<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 February 29, 2000
[ ] 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)
(858) 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 50,991,374
- ------------------------------- ----------
(Class) (Outstanding at April 12, 2000)
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
<PAGE> 2
PATRIOT SCIENTIFIC CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of February 29, 2000 (unaudited)
and May 31, 1999 3
Consolidated Statements of Operations for the three and nine
months ended February 29, 2000 and February 28, 1999
(unaudited) 4
Consolidated Statements of Cash Flows for the nine months ended
February 29, 2000 and February 28, 1999 (unaudited) 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K *
SIGNATURES 18
</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
<TABLE>
<CAPTION>
February 29, May 31,
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,001,286 $ 35,813
Accounts receivable, net of allowance
of $22,000 for uncollectible accounts 77,191 85,362
Inventories (Note 3) 146,811 249,833
Prepaid expenses 55,527 135,198
------------ ------------
Total current assets 3,280,815 506,206
Property and equipment, net 274,127 448,764
Patents and trademarks, net 131,196 190,057
------------ ------------
$ 3,686,138 $ 1,145,027
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable (Note 4) $ -- $ 355,274
Related party notes payable (Note 4) -- 175,000
Accounts payable 606,311 1,196,553
Accrued liabilities 125,102 140,083
Accrued past due payroll taxes -- 182,996
Capital lease obligations -- 1,355
------------ ------------
Total current liabilities 731,413 2,051,261
Contingencies (Notes 6 and 9)
Common stock subject to rescission (Note 6) 2,484,596 75,000
Stockholders' equity (deficit) (Note 7):
Preferred stock, $.00001 par value; 5,000,000 shares
authorized: none outstanding -- --
Common stock, $.00001 par value; 60,000,000 shares
authorized; issued and outstanding 48,126,313 and 39,563,915 481 396
Additional paid-in capital 31,023,567 22,879,449
Accumulated deficit (30,553,919) (23,861,079)
------------ ------------
Total stockholders' equity (deficit) 470,129 (981,234)
------------ ------------
$ 3,686,138 $ 1,145,027
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
3
<PAGE> 4
Patriot Scientific Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $ 146,076 $ 271,525 $ 584,984 $ 1,108,022
Cost of sales 215,383 113,425 438,946 683,323
------------ ------------ ------------ ------------
Gross profit (loss) (69,307) 158,100 146,038 424,699
Operating expenses:
Research and development 463,544 478,571 1,288,563 1,634,060
Selling, general and
administrative 347,009 407,483 968,788 1,325,158
Non-cash compensation (Note 7) 3,739,267 -- 3,739,267 445,000
------------ ------------ ------------ ------------
4,549,820 886,054 5,996,618 3,404,218
------------ ------------ ------------ ------------
Operating loss (4,619,127) (727,954) (5,850,580) (2,979,519)
------------ ------------ ------------ ------------
Other income (expenses):
Gain on sale of technology -- -- 250,000 --
Interest income 2 45 102 3,764
Interest expense (40,875) (12,970) (96,711) (19,455)
Non-cash interest expense
related to notes payable
(Notes 4 and 8) (382,059) (20,500) (995,651) (320,302)
------------ ------------ ------------ ------------
(422,932) (33,425) (842,260) (335,993)
------------ ------------ ------------ ------------
Net loss $ (5,042,059) $ (761,379) $ (6,692,840) $ (3,315,512)
============ ============ ============ ============
Basic and diluted loss
per common share $ (0.12) $ (0.02) $ (0.16) $ (0.09)
============ ============ ============ ============
Weighted average number of
common shares outstanding
during the period (Note 1) 43,387,466 39,134,034 40,844,879 37,485,732
============ ============ ============ ============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
4
<PAGE> 5
PATRIOT SCIENTIFIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
February 29, February 28,
2000 1999
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Operating activities:
Net loss $(6,692,840) $(3,315,512)
Adjustments to reconcile net loss
to cash used in operating activities:
Amortization and depreciation 270,233 194,728
Provision for inventory obsolescense 100,000 --
Common stock and warrants issued
for services -- 94,971
Non -cash interest expense related to
convertible debentures, notes payable
and warrants (Notes 4 and 6) 995,651 365,472
Amortization of debt issuance costs -- 48,000
Non -cash compensation expense 3,739,267 445,000
Gain on sale of technology (250,000) --
Changes in:
Accounts receivable (133,829) 136,220
Inventories 3,022 43,033
Prepaid and other assets 75,950 (49,198)
Accounts payable and accrued expenses (774,537) 900,413
-----------------------------
Net cash used in operating activities (2,667,083) (1,136,873)
-----------------------------
Investing activities:
Purchase of property and equipment (33,014) (273,096)
Proceeds from sale of technology 250,000 --
-----------------------------
Net cash provided by (used in) investing activities 216,986 (273,096)
-----------------------------
Financing activities:
Proceeds from issuance of short term notes payable 410,000 247,500
Proceeds from issuance of common stock under the
investment agreement subject to recision 2,409,596 --
Proceeds from sale of accounts receivable 142,000 207,000
Principal payments on notes payable and
long-term debt (720,355) (1,618)
Proceeds from issuance of common stock
and exercise of common stock warrants and options 3,174,329 371,431
-----------------------------
Net cash provided by financing activities 5,415,570 824,313
-----------------------------
Net increase (decrease) in cash and cash equivalents 2,965,473 (585,656)
Cash and cash equivalents, beginning of period 35,813 602,456
-----------------------------
Cash and cash equivalents, end of period $ 3,001,286 $ 16,800
=============================
Supplemental Disclosure of Cash Flow Information:
Convertible debentures, notes payable and accrued
interest exchanged for common stock $ 405,182 $ 575,642
Cash payments for interest $ 102,137 $ 19,455
</TABLE>
See accompanying summary of accounting policies and 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, 1999.
