Patriot Scientific der Highflyer 2006
N8 zusammen.
Шлю вам (тебе) сердечный привет joker
Optionen
| Boardmail an "joker67" |
Wertpapier: Patriot Scientific |
Шлю вам (тебе) сердечный привет joker
Optionen
| Boardmail an "joker67" |
Wertpapier: Patriot Scientific |
http://www.sec.gov/Archives/edgar/data/836564/...-06-042279-index.htm
Шлю вам (тебе) сердечный привет joker
Optionen
| Boardmail an "joker67" |
Wertpapier: Patriot Scientific |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 2006
o TRANSITION REPORT UNDER 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
(Name of small business issuer in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization) 84-1070278
(I.R.S. Employer Identification No.)
6183 Paseo Del Norte, Suite 180, Carlsbad, California
(Address of principal executive offices) 92011
(Zip Code)
(Issuer’s telephone number): (760) 547-2700
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.00001 par value
--------------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 o NO x
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o
Issuers revenues for its most recent fiscal year was $10,309,709 (which amount does not include approximately $27,848,000 in income resulting from the Companys investment in Phoenix Digital Solutions, LLC). Issuers net income for its most recent fiscal year was $28,672,688.
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on October 2, 2006 was $321,496,396 based on a closing price of $0.87 as reported on the OTC Electronic Bulletin Board system.
On October 2, 2006, 369,536,087 shares of common stock, par value $.00001 per share (the issuer’s only class of voting stock) were outstanding.
Documents Incorporated By Reference: None.
Transitional Small Business Disclosure Format (check one): YES o NO x
1
--------------------------------------------------
TABLE OF CONTENTS
PART I 5
ITEM 1. DESCRIPTION OF BUSINESS 5
ITEM 2. DESCRIPTION OF PROPERTY 11
ITEM 3. LEGAL PROCEEDINGS 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
PART II 13
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES 13
ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 14
ITEM 7. FINANCIAL STATEMENTS 21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 21
ITEM 8A. CONTROLS AND PROCEDURES 21
ITEM 8B. OTHER INFORMATION 23
PART III 23
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 23
ITEM 10. EXECUTIVE COMPENSATION 26
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS 28
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 29
ITEM 13. EXHIBITS 29
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F1
2
--------------------------------------------------
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB, including all documents incorporated by reference, includes “forward-looking” statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995, and we rely on the “safe harbor” provisions in those laws. Therefore, we are including this statement for the express purpose of availing ourselves of the protections of such safe harbor with respect to all of such forward-looking statements. The forward-looking statements in this Report reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including specifically, the absence of significant revenues and financial resources until the current fiscal year, no guarantee that the development of technology can be completed or that its completion will not be delayed, significant competition, the uncertainty of patent and proprietary rights, uncertainty as to royalty payments and indemnification risks, trading risks of low-priced stocks and those other risks and uncertainties discussed herein that could cause our actual results to differ materially from our historical results or those we anticipate. In this report, the words “anticipates,” “believes,” “expects,” “intends,” “future” and similar expressions 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. Patriot undertakes 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.
3
--------------------------------------------------
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
Patriot Scientific Corporation was organized under Delaware law on March 24, 1992, and is the successor by merger to Patriot Financial Corporation, a Colorado corporation, incorporated on June 10, 1987. In 1997, we emerged from the development stage, primarily as a result of the acquisition of Metacomp Inc. In June 2005, we entered into a joint venture agreement with Technology Properties Limited, Inc. to form Phoenix Digital Solutions, LLC. Our address is 6183 Paseo Del Norte, Suite 180, Carlsbad, California 92011, and our telephone number is (760) 547-2700. Our internet home page can be located on the World Wide Web at http://www.ptsc.com.
We are an intellectual property company holding various patents (described below). Our primary strategy is to exploit our microprocessor technologies through licensing and strategic alliances and to litigate against those who may be infringing on our patents. We also sell microprocessor chips from our suspended Ignite product line.
Our Microprocessor Technology
General Background . Effective May 31, 1994, we entered into an asset purchase agreement and plan of reorganization with nanoTronics Corporation located in Eagle Point, Oregon, and Helmut Falk to acquire certain microprocessor technology. nanoTronics had acquired a base technology for an advanced microprocessor integrated on a single computer chip and had fabricated a first-generation microprocessor. We used the technology we acquired from nanoTronics to develop a sophisticated yet low cost microprocessor by enhancing the microprocessor design, adding additional technical features to further modernize the design, and improving and testing the new design.
We initially fabricated a prototype 0.8-micron microprocessor in May 1996. The next generation was a 0.5-micron microprocessor that was delivered in September 1997. The 0.5-micron microprocessor was employed in demonstrations for prospective customers and was shipped in limited numbers to customers as an embedded microprocessor. In 1998 we introduced a 0.35-micron microprocessor whose features included a reduction in size and improved performance. In addition, in September 2000 we completed a VHDL model of this technology, which enabled customers to purchase intellectual property incorporating microprocessor functions with other parties’ applications to arrive at a system on a chip solution. By purchasing this software model, customers could significantly reduce their time to market by simulating results as opposed to trial and error commitments to silicon production. In 2003 we further reduced the size of our silicon production to 0.18-microns.
Industry Background . The semiconductor logic market has three major sectors:
· standard logic products;
· application specific standard products; and
· application specific integrated circuits.
Standard logic products, such as the Intel’s X86 and Pentium and Motorola’s 680X0 microprocessor families, are neither application nor customer specific. They are intended to be utilized by a large group of systems designers for a broad range of applications. Because they are designed to be used in a broad array of applications, they may not be cost effective for specific applications. Application specific integrated circuits are designed to meet the specific application of one customer. While cost effective for that application, application specific integrated circuits require large sales volumes of that application to recover their development costs. Application specific standard processors are developed for one or more applications but are not generally proprietary to one customer. Examples of these applications include modems, cellular telephones, other wireless communications devices, multimedia applications, facsimile machines and local area networks. We have designed our microprocessor to be combined with application specific software to serve as an embedded control product for the application specific standard processor market sector.
Application specific standard processors are typically used in embedded control systems by manufacturers to provide an integrated solution for application specific control requirements. Such systems usually contain a microprocessor or microcontroller, logic circuitry, memory and input/output circuitry. Electronic system manufacturers combine one or more of these elements to fit a specific application. The microprocessor provides the intelligence to control the system. The logic circuitry provides functions specific to the end application. The input/output circuitry may also be application specific or an industry standard component. The memory element, if not on the microprocessor, is usually a standard product used to store program instructions and data. In the past, these functions have been executed through multiple integrated circuits assembled on a printed circuit board. The requirements for reduced cost and improved system performance have created market opportunities for semiconductor suppliers to integrate some or all of these elements into a single application specific standard processor or chip set, such as our Ignite family of microprocessors. The Ignite family provides close integration of the microprocessor and input/output function with the logic circuitry, thereby providing an advanced application specific standard processor.
4
--------------------------------------------------
Embedded control systems enable manufacturers to differentiate their products, replace less efficient electromechanical control devices, add product functionality and reduce product costs. In addition, embedded control systems facilitate the emergence of completely new classes of products. Embedded control systems have been incorporated into thousands of products and subassemblies worldwide, including automotive systems, remote controls, appliances, portable computers and devices, cordless and cellular telephones, motor controls and many other systems.
Microprocessors are generally available in 4-bit through 64-bit architectures, which refers to the amount of data they can process. 4-bit microprocessors are relatively inexpensive, typically less than $1.00 each. Although they lack certain performance capabilities and features, they account for more than 40% of worldwide microcontroller sales volume. Also in general use today are 8-bit architectures, generally costing $1.00 to $10.00 each and accounting for an additional 40% of worldwide microcontroller sales volume. To date 16-bit, 32-bit and 64-bit architectures, with typical costs of over $10.00 each, have offered very high performance but are generally considered to be too expensive for most high-volume embedded control applications. The use of 16-bit, 32-bit and 64-bit architectures offers fewer internal limitations, making programming easier and providing higher performance. Although generally more expensive per unit and requiring more support logic and memory, these devices offer many advantages for more sophisticated embedded control systems.
Electronic system designers, driven by competitive market forces, seek semiconductor products with more intelligence, functionality and control that can be used to reduce system costs and improve performance. For these needs, the Ignite product family was designed to be a sophisticated 32-bit microprocessor with advanced features. The Ignite product family uses a smaller number of transistors compared to other RISC (reduced instruction set computer) processors, which results in less power consumption and more economical prices compared to other embedded control applications. This creates the opportunity for the development of new, cost-effective applications.
Technology Description . Conventional high-performance microprocessors are register-based with large register sets. These registers are directly addressable storage locations requiring a complex architecture that consumes costly silicon. This conventional architecture provides processing power for computer applications but complicates and slows the execution of individual instructions and increases silicon size, thereby increasing the microprocessor cost.
Our technology is different from most other microprocessors, in that the data is stored in groups and certain information is known to be at the top of a stack as opposed to being stored in a register. Our microprocessor employs certain features of both register and stack designs. The resultant merged stack-register architecture improves program execution for a wide range of embedded applications. Our design combines two processors in one highly integrated package, a microprocessing unit for performing conventional processing tasks, and an input-output processor for performing input-output functions. This replaces many dedicated peripheral functions supplied with other processors. The microprocessor's design simplifies the manipulation of data. Our architecture employs instructions that are shrunk from 32-bits to 8-bits. This simplified instruction scheme improves execution speed for computer instructions. Our architecture incorporates many on-chip system functions, thus eliminating the requirement of support microprocessors and reducing system cost to users.
The 0.8-micron microprocessor was designed to operate at a speed of 50Mhz; the 0.5-micron microprocessor at a speed of 100Mhz; the 0.35-micron microprocessor at 150MHz; and the 0.18-micron operates at a speed of 360Mhz. They are all compatible with a wide range of memory technology from low cost dynamic random access memory to high-speed static random access memory. The microprocessors can be packaged in various surface-mount and die-form packaging. We cannot be certain that the designed speed will be achieved with the production model of the 0.18-micron microprocessor or future versions or that all of the desired functions will perform as anticipated.
Our technology is not designed or targeted to compete with high-end processors for use in personal computers. It is targeted for embedded control applications. We believe that the features described above differentiate the Ignite family from other 8-bit to 64-bit microprocessors targeted for embedded control applications. Considering the reduced requirement for support microprocessors, the Ignite family is intended to be available at a high volume price that should be price competitive with high-end 8-bit microprocessor and general 16-bit microprocessor systems but with higher performance (speed and functional capability). The Ignite family has been designed to allow high-speed and high-yield fabrication using generally available wafer fabrication technology and facilities.
5
--------------------------------------------------
The Ignite Microprocessor as a Java Processor . We believe the Ignite microprocessor architecture is capable of being an efficient and cost effective Java programming language processor, because Java is designed to run on a stack-oriented architecture and the Ignite architecture executes the virtual stack machine internal to Java efficiently. Many Java byte codes or instructions require only a single 8-bit Ignite family instruction to be executed, providing a performance advantage over other more expensive processors that require six or more 32-bit instructions to do the same task. This feature allows the execution of Java programs with increased speed and reduced code size thereby enabling lower system memory costs. In addition, the incorporation of many on-chip system functions is expected to allow the Ignite family to perform most of the other functions required of an Internet computer device or Java accelerator, thereby eliminating components. Since Internet computers are designed to be inexpensive appliances for Internet access, cost, speed and performance are expected to be key requirements for designers. We believe the Ignite technology can compete favorably on the basis of such requirements, although we may not be able to successfully exploit Java related applications or that competitors will not create superior Java processors.
We have ported the Java operating environment to the Ignite family, which currently uses the C programming language for software support. We are a licensee of Sun Microsystems Inc. This enables us to develop and distribute products based on Sun's personalJava, a platform on which to run Java applications. We have also licensed from Wind River an operating system, VxWorks, and entered into a relationship with Forth Inc. (Forth) whereby Forth will provide software support and operating system development tools for the Forth Programming language. We believe this solution is competitive in the Java virtual machine and embedded applications markets. We believe that, if the implementation is successfully completed, the Ignite family will be competitive with Java microprocessors announced by competitors. However, we do not know whether implementation of this package of software or of a market for an Ignite family Java microprocessor will be successful.
Stages of Development . In early 1994, nanoTronics initiated production of a first generation of wafers at a contract fabrication facility using 6 inch wafers employing 0.8-micron double-metal CMOS technology. After the May 31, 1994 acquisition, we improved the original design, added new features and performed simulations and tests of the improved designs. In October 1995, a run of six wafers of second generation 0.8-micron microprocessors was fabricated by a contract fabrication facility. Subsequently, we tested these microprocessors, while completing a C computer language compiler and preparing application development tools. The compiler and application development tools are necessary to enable system designers to program the Ignite family for specific applications. We made corrections to the design suggested by the testing of prototype units and produced an additional run of second generation microprocessors from remaining wafers in May 1996. In July 1996, we employed these microprocessors in demonstration boards for use by developers and prospective customers and licensees.
In December 1997, we completed development of and started shipping a 0.5-micron microprocessor based on the Ignite technology and found that 0.5-micron double-metal CMOS technology improved operating speed, reduced power requirements, reduced physical size and reduced fabrication cost. In May 1998, we began a production run of a 0.35-micron microprocessor that further increased operating speed and cost performance over the previous generations of the Ignite family of microprocessors.
At each stage of development, microprocessors require extensive testing to ascertain performance limitations and the extent and nature of errors, if any. When significant limitations or errors are discovered, additional rounds of design modifications and fabrication are required prior to having functional and demonstrable microprocessors for prospective customers and licensees. Although our 0.5 and 0.35-micron microprocessors have been sent to prospective customers in anticipation of production orders, it is not certain that we, during our continued testing of these products, will not identify errors requiring additional rounds of design and fabrication prior to commercial production. Additional delays could have an adverse effect on the marketability of our Ignite technology and potential revenues from that source.
In September 2000, we completed the VHDL soft-core version of the Ignite microprocessor family. The hardware design inside a microprocessor, or silicon device, can be represented as a software program. This, in essence, replaces the old style of designing microprocessors using schematics. VHDL is the predominant software language used to design semiconductors. In addition to the design aspects, sophisticated simulation tools and PLD development kits can execute VHDL, allowing the designer to simulate the functionality of the entire design before committing to silicon. Also VHDL enables a designer to easily modify and enhance the design. A design represented in VHDL goes through a synthesis process whereby it is converted to the most basic element of a design, logical gates. This gate level representation in turn is used with computer aided engineering tools to translate the design into the most fundamental component of semiconductors, transistors. The characteristics of the transistors can be given as a library to a foundry. Therefore, a design represented in VHDL is technology and foundry independent and can be targeted for any given transistor geometry (such as 0.18, 0.25, or 0.35- micron) for any foundry of choice.
