U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934

                     FOR THE FISCAL YEAR ENDED MAY 31, 2005

[_]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

          For the transition period from ___________ to _______________

                         Commission File Number 0-22182

                         PATRIOT SCIENTIFIC CORPORATION
                 (Name of small business issuer in its charter)

                Delaware                                84-1070278
     (State or other jurisdiction of            (I.R.S. Empl. Ident. No.)
     incorporation or organization)

  10989 Via Frontera, San Diego, California               92127
  -----------------------------------------               -----
  (Address of principal executive offices)              (Zip Code)

                   (Issuer's telephone number): (858) 674-5000

       Securities registered under Section 12(b) of the Exchange Act: NONE

         Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $.00001 par value
                         -------------------------------
                                (Title of Class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [_]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  registrant's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [_]

State issuer's revenues for its most recent fiscal year. $2,982,586

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of the registrant on August 31, 2005 was $35,687,000  based on a
closing price of $0.12 as reported on the OTC Electronic Bulletin Board system.


                                       1
<PAGE>

On August 31, 2005, 297,392,788 shares of common stock, par value $.00001 per
share (the issuer's only class of voting stock) were outstanding.

Documents Incorporated By Reference: None

Transitional Small Business Disclosure Format (check one):    YES [_]     NO [X]

                                TABLE OF CONTENTS

                                                                            Page
                                       PART I

ITEM 1.  Description of Business                                             4
ITEM 2.  Description of Property                                             13
ITEM 3.  Legal Proceedings                                                   13
ITEM 4.  Submission of Matters to a Vote of Security Holders                 15

                                       PART II

ITEM 5.  Market for Common Equity, Related Stockholder Matters and Small
         Business Issuer Purchases of Equity Securities                      17
ITEM 6.  Management's Discussion and Analysis or Plan of Operation           17
ITEM 7.  Financial Statements                                                25
ITEM 8.  Changes in and Disagreements with Accountants on                    25
         Accounting and Financial Disclosure
ITEM 8A. Control and Procedures                                              25
ITEM 8B. Other Information                                                   25

                                      PART III

ITEM 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act                   26
ITEM 10. Executive Compensation                                              28
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters                                     31
ITEM 12. Certain Relationships and Related Transactions                      32
ITEM 13. Exhibits                                                            33
ITEM 14. Principal Accountant Fees and Services                              41


                                       2
<PAGE>

                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Annual  Report on Form 10-KSB,  including  all  documents  incorporated  by
reference,  includes "forward-looking"  statements within the meaning of Section
27A of the  Securities  Act and Section 21E of the  Exchange Act and the Private
Securities Litigation Reform Act of 1995, and we desire to take advantage of the
"safe harbor" provisions thereof. Therefore, we are including this statement for
the express purpose of availing ourselves of the protections of such safe harbor
with  respect to all of such  forward-looking  statements.  The  forward-looking
statements  in this  Report  reflect our  current  views with  respect to future
events and financial performance.  These forward-looking  statements are subject
to  certain  risks and  uncertainties,  including  specifically  the  absence of
significant  revenues,  a history of losses, no assurance that technology can be
completed or that its completion will not be delayed,  significant  competition,
the  uncertainty  of patent and  proprietary  rights,  uncertainty as to royalty
payments and indemnification  risks, possible adverse effects of future sales of
shares on the market,  trading risks of low-priced  stocks and those other risks
and uncertainties  discussed  herein,  that could cause actual results to differ
materially from historical  results or those  anticipated.  In this report,  the
words  "anticipates,"  "believes,"  "expects,"  "intends,"  "future" and similar
expressions  identify  certain of the  forward-looking  statements.  Readers are
cautioned  not  to  place  undue  reliance  on  the  forward-looking  statements
contained  herein,  which  speak only as of the date  hereof.  We  undertake  no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances  that may arise after the date hereof.  All subsequent  written
and oral forward-looking  statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by this section.


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<PAGE>
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

THE COMPANY

      Patriot  Scientific  Corporation was organized under Delaware law on March
24, 1992,  and is the successor by merger to Patriot  Financial  Corporation,  a
Colorado  corporation,  incorporated  on June 10, 1987. In 1997, we emerged from
the development  stage primarily as a result of the acquisition of Metacomp Inc.
Our  address  is 10989  Via  Frontera,  San  Diego,  California  92127,  and our
telephone  number is (858)  674-5000.  Our home page can be located on the World
Wide Web at http://www.ptsc.com.

      We develop,  market, and sell  microprocessors,  our technology behind the
microprocessors,  and  complementary  products which enable  computers and other
data processing devices to communicate. These products can be used to connect to
the  Internet  or other  telecommunication  networks.  We also have a patent for
special  radar  technology  which,  if fully  developed,  may allow a  potential
licensee to penetrate the ground or structures to find various objects.  We also
owned gas plasma antenna  technology  which we sold for $250,000 in August 1999.
In October 2003, we received a final royalty payment of $75,500 from the sale of
the gas  plasma  technology.  Our  strategy  is to  exploit  our  microprocessor
technologies  through  product  sales,  licensing,  strategic  alliances  and to
litigate against those who may be infringing on our patents.

