<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended August 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to _______________
Commission File Number 0-22182
PATRIOT SCIENTIFIC CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 84-1070278
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Empl. Ident. No.)
incorporation or organization)
10989 Via Frontera, San Diego, California 92127
-----------------------------------------------
(Address of principal executive offices)
(619) 674-5000
---------------------------
(Issuer's telephone number)
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 X NO
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.00001 par value 33,402,282
- ------------------------------- ----------
(Class) (Outstanding at October 3, 1997)
Transitional Small Business Disclosure Format (check one): YES NO X
--- ---
<PAGE> 2
PATRIOT SCIENTIFIC CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of August 31, 1997 and
May 31, 1997 (unaudited) 3
Consolidated Statements of Operations for the three
months ended August 31, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows for the three months ended
August 31, 1997 and 1996 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION 12
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
</TABLE>
* No information provided due to inapplicability of the item.
2
<PAGE> 3
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRIOT SCIENTIFIC CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS
<TABLE>
<CAPTION>
August 31, May 31,
1997 1997
------------ ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,592,671 $ 477,675
Accounts receivable 449,072 260,120
Inventories (Note 3) 496,756 529,533
Prepaid expenses and other 329,461 88,353
------------ ------------
Total current assets 2,867,960 1,355,681
Property and equipment - net 620,125 380,312
Patents, trademarks, net 178,363 193,688
Other 6,774 6,773
------------ ------------
Total Assets $ 3,673,222 $ 1,936,454
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 817,388 $ 340,983
Accrued liabilities 140,714 165,236
Current portion- capital lease obligations 2,721 2,721
------------ ------------
Total current liabilities 960,823 508,940
Capital lease obligations 2,937 3,534
5% Convertible Term Debentures (Note 6) 2,000,000 --
------------ ------------
Total Liabilities 2,963,760 512,474
Stockholders' Equity
Common stock $.00001 par value; authorized
60,000,000 shares; 33,227,282 and 33,068,329
shares issued and outstanding (Note 5) 333 331
Preferred stock $.00001 par value; authorized
5,000,000 shares; none outstanding -- --
Additional paid-in capital (Note 5) 13,213,083 12,768,487
Accumulated deficit (12,503,954) (11,344,838)
------------ ------------
709,462 1,423,980
------------ ------------
Total Liabilities and Stockholders' Equity $ 3,673,222 $ 1,936,454
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
PATRIOT SCIENTIFIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 478,164 $ 411,596
Cost of sales 253,291 155,793
------------ ------------
Gross profit 224,873 255,803
Operating expenses:
Research and development 372,272 382,806
Selling, general and
administrative 651,619 261,241
Amortization -- 163,159
------------ ------------
1,023,891 807,206
------------ ------------
Other income (expenses):
Interest income 20,377 8,462
Interest expense -- (18,359)
Non-cash interest expense
related to convertible
notes (Note 6) (380,475) --
------------ ------------
(360,098) (9,897)
------------ ------------
Net loss before extraordinary
item (1,159,116) (561,300)
Extraordinary income (Note 7) -- 1,779,457
------------ ------------
Net loss $ (1,159,116) $ 1,218,157
============ ============
Net loss per share before
extraordinary item $ (0.04) $ (0.02)
Extraordinary income -- 0.07
------------ ------------
Net loss per share $ (0.04) $ 0.05
============ ============
Weighted average number of
common shares outstanding
during the period (Note 5) 28,727,282 25,988,552
============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
PATRIOT SCIENTIFIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net (loss) $(1,159,116) $ 1,218,157
Adjustments to reconcile net (loss)
to cash used in operating activities:
Adjustment for Metacomp Inc. pooling of
interests from year-end change (Note 2) -- (1,741,699)
Amortization and depreciation 63,047 191,461
Non-cash interest expense related to
convertible notes (Note 6) 380,475 --
Changes in:
Accounts and note receivable (188,952) (34,743)
Inventories 32,777 2,573
Prepaid and other assets (225,784) 9,361
Accounts payable and accrued expenses 451,883 (123,561)
Net cash used in operating activities
----------- -----------
(645,670) (478,451)
----------- -----------
Cash Flows from Investing Activities
Purchase of property and equipment (302,860) (43,074)
----------- -----------
Net cash used in investing activities (302,860) (43,074)
----------- -----------
Cash Flows from Financing Activities
Principal payments on notes payable and
long-term debt (597) (20,860)
Proceeds from issuance of common stock
and exercise of common stock warrants
and options 64,123 239,501
Proceeds from issuance of convertible
notes and accrued interest 2,000,000 --
----------- -----------
Net cash provided by financing activities 2,063,526 218,641
----------- -----------
Net Increase (Decrease) in Cash 1,114,996 (302,884)
Cash and cash equivalents at
beginning of period 477,675 863,944
----------- -----------
Cash and cash equivalents at
end of period $ 1,592,671 $ 561,060
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements of Patriot Scientific Corporation ("the
Company") presented herein have been prepared pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form 10-QSB and do
not include all of the information and footnotes required by generally accepted
accounting principles. These statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended May
31, 1997 and the Company's Form 8K dated June 16, 1997.
