0001683168-20-000123.txt : 20200114 0001683168-20-000123.hdr.sgml : 20200114 20200114093510 ACCESSION NUMBER: 0001683168-20-000123 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 39 CONFORMED PERIOD OF REPORT: 20191130 FILED AS OF DATE: 20200114 DATE AS OF CHANGE: 20200114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATRIOT SCIENTIFIC CORP CENTRAL INDEX KEY: 0000836564 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 841070278 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22182 FILM NUMBER: 20525111 BUSINESS ADDRESS: STREET 1: 2038 CORTE DEL NOGAL, SUITE 141 CITY: CARLSBAD STATE: CA ZIP: 92011-1478 BUSINESS PHONE: 760-795-8517 MAIL ADDRESS: STREET 1: 2038 CORTE DEL NOGAL, SUITE 141 CITY: CARLSBAD STATE: CA ZIP: 92011-1478 FORMER COMPANY: FORMER CONFORMED NAME: PATRIOT FINANCIAL CORP DATE OF NAME CHANGE: 19920521 10-Q 1 patriot_10q-11302019.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2019

[_]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to _______________

Commission File Number 0-22182

PATRIOT SCIENTIFIC CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

84-1070278

(I.R.S. Employer Identification No.)

2038 Corte Del Nogal, Suite 141, Carlsbad, California

(Address of principal executive offices)

92011

(Zip Code)

(Registrant’s telephone number, including area code): (760) 795-8517

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
None		None		None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X ] NO [_]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES [X] NO [_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]	Accelerated filer [_]
Non-accelerated filer [_]	Smaller reporting company [X]
Emerging growth company [_]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [_] NO [X]

On January 13, 2020, 401,392,948 shares of common stock, par value $0.00001 per share were outstanding.

INDEX

	Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements	3
Condensed consolidated Balance Sheets as of November 30, 2019 (unaudited) and May 31, 2019	3
Condensed consolidated Statements of Operations for the three and six months ended November 30, 2019 and November 30, 2018 (unaudited)	4
Condensed consolidated Statements of Cash Flows for the six months ended November 30, 2019 and November 30, 2018 (unaudited)	5
Condensed consolidated Statements of Stockholders’ Equity for the three and six months ended November 30, 2019 and November 30, 2018 (unaudited)	6
Notes to condensed consolidated Financial Statements (unaudited)	7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	25
ITEM 4. Controls and Procedures	25
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings	26
ITEM 1A. Risk Factors	26
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	28
ITEM 3. Defaults Upon Senior Securities	28
ITEM 4. Mine Safety Disclosures	28
ITEM 5. Other Information	28
ITEM 6. Exhibits	29

SIGNATURES	30

PART I- FINANCIAL INFORMATION

Item 1. Financial Statements

Patriot Scientific Corporation

Condensed Consolidated Balance Sheets

	November 30, 2019			May 31, 2019
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	962,949		$	787,086
Restricted cash and cash equivalents		177,247			198,843
Investments in marketable securities		–			750,000
Prepaid expenses and other current assets		54,274			28,003
Deferred tax assets		52,156			–
Total current assets		1,246,626			1,763,932

Property and equipment, net		570			814
Deferred income taxes		–			52,156
Investment in affiliated company		34,542			107,861
Total assets	$	1,281,738		$	1,924,763

LIABILITIES AND STOCKHOLDERS’ EQUITY
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		–			–
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

See accompanying notes to unaudited condensed consolidated financial statements

Patriot Scientific Corporation

Condensed Consolidated Statements of Operations

(Unaudited)

	Three months ended						Six months ended
	November 30, 2019			November 30, 2018			November 30, 2019			November 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		–			–			1,600			1,600

Net loss	$	(513,104	)	$	(152,122	)	$	(856,362	)	$	(365,040	)

Basic and diluted loss per common share	$	–		$	–		$	–		$	–

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

See accompanying notes to unaudited condensed consolidated financial statements

Patriot Scientific Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended
	November 30, 2019			November 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		–			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			–
Purchases of marketable securities		(250,000	)		–
Net cash provided by investing activities		750,000			–

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 and cash equivalents, end of period	$	1,140,196		$	1,894,787

Reconciliation of cash, cash equivalents, and restricted cash and cash equivalents at end of period:
Cash and cash equivalents	$	962,949		$	1,873,174
Restricted cash and cash equivalents		177,247			21,613
	$	1,140,196		$	1,894,787
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes	$	1,600		$	–

See accompanying notes to unaudited condensed consolidated financial statements.

Patriot Scientific Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

For the three months ended November 30, 2019

	Common Stock				Additional Paid-in		Accumulated			Treasury			Total Stockholders’
	Shares		Amounts		Capital		Deficit			Stock			Equity
Balance, August 31, 2019		401,392,948	$	4,382	$	77,444,062	$	(61,469,283	)	$	(14,625,868	)	$	1,353,293
Net loss		–		–		–		(513,104	)		–			(513,104	)
Balance, November 30, 2019		401,392,948	$	4,382	$	77,444,062	$	(61,982,387	)	$	(14,625,868	)	$	840,189

For the three months ended November 30, 2018

	Common Stock				Additional Paid-in		Accumulated			Treasury			Total Stockholders’
	Shares		Amounts		Capital		Deficit			Stock			Equity
Balance, August 31, 2018		401,392,948	$	4,382	$	77,444,062	$	(60,540,480	)	$	(14,625,868	)	$	2,282,096
Net loss		–		–		–		(152,122	)		–			(152,122	)
Balance, November 30, 2018		401,392,948	$	4,382	$	77,444,062	$	(60,692,602	)	$	(14,625,868	)	$	2,129,974

