Interest income/Crossflo- Answer from IR

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Interest income/Crossflo- Answer from IR

posted on Nov 25, 2008 06:11AM

Just to share a response i got from the IR dept regarding my concern over the INTEREST INCOME amount that appeared on the Crossflo financial.

(1,011,358 )

I was concerned that the Interest Expense was due to some loan...(past or present)..however i could not find or understand how the interest expense could be so high and it not be balanced by some purchase or long-term loan........ the only other option was the Converitble Note------ so i asked IR for clarification.

It had to deal with accounting for the Converitble Notes see NOTE 4 in the last filing.

"The Company recorded a debt discount of $2,082,250 related to the beneficial conversion feature of the Notes, the estimated fair value of the Series F Warrants and the purchase price discount offered to the qualifying purchaser. Amortization expense related to the debt discount was $951,943 for the year ended May 31, 2008 and is included in interest expense in the accompanying statement of operations for the year ended May 31, 2008. The debt discount was $1,130,307 at May 31, 2008.

In August 2008, the Company entered into a merger agreement with Patriot Scientific Corporation (“Patriot”) (see Note 9) in which the Company’s stockholders received cash and shares of Patriot and the holders of the convertible notes were repaid. Accordingly, no Series F convertible preferred stock was issued."

Basically its an accounting procedure to show the convertible note like "payable."

After the merger.. the convertible notes were repaid... thus going forward we are not going to see such a high figure in the Interest Expense..

This was my favorite line from the letter i received from IR:

"The most important thing to take away from this is that this represents the non-cash accounting treatment related to Crossflo equity rights which, since the acquisition of Crossflo by Patriot no longer exist. All of Crossflo’s equity and debt was extinguished as part of the $10M purchase price paid by Patriot."

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