or more delays. Might be good to review the risk factors from the last 10Q

Risk Factors

We urge you to carefully consider the following discussion of risks as well as other information regarding our common stock. We believe the following to be

our most significant risk factors as of the date this report is being filed. The risks and uncertainties described below are not the only ones we face. Please refer

to our risk factors contained in our Form 10-K for the year ended May 31, 2013 for additional risk factors.

We May Be Required To Fund Our Joint Venture’s Legal Costs.

On March 20, 2013 TPL filed a petition under Chapter 11 of the United States Bankruptcy Code. While TPL’s petition does not at present affect the licensing

agreement between PDS and Alliacense, PDS has incurred significant legal costs in matters before the U.S. District Court, and the actions with the ITC

Investigation No. 337-TA-853, one or both of which have certain aspects which are ongoing. If PDS does not receive sufficient licensing revenues to pay these

expenses, we may be required to pay these expenses. In the event the cost of legal actions exceeds our ability to fund these efforts, our options for additional

sources of financing may be limited.

The Impact Of TPL’s Bankruptcy On PDS And The Future Success Of The Licensing Program Is Uncertain.

While TPL’s bankruptcy petition does not appear to affect the licensing agreement between PDS and Alliacense, the consequences of an approved plan of

reorganization under Chapter 11, the appointment of a Chapter 11 trustee, or the conversion to a Chapter 7 proceeding may have consequences to PDS and the

licensing program which are uncertain and potentially adverse. F or example, a trustee may approve the sale of TPL’s interest in PDS to be sold to an unknown

third party. It is unclear how that may affect the operation of PDS or the licensing program, but it may be adverse.

We Have Reported Licensing Income In Prior Fiscal Years Which May Not Be Indicative Of Our Future Income.

We have entered into license agreements through our joint venture with TPL and have reported income from the joint venture for the fiscal years 2006 to 2011

and 2013. The joint venture has recorded losses for the three and nine months ended February 28, 2014, and recorded no license revenues for the quarter then

ended. Because of the uncertain nature of the negotiations that lead to license revenues, pending litigation with companies which we allege have infringed on our patent portfolio, the possibility of legislative action regarding patent rights, and the possible effect of new judicial interpretations of patent laws, we may not

receive revenues from such agreements in the future consistent with amounts received in the past, and we may not receive future revenues from license

agreements at all.

We Are Dependent Upon A Joint Venture In Which Our Role Is Of A Passive Nature For Substantially All Of Our Income.

In June 2005, we entered into a joint venture with TPL, which as a result of agreements entered into in June 2005 and July 2012, TPL and its affiliate

Alliacense are responsible for the licensing and enforcement of our microprocessor patent portfolio. This joint venture has been the source of substantially all of our income since June 2005. Therefore, in light of the absence of significant revenue from other sources, we should be regarded as entirely dependent on the success or failure of the licensing and prosecution efforts of TPL and Alliacense on behalf of the joint venture, and the ability of TPL and Alliacense to obtain capital when necessary to fund their operations.

We Are Involved In Multiple Disputes With Our Joint Venture Partner.

We are involved in multiple disputes with our joint venture partner TPL and its affiliate Alliacense, including objections over amounts invoiced by Alliacense

to the joint venture and approval of reimbursements to us of amounts we incurred on the joint venture’s behalf. Since there currently are only two appointed managers of the joint venture, a deadlock exists on these and other issues that are unlikely to be resolved quickly. If the deadlock continues, the joint venture may not be able to take actions when appropriate or necessary. We have initiated a formal arbitration proceeding seeking the appointment of an independent manager to the management committee of the joint venture (see Note 6 to the condensed consolidated financial statements). We have concluded that a delay or failure to resolve the issues with TPL and Alliacense and to obtain the appointment of an independent manager may have a negative impact on the licensing program and PDS’ business.

Our Joint Venture Is At Risk For Going Concern And An Inability To Meet Certain Obligations.

PDS, our joint venture with TPL, which received a going concern opinion in its May 31, 2013, 2012 and 2011 financial statements, has experienced significant declines in revenues while at the same time incurring significant legal costs associated with litigation with companies which we allege have infringed

on our patent portfolio. Terms of the July 2012 licensing agreement with Alliacense will require TPL and us to fund PDS in the event PDS does not generate

enough licensing revenue to cover the licensing and litigation support fees of Alliacense.

PDS’ licensing revenues have declined over recent years to a point where PDS’ ability to make future payments is in substantial doubt unless licensing

revenues substantially increase in the near term. In the event that PDS does not have the funds to pay one or more of the aforementioned costs, we and TPL

must decide whether to contribute additional capital to PDS to fund such payments and due to TPL’s bankruptcy filing, we may be required to pay these

expenses without any contribution from TPL.

Our Microprocessor Patents Are In The Process Of Expiring.

We have three unexpired U.S. patents, one of which will expire on August 19, 2014 and two of which will expire in 2015, and three European and two

Japanese patents expiring in 2016. We also have four U.S. patents, six European, and one Japanese patent all of which expired between August 2009 and

February 2014. While expired patents may have certain retrospective statutory benefits, their value as assets for licensing and cash generation is significantly

diminished.

A Successful Challenge To Our Intellectual Property Rights Could Have A Significant And Adverse Effect On Us. We Have Had Mixed Results In

Our Litigation Efforts To Date.

A successful challenge to our ownership of our technology or the proprietary nature of our intellectual property could materially damage our business

prospects. We rely on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect

our intellectual property rights. With respect to our core technologies, we currently have three unexpired U.S., three European and two Japanese patents issued. Any issued patent may be challenged and invalidated. Any claims allowed from existing patents may not be of sufficient scope or strength to provide

significant protection. Our competitors may also be able to design around our patents. Vigorous protection and pursuit of intellectual property rights or positions characterize the fiercely competitive semiconductor industry, which has resulted in significant and often protracted and expensive litigation. Therefore, our competitors and others may assert that our technologies infringe on their patents or proprietary rights. Persons we believe are infringing our patents are likely to vigorously defend their actions and assert that our patents are invalid. Problems with patents or other rights could result in significant costs, and limit future license revenue. If infringement claims against us are deemed valid or if our infringement claims are successfully opposed, we may not be able to obtain appropriate licenses on acceptable terms or at all. Litigation could be costly and

time-consuming but may be necessary to protect our future patent and/or technology license positions or to defend against infringement claims. From time to time parties have petitioned the USPTO to re-examine certain of our patents. An adverse decision in litigation or in the re-examination process could have a very significant and adverse effect on our business.

We Are Dependent On A Single Law Firm To Defend And Enforce Our Intellectual Property Rights.

A single law firm has been engaged to defend and enforce our intellectual property rights on a contingency fee basis. We have been notified by that law firm

that it is no longer able to work on a contingency basis. We are currently discussing alternative, hybrid hourly/contingency fee arrangements with that law

firm. Any significant interruption in their services, or the loss of their services for any reason, would have a material adverse effect on our ability to defend

and prosecute such lawsuits and, therefore, have a material adverse effect on our business, financial condition and result of operations. The law firm’s

services could be disrupted for a variety of reasons, and any disruption would have a material adverse effect on our business. Our inability to engage the

services of a new law firm in a timely manner could have a substantial negative effect on our business.

See PTSC 10Q filed 4/14/14