For the six months ended November 30, 2019

	Common Stock				Additional Paid-in		Accumulated			Treasury			Total Stockholders’
	Shares		Amounts		Capital		Deficit			Stock			Equity
Balance, May 31, 2019		401,392,948	$	4,382	$	77,444,062	$	(61,126,025	)	$	(14,625,868	)	$	1,696,551
Net loss		–		–		–		(856,362	)		–			(856,362	)
Balance, November 30, 2019		401,392,948	$	4,382	$	77,444,062	$	(61,982,387	)	$	(14,625,868	)	$	840,189

For the six months ended November 30, 2018

	Common Stock				Additional Paid-in		Accumulated			Treasury			Total Stockholders’
	Shares		Amounts		Capital		Deficit			Stock			Equity
Balance, May 31, 2018		401,392,948	$	4,382	$	77,444,062	$	(60,327,562	)	$	(14,625,868	)	$	2,495,014
Net loss		–		–		–		(365,040	)		–			(365,040	)
Balance, November 30, 2018		401,392,948	$	4,382	$	77,444,062	$	(60,692,602	)	$	(14,625,868	)	$	2,129,974

See accompanying notes to unaudited condensed consolidated financial statements.

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

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.

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

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.

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

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.

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

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.

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

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 November 30, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

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	$	–

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

			Fair Value Measurements at May 31, 2019 Using
	Fair Value at May 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

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 Value
Maturity
Due in three months or less	$	850,000	$	–	$	850,000

	May 31, 2019
	Cost		Gross Unrealized Gains/(Losses)		Fair Value
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

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

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.

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

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

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

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

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

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.

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

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.

Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

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 in the accompanying unaudited condensed consolidated financial statements. There were no known disagreements with Mr. Flowers regarding our operations, policies or practices. The Board appointed Carlton M. Johnson to assume all management roles on an interim basis.

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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes certain statements constituting “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, including statements concerning our beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, operations, future results and prospects, and we rely on the “safe harbor” provisions in those laws. We are including this statement for the express purpose of availing ourselves of the protections of such safe harbors with respect to all such forward-looking statements. The forward-looking statements in this report reflect our current views with respect to future events and financial performance. In this report, the words “anticipates,” “believes,” “expects,” “intends,” “future,” “estimates,” “may,” “could,” “should,” “would,” “will,” “shall,” “propose,” “continue,” “predict,” “plan” and similar expressions are generally intended to identify certain of the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. Any forward-looking statement is not a guarantee of future performance.

These forward-looking statements are subject to certain risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors, including, but not limited to those discussed under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended May 31, 2019 and in Part II, Item 1A of this Quarterly Report on Form 10-Q. Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the SEC. You should read this report completely with the understanding that our actual results may differ materially from what we expect. Unless required by law, we undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.

Overview

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 ‘336 patent against multiple defendants (see Footnote 6, Commitments and Contingencies, in the accompanying unaudited condensed consolidated financial statements). 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, PDS, has not generated significant license revenues since September 2013.

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.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and judgments that significantly affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates, and such differences could affect the results of operations reported in future periods. We believe the following critical accounting policies affect our most significant estimates and judgments used in the preparation of our condensed consolidated financial statements.

1. Investments in Marketable Securities

We classify our investments in marketable securities in certificates of deposit at the time of purchase as held-to-maturity and reevaluate such classifications at each balance sheet date. Held-to-maturity investments consist of securities that we have the intent and ability to retain until maturity. These securities are recorded at cost and adjusted for the amortization of premiums and discounts, which approximates fair value. Cash inflows and outflows related to the sale and purchase of investments are classified as investing activities in our condensed consolidated statements of cash flows.

2. Investment in Affiliated Companies

PDS, as an unconsolidated equity investee, recognizes revenue from technology license agreements at the time a contract is entered into, the license method is determined (paid-in-advance or on-going royalty), performance obligations under the license agreement are satisfied, and the realization of revenue is assured, which is generally upon the receipt of the license proceeds. PDS may at times enter into license agreements whereby contingent revenues are recognized as one or more contractual milestones are met.

We review our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors we consider in our determination are the financial condition, operating performance and near term prospects of PDS. If a decline in value is deemed to be other than temporary, we would recognize an impairment loss.

We own 100% of the preferred stock of Holocom. Prior to impairment, this investment was accounted for at cost since we did not have the ability to exercise significant influence over the operating and financial policies of Holocom.

3. 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.

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 condensed 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 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.

4. Assessment of Contingent Liabilities

Results of Operations

Comparison of the Three Months Ended November 30, 2019 and the Three Months Ended November 30, 2018.

	Three months ended
	November 30, 2019		November 30, 2018

Selling, general and administrative	$	487,440	$	143,925

Selling, general and administrative expenses increased approximately $344,000 from approximately $144,000 for the three months ended November 30, 2018 to approximately $487,000 for the three months ended November 30, 2019. The increase consisted primarily of approximately $321,000 in higher compensation expense mostly pertaining to severance amounts for Mr. Flowers. Effective September 30, 2019, Mr. Flowers resigned and Mr. Flowers and the Company signed a Separation Agreement and General Release of all Claims (“Separation Agreement”). Pursuant to the Separation Agreement, Mr. Flowers 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. This increase was supplemented by increases in legal fees and feasibility costs of Artius, partially offset by approximately $21,000 in reduced board fees due to a board member volunteering to cease taking board fees.

	Three months ended
	November 30, 2019			November 30, 2018

Other income (expense):
Interest income	$	3,343		$	6,546
Equity in loss of affiliated company		(29,007	)		(14,743	)
Total other expense, net	$	(25,664	)	$	(8,197	)

Total other expenses increased from approximately $8,000 for the three months ended November 30, 2018 to approximately $26,000 for the three months ended November 30, 2019. The increase primarily consisted of an increase in the equity in the loss of PDS resulting from an increase in PDS legal expenses combined with lower interest income. Our investment in PDS continues to be accounted for in accordance with the equity method of accounting for investments.