In the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of the
results for interim periods. Operating results for the three month periods are
not necessarily indicative of the results that may be expected for the year.
As a result of the business combination discussed below, the Company no longer
qualifies as a development stage company. Accordingly, the consolidated
statements of operations and statements of cash flows do not include development
stage cumulative results.
2. ACQUISITION OF METACOMP, INC. COMMON STOCK
On December 26, 1996, the Company acquired 96.9% of the common stock of Metacomp
in exchange for 1,272,068 shares of the Company's common stock. Metacomp
designs, manufactures, and sells a wide range of high performance data and
telecommunications solutions for wide area networking and digital
telecommunications requirements. The business combination was accounted for as a
pooling of interests. Accordingly, the Company's financial statements have been
restated to include the results of Metacomp for all periods presented.
Metacomp's fiscal year-end has been changed from July 31 to May 31 to conform to
the Company's fiscal year-end. Based on the difference in fiscal year-ends,
results of operations for the two months ended July 31, 1996 have been included
in the consolidated statements of operations for the three months ended August
31, 1996. For the two months ended July 31, 1996, Metacomp recorded total
revenues of $239,501, a net loss before extraordinary item of $37,758,
extraordinary income of $1,779,457 and net income after extraordinary items of
$1,741,699. The accompanying consolidated statements of cash flows has been
adjusted to eliminate the net income after extraordinary items for the three
months ended August 31, 1996.
3. INVENTORIES
Inventories are stated at cost ( determined primarily by the weighted average
cost method which approximates cost on a first-in, first-out basis) not in
excess of market value.
Inventories at August 31, 1997 and May 31, 1997, consist of the following:
<TABLE>
<CAPTION>
August 31, 1997 May 31, 1997
--------------- ------------
<S> <C> <C>
Raw material $324,668 $344,334
Work in process 83,531 90,086
Finished goods 88,557 95,113
-------- --------
$496,756 $529,533
======== ========
</TABLE>
6
<PAGE> 7
PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
4. PURCHASED TECHNOLOGY
Purchased technology at a cost of $1,837,000 relating to the Company's ShBoom
Technology was amortized over its estimated useful life of three years.
Amortization expense of $163,159 was recorded related to this technology for the
three months ended August 31, 1996.
5. STOCKHOLDERS' EQUITY
The following table summarizes equity transactions during the three months ended
August 31, 1997:
<TABLE>
<CAPTION>
Common
Shares Dollars
---------- -----------
<S> <C> <C>
Balance June 1, 1997 33,068,329 $12,768,818
Exercise of stock options 158,953 64,123
Non-cash interest expense related to convertible notes
recorded to additional paid-in capital -- 380,475
---------- -----------
Balance August 31, 1997 33,227,282 $13,213,416
========== ===========
</TABLE>
A total of 5,000,000 shares of the Company's outstanding common stock was issued
as a contingent cost of the Company's acquisition of its ShBoom Technology and
4,500,000 of such shares remain subject to an escrow arrangement. The escrowed
shares are releasable from escrow at the rate of 500,000 shares for each
$500,000 of revenues earned by the Company and upon the occurrence of certain
defined major corporate events. These shares are issued and outstanding and
carry all shareholder rights. Any of the escrowed shares not released prior to
May 31, 1999 are to be returned to the Company and canceled. These shares are
excluded from the calculation of weighted average number of common shares
outstanding for the computation of (loss) per share until the release conditions
are met.
At August 31, 1997, the Company had 340,000 options outstanding pursuant to its
1992 ISO Stock Option Plan exercisable at prices ranging from $0.50 to $2.30 per
share expiring beginning 1997 through 2001. The Company had 661,753 options
outstanding pursuant to its 1992 NSO Stock Option Plan exercisable at prices
ranging from $0.18 to $2.30 per share expiring beginning 1997 through 2002. The
Company also had 3,298,626 options outstanding (of which 1,911,000 options are
subject to stockholders' approval) pursuant to its 1996 Stock Option Plan
exercisable at $0.18 to $2.30 per share expiring beginning in 1999 through 2002.
