Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Nov. 30, 2019 | Jan. 13, 2020 | |
Cover [Abstract] | ||
Entity Registrant Name | PATRIOT SCIENTIFIC CORP | |
Entity Central Index Key | 0000836564 | |
Document Type | 10-Q | |
Document Period End Date | Nov. 30, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --05-31 | |
Is Entity's Reporting Status Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 401,392,948 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2020 | |
Entity Small Business | true | |
Entity Emerging Growth | false | |
Entity file number | 000-22182 | |
Entity state of incorporation | DE | |
Interactive Data Current | Yes |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) | Nov. 30, 2019 | May 31, 2019 |
Current assets: | ||
Cash and cash equivalents | $ 962,949 | $ 787,086 |
Restricted cash and cash equivalents | 177,247 | 198,843 |
Investments in marketable securities | 0 | 750,000 |
Prepaid expenses and other current assets | 54,274 | 28,003 |
Deferred tax assets | 52,156 | 0 |
Total current assets | 1,246,626 | 1,763,932 |
Property and equipment, net | 570 | 814 |
Deferred income taxes | 0 | 52,156 |
Investment in affiliated company | 34,542 | 107,861 |
Total assets | 1,281,738 | 1,924,763 |
Current liabilities: | ||
Accounts payable | 17,607 | 8,868 |
Accrued expenses and other | 423,942 | 219,344 |
Total current liabilities | 441,549 | 228,212 |
Total liabilities | 441,549 | 228,212 |
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, 2019 and May 31, 2019 | 4,382 | 4,382 |
Additional paid-in capital | 77,444,062 | 77,444,062 |
Accumulated deficit | (61,982,387) | (61,126,025) |
Common stock held in treasury, at cost - 36,849,670 shares at November 30, 2019 and May 31, 2019 | (14,625,868) | (14,625,868) |
Total stockholders' equity | 840,189 | 1,696,551 |
Total liabilities and stockholders' equity | $ 1,281,738 | $ 1,924,763 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Nov. 30, 2019 | May 31, 2019 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (in Dollars per share) | $ 0.00001 | $ 0.00001 |
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) | $ 0.00001 | $ 0.00001 |
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 (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Nov. 30, 2019 | Nov. 30, 2018 | Nov. 30, 2019 | Nov. 30, 2018 | |
Operating expenses: | ||||
Selling, general and administrative | $ 487,440 | $ 143,925 | $ 790,477 | $ 347,406 |
Total operating expenses | 487,440 | 143,925 | 790,477 | 347,406 |
Other income (expense): | ||||
Interest income | 3,343 | 6,546 | 9,034 | 13,489 |
Equity in loss of affiliated company | (29,007) | (14,743) | (73,319) | (29,523) |
Total other expense, net | (25,664) | (8,197) | (64,285) | (16,034) |
Loss before income taxes | (513,104) | (152,122) | (854,762) | (363,440) |
Provision for income taxes | 0 | 0 | 1,600 | 1,600 |
Net loss | $ (513,104) | $ (152,122) | $ (856,362) | $ (365,040) |
Basic and diluted loss per common share | $ 0 | $ 0 | $ 0 | $ 0 |
Weighted average number of common shares outstanding - basic | 398,548,318 | 398,548,318 | 398,548,318 | 398,548,318 |
Weighted average number of common shares outstanding - diluted | 398,548,318 | 398,548,318 | 398,548,318 | 398,548,318 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 6 Months Ended | |
Nov. 30, 2019 | Nov. 30, 2018 | |
Operating activities: | ||
Net loss | $ (856,362) | $ (365,040) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation | 244 | 244 |
Equity in loss of affiliated company | 73,319 | 29,523 |
Changes in operating assets and liabilities: | ||
Prepaid expenses and other current assets | (26,271) | (46,467) |
Income taxes payable | 0 | 1,600 |
Accounts payable, accrued expenses and other | 213,337 | (44,522) |
Net cash used in operating activities | (595,733) | (424,662) |
Investing activities: | ||
Proceeds from sales of marketable securities | 1,000,000 | 0 |
Purchases of marketable securities | (250,000) | 0 |
Net cash provided by investing activities | 750,000 | 0 |
Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents | 154,267 | (424,662) |
Cash, cash equivalents and restricted cash and cash equivalents, beginning of period | 985,929 | 2,319,449 |
Cash, cash equivalents and restricted cash cash equivalents, end of period | 1,140,196 | 1,894,787 |
Supplemental Disclosure of Cash Flow Information: | ||
Cash paid for income taxes | $ 1,600 | $ 0 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Total |
Beginning balance, shares at May. 31, 2018 | 401,392,948 | ||||
Beginning balance, value at May. 31, 2018 | $ 4,382 | $ 77,444,062 | $ (60,327,562) | $ (14,625,868) | $ 2,495,014 |
Net loss | (365,040) | (365,040) | |||
Ending balance, shares at Nov. 30, 2018 | 401,392,948 | ||||
Ending balance, value at Nov. 30, 2018 | $ 4,382 | 77,444,062 | (60,692,602) | (14,625,868) | 2,129,974 |
Beginning balance, shares at Aug. 31, 2018 | 401,392,948 | ||||
Beginning balance, value at Aug. 31, 2018 | $ 4,382 | 77,444,062 | (60,540,480) | (14,625,868) | 2,282,096 |
Net loss | (152,122) | (152,122) | |||
Ending balance, shares at Nov. 30, 2018 | 401,392,948 | ||||
Ending balance, value at Nov. 30, 2018 | $ 4,382 | 77,444,062 | (60,692,602) | (14,625,868) | 2,129,974 |
Beginning balance, shares at May. 31, 2019 | 401,392,948 | ||||
Beginning balance, value at May. 31, 2019 | $ 4,382 | 77,444,062 | (61,126,025) | (14,625,868) | 1,696,551 |
Net loss | (856,362) | (856,362) | |||
Ending balance, shares at Nov. 30, 2019 | 401,392,948 | ||||
Ending balance, value at Nov. 30, 2019 | $ 4,382 | 77,444,062 | (61,982,387) | (14,625,868) | 840,189 |
Beginning balance, shares at Aug. 31, 2019 | 401,392,948 | ||||
Beginning balance, value at Aug. 31, 2019 | $ 4,382 | 77,444,062 | (61,469,283) | (14,625,868) | 1,353,293 |
Net loss | (513,104) | (513,104) | |||
Ending balance, shares at Nov. 30, 2019 | 401,392,948 | ||||
Ending balance, value at Nov. 30, 2019 | $ 4,382 | $ 77,444,062 | $ (61,982,387) | $ (14,625,868) | $ 840,189 |
Reconciliation of Cash, Cash Eq
Reconciliation of Cash, Cash Equivalents, and Restricted Cash and Cash Equivalents - USD ($) | Nov. 30, 2019 | May 31, 2019 | Nov. 30, 2018 | May 31, 2018 |
Reconciliation of cash, cash equivalents and restricted cash and cash equivalents at end of period | ||||
Cash and Cash Equivalents | $ 962,949 | $ 787,086 | $ 1,873,174 | |
Restricted Cash and cash equivalents | 177,247 | 198,843 | 21,613 | |
Total cash, cash equivalents and restricted cash | $ 1,140,196 | $ 985,929 | $ 1,894,787 | $ 2,319,449 |
