C O M P A N Y I N T E R V I E W

Company Interview:

Patriot Scientific Corporation (PTSC) -- Part Two

TWST: What’s the drag as far as signing companies? Is it simply balancing your e sources against the deals to be made? Are there ways to speed up the process? Does it just have its own timing?

Mr. Turley: It’s a little bit of both.

Although we are really happy with the rate at

which we have been signing licenses, of course

we prefer it to be faster. With 300 plus companies

still to go, I’m going to die an old man before I

can sign all of them at this rate. So having said

that, we are happy with the rate, but I would prefer

it to be quicker.

The drag initially was that people just

didn’t realize that they were using technology.

There is fair amount of education involved in

showing people that, “gee, you are using this

technology, you’ve put it in your products and

they are working very well, but golly, we invented

this a few years ago,” and we so we offer

them an opportunity to purchase the patent portfolio.

There is some initial resistance up front

simply because people are not aware. We think

that awareness is going to pick up and we have

some evidence that the license rate is increasing.

Now that companies like Sony, AMD, Intel,

Hewlett-Packard and the others are taking licenses,

it’s becoming clear to everybody else

that it is something they are going to need to do

in order to continue to innovate their own prod-ucts.

So we suspect that the wheels will start

turning a bit more quickly.

TWST: What’s the financial snapshot of the company today — balance sheet, P&L? What are the strengths? What items are you focused on for improvement?

Mr. Turley: The company is doing fantastically

well. We just filed our 10-K for the fiscal

year 2007. It could hardly be any better. Our top

line is about $49 million. That’s about double what

it was the year before that. The company has no

debt to speak of, no debt whatsoever. We bought

back outstanding warrants and reduced the overhang.

We are immensely profitable, as you might

expect, with $49 million in licensing revenue coming

in. We have got more than $20 million in cash

in the bank that we are ready to deploy to expand

the company in the future. And, again, we have

every expectation of more licensing revenue coming

in for many years. So the revenue, the cash

hoard, the shareholder equity, all of that looks like

it’s going up and to the right in the future. It is

looking extremely good for us.

TWST: What models, what strategies have you looked at as faras use of that cash? Obviously, the future business may be more dependent on how well you steward as opposed to how well you license.

Mr. Turley: True enough, the licensing

has been very, very good for us in the last couple

of years and the company has even paid out cash

dividends, not once, not twice, but three times,

which almost never happens for a Pink Sheet

company such as ours. We’ve paid three dividends

to our long-time shareholders, which made

them extremely happy. Going forward, we may

do that again. But more than that, what I’m looking

for is to turn that cash hoard into investments.

What I would like to see Patriot Scientific do is

start developing new products and selling new

products into the market, whether that be software,

whether that be microprocessor chips

again, or whether that be black boxes that go into

the industrial, consumer or automotive markets. I

think we are going to invest that cash into R&D

or acquisitions or some combination of the two,

so that we return to being a product company in

the next 12 to 15 months.

TWST: What historically has been the shareholder base with the company? Has that base undergone any recent changes?

Mr. Turley: It hasn’t really. We are extremely

broad-based, with 16,000 shareholders,

none of whom holds more than about 8% of the

company. There are no major shareholders. There

is nobody with undue influence on the company.

It’s spread out among retail shareholders, institutional

shareholders, private equity firms; it’s all

across the map.

TWST: In your discussions with the investment community, are there any recurring questions or misperceptions? Is the story understood?

Mr. Turley: Unfortunately, the story is not

very well understood, which is part of my job as

the President and chief communicator of the company,

to explain the fantastic opportunity we’re sitting

on. The patents that the company holds are

fundamental to pretty much every sort of chip

making, and, as I said, many of the largest companies

out there have already purchased a license.

We’ve got hundreds to go; it’s like holding a patent

to water. Everybody needs it, all we need is our

share, our recognition; it is something that the

company developed that we have a right to license.

Obviously, we are very happy to license it. We

don’t litigate; we don’t go around suing people for

using the technology. We’d much rather license

C O M P A N Y I N T E R V I E W — P A T R I O T S C I E N T I F I C C O R P O R A T I O N

people in very friendly and open and businesslike

way. It’s working for us very well. A lot of Patriot

Scientific’s long-time shareholders get that, but

people who are new to the firm don’t quite realize

what a gold mine the company is sitting on, how

fundamental our technology is, how vital our technology

is, and the enormous upside that is ahead of

us in licensing our technology to electronics companies

around the world.