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 and nine
month periods are not necessarily indicative of the results that may be expected
for the year.
LOSS PER SHARE
The Company has implemented Standard of Financial Accounting Standards ("SFAS")
No. 128, "Earnings per Share." Under SFAS No. 128, basic loss per share is
calculated as loss available to common stockholders divided by the weighted
average number of common shares outstanding. Diluted loss per share is
calculated as net loss divided by the diluted weighted average number of common
shares. The diluted weighted average number of common shares is calculated using
the treasury stock method for common stock issuable pursuant to outstanding
stock options, common stock warrants, and debt convertible into common stock.
Common stock options and warrants of 5,413,667 and 115,078 for the three months
and 2,780,049 and 157,315 for the nine months ended February 29, 2000 and
February 28, 1999, respectively, and debt convertible into none and 330,726 for
the nine months ended February 29, 2000 and February 28, 1999, respectively,
were not included in diluted loss per share for the periods as the effect was
antidilutive due to the Company recording losses in each of those periods.
For the three and nine months ended February 29, 2000, 2,865,061 shares of the
Company's common stock was not considered outstanding for diluted loss per share
since the shares may be subject to rescission as a result of the potential
violation of Section 5 of the Securities Act of 1933.
In addition, for the quarter ended February 28, 1999, 1,500,000 shares of common
stock in escrow as of February 28, 1999 were not considered outstanding for
diluted loss per share because theses shares were subject to an earnout
agreement which had not yet been met.
SALE OF ACCOUNTS RECEIVABLE
The Company has adopted SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". SFAS No. 125 provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. A factoring line established
by the Company with a bank enables the Company to sell selected accounts
receivable invoices to the bank with full recourse against the Company. These
transactions qualify for a sale of assets since (1) the Company has transferred
all of its right, title and interest in the selected accounts receivable
invoices to the bank, (2) the bank may pledge, sell or transfer the selected
accounts receivable invoices, and (3) the Company has no effective control over
the selected accounts receivable invoices since it may not redeem the invoices
sold previous to the invoices being greater than 90 days past due. Under SFAS
No.125, after a transfer of financial assets, an entity recognizes the financial
and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. During the first nine months of
fiscal 2000, the Company sold approximately $178,000 of its accounts receivable
to a bank under a factoring agreement for approximately $142,000. During the
first nine months of fiscal 1999, the Company sold approximately $259,000 of its
accounts receivable to a bank under a factoring agreement for approximately
$207,000. Pursuant to the provisions of SFAS No. 125, the Company reflected the
transactions as sales of assets and established an accounts receivable from the
bank for the retained amount less the costs of the transaction and less any
6
<PAGE> 7
PATRIOT SCIENTIFIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
anticipated future loss in the value of the retained asset. The retained amount
was equal to 20% of the total accounts receivable invoice sold to the bank less
1% of the total invoice as an administrative fee and 1.75% per month of the
total outstanding accounts receivable invoices as a finance fee. The estimated
future loss reserve for each receivable included in the estimated value of the
retained asset was based on the payment history of the accounts receivable
customer. As of February 29, 2000, there were no balances outstanding under the
factoring line.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair market value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows. SFAS No.
133, as extended by SFAS No. 137, is effective for fiscal periods beginning
after June 15, 2000. Management believes the adoption of this statement will
have no material impact on the Company's financial statements.
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 February 29, 2000 and May 31, 1999, consist of the following:
<TABLE>
<CAPTION>
February 29, 2000 May 31, 1999
<S> <C> <C>
Component parts $ 409,834 $ 449,582
Work in process 93,262 93,262
Finished goods 159,715 122,989
--------- ---------
662,811 665,833
Reserve for obsolescence (516,000) (416,000)
--------- ---------
$ 146,811 $ 249,833
========= =========
</TABLE>
4. NOTES PAYABLE
During the three and nine months ended February 29, 2000, the Company paid off
short term loans aggregating $644,000 and $719,000, respectively, with a group
of individual investors, one of which was a major shareholder in the Company. In
addition, an additional $289,000 of short term loans with the group of
individual investors was converted into the Company's common stock during the
three and nine months ended February 29, 2000. During the nine months ended
February 29, 2000, the Company borrowed $410,000 from the same group of
investors with original terms of typically four months and interest rates of
10%.
In addition to the interest on the loans, warrants exercisable for three years
were issued to investors at exercise prices ranging from $.25 to $1.12 which was
equal to the market price of the common stock on the date of the issuances.
