Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Feb. 28, 2019 | Apr. 11, 2019 | |
Document And Entity Information | ||
Entity Registrant Name | PATRIOT SCIENTIFIC CORP | |
Entity Central Index Key | 0000836564 | |
Document Type | 10-Q | |
Document Period End Date | Feb. 28, 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 | Q3 | |
Document Fiscal Year Focus | 2019 | |
Entity Small Business | true | |
Entity Emerging Growth | false |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) | Feb. 28, 2019 | May 31, 2018 |
Current assets: | ||
Cash and cash equivalents | $ 1,766,161 | $ 2,297,890 |
Restricted cash | 198,887 | 21,559 |
Prepaid income tax | 2,285 | 2,285 |
Prepaid expenses and other current assets | 23,754 | 5,287 |
Total current assets | 1,991,087 | 2,327,021 |
Property and equipment, net | 937 | 1,303 |
Deferred income taxes | 52,156 | 52,156 |
Investment in affiliated company | 135,962 | 199,373 |
Total assets | 2,180,142 | 2,579,853 |
Current liabilities: | ||
Accounts payable | 7,902 | 44,744 |
Accrued expenses and other | 224,744 | 40,095 |
Income taxes payable | 1,600 | 0 |
Total current liabilities | 234,246 | 84,839 |
Total liabilities | 234,246 | 84,839 |
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 February 28, 2019 and May 31, 2018 | 4,382 | 4,382 |
Additional paid-in capital | 77,444,062 | 77,444,062 |
Accumulated deficit | (60,876,680) | (60,327,562) |
Common stock held in treasury, at cost - 36,849,670 shares at February 28, 2019 and May 31, 2018 | (14,625,868) | (14,625,868) |
Total stockholders' equity | 1,945,896 | 2,495,014 |
Total liabilities and stockholders' equity | $ 2,180,142 | $ 2,579,853 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Feb. 28, 2019 | May 31, 2018 |
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 (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | |
Operating expenses: | ||||
Selling, general and administrative | $ 158,623 | $ 274,004 | $ 506,029 | $ 811,487 |
Total operating expenses | 158,623 | 274,004 | 506,029 | 811,487 |
Other income (expense): | ||||
Interest income | 8,433 | 7,083 | 21,922 | 21,156 |
Other income | 0 | 3,094 | 0 | 3,094 |
Equity in loss of affiliated company | (33,888) | (44,742) | (63,411) | (162,634) |
Total other expense, net | (25,455) | (34,565) | (41,489) | (138,384) |
Loss before income taxes | (184,078) | (308,569) | (547,518) | (949,871) |
Provision for (benefit from) income taxes | 0 | (52,156) | 1,600 | (49,756) |
Net loss | $ (184,078) | $ (256,413) | $ (549,118) | $ (900,115) |
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 Shareholders Equity (Unaudited) - USD ($) | Common Stock | Additional Paid-In Capital | Retained Earnings / Accumulated Deficit | Treasury Stock | Total |
Beginning balance, shares at May. 31, 2017 | 401,392,948 | ||||
Beginning balance, value at May. 31, 2017 | $ 4,382 | $ 77,444,062 | $ (59,118,112) | $ (14,625,868) | $ 3,704,464 |
Net Loss | (292,666) | (292,666) | |||
Ending balance, shares at Aug. 31, 2017 | 401,392,948 | ||||
Ending balance, value at Aug. 31, 2017 | $ 4,382 | 77,444,062 | (59,410,778) | (14,625,868) | 3,411,798 |
Beginning balance, shares at May. 31, 2017 | 401,392,948 | ||||
Beginning balance, value at May. 31, 2017 | $ 4,382 | 77,444,062 | (59,118,112) | (14,625,868) | 3,704,464 |
Net Loss | (900,115) | ||||
Ending balance, shares at Feb. 28, 2018 | 401,392,948 | ||||
Ending balance, value at Feb. 28, 2018 | $ 4,382 | 77,444,062 | (60,018,227) | (14,625,868) | 2,804,349 |
Beginning balance, shares at Aug. 31, 2017 | 401,392,948 | ||||
Beginning balance, value at Aug. 31, 2017 | $ 4,382 | 77,444,062 | (59,410,778) | (14,625,868) | 3,411,798 |
Net Loss | (351,036) | (351,036) | |||
Ending balance, shares at Nov. 30, 2017 | 401,392,948 | ||||
Ending balance, value at Nov. 30, 2017 | $ 4,382 | 77,444,062 | (59,761,814) | (14,625,868) | 3,060,762 |
Net Loss | (256,413) | (256,413) | |||
Ending balance, shares at Feb. 28, 2018 | 401,392,948 | ||||
Ending balance, value at Feb. 28, 2018 | $ 4,382 | 77,444,062 | (60,018,227) | (14,625,868) | 2,804,349 |
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 | (212,918) | (212,918) | |||
Ending balance, shares at Aug. 31, 2018 | 401,392,948 | ||||
Ending balance, value at Aug. 31, 2018 | $ 4,382 | 77,444,062 | (60,540,480) | (14,625,868) | 2,282,096 |
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 | (549,118) | ||||
Ending balance, shares at Feb. 28, 2019 | 401,392,948 | ||||
Ending balance, value at Feb. 28, 2019 | $ 4,382 | 77,444,062 | (60,876,680) | (14,625,868) | 1,945,896 |
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 |