6
--------------------------------------------------
We have developed marketing materials, product manuals and application development tools for Ignite for use by Ignite licensees and customers. The manuals and tools are necessary to enable system designers to quickly and easily program the Ignite family for specific applications. We are not currently working on any additional tools for Ignite or engaging in any additional research and development of the Ignite family.
Competition . The semiconductor industry is intensely competitive and has been characterized by price erosion, rapid technological change and foreign competition in many markets. The industry consists of major domestic and international semiconductor companies, most of which have greater financial, technical, marketing, distribution, development and other resources than we do. The market for microprocessors and for embedded control applications is at least as competitive.
While our strategy, when marketing Ignite, is to target high-volume licensees and microprocessor customers requiring more sophisticated but low-cost, low-power consumption devices, we can still expect significant competition. We may also elect to develop embedded control system products utilizing our own architecture or by contract for other manufacturers.
We expect that the Ignite family, if marketed and successfully commercialized in the embedded controller market, will compete with a variety of 16/64-bit microprocessors including those based on intellectual property from ARM and MIPS and microprocessors from Hitachi, Motorola and IBM. As a Java processor, we expect our Ignite family will compete with a broad range of microprocessors including those incorporating co-processor accelerator technologies. The producers of these microprocessors have significantly greater resources than we do.
A new entrant, such as ours, is at a competitive disadvantage compared to these and other established producers. A number of factors contribute to this, including:
· the lack of product performance experience,
· lack of experience by customers in using application development systems,
· no record of technical service and support, and
· limited marketing and sales capabilities.
We are currently focusing our business activity primarily on the licensing of the intellectual property in our patent portfolio and are not currently marketing our Ignite family of products. We sell a limited number of chips from our remaining inventory of that suspended product line. We presently intend to continue to focus primarily on intellectual property licensing activities for an indefinite period and may not resume marketing the Ignite family of products in the future.
Phoenix Digital Solutions . On June 7, 2005, we entered into a Master Agreement (the “Master Agreement”) with Technology Properties Limited Inc., a California corporation (“TPL”), and Charles H. Moore, an individual (“Moore” and together with us and TPL, the “Parties”). We, TPL and Moore were parties to certain lawsuits filed by us alleging infringement (the “Infringement Litigation”) of our Microprocessor Patents and a lawsuit also filed by us alleging claims for declaratory judgment for determination and correction of inventorship of the Microprocessor Patents (the “Inventorship Litigation”). The transactions described in the Master Agreement and related agreements (the “Transactions”) included the settlement or dismissal of the Inventorship Litigation.
Pursuant to the Master Agreement we agreed with TPL and Moore as follows:
● We entered into a patent license agreement (the “Intel License”) with Intel Corporation (“Intel”) pursuant to which we licensed certain rights in the Microprocessor Patents to Intel.
● We entered into an Escrow Agreement along with TPL pursuant to which the proceeds arising from the Intel License were allocated for the benefit of us and TPL. Pursuant to the Escrow Agreement, our initial capitalization obligations and those of TPL with regard to Phoenix Digital Solutions, LLC (defined below) were satisfied, our payment obligations and those of TPL with regard to the Rights Holders (defined below) were made, we received $6,672,349, and the remaining proceeds were allocated to or for the benefit of TPL.
● We caused certain of our respective interests in the Microprocessor Patents to be licensed to Phoenix Digital Solutions, LLC a limited liability company owned 50% by us and 50% by TPL.
7
--------------------------------------------------
● Phoenix Digital Solutions, LLC engaged TPL to commercialize the Microprocessor Patents pursuant to a Commercialization Agreement among Phoenix Digital Solutions, LLC, TPL and us (the “Commercialization Agreement”).
● We paid $1,327,651 and TPL paid $1,000,000 to certain holders of rights in the Microprocessor Patents (“Rights Holders”) in exchange for the consent of such Rights Holders to the Transactions.
● We agreed with TPL and Moore to settle or cause to be dismissed all litigation pursuant to a stipulated final judgment, including the Inventorship Litigation.
● We issued warrants to TPL to acquire shares of our common stock. 1,400,000 warrants were exercisable upon issue; 700,000 warrants were exercisable when our common stock traded at $0.50 per share; an additional 700,000 warrants were exercisable when our common stock traded at $0.75 per share; and an additional 700,000 warrants were exercisable when our common stock traded at $1.00 per share. As of the date of this filing, all of the common stock trading prices have been met, causing TPL to be fully vested in all 3,500,000 of the above warrants.
● We agreed with TPL and Moore to indemnify each other for, among other things, any inaccuracy or misrepresentation to any representation or warranty contained in the Master Agreement, any breach of the Master Agreement, certain liabilities relating to the respective interests of each of us in the Microprocessor Patents and the Transactions, and certain tax liabilities.
Pursuant to the Commercialization Agreement, Phoenix Digital Solutions, LLC granted to TPL the exclusive right to grant licenses and sub-licenses of the Microprocessor Patents and to pursue claims against violators of the Microprocessor Patents, in each case, on behalf of Phoenix Digital Solutions, LLC, us, TPL and Moore, and TPL agreed to use reasonable best efforts to commercialize the Microprocessor Patents in accordance with a mutually agreed business plan. Pursuant to the Commercialization Agreement, Phoenix Digital Solutions, LLC agreed to reimburse TPL’s expenses incurred in connection with the commercialization of the Microprocessor Patents. All proceeds generated by TPL in connection with the commercialization of the Microprocessor Patents will be paid directly to Phoenix Digital Solutions, LLC.
Pursuant to the Master Agreement, we and TPL have entered into the Limited Liability Company Operating Agreement of Phoenix Digital Solutions, LLC (“LLC Agreement”). We and TPL each own 50% of the membership interests of Phoenix Digital Solutions, LLC, and each have the right to appoint one member of the three (3) member management committee. The two (2) appointees are required to select a mutually acceptable third member of the management committee. Pursuant to the LLC Agreement, we and TPL must each contribute to the working capital of Phoenix Digital Solutions, LLC (in addition to the Microprocessor Patent licenses described above), and are obligated to make future contributions in equal amounts in order to maintain a working capital fund. The LLC Agreement provides that Phoenix Digital Solutions, LLC shall indemnify its members, managers, officers and employees to the fullest extent permitted by applicable law, for any liabilities incurred as a result of their involvement with Phoenix Digital Solutions, LLC, if the person seeking indemnification acted in good faith and in a manner reasonably believed to be in the best interest of Phoenix Digital Solutions, LLC.
Licenses, Patents, Trade Secrets and Other Proprietary Rights
We rely on a combination of patents, copyright and trademark laws, trade secrets, software security measures, license agreements and nondisclosure agreements to protect our proprietary technologies. Our policy is to seek the issuance of patents that we consider important to our business to protect inventions and technology that support our microprocessor technology.
We have seven U.S. patents issued dating back to 1989 on our microprocessor technology (the “Microprocessor Patents”). We have one microprocessor technology patent issued in five European countries and one patent issued in Japan and may file additional applications under international treaties depending on an evaluation of the costs and anticipated benefits that may be obtained by expanding possible patent coverage. In addition, we have one U.S. patent issued on ground penetrating radar technology and one U.S. patent issued on one of the communications products.
In addition to such factors as innovation, technological expertise and experienced personnel, we believe that a strong patent position is becoming increasingly important to compete effectively in the semiconductor industry. It may become necessary or desirable in the future for us to obtain patent and technology licenses from other companies relating to certain technology that may be employed in future products or processes. To date, we have not received notices of claimed infringement of patents based on our existing processes or products; but, due to the nature of the industry, we may receive such claims in the future.
8
--------------------------------------------------
We believe that we may have claims against numerous companies that use semiconductors in their products. In December 2003, we initiated legal actions against five companies to enforce our patents. We subsequently dismissed that litigation in 2005, at which time legal action was initiated by TPL against four of these companies to enforce the patents in our portfolio. Two of these companies involved in the litigation we originated have subsequently purchased licenses through Phoenix Digital Solutions, LLC and have been excluded from the litigation currently pending. There can be no assurance that we will be successful in enforcing any potential patent claims against these or other companies. In February 2004, Intel initiated a legal action against us and we filed a counterclaim against them related to the initial five lawsuits. That litigation was settled and dismissed in June 2005, and Intel is now under license for our patented technology. See Legal Proceedings.
We have one U.S. patent on our ground penetrating radar technology. No foreign application has been made. There are a large number of patents owned by others in the radar field generally and in the field of ground penetrating radar specifically. Accordingly, although we are not aware of any possible infringement and have not received any notices of claimed infringement, we may receive such claims in the future.
In November, 2004, a patent application was filed titled “Remote Power Charging of Electronic Devices” with assignment to Patriot Scientific Corporation. We are in the initial early stages of evaluating this technology and its applicability and feasibility for further research and development.
There can be no assurance that any patents will be issued from pending or future applications or that any patents that are issued will provide meaningful protection or other commercial advantages to us. Although we intend to protect our rights vigorously, there can be no assurance that these measures will be successful.
We generally require all of our employees and consultants, including our management, to sign a non-disclosure and invention assignment agreement upon employment with us.
Marketing and Distribution
We do not currently market our microprocessor chips from our suspended line of Ignite products, although we continue to sell a limited number of chips from our remaining inventory. 100% of our sales for fiscal years ended May 31, 2006 and 2005 were to domestic customers.
All of our operating assets are located within the United States. While sales to certain geographic areas generally vary from year to year, we do not expect that changes in the geographic composition of sales will have a material adverse effect on operations.
Dependence Upon Single Customers
Ten percent (10%) or more of our consolidated product sales were derived from shipments to the following customers for the fiscal years ended May 31 as follows:
2006 2005
AMD License ----- $ 2,956,250
Space and Naval Warfare Systems $ 262,500 -----
We had no backlog as of May 31, 2006 or 2005.
Most of our net income for the year ended May 31, 2006, was attributable to our equity in the earnings of our affiliate, Phoenix Digital Solutions, LLC.
Government Regulation and Environmental Compliance
We believe our products are not subject to governmental regulation by any federal, state or local agencies that would affect the manufacture, sale or use of our products, other than occupational health and safety laws and labor laws which are generally applicable to most companies. We do not know what sort of regulations of this type may be imposed in the future, but do not anticipate any unusual difficulties in complying with governmental regulations which may be adopted in the future.
9
--------------------------------------------------
We have not incurred costs associated with environmental laws and do not anticipate such laws will have any significant effect on our future business.
Research and Development
We incurred research and development expenditures of $225,565 and $294,735 for our fiscal years ended May 31, 2006 and 2005, respectively. The majority of these expenditures have been devoted to our microprocessor technology. As our primary business strategy is to enforce our intellectual property patents through licensing, we do not anticipate significant expenditures relating to research and development in the near future.
Employees
We currently have five employees. All are full time and are employed in general and administrative activities. We also engage additional consultants and part-time persons, as needed.
Our future success depends in significant part upon the continued services of our key technical and senior management personnel. The competition for highly qualified personnel is intense, and there can be no assurance that we will be able to retain our key managerial and technical employees or that we will be able to attract and retain additional highly qualified technical and managerial personnel in the future. None of our employees is represented by a labor union, and we consider our relations with our employees to be good. None of our employees is covered by key man life insurance policies.
ITEM 2. DESCRIPTION OF PROPERTY
We have one 3,289 square foot office located at 6183 Paseo Del Norte, Suite 180, Carlsbad, California. The facility is leased under a non-cancelable lease through February 2010. The current floor space provides adequate and suitable facilities for all of our corporate functions.
We have one 10,300 square foot office located at 10989 Via Frontera, San Diego, California. The facility is leased under a non-cancelable lease through July 2006. In February 2006, we relocated our offices to the Carlsbad, California facility. In connection with our remaining contractual lease obligation for this facility we accrued $77,207 at the time of our relocation to the Carlsbad facility.
ITEM 3. LEGAL PROCEEDINGS
Beatie and Osborne, LLP v. Patriot Scientific Corporation
Beatie and Osborne, LLP is a New York law firm that formerly represented the Company in the Inventorship Litigation and the Infringement Litigation. On March 8, 2005, Beatie and Osborne was disqualified by United States District Judge Jeremy Fogel in the Inventorship Litigation. Beatie and Osborne thereafter withdrew from the representation of the Company in the Infringement Litigation. Beatie and Osborne initiated litigation in the Supreme Court of New York on June 8, 2005 claiming breach of contract, quantum meruit, and unjust enrichment and alleging claims against the Company, and former Company representatives, Jeffrey Wallin and Lowell Giffhorn, for fraud and interference with contractual relationship. Beatie and Osborne claimed a contingency fee under the terms of its contingency fee agreement with respect to licensing agreements entered into, and possibly with respect to license agreements to be entered into, by the Company. The Company caused a removal of the Beatie and Osborne lawsuit to the United States District Court for the Southern District of New York and moved to transfer the action to the Southern District of California. The transfer motion was denied on May 9, 2006, but Wallin and Giffhorn were ordered dismissed from the action at that time. The circumstances of the disqualification of Beatie and Osborne in the Inventorship Litigation and its withdrawal from the Infringement Litigation were claimed by the Company to have worked a forfeiture of any rights in Beatie and Osborne to a contingency fee of any kind. In July, 2006 the Company and Beatie and Osborne reached a settlement agreement whereby the Company has paid Beatie and Osborne $340,000 and Beatie and Osborne has retained $96,000 of the Company’s funds in its possession through a retainer account. This settled the case in full.
10
--------------------------------------------------
Patriot Scientific Corporation v. Russell Fish
On April 6, 2006, we filed a declaratory relief lawsuit against Russell Fish and The Fish Family Trust in the United States District Court for the Southern District of California. As a consequence of licensing agreements entered into by or on behalf of Patriot, Mr. Fish has presented demands for payment by us under his July 2004 agreement related to the Inventorship Litigation. We contend that Mr. Fish has been paid all sums that may have been owed to him. Our action seeks declaratory relief that no further sums are owed to Mr. Fish. Also, on April 6, 2006, Fish and, later, Robert Anderson, allegedly as trustee of The Fish Family Trust, filed a lawsuit against the Company in the District Court of Dallas County, Texas. The case was subsequently removed to the United States District Court for the Northern District of Texas. The lawsuit is based on an alleged breach of the contract entered into on July 27, 2004 and seeks enforcement of the contract or damages. The California action has been transferred to the Northern District of Texas. A mediation commenced on September 11, 2006 and is continuing while the proceedings are stayed.
