 3,335,000 $ 0.06 Options granted $ Options exercised $ Options forfeited/expired (575,000 ) $ 0.10 Options outstanding at November 30, 2015 2,760,000 $ 0.05 3.90 $ Options vested and expected to vest at November 30, 2015 2,760,000 $ 0.05 3.90 $ Options exercisable at November 30, 2015 2,760,000 $ 0.05 3.90 $ There were no options granted or exercised during the six months ended November 30, 2015. The aggregate intrinsic value represents the differences in market price at the close of the quarter ($0.0045 per share on November 30, 2015) and the exercise price of outstanding, in-the-money options (those options with exercise prices below $0.0045 per share) on November 30, 2015. |
6. Commitments and Contingencie
6. Commitments and Contingencies | 6 Months Ended |
Nov. 30, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Litigation Patent Litigation We, TPL, and PDS (collectively referred to as Plaintiffs) are Plaintiffs in ongoing proceedings in the U.S. District Court for the Northern District of California where the Plaintiffs allege infringement of the US 5,809,336 patent (the 336 patent) by: Huawei Technologies Co. Ltd., LG Electronics, Nintendo Co. Ltd., Samsung Electronics Co. Ltd., and ZTE Corporation. This litigation is proceeding in front of District Court Judge Vince Chhabria with U.S. Magistrate Judge Paul Grewal handling all pretrial matters. These ongoing proceedings relate to the proceedings filed by the Plaintiffs in February 2008 in the U.S. District Court for the Northern District of California alleging infringement of the US 5,440,749 patent (the 749 patent), the US 5,530,890 patent (the 890 patent) and the 336 patent against Amazon.com Inc., Barnes & Noble Inc., Garmin Ltd., Huawei Technologies Co. Ltd., Kyocera Corporation, LG Electronics, Nintendo Co. Ltd., Novatel Wireless Inc., Samsung Electronics Co. Ltd., Sierra Wireless Inc., and ZTE Corporation. We have settled with all defendants except those named in the first paragraph to this footnote. Litigation and settlement activity for the quarter ended August 31, 2015 and through the date of this filing is detailed below. On February 4, 2015, Barnes & Noble, Inc. filed a motion asserting that our cause of action on the 336 patent was barred by the Kessler doctrine because of the ITCs finding of non-infringement in 2013. A hearing was held on March 17, 2015 in the U.S. District Court for the Northern District of California regarding the matter. On May 31, 2015, U.S. Magistrate Judge Grewal denied this motion. Barnes & Noble asked District Court Judge Chhabria to reconsider this ruling but on July 22, 2015, Plaintiffs and Barnes & Noble filed a notice of settlement stating that Plaintiffs and Barnes & Noble had reached a settlement in principle. This mooted a hearing in front of District Court Judge Chhabria regarding Barnes & Nobles motion. On April 10, 2015, multiple defendants in the District Court action filed a motion arguing for invalidity of the 749 patent. A hearing was held on May 19, 2015 regarding this matter. On July 27, 2015, Plaintiffs voluntarily dismissed their claims and on July 28, 2015, U.S. Magistrate Judge Grewal denied this motion as moot. On June 30, 2015, a hearing was held on Samsung and LGs motion to strike Plaintiffs infringement contentions. On July 11, 2015, U.S. Magistrate Judge Grewal granted in part Samsung and LGs motion and ordered Plaintiffs to provide amended infringement contentions in accordance with the Courts order. The Plaintiffs thereafter amended their infringement contentions. On July 1, 2015, the parties in the Novatel Wireless, Inc. action filed a stipulated motion to voluntarily dismiss all claims and counterclaims on the basis of a settlement agreement having been reached. The California district court granted that motion on July 14, 2015. On July 22, 2015, Plaintiffs and Barnes & Noble filed a notice of settlement stating that Plaintiffs and Barnes & Noble had reached a settlement in principle. On July 27, 2015, Plaintiffs and defendants filed a stipulation whereby each party withdrew their claims regarding the 749 and 890 patents with prejudice. On August 26, 2015, Plaintiffs and Garmin entered into a settlement and license agreement. On August 31, 2015, Plaintiffs and Barnes & Noble entered into a settlement and license agreement. On September 18, 2015, a Markman hearing was held before U.S. Magistrate Judge Grewal and, on September 22, 2015, he issued a claim construction report and recommendation. On September 25, 2015, as a result of the claim construction report and recommendation, Plaintiffs and defendants, with the exception of Huawei Technologies Co. Ltd., (Huawei) agreed to stay all proceedings pending resolution of Plaintiffs objections