1. Basis of Presentation and Su
1. Basis of Presentation and Summary of Significant Accounting Policies | 6 Months Ended |
Nov. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation and Summary of Significant Accounting Policies | 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, 2019. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of the results for the interim period presented. Operating results for the three and six month periods ended November 30, 2019 are not necessarily indicative of the results that may be expected for the year ending May 31, 2020. Basis of Consolidation The condensed consolidated balance sheets at November 30, 2019 and May 31, 2019 include our accounts and those of our inactive subsidiary Patriot Data Solutions Group, Inc. (“PDSG”) which includes Crossflo Systems, Inc. (“Crossflo”). The condensed consolidated statements of operations, cash flows and stockholders’ equity for the three and six months ended November 30, 2019 and 2018 include our accounts and those of our inactive subsidiaries: PDSG and Plasma Scientific Corporation (“Plasma”). We dissolved Plasma in March 2018. All significant intercompany accounts and transactions have been eliminated. Liquidity and Management’s Plans The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. At November 30, 2019, the Company has an accumulated deficit of $61,982,387, and has incurred recurring losses and used significant amounts of cash in its operations. As of November 30, 2019, the Company had cash and cash equivalents and marketable securities of approximately $963,000 and working capital of approximately $805,000. Historically, we have been a licensing company and entered into a number of agreements to facilitate the pursuit of unlicensed users of our intellectual property. On November 4, 2019, we announced that the Supreme Court of the United States denied our petition for a writ of certiorari with respect to patent litigation previously before the United States Court of Appeals for the Federal Circuit that alleged infringement of the US 5,809,336 patent (the “‘336 patent”) against multiple defendants (see Note 6). Based on this decision, we have halted all licensing efforts as we evaluate the future direction of the Company as we do not have any potential sources of revenue and our joint venture, Phoenix Digital solutions, LLC (“PDS”) has not generated significant license revenues since September 2013. There are a number of uncertainties associated with our financial projections that could increase our projected expenses, which would further accelerate cash usage. Additionally, we do not expect to realize satisfactory cash from operations over the foreseeable future and we will be required to seek additional financing to continue our operations. We will also require additional financing to develop or acquire new lines of business. We have no current arrangements with respect to any additional financing. Consequently, there can be no assurance that any additional financing on commercially reasonable terms, or at all, will be available when needed. Further, any additional equity financing, if secured, may involve substantial dilution to our then existing stockholders. One opportunity we are evaluating is the potential of establishing a company that develops a data capturing platform that could be implemented throughout the drug development process utilizing blockchain technologies in collaboration with Artius Bioconsulting LLC (“Artius”), under an agreement signed on April 12, 2019. During the quarter ended November 30, 2019, Artius completed and submitted their feasibility report to us and we are currently evaluating next steps. However, there are no assurances that we will be successful in developing this blockchain based business. Further, in the event the next steps in the development of a blockchain-based business are undertaken, it is expected that significant additional funding from external sources will be required. If we are unable to develop or acquire new lines of business, such as those involving blockchain technologies, and/or we are unable to raise additional capital, we will be forced to liquidate the Company in a dissolution under Delaware law or seek protection under the provisions of the U.S. Bankruptcy Code. We currently anticipate, based on currently operations, that our cash on hand will not satisfy our operational and capital requirements through twelve months from the date of filing on this Form 10-Q. The above matters raise substantial doubt regarding our ability to continue as a going concern. Investment in Affiliated Companies We have a 50% interest in PDS. We account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and is recognized in the condensed consolidated statements of operations in the caption “Equity in 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 the decline in value is deemed to be other than temporary, we would recognize an impairment loss. We own 100% of the preferred stock of Holocom (see Note 3). Prior to impairment, this investment was accounted for at cost since we do not have the ability to exercise significant influence over the operating and financial policies of Holocom. Income (Loss) Per Share Basic income (loss) per share includes no dilution and is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. At November 30, 2019 and 2018, potential common shares of 1,600,000 related to our outstanding options were not included in the calculation of diluted loss per share as we recorded a loss. Had we reported net income for the three and six months ended November 30, 2019 and 2018, no shares of common stock would have been included in the calculation of diluted income per share using the treasury stock method. In connection with our acquisition of Crossflo, which became a part of PDSG, we issued 2,844,630 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 would have included the escrowed shares in the diluted income per share calculations if we reported net income. 