Lowell Giffhorn Arbitration
On September 23, 2005, Lowell Giffhorn, a former executive officer and a former director of Patriot, submitted a demand for arbitration with the American Arbitration Association related to the termination of Mr. Giffhorn’s employment with the Company. Mr. Giffhorn asserts that the termination of his employment with the Company was unlawful, retaliatory, wrongful, violated public policy, violated the covenant of good faith and fair dealing and violated securities laws. Mr. Giffhorn has demanded damages of approximately $4,500,000 (excluding claims for punitive damages and attorneys fees). The Company denies the allegations and believes the claims to be frivolous and totally devoid of merit. The Company has retained litigation counsel and intends to vigorously defend the claims. The amount, if any, of ultimate liability with respect to the foregoing cannot be determined. Despite the inherent uncertainties of litigation, the Company at this time does not believe that Mr. Giffhorn's claim will have a material adverse impact on its financial condition, results of operations, or cash flows.
Patent Litigation
Pursuant to the joint venture that the Company entered into in June 2005 with Technology Properties Ltd. (in settlement of inventorship/ownership litigation between the parties, and in return for a 50-50 sharing of net licensing and enforcement revenues), the Company granted Technology Properties Ltd. (TPL) the complete and exclusive right to enforce and license its microprocessor patent portfolio. The Company then dismissed its patent infringement claims against Fujitsu Computer Systems, Inc.; Matsushita Electric Corporation of America; NEC Solutions (America) Inc.; Sony Electronics Inc.; and Toshiba America Inc., which had been pending in the Federal District Court for the Northern District of California. Thereafter, TPL, on behalf of the TPL/Patriot joint venture and Patriot, filed patent infringement actions against the foregoing defendants (except Sony) in the Federal District Court for the Eastern District of Texas, which litigation is currently pending. Litigation is not currently pending with regard to Fujitsu.
In February 2006, a license agreement was entered into with Fujitsu Corporation regarding the Company’s patent portfolio, and in connection with that transaction, litigation involving Fujitsu and TPL and the Company in both California and Texas was dismissed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our fiscal 2005 Annual Meeting of Shareholders held on April 28, 2006, the following individuals were elected to the Board of Directors of the Company: David H. Pohl, Carlton M. Johnson, Jr., Helmut Falk, Jr., Gloria H. Felcyn and James L. Turley.
The following proposals were approved at our Annual Meeting of Shareholders:
1. Proposal to approve the Patriot Scientific Corporation 2006 Stock Option Plan:
Votes For Votes Against Votes Abstaining
87,617,201 8,839,939 9,131,981
2. Proposal to ratify management’s selection of Corbin & Company, LLP as the Company’s independent auditors:
Votes For Votes Against Votes Abstaining
297,015,975 704,459 354,822
11
--------------------------------------------------
3. Election of Directors:
Director Votes For Votes Abstaining and/or
Against
David H. Pohl 296,950,324 1,124,933
Carlton M. Johnson, Jr. 285,507,445 12,567,812
Helmut Falk, Jr. 286,800,552 11,274,705
Gloria H. Felcyn 294,981,337 3,093,920
James L. Turley 297,117,897 957,360
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock (“Common Stock”) is traded in the over-the-counter market and is quoted on the NASD OTC Bulletin Board system maintained by the National Association of Securities Dealers, Inc. Prices reported represent prices between dealers, do not include markups, markdowns or commissions and do not necessarily represent actual transactions. The market for our shares has been sporadic and at times very limited.
The following table sets forth the high and low closing bid quotations for the Common Stock for the fiscal years ended May 31, 2006 and 2005.
BID QUOTATIONS
HIGH LOW
Fiscal Year Ended May 31, 2005
First Quarter $ 0.09 $ 0.03
Second Quarter $ 0.05 $ 0.03
Third Quarter $ 0.25 $ 0.05
Fourth Quarter $ 0.18 $ 0.07
Fiscal Year Ended May 31, 2006
First Quarter $ 0.18 $ 0.11
Second Quarter $ 0.15 $ 0.09
Third Quarter $ 0.91 $ 0.08
Fourth Quarter $ 1.96 $ 0.69
We had approximately 614 shareholders of record as of May 31, 2006. Because most of our Common Stock is held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these record holders.
Dividend Policy
We paid our first dividend of $0.02 per common share on March 22, 2006. We paid a $0.04 per common share dividend on April 24, 2006. The Board of Directors may declare additional dividends in the future with due regard for the financial resources of the Company and alternative applications of those financial resources. Prior to the fiscal year ended May 31, 2006 we had never paid a cash dividend on our Common Stock.
Equity Compensation Plan Information
The Company’s stockholders previously approved each of the Company’s 1992, 1996, 2001, 2003 and 2006 Stock Option Plans. The following table sets forth certain information concerning aggregate stock options authorized for issuance under the Company’s 1996, 2001, 2003 and 2006 Stock Option Plans as of May 31, 2006.
12
--------------------------------------------------
Shares of common stock issuable on the exercise of warrants have not been approved by the Company’s stockholders and, accordingly, have been segregated in the table below. For a narrative description of the material features of the plans, refer to Footnote 8 of our consolidated financial statements.
Plan Category Number of securities to be issued upon exercise of outstanding options and warrants Weighted-average exercise price of outstanding options and warrants Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans
approved by security holders 5,460,000 $ 0.34 5,229,000
Equity compensation plans not
approved by security holders 53,349,220 $ 0.05 —
Total 58,809,220 5,229,000
RECENT SALE OF UNREGISTERED SECURITIES
During the fourth fiscal quarter ended May 31, 2006, we did not offer for sale any unregistered securities.
ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
During the fiscal years ended May 31, 2005 and May 31, 2006, the Company entered into agreements for the licensing of its technology with Advanced Micro Devices Inc. ("AMD") and Intel Corporation, among the largest of the microprocessor manufacturers. During the 2006 fiscal year the Company entered into licensing agreements with Hewlett-Packard, Fujitsu and Casio. We believe the agreements represent validation of the Company's position that its intellectual property was and is being infringed by major manufacturers of microprocessor technology. Also, we believe the agreements demonstrate the value of the Company's intellectual property in that they are "arms length" transactions with major electronics manufacturers.
In June 2005, the Company entered into a series of agreements with Technology Properties Limited, Inc. (“TPL”) and others to facilitate the pursuit of infringers of its intellectual property. The Company intends to continue its joint venture with TPL to pursue license agreements with infringers of its technology. Management believes that utilizing the option of working through TPL, as compared to creating and using a Company licensing team for those activities, avoids a competitive devaluation of the Company’s principal assets and is a prudent way to achieve the desired results as the Company seeks to obtain fair value from users of its intellectual property.
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
On September 8, 2006, the Company determined that the manner in which it had accounted for the reset conversion feature and embedded put option of certain of its convertible debentures was not in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting For Derivative Instruments and Hedging Activities , as amended, and Emerging Issues Task Force (“EITF”) Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock . The Company determined that the reset conversion feature was an embedded derivative instrument and that the conversion option was an embedded put option pursuant to SFAS No. 133. The accounting treatment of derivative financial instruments required that the Company record the derivatives and related warrants at their fair values as of the inception date of the convertible debenture agreements and at fair value as of each subsequent balance sheet date. In addition, under the provisions of EITF No. 00-19, as a result of entering into the convertible debenture agreements, the Company was required to classify all other non-employee warrants as derivative liabilities and record them at their fair values at each balance sheet date. Any change in fair value was required to be recorded as non-operating, non-cash income or expense at each balance sheet date. If the fair value of the derivatives was higher at the subsequent balance sheet date, the Company was required to record a non-operating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company was required to record non-operating, non-cash income. Accordingly, in connection with its restatement adjustments, the Company has appropriately reflected the non-operating, non-cash income or expense resulting from changes in fair value. The Company had previously not recorded the embedded derivative instruments as a liability and did not record the related changes in fair value. The Company did not have any derivative instruments at May 31, 2006 as all derivative instruments were settled prior to May 31, 2006.
13
--------------------------------------------------
Based on the foregoing, the Company’s Board of Directors determined that the Company was required to restate its financial results for the year ended May 31, 2005.
See Note 3 to the accompanying Consolidated Financial Statements included in this Annual Report on Form 10-KSB for a summary of the effects of the restatement adjustments on the Company's consolidated financial statements. The information provided in this Management's Discussion and Analysis of Financial Condition or Plan of Operation reflects the effect of the restatement adjustments.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our 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 consolidated financial statements.
1. Revenue Recognition
Accounting for revenue recognition is complex and affected by interpretations of guidance provided by several sources, including the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”). This guidance is subject to change. We follow the guidance established by the SEC in Staff Accounting Bulletin No. 104, as well as generally accepted criteria for revenue recognition, which require that, before revenue is recorded, there is persuasive evidence of an arrangement, the fee is fixed or determinable, collection is reasonably assured, and delivery to our customer has occurred. Applying these criteria to certain of our revenue arrangements requires us to carefully analyze the terms and conditions of our license agreements. Revenue from our technology license agreements is generally recognized at the time we enter into a contract and provide our customer with the licensed technology. We believe that this is the point at which we have performed all of our obligations under the agreements; however, this remains a highly interpretive area of accounting, and future license agreements may result in a different method of revenue recognition. Fees for maintenance or support of our licenses are recorded on a straight-line basis over the underlying period of performance.
2. Assessment of Contingent Liabilities
We are involved in various legal matters, disputes, and patent infringement claims which arise in the ordinary conduct of our business. We accrue for 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 and properly disclosed.
3. Stock Options and Warrants
14
--------------------------------------------------
The Company applies Accounting Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to Employees,” and related Interpretations in accounting for all stock option plans. Under APB Opinion 25, compensation cost has been recognized for stock options granted to employees when the option price is less than the market price of the underlying common stock on the date of grant.
Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,” require the Company to provide pro forma information regarding net income as if compensation cost for the Company's stock option plans had been determined in accordance with the fair value based method prescribed in SFAS No. 123. To provide the required pro forma information, the Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model. SFAS No. 148 also provides for alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company has elected to continue to account for stock based compensation under APB Opinion 25.
The Company applies SFAS No. 123 in valuing options and warrants granted to consultants and others and estimates the fair value of such options and warrants using the Black-Scholes option-pricing model. The fair value is recorded as expense as services are provided or other obligations are incurred. Options and warrants granted to consultants for which vesting is contingent based on future performance are measured at their then current fair value at each period end, until vested. The Black-Scholes model requires the use of various inputs, including the volatility of our stock price, duration of the option or warrant, and interest rates, over which we use our judgment. Given that we have recorded significant non-cash expenses related to the issuance of our warrants to third-parties, our estimate of the value of warrants issued remains a critical component of our financial statements.
4. Debt Discount
We have issued warrants as part of our convertible debentures and other financings. We value the warrants using the Monte Carlo simulation model based on the fair value at issuance, and the fair value is recorded as debt discount. The debt discount is amortized to non-cash interest over the life of the debenture assuming the debenture will be held to maturity, which has normally been two years. If the debenture is converted to common stock prior to its maturity date, any debt discount not previously amortized is expensed to non-cash interest.
5. Derivative Financial Instruments
In connection with the issuance of certain convertible debentures, the terms of the debentures included a reset conversion feature which provided for a conversion of the debentures into shares of the Company's common stock at a rate which was determined to be variable. The conversion option was therefore deemed to be an embedded put option pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting For Derivative Instruments and Hedging Activities , as amended, and Emerging Issues Task Force (“EITF”) Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock . The Company determined that the reset conversion feature was an embedded derivative instrument and that the conversion option was an embedded put option pursuant to SFAS No. 133. The accounting treatment of derivative financial instruments required that the Company record the derivatives and related warrants at their fair values as of the inception date of the convertible debenture agreements and at fair value as of each subsequent balance sheet date. In addition, under the provisions of EITF No. 00-19, as a result of entering into the convertible debenture agreements, the Company was required to classify all other non-employee warrants as derivative liabilities and record them at their fair values at each balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense at each balance sheet date. If the fair value of the derivatives was higher at the subsequent balance sheet date, the Company recorded a non-operating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company recorded non-operating, non-cash income. As of May 31, 2006, the Company does not have any outstanding derivative instruments as the related debt instruments were settled prior to May 31, 2006.
6. Patents and Trademarks
Patents and trademarks are carried at cost less accumulated amortization and are amortized over their estimated useful lives of four years. The carrying value of patents and trademarks is periodically reviewed and impairments, if any, are recognized when the expected future benefit to be derived from an individual intangible asset is less than its carrying value.
7. Income Taxes
15
--------------------------------------------------
Deferred income taxes are provided for by recognizing temporary differences in certain income and expense items for financial and tax reporting purposes. Deferred tax assets consist primarily of income tax benefits from net operating loss carry-forwards. A valuation allowance is recorded to fully offset the deferred tax asset if it is more likely than not that the assets will not be utilized. We have historically provided a valuation allowance equal to 100% of our net deferred tax asset. In spite of the net income recorded by us during the years ended May 31, 2005 and May 31, 2006, we do not believe that we have ample evidence of overcoming the “more likely than not” criteria established by generally accepted accounting principles. We will continue to monitor our financial operating results, and other factors, to determine when, if ever, we meet these criteria.
8. Investment in Affiliated Company
The Company has a 50% interest in Phoenix Digital Systems, LLC. This investment is accounted for using the equity method of accounting since the investment provides the Company the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has 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 the Company’s share of net earnings or losses of the investee and is recognized in the consolidated statement of operations in the caption “Equity in earnings of affiliated company”.
The Company reviews its investment in affiliated company to determine whether events or changes in circumstances indicate that its carrying amount may not be recoverable. The primary factors the Company considers in its determination are the financial condition, operating performance and near term prospects of the investee. If a decline in value is deemed to be other than temporary, the Company would recognize an impairment loss.
RESULTS OF OPERATIONS
Total revenues increased from approximately $2,983,000 for the fiscal year ended May 31, 2005 to approximately $10,310,000 (which amount does not include approximately $27,848,000 in income resulting from the Company’s investment in Phoenix Digital Solutions, LLC) for the fiscal year ended May 31, 2006. In the third quarter of fiscal year 2005 we entered into an agreement with AMD Corporation that granted licenses for our Ignite microprocessor and for our patent portfolio of microprocessor technologies. The Ignite license called for payments totaling $1,220,000 with $300,000 paid upon closing of the agreement, $292,500 to be paid in the fourth quarter of fiscal 2005 and the remaining balance to be paid during fiscal 2006. The revenues associated with the Ignite license were all recognized in fiscal 2005. The agreement also called for a maintenance fee totaling $100,000 connected with the Ignite license. That fee is considered to support the Ignite license over a period of four years and is being recognized as revenue evenly over the four year period. The Ignite license contains provisions for royalties based upon deliveries of products using the technology. However we cannot make reliable projections of quantities or the timing of shipments that could lead to royalty payments resulting from this agreement. The agreement with AMD also included a non-exclusive license for our portfolio of intellectual property. A one-time license fee amounting to $1,730,000 was agreed upon with four equal payments of $432,500 to be paid during fiscal 2005 and 2006. The entire amount of the license fee was recognized as revenue in fiscal 2005. In June 2005, we entered into an agreement with Intel Corporation licensing our intellectual property, in connection with which we received a one-time payment of $10,000,000. The license revenue was recognized during fiscal 2006. In connection with entering into the agreement with Intel Corporation, we entered into an agreement with the co-owner of our patented technologies, through which we settled all legal disputes between us and agreed to jointly pursue others who have infringed upon our joint rights. Product sales amounting to approximately $310,000 were also recorded during the 2006 fiscal year in connection with communications products that are no longer marketed by the Company. Inventory associated with the sales of these communications products is carried at zero value. Cost of sales of approximately $103,000 consists of payments made to sub contractors for materials and labor in connection with the products sales. Sales of communications and microprocessor products that have been discontinued amounted to approximately $25,000 for the 2005 fiscal year.