      We  believe  our  financial   resources  are  sufficient  to  support  our
operations during the next twelve months.

BUSINESS

      ORGANIZATION  AND  CORPORATE   DEVELOPMENT.   Our  business  involves  the
following technologies:

      o     Ignite microprocessor technology; and

      o     high-speed data communications technology.

      The stage of development of each of our technologies is as follows:

      o     Ignite  microprocessor.  This technology  generated minor amounts of
            revenue in 2004 from the sale of development boards, microprocessors
            and initial license fees related to the microprocessor  application,
            but in 2005 it generated  revenues of  approximately  $1,200,000  in
            connection with the sale of a license to Advanced Micro Devices, Inc
            ("AMD").  We run the  technology  on a  0.18-micron  microprocessor,
            which is in current production. We have ported the WindRiver VxWorks
            operating  system  and the  Sun  Microsystems  personalJava  virtual
            machine  to the  microprocessor.  In  addition,  the  technology  is
            available  for sale as  intellectual  property,  which  enables  the
            prospective  customer to incorporate  the  microprocessor  functions
            with  other  parties'  applications  to arrive at a system on a chip
            solution.  We anticipate that the Ignite technology will be our main
            product line in the future.

      o     High-speed  data  communications.  Revenue from this  technology was
            phased  out  during  fiscal  year 2002 as a result  of the  products
            reaching  the  end of  their  life  cycles.  During  fiscal  2002 we
            initiated  a last time buy  program  and,  except  for minor  repeat
            orders, have discontinued this product line. We will be focusing our
            efforts on the Ignite  microprocessor  technology in addition to the
            patent portfolio  licensing efforts being conducted on our behalf by
            the TPL Group.  Although the  communications  product line accounted
            for approximately 82% of our fiscal year 2004 revenue, we anticipate
            that the Ignite  microprocessor will be our main product line in the
            future.

      Due to our  small  size and  staffing  overlaps  among  the  technologies,
certain  personnel may work on any or all of our technologies from time to time,
and we may outsource some tasks or projects when we deem it prudent to do so.


                                       4
<PAGE>

      During at least the last three years,  we have focused the majority of our
efforts on the Ignite  technology.  The Ignite  technology  is targeted  for the
embedded controller and Java language processor marketplaces.

      In November  2004, a patent  application  was filed titled  "Remote  Power
Charging  of  Electronic   Devices"  with   assignment  to  Patriot   Scientific
Corporation.  The patent  application  has 53 claims,  which we  consider  quite
broad, has no apparent  conflicting prior art, we expect it to be granted and it
should protect the essential  systems,  methods,  apparatus and  applications of
this  technology.  We would anticipate that the Ignite  microprocessor  would be
selected as the microprocessor to be used in the product.  We are in the initial
early stages of evaluating  this  technology  and its  applicability  to further
research and development.

      INTERNET GROWTH AND THE EMERGENCE OF THE JAVA  PROGRAMMING  LANGUAGE.  The
Internet is a global web of computer networks. This "network of networks" allows
computers  connected  to the  Internet to "talk" to one  another.  The  Internet
provides  organizations  and  individuals  with new means to  conduct  business.
Commercial   uses   of   the   Internet   include    business-to-business    and
business-to-consumer     transactions,     product    marketing,    advertising,
entertainment,  electronic publishing, electronic services and customer support.
We believe  that  organizations  will also  increasingly  use the  Internet  and
private Intranet  networks to improve  communications,  distribute  information,
lower  operating  costs and change  operations.  Use of the  Internet  has grown
rapidly and has had an impact on many industries,  including  computer hardware,
software  and  peripheral  industries.  The rapid  growth in  popularity  of the
Internet is in part due to continuing  penetration  of computers and modems into
U.S.  households,  growth of the  informational,  entertainment  and  commercial
applications  and  resources  of the  Internet,  the growing  awareness  of such
resources among  individuals,  and the increasing  availability of user-friendly
navigational  and utility  tools which enable  easier  access to the  Internet's
resources.

      The growth of the  Internet and  corporate  Intranets is creating a demand
for  hardware,  software  and  peripherals.  Software,  such as  Java,  has been
developed to serve the requirements of Internet users.

      Java is a programming  language that was originally developed for personal
digital  assistant  devices  and  television  set  top  boxes.  It was  formally
announced  as an  object-oriented  language  for the Internet in May 1995 by Sun
Microsystems  Inc.  A large  number of major  computer,  software,  browser  and
on-line service provider companies have licensed the Java language. Accordingly,
Java is a fundamental platform for Internet related applications.  A significant
number of Java  applications,  or applets,  are now  available on the  Internet.
These applications not only enhance web pages but also perform many functions of
traditional  computer software  programs.  Our Ignite technology lends itself to
potential markets in which the use of Java is prevalent.

      With  Java,  data and  programs  do not have to be  stored  on the  user's
computer  but can reside  anywhere on the  Internet to be called upon as needed.
Among its various  attributes,  two key  features of Java are (1) its ability to
run on a variety of computer  operating  systems  thus  avoiding  the problem of
incompatibility  across  networks,  and (2)  security,  because Java enables the
construction   of   virus-resistant,    tamper-resistant    systems   by   using
resource-access  control and  public-key  encryption.  Because of Java's  useful
features,  it has also  become  a  popular  programming  language  for  embedded
applications.