During the nine months ended February 29, 2000, warrants to purchase 1,338,342
common shares of the Company were issued related to the $410,000 short term
loans placed during the nine months and warrants to purchase 2,443,447 common
shares of the Company were issued to the individual investors to extend the due
dates of their short term loans. These warrants were valued using the
Black-Scholes model and the value of $985,437 was reflected as a discount to the
debt and was amortized over the life of the debt. In the third quarter and first
nine months of fiscal 2000, $382,059 and $995,651, respectively, of the debt
discount was amortized and reflected as non-cash interest expense.
7
<PAGE> 8
PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT AGREEMENT
In February 1999, the Company entered into an investment agreement with Swartz
Private Equity LLC ("Swartz"). The investment agreement entitled the Company, at
the Company's option, to issue and sell its common stock for up to an aggregate
of $5 million from time to time during a three-year period through February 24,
2002, subject to certain conditions including (1) an effective registration
statement must be on file with the SEC registering the resale of the common
shares, and (2) a limitation on the number of common shares which could be sold
to Swartz within a 30 day time period based on the trading volume of the stock,
among others. Swartz could purchase the common stock from the Company at a
discount ranging from 10% to 20% depending on the price of the common stock. In
addition to the common stock purchased, Swartz received warrants to purchase an
additional 15% of the common stock equal to 110% of the market price as
determined during the pricing period, subject to further semi-annual adjustments
if the price of the common stock goes down.
In July 1999, the Company amended and restated the investment agreement with
Swartz to eliminate the discretion of Swartz as to the timing of its purchase of
the Company's common stock. The amended and restated investment agreement
required Swartz, after the Company put shares of common stock to it, to purchase
the Company's common stock on the twentieth day following the put. The previous
agreement enabled Swartz, in its sole discretion, to purchase the Company's
common stock at any time during a twenty day period following the Company's put
to it.
The registration statement went effective on October 5, 1999. The Company put
780,460, 1,784,640 and 4,449,696 shares of its common stock to Swartz with
effective closing dates of November 30 and December 27, 1999 and February 10,
2000. As a result of an increase in the market price and trading volume of the
Company's common stock, the Company completed the $5 million placement of shares
with the February 10, 2000 closing. The total number of shares placed with
Swartz was 13.9% of the total number of shares outstanding at February 29, 2000
or 7,014,796 common shares at prices ranging from $0.248 to $0.9775. The average
price per share paid by Swartz was $0.71 compared to the average closing price
during the twenty day pricing periods of $1.34 per share.
An additional 1,052,219 shares of common stock at exercise prices ranging from
$0.341 to $1.265 are issuable to Swartz upon the exercise of warrants issued
under the investment agreement. None of the warrants had been exercised as of
February 29, 2000.
6. COMMON STOCK SUBJECT TO RESCISSION
In April 1999, the Company sold 400,000 shares of its common stock to two
individuals for an aggregated amount of $75,000; in June 1999, the Company
issued 397,205 shares of its common stock to an institutional investor upon the
conversion of a short term note plus accrued interest in the amount of $116,182;
and during the nine months ended February 29, 2000, the Company issued 7,014,796
shares of its common stock under the investment agreement (see note 5) for
$5,000,000. These sales occurred after the filing of a registration statement
for the public resale of shares sold under the investment agreement; and,
therefore, the Company may have violated Section 5 of the Securities Act of
1933. As the shares may have been sold in violation of Section 5, the investors,
at their option, may have the right, for up to one year after the purchase of
the common stock, to rescind their purchases. The investor losses this ability
to rescind during this one year period if he resells the common stock at a
profit. At February 29, 2000, a total of 4,946,940 of the above common shares
had been sold by the investors at a profit and 2,865,061 shares were held by the
investors and remained subject to rescission. Therefore, the above shares which
were retained by the investors as of February 29, 2000 are reported separately
from stockholders' equity in the accompanying consolidated balance sheet. At the
conclusion of the recision period or on the profitable sale by the investors
previous to the conclusion of the recision period, these shares will be
reclassified to stockholders' equity. In addition, the Company and certain
officers and directors of the Company may be subject to civil and criminal
penalties for potential violation of either or both Section 5 of the Securities
Act of 1933 and applicable state law as a result of these sales. Management
believes that the possibility of damages related to these potential violations
of Section 5 of the Securities Act of 1933 is remote and that such potential
violations will have no material impact on the Company's financial statements.
8
<PAGE> 9
PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY
The following table summarizes equity transactions during the nine months ended
February 29, 2000:
<TABLE>
<CAPTION>
Common
Shares Dollars
<S> <C> <C>
Balance June 1, 1999 39,563,915 $22,879,845
Exercise of stock options 1,624,774 254,970
Exercise of purchase warrants 947,827 328,955
Sale of stock through equity line of credit 4,549,735 2,590,404
Conversion of short term debt to stock 1,440,062 405,182
Non-cash compensation -- 3,739,267
Value of warrants issued in connection with
debt recorded to additional paid-in capital (Note 4) -- 825,425
----------- -----------
Balance February 29, 2000 48,126,313 $31,024,048
=========== ===========
</TABLE>
A total of 5,000,000 shares of the Company's common stock was issued as a
contingent cost of the Company's acquisition of its ShBoom technology in 1994.