to the claim construction report and recommendation. Plaintiffs further stipulated that, under the claim construction provided by the report and recommendation, defendants products do not infringe the 336 patent, and, in the event that the district judge did not materially modify the claim construction, Plaintiffs and defendants agreed to ask that the Court enter a final judgment of non-infringement to facilitate proceeding to appeal. After Plaintiffs and Huawei filed opposing letter briefs with the Court, U.S. Magistrate Judge Grewal stayed the action against Huawei pending resolution of Plaintiffs objections to the claim construction. On October 6, 2015, Plaintiffs filed objections to the claim construction with District Court Judge Chhabria. Judge Chhabria rejected those objections on November 9, 2015. Based on that order, the parties stipulated to a judgment of non-infringement as to the 336 patent and such judgment was entered on November 13, 2015. On December 7, 2015, Plaintiffs filed notices of appeal with the U.S. Federal Circuit appealing the district courts claim construction. The appeal is pending. PDS Arbitration - Alliacense Performance In June 2015, our representative to the PDS management committee filed with the Judicial Arbitration and Mediation Services (JAMS) a demand for arbitration pursuant to Alliacenses non-performance under terms of the Novation Agreement. The demand seeks a declaration of the respective rights and obligations of the parties under the Novation Agreement. This matter is set for three days of arbitration currently commencing on May 17, 2016. 401(k) Plan We have a retirement plan that complies with Section 401(k) of the Internal Revenue Code. All employees are eligible to participate in the plan. We match 100% of elective deferrals subject to a maximum of 4% of the participants eligible earnings. Our participants vest 33% per year over a three year period in their matching contributions. Our matching contributions during the three months ended November 30, 2015 and 2014 were $4,734 and $3,208, respectively. Our matching contributions during the six months ended November 30, 2015 and 2014 were $9,935 and $6,949, respectively. Guarantees and Indemnities We have made certain guarantees and indemnities, under which we may be required to make payments to a guaranteed or indemnified party. We indemnify our directors, officers, employees and agents to the maximum extent permitted under the laws of the State of Delaware. In connection with our facility lease, we have indemnified our lessor for certain claims arising from the use of the facility. The duration of the guarantees and indemnities varies, and in many cases is indefinite. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments we could be obligated to make. Historically, we have not been obligated to make any payments for these obligations and no liabilities have been recorded for these guarantees and indemnities in the accompanying condensed consolidated balance sheets. Escrow Shares On August 31, 2009 we gave notice to the former shareholders of Crossflo and Union Bank of California (the Escrow Agent) under Section 2.5 of the Agreement and Plan of Merger between us and Crossflo (the Agreement), outlining damages incurred by us in conjunction with the acquisition of Crossflo, and seeking the return of 2,844,630 shares of our common stock held by the Escrow Agent. Subsequently, former shareholders of Crossflo representing a majority of the escrowed shares responded in protest to our claim, delaying the release of the escrowed shares until a formal resolution is reached. In the event we fail to prevail in our claim against the escrowed shares, we may be obligated to deposit into escrow approximately $256,000 of cash consideration due to the decline in our average stock price over the one year escrow period, calculated in accordance with the Section 2.5 of the Agreement. We have evaluated the potential for loss regarding our claim and believe that it is probable that the resolution of this issue will not result in a material obligation to the Company, although there is no assurance of this. Accordingly, we have not recorded a liability for this matter. |
7. Subsequent Events
7. Subsequent Events | 6 Months Ended |
Nov. 30, 2015 | |
Subsequent Events [Abstract] | |
Subsequent Events | We have evaluated subsequent events after the balance sheet date and based on our evaluation, management has determined that no subsequent events have occurred that would require recognition in the accompanying condensed consolidated financial statements or disclosure in the notes thereto other than as disclosed in the accompanying notes. |
1. Summary of Significant Accou
1. Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Nov. 30, 2015 | |
Accounting Policies [Abstract] | |
Basis of Presentation | 1. Basis of Presentation and Summary of Significant Accounting Policies The unaudited condensed consolidated financial statements of Patriot Scientific Corporation (the Company, PTSC, Patriot, we, us or our) presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (SEC) for quarterly reports on Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Report on Form 10-K for our fiscal year ended May 31, 2015. In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of the results for the interim period presented. Operating results for the six month period ended November 30, 2015 are not necessarily indicative of the results that may be expected for the year ending May 31, 2016. |
Basis of Consolidation | Basis of Consolidation The condensed consolidated balance sheets at November 30, 2015 and May 31, 2015 and condensed consolidated statements of operations for the three and six months ended November 30, 2015 and 2014 and condensed consolidated statements of cash flows for the six months ended November 30, 2015 and 2014 include our accounts and those of our wholly owned subsidiary Patriot Data Solutions Group, Inc. (PDSG) which includes Crossflo Systems, Inc. (Crossflo), and our inactive subsidiary Plasma Scientific Corporation. All significant intercompany accounts and transactions have been eliminated. PDSG is being presented as discontinued operations in the condensed consolidated statements of operations for all periods presented. See Discontinued Operations and Assets Held for Sale below for additional information. |
Liquidity and Management's Plans | Liquidity and Managements Plans Cash shortfalls currently experienced by Phoenix Digital Solutions, LLC (PDS) will have an adverse effect on our liquidity. To date, we have determined that it is in the best interests of the Moore Microprocessor Patent (MMP) licensing program that we provide our 50% share of capital to provide for PDS expenses including legal retainers, and litigation related payments in the event license revenues received by PDS are insufficient to meet these needs. We believe it is likely that contributions to PDS to fund working capital will continue to be required. PDS had been incurring significant third-party costs for expert testimony, depositions and other related litigation costs. We could be required to make capital contributions to PDS for any future litigation related costs in the event that PDS does not receive sufficient licensing revenues to pay these expenses. Our current liquid cash resources as of November 30, 2015, are expected to provide the funds necessary to support our operations through at least the next twelve months. The cash flows from our interest in PDS represent our only significant source of cash generation. In the event of a continued decrease or interruption in MMP portfolio licensing we will incur a significant reduction to our cash position. It is highly unlikely that we would be able to obtain any additional sources of financing to supplement our cash and cash equivalents and short-term investment position of $4,083,795 at November 30, 2015. On March 20, 2013, Technology Properties Limited, Inc. (TPL) filed a petition under Chapter 11 of the United States Bankruptcy Code. We have been appointed to the creditors committee and have been closely monitoring the progress in this matter as it relates to our interest in PDS. A Joint Plan of Reorganization (the Joint Plan) between TPL and the creditors committee was confirmed by the Bankruptcy Court on February 11, 2015 with the entered confirmation order becoming final on April 2, 2015. In the event we are required to provide funding to PDS that is not reciprocated by TPL, our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our condensed consolidated financial statements. |
Discontinued Operations and Assets Held for Sale | Discontinued Operations and Assets Held for Sale On February 17, 2012, our board of directors authorized management to sell the assets of PDSG due to the inability of PDSG to meet its business plan and continuing projected negative cash flows. In accordance with authoritative guidance we have classified the assets, operations and cash flows of PDSG as discontinued operations for all periods presented. During March 2012, we entered into an interim agreement with the purchaser of the assets of PDSG which required the purchaser to pay PDSG $93,450 to subsidize the April 2012 expenses of PDSG during the sale transaction negotiations. On April 30, 2012, we negotiated a sale transaction in which we sold substantially all of the assets of PDSG in exchange for a royalty on PDSG revenues for a period of three years. From April 30, 2012 to May 31, 2015, the gain on the asset sale of PDSG is approximately $101,000. Summarized operating results of discontinued operations for the three and six months ended November 30, 2015 and 2014 are as follows: Three Months Ended Six Months Ended November 30, 2015 November 30, 2014 November 30, 2015 November 30, 2014 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Gain on sale of discontinued operations $ $ 465 $ $ 3,265 Income before income taxes $ $ 465 $ $ 3,265 Income from discontinued operations $ $ 465 $ $ 3,265 PDSG activity for the three and six months ended November 30, 2014 consists of PDSG royalty revenues. |