Research and development expenses declined from approximately $295,000 for the fiscal year ended May 31, 2005 to approximately $226,000 for the fiscal year ended May 31, 2006. Expenses related to salaries, benefits, training and other employee expenses declined approximately $114,000 resulting from staff reductions. Consulting and related support expenses increased from approximately $15,000 during fiscal 2005 to approximately $65,000 for fiscal 2006 as research and development activities moved to outside contractors. Costs of components, supplies and equipment increased by approximately $5,000 for the 2006 fiscal year as compared with the 2005 fiscal year connected with product development and support of the Ignite product line. Depreciation for fixed assets associated with research and development activities declined from approximately $11,000 for the fiscal year ended May 31, 2005 to less than $1,000 for the fiscal year ended May 31, 2006 as equipment became fully depreciated and was not replaced.
16
--------------------------------------------------
Selling, general and administrative expenses increased from approximately $2,600,000 for the fiscal year ended May 31, 2005 to approximately $4,151,000 for the fiscal year ended May 31, 2006. Legal and accounting related expenses increased by approximately $997,000 for the 2006 fiscal year compared with the 2005 fiscal year related to legal matters in connection with intellectual property and formation of a limited liability company, the license agreement with Intel Corporation, and legal issues related to former employees and other corporate matters. In addition, salary costs increased approximately $605,000 for the 2006 fiscal year compared with the 2005 fiscal year as a result of changes in management personnel that included severance costs. Other increases for the 2006 fiscal year as compared with the 2005 fiscal year included public relations and consultant expenses of approximately $308,000, insurance expenses of approximately $73,000 and travel expenses of approximately $85,000. Offsetting these increases were decreases in legal contingency fees of approximately $560,000 and decreases in patent enforcement expenses of approximately $290,000.
Settlement and license expenses amounting to approximately $1,918,000 were recorded during the fiscal year May 31, 2006 in connection with the agreements involving the formation of a limited liability company and, separately, a license agreement with Intel Corporation. The expenses consisted of both cash and non-cash elements related to incremental, direct costs of completing the transactions. In connection with the transactions, it was necessary for the Company to obtain the consent of certain debenture and warrant holders. The necessary consents, together with certain warrants held by the debenture holders and the release of their security interests in our intellectual property, were obtained in exchange for cash, new warrants and repriced warrants. The expenses resulted primarily from cash payments to debt holders of approximately $1,328,000, to co-owners of various intellectual property assets of approximately $960,000 and to a committee of the Company's board of directors of approximately $170,000. Non-cash expenses totaled approximately $82,000 and resulted primarily from the incremental value of the effect of repricing various warrants and granting other warrants in excess of the expense previously recognized for warrants granted to these security holders. Offsetting the non-cash expenses were non-cash benefits to the Company from the reconveyance of warrants, amounting to approximately $622,000.
Other income and expenses for the Company in the fiscal year ended May 31, 2006 included equity in the earnings of Phoenix Digital Solutions LLC, a joint venture entity. The investment is accounted for in accordance with the equity method of accounting for investments. The Company’s investment in the joint venture for the fiscal year ended May 31, 2006 provided income in the amount of approximately $27,848,000 resulting from licensing agreements for our intellectual property with Hewlett-Packard, Fujitsu and Casio for one time payments. Total other income and expense for the fiscal year ended May 31, 2006 amounted to approximately $24,761,000 compared with total other income and expense for the fiscal year ended May 31, 2005 of net expenses amounting to approximately $10,606,000. Changes in the fair value of warrant and derivative liabilities amounted to net expense in the 2005 fiscal year of approximately $7,564,000 and net expense of approximately $2,457,000 in the 2006 fiscal year. Expenses were incurred during the 2006 fiscal year of approximately $445,000 in connection with debt extinguishment and no such expenses were incurred during the 2005 fiscal year. Interest expense amounted to approximately $3,082,000 for the 2005 fiscal year and approximately $517,000 for the 2006 fiscal year. The non-cash portion of interest expense amounted to approximately $2,941,000 for the 2005 fiscal year and approximately $471,000 for the 2006 fiscal year associated primarily with convertible debenture debt discount amortization and write-off of debt discount upon conversion of convertible debentures. Interest income and other income increased from approximately $56,000 for the 2005 fiscal year to approximately $330,000 for the 2006 fiscal year, as interest bearing account balances increased from license revenues. Gain on sale of assets amounted to approximately $4,000 for the 2005 fiscal year and approximately $3,000 for the 2006 fiscal year. Unrealized loss on marketable securities amounted to approximately $21,000 for the 2005 fiscal year and $1,000 for the 2006 fiscal year.
The Company's net income for the fiscal year ended May 31, 2006 amounted to approximately $28,673,000 compared with a loss of approximately $10,519,000 for the fiscal year ended May 31, 2005.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, marketable securities and short-term investment balances increased from approximately $1,289,000 as of May 31, 2005 to approximately $7,503,000 as of May 31, 2006. We also held short term certificates of deposit and restricted cash balances amounting to approximately $202,000 as of May 31, 2005 and approximately $100,000 as of May 31, 2006. Total current assets increased from approximately $3,612,000 as of May 31, 2005 to approximately $8,015,000 as of May 31, 2006. Total current liabilities amounted to approximately $1,644,000 and approximately $1,244,000 as of May 31, 2005 and May 31, 2006, respectively. The decrease as of the end of the 2006 fiscal year resulted primarily from the retirement of convertible debentures with current amounts due as of the end of the 2005 year of approximately $422,000, net of debt discount of approximately $301,000. In addition, accrued liabilities decreased by approximately $350,000 as of May 31, 2006 as compared with the amount as of May 31, 2005. Partially offsetting these decreases in current liabilities was an increase in accounts payable balances from approximately $269,000 as of May 31, 2005 to approximately $695,000 as of May 31, 2006. The improvement in the Company’s current position as of May 31, 2006 as compared with the previous year primarily results from increased revenues during the 2006 fiscal year.
17
--------------------------------------------------
Non-current liabilities at May 31, 2005 included a derivative liability associated with convertible debentures and outstanding warrants amounting to approximately $9,275,000. Also as of May 31, 2005, the non-current portion of outstanding convertible debentures amounted to approximately $46,000, net of debt discount of approximately $112,000. There were no amounts associated with these items as of May 31, 2006 as a result of the Company’s retirement of all remaining convertible debt during the 2006 fiscal year.
During recent years we have relied upon financing activities to provide the funds necessary for the Company's operations. The number of shares of the Company's common stock outstanding increased from 171,156,363 at May 31, 2004 to 366,199,765 at May 31, 2006, largely as a result of financing activities including sales of common stock, the issuance of convertible debentures and notes payable and related conversions and exercises of common stock warrants. We believe that the Company will be able to avoid such methods of financing operations for the foreseeable future.
The Company's current position as of May 31, 2006 is expected to provide the funds necessary to support the Company's operations through the fiscal year ended May 31, 2007.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS No. 123(R)"), which is a revision of SFAS No. 123. SFAS 123(R) supersedes APB Opinion No. 25 and amends SFAS No. 95, Statement of Cash Flows . Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The provisions of this statement are effective for the Company as of June 1, 2006. The Company expects to adopt SFAS No. 123(R) in the first fiscal quarter of 2007.
SFAS No. 123(R) requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees. SFAS No. 123(R) also establishes accounting requirements for measuring, recognizing and reporting share-based compensation, including income tax considerations. Upon adoption of SFAS No. 123(R), the Company will be required to determine the transition method to be used at the date of adoption. The allowed transition methods are the modified prospective application and the modified retrospective application. Under the modified prospective application, the cost of new awards and awards modified, repurchased or cancelled after the required effective date and the portion of awards for which the requisite service has not been rendered (unvested awards) that are outstanding as of the required effective date will be recognized as the requisite service is rendered on or after the required effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated for either recognition or pro forma disclosures under SFAS No. 123. The modified retrospective application requires companies to record compensation expense for all unvested stock options and restricted stock beginning with the first disclosed period restated. The Company plans to adopt SFAS No. 123(R) using the modified prospective application.
As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB Opinion No. 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123(R)'s fair value method will have a negative impact on the Company's results of operations, although it will have no impact on its overall financial position. The impact of adopting SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income (loss) and income (loss) per share. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current accounting literature. The requirement will reduce net operating cash flows and increase net financing cash flows in periods of adoption.
18
--------------------------------------------------
In December 2004, the FASB issued SFAS No. 153, “Exchange of Nonmonetary Assets,” an amendment of APB Opinion No. 29, “Accounting for Nonmonetary Transaction.” SFAS No. 153 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair market value of the assets exchanged. SFAS No. 153 eliminates the exception of nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary asset exchanges in fiscal periods beginning after June 15, 2005. The Company does not believe that the provisions of SFAS No. 153 will have a material impact on its financial statements.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which replaces APB Opinion No. 20, “Accounting Changes,” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and correction of errors made in fiscal years beginning after the date SFAS No. 154 was issued. At the present time, the Company does not believe that adoption of SFAS No. 154 will have a material effect on its financial statements.
RISK FACTORS
You should consider the following discussion of risks as well as other information regarding our common stock. The risks and uncertainties described below are not the only ones, as additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business could be harmed.
WE ARE CURRENTLY INVOLVED IN A LEGAL DISPUTE WHICH COULD IMPACT OUR FUTURE RESULTS OF OPERATIONS AND WORKING CAPITAL
The Company is being sued by a co-inventor of the patent portfolio technology relating to proceeds we received under our recently signed license agreements. We believe that the co-inventor’s claim lacks merit, a claim which the Company disputes and which the Company intends to defend vigorously. Should we not prevail in this dispute, the amount payable to the co-inventor could affect our business and operations. In addition, if we are required to litigate this matter, or otherwise settle the matter outside of court, the cost of resolving this matter may impact our future reported results of operations and consume a significant amount of cash.
RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND, THEREFORE, MAY NOT CONTINUE ANNUAL PROFITABILITY
We have a history of reported losses. Although we have entered into various license agreements in fiscal 2006, which have resulted in our reporting significant revenue, we may not be able to achieve sustained profitable operations in the future. Should the funds generated from these agreements be insufficient to fund our operations, we may be forced to curtail our operations or seek additional external funding. Additional funding may not be available to us or, if it is available, it may not be on terms favorable to us.
RELATED TO OUR INDUSTRY
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY MAY INADVERTENTLY ADVERSELY AFFECT OUR ABILITY TO COMPETE
A successful challenge to our ownership of our technology could materially damage our business prospects. Our technologies may infringe upon the proprietary rights of others. Licenses required by us from others may not be available on commercially reasonable terms, if at all. We rely on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We currently have eight U.S. patents , one European patents and one Japanese patent issued. Any issued patent may be challenged and invalidated. Patents may not be issued for any of our pending applications. Any claims allowed from existing or pending patents may not be of sufficient scope or strength to provide significant protection for our products. Patents may not be issued in all countries where our products can be sold so as to provide meaningful protection or any commercial advantage to us. Our competitors may also be able to design around our patents.
19
--------------------------------------------------
Vigorous protection and pursuit of intellectual property rights or positions characterize the fiercely competitive semiconductor industry, which has resulted in significant and often protracted and expensive litigation. Therefore, our competitors may assert that our technologies or products infringe on their patents or proprietary rights or that their products do not infringe upon our patents . If infringement claims against us are deemed valid, we may not be able to obtain appropriate licenses on acceptable terms, or at all. If an infringement asserted by us is determined not to exist, the value of our patent portfolio could be affected adversely. Litigation is costly and time-consuming but may be necessary to protect our future patent and/or technology license positions or to defend against infringement claims. (See our discussion of Legal Proceedings below.) We did not develop the technology which is the basis for our products. This technology, which was originally known as the ShBoom technology, was acquired through a series of agreements from one of two co- inventors. We have been, are now, and may i n the future be subject to claims from such prior parties related to the technology. Such parties may also attempt to exploit the technology independently of our rights to do so. The asset purchase agreement and plan of reorganization between us, nanoTronics Corporation and Helmut Falk was the agreement under which we acquired the basic ShBoom technology. The agreement also contained a number of warranties and indemnities related to the ownership of the technology and other matters. We believe nanoTronics Corporation has been liquidated and, due to Mr. Falk’s death in July 1995, our ability to obtain satisfaction for any future claims as a result of a breach of the agreement may be limited.
RELATED TO OUR DEBT AND EQUITY OFFERINGS AND SHARE PRICE
IF A LARGE NUMBER OF OUR SHARES ARE SOLD ALL AT ONCE OR IN BLOCKS, THE MARKET PRICE OF OUR SHARES WOULD MOST LIKELY DECLINE
Our common stock is currently listed for trading in the NASD Over-The-Counter Bulletin Board Market and is subject to the “penny stock rules” adopted pursuant to Section 15(g) of the Securities Exchange Act of 1934, as amended (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” to 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 attract competitive funding.
OUR SHARE PRICE COULD BE LOWERED AS A RESULT OF SHORT SALES
The downward pressure on the price of our common stock as the debenture holders convert and sell material amounts of common stock could encourage short sales by the debenture holders or others. 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, will buy the stock at a later date. If the price of the stock goes down, the seller will profit to the extent of the difference between the amount the seller originally sold it for less the amount the seller later had to pay to buy it. 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.
20
--------------------------------------------------
WE COULD BE SUBJECT TO A CHANGE IN CONTROL IF OUR SIGNIFICANT WARRANT HOLDERS EXERCISE THEIR WARRANTS
There is a possibility that a significant number of warrants may be exercised, if so, it could result in a change in control of our Company. Such a change in control could have a material adverse effect on our operations and business plans. We are unable to determine the impact such a change in control could have on our Company.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this item begin on page F-1 with the index to consolidated financial statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(e) under the Exchange Act, as of May 31, 2006, the end of the period to which this annual report relates, we have carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our 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 Securities and Exchange Commission’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 under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and 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 May 31, 2006, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective due to the following two discrete issues, that pertain to material weaknesses, discussed in more detail, below.
