Posted on Ihub today by

whatptscwontputinapr

The April/May "sale" of Crossflo and the remains of PDSG, ends the long, sad, and expensive chapter of M&A&I failures by PTSC leadership

FINALLY, the faulty Merger and Acquisitions makeover that PTSC Leadership and Management were too ill-equiped, too ill-advised and too incapable of succeeding with has come to it's appropriate and humbling end. The final nail has been placed in Leadership's "flagship" coffin; Crossflo. Not surprisingly, I can't even seem to find a PTSC PR about this unceremonial sale event; did they even issue one, or are they hoping no one would notice and our memories of Crossflo's debacle would just fade away ?

It took almost 4 years of wasted corporate attention, direction, effort, false promise, and likely well over twenty million dollars of lost capital and investment before the BOD finally had to admit by action what retail investors had warned about and known for years; Crossflo and the Patriot Data Solutions Group was a boondoggle, a money pit in an nascent industry they knew little about, and that was beyond their experience or understanding; and our Shareholder's company checkbook. Yet, it seems like only a year or so ago PTSC was still presenting a pie chart on the "Investors" section of their website indicating PDSG (Crossflo), would be responsible for two thirds of the future revenue of PTSC, and that said revenue would be twice as large as License revenues from the MMP. Just what and who was the driving motivation with Crossflo and PDSG really ? I mean really ? I doubt Investors will ever know for sure.

With the end of this disasterous demonstration of adventurism, it looks like the track record of Carl, Gloria, and Cliff (9/07 hired as CFO, 10/09 as CEO and 1/11 as Director) is 5 out of 7 for failed Capital Investments and Corporate Acquisitions.

They are :


1. Holocom, 1/07 .. $435,000 Investment Loss, 100% writeoff


2. Deuctsche Bank Securities, 2007 .. $601,000 realized loss, excluding significant legal expenses


3. Crossflow Systems, 8/08 ... The centerpiece of PDSG, $10 Million initial purchase, 4 years of development and an additional $9.2 Million of Operational funding. Failed to meet business plan and forecasts, continuing negative cash flows, Arbitration for allegations of False Representations/Warrantees and Non-disclosure, Counterclaims against PTSC for Libel and Misrepresentation. Confidential Settlement reached. Total actual loss is yet to be determined, but my guess is our loss will be approx $22 Million. It was Sold "in exchange for a royalty on PDGS revenues for a period of 3 years". PDSG revenue for FY ending May 2011 was $470K. I project royalty payments to PTSC for the next 3 years to be less than $400K total; as Payment In Full for Crossflo.


4. Talis Data Systems, 8/08 .. $680,000 Impairment,Talis is disolved


5. Avot Media Inc, 9/08 .. $1,300,000 Investment write off due to impairmant


6. Verras Medical (Iameter), 12/08 .. $182,000 reported gain on sale


7. Vigily, 3/09 .. $60,000 reported gain on sale



The jury is still out on PDS .. "Our Joint Venture Is At Risk For Going Concern And An Inability To Meet Certain Obligations. PDS, our joint venture with TPL, ... received a going concern opinion in our May 31, 2011 financial statements,..." .... "On April 9, 2012, PDS’ cash and cash equivalents balance was $45,904. Management has concluded that our equity investment at risk in PDS is insufficient to finance its activities ... " ... "We do not have any contractual commitments and do not presently intend to fund any cash requirements of PDS..."

Aside from the fiasco of the wasted millions, and egg on our corporate face which impacted the stock and helped keep new investors away, some particular aspects of this doomed PDGS M&A&I campaign that I found especially troubling were in statements written by BOD member Gloria Felcyn, contained in a content laden Email to a single retail Shareholder (who published it) just days after the 2010 SHAM, in which Ms. Felcyn wrote regarding our M&A failures:

..."Venture funds who normally have the best of the best minds, have a track record of 1 in 3 and 4 of companies they acquire go bad. Do you really believe that we wanted what happened to happen ? "...

Is Ms Felcyn attempting to use the above statistical statement as a means of mitigating or excusing Leadership's track record for PTSCs M&A efforts ending in failure ?? To even begin to suggest that PTSC's record of failure shouldn't be so unacceptable, or unexpected, or isn't so utterly disasterous when compared to the performance of the "best of the best minds" at Venture Funds, is laughable at best. PTSC is not a Venture Fund, and I can't imagine that even Ms Felcyn would have the temerity to argue that PTSC employs the "best of the best minds", let alone with our limited resources and experience, so what other probable outcome should she or the BOD have realistically expected to happen ??? Beginning with Crossflo, PTSC plowed ahead with not just one, or two, but with five major investments in different technology companies; all within nine months of each other. As I recall, each was without meaningful reported income or profit, some without even revenue or while still in very early development stage, and most appeared to have varing levels of questionable commercial viability/sustainability to them.


Retail investors early on saw the trainwreck that was yet to fully happen, they posted about it and they warned about it in advance; even while leadership continued to publicly evangalize and make excuses for our lack of traction, and all while continuing to spend huge amounts on it. In the end, after spending all those now precious millions on such a colossal waste of time and money, PTSC was forced to state regarding the potential disposal of PDSG's remaining assets, that it "...may be on distressed terms with only minimal consideration realized ".... and .. "In the event we are unable to consumate the sale transaction by May 11, 2012, it is anticipated that we will cease PDGS operations ..". So, it finally came down to us either selling it as a distressed sale or killing it; not exactly the kind of strategy that indicates value in your product, or that will get you much of anything for it. Lo and behold, our "sale" terms appear to indicate that not only did we not get any up front money from it's sale, or a minimum guaranteed dollar amount, but that we even paid a $36,000 commission out of pocket to get rid of it !


