Letter from David Pohl, Chairman and CEO of Patriot Corporation

Dear Shareholders and Friends of Patriot Scientific Corporation:

The following is a summary of significant activities and developments involving Patriot Scientific Corporation during calendar year 2006, including some recent events of interest.

Share Price. 677%! That's the dramatic increase in the price of Patriot Scientific shares in calendar year 2006, as highlighted in a recent article in the San Diego Business Journal singling out our stock price performance as the leader among San Diego companies in our market cap category. The closing price on January 3, 2006 was $0.09 per share, and on December 29, 2006 our stock closed at $0.61 per share. The market price for PTSC shares experienced some exciting ups and perplexing downs during the year, but overall it was an impressive increase. One of the principal goals of our business plan is to get our stock listed on a national exchange as soon as possible, although that remains dependent on our share price moving to a significantly higher plateau.

Patent Portfolio Licenses. Twelve new licenses were signed during the period from January through December, 2006. They were a result of the joint venture that Patriot Scientific entered into with The TPL Group in June, 2005 to commercialize the jointly owned patent portfolio. Licensees included leading electronics manufacturers with such well-known names as HP, Fujitsu, Casio, Sony, Seiko Epson, Nikon, Pentax, Olympus, Kenwood, Agilent, Lexmark, and Schneider Electric. By the end of the year, over 400 companies had been placed on written notice that they were likely infringers on one or more patents in the portfolio. Each of those companies is a candidate for licensing, and over 200 of them have already engaged in further communications with the licensing team.

So far in the month of February 2007, we have been pleased to announce that two more names have been added to the roster, as licenses have been purchased by NEC Corporation and by Funai Electric Co., Ltd.

Commercialization of the portfolio is being exclusively handled by The TPL Group through Alliacense, their licensing enterprise. Alliacense has continued to expand its activities on behalf of the patent portfolio during the past year while adding to its team of licensing professionals as well as technical and support personnel. The growing worldwide pipeline of licensing candidates that are in various stages of dialogues with the Alliacense team includes the names of many well-known global manufacturing companies and product brands.

All fees from new licensees are paid directly to Phoenix Digital Services (PDS), the joint venture entity owned 50% by Patriot Scientific Corporation and 50% by The TPL Group. PDS collected over $108 million in total license fees for licenses signed in 2006. After allocation for expenses, the distributive share received by Patriot Scientific from PDS was over $48 million. Although most of the companies that have signed license agreements so far have qualified for discounted license fees for being early movers in their market segments, Alliacense has stated that future licensees in segments where early tiers have been captured are subject to progressively higher royalty rates.

Dividends. In the spring of 2006, Patriot Scientific caught the attention of the investment community when our Board of Directors took dramatic action for a company of our size. The company paid two cash dividends within a period of approximately 6 weeks in a move to reward loyal shareholders. Prior to that time, it was practically unheard of for a microcap company to pay dividends. The board later announced that capital subsequently accumulated from license fee distributions might be put to one or more alternative uses based upon financial considerations. While leaving open the possibility of paying future dividends, the Board indicated the company would also consider alternatives that could include investing in acquisitions or joint ventures intended to create revenue that would be in addition to the revenue that flows from licensing.

On February 22, 2007 we were pleased to announce that the Board of Directors repeated its precedent-setting action of a year ago and declared a dividend of $.02 per share for qualifying shareholders and warrant holders as the March 6, 2007. The dividend is to be paid April 09, 2007.

Board Members. In February, 2006, Jim Turley became a member of the Patriot Scientific Board of Directors and was named chairman of the Technology Committee of the Board. Mr. Turley is a recognized analyst, writer and consultant on intellectual property and microprocessor technology. He was reelected to the Board at the annual meeting last April along with Dr. Helmut Falk, Gloria Felcyn, CPA, Attorney Carlton Johnson, Jr., and me. The Board is currently seeking to fill an available Board seat by adding someone having significant investment banking credentials.

Financial Statements. In September, 2006, we learned that we were among several hundred companies that needed to file restated financial information covering a period of several years. The reason related to increased emphasis by the SEC on compliance with guidance the agency had issued in years past, but which had received little attention from either the agency or many accountants and auditors. It required going back over the applicable years to calculate reallocations of debt and equity for each financial reporting period, based on re-pricing terms found in convertible debentures.

The result was that although the restatements did not result in any material changes to the financial position of our company, those circumstances beyond our control forced us to delay the filing of our annual report on Form 10-K. We had retired the last of our convertible debentures in March, 2006, but nevertheless, we had to comply with the applicable SEC accounting regulations and restated our financials for each of the fiscal years since 2002 that such debt instruments had existed.