As such, when the escrowed shares were earned, they were charged to compensation
costs. The terms of the escrow arrangement provided for an earnout formula of
500,000 shares for each $500,000 of revenues earned by the Company during the
period from June 1, 1994 through May 31, 1999. At May 31, 1999, 1,500,000
contingent shares not earned were returned to the Company and canceled.
During the nine months ended February 28, 1999, 1,000,000 shares were earned as
a result of the arrangement and $445,000 was charged to compensation costs in
that period. At February 29, 2000, 1,500,000 additional shares remain in escrow
that have been earned and charged to compensation costs but have not been
released pending the outcome of a lawsuit between the Company, nanoTronics and
the Fish Family Trust as discussed in Note 9. Upon the resolution of the
lawsuit, the remaining shares held in escrow will either be released to the Falk
Family Trust, used either partially or in their entirety as a means of settling
the lawsuit, or be returned to the Company.
Non-cash compensation expense of $3,739,267 was recorded in the nine months
ended February 29, 2000 as a result of the Company providing employees and
directors the option of exercising their stock options using a cashless exercise
provision. Generally accepted accounting principles requires that such exercises
must be recorded using variable exercise provisions which reflect the total
market value of the exercise as though it were additional compensation. Since no
cash is exchanged in the transaction, a like amount was recorded as additional
paid-in capital.
On October 5, 1999 the Company repriced 1,242,666 options to the then current
market price of $0.32.At February 29, 2000, the Company had 130,000 options
outstanding pursuant to its 1992 ISO Stock Option Plan exercisable at $0.32 per
share expiring in 2001. The Company had 35,753 options outstanding pursuant to
its 1992 NSO Stock Option Plan exercisable at $0.18 per share expiring in 2001.
The Company also had 1,272,666 options outstanding pursuant to its 1996 Stock
Option Plan exercisable at a range of $0.32 to $1.41 per share expiring
beginning in 2001 through 2004. Some of the options outstanding under these
plans are not presently exercisable and are subject to meeting vesting criteria.
At February 29, 2000, the Company had warrants outstanding exercisable into
4,984,386 common shares at exercise prices ranging from $0.25 to $1.25 per share
expiring beginning in 2000 through 2005.
8. 5% CONVERTIBLE TERM DEBENTURES
In 1997, the Company issued to a limited number of investors for cash an
aggregate of $3,000,000 of unsecured 5% Convertible Term Debentures
("Debentures") and Stock Purchase Warrants ("Warrants") with a right to purchase
an aggregate 917,600 shares of common stock, par value $.00001 per share, at
exercise prices ranging initially from $1.50 to $1.69125 per share which were
subsequently reduced to from $0.36 to $0.4375 per share.
9
<PAGE> 10
PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of May 31, 1999, the Debentures had been fully converted into 6,069,345
common shares of the Company. In addition, as of February 29, 2000, the
investors had exercised warrants to purchase 867,222 common shares of the
Company.
Convertible debt instruments which were convertible at a discount to market were
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 dates the
Debentures were issued. During the nine months ended February 28, 1999, $147,946
was expensed under the caption "Non-cash interest expense."
9. CONTINGENCY
In October 1998, the Company was sued in the District Court for Travis County,
Texas by the Fish Family Trust, a co-inventor of the original ShBoom technology.
The suit also named as defendants nanoTronics and Gloria Felcyn on behalf of the
Falk Trust. The suit sought a judgment for damages, a rescission of the
Technology Transfer Agreement and a restoration of the technology to the
co-inventor. The Company had the suit removed to the United States District
Court for the Western District of Texas, Austin Division, and requested the
Federal District Court to dismiss the suit based on lack of minimum contacts
with Texas or, in the alternative, to transfer the case to the Southern District
of California. In January 1999, the Federal District Court dismissed the suit
for lack of subject matter and personal jurisdiction. The Fish Family Trust then
refiled the suit in the Superior Court of San Diego County, California seeking
remedies similar to the Federal District Court dismissed action. In March 1999,
the Company joined with nanoTronics and Gloria Felcyn and filed its response and
cross-complaint against the Fish Family Trust. In February 2000, the judge
confirmed her ruling in favor of the defendants on the counts related to the
judgment for damages, a rescission of the Technology Transfer Agreement and a
restoration of the technology to the co-inventor. The judge did rule that
another issue, the defendants failure to timely issue shares of the Company's
common stock to the Fish Family Trust as a result of the Fish Family Trust's
ownership in nanoTronics, may have merit and could potentially go to trial if
the parties do not settle this last remaining item. The Company and the other
defendants continue to vigorously contest the plaintiff's remaining allegation.
Management believes that it is unlikely that the outcome of this last matter
would have a material impact on the financial position or cash flows of the
Company.
10
<PAGE> 11
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, 1999.