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. With the exception for refundable alternative minimum tax (“AMT”) credits, 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, and with the exception for the aforementioned refundable tax credits, we have recorded a full valuation allowance against our deferred tax assets. On December 22, 2017, the United States Government passed the Tax Cuts and Jobs Act (“Tax Cuts Act”) that, among other provisions, has lowered the corporate tax rate from 35% to 21%. In addition to applying the new lower corporate tax rate in 2018 and thereafter to any taxable income we may have, the legislation affects the way we can use and carryforward net operating losses previously accumulated and results in a revaluation of deferred tax assets and liabilities recorded on our condensed consolidated balance sheet. The Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance regarding accounting for the income tax effects of the Tax Cuts Act, including the impact of the Tax Cuts Act on deferred tax assets and liabilities for financial statements issued in the reporting period that includes the enactment date of December 22, 2017. Given that our current deferred tax assets, with the exception of those representing certain refundable tax credits, are offset by a full valuation allowance, these changes had no net impact on our condensed consolidated balance sheet. However, if we become profitable, we will receive a reduced benefit from such deferred tax assets. 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, has historically relied on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We have seven U.S., nine European, and three Japanese patents all of which expired between August 2009 and October 2016. These patents, while expired, may have certain retrospective statutory benefits that will fully diminish six years after the patent expiration dates. On November 4, 2019, we announced that the Supreme Court of the United States denied our petition for a writ of certiorari with respect to patent litigation previously before the United States Court of Appeals for the Federal Circuit that alleged infringement of the ‘336 patent against multiple defendants. Based on this decision, we have halted all licensing efforts as we evaluate the future direction of the Company. Recent Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, as amended ("ASC 842"), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. ASC 842 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASC 842 effective June 1, 2019 using a modified retrospective method and will not restate comparative periods. As permitted under the transition guidance, the Company will carry forward the assessment of whether its contracts contain or are leases, classification of its leases and remaining lease terms. Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements. We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-term disclosures include only those leases with a term greater than one month and less than twelve months. Short term leases are not recorded on the balance sheet and expense on short-term leases are recognized on a straight-line basis over the lease term. The Company elected the “practical expedient package” as permitted under ASC 842. Therefore, the Company has not reassessed whether any expired or existing contracts are, or contain, leases; the Company has not reassessed the lease classification for any expired or existing leases; and the company has not reassessed initial direct costs for any expired or existing leases. The Company currently leases office space on a month-to-month basis. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which removes, modifies, and adds various disclosure requirements on fair value measurements in Topic 820. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The Company does not expect a significant impact from adopting this update on its consolidated financial statements. |
2. Cash, Cash Equivalents, Rest
2. Cash, Cash Equivalents, Restricted Cash | 6 Months Ended |
Nov. 30, 2019 | |
Cash and Cash Equivalents [Abstract] | |
Cash, Cash Equivalents, Restricted Cash and Marketable Securities | 2. Cash, Cash Equivalents and Restricted Cash We follow authoritative guidance to account for our marketable securities as held-to-maturity. Under this authoritative guidance, we are required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We determine fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment or valuations by third party professionals. The three levels of inputs that we may use to measure fair value are: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity) The following tables detail the fair value measurements within the fair value hierarchy of our cash, cash equivalents and investments in marketable securities: Fair Value Measurements at November 30, 2019 Using Fair Value at Quoted Prices Significant Other Observable Significant Cash and cash equivalents: Cash $ 112,949 $ 112,949 $ – $ – Certificates of deposit 850,000 – 850,000 – Restricted cash and cash equivalents 177,247 177,247 – – Total $ 1,140,196 $ 290,196 $ 850,000 $ – Fair Value Measurements at May 31, 2019 Using Fair Value at Quoted Prices Significant Other Significant Cash and cash equivalents: Cash $ 49,149 $ 49,149 $ – $ – Money market funds 237,937 237,937 – – Certificates of deposit 500,000 – 500,000 – Restricted cash and cash equivalents 198,843 198,843 – – Investments in marketable securities: Certificates of deposit 750,000 – 750,000 – Total $ 1,735,929 $ 485,929 $ 1,250,000 $ – We purchase certificates of deposit with varying maturity dates. The following tables summarize the purchase date maturities, gross unrealized gains or losses and fair value of the certificates of deposit as of November 30, 2019 and May 31, 2019: November 30, 2019 (Unaudited) Cost Gross Unrealized Gains/(Losses) Fair Maturity Due in three months or less $ 850,000 $ – $ 850,000 May 31, 2019 Cost Gross Unrealized Gains/(Losses) Fair Maturity Due in three months or less $ 500,000 $ – $ 500,000 Due in greater than three months 750,000 – 750,000 $ 1,250,000 $ – $ 1,250,000 |
3. Investment in Affiliated Com
3. Investment in Affiliated Companies | 6 Months Ended |
Nov. 30, 2019 | |
Investments in and Advances to Affiliates, Schedule of Investments [Abstract] | |