	Three months ended
	November 30, 2019			November 30, 2018

Loss before income taxes	$	(513,104	)	$	(152,122	)

Loss before income taxes increased from approximately $(152,000) for the three months ended November 30, 2018 to approximately $(513,000) for the three months ended November 30, 2019 for the reasons explained in the preceding “Selling, general and administrative” and “Other income (expense)” comparisons.

Comparison of the Six Months Ended November 30, 2019 and the Six Months Ended November 30, 2018.

	Six months ended
	November 30, 2019		November 30, 2018

Selling, general and administrative	$	790,477	$	347,406

Selling, general and administrative expenses increased from approximately $347,000 for the six months ended November 30, 2018 to approximately $790,000 for the six months ended November 30, 2019. The increase primarily pertained to higher compensation expense mostly pertaining to severance for Mr. Flowers as mentioned above.

	Six months ended
	November 30, 2019			November 30, 2018

Other income (expense):
Interest income	$	9,034		$	13,489
Equity in loss of affiliated company		(73,319	)		(29,523	)
Total other expense, net	$	(64,285	)	$	(16,034	)

Total other expenses increased from approximately $16,000 for the six months ended November 30, 2018 to $64,000 for the six months ended November 30, 2019. The increase consisted of an increase in the equity in the loss of PDS resulting from an increase in PDS legal expenses. Our investment in PDS continues to be accounted for in accordance with the equity method of accounting for investments.

	Six months ended
	November 30, 2019			November 30, 2018

Loss before income taxes	$	(854,762	)	$	(363,440	)

Loss before income taxes increased from approximately $(363,000) for the six months ended November 30, 2018 to approximately $(855,000) for the six months ended November 30, 2019 for the reasons explained in the preceding “Selling, general and administrative” and “Other income (expense)” comparisons.

Liquidity and Capital Resources

Liquidity

Our cash and cash equivalents and marketable security balances decreased from approximately $1,537,000 as of May 31, 2019 to approximately $963,000 as of November 30, 2019. We also have restricted cash of approximately $199,000 and $177,000 as of May 31, 2019 and November 30, 2019, respectively. Total current assets decreased from approximately $1,764,000 as of May 31, 2019 to approximately $1,247,000 as of November 30, 2019. Total current liabilities were approximately $228,000 and $442,000 as of May 31, 2019 and November 30, 2019, respectively. The change in our working capital position as of November 30, 2019 as compared with May 31, 2019 is primarily due losses incurred due to the inability of PDS to generate revenues and provide partnership distributions sufficient to cover our operating expenses.

In addition, 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. As a result, we currently do not have any potential sources of capital from PDS. 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 PDS has not generated significant license revenues since September 2013.

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 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.

Cash Flows From Operating Activities

Cash used in operating activities was approximately $596,000 and $425,000 for the six months ended November 30, 2019 and 2018, respectively. The principal components of the current period amount were primarily attributable to a net loss of approximately $856,000 combined with an increase in prepaid expenses and other current assets of approximately $26,000 offset by an increase in accounts payable and accrued expenses of approximately $213,000, and the equity in loss of affiliated company of approximately $73,000. The principal components of the prior year period amount were primarily attributable to a net loss of approximately $365,000 combined with an increase in prepaid expenses and other current assets of approximately $46,000 and an decrease in accounts payable and accrued expenses of approximately $44,000, offset by the equity in loss of affiliated company of approximately $30,000.

Cash Flows From Investing Activities

Cash provided by investing activities for the six months ended November 30, 2019 was $750,000 attributable to net maturities of marketable securities. No cash was provided or used in investing activities in the same prior year period.

Capital Resources

The 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 and we currently have no potential sources of cash. We will also require additional financing to develop or acquire new technologies or lines of business. If we are unable to develop or acquire new lines of business, such as the blockchain technologies, and we are unable to raise additional capital, we will be forced to halt our operations. We anticipate, based on currently proposed plans and assumptions, 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.

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 twelve months or less. 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, as of November 30, 2019, the end of the period to which this quarterly report relates, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). This evaluation was carried out under the supervision and with the participation of our management, including our Interim Chief Executive Officer and our Interim Chief Financial Officer.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Interim Chief Executive Officer and our Interim Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of November 30, 2019, our management, with the participation of our Interim Chief Executive Officer/Interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no significant changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II- OTHER INFORMATION

Item 1. Legal Proceedings

Footnote 6, Commitments and Contingencies—Litigation, in the accompanying unaudited condensed consolidated financial statements is incorporated herein by reference.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended May 31, 2019 and those listed below, which could materially affect our business, financial condition or future results. Such risks are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or operating results..

If We Are Unable To Develop Or Acquire New Lines of Business, 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 And, In Either Event, It Is Unlikely That Stockholders Would Receive Any Value For Their Shares.

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 ‘336 patent against multiple defendants (see Footnote 6, Commitments and Contingencies, in the accompanying unaudited condensed consolidated financial statements). 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, PDS, has not generated significant license revenues since September 2013.

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 under an agreement signed on April 12, 2019. 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. In either of these events, we might realize significantly less from our assets than the values at which they are carried on our financial statements. The funds resulting from the liquidation of our assets would be used first to satisfy obligations to creditors before any funds would be available to pay our stockholders, and any shortfall in the proceeds would directly reduce the amounts available for distribution, if any, to our creditors and to our stockholders. In the event we are required to liquidate under Delaware law or the federal bankruptcy laws, it is highly unlikely that stockholders would receive any value for their shares.

Our Auditors Have Expressed Substantial Doubt About Our Ability To Continue As a Going Concern.

The Report of Independent Registered Public Accounting Firm on our May 31, 2019 consolidated financial statements includes an explanatory paragraph stating that the recurring losses and negative cash flows from operations, combined with our substantial reliance on cash generated by PDS, raise substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We Have Identified A Significant Deficiency In Internal Control Over Financial Reporting, If We Fail To Maintain Effective Internal Controls Over Financial Reporting, The Price Of Our Common Stock May Be Adversely Affected.