The Company's results of operations have been and may continue to be
subject to significant variations. The results for a particular period may vary
due to a number of factors. These include:
- the overall state of the semiconductor and communications
segments of the economy,
- the development status of and demand for its products,
- economic conditions in its 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,
- product enhancements by the Company or its competitors, and
- pricing and other competitive conditions.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY
28, 1999
Net sales. Total net sales for the third fiscal quarter ended February
29, 2000 decreased 46.2% to $146,076 from $271,525 for the corresponding period
of the previous fiscal year. This decrease was due to a reduction in follow-on
shipments for the Company's matured communication products, several that are
approaching the end of their life cycles, coupled with a reduction in license
fee income. Development and sales of new communications products have not
achieved a level to replace the maturing products. The Company anticipates this
trend in communication product revenue to continue since many of the
communication products are approaching the end of their life cycles and its
efforts are being focused on the microprocessor product line. Also, in the third
fiscal quarter of the previous year the Company received $90,000 from the sale
of a microprocessor license. There was no similar revenue during the current
fiscal quarter.
Cost of sales. Cost of sales as a percentage of net sales increased to
147.4% in the third fiscal quarter ended February 29, 2000 compared to 41.8% for
the corresponding period of the previous fiscal year. This significant increase
was due to a $100,000 increase in the reserve for obsolescence for inventory
that had been used in the communication product line. As a result of the
decreased activity in the communications product revenue, the likelihood of
realizing the value of this inventory has been reduced. The fixed manufacturing
overhead being allocated to a smaller revenue base and the impact of the
microprocessor license sale discussed above (which had no associated costs) also
contributed to the increase in the cost of sales as a percentage of net sales
percentage.
Research and development expenses decreased 3.1% from $478,571 for the
third fiscal quarter ended February 28, 1999 to $463,544 for the third fiscal
quarter ended February 29, 2000. This decrease was due primarily to a reduction
in costs related to licensed software support and update fees.
Selling, general and administrative expenses decreased 14.8% to $347,009
for the third fiscal quarter ended February 29, 2000 compared to $407,483 for
the third fiscal quarter ended February 28, 1999. This decrease was due
primarily a reduction in personnel and consulting costs for the third quarter
ended February 29, 2000.
Non-cash compensation expense of $3,739,267 was recorded in the third
fiscal quarter ended February 29, 2000 as a result of the Company providing
employees and directors the option of exercising their stock options using a
11
<PAGE> 12
cashless exercise provision. Generally accepted accounting principles require
that such exercises must be recorded using variable exercise provisions which
reflect the total market value of the exercise as though it were additional
compensation. Since no cash is exchanged in the transaction, a like amount is
recorded as additional paid-in capital.
Other (expense) increased significantly for the third fiscal quarter
ended February 29, 2000, ($422,932), compared to ($33,425) for the corresponding
period of the previous fiscal year. This increase resulted primarily from the
recognition in the third fiscal quarter ended February 29, 2000 of $382,059 of
non-cash interest related to the amortization of the debt discount as discussed
in Note 4 compared to $20,500 of non-cash interest related to the discount on
convertible term debentures for the corresponding period of the previous fiscal
year. Also interest expense on short-term notes payable increased to
approximately $40,000 from $13,000 for the corresponding period of the previous
fiscal year.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY
28, 1999
Net sales. Total net sales for the nine months ended February 29, 2000
decreased 47.2% to $584,984 from $1,108,022 for the corresponding period of the
previous fiscal year. Of this decrease, approximately $355,000 was due to a
decrease in follow-on shipments for the Company's matured communication products
several of which are approaching the end of their life cycles. Development and
sales of new communications products have not achieved a level to replace the
maturing products. The Company anticipates this trend in communication product
revenue to continue since many of the communication products are approaching the
end of their life cycles and its efforts are being focused on the microprocessor
product line. In addition, during the nine months ended February 28, 1999 the
Company recognized sales of $211,000 related to the non-recurring engineering
efforts on a kiosk application. These decreases were partially offset by an
increase in communications product line royalties and license fees from the
microprocessor product line.
Cost of sales. Cost of sales as a percentage of net sales increased to
75.0% in the nine months ended February 29, 2000 compared to 61.7% for the
corresponding period of the previous fiscal year. This increase was the result
of the increase in the inventory obsolescence reserve discussed above partially
offset by the impact of royalty and license fee revenue during the nine months
ended February 29, 2000 not adding to the cost of sales since they had no
associated costs. Also, the profit margins on the kiosk order revenue recognized
during the nine months ended February 28, 1999 were lower than normal profit
margins resulting in a higher cost of sales percentage for that period.
Research and development expenses decreased 21.1% from $1,634,060 for
the nine months ended February 29, 1999 to $1,288,563 for the nine months ended
February 29, 2000. This decrease was due primarily to a reduction in costs
related to licensed software support and update fees and a reduction in the
costs related to porting software to the microprocessor.
Selling, general and administrative expenses decreased 26.9% to $968,788
for the nine months ended February 29, 2000 compared to $1,325,158 for the nine
months ended February 28, 1999. This decrease was due primarily to a reduction
in personnel costs for the nine months ended February 29, 2000 and a reduction
in expenses related to financings.
Non-cash compensation expense of $3,739,267 was recorded in the nine
months ended February 29, 2000 as a result of the Company providing employees
and directors the option of exercising their stock options using a cashless
exercise provision. Generally accepted accounting principles require that such
exercises must be recorded using variable exercise provisions which reflect the
total market value of the exercise as though it were additional compensation.
Since no cash is exchanged in the transaction, a like amount is recorded as
additional paid-in capital. Non-cash compensation expense of $445,000 was
recorded for the nine months ended February 28, 1999 to reflect the earnout from
escrowed shares.