Notwithstanding the material weaknesses discussed below, the Company's management has concluded that the consolidated financial statements included in this Annual Report on Form 10-KSB fairly present in all material respects the Company's financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
Effect of Restatement on Disclosure Controls
As disclosed in Item 8B herein, the Audit Committee of our Board of Directors authorized us to amend and restate our financial statements and other financial information for the year ended May 31, 2005, and the quarters ended August 31, 2005, November 30, 2005, and February 28, 2006, as a result of a change in judgment regarding (i) the accounting treatment for our previously outstanding convertible debentures and (ii) our accounting treatment of our interest in Phoenix Digital Solutions, LLC. The issue pertaining to the convertible debentures also relates to the previous years ended May 31, 2004, 2003 and 2002. See the Notes to the 2006 consolidated financial statements for more information.
In connection with the restatement, and in light of the change in judgment which gave rise to it, our Chief Executive Officer and our Chief Financial Officer considered the effect of the error on the adequacy of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-KSB for the year ended May 31, 2006. The certifying officers determined that disclosure controls and procedures were not effective as a consequence of the material weaknesses described below.
21
--------------------------------------------------
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of the restatements described above, the following material weaknesses were identified in the Company's assessment of the effectiveness of disclosure controls and procedures as of May 31, 2006:
i) The Company did not maintain effective controls over the identification of a variable conversion feature and put option embedded within its convertible debt instruments and the determination of the appropriate accounting treatment for those debt instruments.
ii) The Company did not maintain effective controls over the accounting for its investment in Phoenix Digital, LLC and the determination of the appropriate accounting treatment for the investment.
As a result of these weaknesses, management has taken steps, including the retention of new and additional accounting personnel, and continues to monitor the controls and procedures, to ensure that the errors will not occur again and that the Company’s disclosure controls and procedures are operating at the reasonable assurance level. In addition, management has engaged our current auditors to perform a re-audit of the fiscal years ended May 31, 2005, 2004, 2003 and 2002 (including the beginning balances for 2001).
Changes in Internal Control over Financial Reporting
There were no 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.
ITEM 8B. OTHER INFORMATION
Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review .
On September 8, 2006, the Company reached a determination that the prior accounting treatment of (i) our previously outstanding non-conventional convertible notes which allowed such note holders to convert the notes payable into shares of our common stock at prices that were variable and potentially based upon several factors including the market price of our common stock at the time of conversion, and (ii) our accounting treatment of our interest in Phoenix Digital Solutions, LLC, should be reassessed. The Company has also determined that the adjustments required as a result of our reassessments are material to our financial statements and, therefore, will require us to restate our financial statements for the year ended May 31, 2005, and restate our quarterly reports for the quarters ended August 31, 2005, November 30, 2005 and February 28, 2006. The issue pertaining to the embedded derivatives also relates to the previous years ended May 31, 2004, 2003, 2002.
The Company’s consolidation of the financial results of Phoenix Digital Solutions, LLC was based on discussions with the Company’s prior auditors. Following discussions with the Company’s current auditors, the Company has reassessed its accounting for its interest in Phoenix Digital Solutions, LLC and after further consideration of FIN 46R, has determined that it incorrectly consolidated the financial results of Phoenix Digital Solutions, LLC when it should have accounted for its interest in Phoenix Digital Solutions, LLC in accordance with the equity method of accounting for investments. The change in accounting was the result of the Company concluding that it did not have a controlling financial interest in Phoenix Digital Solutions, LLC and was not the primary beneficiary of the relationship.
Based on recent SEC guidance, the Company re-evaluated its accounting for its previously outstanding convertible debentures to determine whether the embedded conversion options required bifurcation and fair value accounting in accordance with FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock.” The Company concluded that bifurcation of the embedded derivative from the host instrument was required and that the embedded derivative should be accounted for as a derivative at fair value with changes in fair value recorded in earnings. The Company determined that the initial accounting treatment for the previously outstanding debentures was not correctly applied and that, therefore, a restatement of the Company's financial statements was required.
The Company also considered the guidance issued by the SEC’s Division of Corporation Finance with respect to the variable nature of the conversion price of its previously outstanding convertible debentures, noting that there is no explicit limit on the number of shares that are to be delivered upon exercise of the conversion feature, and EITF No. 00-19 which states that “if the number of shares that could be required to be delivered to net-share settle the contract is indeterminate, a company will be unable to conclude that it has sufficient available authorized and unissued shares, and therefore, net-share settlement is not within the control of the Company.” Because this condition under EITF No. 00-19 was not met, the Company determined that it was precluded from classifying the embedded derivative instrument as equity. Accordingly, the feature should have been accounted for as a derivative liability at fair value, with changes in fair value recorded in earnings The Company has determined that it should have classified all of its non-employee warrants as a liability as it is presumed under EITF No. 00-19 that the Company will not have a sufficient number of authorized shares to settle its other commitments that may require the issuance of stock during the period the derivative contract could remain outstanding. The Company did not previously apply the aforementioned guidance in accounting for the variable nature of the conversion price and therefore, a restatement of the Company’s financial statements was required.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers at September 19, 2006. There is no familial relationship between or among the nominees, directors or executive officers of the Company.
NAME AGE POSITION, OFFICE and TERM
Helmut Falk, Jr. 50 Director (since December 1997)
Gloria H. Felcyn 59 Director (since October 2002)
Carlton M. Johnson, Jr. 46 Director (since August 2001)
David H. Pohl 69 Director (since April 2001) / President and Chief Executive Officer
Thomas J. Sweeney 56 Chief Financial Officer/Secretary
James L. Turley 44 Director (since February 2006)
BIOGRAPHICAL INFORMATION
HELMUT FALK, JR. From 1992 until 2000, Dr. Falk served as the Director of Anesthesia of, and served on the medical executive committee for, The Johnson Memorial Hospital in Franklin, Indiana. Since 2000, Dr. Falk has worked at St. Francis Hospital in Mooresville, Indiana as a staff anesthesiologist and has been Chairman of its Pharmacy and Therapeutics Committee. Dr. Falk received his D.O. degree from the College of Osteopathic Medicine of the Pacific in 1987 and his B.S. in Biology from the University of California, Irvine in 1983. Dr. Falk is the son of the late Helmut Falk, who was the sole shareholder of nanoTronics and the Chairman and CEO of the Company until his death in July 1995. Dr. Falk is also an heir to the Helmut Falk Estate, which is the beneficial owner of the Company's shares held by the Helmut Falk Family Trust.
GLORIA H. FELCYN. Gloria Felcyn has served as a Director of the Company since 2002 and is the Chairman of the Audit Committee of the Board of Directors. Since 1982, Ms. Felcyn has been the principal in her own certified public accounting firm. Prior to establishing her own firm, Ms. Felcyn was employed by Main Hurdman & Cranston from 1969 through 1970 and at Price Waterhouse & Co., in the San Francisco and New York offices from 1970 through 1976. Subsequent to that, Ms. Felcyn worked in the field of off-shore tax planning with a major real estate syndication company. Ms. Felcyn received her B.S. degree in Business Economics from Trinity University in 1968 and is a member of the American Institute of CPAs.
CARLTON M. JOHNSON, JR. Carlton Johnson has served as a Director of the Company since 2001, and is Chairman of the Executive Committee of the Board of Directors. Mr. Johnson is in-house legal counsel for Roswell Capital Partners, LLC, a position he has held since June 1996. Mr. Johnson has been admitted to the practice of law in Alabama since 1986, Florida since 1982 and Georgia since 1997. He has been a shareholder in the Pensacola, Florida AV- rated law firm of Smith, Sauer, DeMaria Johnson and was President-Elect of the 500 member Escambia-Santa Rosa Bar Association. He also served on the Florida Bar Young Lawyers Division Board of Governors. Mr. Johnson earned a degree in History/Political Science at Auburn University and Juris Doctor at Samford University - Cumberland School of Law. Mr. Johnson is also a director and member of the audit committee of Peregrine Pharmaceuticals, Inc., a publicly held company.
22
--------------------------------------------------
DAVID H. POHL. David Pohl has served as a Director of the Company since April 2001, and served as an officer of the Company from January 2001 to March 2002. He was elected Chairman, Chief Executive Officer and President on June 13, 2005. Except for his service with the Company, Mr. Pohl has been in the private practice of law counseling business clients since 1997, and most recently was Of Counsel with the law firm of Herold & Sager in Encinitas, California. He is a member of the Intellectual Property Law and Business Law Sections of the State Bar of California. In 1995 and 1996, Mr. Pohl was Special Counsel to the Ohio Attorney General regarding investments in entrepreneurial firms by state pension funds. Previously he was a senior attorney with a large U.S. law firm, and held positions as a senior officer and general counsel in large financial services corporations. Mr. Pohl earned a J.D. degree in 1962 from The Ohio State University College of Law, and also holds a B.S. in Administrative Sciences from Ohio State. Mr. Pohl is also a director and member of the audit committee of Peregrine Pharmaceuticals, Inc., a publicly held company.
THOMAS J. SWEENEY. Mr. Sweeney became the Company's Chief Financial Officer on August 3, 2005 and is Secretary of the Company. Since 2000, Mr. Sweeney has been a Partner in the San Diego office of Tatum CFO Partners, a national financial services firm. While a Partner of Tatum and for three and one-half years, Mr. Sweeney served as the Chief Financial Officer of New Visual Corporation, now named Rim Semiconductor, a publicly held development stage company in the telecommunications industry with more than 8,000 shareholders. Also while with Tatum, he served as the Chief Financial Officer of Mitchell International, Inc., a 700 person firm that is a provider of information software, print publications and total business solutions. Also while with Tatum, Mr. Sweeney worked in Johannesburg and Cape Town, South Africa on a project basis for an investment group that was organized under Astrata Group, Inc., a publicly held U.S. company, as it completed acquisitions of satellite technology subsidiaries. Earlier in his career, Mr. Sweeney worked as an auditor for Ernst & Young LLP, where he earned his CPA certificate, and worked for the international consulting firm of McKinsey & Company. Mr. Sweeney earned his B.B.A. and M.B.A. degrees from The University of Texas at Austin and is a member of the American Institute of CPAs.
JAMES L. TURLEY. Jim Turley has been a Director of the Company since February, 2006, and is Chairman of the Technology Committee of the Board of Directors. Mr. Turley is an acknowledged authority on microprocessor chips, semiconductor intellectual property, computers, and silicon technology. Mr. Turley has served as the Editor-in-Chief of Embedded Systems Design, a global magazine for high-tech developers and managers, and Conference Chairman of the Embedded Systems Conferences, a series of electronics design shows. In addition, since August 2001, Mr. Turley has managed his own technology consulting and analysis business, Silicon Insider. From 1999 to 2001, he served as Senior Vice President of Marketing for ARC International, a microprocessor intellectual property company based in the UK. Mr. Turley has authored seven books on microprocessor chips, semiconductor intellectual property, computers, and silicon technology. He has served as editor of the prestigious industry journal Microprocessor Report (a three-time winner of the Computer Press Award), and is a frequent speaker at industry events. Mr. Turley also serves on the board of directors and/or technical advisory boards of several high-tech companies in the U.S. and Europe.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board has standing Audit, Compensation, Executive, Nominating and Technology Committees.
Audit Committee. The Audit Committee reviews the audit and control functions of the Company, the Company's accounting principles, policies and practices and financial reporting, the scope of the audit conducted by the Company's auditors, the fees and all non-audit services of the independent auditors and the independent auditors' opinion and letter of comment to management and management's response thereto.
The Audit Committee is composed of two directors, both of whom were determined by the Board of Directors to be independent directors. During fiscal 2006 and to date, the Audit Committee has consisted of Ms. Felcyn (Chairperson) and Mr. Johnson. The Board of Directors has determined that Ms. Felcyn is an audit committee financial expert as defined in Item 401 of Regulation S-B, promulgated by the SEC. The Board’s conclusions regarding the qualifications of Ms. Felcyn as an audit committee financial expert were based on her standing as a certified public accountant and her degree in business economics.
Compensation Committee. The Compensation Committee reviews and recommends to the Board the salaries, bonuses and perquisites of the Company's executive officers. The Compensation Committee also reviews and recommends to the Board any new compensation or retirement plans and administers the Company's 1996, 2001, 2003 and 2006 Stock Option Plans. The Compensation Committee is composed of Mr. Johnson (Chairman), Ms. Felcyn and Mr. Falk.
23
--------------------------------------------------
Executive Committee. The Executive Committee exercises certain powers of the Board of Directors between normally scheduled Board meetings. The Executive Committee is composed of Mr. Johnson (Chairman), Ms. Felcyn, Dr. Falk and Mr. Turley.
Nominating Committee. The Nominating Committee reviews and recommends to the Board for nomination candidates for election to the Board. The entire Board acted in lieu of the Nominating Committee and in accordance with the policies that apply to the Nominating Committee.
Technology Committee. The Technology Committee reviews and makes recommendations to the Board regarding current and proposed technology. The Technology Committee is composed of Mr. Turley (Chairman), Mr. Johnson and Mr. Pohl.
Each member of the Audit Committee and Compensation Committee is independent as defined under the National Association of Securities Dealers’ (NASDAQ) listing standards.
Other Committees. Effective August 1, 2006, a Technology Committee was formed. The Technology Committee is composed of Mr. Turley (Chairman), Mr. Johnson and Mr. Pohl.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).
Based solely on the Company's review of those reports furnished to the Company by the persons required to make such filings during the 2006 fiscal year and the Company’s own records, the Company believes, that from the period June 1, 2005 through May 31, 2006, Mr. Turley failed to file timely one Form 3 with the SEC to report his changes in beneficial ownership.
CODE OF ETHICS
The Company has adopted a Code of Ethics that applies to the small business issuer’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation, for the years indicated, of the Company's chief executive officer and the most highly compensated executive officers whose salary and bonus exceeded $100,000 (each a “Named Officer”).
Long Term Compensation
Annual Cash Compensation Awards Payouts
Name and
Principal Position Fiscal Year Salary ($) Securities Underlying
Options (#) All other compensation
David H. Pohl
President & CEO 2006 $ 236,154 900,000 None
Thomas J. Sweeney
CFO 2006 $ 243,563 50,000 None
Jeffrey E. Wallin (2)
President & CEO 2006
2005
2004 $
$
$ 25,131
146,317
145,933 (1)
(1)
(1) None
250,000
673,000 $ 142,642
None
None (5)
Lowell W. Giffhorn (3)
Exec. VP, CFO & Secy. 2006
2005
2004 $
$
$ 22,893
148,227
148,800 (1)
(1)
(1) None
650,000
239,000 None
None
None
Patrick O. Nunally (4)
VP and CTO 2006
2005
2004 $
$
$ 1,380
122,734
180,000 (1)
(1)
(1) None
200,000
173,000 None
None
None
24
--------------------------------------------------
(1) Includes cash compensation of $400 per month for car allowance.
(2) Mr. Wallin left the Company in June 2005. He was replaced by Mr. David H. Pohl who became the Company's President and CEO on June 13, 2005.
