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Message: Investment in Affiliated Company (PDS)
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Investment in Affiliated Company
During the six months ended November 30, 2011 and 2010, TPL entered into licensing agreements with third parties, pursuant to which PDS received aggregate proceeds of $557,300 and $1,409,000, respectively.
PDS reimburses TPL for payment of all legal and third-party expert fees and other related third-party costs and other expenses. During the six months ended November 30, 2011 and 2010, PDS expensed $3,296,798 and $2,017,463, respectively, pursuant to the agreement. These expenses are recorded in the accompanying PDS statements of operations presented below.
On April 12, 2010, we filed an action against TPL in the San Diego Superior Court. On January 19, 2011, pursuant to our settlement agreement with TPL, PDS agreed to pay TPL $67,000 per month from September 1, 2010 to April 30, 2011 relating to TPL’s special work and effort regarding internal costs related to litigation support and patent re-examinations.
On April 22, 2010, we filed an action against TPL in the Superior Court of Santa Clara County. We and TPL had been in negotiations to restructure our relationship. On October 6, 2011, we announced that we had settled this action. Pursuant to this executed settlement agreement with TPL, PDS agreed to pay TPL $172,000 for June 2011, and $86,000 per month thereafter until 60 days after the Markman hearing relating to TPL’s special work and effort regarding internal costs related to litigation support. Accordingly, PDS has accrued $602,000 at November 30, 2011 pursuant to the executed settlement agreement and this expense is recorded in the accompanying PDS statements of operations presented below.
We are accounting for our investment in PDS under the equity method of accounting, and accordingly have recorded our reportable share of PDS’ net loss during the six months ended November 30, 2011 and 2010 of $527,551 and $1,475,839, respectively, as a decrease in our investment. We received no cash distributions from PDS during the six months ended November 30, 2011 and 2010. During the three months ended November 30, 2011, we accounted for $227,268 previously advanced by us for legal services which are reimbursable by PDS, under the equity method of accounting given that this amount remains unreimbursed at November 30, 2011. Accordingly, our investment in and advances to PDS are $0 and $227,268. During the During the six months ended November 30, 2011 our entire share of PDS’ net loss is $2,090,812 and at May 31, 2011 our investment in PDS was $300,283. For the six months ended November 30, 2011 we have recorded our share of PDS’ net loss to the extent of our basis in the investment. The remaining loss will be carried forward until such time as it can be recovered. Accordingly, our investment in PDS is $0 on our November 30, 2011 balance sheet. We have recorded our share of PDS’ net loss for the six months ended August 31, 2011 as “Equity in loss of affiliated company” in the accompanying condensed consolidated statements of operations.
During the three months ended November 30, 2011 and 2010, TPL entered into licensing agreements with third parties, pursuant to which PDS received aggregate proceeds of $45,000 and $1,409,000, respectively
At November 30, 2011, PDS had accounts payable balances of approximately $2,965,704 and $227,000 to TPL and PTSC, respectively. At May 31, 2011, PDS had accounts payable balances of approximately $1,754,000 and $129,000 to TPL and PTSC, respectively.
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