We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of these controls could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial fraud.

In the course of completing its assessment of internal control over financial reporting as of May 31, 2019, management did not identify any material weaknesses but did identify a significant deficiency in the number of personnel available to serve the Company’s accounting function. Specifically, management believes that we may not be able to adequately segregate responsibility over financial transaction processing and reporting. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting, that is less severe than a material weakness yet important enough to merit attention by those responsible for oversight of the Company’s financial reporting. Although we are unable to remediate the significant deficiency with current personnel, we are mitigating its potential impact, primarily through greater involvement of our Board of Directors in the review and monitoring of financial transaction processing and reporting.

Our Common Stock Is Quoted On The OTC Pink Current Information, Which Could Adversely Affect The Market Price And Liquidity Of Our Common Stock.

Our common stock is quoted on OTC Pink Current Information. The quotation of our shares on such marketplace may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

There can be no assurance that there will be an active market for our shares of common stock either now or in the future or that stockholders will be able to liquidate their investment or liquidate it at a price that reflects the value of the business. As a result, our stockholders may not find purchasers for our securities should they to desire to sell them.

The Market For Our Stock Is Subject To Rules Relating To Low-Priced Stock (“Penny Stock”) Which May Limit Our Ability To Raise Capital.

Our Common Stock is currently subject to the “penny stock rules” adopted pursuant to Section 15(g) of the Exchange Act. In general, the penny stock rules apply to non-NASDAQ or non-national stock exchange companies whose common stock trades at less than $5.00 per share or which have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). Such rules require, among other things, that brokers who trade “penny stock” on behalf of persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document, quote information, broker’s commission information and rights and remedies available to investors in penny stocks. Many brokers have decided not to trade “penny stock” because of the requirements of the penny stock rules, and as a result, the number of broker-dealers willing to act as market makers in such securities is limited. The “penny stock rules,” therefore, may have an adverse impact on the market for our Common Stock and may affect our ability to raise additional capital if we decide to do so.

Our Share Price Could Decline As A Result Of Short Sales.

When an investor sells stock that he does not own, it is known as a short sale. The seller, anticipating that the price of the stock will go down, intends to buy stock to cover his sale at a later date. If the price of the stock goes down, the seller will profit to the extent of the difference between the price at which he originally sold it less his later purchase price. Short sales enable the seller to profit in a down market. Short sales could place significant downward pressure on the price of our Common Stock. Penny stocks which do not trade on an exchange, such as our Common Stock, are particularly susceptible to short sales.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

Those exhibits marked with an asterisk (*) refer to exhibits filed herewith. The other exhibits are incorporated herein by reference, as indicated in the following list.

Those exhibits marked with a cross (†) refer to management contracts or compensatory plans or arrangements.

Exhibit No.

Document

10.1†	Separation Agreement and General Release of All Claims between Patriot Scientific Corporation and Cliff Flowers as of October 1, 2019, incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed October 4, 2019 (Commission File No. 000-22182)
31.1*	Certification of Carlton M. Johnson Jr., Interim Chief Executive Officer, pursuant to Rule 13a-15(e) or Rule 15d-15(e)

31.2*	Certification of Carlton M. Johnson Jr., Interim Chief Financial Officer and Principal Financial Officer, pursuant to Rule 13a-15(e) or Rule 15d-15(e)

32.1*	Certification of Carlton M. Johnson Jr., Interim Chief Executive Officer and Interim Chief Financial Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350

101.INS	XBRL Instance Document

101.SCH	XBRL Schema Document

101.CAL	XBRL Calculation Linkbase Document

101.DEF	XBRL Definition Linkbase Document

101.LAB	XBRL Label Linkbase Document

101.PRE	XBRL Presentation Linkbase Document

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATED: January 14, 2020

PATRIOT SCIENTIFIC CORPORATION

/S/ CARLTON M. JOHNSON JR.

____________________________________

Carlton M. Johnson Jr. Interim Chief Executive

Officer and Interim Chief Financial Officer

(Duly Authorized and Principal Executive and

Principal Financial Officer)

EX-31.1 2 patriot_ex3101.htm CERTIFICATION OF INTERIM CHIEF EXECUTIVE OFFICER

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Carlton M. Johnson Jr., Interim Chief Executive Officer of the registrant, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2019 of Patriot Scientific Corporation, a Delaware corporation (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: January 14, 2020

/s/ CARLTON M. JOHNSON JR.

Carlton M. Johnson Jr.

Interim Chief Executive Officer

Principal Executive Officer

EX-31.2 3 patriot_ex3102.htm CERTIFICATION OF INTERIM CHIEF FINANCIAL OFFICER AND PRINCIPAL FINANCIAL OFFICER

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Carlton M. Johnson Jr., Interim Chief Financial Officer of the registrant, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2019 of Patriot Scientific Corporation, a Delaware corporation (the “Registrant”);

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: January 14, 2020

/s/ CARLTON M. JOHNSON JR.

Carlton M. Johnson Jr.

Interim Chief Financial Officer

and Principal Financial Officer

EX-32.1 4 patriot_ex3201.htm CERTIFICATION OF INTERIM CHIEF EXECUTIVE OFFICER AND INTERIM CHIEF FINANCIAL OFFICER AND PRINCIPAL FINANCIAL OFFICER

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Patriot Scientific Corporation, a Delaware corporation (the “Company”) for the fiscal quarter ended November 30, 2019, as filed with the Securities and Exchange Commission on January 14, 2020 (the “Report”), the undersigned officer of the Company does hereby certify, pursuant to Title 18 of the United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: January 14, 2020

/s/ CARLTON M. JOHNSON JR.

Carlton M. Johnson Jr.