(3) Mr. Giffhorn left the Company as an executive officer in June 2005. He was replaced by Mr. Thomas J. Sweeney who became the Company's CFO on August 3, 2005.
(4) Dr. Nunally left the Company in May 2005.
(5) Amount represents payments through May 31, 2006 to Mr. Wallin under terms of his severance agreement.
The Company maintains employee benefits that are generally available to all of its employees, including medical, dental and life insurance benefits and a 401(k) retirement plan. The Company did not make any matching contributions under the 401(k) plan for any of the above named officers during the fiscal years ended May 31, 2005, or 2004. During the fiscal year ended May 31, 2006 the Company made a matching contribution of $1,417 for Mr. Pohl.
Employment Contracts
The Company had a consulting agreement dated March 18, 2004 with San Diego Millennia Consultants, Inc. whereby San Diego Millennia Consultants agreed to provide the services of Mr. Wallin to be the President and Chief Executive Officer of the Company. Mr. Wallin's employment with the Company ended on June 12, 2005, and the Company's agreement with San Diego Millennia Consultants terminated on that date. In September 2005, the Company agreed to pay Mr. Wallin approximately $148,700 in full settlement of all amounts owed to him under the consulting agreement.
The Company had an employment agreement dated September 1, 2004 with Mr. Giffhorn providing for his employment as Executive Vice President and Chief Financial Officer. Mr. Giffhorn's employment with the Company ended on June 13, 2005. The Company did not pay Mr. Giffhorn any severance compensation or otherwise due to awaiting resolution of a dispute initiated by Mr. Giffhorn in connection with his termination of employment. The Company is currently maintaining a vigorous defense against claims made by Mr. Giffhorn in an arbitration proceeding he initiated seeking compensation and damages based on claims and assertions that are related to the termination of his employment. The Company denies the validity of Mr. Giffhorn’s claims and assertions. (See Legal Proceedings.)
The Company entered into an employment agreement dated June 1, 2004, as amended on July 12, 2004, with Dr. Nunally providing for his employment as the Chief Technical Officer of the Company. Pursuant to the terms of the employment agreement, Dr. Nunally's employment with the Company terminated on May 31, 2005.
The Company has an employment agreement with Mr. Sweeney. Under the terms of the agreement, Mr. Sweeney is paid a salary of $1,125 per day, subject to increase in the Company's sole discretion. Mr. Sweeney is also entitled to a cash bonus, stock options and severance pay, in each case, as may be determined by the Compensation Committee in its sole discretion. During the course of Mr. Sweeney's employment with the Company, Mr. Sweeney remains a partner of Tatum CFO Partners, LLP. As a partner of Tatum, Mr. Sweeney is to share with Tatum a portion of his economic interest in any stock options or equity bonus that the Company may pay him, to the extent specified in the Part-Time Engagement Resources Agreement between the Company and Tatum. Mr. Sweeney is eligible for any Company employment retirement and/or 401(k) plan and for vacation and holidays consistent with the Company's policy as it applies to senior management. Either party may terminate the employment relationship upon at least 30 days' prior written notice, unless the Company has not remained current in its obligations under the employment agreement or the Part-Time Engagement Resources Agreement or if the Company engages in or asks Mr. Sweeney to engage in or to ignore any illegal or unethical conduct, in which case Mr. Sweeney may terminate his employment immediately.
25
--------------------------------------------------
Option Grants
The following table sets forth certain information concerning stock options granted to the Named Officers during the year ended May 31, 2006, pursuant to the Company's 1996, 2001, 2003 and 2006 Stock Option Plans.
Name Number of Securities Underlying
Options Granted % of Total Options Granted to Employees in FY Exercise Price Expiration Date
David H. Pohl 500,000 (1 ) None $ 0.163 6/22/2010
400,000 (1 ) None $ 0.700 5/25/2011
Thomas J. Sweeney 50,000 52.6 % $ 0.700 5/25/2011
(1) Options are fully vested and were granted in recognition of his service on the Board.
Aggregated Option Exercises and Fiscal Year End Option Values
The following table sets forth certain information with respect to the Named Officers concerning exercised and unexercised stock options held as of May 31, 2006.
Name Shares Acquired
on Exercise Value Realized Number of Unexercised
Options
Held at May 31, 2006 Value of Unexercised In-The-Money Options
at May 31, 2006
Exercisable Unexercisable Exercisable Unexercisable
Jeffrey E. Wallin 1,750,000 $ 1,042,201 250,000 -- $ 215,000 $ --
Lowell W. Giffhorn 1,120,000 $ 1,194,700 -- -- $ -- $ --
Patrick Nunally 450,000 $ 17,100 -- -- $ -- $ --
David H. Pohl 200,000 $ 26,250 1,075,000 -- $ 668,800 $ --
Thomas J. Sweeney -- -- -- 50,000 $ -- $ 13,500
The fair market value of the unexercised in-the-money options at May 31, 2006 was determined by subtracting the option exercise price from the last sale price as reported on the OTC Bulletin Board on May 31, 2006, $0.97.
The Company has not awarded stock appreciation rights to any of its employees. The Company has no long-term incentive plans.
Compensation of Directors
During fiscal year 2006, an aggregate of $294,000 was paid to the Company’s board members including $170,000 paid to certain members in connection with their efforts in the consummation of the TPL and Charles H. Moore Agreement. Expenses of the Company’s directors in connection with the attendance of board or committee meetings and company related activities are reimbursed by the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 31, 2006, the stock ownership of each officer and director of the Company, of all officers and directors of the Company as a group, and of each person known by the Company to be a beneficial owner of 5% or more of its Common Stock. Except as otherwise noted, each person listed below is the sole beneficial owner of the shares and has sole investment and voting power over such shares. No person listed below has any option, warrant or other right to acquire additional securities of the Company, except as otherwise noted.
26
--------------------------------------------------
Title of Class Name and Address of Beneficial Owners Amount & Nature of Beneficial Ownership Percent of Class
Common stock par value $0.00001 Helmut Falk, Jr.
6183 Paseo Del Norte, Suite 180
Carlsbad, CA 92011 3,303,231 (1) *
SAME Gloria Felcyn, CPA
Same Address As Above 1,234,070 (2) *
SAME Carlton M. Johnson, Jr.
Same Address As Above 1,475,000 (3) *
SAME David H. Pohl
Same Address As Above 2,775,000 (4) *
SAME Thomas J. Sweeney
Same Address As Above 50,000 (5) *
SAME James Turley
Same Address As Above 475,000 (6) *
SAME Lincoln Ventures, LLC
1125 Sanctuary Parkway, Suite 275
Alpharetta, GA 30004 36,900,446 (7) 9.99%
SAME Swartz Private Equity, LLC
1125 Sanctuary Parkway, Suite 275
Alpharetta, GA 30004 36,900,446 (7) 9.99%
SAME All directors & officers as a group
(first 6 persons above)
* Indicates less than 1% 9,312,301 (8) 1.87%
(1) Includes 890,000 shares issuable upon the exercise of outstanding stock options.
(2) Includes 950,000 shares issuable upon the exercise of outstanding stock options.
(3) Includes 1,475,000 shares issuable upon the exercise of outstanding stock options.
(4) Represents 2,575,000 shares issuable upon the exercise of outstanding stock options and 200,000 shares held directly by David Pohl. This amount does not include 700,000 shares owned by his spouse, Janet Valenty, as her separate property and for which he disclaims beneficial ownership.
(5) Includes 50,000 shares issuable upon the exercise of outstanding stock options.
(6) Includes 425,000 shares issuable upon the exercise of outstanding stock options.
(7) Lincoln Ventures, LLC (“Lincoln”) and Swartz Private Equity, LLC (“SPE” and together with Lincoln, the “Reporting Person”) have shared voting power and shared dispositive power as to these shares. These amounts include 36,900,446 shares (in total between Lincoln and SPE, each of which hold warrants to purchase Common Stock of the Company) issuable upon exercise of outstanding warrants exercisable within 60 days of August 31, 2006. The documents governing the terms of such warrants contain a provision prohibiting Lincoln and SPE, as applicable, from exercising warrants for shares of Common Stock if doing so would result in the Reporting Person and their affiliates beneficially owning shares of Common Stock that represent more than 9.99% of the outstanding shares of Common Stock as determined under Section 13(d) of the Securities Exchange Act of 1934. This percentage assumes that Lincoln and SPE may be deemed to be affiliated and under common control.
(8) Includes 2,947,301 shares issued and outstanding and 6,365,000 shares issuable upon exercise of stock options.
27
--------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS
(a) The following documents are filed as a part of this Report:
1. Financial Statements. The following consolidated financial statements and Report of Independent Registered Public Accounting Firm are included in Part II of this Report:
Report of Corbin & Company, LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of May 31, 2006 and 2005 (as restated)
Consolidated Statements of Operations for the Years Ended May 31, 2006 and 2005 (as restated)
Consolidated Statement of Stockholders’ Equity for the Years Ended May 31, 2006 and 2005 (as restated)
Consolidated Statements of Cash Flows for the Years Ended May 31, 2006 and 2005 (as restated)
Notes to Consolidated Financial Statements
2. Exhibits. The following Exhibits are filed as part of, or incorporated by reference into, this Report:
Exhibit No.
Document
2.1
Agreement to Exchange Technology for Stock in Patriot Scientific Corporation, incorporated by reference to Exhibit 2.1 to Form 8-K dated August 10, 1989*
2.2
Assets Purchase Agreement and Plan of Reorganization dated June 22, 1994, among the Company, nanoTronics Corporation and Helmut Falk, incorporated by reference to Exhibit 10.4 to Form 8-K dated July 6, 1994*
2.2.1
Amendment to Development Agreement dated April 23, 1996 between the Company and Sierra Systems, incorporated by reference to Exhibit 2.2.1 to Pre-Effective Amendment No. 1 to Registration Statement on Form SB-2 filed April 29, 1996*
2.3
Form of Exchange Offer dated December 4, 1996 between the Company and certain shareholders of Metacomp, Inc. incorporated by reference to Exhibit 2.3 to Form 8-K filed January 9, 1997*
2.4
Letter of Transmittal to Accompany Shares of Common Stock of Metacomp, Inc. Tendered Pursuant to the Exchange Offer Dated December 4, 1996 incorporated by reference to Exhibit 2.4 to Form 8-K filed January 9, 1997*
3.1
Original Articles of incorporation of the Company’s predecessor, Patriot Financial Corporation, incorporated by reference to Exhibit 3.1 to registration statement on Form S-18, file no. 33-23143-FW*
3.2
Articles of Amendment of Patriot Financial Corporation, as filed with the Colorado Secretary of State on July 21, 1988, incorporated by reference to Exhibit 3.2 to registration statement on Form S-18, File No. 33-23143-FW*
3.3
Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on March 24, 1992, incorporated by reference to Exhibit 3.3 to Form 8-K dated May 12, 1992*
28
--------------------------------------------------
Exhibit No. Document
3.3.1
Certificate of Amendment to the Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on April 18, 1995, incorporated by reference to Exhibit 3.3.1 to Form 10-KSB for the fiscal year ended May 31, 1995*
3.3.2
Certificate of Amendment to the Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on June 24,1997, incorporated by reference to Exhibit 3.3.2 to Form 10-KSB for the fiscal year ended May 31, 1997, filed July 18, 1997*
3.3.3
Certificate of Amendment to the Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on April 28, 2000, incorporated by reference to Exhibit 3.3.3 to Registration Statement on Form S-3 filed May 5, 2000*
3.3.4
Certificate of Amendment to the Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on May 6, 2002, incorporated by reference to Exhibit 3.3.4 to Registration Statement on Form S-3 filed June 27, 2002*
3.3.5
Certificate of Amendment to the Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on October 16, 2003, incorporated by reference to Exhibit 3.3.5 to Registration Statement on Form SB-2 filed May 21, 2004*
3.4
Articles and Certificate of Merger of Patriot Financial Corporation into the Company dated May 1, 1992, with Agreement and Plan of Merger attached thereto as Exhibit A, incorporated by reference to Exhibit 3.4 to Form 8-K dated May 12, 1992*
3.5
Certificate of Merger issued by the Delaware Secretary of State on May 8, 1992, incorporated by reference to Exhibit 3.5 to Form 8-K dated May 12, 1992*
Certificate of Merger issued by the Colorado Secretary of State on May 12, 1992, incorporated by reference to Exhibit 3.6 to Form 8-K dated May 12, 1992*
3.7 Bylaws of the Company, incorporated by reference to Exhibit 3.7 to Form 8-K dated May 12, 1992*
4.1 Specimen common stock certificate, incorporated by reference to Exhibit 4.1 Form 8-K dated May 12, 1992*
4.2
Form of Stock Purchase Warrant (Labway Corporation) dated February 29, 1996, exercisable to purchase 253,166 common shares at $1.58 per share until August 31, 1996, granted to investors in connection with an offering of securities made in reliance upon Regulation S, incorporated by reference to Exhibit 4.2 to Form 10-QSB for fiscal quarter ended February 29, 1996, filed March 15, 1996*
4.3
Form of 6% Convertible Subordinated Promissory Note due September 30, 1998 aggregating $1,500,000 to six investors incorporated by reference to Exhibit 4.3 to Form 10-QSB for fiscal quarter ended August 31, 1996, filed October 15, 1996*
4.4
Form of 5% Convertible Term Debenture (CC Investments, LDC) due June 2, 1999 aggregating $2,000,000 to two investors incorporated by reference to Exhibit 4.4 to Form 8-K dated June 16, 1997*
4.5
Form of Stock Purchase Warrant (CC Investments, LDC) dated June 2, 1997 exercisable to purchase an aggregate of 400,000 common shares at $1.69125 per share until June 2, 2002, granted to two investors in connection with the offering of securities in Exhibit 4.4 incorporated by reference to Exhibit 4.5 to Form 8-K filed June 17, 1997*
4.6
Registration Rights Agreement dated June 2, 1997 by and among the Company and CC Investments, LDC and the Matthew Fund, N.V. related to the registration of the common stock related to Exhibits 4.4 and 4.5 incorporated by reference to Exhibit 4.6 to Form 8-K filed June 17, 1997*
29
--------------------------------------------------
Exhibit No. Document
4.7
Form of Warrant to Purchase Common Stock (Swartz Family Partnership, L.P.) dated June 2, 1997 exercisable to purchase an aggregate of 211,733 common shares at $1.69125 per share until June 2, 2002, granted to a group of investors in connection with the offering of securities in Exhibit 4.4 incorporated by reference to Exhibit 4.7 to Form 8-K filed June 17, 1997*
4.8
Registration Rights Agreement dated June 2, 1997 by and among the Company and Swartz Investments, LLC related to the registration of the common stock related to Exhibit 4.7 incorporated by reference to Exhibit 4.8 to Form 8-K filed June 17, 1997*
4.9
Form of 5% Convertible Term Debenture (CC Investments, LDC) due June 2, 1999 aggregating $1,000,000 to two investors incorporated by reference to Exhibit 4.9 to Form 10-KSB for the fiscal year ended May 31, 1998, filed August 19, 1998*
4.10
Form of Stock Purchase Warrant (CC Investments, LDC) dated November 24, 1997 exercisable to purchase an aggregate of 200,000 common shares at $1.50 per share until June 2, 2002, granted to two investors in connection with the offering of securities described in Exhibit 4.9 incorporated by reference to Exhibit 4.10 to Form 10-KSB for the year ended May 31, 1998, filed August 19, 1998*
4.11