Our books and records for fiscal years prior to 2006 had been audited by our previous independent accountants, but in the restatement process, our records for each of the fiscal years 2002 through 2006 were re-audited by our current independent accountants who were retained in November, 2005. We had 30 days to meet a deadline for filing the restated financials. It was a daunting, time-consuming task that was accomplished through concerted efforts involving many late nights and weekends by our dedicated Patriot Scientific team working in conjunction with our auditors.

First and Second Quarter Fiscal Year 2007 Results. Our financial results for the first two quarters of our fiscal year 2007, which ended November 30, 2006, were reported and filed with the SEC on Form 10-Q on the due date of January 16, 2007. A copy is available on our website at www.PTSC.com.

In another 2006 development, we retained J. M. Dutton Associates to produce a research report on Patriot Scientific. The report was issued early in November after having been delayed to wait for our restated financials. Although the analyst who wrote the report reached share price conclusions and projections that were more conservative than we had expected, publication of the report helped Patriot Scientific achieve wider attention in the investment world.

Annual Meeting. We had originally planned to hold an annual meeting of shareholders in early November, 2006. The meeting had to be postponed due to the wait necessary to produce our restated financials to be included in a proxy statement as well as necessary lead time for printing the proxy. That meant that arrangements for the time, as well as the location of the meeting, had to be revised, and part of the rescheduling challenge was due to limited availability of venues to handle the anticipated large attendance. Over 330 people attended our last annual meeting. The next Annual Meeting will now be held on April 27, 2007, with voting eligibility for shareholders of record as of March 13, 2007. The meeting will be held at the La Costa Resort and Spa in Carlsbad, California. Further details will be announced soon and proxy materials will be mailed to shareholders.

Shares Repurchased. In the months of July through November, 2006, management implemented a share repurchase plan as authorized and publicly announced by the Board of Directors and reported in our last quarterly filing. We continued to purchase shares during the months of December 2006 and January 2007. The Board and management believed that our stock was undervalued in the market and that it was a prudent use of corporate funds for the company to purchase more of its shares. As of this writing, we have purchased over 10 million shares of Patriot Scientific Corporation common stock in the open market. Future buybacks will depend upon market conditions and prudent asset and financial management considerations.

Acquisition and Joint Venture Activities. Beginning in October, 2006, we began and continued preliminary discussions toward possible acquisition of two different companies. We consulted a prominent investment banking firm when taking a preliminary look at a company that is on the verge of developing a revenue stream. The company on which we were focusing is beginning to market promising technology protected by an impressive patent portfolio in their market niche. We amicably ended discussions with the target company in late December.

The other company to which we were introduced at about the same time is Holocom Networks, Inc. (HNI), a privately-held company that was in financial difficulty. HNI had a revenue stream derived from production and sales of products and related services to the military for secured communications needs. These primarily involved a patented pathway system (Secure Communications Raceway) for enclosing cables used to transmit sensitive data and communications. In addition, HNI had a 60% interest in a limited liability company that has been developing and testing a multi-domain computer hardware unit intended to answer another need in the field of secured data and communications.

We extended a loan to HNI to provide them with funds to primarily meet payroll and limited expenses while we conducted due diligence on the company and its business. Our loan was secured by a first lien on all of HNI’s assets, including patents and licenses, except for certain factored accounts receivable. HNI later defaulted on its loan payments. The company’s debts included amounts owed to Patriot and another very large creditor, among others. After careful evaluation, as a protective measure, we foreclosed on our security interest and acquired substantially all of the assets of HNI at a foreclosure sale held February 2, 2007.

We recently entered into a joint venture to which we are transferring relevant portions of the patents and assets formerly held by HNI. That entity will engage in the secured pathway system business, using the Holocom trade name that was acquired as part of the foreclosure process. The major portion of the interest held by HNI in the multi-domain computer business, which is in the early stages of development under a license from the original inventor, is likely to be sold soon to a group that has expressed interest. It is anticipated that a 10% interest will be retained by our joint venture entity.

In another important step, we are in the process of engaging a business development executive or advisory group whose primary responsibility will be to identify and qualify other acquisition and joint venture opportunities for consideration. In addition, we have had preliminary discussions to be followed with meetings in the near future regarding a possible joint venture in China or Taiwan intended to update and adapt our Ignite microprocessor technology for various market applications.

Settlements. Litigation between Patriot Scientific and Russell Fish has been settled. The parties had each filed legal actions pertaining to a consulting agreement that had been signed by Mr. Fish and a family trust representative and a previous officer of Patriot Scientific in July, 2004.