Investments in Marketable Securities | Investments in Marketable Securities We determine the appropriate classification of our investments at the time of purchase and reevaluate such designation at each balance sheet date. Our investments in marketable securities have been classified and accounted for as held-to-maturity based on managements investment intentions relating to these securities. Held-to-maturity marketable securities are stated at amortized cost. Unrealized gains and losses, net of deferred taxes, are recorded as a component of other comprehensive income (loss). We follow the authoritative guidance to assess whether our investments with unrealized loss positions are other than temporarily impaired. Realized gains and losses and declines in fair value judged to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net in the condensed consolidated statements of operations. |
Investment in Affiliated Company | Investment in Affiliated Company We have a 50% interest in PDS (see Note 3). We account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investees Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and is recognized in the condensed consolidated statements of operations in the caption Equity in earnings (loss) of affiliated company and also is adjusted by contributions to and distributions from PDS. PDS, as an unconsolidated equity investee, recognizes revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of revenue is assured, which is generally upon the receipt of the license proceeds. PDS may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones have been met. We review our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near term prospects of PDS. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss. |
Earnings (Loss) Per Share | Earnings (Loss) Per Share Basic earnings per share for continuing and discontinued operations includes no dilution and is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share for continuing and discontinued operations reflect the potential dilution of securities that could share in the earnings of an entity. For the three and six months ended November 30, 2015, potential common shares of 2,760,000 related to our outstanding options were not included in the calculation of diluted loss per share for continuing and discontinued operations as we recorded a loss. Had we reported net income for the three and six months ended November 30, 2015, no shares of common stock would have been included in the calculation of diluted income per share for continuing and discontinued operations using the treasury stock method. For the three and six months ended November 30, 2014, potential common shares of 1,335,000 related to our outstanding options were not included in the calculation of diluted loss per share for continuing and discontinued operations as we recorded a loss. Had we reported net income for the three and six months ended November 30, 2014, no shares of common stock would have been included in the calculation of diluted income per share for continuing and discontinued operations using the treasury stock method. In connection with our acquisition of Crossflo, which is part of PDSG, we issued escrow shares that are contingent upon certain representations and warranties made by Crossflo at the time of the merger agreement (see Note 6). We exclude these escrow shares from the basic loss per share calculations and include the escrowed shares in the diluted loss per share calculations. |
Income Taxes | Income Taxes We follow authoritative guidance in accounting for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement requirement for the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under this guidance we may only recognize tax positions that meet a more likely than not threshold. We follow authoritative guidance to evaluate whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a more likely than not standard. In making such judgments, significant weight is given to evidence that can be objectively verified. We assess our deferred tax assets annually under more likely than not scenarios in which they may be realized through future income. We have determined that it was more likely than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable losses. As a result of this determination we have placed a full valuation allowance against our deferred tax assets. We follow authoritative guidance to adjust our effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We are also required to record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections. |