Some of the options described in this paragraph are not presently exercisable
and are subject to meeting vesting criteria.
As of October 1, 1995 the Board of Directors adopted the 1995 Employee Stock
Compensation Plan providing for the issuance of up to 250,000 common shares to
Employees, as defined. Executive officers and directors are not eligible under
the Plan. Through August 31, 1997 the Company had issued 217,600 common shares
pursuant to the plan.
At August 31, 1997 the Company had warrants outstanding exercisable into 741,733
common shares at exercise prices ranging from $1.69 to $7.50 per share expiring
beginning in 1999 through 2002.
7
<PAGE> 8
PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6. 5% CONVERTIBLE TERM DEBENTURES
In June, 1997 the Company issued to a limited number of investors for cash an
aggregate of $2,000,000 of unsecured 5% Convertible Term Debentures due June 2,
1999 and Stock Purchase Warrants ("Securities") with a right to purchase an
aggregate 611,733 shares of common stock, par value $.00001 per share, at an
exercise price of $1.69125. The principal and interest amount of each Debenture
may, at the election of the holder, be converted in whole or in part and from
time to time into fully paid and nonassessable shares of common stock, $.00001
par value, of the Company, at a price which is the lower of (i) $1.1646 per
share or (ii) depending on the number of days the Debentures have been held
after the funding date, from 75% to 91% of the average of the closing bid prices
for the common stock for the ten consecutive trading days ending on the trading
day immediately preceding such conversion date. If the Debentures have not been
converted into common shares of the Company by June 2, 1999, under certain
conditions the Debentures will automatically be converted into shares of the
common stock of the Company. Under certain conditions, at the election of the
Company and for a certain period of time, the Company may issue an additional
$1,000,000 of unsecured 5% Convertible Term Debentures due June 2, 1999 and
Stock Purchase Warrants with a right to purchase an additional 305,867 shares of
common stock.
According to the views of the Staff of the Securities and Exchange Commission,
convertible debt instruments which are convertible at a discount to market
should be accounted for by treating such discount as additional interest
expense. The Company computed the amount of the discount based on the difference
between the conversion price and fair value of the underlying common stock on
the date the Notes were issued. The Company will record $507,300 of additional
paid-in capital for the discount related to the embedded interest in the Notes .
Of this amount, $380,475 has been expensed during the first fiscal quarter ended
August 31, 1997 under the caption "Non-cash interest expense related to
convertible notes." The remaining balance of $126,825 will be expensed during
the second fiscal quarter.
7. EXTRAORDINARY INCOME
The extraordinary income is a gain from the discharge of debt as a result of the
completion of Metacomp's Plan of Reorganization under Chapter 11 of the U.S.
Bankruptcy Code as of July, 1996.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE
COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A
VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING,
"FUTURE PERFORMANCE AND RISK FACTORS." SEE ALSO THE COMPANY'S ANNUAL REPORT ON
FORM 10-KSB FOR THE YEAR ENDED MAY 31, 1997.
The Company's results of operations have and may continue to be subject to
significant quarterly variation. The results for a particular quarter may vary
due to a number of factors, including the overall state of the microprocessor
and communications segments of the economy, the development status and demand
for the Company's products, economic conditions in the Company's markets, the
timing of orders, the timing of expenditures in anticipation of future sales,
the mix of products sold by the Company, the introduction of new products and
product enhancements by the Company or its competitors and pricing and other
competitive conditions.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 1997 AND 1996
Net sales. Total net sales for the first quarter of fiscal 1998 increased 16.2%
to $478,164 from $411,596 for the first quarter of fiscal 1997. This increase
was due primarily to the shipment of the Company's CyberShark Industry Pack
Module for use on the Navy's Tactical Satellite Communications Systems and the
completion of the initial gas antenna development contract for the Navy. These
increases in sales were partially offset by a reduction in license and
engineering design revenue for the Company's communication products.
Cost of sales. Cost of sales as a percentage of net sales increased to 53.0% for
the first quarter of fiscal 1998 compared to 37.8% for the corresponding quarter
of the previous fiscal year. This increase was due primarily to engineering
design and license income, revenue items with little or no associated cost of
sales, having a favorable impact on the cost of sales percentage during the
first quarter of fiscal 1997.
Research and development expenses decreased slightly from $382,806 for the first
fiscal quarter of 1997 to $372,272 for the first fiscal quarter of 1998.