In December 2006, the Fish lawsuit was settled in principle through mediation and on February 14, 2007 the settlement was finalized. Terms of the settlement require the Company to pay $3,400,000 in cash on February 14, 2007 (payment was made) and $3,000,000 on May 1, 2007, make a donation of $15,000 on February 14, 2007 on behalf of Russell H. Fish III to Maasai Power and Education Project, Inc., and pay Fish the equivalent of 4% of 50% of the next $100 million of gross license fees as they are collected by Phoenix Digital and as distributions are made to Patriot, after excluding the first $20 million collected by Phoenix Digital after December 1, 2006. Patriot's commitment to make payments to Fish related to such future license revenues will not exceed $2 million. The total of payments pursuant to this settlement is expected to be appreciably lower than contingent payments provided for in the agreement in dispute.

In June, 2006, we settled litigation involving a dispute between Patriot Scientific and Beatie and Osborne, a law firm that had formerly represented Patriot Scientific in certain patent infringement litigation before we terminated their services. The firm had claimed they were owed certain amounts for fees and expenses as well as contingent fees based upon future license fees. The terms of settlement included, among others, release of their claims in return for payment by Patriot of certain amounts toward fees and expenses.

Patent Litigation. As previously reported, Patriot Scientific is a party to patent infringement litigation pending in the Federal District Court, Eastern Texas Division. The TPL Group and Patriot Scientific are plaintiffs seeking damages from various electronics manufacturing companies named as defendants who are alleged to be infringing on one or more patents in the portfolio jointly owned by Patriot Scientific and the TPL Group. The petitions for relief included requests that the court issue permanent injunctions against the sale by defendants of products produced without licenses to use our patented technology.

In recent developments in February 2007, a license agreement was entered with NEC Corporation and certain NEC subsidiaries that are defendants in the lawsuit. In connection with that transaction, four of the five NEC defendants, excluding NEC Electronics America, Inc., will be dismissed from the lawsuit.

Also in February of 2007, a petition was filed with the Patent and Trademark office by an independent non-governmental entity. The petition requests that certain of our microprocessor patents be invalidated on the grounds of the alleged existence of previously undisclosed prior art. While we cannot guarantee that the petition will be unsuccessful, we strongly believe in the validity and enforceability of the microprocessor patents which are the subject of the petition, and believe the petition is without merit.

As separate applications for re-examination had already been filed with the Patent and Trademark Office by parties involved in the patent litigation pending in Texas, we found it curious, but not alarming, when we learned of the apparently unrelated application filed by the purported public-interest group, including some gratuitous and disparaging statements included in their publicity-seeking press release.

Claiming that a patent should not have been issued due to the existence of prior art is a strategy that is often used defensively by companies seeking to avoid liability for patent infringement. Various efforts to claim the existence of prior art have been dealt with by our licensing team and their attorneys in negotiations with companies that at first had resisted licensing but later signed license agreements.

Attorneys for Patriot Scientific and the TPL Group are dealing with a constant flow of communications and activity related to the Texas litigation. An important claims construction hearing is scheduled for May 3, 2007, in which the respective parties must offer presentations to defend or attack the validity of the claims upon which the patents in issue are based. We understand that the outcome of that hearing may not be known for 30 days or more after the hearing is concluded. The ultimate trial is scheduled for November, 2007. A schedule of due dates as currently published on the court's calendar is being posted on the Patriot Scientific website at www.PTSC.com.

Summary. 2006 was a highly significant year for Patriot Scientific Corporation in which we set the foundation for future growth and progress of the company and also cleaned up a number of matters from the past. In that calendar year we:

• Saw the strength of our jointly owned patent portfolio demonstrated through the signing of 12 patent portfolio licenses that resulted in Patriot Scientific receiving over $48 million as its share of license fees.
• Paid two cash dividends to shareholders within a period of approximately 6 weeks.
• Retired the last remaining convertible debentures, resulting in the company having no long-term debt.
• Issued restated financial statements to comply with certain SEC interpretations after having our books and records for fiscal years 2002 through 2005 re-audited.
• Initiated preliminary acquisition and joint venture activity toward establishing a revenue stream for the company in addition to the revenue received from patent portfolio licensing.
• Reached agreements that settled litigation involving disputes with parties who asserted claims based on percentage payments on hundreds of millions of dollars of future licensing revenue.

The momentum of recent developments indicates that 2007 promises to be another highly significant year for Patriot Scientific and its shareholders. We appreciate your continued loyalty and support as we continue along our dynamic corporate path.

Sincerely,

David H. Pohl
Chairman and CEO

Looks like they are doing something with the money besides paying dividends. It appears they are confident 2007 will be better thasn 2006...

GLTA

Gil...