Other (expense) increased by 150.7% to ($842,260) for the nine months
ended February 29, 2000 compared to ($335,993) for the corresponding period of
the previous fiscal year. This increase resulted primarily from the recognition
in the nine months ended February 29, 2000 of $995,651 of non-cash interest
related to the amortization of the debt discount as discussed in Note 4 compared
to $320,302 of non-cash interest related to the discount on convertible term
debentures for the corresponding period of the previous fiscal year, a gain of
$250,000 on the sale of
12
<PAGE> 13
the gas plasma antenna technology during the nine months ended February 29,
2000, and a $77,256 increase in interest expense for the nine months ended
February 29, 2000 related to short term notes .
LIQUIDITY AND CAPITAL RESOURCES
At February 29, 2000, the Company had a working capital of $2,873,583
and cash and cash equivalents of $3,001,286. The Company has funded its
operations primarily through the issuance of securities and debt financings.
Cash and cash equivalents increased $2,965,473 during the nine months ended
February 29, 2000 primarily as a result of the sale of common stock under the
equity line of credit. The net cash used in operating activities was $2,991,264,
additions to property and equipment were $33,014, and funds generated from debt
and equity financings were approximately $6,318,000. Approximately $720,000 of
the funds generated from debt and equity financings was used to extinguish short
term debt. During the nine months ended February 29, 2000, accounts receivable
increased $133,829 and accounts payable and accrued expenses, including accrued
past due payroll taxes, decreased $774,537.
The Company's current cash requirements to sustain its operations for
the next twelve months through February 2001 are estimated to be $1,600,000.
Management of the Company expects that these requirements will be provided by
the current working capital. In addition, the Company has a $500,000 factoring
agreement with its bank.
The Company anticipates that it may require additional equipment,
fabrication, components and supplies during the next twelve months to continue
development of its technologies. Product introductions such as those currently
underway for the PSC1000 may require significant inventory, product launch,
marketing personnel and other expenditures that the Company can not currently
estimate. Further, if expanded development is commenced or new generations of
microprocessors are accelerated beyond its current plans, additional
expenditures that the Company can not currently estimate, may be required. It is
possible therefore, that higher levels of expenditures may be required than the
Company currently contemplates resulting from changes in development plans or as
required to support new developments or commercialization activities or
otherwise. The Company anticipates that revenues from the sale of the
microprocessor and licenses of the microprocessor technology will generate
additional resources to accelerate the marketing activity. Also, the Company is
currently negotiating an expanded equity line of credit to meet these
potentially higher level of expenditures.
POTENTIAL VIOLATION OF SECTION 5 OF THE SECURITIES ACT
In April 1999, the Company sold 400,000 shares of its common stock to
two individuals for an aggregated amount of $75,000; in June 1999, the Company
issued 397,205 shares of its common stock to an institutional investor upon the
conversion of a short term note plus accrued interest in the amount of $116,182;
in November 1999 through February 2000, the Company issued 7,014,796 shares of
its common stock under the investment agreement for $5,000,000. The Company also
issued warrants for 1,052,219 shares of its common stock related to the November
1999 through February 2000 puts under the investment agreement. These sales
occurred after the filing of a registration statement for the public resale of
shares sold under the investment agreement; and, therefore, by making these
sales the Company may have violated Section 5 of the Securities Act. In July
1999, the Company amended and restated the investment agreement with Swartz to
eliminate the discretion of Swartz as to the timing of its purchase of its
common stock. The amended and restated investment agreement requires Swartz,
after the Company puts shares of common stock to it, to purchase its common
stock on the twentieth day following the put. The previous agreement enabled
Swartz, in its sole discretion, to purchase the Company's common stock at any
time during a twenty day period following the Company's put to it. By entering
into the amended and restated investment agreement, the Company completed its
sale of common stock to Swartz. Since this private sale to Swartz occurred after
the Company filed its registration statement, the Company may have sold
securities to Swartz in violation of Section 5 of the Securities Act. As the
shares may have been sold in violation of Section 5, the investors, at their
option, may have the right, for up to one year after the purchase of the common
stock, to rescind their purchases. The investor losses this ability to rescind
during this one year period if he resells the common stock at a profit. At
February 29, 2000, a total of 4,946,940 of the above common shares had been sold
by the investors at a profit and 2,865,061 shares were held by the investors and
remained subject to rescission. In addition, Patriot and certain officers and
directors of Patriot may be subject to civil and criminal penalties for
potential violation of either or both Section 5 of the Securities Act and
applicable state law as a result of these sales. Management believes that the
possibility of damages related to these potential violations of the Securities
Act is remote and that such potential violations will have no material impact on
its financial statements. See Note 8 to the Consolidated Financial Statements.
13
<PAGE> 14
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair market value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. SFAS No. 133, as
extended by SFAS No. 137, is effective for fiscal periods beginning after June
15, 2000. The Company believes the adoption of this statement will have no
material impact on its financial statements.