Ms Felcyn may not have "wanted" the result of failure, but that's what Shareholders got. Her excuses don't matter, and I fail to see any reasonable, responsible or acceptable explaination for what happened; or how it happened. The bottom line is Ms Felcyn and our continuously and generously paid BOD and Executives failed our 15,000+ Shareholders, and this struggling public company, in an embarrassing, extremely expensive, and high profile way.


There are likely far more serious characterizations and conclusions beyond "laughable" to describe this company's performance and decisionmaking, but considering the extent and scale of the M&A effort, and that the BOD even instituted a Chaired (paid) "Corporate Development, M & A Committee" as early as May 2008, months before Crossflo was even purchased, and continued it as a paid Board Committee until January 2011, almost two years after our 5th and last investment, I find it convincing that the BOD was well informed and played a significant role in internal M&A discussions, considerations and monitoring from the very beginning and beyond. Afterall, these were not minor investments to enhance our present (and only) microprocessor IP licensing business through PDS, this M&A Inititive was implimented to strategize or refocus the company's main business in an entirely new direction; into "Data Sharing" and "Secure Data Solutions" (".. we believe PDSG now represents the foundation of the new Patriot Scientific operating entity.." Goerner, 5/09 Earnings Call ... PTSC Pie Chart forecasting PDSG as 66% of PTSC's future revenues, etc). Could a strategic endeavor of this magnitude, and to the scope inwhich we embraced it, have happened without the necessary consultation and participatory oversight of the company's Board Of Directors ? I highly doubt it, and my thinking is supported by Delaware Corporations Code 141(a) which states ... "The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors..." .

Yet, as unbelieveable as it sounds, here is a further quote in Ms felcyn's own words ..

"We later realized that our management had ventured into a field they knew nothing about and did not fully understand". "Big Mistake"

She then went on to write ...

"Did we do due diligence. I wish you knew how much due diligence we did"


What ? Really ? How is that even possible ? Is that even plausible ? After many many many Millions of dollars, 5 acquisitions/investments, and at least about a year of corporate committment to loud PDSG fanfare devoting us to an entirely new company direction, you just "realized" it ????? Seriously ?? During all that due diligence she says they were doing, during any early meetings or consultations with Senior Management (including Cliff as CFO), or during any of Management's presentations or assessment reports to the BOD's M&A Committee (and the Committee's reports to the full Board) .. they didn't catch a hint ?, weren't the slightest bit alerted ?, had no suspicions at all regarding management's complete ("nothing") lack of knowledge and only partial understanding of the technology field earlier on ??? One would think that even if just for the basic common practice of self REassurance that the BOD critically quiried or interviewed management before embarking down this road about their knowledge of the state of the Industry and the implimentation of our Business Plan... they at least did that, didn't they ?? ... Did the BOD retain an independent 3rd party to confirm or verify our management's assessment of the Industry, and the probabilities of our business plan's success before we went on a buying spree and spent the many millions ... did they do THAT Due Diligence ? They subsequently spent a few hundred thousand dollars engaging Baroni and Eclat or Attain as consultants to try to salvage this disaster after the fact, but in the end all that did was drag out the inevitable and add millions more to our Operational expenses.


Since I find it so head shaking difficult to believe Gloria's statement that Management's lack of knowledge and understanding apparently didn't come to the attention of any of the 5 Members on the BOD ("we") until "later", I'd like to know just when "later" was; and how is it possible or even conceivable they missed it. ?? I believe Goerner himself during a ConferenceCall referred to the then BOD as a "Working Board", and praised their level of engagement. So, how does that explain them not knowing sooner, and just how much later was "later" ? Did they find out in the final stages of the strategic planning/vetting process ? Did they find out after Crossflow had already been purchased ? Was "later" by the 2nd acquisition ? The 3rd acquisition ? The 4th acquisition ? The 5th (March 09) ? When ?? Perhaps they only discovered this "knew nothing" revelation much "later" a year down the road, when at midyear in July 2009, PDGS announced a Revenue Guidance Retraction of their $3,000,000 - $6,000,000 Revenue Forecast for the end of that very calender year; and this retraction was only 3 months after REaffirming their previous positive revenue projection. As it turned out, revenues for the last 6 months alone only came in at less than $164,000. So, when was "later" ? , and because of the sheer magnitude of this apparent revelation about our then Management (including Cliff as CFO), when did they first inform Shareholders in an equally unambiguous way that we as a company now had a very serious, unexpected, unanticipated, internal competency problem (alledged) that went to the very heart of our entire M&A corporate makeover; or as Gloria candidly called it, a "Big Mistake" ???

In answer to Ms Felcyn's rhetorical statement above ... Yes, sadly, in truth, I do wish we knew just how much due diligence they did on those target companies and this technology, and also how much due diligence the BOD did on Management's analysis and understanding of the industry, and their abilities to develop and impliment what was presented to Shareholders as presumably a viable and attainable business plan.


When the core leadership of this company changes, so will it's fortunes ... remember that where we are today as a company, precariously holding on with just PDS, trading at 8 or 9 cents, with 410,000,000 shares still outstanding and only $6.5 Million dollars in the bank (2/12 10q), ... is after various Leaderships (always including Carl and Gloria) were handed over 100 Million dollars.