Investment in Affiliated Companies | 3. Investment in Affiliated Companies Phoenix Digital Solutions, LLC On June 7, 2005, we entered into a Master Agreement (the “Master Agreement”) with TPL, and Charles H. Moore (“Moore”), the co-inventor of the technology which is the subject of the MMP portfolio of microprocessor patents, pursuant to which the parties resolved all legal disputes between them. Pursuant to the Master Agreement, we and TPL entered into the Limited Liability Company Operating Agreement of PDS (the “LLC Agreement”) into which we and Moore contributed our rights to certain of our technologies. We and TPL each own 50% of the membership interests of PDS, and each member has the right to appoint one member of the three-member management committee. The two appointees are required to select a mutually acceptable third member of the management committee. There had not been a third management committee member since May 2010; however, as a result of our initiation of 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, 2019 and 2018. Distributable cash and allocation of profits and losses have been allocated to the members in the priority defined in the LLC Agreement. 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. On August 10, 2016, PDS entered into an agreement with Alliacense and MMP Licensing, LLC to settle matters relating to Alliacense’s non-performance under terms of the Novation Agreement. The August 10, 2016 agreement required Alliacense to provide PDS’s second licensing company, Dominion Harbor Group (“DHG”), with certain materials and to cooperate with reasonable discovery requests relating to infringement litigation in the U.S. District Court for the Northern District of California. MMP Licensing, LLC will provide commercialization services to PDS for the MMP portfolio with respect to certain companies. PDS and Alliacense have agreed to cause the arbitration between the parties to be dismissed with prejudice. The August 10, 2016 agreement, and the agreement retaining DHG as PDS’s second licensing company, will both expire on October 4, 2022. Terms of the settlement agreement required PDS to pay Alliacense $84,000 within 24 hours after delivery of materials to PDS’s second licensing agent and to pay Alliacense $84,000 out of subsequent recoveries. PDS paid Alliacense $84,000 on each of August 11, 2016 and October 3, 2016. During January 2013, TPL and Moore settled their litigation. Terms of the settlement included 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 came 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 $20,833 per month beginning February 2014 through January 2017. 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 three and six months ended November 30, 2019 of $29,007 and $73,319, respectively, and $14,743 and $29,523, respectively, for the three and six months ended November 30, 2018, as a decrease in our investment as “Equity in loss of affiliated company” in the accompanying condensed consolidated statements of operations. On March 20, 2013, TPL filed a petition under Chapter 11 of the United States Bankruptcy Code. On March 5, 2018, TPL’s Motion for Entry of Final Decree Closing Chapter 11 was granted. In the event we are required to provide funding to PDS that is not reciprocated by TPL, our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our condensed consolidated financial statements. If we determine that it is appropriate to consolidate PDS, we would measure the assets, liabilities and noncontrolling interests of PDS at their fair values at the date that we have the controlling financial interest. PDS’s balance sheets at November 30, 2019 and May 31, 2019 and statements of operations for the three months ended November 30, 2019 and 2018 are as follows: Balance Sheets Assets: November 30, 2019 May 31, 2019 (Unaudited) Cash $ 69,084 $ 237,655 Total assets $ 69,084 $ 237,655 Liabilities and Members’ Equity: November 30, 2019 May 31, 2019 (Unaudited) Payables $ – $ 21,933 Members’ equity 69,084 215,722 Total liabilities and members’ equity $ 69,084 $ 237,655 Statements of Operations: Three Months Ended Six Months Ended November 30, 2019 November 30, 2018 November 30, 2019 November 30, 2018 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Expenses $ 58,013 $ 29,486 $ 146,638 $ 59,045 Net loss $ (58,013 ) $ (29,486 ) $ (146,638 ) $ (59,045 ) 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. Holocom, Inc We currently own 2,100,000 shares of preferred stock, equivalent to an approximate 46% ownership interest on an after converted basis, in Holocom, Inc. (“Holocom”), a California corporation that manufactures products that protect information transmitted over secure networks. The shares are convertible at our option into shares of Holocom’s common stock on a one-to-one basis. The preferred stock entitles us to receive non-cumulative dividends at the per annum rate of $0.04 per share, when and if declared by the Board of Directors of Holocom, as well as a liquidation preference of $0.40 per share, plus an amount equal to all declared but unpaid dividends. In 2010, we determined that the inability of Holocom to meet its business plan, raise capital, and the general economic environment were indicators of impairment on our investment and we wrote-off our cost basis investment in Holocom. At November 30, 2019 and May 31, 2019, our investment in Holocom was valued at $0. |
4. Income Taxes
4. Income Taxes | 6 Months Ended |
Nov. 30, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | 4 . Income Taxes On December 22, 2017, the United States Government passed the Tax Cuts and Jobs Act (“Tax Cuts Act”) that, among other provisions, has lowered the corporate tax rate from 35% to 21%. In addition to applying the new lower corporate tax rate in 2018 and thereafter to any taxable income we may have, the legislation affects the way we can use and carryforward net operating losses previously accumulated and results in a revaluation of deferred tax assets and liabilities recorded on our condensed consolidated balance sheet. The Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance regarding accounting for the income tax effects of the Tax Cuts Act, including the impact of the Tax Cuts Act on deferred tax assets and liabilities for financial statements issued in the reporting period that includes the enactment date of December 22, 2017. Given that our current deferred tax assets, with the exception of those representing certain refundable tax credits, are offset by a full valuation allowance, these changes had no net impact on our condensed consolidated balance sheet. However, if we become profitable, we will receive a reduced benefit from such deferred tax assets. |
5. Stockholders' Equity
5. Stockholders' Equity | 6 Months Ended |
Nov. 30, 2019 | |
Equity [Abstract] | |