Assessment of Contingent Liabilities | Assessment of Contingent Liabilities We are involved in various legal matters, disputes, and patent infringement claims which arise in the ordinary course of our business. We accrue for any estimated losses at the time when we can make a reliable estimate of such loss and it is probable that it has been incurred. By their very nature, contingencies are difficult to estimate. We continually evaluate information related to all contingencies to determine that the basis on which we have recorded our estimated exposure is appropriate. |
Intellectual Property Rights | Intellectual Property Rights PDS, our investment in affiliated company, relies on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We have three European and two Japanese patents all expiring in October 2016. We also have seven U.S. patents, six European, and one Japanese patent all of which expired between August 2009 and September 15, 2015. These patents, while expired, may have certain retrospective statutory benefits that will fully diminish six years after the patent expiration date. The patent useful life for purposes of negotiating licenses is finite and these patents are subject to legal challenges, which in combination with the limited life, could adversely impact the stream of revenues. A successful challenge to the ownership of the technology or the proprietary nature of the intellectual property would materially damage business prospects. Any issued patent may be challenged and invalidated. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In August 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-15, "Presentation of Financial Statements Going Concern." ASU 2014-15 provides guidance in generally accepted accounting principles about managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016 and for annual periods and interim periods thereafter (fiscal year 2017 for the Company). Early adoption is permitted. We have not yet determined the potential effects of the adoption of ASU 2014-15 on our condensed consolidated financial statements. |
1. Summary of Significant Acc14
1. Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
Nov. 30, 2015 | |
Accounting Policies [Abstract] | |
Summary of Operating results of discontinued operations | Three Months Ended Six Months Ended November 30, 2015 November 30, 2014 November 30, 2015 November 30, 2014 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Gain on sale of discontinued operations $ $ 465 $ $ 3,265 Income before income taxes $ $ 465 $ $ 3,265 Income from discontinued operations $ $ 465 $ $ 3,265 |
2. Cash, Cash Equivalents, Re15
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Tables) | 6 Months Ended |
Nov. 30, 2015 | |
Cash and Cash Equivalents [Abstract] | |
Schedule of fair value of cash, cash equivalents and investments in marketable securities | Fair Value Measurements at November 30, 2015 Using Quoted Prices Significant in Active Other Significant Fair Value at Markets for Observable Unobservable November 30, Identical Assets Inputs Inputs 2015 (Level 1) (Level 2) (Level 3) Cash and cash equivalents: Cash $ 40,376 $ 40,376 $ $ Money market funds 1,837,755 1,837,755 Restricted cash and cash equivalents 21,283 21,283 Marketable securities: Short-term: Certificates of deposit 2,205,664 2,205,664 Long-term: Certificates of deposit 250,226 250,226 Total $ 4,355,304 $ 1,899,414 $ 2,455,890 $ Fair Value Measurements at May 31, 2015 Using Quoted Prices Significant in Active Other Significant Fair Value at Markets for Observable Unobservable May 31, Identical Assets Inputs Inputs 2015 (Level 1) (Level 2) (Level 3) Cash and cash equivalents: Cash $ 297,259 $ 297,259 $ $ Money market funds 2,382,101 2,382,101 Restricted cash and cash equivalents 21,229 21,229 Marketable securities: Short-term: Certificates of deposit 2,455,106 2,455,106 Total 5,155,695 $ 2,700,589 2,455,106 $ |
Schedule of maturities, gross unrealized gains or losses and fair value of certificates of deposit | November 30, 2015 (Unaudited) Cost Gross Unrealized Gains/(Losses) Fair Maturity Due in one year or less $ 2,205,664 $ $ 2,205,664 Due in one year or more $ 250,226 $ $ 250,226 The following table summarizes the maturities, gross unrealized gains or losses and fair value of the certificates of deposit as of May 31, 2015: May 31, 2015 Cost Gross Unrealized Gains/(Losses) Fair Maturity Due in one year or less $ 2,455,106 $ $ 2,455,106 |