Selling, general and administrative expenses increased by 149.4% from $261,241
for the first quarter of fiscal 1997 to $651,619 for the first quarter of fiscal
1998. This increase was due primarily to the costs related to the $2,000,000
financing, an increase in personnel costs related to the Company's addition of
two executives, one marketing and one financial, and the increase in marketing
costs related to introducing the Company's products to the marketplace.
Amortization of purchased technology was $163,159 for the first fiscal quarter
of 1997. The technology was totally amortized during fiscal year 1997 and,
accordingly, there was no corresponding expense for the first quarter of fiscal
year 1998.
Other income (expense) was significantly higher for the third quarter of fiscal
1997 as a result of the non-cash interest related to discounted notes discussed
in Note 6 to the consolidated financial statements.
An extraordinary income item of $1,779,457 was included in the first quarter of
fiscal 1997. This item was the result of the discharge of debts by Metacomp in
July, 1996 as a result of their successful completion of their Chapter 11 case.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1997, working capital was $1,907,137 and cash and cash equivalents
totaled $1,592,671. The Company has funded its operations primarily through cash
flows from operations and the issuance of securities. The cash and cash
equivalents increased $1,114,996 during the three months ended August 31, 1997.
The net cash used in operating activities of $645,670 and additions to property
and equipment of $302,860 was offset by a new issuance of convertible debt in
the amount of $2,000,000.
9
<PAGE> 10
The Company's liquidity for the next twelve months is anticipated to be
supplemented by introducing to market and commencing sales and licensing of the
ShBoom, the technology used in the PSC1000 family of microprocessor computer
chips, designing future generations of communication product technologies,
exploiting the radar and antenna technology and by expanding the marketing of
communication products through its recent acquisition of Metacomp.
The Company anticipates that it may require additional equipment, fabrication,
components and supplies during the next twelve months to continue development of
the Company's technologies. Product introductions such as those currently
underway for communication products and the PSC1000 may require significant
inventory, product launch and other expenditures not presently estimable by
management. Further, if expanded development is commenced or new generations of
microprocessors or radar are accelerated beyond current plans, additional
expenditures, not currently estimable by management, may be required. It is
possible therefore, that higher levels of expenditures may be required than
currently contemplated by management resulting from changes in development plans
or as required to support new developments or commercialization activities or
otherwise.
Based on the current fiscal year's rate of cash operating expenditures and
current plans, management anticipates additional cash requirements of
approximately $1,000,000 during the next twelve months. The Company anticipates
to meet this cash requirement from improved product sales, the sale of
additional Company equity securities, some form of debt financing or the sale or
licensing of certain of the Company's technologies. There can be no assurance
that any funds required during the next twelve months or thereafter can be
generated from operations or that such required funds will be available from the
aforementioned or other potential sources. The lack of additional capital could
force the Company to substantially curtail or cease operations and would
therefore have a material adverse effect on the Company's business. Further
there can be no assurance that any such required funds, if available, will be
available on attractive terms or that they will not have a significantly
dilutive effect on existing shareholders of the Company.
FUTURE PERFORMANCE AND RISK FACTORS
THIS REPORT CONTAINS A NUMBER OF FORWARD-LOOKING STATEMENTS WHICH REFLECTS THE
COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE.
THE COMPANY'S FUTURE BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE SUMMARIZED BELOW.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES
NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS, TO REFLECT
EVENTS OR CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE OF THIS REPORT.
Since the business combination with Metacomp, the Company has segregated its
operations into microprocessor, communication, and radar/antenna segments.
However, synergistic technical and other resources can and will be deployed
across all three segments.
Product revenues have been primarily from the communication segment. The
communication products are specifically designed to fill both the high speed
data as well as the video conferencing requirements of the Internet.
The microprocessor continues to be the Company's primary development focus. The
Company has completed development of a 0.5 micron version of the PSC1000 which
has resulted in increased processing speed and performance. In addition, the
Company is running the Sun Microsystems's Java OS on the PSC1000. The PSC1000 is
expected to execute Java very efficiently, and to be the price/performance
leader in the Java processor marketplace. This enhancement is expected to
increase potential market opportunities in areas such as TV set top boxes, smart
phones, PDAs, network computers, and other Internet related products.
The Company's primary focus for the radar and antenna technology segment
continues to be to pursue various government agencies and commercial entities to
fund additional development efforts to establish business partnerships that will
enable the Company to commercialize this technology. The Company recently
completed a development contract with the Navy to demonstrate characterization
of the gas antenna and is currently seeking additional government funds to
continue this development.