YEAR 2000 COMPLIANCE
Many older computer programs used only two digits to identify a year in
the date field, with the result that data referring to the year 2000 and
subsequent years could have been misinterpreted by these programs. If present in
the computer applications of a company or third parties (such as customers,
financial institutions, and suppliers) and not corrected, this problem could
have caused computer applications to fail or to create erroneous results and
could have caused a disruption in operations and had an adverse effect on a
company's business and results of operations.
The Company adopted a formal plan to evaluate its readiness for the Year
2000 and to address any deficiencies. The plan encompassed:
- information technology (IT) systems,
- non-IT systems,
- its products, and
- systems of third parties, including distributors and key
suppliers.
INFORMATION TECHNOLOGY. The principal computer systems that the Company
used for financial accounting, manufacturing, inventory control, purchasing,
sales administration, engineering, and other business functions were not Year
2000 compliant. The Company purchased a replacement system in July 1999 that was
fully functional as of October 1, 1999. The cost of this new system was
approximately $30,000.
NON-IT SYSTEMS. The Company completed an evaluation of telephone
systems, manufacturing equipment, facility heating and cooling systems, and
other non-IT systems for Year 2000 readiness and took remedial action as
necessary.
ITS PRODUCTS. The Company completed a series of tests, utilizing
industry standards, of the electronics systems of its products, including those
product lines no longer being manufactured but remaining in use at customer
sites. Its review determined that the products should continue to operate
according to specifications after December 31, 1999.
KEY VENDORS AND SUPPLIERS. The Company completed a survey of its key
vendors and suppliers to assess their plans for bringing any non-compliant
systems into Year 2000 compliance.
Other than the replacement computer system discussed above,
substantially all of the effort to evaluate its Year 2000 readiness was made
using internal personnel, and therefore incremental expenses were less than
$50,000. The Company did not incur any material expenses in connection with its
evaluation of non-IT systems. The Company has not incurred any material expenses
to date in connection with the evaluation of its products and the status of its
vendors and suppliers with respect to Year 2000 issues. The Company does not
anticipate material expenses in the future.
The Company's Year 2000 readiness plan has performed satisfactorily
subsequent to December 31, 1999. Due to the complexity and pervasiveness of the
Year 2000 issue, and in particular the uncertainty regarding the Year 2000
compliance programs of third parties, no assurances can be given that the Year
2000 problem will continue to perform satisfactorily. However, the Company does
not anticipate any material adverse effects on its business or its results from
operations.
14
<PAGE> 15
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, effective December 1996,
the Company has segregated its operations into microprocessor, communication,
and radar/antenna product lines. However, synergistic technical and other
resources can and will be deployed across all three lines.
Product revenues have been primarily from communication products. 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 0.35 micron version of the
PSC1000 which has resulted in increased processing speed and performance. In
addition, the Company is running Sun Microsystems's personalJava and Wind
River's VXWorks operating system on the PSC1000. The PSC1000 executes Java very
efficiently, and is 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 sold its gas plasma antenna technology in August 1999.
The Company is focusing its sales efforts on original equipment
manufacturers, system integrators, and Internet service providers for both the
microprocessor and communication products.
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 in the future can be generated from operations or that such
required funds will be available from 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
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 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.
15
<PAGE> 16
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1998, the Company was sued in the District Court for Travis
County, Texas by the Fish Family Trust, a co-inventor of the original ShBoom
technology. The suit also named as defendants nanoTronics and Gloria Felcyn on
behalf of the Falk Trust. The suit sought a judgment for damages, a rescission
of the Technology Transfer Agreement and a restoration of the technology to the
co-inventor. The Company had the suit removed to the United States District
Court for the Western District of Texas, Austin Division, and requested the
Federal District Court to dismiss the suit based on lack of minimum contacts
with Texas or, in the alternative, to transfer the case to the Southern District
of California. In January 1999, the Federal District Court dismissed the suit
for lack of subject matter and personal jurisdiction. The Fish Family Trust then
refiled the suit in the Superior Court of San Diego County, California seeking
remedies similar to the Federal District Court dismissed action. In March 1999,
the Company joined with nanoTronics and Gloria Felcyn and filed its response and
cross-complaint against the Fish Family Trust. In February 2000, the judge
confirmed her ruling in favor of the defendants on the counts related to the
judgment for damages, a rescission of the Technology Transfer Agreement and a
restoration of the technology to the co-inventor. The judge did rule that
another issue, the defendants failure to timely issue shares of the Company's
common stock to the Fish Family Trust as a result of the Fish Family Trust's
ownership in nanoTronics, may have merit and could potentially go to trial if
the parties do not settle this last remaining item. The Company and the other
defendants continue to vigorously contest the plaintiff's remaining allegation.
Management believes that it is unlikely that the outcome of this last matter
would have a material impact on the financial position or cash flows of the
Company.
ITEM 2. CHANGES IN SECURITIES
RECENT ISSUANCE OF WARRANTS. The following table shows warrants
convertible into common stock of the Company which have been issued to private
investors. The table includes the date the warrant was granted, the number of
shares issuable upon the exercise of the warrant, the exercise price of the
warrant and the aggregate purchase price if the warrants are exercised. The
Company offered these warrants in consideration of the private investors either
entering into a short-term loan with the Company, typically for a period of four
months, or for extending the term of the short-term loan, typically for either
one or four months. The Registrant issued these warrants without registration
under the Securities Act of 1933, as amended; and exemption for such issuance
without registration under the Act is claimed in reliance upon the exemption
provided by Section 4(2) thereof on the basis that such issuances were
transactions not involving any public offering. Appropriate precautions against
transfer will be made when and if the warrants are converted into common shares
of the Company, including the placing of a restrictive legend on all
certificates evidencing such securities. All such issuances were effected
without the aid of underwriters, and no sales commissions were paid.