3. Investment in Affiliated C16
3. Investment in Affiliated Company (Tables) | 6 Months Ended |
Nov. 30, 2015 | |
Equity Method Investments and Joint Ventures [Abstract] | |
Financial statements of affiliates | Assets: November 30, 2015 May 31, 2015 (Unaudited) (Audited) Cash $ 1,024,096 $ 442,621 Prepaid expenses 10,518 26,644 Total assets $ 1,034,614 $ 469,265 Liabilities and Members Equity (Deficit): November 30, 2015 May 31, 2015 (Unaudited) (Audited) Payables $ 140,052 $ 607,949 Members equity (deficit) 894,562 (138,684 ) Total liabilities and members equity (deficit) $ 1,034,614 $ 469,265 Statements of Operations Three Months Ended Six Months Ended November 30, 2015 November 30, 2014 November 30, 2015 November 30, 2014 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues $ 400,000 $ 20,000 $ 1,450,000 $ 20,000 Expenses (104,729 ) 179,284 300,754 627,356 Operating income (loss) 504,729 (159,284 ) 1,149,246 (607,356 ) Net income (loss) $ 504,729 $ (159,284 ) $ 1,149,246 $ (607,356 ) |
5. Stockholders' Equity (Tables
5. Stockholders' Equity (Tables) | 6 Months Ended |
Nov. 30, 2015 | |
Equity [Abstract] | |
Schedule of Stock Option Activity | Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Options outstanding at June 1, 2015 3,335,000 $ 0.06 Options granted $ Options exercised $ Options forfeited/expired (575,000 ) $ 0.10 Options outstanding at November 30, 2015 2,760,000 $ 0.05 3.90 $ Options vested and expected to vest at November 30, 2015 2,760,000 $ 0.05 3.90 $ Options exercisable at November 30, 2015 2,760,000 $ 0.05 3.90 $ |
1. Basis of Presentation (Detai
1. Basis of Presentation (Details - Discontinued Operations) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Nov. 30, 2015 | Nov. 30, 2014 | Nov. 30, 2015 | Nov. 30, 2014 | |
Accounting Policies [Abstract] | ||||
Gain on sale of discontinued operations | $ 0 | $ 465 | $ 0 | $ 3,265 |
Income before income taxes | 0 | 465 | 0 | 3,265 |
Income from discontinued operations | $ 0 | $ 465 | $ 0 | $ 3,265 |
1. Basis of Presentation and 19
1. Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) | 3 Months Ended | 6 Months Ended | 37 Months Ended | ||
Nov. 30, 2015USD ($)Integershares | Nov. 30, 2014shares | Nov. 30, 2015USD ($)Integershares | Nov. 30, 2014shares | May. 31, 2015USD ($) | |
Cash and cash equivalents and short-term investment | $ | $ 4,083,795 | $ 4,083,795 | |||
PDSG | |||||
Gain on sale of assets of discontinued operations | $ | $ 101,000 | ||||
PDS | Europe [Member] | |||||
Number of patents owned | 3 | 3 | |||
Expiration of patents | October 2,016 | ||||
PDS | JAPAN | |||||
Number of patents owned | 2 | 2 | |||
Expiration of patents | October 2,016 | ||||
PDS | UNITED STATES | |||||
Number of patents owned | 7 | 7 | |||
Expiration of patents | August 2009 thru September 15, 2015 | ||||
PDS | Europe [Member] | |||||
Number of patents owned | 6 | 6 | |||
Expiration of patents | August 2009 thru September 15, 2015 | ||||
PDS | JAPAN | |||||
Number of patents owned | 1 | 1 | |||
Expiration of patents | August 2009 thru September 15, 2015 | ||||
Options | |||||
Common shares not included in calculation of diluted net loss per share | shares | 2,760,000 | 1,335,000 | 2,760,000 | 1,335,000 | |
PDS | |||||
Ownership interest | 50.00% | 50.00% |
2. Cash, Cash Equivalents, Re20
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Details) - USD ($) | Nov. 30, 2015 | May. 31, 2015 |
Cash and cash equivalents: | ||
Cash | $ 40,376 | $ 297,259 |
Money market funds | 1,837,755 | 2,382,101 |
Restricted cash and cash equivalents | 21,283 | 21,229 |
Short-term: | ||
Certificates of deposit | 2,205,664 | 2,455,106 |
Long-term: | ||
Certificates of deposit | 250,226 | 0 |
Total | 4,355,304 | 5,155,695 |
Fair Value Inputs Level 1 | ||
Cash and cash equivalents: | ||
Cash | 40,376 | 297,259 |
Money market funds | 1,837,755 | 2,382,101 |
Restricted cash and cash equivalents | 21,283 | 21,229 |
Short-term: | ||
Certificates of deposit | 0 | 0 |
Long-term: | ||
Certificates of deposit | 0 | 0 |
Total | 1,899,414 | 2,700,589 |
Fair Value Inputs Level 2 | ||
Cash and cash equivalents: | ||
Cash | 0 | 0 |
Money market funds | 0 | 0 |
Restricted cash and cash equivalents | 0 | 0 |
Short-term: | ||
Certificates of deposit | 2,205,664 | 2,455,106 |
Long-term: | ||
Certificates of deposit | 250,226 | 0 |
Total | 2,455,890 | 2,455,106 |
Fair Value Inputs Level 3 | ||
Cash and cash equivalents: | ||
Cash | 0 | 0 |
Money market funds | 0 | 0 |
Restricted cash and cash equivalents | 0 | 0 |