TWST: Introduce us to your top-level management team, two or three of your key individuals.

Mr. Turley: I’m Chief Executive; I have

been on board for the last three months. I succeeded

our previous Chief Executive, David Pohl. Our

Chief Financial Officer has been on board for a

couple of years and he has done a fantastic job of

righting the financial ship, as it were. We’ve gone

through Sarbanes-Oxley, Section 404, you name it.

We have the most fantastically squeaky-clean balance

sheet I have ever seen. If people are interested

in it, they can download the 10-K. Again, we have

no debt. The financial health of the company never

been better and we have our CFO and Controller to

thank for that. We have a very active Board of

Directors, people who have been with the company

for a long time. We have an Audit Committee, and

we have technology people. In fact, we just recently

appointed a new Board member. Dr. Nick

Tredennick from Silicon Valley has joined our

Board of Directors and he has a fantastic track

record in technology startups and technology investments,

and we are really, really pleased to have

him on board. With his guidance and the guidance

of the rest of Board, we are really looking forward

to the next phase in Patriot Scientific’s growth.

TWST: At this point, what should investors focus on as we track and assess your performance? Are there key metrics or events or combinations to focus on? What should matter to the investor? What matters to you?

Mr. Turley: Right now, I think the key

thing that investors focus on is new licensing revenue.

As I said, we have licensed 21 companies so

far. We have 300 still to go and so what everybody

watches for is the announcement of new license.

Who did we sign today, who can we sign tomorrow?

So that’s the pipeline, that’s the short-term

upside. Longer term, we are going to take the

money that we received from our licensing and

turn that toward acquisitions or R&D or some

combination of those, so that we start a second revenue

stream. In addition to the licensing revenue,

which will continue for many years, we want to

start a second revenue stream as a product company.

Again, it could be software, it could be services,

hardware or it could be microprocessors. We

will announce that when we are ready. And then,

for the very long term, for our longer-term investors,

we have the wonderful combination of

both licensing fees from our patent portfolio and

the product revenue from our second product line,

which puts us in a very strong position to do more

acquisitions, to fund our own R&D, to be completely

self-sustained, keep the debt off the balance

sheet and to watch the Patriot Scientific share price

grow and grow

TWST: What compels investors today to include Patriot as part of their current portfolios and part of their longer-term investment strategies?

Mr. Turley: The number one thing that

makes the company exciting as an investment is

that it is sitting on a goldmine of fundamental electronic

technologies that pretty much every chipmaker

in the world needs but doesn’t yet have. So

that represents fantastic upside for us. If investors

need confirmation that the patent portfolio is as

C O M P A N Y I N T E R V I E W — P A T R I O T S C I E N T I F I C C O R P O R A T I O N

valuable as we say, they only have to look at the 21

companies that have already bought them. Sony,

Epson, Nikon, AMD, Hewlett Packard, Intel, companies

like that. Those companies don’t roll over

and sign a license for frivolous reasons. They are

truly buying into fundamental technology that they

use in their product. So that establishes the credibility

and value of our patent portfolio. It doesn’t

take a lot of imagination to see the enormous upside

ahead of the company. But, as if that weren’t

enough, we are going to take the revenue from that

patent licensing and build a whole second revenue

stream based around a shipping product. We intend

to do that either through acquisition or through

R&D or some combination of those. And it’s going

to be soon; it’s going to be, I think, in the next 12

to 18 months when we’ll show the world what our

second product line is. So we’ll have really a twopronged

approach for building Patriot Scientific

for the future.

TWST: Does it actually pay to stay public, to go through that expense when you have a plan that can be executed?

Mr. Turley: Now that we are public, we intend

to stay so. We have been through the Sarbanes-

Oxley compliance, we have a fantastic 10-K. We

have a great financial team in place. Going public

is very difficult. If we weren’t public already, I’d

certainly think twice about it. But now that we are

here and we have this process down cold, I don’t

see any reason to take the company private.

Furthermore, it gives us a little bit of added leverage

as we go out on the acquisition trail because if

we were to acquire a private firm, we would then

offer them a public listing, which may be attractive

to them. We have our big war chest but we might

also be attractive to potential acquisition targets. I

think we have got it pretty well figured out.