PTSC Stock: Letter to Shareholders from Patriot Scientific Corporation President/CEO Rick Goerner Updates Future Business Strategies
To all shareholders and stakeholders of Patriot Scientific Corporation
(OTCBB: PTSC stock), this letter provides an update on significant business
activities at the Company. It has been my intention these past six
months to facilitate regular communication to Patriot Scientific’s
shareholders through these letters to provide insight on topical issues
and to provide a uniform status report on important activities at the
Company.
In this letter I focus on three topics: 1) an update on activities to
expand Patriot Scientific’s future business
prospects, 2) an update on our plan to improve Patriot Scientific’s
investor relations (IR) and public relations (PR) program, and 3)
comments on questions received from shareholders.
Patriot’s
2008 10-K results
As in prior letters, I won’t go through the
extensive details contained in the Company’s
report on Form 10-K that was filed with the SEC on August 14, 2008.
Patriot Scientific’s balance sheet remains
strong with no debt and a strong cash position. When considering Patriot
Scientific’s results, it is important to point
out that the Company paid almost $12 million more in income taxes in
fiscal 2008 compared to 2007 due to the expiration of net operating loss
carry-forwards, and we still held over $19 million in cash and
marketable securities at fiscal year end. Having cash in this market is
a significant advantage as Patriot Scientific assesses, and attracts,
M&A opportunities. SSDI also demonstrated positive progress with
expanded revenues and profitable results for the year.
Through May 31st, total MMP™
Portfolio licenses exceeded $240 million with TPL/Alliacense continuing
to close new MMP™ licenses, announcing 27 new
licensees in Patriot Scientific’s fiscal 2008.
This past month has been particularly busy with activities including
finalizing the details of our announced acquisition of Crossflo Systems,
Inc., increasing Patriot Scientific’s stake
in Talis Data Systems, and continuing to assess several new
opportunities.
Patriot Scientific has begun to focus on data sharing and secure data
networking technology with a bias toward software companies with
synergistic software modules that complement a complete secure data
sharing solution for potential customers in healthcare, law enforcement
and government agency applications. The following updates activities in
the three areas we have identified to expand our revenues.
1.
Selective expansion of Patriot Scientific's IP portfolio to build on
the future revenues of the MMP(TM) Portfolio:
Recent MMP(TM) portfolio license announcements with Hoya
Corporation, Robert Bosch and Audiovox evidence the global efforts
of the TPL/Alliacense licensing activity.
We have made progress on Patriot Scientific's agreement with NuPOWER
Semiconductor to validate the NUSEM IP at customers needing to
improve the performance, accuracy and efficiency of next generation
power management architectures. We have made initial contacts with
customers, set customer meetings and outlined the business model for
new licensees. We believe that NuPOWER's technology can help Patriot
Scientific develop an on-going royalty revenue stream.
Also in the area of IP expansion, we have held preliminary
discussions with the developers of advanced networking IP technology
for Digital Subscriber Line (DSL) applications.
2.
Pursue minority investments, undertaken as a strategic investor, in
certain early-stage revenue or technology ventures that represent a
future technology or capability of interest to Patriot Scientific:
Effective August 1, Patriot Scientific increased its stake in Talis
Data Systems by acquiring all Talis shares held by SSDI and certain
other minority shareholders, while also making an additional direct
cash investment furthering our position in Talis. After a subsequent
cash investment from Talis employees and other investors, our
resultant ownership now stands at 37%. Talis pre-production samples
of its Datagent multi-domain hardware have now passed testing and
design validation, with customer sample units being released for
assembly and expected to be available late next month. As reported
last month, Talis projects initial revenues later this year through
an expanding network of integration partners such as Synnex and
Arrow.
Patriot Scientific has made progress in its due diligence efforts to
validate the technology, and business assumptions, to acquire, for
cash, nearly 20% of a Silicon Valley developer of mobile networking
software to facilitate the transfer of video content to mobile
devices. We are on track to complete the transaction by the end of
August. Industry projections indicate that video-enabled handsets
will increase from under 5% today to more than 70% by 2011. We
believe this company has differentiated technology and has recently
contracted field trials with several major international carriers
that will be launched before the end of 2008. Recently the company
demonstrated its ability to download its software at an Asian
carrier, going online within one day.
3.
Full M&A opportunities:
We continue to make progress towards obtaining Crossflo shareholder
approvals, and other details required to close the transaction by
September 1st. We believe that Crossflo will serve as a core
capability for other software activities that Patriot Scientific is
pursuing with a focus on "data sharing and secure data solutions for
a connected world."