Net Loss | (184,078) | (184,078) | |||
Ending balance, shares at Feb. 28, 2019 | 401,392,948 | ||||
Ending balance, value at Feb. 28, 2019 | $ 4,382 | $ 77,444,062 | $ (60,876,680) | $ (14,625,868) | $ 1,945,896 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
Feb. 28, 2019 | Feb. 28, 2018 | |
Operating activities: | ||
Net loss | $ (549,118) | $ (900,115) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation | 366 | 641 |
Accrued interest income | 0 | 27 |
Equity in loss of affiliated company | 63,411 | 162,634 |
Loss on disposal of property and equipment | 0 | 1,276 |
Deferred Income Taxes | 0 | (52,156) |
Changes in operating assets and liabilities: | ||
Prepaid expenses and other current assets | (18,467) | 72,781 |
Income taxes payable | 1,600 | 0 |
Accounts payable, accrued expenses, and other | (29,439) | 44,094 |
Net cash used in operating activities | (531,647) | (670,818) |
Investing activities: | ||
Proceeds from sales of marketable securities | 0 | 4,200,000 |
Purchases of marketable securities | 0 | (2,700,000) |
Purchase of property and equipment | 0 | (1,465) |
Crossflo acquisition liability | 177,246 | 0 |
Net cash used in investing activities | 177,246 | 1,498,535 |
Net increase (decrease) in cash, cash equivalents and restricted cash | (354,401) | 827,717 |
Cash, cash equivalents and restricted cash, beginning of period | 2,319,449 | 1,001,084 |
Cash, cash equivalents and restricted cash, end of period | 1,965,048 | 1,828,801 |
Supplemental Disclosure of Cash Flow Information: | ||
Cash paid for income taxes | $ 0 | $ 2,400 |
Reconciliation of Cash, Cash Eq
Reconciliation of Cash, Cash Equivalents, and Restricted Cash and Cash - USD ($) | Feb. 28, 2019 | May 31, 2018 | Feb. 28, 2018 | May 31, 2017 |
Reconciliation of cash, cash equivalents and restricted cash | ||||
Cash and Cash Equivalents | $ 1,766,161 | $ 2,297,890 | $ 1,807,277 | |
Restricted Cash | 198,887 | 21,559 | 21,524 | $ 21,443 |
Total cash, cash equivalents and restricted cash | $ 1,965,048 | $ 2,319,449 | $ 1,828,801 | $ 1,001,084 |
1. Basis of Presentation and Su
1. Basis of Presentation and Summary of Significant Accounting Policies | 9 Months Ended |
Feb. 28, 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, 2018. 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 periods presented. Operating results for the nine month period ended February 28, 2019 are not necessarily indicative of the results that may be expected for the year ending May 31, 2019. Basis of Consolidation The condensed consolidated balance sheets at February 28, 2019 and May 31, 2018 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, condensed consolidated statements of cash flows, and condensed consolidated statements of stockholders’ equity for the nine months ended February 28, 2019 include our accounts and those of our inactive subsidiary PDSG. The condensed consolidated statements of operations, condensed consolidated statements of cash flows and condensed consolidated statements of stockholders’ equity for the nine months ended February 28, 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. Reclassifications Certain amounts reported in prior year’s financial statements have been reclassified to conform to the current year’s presentation. Liquidity and Management’s Plans Cash shortfalls currently experienced by our joint venture Phoenix Digital Solutions (“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 may be required. PDS had been incurring significant third-party costs for legal fees, 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 are expected to provide the funds necessary to support our operations through at least the next twelve months from the date of this report. 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 position. In the event we are required to provide funding to PDS that is not reciprocated by our joint venture partner Technology Properties Limited (“TPL”), our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our consolidated financial statements. Investment in Affiliated Companies We have a 50% interest in PDS (see Note 3). We account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and is recognized in the consolidated statements of operations in the caption “Equity in earnings (loss) of affiliated company” and also is adjusted by contributions to and distributions from PDS. PDS, as an unconsolidated equity investee, recognizes revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of revenue is assured which is generally upon the receipt of the license proceeds. PDS may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones are met. We review our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near term prospects of PDS. If 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). We determined that our investment in Holocom was impaired in 2010. 