Stockholders' Equity | 5. Stockholders’ Equity Share-based Compensation Summary of Assumptions and Activity The fair value of share-based awards to employees and directors is calculated using the Black-Scholes option pricing model, even though this model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from our stock options. The Black-Scholes model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the pricing term of the grant effective as of the date of the grant. The expected volatility is based on the historical volatilities of our common stock. These factors could change in the future, affecting the determination of share-based compensation expense in future periods. A summary of option activity as of November 30, 2019 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, 2019 1,600,000 $ 0.03 Options granted – $ – Options exercised – $ – Options forfeited/expired – $ – Options outstanding at November 30, 2019 1,600,000 $ 0.03 0.43 $ – Options vested and expected to vest at November 30, 2019 1,600,000 $ 0.03 0.43 $ – Options exercisable at November 30, 2019 1,600,000 $ 0.03 0.43 $ – The aggregate intrinsic value represents the differences in market price at the close of the quarter ($0.0025) per share on November 29, 2019) and the exercise price of outstanding, in-the-money options (those options with exercise prices below $0.0025 per share) on November 30, 2019. |
6. Commitments and Contingencie
6. Commitments and Contingencies | 6 Months Ended |
Nov. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 6. Commitments and Contingencies Litigation Patent Litigation We, TPL, and PDS (collectively referred to as “Plaintiffs”) are Plaintiffs were in 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 (collectively referred to as the “Defendants”). This litigation was proceeding in front of District Court Judge Vince Chhabria. These 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. 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 Court does not materially modify the claim construction, Plaintiffs and defendants ask that the Court enter a final judgment of non-infringement. After Plaintiffs and Huawei filed opposing letter briefs with the Court, U.S. Magistrate Judge Grewal stayed the action against Huawei pending resolution of Plaintiffs’ objections to the claim construction. On October 6, 2015, Plaintiffs filed objections to the claim construction with District Court Judge Chhabria. Judge Chhabria rejected those objections on November 9, 2015. Based on that order, the parties stipulated to a judgment of non-infringement as to the ‘336 patent and such judgment was entered on November 13, 2015. On December 7, 2015, Plaintiffs filed notices of appeal with the U.S. Federal Circuit appealing the district court’s claim construction. Plaintiffs filed their opening appellate brief on March 10, 2016. Defendants filed their response brief on May 23, 2016, with Plaintiffs filing their reply brief on June 23, 2016. On March 3, 2017, the U.S. Court of Appeals for the Federal Circuit rendered its decision modifying the claim construction that was issued in September 2016 by the U.S. District Court for the Northern District of California and has remanded the matter to the District Court for further proceedings. On May 23, 2017, a case management conference was held in front of District Court Judge Chhabria, who ordered that Plaintiffs amend their infringement contentions on or before June 16, 2017. Judge Chhabria further ordered that Defendants submit any motion for summary judgment based on the amended infringement contentions and the modified claim construction by August 1, 2017. On June 5, 2017, the law firm of Banys, P.C., who had served as local counsel for PDS, withdrew as counsel. PDS continued to be represented by the law firm of Nelson Bumgardner, P.C. On June 16, 2017, Plaintiffs timely amended their infringement contentions. On July 13, 2017, all remaining counsel for each of Patriot, TPL, and PDS moved to withdraw as counsel and further moved to extend all currently pending case deadlines by 60 days for Plaintiffs to seek new counsel. On September 13, 2017, the law firm of Bunsow De Mory LLP was entered before the U.S. District Court for the Northern District of California as successor counsel in representation of Patriot, PDS, and TPL. The Defendants moved for summary judgment of non-infringement on September 29, 2017, and the Court held a hearing on Defendants’ motion on November 30, 2017. The Court granted Defendants’ motion and entered judgment of non-infringement on December 13, 2017. Defendant Samsung submitted a bill of costs seeking $30,170 in taxable costs in the underlying district court proceedings; Plaintiffs filed an objection to significant portions of that request. On March 1, 2018, the Clerk of the District Court taxed costs in the amount $829. Plaintiffs filed notices of appeal in these district court matters on January 5, 2018. The appeals were docketed and consolidated under lead case No. 18-1439, captioned as Technology Properties Limited v. Huawei Technologies Co., Ltd in the United States Court of Appeals for the Federal Circuit. Oral argument proceeded on February 4, 2019. The Court affirmed the lower court’s determination without written opinion pursuant to Federal Circuit Rule 36 on February 6, 2019. Plaintiffs filed a Petition for Rehearing En Banc on March 8, 2019 which was denied by the Court on April 10, 2019. On September 6, 2019 Plaintiffs filed a petition for a writ of certiorari with the Supreme Court of the United States as a result of the United States Court of Appeals outcome. On November 4, 2019, we announced that the Supreme Court of the United States denied our petition for a writ of certiorari with respect to patent litigation previously before the United States Court of Appeals for the Federal Circuit that alleged infringement of the ‘336 patent against the Defendants (see Note 1). Employment Contracts In connection with Cliff Flowers’ appointment as the Chief Financial Officer of the Company, and commencing on September 17, 2007, we entered into an employment agreement with Mr. Flowers for an initial 120-day term if not terminated pursuant to the agreement, with an extension period of one year and on a continuing basis thereafter. On December 30, 2016, we entered into an amended and restated employment agreement with Mr. Flowers. Pursuant to the amended December 30, 2016 agreement, if Mr. Flowers was terminated without cause or resigns with good reason any time after two years of continuous employment, he was entitled to receive an amount equal to 1.25 times his annual base salary. Mr. Flowers was also entitled to certain payments upon a change of control of the Company if the surviving corporation did not retain him. All such payments were conditional upon the execution of a general release. On October 1, 2019, Mr. Flowers and the Company signed a Separation Agreement and General Release of all Claims (“Separation Agreement”). Pursuant to the Separation Agreement, Mr. Flowers resigned on September 30, 2019 and agreed to severance compensation of $327,750, in lieu if any amounts owed under his amended and restated employment agreement, payable in seven equal monthly installments commencing October 30, 2019. As of November 30, 2019, we have a remaining liability of $246,698 included in Accrued expenses and other 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. 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. |