Form of Warrant to Purchase Common Stock (Swartz Family Partnership, L.P.) dated November 24, 1997 exercisable to purchase an aggregate of 105,867 common shares at $1.50 per share until June 2, 2002, granted to a group of investors in connection with the offering of securities described in Exhibit 4.9 incorporated by reference to Exhibit 4.11 to Form 10-KSB for the year ended May 31, 1998, filed August 19, 1998*
4.12
Form of Warrant to Purchase Common Stock (Investor Communications Group, Inc.) dated June 16, 1997 exercisable to purchase an aggregate of 130,000 common shares at prices ranging from $2.50 to $7.50 per share until June 15, 1999 incorporated by reference to Exhibit 4.12 to Form 10-KSB for the year ended May 31, 1998, filed August 19, 1998*
4.13
Warrant to Purchase Common Stock issued to Spellcaster Telecommunications, Inc. dated April 28, 1998 exercisable to purchase an aggregate of 100,000 common shares at $1.25 per share until April 28, 2000 incorporated by reference to Exhibit 4.13 to Form 10-KSB for the year ended May 31, 1998, filed August 19, 1998*
4.14
Investment agreement dated February 24, 1999 by and between the Company and Swartz Private Equity, LLC for a maximum aggregate amount of $5,000,000 incorporated by reference to Exhibit 4.14 to Form 10-QSB/A for the fiscal quarter ended November 30, 1998, filed March 5, 1999*
4.15
Registration Rights Agreement dated February 24, 1999 by and between the Company and Swartz Private Equity, LLC related to the registration of the common stock related to Exhibit 4.14 incorporated by reference to Exhibit 4.15 to Form 10-QSB/A for the fiscal quarter ended November 30, 1998, filed March 5, 1999*
4.16
Form of Warrant to Purchase Common Stock (Swartz Private Equity, LLC) dated February 24, 1999 exercisable to purchase common shares in connection with the offering of securities in Exhibit 4.14 incorporated by reference to Exhibit 4.16 to Form 10-QSB/A for the fiscal quarter ended November 30, 1998, filed March 5, 1999*
4.17
Amended and Restated Investment Agreement dated July 12, 1999 by and between the Company and Swartz Private Equity, LLC for a maximum aggregate amount of $5,000,000 incorporated by reference to Exhibit 4.17 to Pre-Effective Amendment No. 2 to Registration Statement on Form SB-2 filed July 15, 1999*
4.18
Investment Agreement dated May 2, 2000 by and between the Company and Swartz Private Equity, LLC for a maximum aggregate amount of $30,000,000 incorporated by reference to Exhibit 4.18 to Registration Statement on Form S-3 filed May 5, 2000*
30
--------------------------------------------------
Exhibit No. Document
4.18.1
Waiver and Agreement dated September 24, 2001 amending the Investment Agreement (1) dated May 2, 2000 by and between the Company and Swartz Private Equity, LLC for a maximum aggregate amount of $30,000,000 incorporated by reference to Exhibit 4.18.1 to Registration Statement on Form S-1 filed October 11, 2001*
4.19
2001 Stock Option Plan of the Company dated February 21, 2001 incorporated by reference to Exhibit 4.19 to Registration Statement on Form S-8 filed March 26, 2001*
4.20
Investment agreement dated September 17, 2001 by and between the Company and Swartz Private Equity, LLC for a maximum aggregate amount of $25,000,000 incorporated by reference to Exhibit 4.20 to Registration Statement on Form S-1 filed October 11, 2001*
4.21
Registration Rights Agreement dated September 17, 2001 by and between the Company and Swartz Private Equity, LLC related to the registration of the common stock related to Exhibit 4.20 incorporated by reference to Exhibit 4.21 to Registration Statement on Form S-1 filed October 11, 2001*
4.22
Warrant to Purchase Common Stock dated September 17, 2001 exercisable to purchase common shares in connection with the Offering of securities in Exhibit 4.20 incorporated by reference to Exhibit 4.22 to Registration Statement on Form S-1 filed October 11, 2001*
4.23
Financial Consulting Services Agreement between the Company and M. Blaine Riley, Randall Letcavage and Rosemary Nguyen incorporated by reference to Exhibit 4.23 to Registration Statement on Form S-8 filed January 22, 2002*
4.24
Form of 8% Convertible Debenture (Lincoln Ventures, LLC) due June 10, 2004 aggregating $1,000,000 to six investors incorporated by reference to Exhibit 4.24 to Registration Statement on Form S-3 filed June 27, 2002*
4.25
Form of Stock Purchase Warrant (Lincoln Ventures, LLC) dated June 10, 2002 exercisable to purchase an aggregate of 12,859,175 common shares at initial exercise prices ranging from $0.08616 to $0.10289 per share until June 10, 2007, granted to six investors in connection with the offering of securities described in Exhibit 4.24 incorporated by reference to Exhibit 4.25 to Registration Statement on Form S-3 filed June 27, 2002*
4.26
Form of Registration Rights Agreement (Lincoln Ventures, LLC) dated June 10, 2002 by and among the Company and six investors related to the registration of the common stock related to Exhibit 4.24 incorporated by reference to Exhibit 4.26 to Registration Statement on Form S-3 filed June 27, 2002*
4.27
2003 Stock Option Plan of the Company dated July 2, 2003 incorporated by reference to Exhibit 4.27 to Registration Statement on Form S-8 filed September 4, 2003*
4.28
Form of 8% Convertible Debenture, Stock Purchase Warrant, Registration Rights Agreement and Securities Purchase Agreement for financings entered into between September 28, 2004 and January 17, 2005 incorporated by reference to Exhibit 4.28 to Registration Statement on Form SB-2 filed February 2, 2005.*
4.29
Approval Rights Agreement and Termination of Antidilution Agreement and Addendum to Warrants dated October 10, 2006**
10.1
1992 Incentive Stock Option Plan of the Company, incorporated by reference to Exhibit 10.1 to Form 8-K dated May 12, 1992*
10.1.1
Amendment to 1992 Incentive Stock Option Plan dated January 11, 1995, incorporated by reference to Exhibit 10.1.1 to Form S-8 filed July 17, 1996*
10.2
1992 Non-Statutory Stock Option Plan of the Company, incorporated by reference to Exhibit 10.2 to Form 8-K dated May 12, 1992*
31
--------------------------------------------------
Exhibit No. Document
10.2.1
Amendment to 1992 Non-Statutory Stock Option Plan dated January 11, 1995 incorporated by reference to Exhibit 10.2.1 to Form 10-KSB for fiscal year ended May 31, 1996, filed August 16, 1996*
10.3
Lease Agreement between the Company’s subsidiary Metacomp, Inc. and Clar-O-Wood Partnership, a California limited partnership dated April 11, 1991 as amended November 11, 1992 and November 2, 1995 incorporated by reference to Exhibit 10.3 to Form 10-KSB for fiscal year ended May 31, 1997, filed July 18, 1997*
10.4
Stock Purchase Agreement dated November 29 and 30, 1995, between the Company and SEA, Ltd., incorporated by reference to Exhibit 10.4 to Form 8-K filed December 11, 1995*
10.4.1
Letter Amendment to Stock Purchase Agreement dated January 31, 1996, between the Company and SEA, Ltd., incorporated by reference to Exhibit 10.4.1 to Form 10-QSB for fiscal quarter ended February 29, 1996, filed March 15, 1996*
10.5
1995 Employee Stock Compensation Plan of the Company, incorporated by reference to Exhibit 10.5 to Form 10-QSB for fiscal quarter ended November 30, 1995, filed December 28, 1995*
10.6
Letter Stock and Warrant Agreement dated January 10, 1996 between the Company and Robert E. Crawford, Jr., incorporated by reference to Exhibit 10.6 to Form 10-QSB for fiscal quarter ended February 29, 1996, filed March 15, 1996*
10.7
Non-Exclusive Manufacturing and Line of Credit Agreement dated February 28, 1996, between the Company and Labway Corporation, incorporated by reference to Exhibit 10.7 to Form 10-QSB for fiscal quarter ended February 29, 1996, filed March 15, 1996*
10.8
Distribution and Representation Agreement dated February 28, 1996, between the Company and Innoware, Inc., incorporated by reference to Exhibit 10.8 to Form 10-QSB for fiscal quarter ended February 29, 1996, filed March 15, 1996*
10.9
Employment Agreement dated November 20, 1995 between the Company and Elwood G. Norris, incorporated by reference to Exhibit 10.9 to Registration Statement on Form SB-2 filed March 18, 1996*
10.9.1
First Amendment to Employment Agreement dated May 17, 1996 between the Company and Elwood G. Norris, incorporated by reference to Exhibit 10.9.1 to Pre-Effective Amendment No. 2 to Registration Statement on Form SB-2 filed May 23, 1996*
10.10
Employment Agreement dated November 20, 1995 between the Company and Robert Putnam, incorporated by reference to Exhibit 10.10 to Registration Statement on Form SB-2 filed March 18, 1996*
10.11
Sales Contractual Agreement dated March 19, 1996 between the Company and Evolve Software, Inc., incorporated by reference to Exhibit 10.11 to Pre-Effective Amendment No. 1 to Registration Statement on Form SB-2 filed April 29, 1996*
10.11.1
Two Year Stock Purchase Warrant dated March 19, 1996 Granted to Evolve Software, Inc. Providing for the Purchase of up to 50,000 Common Shares at $2.85, incorporated by reference to Exhibit 10.11.1 to Pre-Effective Amendment No. 1 to Registration Statement on Form SB-2 filed April 29, 1996*
10.12
Employment Agreement dated as of May 8, 1996 between the Company and Michael A. Carenzo, including Schedule A - Stock Option Agreement, incorporated by reference to Exhibit 10.12 to Pre-Effective Amendment No. 2 to Registration Statement on Form SB-2 filed May 23, 1996*
10.12.1
First Amendment to Employment Agreement dated as of May 8, 1996 between the Company and Michael A. Carenzo dated September 23, 1996, incorporated by reference to Exhibit 10.12.1 to Form 10-KSB for the fiscal year ended May 31, 1997, filed July 18, 1997*
32
--------------------------------------------------
Exhibit No. Document
10.13
1996 Stock Option Plan of the Company dated March 25, 1996 and approved by the Shareholders on May 17, 1996, incorporated by reference to Exhibit 10.13 to Pre-Effective Amendment No. 2 to Registration Statement on Form SB-2 filed May 23, 1996*
10.14
Sales Contractual Agreement dated June 20, 1996 between the Company and Compunetics Incorporated incorporated by reference to Exhibit 10.14 to Form 10-KSB for fiscal year ended May 31, 1996, filed August 16, 1996*
10.15
Sales Contractual Agreement dated July 31, 1996 between the Company and Premier Technical Sales, Inc. incorporated by reference to Exhibit 10.15 to Form 10-KSB for fiscal year ended May 31, 1996, filed August 16, 1996*
10.16
Employment Agreement dated January 1, 1997 between the Company and Norman J. Dawson incorporated by reference to Exhibit 10.16 to Form 10-KSB for fiscal year ended May 31, 1997, filed July 18, 1997*
10.17
Employment Agreement dated January 1, 1997 between the Company and Jayanta K. Maitra incorporated by reference to Exhibit 10.17 to Form 10-KSB for fiscal year ended May 31, 1997, filed July 18, 1997*
10.18
Technology License and Distribution Agreement dated June 23, 1997 between the Company and Sun Microsystems, Inc. incorporated by reference to Exhibit 10.18 to Form 10-KSB for the fiscal year ended May 31, 1997, filed July 18, 1997*
10.19
Employment Agreement dated March 23, 1999 between the Company and James T. Lunney incorporated by reference to Exhibit 10.19 to Form 10-KSB for the fiscal year ended May 31, 1998, filed August 19, 1998*
10.20
Employment Agreement dated July 28, 1997 between the Company and Phillip Morettini incorporated by reference to Exhibit 10.20 to Form 10-KSB for the fiscal year ended May 31, 1998, filed August 19, 1998*
10.21
Employment Agreement dated July 23, 1998 between the Company and Lowell W. Giffhorn incorporated by reference to Exhibit 10.21 to Form 10-KSB for the fiscal year ended May 31, 1998, filed August 19, 1998*
10.22
Secured Promissory Note dated June 12, 2000 between the Company and James T. Lunney incorporated by reference to Exhibit 10.22 to Form 10-KSB for the fiscal year ended May 31, 2000, filed August 29, 2000*
10.23
Purchase Agreement dated June 29, 2000 between the Company and 4S 37/38, LLC incorporated by reference to Exhibit 10.23 to Form 10-KSB for the fiscal year ended May 31, 2000*
10.24
Employment Agreement dated October 2, 2000 between the Company and Miklos B. Korodi incorporated by reference to Exhibit 10.24 to Form 10-QSB for the fiscal quarter ended November 30, 2000, filed January 12, 2001*
10.25
Employment Agreement dated December 1, 2000 between the Company and Richard G. Blum incorporated by reference to Exhibit 10.25 to Form 10-QSB for the fiscal quarter ended November 30, 2000, filed January 12, 2001*
10.26
Employment Agreement dated January 29, 2001 between the Company and Serge J. Miller incorporated by reference to Exhibit 10.26 to Form 10-KSB for the fiscal year ended May 31, 2001, filed August 29, 2001*
33
--------------------------------------------------
Exhibit No. Document
10.27
Lease Agreement dated February 23, 2001 between the Company and Arden Realty Finance IV, LLC incorporated by reference to Exhibit 10.27 to Form 10-KSB for the fiscal year ended May 31, 2001, filed August 29, 2001*
10.28
Employment Agreement dated January 1, 2001 between the Company and David H. Pohl incorporated by reference to Exhibit 10.28 to Form 10-KSB for the fiscal year ended May 31, 2001, filed August 29, 2001*
10.29
Employment Agreement dated April 26, 2001 between the Company and David H. Pohl incorporated by reference to Exhibit 10.29 to Form 10-KSB for the fiscal year ended May 31, 2001, filed August 29, 2001*
10.30
Employment Agreement dated November 17, 2001 between the Company and Lowell W. Giffhorn incorporated by reference to Exhibit 10.30 to Registration Statement on Form S-3 filed June 27, 2002*
10.31
Employment Agreement dated December 20, 2001 between the Company and Jayanta Maitra incorporated by reference to Exhibit 10.31 to Registration Statement on Form S-3 filed June 27, 2002*
10.32
Consulting Agreement dated March 7, 2002 between the Company and SDMC, Inc. incorporated by reference to Exhibit 10.32 to Registration Statement on Form S-3 filed June 27, 2002*
10.33
Employment Agreement dated January 2, 2004 between the Company and Jayanta Maitra incorporated by reference to Exhibit 10.33 to Registration statement on Form SB-2 filed May 21, 2004*
10.34
Consulting Agreement dated March 18, 2004 between the Company and SDMC, Inc. incorporated by reference to Exhibit 10.34 to Registration Statement en Form SB-2 filed May 21, 2004*
10.35
Employment Agreement dated June 1, 2004 between the Company and Patrick Nunally incorporated by reference to Exhibit 10.35 to Form 10-KSB for the fiscal year ended May 31, 2004, filed August 19, 2004*
10.36
Amendment No. 1 to Employment Agreement dated July 12, 2004 between the Company and Patrick Nunally incorporated by reference to Exhibit 10.36 to Form 10-KSB for the fiscal year ended May 31, 2004, filed August 19, 2004*
10.37
Employment Agreement dated September 1, 2004 between the Company and Lowell W. Giffhorn incorporated by reference to Exhibit 10.37 to Registration Statement on Form SB-2 filed February 2, 2005*
10.38 IGNITE License Agreement with Advanced Micro Devices, Inc., dated February 21, 2005**
10.39 Patent Portfolio License Agreement with Advanced Micro Devices, Inc., dated February 21, 2005**
10.40
Master Agreement, dated as of June 7, 2005, by and among the Company, Technology Properties Limited Inc., a California corporation and Charles H. Moore, an individual, incorporated by reference to Exhibit 10.40 to Form 8-K filed June 15, 2005*
10.41
Commercialization Agreement dated as of June 7, 2005 by and among the JV LLC, Technology Properties Limited Inc., a California corporation, and the Company, incorporated by reference to Exhibit 10.41 to Form 8-K filed June 15, 2005*
10.42
Limited Liability Company Operating Agreement of JV LLC, a Delaware limited liability company, dated as of June 7, 2005, incorporated by reference to Exhibit 10.42 to Form 8-K filed June 15, 2005*
10.43
Agreement for Part-Time Employment dated August 3, 2005 between the Company and Thomas J. Sweeney, incorporated by reference to Exhibit 99.3 to Form 8-K filed August 9, 2005*
Шлю вам (тебе) сердечный привет joker
Optionen
| Boardmail an "joker67" |
Wertpapier: Patriot Scientific |
Due to activities related to preparation and filing of restated financials for fiscal 2002 through 2005 as previously announced, Patriot Scientific has filed a notice to take the allowable five-day extension to file the fiscal 2007 first quarter 10-Q financial report for the three month period ending August 30, 2006. That document will be filed October 23, 2006.