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. Earnings (Loss) Per Share Basic earnings per share 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 reflect the potential dilution of securities that could share in the earnings of an entity. At February 28, 2019 and 2018, potential common shares of 1,600,000 and 2,600,000, respectively, 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 nine months ended February 28, 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 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 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 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 will have 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, relies 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. 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 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The issue addressed in ASU 2016-15 that will affect the Company is classifying distributions received from equity method investments. The guidance provides an accounting policy election for classifying distributions received from equity method investments using either a cumulative earnings approach or a nature of distributions approach. The Company adopted this standard on June 1, 2018. The adoption did not have a material effect on our condensed consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard on June 1, 2018 by using the retrospective transition method, which required the following disclosures and changes to the presentation of its condensed consolidated financial statements: cash, cash equivalents and restricted cash reported on the condensed consolidated statements of cash flows now includes restricted cash of $21,443, $21,524 and $21,559 as of May 31, 2017, February 28, 2018 and May 31, 2018, respectively, as well as previously reported cash and cash equivalents. The Tax Cuts Act, 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. SAB 118 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 will have 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. |
2. Cash, Cash Equivalents and R
2. Cash, Cash Equivalents and Restricted Cash | 9 Months Ended |
Feb. 28, 2019 | |
Cash and Cash Equivalents [Abstract] | |
Cash, Cash Equivalents and Restricted Cash | 2. Cash, Cash Equivalents and Restricted Cash We purchase certificates of deposit with varying maturity dates. We consider all highly liquid investments acquired with a maturity of three months or less from the purchase date to be cash equivalents. Restricted cash at February 28, 2019 and May 31, 2018 consist of a savings account held as collateral for our corporate credit card account. In addition, at February 28, 2019, restricted cash includes amounts previously held by a third party in conjunction with the Company’s acquisition of Crossflo. A corresponding amount has been recorded as a current liability at February 28, 2019. Under 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 restricted cash and cash equivalents: Fair Value Measurements at February 28, 2019 Using Fair Value at February 28, Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Cash and cash equivalents: Cash $ 53,051 $ 53,051 $ – $ – Money market funds 713,110 713,110 – – Certificates of deposit 1,000,000 – 1,000,000 – Restricted cash 198,887 198,887 – – Total $ 1,965,048 $ 965,048 $ 1,000,000 $ – Fair Value Measurements at May 31, 2018 Using Fair Value at May 31, Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Cash and cash equivalents: Cash $ 31,622 $ 31,622 $ – $ – Money market funds 1,265,505 1,265,505 – – Certificates of deposit 1,000,763 – 1,000,763 – Restricted cash 21,559 21,559 – – Total $ 2,319,449 $ 1,318,686 $ 1,000,763 $ – |
3. Investment in Affiliated Com
3. Investment in Affiliated Company | 9 Months Ended |
Feb. 28, 2019 | |
Equity Method Investments and Joint Ventures [Abstract] | |