Interim Chief Executive Officer

and Principal Executive Officer

Interim Chief Financial Officer

and Principal Financial Officer

A signed original of this written statement required by Section 906 has been provided to Patriot Scientific Corporation and will be retained by Patriot Scientific Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

This Certification is being furnished pursuant to Rule 15(d) and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. This Certification shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

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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.

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 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:   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td> </td><td style="padding-bottom: 1pt"> </td> <td colspan="2" style="text-align: right"> </td><td style="padding-bottom: 1pt"> </td><td style="padding-bottom: 1pt"> </td> <td colspan="10" style="border-bottom: Black 1pt solid; text-align: center">Fair Value Measurements at November 30, 2019 Using</td><td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1pt; text-align: center"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Fair Value at November 30, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Quoted Prices in Active Markets for Identical Assets (Level 1)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; text-align: center">Significant Other Observable Inputs (Level 2)</td><td style="padding-bottom: 1pt"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Significant Unobservable Inputs (Level 3)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td> </td> <td colspan="2" style="text-align: center"> </td><td> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left">Cash and cash equivalents:</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 5pt; width: 40%">Cash</td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">112,949</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">112,949</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">–</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">–</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="padding-left: 5pt">Certificates of deposit</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">850,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">850,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Restricted cash and cash equivalents</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">177,247</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">177,247</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">–</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">–</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="padding-left: 10pt; padding-bottom: 2.5pt">Total</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,140,196</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">290,196</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">850,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">–</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td> </td><td style="padding-bottom: 1pt"> </td> <td colspan="2" style="text-align: right"> </td><td style="padding-bottom: 1pt"> </td><td style="padding-bottom: 1pt"> </td> <td colspan="10" style="border-bottom: Black 1pt solid; text-align: center">Fair Value Measurements at May 31, 2019 Using</td><td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Fair Value at May 31, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Quoted Prices in Active Markets for Identical Assets (Level 1)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Significant Other Observable Inputs (Level 2)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Significant Unobservable Inputs (Level 3)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left">Cash and cash equivalents:</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 5pt; width: 40%">Cash</td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">49,149</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">49,149</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">–</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">–</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="padding-left: 5pt">Money market funds</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">237,937</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">237,937</td><td style="text-align: left"> </td><td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: right">–</td><td style="font-weight: bold; text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 5pt">Certificates of deposit</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">500,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">500,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left">Restricted cash and cash equivalents</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">198,843</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">198,843</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td><td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: right">–</td><td style="font-weight: bold; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Investments in marketable securities:</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="padding-left: 5pt">Certificates of deposit</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">750,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">–</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">750,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: right">–</td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 10pt; padding-bottom: 2.5pt">Total</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,735,929</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">485,929</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,250,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">–</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>   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:   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td> </td><td style="padding-bottom: 1pt"> </td> <td colspan="10" style="border-bottom: Black 1pt solid; text-align: center">November 30, 2019 (Unaudited)</td><td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Cost</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Gross Unrealized Gains/(Losses)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Fair Value</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Maturity</td><td> </td> <td colspan="2" style="text-align: right"> </td><td> </td><td> </td> <td colspan="2" style="text-align: right"> </td><td> </td><td> </td> <td colspan="2" style="text-align: right"> </td><td> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="width: 55%; text-align: left">Due in three months or less</td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">850,000</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">–</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">850,000</td><td style="width: 1%; text-align: left"> </td></tr> </table>   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="10" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">May 31, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Cost</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Gross Unrealized Gains/(Losses)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Fair Value</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Maturity</td><td> </td> <td colspan="2" style="text-align: right"> </td><td> </td><td> </td> <td colspan="2" style="text-align: right"> </td><td> </td><td> </td> <td colspan="2" style="text-align: right"> </td><td> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="width: 55%; text-align: left">Due in three months or less</td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">500,000</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">–</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">500,000</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Due in greater than three months</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">750,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">–</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">750,000</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="padding-bottom: 2.5pt"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,250,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">–</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,250,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>

<table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td> </td><td style="padding-bottom: 1pt"> </td> <td colspan="2" style="text-align: right"> </td><td style="padding-bottom: 1pt"> </td><td style="padding-bottom: 1pt"> </td> <td colspan="10" style="border-bottom: Black 1pt solid; text-align: center">Fair Value Measurements at November 30, 2019 Using</td><td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1pt; text-align: center"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Fair Value at November 30, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Quoted Prices in Active Markets for Identical Assets (Level 1)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; text-align: center">Significant Other Observable Inputs (Level 2)</td><td style="padding-bottom: 1pt"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Significant Unobservable Inputs (Level 3)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td> </td> <td colspan="2" style="text-align: center"> </td><td> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left">Cash and cash equivalents:</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 5pt; width: 40%">Cash</td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">112,949</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">112,949</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">–</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">–</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="padding-left: 5pt">Certificates of deposit</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">850,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">850,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Restricted cash and cash equivalents</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">177,247</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">177,247</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">–</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">–</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="padding-left: 10pt; padding-bottom: 2.5pt">Total</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,140,196</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">290,196</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">850,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">–</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td> </td><td style="padding-bottom: 1pt"> </td> <td colspan="2" style="text-align: right"> </td><td style="padding-bottom: 1pt"> </td><td style="padding-bottom: 1pt"> </td> <td colspan="10" style="border-bottom: Black 1pt solid; text-align: center">Fair Value Measurements at May 31, 2019 Using</td><td style="padding-bottom: 1pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Fair Value at May 31, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Quoted Prices in Active Markets for Identical Assets (Level 1)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Significant Other Observable Inputs (Level 2)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Significant Unobservable Inputs (Level 3)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left">Cash and cash equivalents:</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 5pt; width: 40%">Cash</td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">49,149</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">49,149</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">–</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">–</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="padding-left: 5pt">Money market funds</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">237,937</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">237,937</td><td style="text-align: left"> </td><td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: right">–</td><td style="font-weight: bold; text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 5pt">Certificates of deposit</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">500,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">500,000</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left">Restricted cash and cash equivalents</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">198,843</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">198,843</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td><td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: right">–</td><td style="font-weight: bold; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Investments in marketable securities:</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="padding-left: 5pt">Certificates of deposit</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">750,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">–</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">750,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: right">–</td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-left: 10pt; padding-bottom: 2.5pt">Total</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,735,929</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">485,929</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,250,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">–</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>