Additionally, we announced today that Patriot Scientific has engaged
Imperial Capital, LLC as our investment banker to help expand the
list of opportunities for M&A and to facilitate future M&A
transactions by providing guidance and advice concerning deal value,
structure and integration strategies. In addition to the above
activities, Imperial will initiate contact with several public
"companies of interest".
We have held numerous meetings with several other companies that
have healthcare, data security, data extraction and analysis
products that can complement the core Crossflo technology.
While we are confident about our progress to close our transaction with
Crossflo and to make continued progress on other opportunities, we need
to remember that the acquisition process can be both complicated and
time consuming, and there can be “false starts”
resulting in no completed transaction as a consequence of the due
diligence review, failure to close on key terms of the definitive
agreement, changes in the business conditions of either company and
other factors.
Improving investor relations (IR) and
public relations (PR)
We have begun handling all shareholder inquiries in-house. Initial
shareholder feedback has been very positive. We expect that moving
shareholder communications in-house will continue to improve
responsiveness, and the quality of response, to shareholder inquiries.
Ibis Consulting Group took over Patriot Scientific’s
outbound IR efforts effective August 1, 2008. Ibis will be responsible
for driving a more proactive investor relations program aimed at new
equity fund investors, both in the US and globally. Ibis has a strong
track record of success dealing with companies, like Patriot Scientific,
to introduce the Company to new equity investors that can make a
positive difference in our future. I was in New York City this past
month meeting with several existing and new equity investors to discuss
Patriot Scientific’s vision for the future.
Ibis is coordinating subsequent meetings through year-end, including
several industry conferences. These venues represent an opportunity to
outline the strength of the Patriot transition story. We will have more
information on these conferences as details become available.
We are also planning to post an updated Patriot Scientific business
overview on the Company’s website next week
for investor review and comment. It outlines our vision for Patriot
Scientific’s future, leveraging the success
of the MMP™ licensing efforts, into data
sharing and secure data solutions.
We have begun planning for our shareholder meeting to be held in
Carlsbad, CA on October 30, 2008. I will provide more details regarding
the meeting and key shareholder initiatives in my next letter.
I want to reiterate that it is my objective to continually improve the
quality, uniformity and responsiveness of our communications to
shareholders and the marketplace, and I will continue to look forward to
your comments and inquiries.
Comments on other shareholder inquiries
Recent shareholder inquiries, generally, fall into the following
categories:
1)
Business details regarding the Crossflo Systems, Inc acquisition
2)
Update on USPTO actions on MMP(TM) patent re-examinations
1)Business details regarding the Crossflo Systems, Inc
acquisition
We expect to close the Crossflo acquisition by September 1, 2008. It
would be inappropriate to disclose any financial and business details of
Crossflo’s business until the transaction is
finalized. We expect to have a Crossflo overview as part of Patriot
Scientific’s upcoming shareholder meeting and
plan to file audited historical financial statements for Crossflo with
the SEC in early October.
2)Update on USPTO actions on MMP™
patent re-examinations
The patent re-examination process is a very complicated and lengthy
process. Both Patriot Scientific and TPL are involved in the litigation
regarding the patents, and comments regarding the status of the various
patent re-examinations cannot be made. We look forward to the final
actions by the USPTO. TPL/Alliacense continues to be active as evidenced
by new MMP™ licensees.
There has been much press coverage recently on the ARS situation.
Merrill Lynch, Citigroup and UBS have recently announced plans to redeem
their ARS, and we are encouraged by the actions of the government and
the banking institutions to resolve this widespread issue. As we
understand the terms of these announced arrangements, for now they only
address ARS held by retail customers, and then only on a protracted
buy-out schedule. Although Patriot Scientific’s
exposure to its ARS position was reduced in April, we still hold $12.9
million of these instruments. In response to this situation, we have
negotiated access to cash collateralized by the ARS with an
institutional lender in the event we need access to additional capital.
Our current cash forecasts do not project a need to access the funds
secured by the ARS.
I trust this letter has provided you with additional information
regarding the status of key business initiatives at Patriot Scientific.
Please feel free to send us your comments and any additional questions.
We are making measurable progress with respect to our stated goals. I
look forward to your support as we transition ahead and remain excited
about the opportunity to build a strong future for Patriot Scientific.
Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995: Statements in this news release looking forward in time
involve risks and uncertainties, including the risks associated with the
effect of changing economic conditions, trends in the products markets,
variations in the company's cash flow, market acceptance risks, patent
litigation, technical development risks, seasonality and other risk
factors detailed in the company's Securities and Exchange Commission
filings.
Moore Microprocessor Patent (MMP) and Alliacense are trademarks of
Technology Properties Limited (TPL). PTSC is a trademark of Patriot
Scientific Corporation. All other trademarks belong to their respective
owners.