Short-term: | ||
Certificates of deposit | 0 | 0 |
Long-term: | ||
Certificates of deposit | 0 | 0 |
Total | $ 0 | $ 0 |
2. Cash, Cash Equivalents, Re21
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Details - Certificates of Deposit) - USD ($) | Nov. 30, 2015 | May. 31, 2015 |
Due in one year or less | ||
Certificates of deposit | ||
Cost | $ 2,205,664 | $ 2,455,106 |
Gross Unrealized Gains/(Losses) | 0 | 0 |
Fair Value | 2,205,664 | $ 2,455,106 |
Due in one year or more | ||
Certificates of deposit | ||
Cost | 250,226 | |
Gross Unrealized Gains/(Losses) | 0 | |
Fair Value | $ 250,226 |
2. Cash, Cash Equivalents, Re22
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Details Narrative) - USD ($) | Nov. 30, 2015 | May. 31, 2015 |
Cash and Cash Equivalents [Abstract] | ||
Current portion of marketable securities | $ 2,205,664 | $ 2,455,106 |
Non-current portion of marketable securities | $ 250,226 | $ 0 |
3. Investment in Affiliated C23
3. Investment in Affiliated Company (Details - balance sheet) - USD ($) | Nov. 30, 2015 | May. 31, 2015 |
Total assets | $ 1,034,614 | $ 469,265 |
Total liabilities and members' equity | 1,034,614 | 469,265 |
Cash | ||
Total assets | 1,024,096 | 442,621 |
Prepaid Expenses [Member] | ||
Total assets | 10,518 | 26,644 |
Payables [Member] | ||
Total liabilities and members' equity | 140,052 | 607,949 |
Members equity (deficit) [Member] | ||
Total liabilities and members' equity | $ 894,562 | $ (138,684) |
3. Investment in Affiliated C24
3. Investment in Affiliated Company (Details - Statement of Operations) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Nov. 30, 2015 | Nov. 30, 2014 | Nov. 30, 2015 | Nov. 30, 2014 | |
Equity Method Investments and Joint Ventures [Abstract] | ||||
Revenues | $ 400,000 | $ 20,000 | $ 1,450,000 | $ 20,000 |
Expenses | (104,729) | 179,284 | 300,754 | 627,356 |
Operating income (loss) | 504,729 | (159,284) | 1,149,246 | (607,356) |
Net income (loss) | $ 504,729 | $ (159,284) | $ 1,149,246 | $ (607,356) |
3. Investment in Affiliated C25
3. Investment in Affiliated Company (Details Narrative PDS) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Nov. 30, 2015 | Nov. 30, 2014 | Nov. 30, 2015 | Nov. 30, 2014 | |
Net income (loss) from PDS | $ 252,364 | $ (79,642) | $ 574,623 | $ (303,678) |
Cash distributions received from PDS | 58,000 | 800 | ||
Alliacense | ||||
Litigation fees reversed | 24,598 | |||
PDS | ||||
Net income (loss) from PDS | 252,364 | (79,642) | 574,623 | (303,678) |
Proceeds from licensing agreement | 400,000 | 20,000 | 1,450,000 | 20,000 |
Legal fees paid | (305,862) | 103,125 | 5,257 | 505,068 |
PDS | Moore | ||||
Litigation settlement expense | $ 62,499 | $ 62,499 | $ 124,998 | $ 124,998 |
5. Stockholders' Equity (Detail
5. Stockholders' Equity (Details - Option activity) - USD ($) | 6 Months Ended | |
Nov. 30, 2015 | Nov. 30, 2014 | |
Number of Options Granted | 0 | 0 |
Options | ||
Number of Options Outstanding, Beginning | 3,335,000 | |
Number of Options Granted | 0 | |
Number of Options Exercised | 0 | |
Number of Options Forfeited | (575,000) | |
Number of Options Outstanding, Ending | 2,760,000 | |
Options vested and expected to vest, Ending | 2,760,000 | |
Number of Options Exercisable, Ending | 2,760,000 | |
Weighted Average Exercise Price Outstanding, Beginning | $ .06 | |
Weighted Average Exercise Price Granted | 0 | |
Weighted Average Exercise Price Exercised | 0 | |
Weighted Average Exercise Price Forfeited | .10 | |
Weighted Average Exercise Price Outstanding, Ending | .05 | |
Weighted Average Exercise Price, Options vested and expected to vest, Ending | .05 | |
Weighted Average Exercise Price Exercisable | $ .05 | |
Weighted Average Remaining Contractual Life (in years) Outstanding | 3 years 10 months 24 days | |
Weighted Average Remaining Contractual Life (in years) Options vested and expected to vest | 3 years 10 months 24 days | |
Weighted Average Remaining Contractual Life (in years) Exercisable | 3 years 10 months 24 days | |
Aggregate Intrinsic Value Outstanding | $ 0 | |
Aggregate Intrinsic Value Options vested and expected to vest | 0 | |
Aggregate Intrinsic Value Exercisable | $ 0 |
5. Stockholder' Equity (Details
5. Stockholder' Equity (Details Narrative) - shares | 6 Months Ended | |
Nov. 30, 2015 | Nov. 30, 2014 | |
Stockholder Equity Details Narrative | ||
Stock options granted during period | 0 | 0 |
6. Commitments and Contingenc28
6. Commitments and Contingencies (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Nov. 30, 2015 | Nov. 30, 2014 | Nov. 30, 2015 | Nov. 30, 2014 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Patriot's matching contributions to the 401K plan | $ 4,734 | $ 3,208 | $ 9,935 | $ 6,949 |