<TABLE>
<CAPTION>
Number of Aggregate
Shares Exercise Purchase
Name Date of Grant Issuable Price Price
---- ------------------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Castle Creek Technology Partners,
LLC August 21, 1999 60,000 $ 0.59 $ 35,400
October 5, 1999 58,667 $ 0.32 $ 18,773
James C. and Josephine M. Zolin July 8, 1999 71,429 $ 0.32 $ 22,857
August 27, 1999 234,285 $0.25-$0.32 $ 60,971
October 13, 1999 100,000 $ 0.25 $ 25,000
October 19, 1999 215,000 $ 0.25 $ 53,750
November 8, 1999 80,000 $ 0.25 $ 20,000
November 14, 1999 100,000 $ 0.25 $ 25,000
December 29, 1999 30,000 $ 0.40 $ 12,000
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Number of Aggregate
Shares Exercise Purchase
Name Date of Grant Issuable Price Price
---- ------------------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Wayne Opperman July 8, 1999 10,714 $ 0.32 $ 3,429
August 27, 1999 171,428 $0.25-$0.32 $ 47,857
November 25, 1999 60,000 $ 0.25 $ 15,000
December 8, 1999 40,000 $ 0.25 $ 10,000
Richard D. Daniels July 8, 1999 129,286 $ 0.32 $ 41,371
August 27, 1999 228,571 $0.25-$0.32 $ 59,143
October 14, 1999 100,000 $ 0.25 $ 25,000
November 8, 1999 200,000 $ 0.25 $ 50,000
December 29, 1999 30,000 $ 0.40 $ 12,000
Robert Lewis, Jr August 27, 1999 30,303 $ 0.32 $ 9,697
December 17, 1999 40,000 $ 0.25 $ 10,000
William J. Kalandros August 27, 1999 30,303 $ 0.32 $ 9,697
December 17, 1999 40,000 $ 0.25 $ 10,000
Victor Gabourel August 27, 1999 100,000 $ 0.25 $ 25,000
September 10, 1999 100,000 $ 0.25 $ 25,000
October 14, 1999 100,000 $ 0.25 $ 25,000
October 15, 1999 100,000 $ 0.25 $ 25,000
November 1, 1999 100,000 $ 0.25 $ 25,000
November 19, 1999 200,000 $ 0.25 $ 50,000
December 29, 1999 15,000 $ 0.40 $ 6,000
January 10, 2000 15,000 $ 1.12 $ 16,800
Wayne J. Coulon August 25, 1999 15,000 $ 0.25 $ 3,750
September 29, 1999 15,000 $ 0.32 $ 4,800
Gary Leikam September 23, 1999 100,000 $ 0.30 $ 30,000
Arthur D. Kinane August 25, 1999 15,000 $ 0.25 $ 3,750
October 29, 1999 15,000 $ 0.25 $ 3,750
November 30, 1999 15,000 $ 0.25 $ 3,750
Clifford E. Koerner August 27, 1999 100,000 $ 0.25 $ 25,000
December 30, 1999 15,000 $ 0.40 $ 6,000
Charles G. Moore September 19, 1999 200,000 $ 0.25 $ 50,000
Fortney Revocable Living Trust October 3, 1999 38,462 $ 0.32 $ 12,308
Robert Wood August 4, 1999 71,429 $ 0.32 $ 22,857
December 4, 1999 100,000 $ 0.25 $ 25,000
Al Eremita August 17, 1999 28,571 $ 0.32 $ 9,143
-----------------------------------------
3,518,447 $ 974,853
</TABLE>
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - NONE
(b) Reports on Form 8-K - NONE
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: April 14, 2000 By: /s/ LOWELL W. GIFFHORN
-----------------------------
Chief Financial Officer
(Principal Financial and
Accounting Officer and duly
authorized to sign on behalf
of the Registrant)
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
INTERIM STATEMENTS FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10QSB FOR THE
QUARTERLY PERIOD ENDED FEBRUARY 29, 2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 3,001,286
<SECURITIES> 0
<RECEIVABLES> 77,191
<ALLOWANCES> 0
<INVENTORY> 146,811
<CURRENT-ASSETS> 3,280,815
<PP&E> 1,891,794
<DEPRECIATION> 1,617,667
<TOTAL-ASSETS> 3,686,138
<CURRENT-LIABILITIES> 731,413
<BONDS> 0
481
0
<COMMON> 0
<OTHER-SE> 31,023,567
<TOTAL-LIABILITY-AND-EQUITY> 3,686,138
<SALES> 584,984
<TOTAL-REVENUES> 584,984
<CGS> 438,946
<TOTAL-COSTS> 438,946
<OTHER-EXPENSES> 5,996,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,092,362
<INCOME-PRETAX> (6,692,840)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,692,840)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,692,840)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