Investment in Affiliated Company | 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 nine months ended February 28, 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 nine months ended February 28, 2019 of $33,888 and $63,411, respectively, and $44,742 and $162,634 for the three and nine months ended February 28, 2018, respectively, as a decrease in our investment as “Equity in loss of affiliated company” in the accompanying condensed consolidated statements of operations. 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 February 28, 2019 and May 31, 2018 and statements of operations for the three and nine months ended February 28, 2019 and 2018 are as follows: Balance Sheets Assets: February 28, 2019 May 31, 2018 (Unaudited) Cash $ 279,692 $ 351,746 Prepaid expenses 19,439 48,825 Total assets $ 299,131 $ 400,571 Liabilities and Members’ Equity: February 28, 2019 May 31, 2018 (Unaudited) Payables $ 27,209 $ 1,826 Members’ equity 271,922 398,745 Total liabilities and members’ equity $ 299,131 $ 400,571 Statements of Operations Three Months Ended Nine months Ended February 28, 2019 February 28, 2018 February 28, 2019 February 28, 2018 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Expenses $ 67,778 $ 89,484 $ 126,823 $ 319,269 Loss before provision for income taxes (67,778 ) (89,484 ) (126,823 ) (319,269 ) Provision for income taxes – – – 6,000 Net loss $ (67,778 ) $ (89,484 ) $ (126,823 ) $ (325,269 ) 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 February 28, 2019 and May 31, 2018 our investment in Holocom was valued at $0. |
4. Income Taxes
4. Income Taxes | 9 Months Ended |
Feb. 28, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | 4 . Income Taxes On December 22, 2017, the United States Government passed new tax legislation that, among other provisions, 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 consolidated balance sheet. 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 will have no net impact on our condensed consolidated balance sheet. However, if we become profitable, we will receive a reduced benefit from such deferred taxes. |
5. Stockholders' Equity
5. Stockholders' Equity | 9 Months Ended |
Feb. 28, 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 February 28, 2019 and changes during the nine months then ended, is presented below: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Options outstanding at June 1, 2018 2,600,000 $ 0.06 Options granted – $ – Options exercised – $ – Options forfeited/expired (1,000,000 ) $ 0.10 Options outstanding at February 28, 2019 1,600,000 $ 0.03 1.17 $ – Options vested and expected to vest at February 28, 2019 1,600,000 $ 0.03 1.17 $ – Options exercisable at February 28, 2019 1,600,000 $ 0.03 1.17 $ – The aggregate intrinsic value represents the differences in market price at the close of the quarter ($0.003 per share on February 28, 2019) and the exercise price of outstanding, in-the-money options (those options with exercise prices below $0.003 per share) on February 28, 2019. |
6. Commitments and Contingencie
6. Commitments and Contingencies | 9 Months Ended |
Feb. 28, 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 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 (collectively referred to as the “Defendants”). This litigation is proceeding in front of District Court Judge Vince Chhabria. 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. 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. 401(k) Plan On March 29, 2018, we terminated our Section 401(k) plan pursuant to a plan to reduce corporate expenses. Our retirement plan complied with Section 401(k) of the Internal Revenue Code and all employees were eligible to participate in the plan. We matched 100% of elective deferrals subject to a maximum of 4% of the participant’s eligible earnings. Our participants vested 33% per year over a three year period in their matching. Our matching contributions during the three and nine months ended February 28, 2018 were $3,325 and $13,380, 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. The duration of the guarantees and indemnities varies, and in many cases is indefinite. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments we could be obligated to make. Historically, we have not been obligated to make any payments for these obligations and no liabilities have been recorded for these guarantees and indemnities in the accompanying condensed consolidated balance sheets. Escrow Shares On August 31, 2009 we gave notice to the former shareholders of Crossflo and Union Bank of California (the “Escrow Agent”) under Section 2.5 of the Agreement and Plan of Merger between us and Crossflo (the “Agreement”), outlining damages incurred by us in conjunction with the acquisition of Crossflo, and seeking the return of 2,844,630 shares of our common stock held by the Escrow Agent. Subsequently, former shareholders of Crossflo representing a majority of the escrowed shares responded in protest to our claim, delaying the release of the escrowed shares until a formal resolution is reached. In the event we fail to prevail in our claim against the escrowed shares, we may be obligated to deposit into escrow approximately $256,000 of cash consideration due to the decline in our average stock price over the one year escrow period, calculated in accordance with the Section 2.5 of the Agreement. We have evaluated the potential for loss regarding our claim and believe that it is probable that the resolution of this issue will not result in a material obligation to the Company, although there is no assurance of this. Accordingly, we have not recorded a liability for this matter. |