http://biz.yahoo.com/prnews/061013/clf052.html?.v=43
Шлю вам (тебе) сердечный привет joker
Optionen
| Boardmail an "joker67" |
Wertpapier: Patriot Scientific |
Wenn ich das richtig gelesen habe,dann haben die 3,2 Mio.eigene Aktien zurückgekauft.
alles andere lese ich mir Morgen früh bei einer Tasse Kaffee durch.
Шлю вам (тебе) сердечный привет joker
Optionen
| Boardmail an "joker67" |
Wertpapier: Patriot Scientific |
Die weiteren Angaben bzgl. Aktienrückkauf, weiterer Akquisitionen usw. lasse ich aussen vor, da für mich alles an dem Ausgang des J3-Verfahrens hängt, zu dem es ja auch ein neues filing gibt (NEC ist noch dabei). Nach erfolgreichem Abschluss werden die Lizenzgebühren steigen und dann steht sowieso eine völlige Neubewertung an.
Pohl hält sich wohl erstmal an seine bisherige Strategie der (sehr) kontrollierten Offensive *g*.
Der Q1-Bericht soll am 23.10.06 kommen und birgt vielleicht die eine oder andere Überraschung.
Heute abend und morgen werde ich mir alles noch mal sehr genau zu Gemüte führen, auch mal bei den Amis mich durchlesen.
Für mich soweit alles im erhofften (grünen) Bereich, nice weekend folks :-).
Optionen
| Boardmail an "Matzelbub" |
Wertpapier: Patriot Scientific |
Das Wichtigste:
| Year Ended May 31, | |||||||
| 2006 | 2005 | ||||||
| (As restated, see Note 3) | |||||||
| Net income (loss) as reported | $ | 28,672,688 | $ | (10,518,704 | ) | ||
| Add: | |||||||
| Stock based compensation expense included in reported net income (loss), net of related tax effects | 120,000 | - | |||||
| Deduct: | |||||||
| Total stock based employee compensation expense under fair value based method for all awards, net of related tax effects | (1,639,913 | ) | (138,883 | ) | |||
| Pro forma net income (loss) | $ | 27,152,775 | $ | (10,657,587 | ) | ||
| Net income (loss) per common share, as reported - basic | $ | 0.09 | $ | (0.05 | ) | ||
| Net income (loss) per common share, as reported - diluted | $ | 0.07 | $ | (0.05 | ) | ||
| Net income (loss) per common share, pro forma - basic | $ | 0.09 | $ | (0.05 | ) | ||
| Net income (loss) per common share, pro forma - diluted | $ | 0.07 | $ | (0.05 | ) |
3 Mio. zurückgekaufter Aktien sind nicht so viel, aber um so besser, dann hatten die entsprechend Kohle um in den letzen "schwachen" Monaten richtig zuzulangen.
Auch von mir allen ein schönes Wochenende.
Grüße Abenteurer
Carlsbad, CA, Oct. 13, 2006 – Patriot Scientific Corporation (OTC Bulletin Board: PTSC) today filed its 10-KSB annual report for its fiscal year ending May 31, 2006. The report, filed with the U.S. Securities and Exchange Commission, includes audited financial statements for its fiscal year and related disclosures concerning the company’s results of operations and financial condition during that period. The company also announced that its new web site will be launched on Monday at www.ptsc.com, where a copy of the company’s 10-KSB will be available.
Patriot Scientific’s consolidated financial statements reflect net income of $28,672,688 for the fiscal year ending May 31, 2006, with revenue of $35,895,449 million as its share of distributions from licensing agreements related to the MMP Patent Portfolio. The report also disclosed that during the period from June 1, 2006 through October 3, 2006, Phoenix Digital Solutions, which is jointly owned by Patriot Scientific and the TPL Group, entered into MMP portfolio license agreements with third parties, pursuant to which Phoenix Digital received aggregate proceeds totaling $32,699,000. The dollar amount for each licensing deal varies. Each is dependent on the relevance of the patents to each licensee’s revenue and the extent to which the patented technology is incorporated into specific products, rather than on the total revenue from all products of the licensee.
Patriot Scientific and The TPL Group are co-owners of the MMP Portfolio, which Alliacense™, a TPL Group enterprise, exclusively manages. The MMP Portfolio patents, filed in the 1980s, protect design techniques that have become essential to a myriad of consumer and commercial digital systems ranging from DVD players, cell phones and portable music players, to communications infrastructure, medical equipment and automobiles.
“Patriot Scientific has undergone tremendous positive change in the last year,” said David Pohl, Patriot Scientific chairman and CEO. “The shift away from developing and marketing our own Ignite microprocessor to focus primarily on revenue from the licensing of our patent portfolio has bolstered the financial strength of the company. We are excited about the next phase of our plan that has already begun in which we are evaluating opportunities to diversify our revenue stream through possible joint ventures or acquisitions, all with the goal of increasing shareholder value.”
Activities at Patriot Scientific that have occurred thus far in calendar year 2006, which includes the last six months of the fiscal year covered in the 10-KSB include:
Nine MMP portfolio licenses have been sold in the first nine months of the year
Over 300 companies have been notified that they are licensing candidates
Unprecedented among microcap stocks, two cash dividends in 2006
Announced open market buy-back program for shares
Conversion and retirement of all outstanding debentures
Due to activities related to preparation and filing of restated financials for fiscal 2002 through 2005 as previously announced, Patriot Scientific has filed a notice to take the allowable five-day extension to file the fiscal 2007 first quarter 10-Q financial report for the three month period ending August 30, 2006. That document will be filed October 23, 2006. Patriot Scientific has been advised that the character "E" that has been appended to the company’s trading symbol pending the filing of the company's annual report will be removed today.
About Patriot Scientific
Patriot Scientific is a leading intellectual property licensing company that develops, markets and enables innovative technologies to address the demands in fast-growing markets such as wireless devices, smart cards, home appliances and gateways, set-top boxes, entertainment technology, automotive telematics, biomedical devices and industrial controllers. Headquartered in Carlsbad, Calif., information about the company can be found at http://www.ptsc.com.
An investment profile on Patriot Scientific may be found at http://www.hawkassociates.com/ptscprofile.aspx
Copies of Patriot Scientific press releases, current price quotes, stock charts and other valuable information for investors may be found at http://www.hawkassociates.com and http://www.americanmicrocaps.com.
About the Patent Portfolio
The patent portfolio, marketed as the Moore Microprocessor Patent Portfolio, contains intellectual property that is jointly owned by the publicly held Patriot Scientific Corporation and the privately held TPL Group. The portfolio encompasses seven U.S. patents as well as their European and Japanese counterparts. Both TPL and Patriot assert that their jointly owned patents protect techniques used in designing microprocessors, microcontrollers, Digital Signal Processors (DSPs), embedded processors and System-on-Chip (SoC) implementations. The MMP Portfolio is exclusively managed by Alliacense, a TPL Group Enterprise.
Moore Microprocessor Patent, MMP and Alliacense are trademarks of Technology Properties Limited (TPL). PTSC and Ignite are trademarks of Patriot Scientific Corporation. All other trademarks belong to their respective owners.
CONTACTS:
Patriot Media Relations
The Hoffman Agency
David Friedman
(303) 868-9641
dfriedman@hoffman.com
Patriot Investor Relations
Hawk Associates
Frank Hawkins or Ken AuYeung
(305) 451-1888
info@hawkassociates.com
New Pacer Document--
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION
Technology Properties Limited, Inc.,
Plaintiff,
v.
Fujitsu Limited, Fujitsu General America, Inc.,
Fujitsu Computer Products of America, Inc.,
Fujitsu Computer Systems Corp., Fujitsu
Microelectronics America, Inc., Fujitsu Ten
Corporation of America, Matsushita Electrical
Industrial Co., Ltd., Panasonic Corporation of
North America, JVC Americas Corporation,
NEC Corporation, NEC Electronics America,
Inc., NEC Display Solutions of America, Inc.,
NEC Corporation of America, NEC Unified
Solutions, Inc., Toshiba Corporation, Toshiba
America, Inc., Toshiba America Electronic
Components, Inc., Toshiba America
Information Systems, Inc., Toshiba America
Consumer Products, LLC, ARM, Inc. and
ARM, Ltd.,
Defendants.
Case No. 2:05-CV-00494 (TJW)
PLAINTIFFS' UNOPPOSED MOTION FOR EXTENSION OF TIME
TO COMPLY WITH DISCOVERY ORDER §3(b) AND P.R. 3-4(a)
Case 2:05-cv-00494-TJW Document 153-1 Filed 10/13/2006 Page 1 of 6
- 2 -
COMES NOW, Plaintiffs seeking the Court's extension of the following deadlines:
(1) the deadline for substantial compliance with Discovery Order § 3(b) and P.R. 3-4(a) pursuant to this Court's October 3, 2006 Order, from October 17, 2006 to October 31, 2006;
(2) the deadline to exchange privilege logs from November 17, 2006 to December 1, 2006; and
(3) the deadline to notify the Court whether disputes exist as to claims of privileged documents from December 19, 2006 to January 2, 2007. These extensions are not being sought for the purpose of delay, but only to give all parties additional time to comply. All parties have agreed to this motion. WHEREFORE, Plaintiffs respectfully pray that the Court grant this Motion and permit the above extensions.
DATED: October 13, 2006 By: /s/ Roger L. Cook
S. Calvin Capshaw, State Bar No. 03783900
BROWN McCARROLL, LLP
Ein OTC Unternehmen das 28 Mio. Gewinn gemacht hat und im kommenden Jahr, bei gleichbleibenden Einnahmen auf ca.48 Mio. kommen wird.
Es sind 2 Dividenden gezahlt worden.Es sind 3,3 Mio.Aktien zurückgekauft worden.
Bei einem , aus meiner Sicht nicht zu hohen kgv von 12 komme ich auf einen fairen Wert von jenseits der 3$ und das ist bei weitem noch nicht das Ende,denn Hunderte von Patentverletzern werden noch zur Kasse gebeten.
Für den neuen Ignite-Chip sind mit AMD royalties von 0,15$/Chip vereinbart worden (umsatzabhängig),sollte der sich durchsetzen,ist das sicherlich nicht das schlechteste.
Pohl hat mit der Bekanntgabe über die Zahlungen zwischen Juni und Oktober 2006 einen Hinweis gegeben, daß weitere Einnahmen schon gesichert sind.Ich denke das sollte allen shareholdern weitere Sicherheit geben.
Alles in allem bin ich zufrieden und hatte nicht mehr erwartet. Die nächsten Q1 Zahlen am 23.10.werden den positiven Effekt bestätigen und wenn ich mich nicht irre, soll am 17.10.die Klagesumme eröffnet werden.Das sollte dann auch noch einmal etwas mehr Klarheit geben.
Ich wünsche allen Patrioten und denen die es noch werden wollen ein schönes Wochenende.
Шлю вам (тебе) сердечный привет joker
Optionen
| Boardmail an "joker67" |
Wertpapier: Patriot Scientific |
... Aktienrückkauf klingt auch äußerst positiv für meine Ohren, klar.
Bin zufrieden...
Am Montag kann es genauso gut sell on good news geben,wie bei jedem Dax-Unternehmen.
Fakt bleibt,das Patriot mit diesen Zahlen bewiesen hat,das sie auf einem sehr guten Weg sind und die Zukunftsaussichten noch besser sind.
Kurzzeitige Rückschläge sollten die Langfristinvestierten auf dem Weg in Richtung Amex oder Nasdaq nicht verunsichern.
Diejenigen die noch bessere Zahlen vermutet hatten, werden enttäuscht sein, aber diejenigen haben sich auch nicht wirklich mit Patriot beschäftigt.
In diesem Sinne ist der Weg das Ziel und wir werden uns weiterhin freuen können.
Pohl...Kaaaaaabooooooooooom;-)))
...und Schalke 3 Punkte*fg*
Шлю вам (тебе) сердечный привет joker
Optionen
| Boardmail an "joker67" |
Wertpapier: Patriot Scientific |