October 17th, 2006
DAVIDS DO BEAT GOLIATHS SOMETIMES

Today, Associate Editor Samuel K. Moore offers a mea culpa to a small tech firm that has confounded his doubts by waging a patent fight against some of the microprocessor giants—and winning.

Back in 2003, when I first read a press release from Patriot Scientific, of San Diego, I must admit I laughed out loud. This troubled, profitless speck of a company said it was suing five of the biggest consumer electronics makers in Japan for infringing patents it held that described technology used in just about every microprocessor made since the early 1990s. That's a lot of processors. To top off this brazen claim, the company started filing suits on Christmas Eve. I didn't think Patriot had a chance.

Perhaps I should not have been so dismissive. After years of legal hardball, the company has made good on its claims, to the tune of US $35.9 million in revenue for the fiscal year ending 31 May. Patriot's annual report, filed on 13 October, gives the first comprehensive glimpse of how well the company has convinced major electronics makers to knuckle under. In the first nine months of 2006, the company's jointly owned licensing company, Phoenix Digital Solutions, hooked nine big fish: Casio, Fujitsu, HP, Seiko Epson, Sony, Nikon, PENTAX, Olympus, and Kenwood. AMD and Intel gave in last year. From 1 June to 3 October Phoenix brought in $32.7 million from some of these deals; Patriot should see a little less than half of that. As you'd expect, Patriot doesn't disclose how much each one paid. In conversation last year, a lawyer involved in the licensing indicated that Patriot wanted to attract customers by cutting the first few licensees a cheap deal. I don't know if any of the cheap licenses are left, but clearly the strategy has worked.

The issue concerns the so-called Moore Microprocessor Patents (MMP), named for Charles Moore, the inventor of the Forth programming language. A good example of an affected technology involves clocks, the drumbeaters that keep all a circuit's soldiers marching in step. In the old days, microprocessors ran off the same clock signal as the rest of the computer, and that was no problem at speeds below around 120 MHz. The trouble is that the computer's clock signal has to follow many centimeters of copper wiring all over the computer, leading to delays. Charles Moore and Russell Fish dreamed up the solution of letting the processor clock run as fast as you want while synchronizing it to the computer's much slower clock, enabling speeds in the gigahertz range. And that's the way things have worked for the past decade or so.

How a seeming pipsqueak like Patriot wound up with the keys to the microprocessor kingdom is a complicated tale, but here goes.

Fish and Moore came up with their technology while developing the SH-Boom microprocessor in the late 1980s. Sometime before the patents issued, Fish transferred his interest in SH-Boom to a family trust, which sold it to a company called Nanotronics, which sold it to Patriot in 1995. Patriot apparently didn't realize the value of the patents until the early 2000s, a time of stock taking for many holders of intellectual property. (Remember when British Telecom briefly thought it owned hypertext linking?)

Patriot saw it had been leaving money on the table and embarked on its Christmas quest for cash, but it quickly got stuck (unless all owners of a patent sue, a court case will get nowhere), and Moore wouldn't go along with Patriot's plan. His Silicon Valley licensing firm, Technology Properties, Ltd. (TPL), began a legal battle for full ownership, and Patriot's dreams of riches seemed to recede.

But the big technology companies apparently feared infringing on the patents and rushed to cut a deal no matter what the legal niceties. At one point, AMD took a $1.7-million license from Patriot, and Intel took a license from Moore. (AMD put both oars in, paying additional cash for Patriot's original product, the processor that succeeded Moore and Fish's SH-boom processor.)

The promise of vast sums of money can make even bitter rivals kiss and make up; and in 2005, TPL, Moore, and Patriot set aside their suits and formed Phoenix Digital, a 50-50 joint venture for licensing the patents.

Patriot and its shareholders are enjoying their first profitable year ever, and Moore has moved on to found a fabless multicore processor firm, Intelasys. But the tale of the patents may not be over. Russell Fish and his family trust sued Patriot seeking a piece of the action. The Fish family and Patriot have been in mediation since 11 September. Stay tuned.

Hi, i´m from germany and
it was early 2004 i heard about this company.
Now me and a whole bunch of other german investors are holding a lot of shares of this company - and believe me, we wouldn´t sell before 10$ are reached.

We believin in this great story and trust in the new CEO David Pohl, he will lead PTSC to new heights.

I hope my english is good enough to be understand.
Best regards from Germany
Frank

many of these ideas are as old as the ark. go and research old stack based computers from burroughs for implementation details. Broadly speaking you are simply implementing a push down automation (PDA).

Great research,

but don't forget the Nasdaq listing of PTSC will be coming soon. Siemens today posted a net profit of 4 Mio.$. PTSC announced a net profit for the last year of 28,7 Mio. $. Keep your eyes on monday, when the first quarter of PTSC will be reported. I'm excited expecting huge million profits too.