<table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">November 30, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">May 31, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: center">(Unaudited)</td><td style="font-weight: bold; text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold; text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="width: 66%; padding-bottom: 1pt">Cash</td><td style="width: 2%; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</td><td style="border-bottom: Black 1pt solid; width: 13%; text-align: right">69,084</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</td><td style="border-bottom: Black 1pt solid; width: 13%; text-align: right">237,655</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left; padding-bottom: 2.5pt">Total assets</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">69,084</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">237,655</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">November 30, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">May 31, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: center">(Unaudited)</td><td style="font-weight: bold; text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="width: 66%">Payables</td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 13%; text-align: right">–</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 13%; text-align: right">21,933</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Members’ equity</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">69,084</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">215,722</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left; padding-bottom: 2.5pt">Total liabilities and members’ equity</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">69,084</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">237,655</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1pt"> </td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td> <td colspan="6" style="border-bottom: Black 1pt solid; font-weight: normal; text-transform: none; text-align: center">Three Months Ended</td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td> <td colspan="6" style="border-bottom: Black 1pt solid; font-weight: normal; text-transform: none; text-align: center">Six Months Ended</td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1pt"> </td><td style="font-weight: normal; text-transform: none; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: normal; text-transform: none; text-align: center">November 30, 2019</td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td><td style="font-weight: normal; text-transform: none; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: normal; text-transform: none; text-align: center">November 30, 2018</td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td><td style="font-weight: normal; text-transform: none; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: normal; text-transform: none; text-align: center">November 30, 2019</td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td><td style="font-weight: normal; text-transform: none; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: normal; text-transform: none; text-align: center">November 30, 2018</td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td></tr> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center">(Unaudited)</td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center">(Unaudited)</td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center">(Unaudited)</td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center">(Unaudited)</td><td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td> </td><td> </td> <td colspan="2"> </td><td> </td><td> </td> <td colspan="2"> </td><td> </td><td> </td> <td colspan="2"> </td><td> </td><td> </td> <td colspan="2"> </td><td> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="width: 40%; padding-bottom: 1pt">Expenses</td><td style="width: 2%; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</td><td style="border-bottom: Black 1pt solid; width: 11%; text-align: right">58,013</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</td><td style="border-bottom: Black 1pt solid; width: 11%; text-align: right">29,486</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</td><td style="border-bottom: Black 1pt solid; width: 11%; text-align: right">146,638</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</td><td style="border-bottom: Black 1pt solid; width: 11%; text-align: right">59,045</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 2.5pt">Net loss</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">(58,013</td><td style="padding-bottom: 2.5pt; text-align: left">)</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">(29,486</td><td style="padding-bottom: 2.5pt; text-align: left">)</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">(146,638</td><td style="padding-bottom: 2.5pt; text-align: left">)</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">(59,045</td><td style="padding-bottom: 2.5pt; text-align: left">)</td></tr> </table>

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   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:   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Shares</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Weighted Average Exercise Price</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Weighted Average Remaining Contractual Term (Years)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Aggregate Intrinsic Value</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="width: 40%">Options outstanding at June 1, 2019</td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 11%; text-align: right">1,600,000</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">0.03</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 11%; text-align: right"> </td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 11%; text-align: right"> </td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Options granted</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">–</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left">Options exercised</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">–</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Options forfeited/expired</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">–</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">–</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt; text-align: right"> </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt; text-align: right"> </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 2.5pt">Options outstanding at November 30, 2019</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">1,600,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">0.03</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">0.43</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">–</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 2.5pt">Options vested and expected to vest at November 30, 2019</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">1,600,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">0.03</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">0.43</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">–</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 2.5pt">Options exercisable at November 30, 2019</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">1,600,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">0.03</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">0.43</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">–</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>   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.

<table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Shares</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Weighted Average Exercise Price</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Weighted Average Remaining Contractual Term (Years)</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Aggregate Intrinsic Value</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="width: 40%">Options outstanding at June 1, 2019</td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 11%; text-align: right">1,600,000</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 11%; text-align: right">0.03</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 11%; text-align: right"> </td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left"> </td><td style="width: 11%; text-align: right"> </td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Options granted</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">–</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left">Options exercised</td><td> </td> <td style="text-align: left"> </td><td style="text-align: right">–</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left">$</td><td style="text-align: right">–</td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Options forfeited/expired</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">–</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td><td style="border-bottom: Black 1pt solid; text-align: right">–</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt; text-align: right"> </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt; text-align: right"> </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 2.5pt">Options outstanding at November 30, 2019</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">1,600,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">0.03</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">0.43</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">–</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 2.5pt">Options vested and expected to vest at November 30, 2019</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">1,600,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">0.03</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">0.43</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">–</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 2.5pt">Options exercisable at November 30, 2019</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">1,600,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">0.03</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">0.43</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">–</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>

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 in the accompanying unaudited condensed consolidated financial statements. There were no known disagreements with Mr. Flowers regarding our operations, policies or practices. The Board appointed Carlton M. Johnson to assume all management roles on an interim basis.   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.

1735929

485929

1250000

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.

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.