1. Summary of Significant Accou
1. Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Nov. 30, 2019 | |
Accounting Policies [Abstract] | |
Basis of Consolidation | Basis of Consolidation The condensed consolidated balance sheets at November 30, 2019 and May 31, 2019 include our accounts and those of our inactive subsidiary Patriot Data Solutions Group, Inc. (“PDSG”) which includes Crossflo Systems, Inc. (“Crossflo”). The condensed consolidated statements of operations, cash flows and stockholders’ equity for the three and six months ended November 30, 2019 and 2018 include our accounts and those of our inactive subsidiaries: PDSG and Plasma Scientific Corporation (“Plasma”). We dissolved Plasma in March 2018. All significant intercompany accounts and transactions have been eliminated. |
Investment in Affiliated Companies | Investment in Affiliated Companies We have a 50% interest in PDS. We account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and is recognized in the condensed consolidated statements of operations in the caption “Equity in 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 the decline in value is deemed to be other than temporary, we would recognize an impairment loss. We own 100% of the preferred stock of Holocom (see Note 3). Prior to impairment, this investment was accounted for at cost since we do not have the ability to exercise significant influence over the operating and financial policies of Holocom. |
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. With the exception for refundable alternative minimum tax (“AMT”) credits, 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, and with the exception for the aforementioned refundable tax credits, we have recorded a full valuation allowance against our deferred tax assets. On December 22, 2017, the United States Government passed the Tax Cuts and Jobs Act (“Tax Cuts Act”) that, among other provisions, has lowered the corporate tax rate from 35% to 21%. In addition to applying the new lower corporate tax rate in 2018 and thereafter to any taxable income we may have, the legislation affects the way we can use and carryforward net operating losses previously accumulated and results in a revaluation of deferred tax assets and liabilities recorded on our condensed consolidated balance sheet. The Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance regarding accounting for the income tax effects of the Tax Cuts Act, including the impact of the Tax Cuts Act on deferred tax assets and liabilities for financial statements issued in the reporting period that includes the enactment date of December 22, 2017. Given that our current deferred tax assets, with the exception of those representing certain refundable tax credits, are offset by a full valuation allowance, these changes had no net impact on our condensed consolidated balance sheet. However, if we become profitable, we will receive a reduced benefit from such deferred tax assets. |
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. |
Income (Loss) Per Share | Income (Loss) Per Share Basic income (loss) per share includes no dilution and is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. At November 30, 2019 and 2018, potential common shares of 1,600,000 related to our outstanding options were not included in the calculation of diluted loss per share as we recorded a loss. Had we reported net income for the three and six months ended November 30, 2019 and 2018, no shares of common stock would have been included in the calculation of diluted income per share using the treasury stock method. In connection with our acquisition of Crossflo, which became a part of PDSG, we issued 2,844,630 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 would have included the escrowed shares in the diluted income per share calculations if we reported net income. |
Intellectual Property Rights | Intellectual Property Rights PDS, our investment in affiliated company, has historically relied on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We have seven U.S., nine European, and three Japanese patents all of which expired between August 2009 and October 2016. These patents, while expired, may have certain retrospective statutory benefits that will fully diminish six years after the patent expiration dates. On November 4, 2019, we announced that the Supreme Court of the United States denied our petition for a writ of certiorari with respect to patent litigation previously before the United States Court of Appeals for the Federal Circuit that alleged infringement of the ‘336 patent against multiple defendants. Based on this decision, we have halted all licensing efforts as we evaluate the future direction of the Company. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, as amended ("ASC 842"), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. ASC 842 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASC 842 effective June 1, 2019 using a modified retrospective method and will not restate comparative periods. As permitted under the transition guidance, the Company will carry forward the assessment of whether its contracts contain or are leases, classification of its leases and remaining lease terms. Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements. We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-term disclosures include only those leases with a term greater than one month and less than twelve months. Short term leases are not recorded on the balance sheet and expense on short-term leases are recognized on a straight-line basis over the lease term. The Company elected the “practical expedient package” as permitted under ASC 842. Therefore, the Company has not reassessed whether any expired or existing contracts are, or contain, leases; the Company has not reassessed the lease classification for any expired or existing leases; and the company has not reassessed initial direct costs for any expired or existing leases. The Company currently leases office space on a month-to-month basis. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which removes, modifies, and adds various disclosure requirements on fair value measurements in Topic 820. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The Company does not expect a significant impact from adopting this update on its consolidated financial statements. |