Greatings

K.

PTSC=A Sleeping GIANT!
I believe that it has been recognized as one of the stocks of the year and is still cheap enough to make it a great play.

This stock is a huge cash cow and financials and pps always converge. JHK

Pohl and associates have played this better than a winning hand in Texas hold-em.By not divulging the specifics on each settlement they are laying the groundwork for some blockbuster earnings down the road. This stock is incredibly cheap on a risk reward basis as future revenues could be huge,They've already paid 2 small cash dividends,unheard of for a microcap.

I have heard Patriot is really a stock pump and dump scam. I would not invest but rather see how it plays out and if the SEC begins their investigation.

I've bought and sold Patroit for years. I've paid as much as $4 for it and as little as $0.08, so far I've mostly broken even. That said, I don't believe it is a pump and dump scam. They have paid a dividend already, and I believe that there remains much potential for further deal from embedded processor makers, like the auto makers. PTSC is a very volatile stock, I would advise buying below 0.80 in the near term. I personally plan on selling again if it breaks $4.

Mr. Moore:

You wrote: "Back in 2003, when I first read a press release from Patriot Scientific, of San Diego, I must admit I laughed out loud..."

Confucious say, "he who laughs last, laughs best"

Regards

I thought the patent law suit was already settled and the court ruled that fish did not come up with the idea, also what about the law suit taken by PTSC against all of the companies using their technology.

This stock is one of the best investments I have ever made. Besides 2 cash dividends it has already rewarded me with a nice profit windfall. However, as I see the enormous potential of this stock to soar over $10 (conservatively estimated) on the mid-run, I will remain a loyal investor. The stock is still extremely affordable and a good investment today considering the future outlook. The future rewards will prove me right. Way to go, PTSC! Keep up the good work and make us happy.

I attended the annual shareholder's meeting, and I can tell you this is no pump and dump. The well-regarded attorney CEO was there with his Board, all very reputable professionals—a CPA, physician, attorney, Mr. Turley who is a microprocessor expert.

And I received two nice dividends.

Where did you get such misinformation re a pump and dump? Sheesh.

I too have traded & closely watch this one for a number of years. Look at the current multiples , and the stock buy backs they recently did. It has all the makings of a great medium-long term play. Also keep in mind they are looking for additional aquisitions to build the company beyond the patent portfolio. The 2 dividends was a great kicker for a micro cap ; Pohl in my opinion definately makes an effort to reward the investors on multiple levels. Keep up the great work. Accumulating shares at these levels is a no brainer for an excellent spec play. Try to find one better........You Won't !

Loyal Long Time Investor

As a holder of a 101,000 shares of PTSC I would appreciate
seeing more press releases. I feel strongly about this company and cannot understand why your customer relations
department is not more active in keeping your stockholders aware of what is going on. The stock price will not appreciate if you only publish results quarterly. Communication is essential to move this company forward.

I couldn't agree more with comments made by Robert, the previous poster. PR is very important to keeping the stock's momemtum moving forward. Not the fluff pieces mind you, but good solid news. Patriot has to have some irons in the fire with other potential customers. I realize that some deals are legally bound to secrecy until comsummated, but Patriot must have something they can share with investors. I'm very encouraged by the potential of this company. Their balance sheet has never looked better!

Indeed the PTSC story is quite impressive. The results from past years have been restated—as i read it more conservatively to price options at fair value. There are SOME details regarding revenue/licensing agreements ($10 M one-tiome payment by Intel, for example) in the SEC filings. While I lament the lack of recurring revenue from Intel, they did improve their balance sheet, eliminate / settle past debentures and pay a dividend. Further, this sets an important precedent—especially given that Intel could have tied them up in Court for decades. Recent insider transactions have all been buys. I don't think that management should be wasting time manufacturing press releases when there is nothing definitive to share.

So given all of this good news, why does the stock price continue to slide? Anyone have a technical or any other perspective on this?

Lyle, Durham, NC

Nice move back up from what looked to be a disasterous day. Heavy volume on large block sales very encouraging. Management did indicate that they would be buying back more shares this year. They certainly had a great opportunity to buy back some cheap shares today.

I didn't see any mention of a rule against posting links to other web sites. You could have at least left my comments in and deleted the links so I would have had to re-type the entire message over. Thanks

If this makes the cut readers of this can try:

1) www (dot) hawkassociates (dot) com/ptscprofile.aspx

2) www (dot) investorshub (dot) com/boards/board.asp?board_id=2183

3) www (dot) agoracom (dot) com/irhub/messageIndex.jsp?id=patriot

There is a wealth of information there.

Good luck and good investing, DW