7. Subsequent Events
7. Subsequent Events | 9 Months Ended |
Feb. 28, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | 7. Subsequent Events On April 12, 2019, Patriot Scientific Corporation (the “Company”) retained Artius Bioconsulting, a California limited liability company (“Artius”), to evaluate the potential of establishing a systems integration company that develops a technology platform based on blockchain technology that could be implemented throughout the drug development process (the “Project”) pursuant to a Consulting Agreement between the Company and Artius effective as of April 12, 2019 (the “ Artius Agreement”). Pursuant to the Artius Agreement, Artius will research, analyze and report its findings with respect to the Project in exchange for $151,000, payable in installments upon the completion of certain deliverables to the Company. The deliverables are due at various times over the course of eight weeks. The Company will own the Work Product (as defined in the Artius Agreement). The Artius Agreement has a term of four months, unless terminated earlier pursuant to its terms. |
1. Summary of Significant Accou
1. Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Feb. 28, 2019 | |
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, 2018. 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 periods presented. Operating results for the nine month period ended February 28, 2019 are not necessarily indicative of the results that may be expected for the year ending May 31, 2019. |
Basis of Consolidation | Basis of Consolidation The condensed consolidated balance sheets at February 28, 2019 and May 31, 2018 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, condensed consolidated statements of cash flows, and condensed consolidated statements of stockholders’ equity for the nine months ended February 28, 2019 include our accounts and those of our inactive subsidiary PDSG. The condensed consolidated statements of operations, condensed consolidated statements of cash flows and condensed consolidated statements of stockholders’ equity for the nine months ended February 28, 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. |
Reclassifications | Reclassifications Certain amounts reported in prior year’s financial statements have been reclassified to conform to the current year’s presentation. |
Liquidity and Management's Plans | Liquidity and Management’s Plans Cash shortfalls currently experienced by our joint venture Phoenix Digital Solutions (“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 may be required. PDS had been incurring significant third-party costs for legal fees, 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 are expected to provide the funds necessary to support our operations through at least the next twelve months from the date of this report. 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 position. In the event we are required to provide funding to PDS that is not reciprocated by our joint venture partner Technology Properties Limited (“TPL”), our ownership percentage in PDS will increase and we will have a controlling financial interest in PDS, in which case, we will consolidate PDS in our consolidated financial statements. |
Investment in Affiliated Companies | Investment in Affiliated Companies We have a 50% interest in PDS (see Note 3). We account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and is recognized in the consolidated statements of operations in the caption “Equity in earnings (loss) of affiliated company” and also is adjusted by contributions to and distributions from PDS. PDS, as an unconsolidated equity investee, recognizes revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of revenue is assured which is generally upon the receipt of the license proceeds. PDS may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones are met. We review our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near term prospects of PDS. If 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). We determined that our investment in Holocom was impaired in 2010. 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. |