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:   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">November 30, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">May 31, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: center">(Unaudited)</td><td style="font-weight: bold; text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold; text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="width: 66%; padding-bottom: 1pt">Cash</td><td style="width: 2%; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</td><td style="border-bottom: Black 1pt solid; width: 13%; text-align: right">69,084</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</td><td style="border-bottom: Black 1pt solid; width: 13%; text-align: right">237,655</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left; padding-bottom: 2.5pt">Total assets</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">69,084</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">237,655</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>   Liabilities and Members’ Equity:   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">November 30, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">May 31, 2019</td><td style="padding-bottom: 1pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td style="font-weight: bold"> </td> <td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: center">(Unaudited)</td><td style="font-weight: bold; text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td> <td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="width: 66%">Payables</td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 13%; text-align: right">–</td><td style="width: 1%; text-align: left"> </td><td style="width: 2%"> </td> <td style="width: 1%; text-align: left">$</td><td style="width: 13%; text-align: right">21,933</td><td style="width: 1%; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Members’ equity</td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">69,084</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">215,722</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="text-align: left; padding-bottom: 2.5pt">Total liabilities and members’ equity</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">69,084</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">237,655</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr> </table>   Statements of Operations:   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1pt"> </td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td> <td colspan="6" style="border-bottom: Black 1pt solid; font-weight: normal; text-transform: none; text-align: center">Three Months Ended</td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td> <td colspan="6" style="border-bottom: Black 1pt solid; font-weight: normal; text-transform: none; text-align: center">Six Months Ended</td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1pt"> </td><td style="font-weight: normal; text-transform: none; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: normal; text-transform: none; text-align: center">November 30, 2019</td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td><td style="font-weight: normal; text-transform: none; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: normal; text-transform: none; text-align: center">November 30, 2018</td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td><td style="font-weight: normal; text-transform: none; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: normal; text-transform: none; text-align: center">November 30, 2019</td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td><td style="font-weight: normal; text-transform: none; padding-bottom: 1pt"> </td> <td colspan="2" style="border-bottom: Black 1pt solid; font-weight: normal; text-transform: none; text-align: center">November 30, 2018</td><td style="padding-bottom: 1pt; font-weight: normal; text-transform: none"> </td></tr> <tr style="vertical-align: bottom"> <td> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center">(Unaudited)</td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center">(Unaudited)</td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center">(Unaudited)</td><td style="font-weight: bold"> </td><td style="font-weight: bold"> </td> <td colspan="2" style="font-weight: bold; text-align: center">(Unaudited)</td><td style="font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td> </td><td> </td> <td colspan="2"> </td><td> </td><td> </td> <td colspan="2"> </td><td> </td><td> </td> <td colspan="2"> </td><td> </td><td> </td> <td colspan="2"> </td><td> </td></tr> <tr style="vertical-align: bottom; background-color: rgb(238,238,238)"> <td style="width: 40%; padding-bottom: 1pt">Expenses</td><td style="width: 2%; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</td><td style="border-bottom: Black 1pt solid; width: 11%; text-align: right">58,013</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</td><td style="border-bottom: Black 1pt solid; width: 11%; text-align: right">29,486</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</td><td style="border-bottom: Black 1pt solid; width: 11%; text-align: right">146,638</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</td><td style="border-bottom: Black 1pt solid; width: 11%; text-align: right">59,045</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td></tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 2.5pt">Net loss</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">(58,013</td><td style="padding-bottom: 2.5pt; text-align: left">)</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">(29,486</td><td style="padding-bottom: 2.5pt; text-align: left">)</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">(146,638</td><td style="padding-bottom: 2.5pt; text-align: left">)</td><td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">(59,045</td><td style="padding-bottom: 2.5pt; text-align: left">)</td></tr> </table>   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.