Liquidity and Management's Plans | Liquidity and Management’s Plans The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. At November 30, 2019, the Company has an accumulated deficit of $61,982,387, and has incurred recurring losses and used significant amounts of cash in its operations. As of November 30, 2019, the Company had cash and cash equivalents and marketable securities of approximately $963,000 and working capital of approximately $805,000. Historically, we have been a licensing company and entered into a number of agreements to facilitate the pursuit of unlicensed users of our intellectual property. On November 4, 2019, we announced that the Supreme Court of the United States denied our petition for a writ of certiorari with respect to patent litigation previously before the United States Court of Appeals for the Federal Circuit that alleged infringement of the US 5,809,336 patent (the “‘336 patent”) against multiple defendants (see Note 6). Based on this decision, we have halted all licensing efforts as we evaluate the future direction of the Company as we do not have any potential sources of revenue and our joint venture, Phoenix Digital solutions, LLC (“PDS”) has not generated significant license revenues since September 2013. There are a number of uncertainties associated with our financial projections that could increase our projected expenses, which would further accelerate cash usage. Additionally, we do not expect to realize satisfactory cash from operations over the foreseeable future and we will be required to seek additional financing to continue our operations. We will also require additional financing to develop or acquire new lines of business. We have no current arrangements with respect to any additional financing. Consequently, there can be no assurance that any additional financing on commercially reasonable terms, or at all, will be available when needed. Further, any additional equity financing, if secured, may involve substantial dilution to our then existing stockholders. One opportunity we are evaluating is the potential of establishing a company that develops a data capturing platform that could be implemented throughout the drug development process utilizing blockchain technologies in collaboration with Artius Bioconsulting LLC (“Artius”), under an agreement signed on April 12, 2019. During the quarter ended November 30, 2019, Artius completed and submitted their feasibility report to us and we are currently evaluating next steps. However, there are no assurances that we will be successful in developing this blockchain based business. Further, in the event the next steps in the development of a blockchain-based business are undertaken, it is expected that significant additional funding from external sources will be required. If we are unable to develop or acquire new lines of business, such as those involving blockchain technologies, and/or we are unable to raise additional capital, we will be forced to liquidate the Company in a dissolution under Delaware law or seek protection under the provisions of the U.S. Bankruptcy Code. We currently anticipate, based on currently operations, that our cash on hand will not satisfy our operational and capital requirements through twelve months from the date of filing on this Form 10-Q. The above matters raise substantial doubt regarding our ability to continue as a going concern. |
2. Cash, Cash Equivalents, Re_2
2. Cash, Cash Equivalents, Restricted Cash (Tables) | 6 Months Ended |
Nov. 30, 2019 | |
Cash and Cash Equivalents [Abstract] | |
Schedule of fair value of cash, cash equivalents and investments in marketable securities | Fair Value Measurements at November 30, 2019 Using Fair Value at Quoted Prices Significant Other Observable Significant Cash and cash equivalents: Cash $ 112,949 $ 112,949 $ – $ – Certificates of deposit 850,000 – 850,000 – Restricted cash and cash equivalents 177,247 177,247 – – Total $ 1,140,196 $ 290,196 $ 850,000 $ – Fair Value Measurements at May 31, 2019 Using Fair Value at Quoted Prices Significant Other Significant Cash and cash equivalents: Cash $ 49,149 $ 49,149 $ – $ – Money market funds 237,937 237,937 – – Certificates of deposit 500,000 – 500,000 – Restricted cash and cash equivalents 198,843 198,843 – – Investments in marketable securities: Certificates of deposit 750,000 – 750,000 – Total $ 1,735,929 $ 485,929 $ 1,250,000 $ – |
Schedule of maturities, gross unrealized gains or losses and fair value of certificates of deposit | November 30, 2019 (Unaudited) Cost Gross Unrealized Gains/(Losses) Fair Maturity Due in three months or less $ 850,000 $ – $ 850,000 May 31, 2019 Cost Gross Unrealized Gains/(Losses) Fair Maturity Due in three months or less $ 500,000 $ – $ 500,000 Due in greater than three months 750,000 – 750,000 $ 1,250,000 $ – $ 1,250,000 |
3. Investment in Affiliated C_2
3. Investment in Affiliated Company (Tables) | 6 Months Ended |
Nov. 30, 2019 | |
Investments in and Advances to Affiliates, Schedule of Investments [Abstract] | |
Financial Statements of Affiliates | November 30, 2019 May 31, 2019 (Unaudited) Cash $ 69,084 $ 237,655 Total assets $ 69,084 $ 237,655 November 30, 2019 May 31, 2019 (Unaudited) Payables $ – $ 21,933 Members’ equity 69,084 215,722 Total liabilities and members’ equity $ 69,084 $ 237,655 Three Months Ended Six Months Ended November 30, 2019 November 30, 2018 November 30, 2019 November 30, 2018 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Expenses $ 58,013 $ 29,486 $ 146,638 $ 59,045 Net loss $ (58,013 ) $ (29,486 ) $ (146,638 ) $ (59,045 ) |
5. Stockholders' Equity (Tables
5. Stockholders' Equity (Tables) | 6 Months Ended |
Nov. 30, 2019 | |
Equity [Abstract] | |