Earnings (Loss) Per Share | Earnings (Loss) Per Share Basic earnings per share 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 reflect the potential dilution of securities that could share in the earnings of an entity. At February 28, 2019 and 2018, potential common shares of 1,600,000 and 2,600,000, respectively, 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 nine months ended February 28, 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 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 would have included the escrowed shares in the diluted income per share calculations if we reported net income. |
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 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 will have 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. |
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 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. 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 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The issue addressed in ASU 2016-15 that will affect the Company is classifying distributions received from equity method investments. The guidance provides an accounting policy election for classifying distributions received from equity method investments using either a cumulative earnings approach or a nature of distributions approach. The Company adopted this standard on June 1, 2018. The adoption did not have a material effect on our condensed consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard on June 1, 2018 by using the retrospective transition method, which required the following disclosures and changes to the presentation of its condensed consolidated financial statements: cash, cash equivalents, and restricted cash and cash equivalents reported on the condensed consolidated statements of cash flows now includes restricted cash and cash equivalents of $21,443, $21,524 and $21,559 as of May 31, 2017, February 28, 2018 and May 31, 2018, respectively, as well as previously reported cash and cash equivalents. The Tax Cuts Act, 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. SAB 118 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 will have 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. |
2. Cash, Cash Equivalents, Rest
2. Cash, Cash Equivalents, Restricted Cash and Marketable Securities (Tables) | 9 Months Ended |
Feb. 28, 2019 | |
Cash and Cash Equivalents [Abstract] | |
Schedule of fair value of cash, cash equivalents and investments in marketable securities | Fair Value Measurements at February 28, 2019 Using Fair Value at February 28, Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Cash and cash equivalents: Cash $ 53,051 $ 53,051 $ – $ – Money market funds 713,110 713,110 – – Certificates of deposit 1,000,000 – 1,000,000 – Restricted cash 198,887 198,887 – – Total $ 1,965,048 $ 965,048 $ 1,000,000 $ – Fair Value Measurements at May 31, 2018 Using Fair Value at May 31, Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Cash and cash equivalents: Cash $ 31,622 $ 31,622 $ – $ – Money market funds 1,265,505 1,265,505 – – Certificates of deposit 1,000,763 – 1,000,763 – Restricted cash 21,559 21,559 – – Total $ 2,319,449 $ 1,318,686 $ 1,000,763 $ – |
3. Investment in Affiliated C_2
3. Investment in Affiliated Company (Tables) | 9 Months Ended |
Feb. 28, 2019 | |
Equity Method Investments and Joint Ventures [Abstract] | |
Financial statements of affiliates | Balance Sheets Assets: February 28, 2019 May 31, 2018 (Unaudited) Cash $ 279,692 $ 351,746 Prepaid expenses 19,439 48,825 Total assets $ 299,131 $ 400,571 Liabilities and Members’ Equity: February 28, 2019 May 31, 2018 (Unaudited) Payables $ 27,209 $ 1,826 Members’ equity 271,922 398,745 Total liabilities and members’ equity $ 299,131 $ 400,571 Statements of Operations Three Months Ended Nine months Ended February 28, 2019 February 28, 2018 February 28, 2019 February 28, 2018 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Expenses $ 67,778 $ 89,484 $ 126,823 $ 319,269 Loss before provision for income taxes (67,778 ) (89,484 ) (126,823 ) (319,269 ) Provision for income taxes – – – 6,000 Net loss $ (67,778 ) $ (89,484 ) $ (126,823 ) $ (325,269 ) |
5. Stockholders' Equity (Tables
5. Stockholders' Equity (Tables) | 9 Months Ended |
Feb. 28, 2019 | |
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, 2018 2,600,000 $ 0.06 Options granted – $ – Options exercised – $ – Options forfeited/expired (1,000,000 ) $ 0.10 Options outstanding at February 28, 2019 1,600,000 $ 0.03 1.17 $ – Options vested and expected to vest at February 28, 2019 1,600,000 $ 0.03 1.17 $ – Options exercisable at February 28, 2019 1,600,000 $ 0.03 1.17 $ – |