10
<PAGE> 11
The Company is focusing its sales efforts on original equipment manufacturers,
system integrators, and Internet service providers for both the microprocessor
and communication segments. In addition, the Company anticipates using the
microprocessor in existing and future products developed in all three product
segments.
The Company has experienced in the past and may experience in the future many of
the problems, delays and expenses encountered by any business in the early
stages of development, some of which are beyond the Company's control. The
Company has limited operating history, has incurred significant cumulated
losses, has only recently commenced marketing and sales of its products and has
not achieved a profitable level of operations. There can be no assurance of
future profitability. The Company may require additional funds in the future for
operations or to exploit its technologies. There can be no assurance that any
funds required during the next twelve months or thereafter can be generated from
operations or that such required funds will be available from the aforementioned
or other potential sources. The lack of additional capital could force the
Company to substantially curtail or cease operations and would therefore have a
material adverse effect on the Company's business. Further there can be no
assurance that any such required funds, if available, will be available on
attractive terms or that they will not have a significantly dilutive effect on
existing shareholders of the Company. The Company's technologies are in various
stages of development. The Company's CyberShark(TM) digital modem and certain
communication products have been developed to the point of production of
marketable product and the PSC1000 is in the first stages of production. There
can be no assurance that any of the technologies in development can be completed
to commercial exploitation due to the inherent risks of new technology
development limitations on financing, competition, obsolescence, loss of key
technical personnel and other factors. The Company's development projects are
high risk in nature, where unanticipated technical obstacles can arise at any
time and result in lengthy and costly delays or result in determination that
further development is unfeasible. There can be no assurance that the
technologies, if completed, will achieve market acceptance sufficient to sustain
the Company or achieve profitable operations. The Company acquired its ShBoom
technology pursuant to a chain of agreements and there is uncertainty regarding
royalty payments, if any, and indemnification from prior parties. The Company
does not believe it is obligated to pay any royalties on aspects of the ShBoom
technology specified in prior agreements between nanoTronics Corporation and
previous inventors. The Company believes, should there be royalties due to
previous inventors, that the obligation is that of nanoTronics. However, the
Company could become subject to unindemnified claims relating to any failure by
nanoTronics to pay such royalties, if due. Also the company could become liable
for up to $1,250,000 to nanoTronics under certain indemnification provisions.
The Company relies primarily on patents to protect its intellectual property
rights. There can be no assurance that patents held by the Company will not be
challenged and invalidated, that patents will issue from any of the Company's
pending applications or that any claims allowed from existing or pending patents
will be sufficient in scope or strength or be issued in all countries where the
Company's products can be sold to provide meaningful protection or commercial
advantage to the Company. Competitors may also be able to design around the
Company's patents. The Company's common shares are traded on the OTC Bulletin
Board, are thinly traded and are subject to special regulations imposed on
"penny stocks." The Company's shares may experience significant price and volume
volatility, increasing the risk of ownership to investors.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Effective June 19, 1997, by means of an Action By Written Consent of
the Shareholders of the Company the following matter was voted upon:
1. The shareholders approved an increase in the authorized shares of
capital stock to 65,000,000 shares of which 5,000,000 shares were designated
Preferred Stock, par value $.00001, and 60,000,000 shares were designated as
Common Stock, par $.00001.
Votes For
---------
Increase in Authorized Shares 16,494,659
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - NONE
(b) Reports on Form 8-K
A Report on Form 8-K was filed on June 16, 1997 related to the
$2,000,000 financing.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PATRIOT SCIENTIFIC CORPORATION
Date: October 8, 1997 By: /s/ LOWELL W. GIFFHORN
----------------------------
Chief Financial Officer
(Principal Financial and
Accounting Officer and duly
authorized to sign on behalf
of the Registrant)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
INTERIM STATEMENTS FOR THE THREE MONTHS ENDED AUGUST 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10QSB FOR THE
QUARTERLY PERIOD ENDED AUGUST 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 1,592,671
<SECURITIES> 0
<RECEIVABLES> 449,072
<ALLOWANCES> 0
<INVENTORY> 496,756
<CURRENT-ASSETS> 2,867,960
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,673,222
<CURRENT-LIABILITIES> 960,823
<BONDS> 2,963,760
0
0
<COMMON> 333
<OTHER-SE> 13,213,083
<TOTAL-LIABILITY-AND-EQUITY> 3,673,222
<SALES> 478,164
<TOTAL-REVENUES> 478,164
<CGS> 253,291
<TOTAL-COSTS> 253,291
<OTHER-EXPENSES> 1,023,891
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 360,098
<INCOME-PRETAX> (1,159,116)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,159,116)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,159,116)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