Schedule of Stock Options Activity | Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Options outstanding at June 1, 2019 1,600,000 $ 0.03 Options granted – $ – Options exercised – $ – Options forfeited/expired – $ – Options outstanding at November 30, 2019 1,600,000 $ 0.03 0.43 $ – Options vested and expected to vest at November 30, 2019 1,600,000 $ 0.03 0.43 $ – Options exercisable at November 30, 2019 1,600,000 $ 0.03 0.43 $ – |
1. Basis of Presentation and _2
1. Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 6 Months Ended | ||
Nov. 30, 2019 | Nov. 30, 2018 | May 31, 2019 | |
Accumulated deficit | $ (61,982,387) | $ (61,126,025) | |
Cash, cash equivalents and marketable securities | 963,000 | ||
Working capital | $ 805,000 | ||
Crossflo [Member] | |||
Shares held in escrow | 2,844,630 | ||
Options [Member] | |||
Common shares not included in calculation of net earnings (loss) per share | 1,600,000 | 1,600,000 | |
PDS [Member] | |||
Percentage of investment in affiliated company | 50.00% |
2. Cash, Cash Equivalents, Re_3
2. Cash, Cash Equivalents, Restricted Cash (Details - Fair Value) - USD ($) | Nov. 30, 2019 | May 31, 2019 | Nov. 30, 2018 | May 31, 2018 |
Cash and cash equivalents: | ||||
Cash | $ 112,949 | $ 49,149 | ||
Money market funds | 237,937 | |||
Certificates of deposit | 850,000 | 500,000 | ||
Restricted cash and cash equivalents | 177,247 | 198,843 | $ 21,613 | |
Total | 1,140,196 | 985,929 | $ 1,894,787 | $ 2,319,449 |
Investments in marketable securities | ||||
Certificates of deposit | 750,000 | |||
Fair value of assets | 1,735,929 | |||
Fair Value Inputs Level 1 | ||||
Cash and cash equivalents: | ||||
Cash | 112,949 | 49,149 | ||
Money market funds | 237,937 | |||
Certificates of deposit | 0 | 0 | ||
Restricted cash and cash equivalents | 177,247 | 198,843 | ||
Total | 290,196 | |||
Investments in marketable securities | ||||
Certificates of deposit | 0 | |||
Fair value of assets | 485,929 | |||
Fair Value Inputs Level 2 | ||||
Cash and cash equivalents: | ||||
Cash | 0 | 0 | ||
Money market funds | 0 | |||
Certificates of deposit | 850,000 | 500,000 | ||
Restricted cash and cash equivalents | 0 | 0 | ||
Total | 850,000 | |||
Investments in marketable securities | ||||
Certificates of deposit | 750,000 | |||
Fair value of assets | 1,250,000 | |||
Fair Value Inputs Level 3 | ||||
Cash and cash equivalents: | ||||
Cash | 0 | 0 | ||
Money market funds | 0 | |||
Certificates of deposit | 0 | 0 | ||
Restricted cash and cash equivalents | 0 | 0 | ||
Total | $ 0 | |||
Investments in marketable securities | ||||
Certificates of deposit | 0 | |||
Fair value of assets | $ 0 |
2. Cash, Cash Equivalents, Re_4
2. Cash, Cash Equivalents, Restricted Cash (Details - Maturities) - USD ($) | Nov. 30, 2019 | May 31, 2019 |
Cost | $ 1,250,000 | |
Gross Unrealized Gains/(Losses) | 0 | |
Total fair value of investment | 1,250,000 | |
Due in three months or less | ||
Cost | $ 850,000 | 500,000 |
Gross Unrealized Gains/(Losses) | 0 | 0 |
Total fair value of investment | $ 850,000 | 500,000 |
Due in greater than three months [Member] | ||
Cost | 750,000 | |
Gross Unrealized Gains/(Losses) | 0 | |
Total fair value of investment | $ 750,000 |
3. Investment in Affiliated C_3
3. Investment in Affiliated Company (Details) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Nov. 30, 2019 | Nov. 30, 2018 | Nov. 30, 2019 | Nov. 30, 2018 | May 31, 2019 | |
Total assets | $ 69,084 | $ 69,084 | $ 237,655 | ||
Total liabilities and members' equity | 69,084 | 69,084 | 237,655 | ||
Provision for income taxes | 0 | $ 0 | 1,600 | $ 1,600 | |
Expenses [Member] | |||||
Total Expenses | 58,013 | 29,486 | 146,638 | 59,045 | |
Net Loss [Member] | |||||
Net loss | (58,013) | $ (29,486) | (146,638) | $ (59,045) | |
Cash [Member] | |||||
Total assets | 69,084 | 69,084 | 237,655 | ||
Payables [Member] | |||||
Total liabilities and members' equity | 0 | 0 | 21,933 | ||
Members equity [Member] | |||||
Total liabilities and members' equity | $ 69,084 | $ 69,084 | $ 215,722 |
3. Investment in Affiliated C_4
3. Investment in Affiliated Company (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Nov. 30, 2019 | Nov. 30, 2018 | Nov. 30, 2019 | Nov. 30, 2018 | May 31, 2019 | |
Investment in affiliated company | $ 34,542 | $ 34,542 | $ 107,861 | ||
Equity in loss of affiliated company | $ (29,007) | $ (14,743) | $ (73,319) | $ (29,523) | |
PDS [Member] | |||||
Equity interest percentage | 50.00% | 50.00% | |||
Capital contribution to entity | $ 0 | 0 | |||
Equity in loss of affiliated company | $ (29,007) | $ (14,743) | $ (73,319) | $ (29,523) | |
Holocom [Member] | |||||
Equity interest percentage | 46.00% | 46.00% | |||
Investment in affiliated company | $ 0 | $ 0 | $ 0 | ||
Holocom [Member] | Preferred Stock [Member] | |||||
Equity shares owned | 2,100,000 | 2,100,000 |
5. Stockholders' Equity (Detail
5. Stockholders' Equity (Details - Option activity) - Options [Member] | 6 Months Ended |
Nov. 30, 2019USD ($)$ / sharesshares | |
Number of Options | |
Number of Options Granted | shares | 0 |
Number of Options Exercised | shares | 0 |
Number of Options Forfeited/Expired | shares | 0 |
Number of Options Outstanding, Ending | shares | 1,600,000 |
Options vested and expected to vest, Ending | shares | 1,600,000 |
Number of Options Exercisable, Ending | shares | 1,600,000 |
Weighted Average Exercise Price | |
Weighted Average Exercise Price Granted | $ / shares | |
Weighted Average Exercise Price Exercised | $ / shares | |
Weighted Average Exercise Price Forfeited/Expired | $ / shares | |
Weighted Average Exercise Price Outstanding, Ending | $ / shares | 0.03 |
Weighted Average Exercise Price, Options vested and expected to vest, Ending | $ / shares | 0.03 |
Weighted Average Exercise Price Exercisable | $ / shares | $ 0.03 |
Weighted Average Remaining Contractual Life | |
Weighted Average Remaining Contractual Life (in years) Outstanding | 5 months 5 days |
Weighted Average Remaining Contractual Life (in years) Options vested and expected to vest | 5 months 5 days |
Weighted Average Remaining Contractual Life (in years) Exercisable | 5 months 5 days |
Aggregate Intrinsic Value | |
Aggregate Intrinsic Value Outstanding, Ending | $ | $ 0 |
Aggregate Intrinsic Value Options vested and expected to vest | $ | 0 |
Aggregate Intrinsic Value Exercisable | $ | $ 0 |
6. Commitments and Contingenc_2
6. Commitments and Contingencies (Details Narrative) - USD ($) | Nov. 30, 2019 | May 31, 2019 |
Accrued expenses and other | $ 423,942 | $ 219,344 |
Mr. Flowers Separation Agreement | ||
Accrued expenses and other | $ 246,698 |