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Commitments and Contingencies (Details Narrative) link:presentationLink link:calculationLink link:definitionLink EX-101.CAL 7 ptsc-20191130_cal.xml XBRL CALCULATION FILE EX-101.DEF 8 ptsc-20191130_def.xml XBRL DEFINITION FILE EX-101.LAB 9 ptsc-20191130_lab.xml XBRL LABEL FILE Equity Components [Axis] Common Stock Additional Paid-In Capital Accumulated Deficit Treasury Stock FairValueByFairValueHierarchyLevel [Axis] Fair Value Inputs Level 1 Fair Value Inputs Level 2 Fair Value Inputs Level 3 CashAndCashEquivalents [Axis] Due in three months or less Balance Sheet Location [Axis] Payables [Member] Members equity [Member] Cash [Member] Award Type [Axis] Options [Member] Legal Entity [Axis] PDS [Member] Antidilutive Securities [Axis] Business Acquisition [Axis] Crossflo [Member] Holocom [Member] Class of Stock [Axis] Preferred Stock [Member] Due in greater than three months [Member] Income Statement Location [Axis] Expenses [Member] Net Loss [Member] Separation Agreement [Axis] Mr. Flowers Separation Agreement Cover [Abstract] Entity Registrant Name Entity Central Index Key Document Type Document Period End Date Amendment Flag Current Fiscal Year End Date Is Entity's Reporting Status Current Entity Filer Category Entity Public Float Entity Common Stock, Shares Outstanding Document Fiscal Period Focus Document Fiscal Year Focus Entity Small Business Entity Emerging Growth Entity file number Entity state of incorporation Interactive Data Current Statement of Financial Position [Abstract] ASSETS Current assets: Cash and cash equivalents Restricted cash and cash equivalents Investments in marketable securities Prepaid expenses and other current assets Deferred tax assets Total current assets Property and equipment, net Deferred income taxes Investment in affiliated company Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued expenses and other Total current liabilities Total liabilities Commitments and contingencies Stockholders' equity Preferred stock, $0.00001 par value; 5,000,000 shares authorized: none outstanding 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 Additional paid-in capital Accumulated deficit Common stock held in treasury, at cost - 36,849,670 shares at November 30, 2019 and May 31, 2019 Total stockholders' equity Total liabilities and stockholders' equity Preferred stock, par value (in Dollars per share) Preferred stock, shares authorized Preferred stock, shares issued Preferred stock, shares outstanding Common stock, par value (in Dollars per share) Common stock, shares authorized Common stock, shares issued Common stock, shares outstanding Common stock held in treasury, at cost Income Statement [Abstract] Operating expenses: Selling, general and administrative Total operating expenses Other income (expense): Interest income Equity in loss of affiliated company Total other expense, net Loss before income taxes Provision for income taxes Net loss Basic and diluted loss per common share Weighted average number of common shares outstanding - basic Weighted average number of common shares outstanding - diluted Statement of Cash Flows [Abstract] Operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation Equity in loss of affiliated company Changes in operating assets and liabilities: Prepaid expenses and other current assets Income taxes payable Accounts payable, accrued expenses and other Net cash used in operating activities Investing activities: Proceeds from sales of marketable securities Purchases of marketable securities Net cash provided by investing activities Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents Cash, cash equivalents and restricted cash and cash equivalents, beginning of period Cash, cash equivalents and restricted cash cash equivalents, end of period Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes Statement [Table] Statement [Line Items] Beginning balance, shares Beginning balance, value Ending balance, shares Ending balance, value Reconciliation of cash, cash equivalents and restricted cash and cash equivalents at end of period Cash and Cash Equivalents Restricted Cash and cash equivalents Total cash, cash equivalents and restricted cash Organization, Consolidation and Presentation of Financial Statements [Abstract] Basis of Presentation and Summary of Significant Accounting Policies Cash and Cash Equivalents [Abstract] Cash, Cash Equivalents, Restricted Cash and Marketable Securities Investments in and Advances to Affiliates, Schedule of Investments [Abstract] Investment in Affiliated Companies Income Tax Disclosure [Abstract] Income Taxes Equity [Abstract] Stockholders' Equity Commitments and Contingencies Disclosure [Abstract] Commitments and Contingencies Accounting Policies [Abstract] Basis of Consolidation Financial Instruments and Concentrations of Credit Risk Fair Value of Financial Instruments Cash Equivalents, Restricted Cash, and Marketable Securities Investments in Marketable Securities Property, Equipment and Depreciation Investment in Affiliated Companies Income Taxes Assessment of Contingent Liabilities Income (Loss) Per Share Use of Estimates Intellectual Property Rights Recent Accounting Pronouncements Liquidity and Management's Plans Schedule of fair value of cash, cash equivalents and investments in marketable securities Schedule of maturities, gross unrealized gains or losses and fair value of certificates of deposit Financial Statements of Affiliates Schedule of Stock Options Activity Cash, cash equivalents and marketable securities Working capital Percentage of investment in affiliated company Common shares not included in calculation of net earnings (loss) per share Shares held in escrow Fair Value Hierarchy and NAV [Axis] Fair Value Measurement of Cash, Cash Equivalents and Investments in Marketable Securities Cash and cash equivalents: Cash Money market funds Certificates of deposit Total Investments in marketable securities Certificates of deposit Fair value of assets Cash and Cash Equivalents [Axis] Cost Gross Unrealized Gains/(Losses) Total fair value of investment Prepaid Expenses [Member] Total assets Total liabilities and members' equity Total Expenses Loss before income taxes Net loss Equity interest percentage Equity shares owned Capital contribution to entity Litigation settlement expense Terms of settlement Number of Options Number of Options Outstanding, Beginning Number of Options Granted Number of Options Exercised Number of Options Forfeited/Expired Number of Options Outstanding, Ending Options vested and expected to vest, Ending EX-101.PRE 10 ptsc-20191130_pre.xml XBRL PRESENTATION FILE XML 12 Show.js IDEA: XBRL DOCUMENT // Edgar(tm) Renderer was created by staff of the U.S. Securities and Exchange Commission. 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5. Stockholders' Equity (Details - Option activity) - Options [Member]	6 Months Ended
	Nov. 30, 2019 USD ($) $ / shares shares
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

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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

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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 November 30, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

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 May 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

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 Value
Maturity
Due in three months or less	$	850,000	$	–	$	850,000

	May 31, 2019
	Cost		Gross Unrealized Gains/(Losses)		Fair Value
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

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4. Income Taxes

6 Months Ended

Nov. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

4. Income Taxes

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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

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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

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

XML 20 R14.htm IDEA: XBRL DOCUMENT

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.

- Definition

Disclosure of accounting policy for income taxes, which may include its accounting policies for recognizing and measuring deferred tax assets and liabilities and related valuation allowances, recognizing investment tax credits, operating loss carryforwards, tax credit carryforwards, and other carryforwards, methodologies for determining its effective income tax rate and the characterization of interest and penalties in the financial statements.

+ References

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+ Details

XML 21 R10.htm IDEA: XBRL DOCUMENT

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

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.

XML 22 R18.htm IDEA: XBRL DOCUMENT

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%

XML 23 R3.htm IDEA: XBRL DOCUMENT

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

XML 24 R7.htm IDEA: XBRL DOCUMENT

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

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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

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6 Months Ended

Nov. 30, 2019

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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

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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
November 30,
2019 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant Other Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)

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
May 31,
2019 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)

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
Value

Maturity

Due in three months or less $ 850,000 $ – $ 850,000

May 31, 2019

Cost Gross Unrealized Gains/(Losses) Fair
Value

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

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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 )

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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.

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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

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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

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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

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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.

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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

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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 $ –

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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 in the accompanying unaudited condensed consolidated financial statements. There were no known disagreements with Mr. Flowers regarding our operations, policies or practices. The Board appointed Carlton M. Johnson to assume all management roles on an interim basis.

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.

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Document and Entity Information - shares	6 Months Ended
Document and Entity Information - shares	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 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

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

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 Company (Details) - USD ($)	3 Months Ended		6 Months Ended
3. Investment in Affiliated Company (Details) - USD ($)	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