1. Basis of Presentation and _2
1. Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 9 Months Ended | |||
Feb. 28, 2019 | Feb. 28, 2018 | May 31, 2018 | May 31, 2017 | |
Restricted cash and cash equivalents | $ 198,887 | $ 21,524 | $ 21,559 | $ 21,443 |
Options [Member] | ||||
Common shares not included in calculation of diluted net income and loss per share | 1,600,000 | 2,600,000 | ||
PDS [Member] | ||||
Ownership interest | 50.00% |
2. Cash, Cash Equivalents and_2
2. Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) | Feb. 28, 2019 | May 31, 2018 | Feb. 28, 2018 | May 31, 2017 |
Cash and cash equivalents: | ||||
Cash | $ 53,051 | $ 31,622 | ||
Money market funds | 713,110 | 1,265,505 | ||
Certificates of deposit | 1,000,000 | 1,000,763 | ||
Restricted cash and cash equivalents | 198,887 | 21,559 | $ 21,524 | $ 21,443 |
Total | 1,965,048 | 2,319,449 | ||
Fair Value Inputs Level 1 [Member] | ||||
Cash and cash equivalents: | ||||
Cash | 53,051 | 31,622 | ||
Money market funds | 713,110 | 1,265,505 | ||
Certificates of deposit | 0 | 0 | ||
Restricted cash and cash equivalents | 198,887 | 21,559 | ||
Total | 865,048 | 1,318,686 | ||
Fair Value Inputs Level 2 [Member] | ||||
Cash and cash equivalents: | ||||
Cash | 0 | 0 | ||
Money market funds | 0 | 0 | ||
Certificates of deposit | 1,000,000 | 1,000,763 | ||
Restricted cash and cash equivalents | 0 | 0 | ||
Total | 1,000,000 | 1,000,763 | ||
Fair Value Inputs Level 3 [Member] | ||||
Cash and cash equivalents: | ||||
Cash | 0 | 0 | ||
Money market funds | 0 | 0 | ||
Certificates of deposit | 0 | 0 | ||
Restricted cash and cash equivalents | 0 | 0 | ||
Total | $ 0 | $ 0 |
3. Investment in Affiliated C_3
3. Investment in Affiliated Company (Details - balance sheet) - USD ($) | Feb. 28, 2019 | May 31, 2018 |
Total assets | $ 299,131 | $ 400,571 |
Total liabilities and members' equity | 299,131 | 400,571 |
Cash [Member] | ||
Total assets | 279,692 | 351,746 |
Prepaid Expenses [Member] | ||
Total assets | 19,439 | 48,825 |
Payables [Member] | ||
Total liabilities and members' equity | 27,209 | 1,826 |
Members equity [Member] | ||
Total liabilities and members' equity | $ 271,922 | $ 398,745 |
3. Investment in Affiliated C_4
3. Investment in Affiliated Company (Details - Statement of Operations) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | |
Equity Method Investments and Joint Ventures [Abstract] | ||||
Expenses | $ 67,778 | $ 89,484 | $ 126,823 | $ 319,269 |
Loss before provision for income taxes | (67,778) | (89,484) | (126,823) | (319,269) |
Provision for income taxes | 0 | 0 | 0 | 6,000 |
Net loss | $ (67,778) | $ (89,484) | $ (126,823) | $ (325,269) |
3. Investment in Affiliated C_5
3. Investment in Affiliated Company (Details Narrative PDS) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | May 31, 2018 | |
Contributions to working capital | $ 0 | $ 0 | |||
Net loss from PDS | $ (33,888) | $ (44,742) | $ (63,411) | $ (162,634) | |
Holocom Inc [Member] | |||||
Ownership interest | 46.00% | 46.00% | |||
Preferred Stock owned | 2,100,000 | 2,100,000 | |||
Investment in Holocom | $ 0 | $ 0 | $ 0 |
4. Income Taxes (Details Narrat
4. Income Taxes (Details Narrative) | 9 Months Ended |
Feb. 28, 2019 | |
Income Tax Disclosure [Abstract] | |
Effective income tax rate | 21.00% |
5. Stockholders' Equity (Detail
5. Stockholders' Equity (Details - Option activity) - Options [Member] | 9 Months Ended |
Feb. 28, 2019USD ($)$ / sharesshares | |
Number of Options Outstanding, Beginning | shares | 2,600,000 |
Number of Options Granted | shares | 0 |
Number of Options Exercised | shares | 0 |
Number of Options Forfeited | shares | (1,000,000) |
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 Outstanding, Beginning | $ / shares | $ .06 |
Weighted Average Exercise Price Granted | $ / shares | |
Weighted Average Exercise Price Exercised | $ / shares | |
Weighted Average Exercise Price Forfeited | $ / shares | 0.10 |
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 (in years) Outstanding | 1 year 2 months 1 day |
Weighted Average Remaining Contractual Life (in years) Options vested and expected to vest | 1 year 2 months 1 day |
Weighted Average Remaining Contractual Life (in years) Exercisable | 1 year 2 months 1 day |
Aggregate Intrinsic Value Outstanding | $ | $ 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 ($) | 3 Months Ended | 9 Months Ended |
Feb. 28, 2018 | Feb. 28, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Patriot's matching contributions to the 401K plan | $ 3,325 | $ 13,380 |