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Patriot Scientific Acquires Holocom Networks in Foreclosure Sale

Patriot Scientific Corp., a Carlsbad firm that generates revenue through licensing agreements it strikes with large electronics manufacturers, is diversifying by acquiring a defense contractor in foreclosure last month.

Patriot acquired Holocom Networks Inc., which installs secured communications networks for the military, after Holocom defaulted on a $600,000 loan Patriot made last year.

The foreclosure sale, in which Patriot posted the amount of the loan, took place Feb. 2, said David Pohl, Patriot chief executive.

Holocom, also based in Carlsbad, is now operated as a joint venture owned by Patriot and Scripps Ventures Inc., a local merchant banking firm.

“Holocom did about $3.5 million in revenue last year,” said John Burns, chief executive officer of Scripps Secured Data Inc., the renamed company. Burns is the CEO of Scripps Ventures.

Following the transaction, Burns cut Holocom’s staff to 20 from 50.

Pohl said Holocom approached his firm last year seeking financial help. “They were saddled with so much debt, it was like an anchor around their necks,” said Pohl.

Burns estimated that 10-year-old Holocom owed $25 million.

Major Deals

Patriot continued last year to strike licensing deals with major electronics manufacturers that use the firm’s patented microprocessing technology.

Patriot owns half the share of the patents with a Cupertino entity, The TPL Group. Through a joint venture, it has been collecting on signed licensing deals with corporations that have been using the technology contained in 10 patents.

Last year, the joint venture called Phoenix Digital Services signed $108 million in licensing agreements. Patriot was paid $48 million, Pohl said.

Twelve licensing agreements were signed last year, including some with the world’s largest electronics companies, such as Hewlett-Packard, Fujitsu, Casio, Sony, Epson, Nikon and Casio.

Lawsuit Settled

In other news involving Patriot, the company said it settled a lawsuit by Russell Fish, one of the two inventors of the microprocesssing technology on which it has obtained its portfolio of patents.

The settlement approved last month calls for Patriot to pay Fish $6.4 million in cash and stock, and an estimated $2 million in future payments based on Patriot’s future revenues, Pohl said.

Fish invented the technology along with Charles Moore but sold his interest to the company acquired by Patriot in 1994, Pohl said.

But Fish claimed he was entitled to additional compensation in his suit filed last year. Patriot countersued Fish.

While Patriot’s success in signing agreements and collecting revenue from manufacturers has boosted its stock from a few cents a few years ago to above a dollar last year, it has lost ground since October, and was traded March 13 at 65 cents on the Over the Counter Bulletin Board. Its 52-week range was from 43 cents to $1.77.

Last year, the company issued two dividends, one for 4 cents and the other for 2 cents.

Last month, Patriot issued another 2 cent dividend to be paid in April.

But all is not sweetness and light at Patriot.

The company has been in the midst of restating its financial results for the fiscal years from 2002 to 2006.

In filings with the Securities and Exchange Commission, Patriot said changes in the accounting rules required it to change the way it valued certain debt and equity instruments.

Annual Report Delayed

The restatements haven’t resulted in any material changes to the company’s financial position, but have delayed the filing of its annual report, Pohl said in a letter to shareholders last month.

Stockholders, most of whom are individual investors, flocked to the company’s last annual meeting held in La Costa, and should reappear again in droves April 27 to hear what Pohl has to say about the firm’s future.

“We got more than 330 at our last meeting, and we expect to have at least that many this year,” he said.

The company also recently reported that flash-based storage card supplier SanDisk Corp., a San Francisco Bay Area company, has purchased a license for its portfolio of patents.

Since January 2006, SanDisk is the 15th company to license the portfolio of patents.


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