      Since Java is designed to run on multiple  types of devices and  operating
systems,  it  allows  developers  to write a  program  once  for  many  types of
operating  systems,  instead of having to write new versions for each type. Java
does this by interpreting a program's  commands into something that a particular
type of computer can understand.  This interpretive  design runs programs slower
than if they were  tailored for each type of computer and is resulting in a need
for specialized microprocessors and compilers to increase Java's speed.

      The growth of Java is causing a number of  companies  to  consider it as a
basis for a new style of computing  tailored to the Internet and not  encumbered
by the limitations of, or requiring, traditional computer operating systems. The
concept is to design inexpensive access devices to communicate via the Internet.

      OUR MICROPROCESSOR TECHNOLOGY.

      General  Background.  Effective  May 31,  1994,  we entered  into an asset
purchase  agreement  and plan of  reorganization  with  nanoTronics  Corporation
located  in  Eagle   Point,   Oregon,   and  Helmut  Falk  to  acquire   certain
microprocessor  technology.  nanoTronics  had acquired a base  technology for an
advanced microprocessor integrated on a single computer chip, and had fabricated
a  first-generation  microprocessor.  We used the  technology  we acquired  from
nanoTronics to develop a sophisticated yet low cost  microprocessor by enhancing
the  microprocessor  design,  adding  additional  technical  features to further
modernize the design, and improving and testing the new design.


                                       5
<PAGE>

      We initially fabricated a prototype 0.8-micron microprocessor in May 1996.
The next  generation  was a  0.5-micron  microprocessor  that was  delivered  in
September 1997. The 0.5-micron microprocessor was employed in demonstrations for
prospective  customers  and was shipped in limited  numbers to  customers  as an
embedded  microprocessor.  In 1998 we  introduced a  0.35-micron  microprocessor
whose  features  included  a  reduction  in size and  improved  performance.  In
addition,  in September 2000 we completed a VHDL model of this technology  which
enables customers to purchase intellectual property incorporating microprocessor
functions  with  other  parties'  applications  to  arrive at a system on a chip
solution. By purchasing this software model,  customers can significantly reduce
their  time to  market  by  simulating  results  as  opposed  to trial and error
commitments to silicon  production.  In 2003 we further  reduced the size of our
silicon production to 0.18-microns.

      Industry  Background.  The  semiconductor  logic  market  has three  major
sectors:

      o     standard logic products;

      o     application specific standard products; and

      o     application specific integrated circuits.

      Standard  logic  products,  such  as  the  Intel's  X86  and  Pentium  and
Motorola's 680X0 microprocessor  families,  are neither application nor customer
specific. They are intended to be utilized by a large group of systems designers
for a broad range of  applications.  Because  they are  designed to be used in a
broad  array  of  applications,  they  may not be cost  effective  for  specific
applications.  Application specific integrated circuits are designed to meet the
specific application of one customer. While cost effective for that application,
application  specific  integrated  circuits  require large sales volumes of that
application to recover their development  costs.  Application  specific standard
processors  are  developed  for one or more  applications  but are not generally
proprietary  to one customer.  Examples of these  applications  include  modems,
cellular  telephones,   other  wireless   communications   devices,   multimedia
applications,  facsimile machines and local area networks.  We have designed our
microprocessor to be combined with application  specific software to serve as an
embedded control product for the application  specific standard processor market
sector.

      Application  specific  standard  processors are typically used in embedded
control  systems  by  manufacturers  to  provide  an  integrated   solution  for
application  specific  control  requirements.  Such  systems  usually  contain a
microprocessor  or  microcontroller,  logic  circuitry,  memory and input/output
circuitry. Electronic system manufacturers combine one or more of these elements
to fit a specific application.  The microprocessor  provides the intelligence to
control the system.  The logic circuitry  provides functions specific to the end
application.  The input/output  circuitry may also be application specific or an
industry standard  component.  The memory element, if not on the microprocessor,
is usually a standard  product used to store program  instructions  and data. In
the  past,  these  functions  have been  executed  through  multiple  integrated
circuits assembled on a printed circuit board. The requirements for reduced cost
and  improved  system   performance  have  created  market   opportunities   for
semiconductor suppliers to integrate some or all of these elements into a single
application  specific standard  processor or chip set, such as the Ignite family
of  microprocessors.  The  Ignite  family  provides  close  integration  of  the
microprocessor  and  input/output  function  with the logic  circuitry,  thereby
providing an advanced application specific standard processor.

      Embedded  control  systems enable  manufacturers  to  differentiate  their
products, replace less efficient  electromechanical control devices, add product
functionality  and reduce product costs. In addition,  embedded  control systems
facilitate the emergence of completely new classes of products. Embedded control
systems have been  incorporated  into  thousands  of products and  subassemblies
worldwide, including automotive systems, remote controls,  appliances,  portable
computers and devices, cordless and cellular telephones, motor controls and many
other systems.

      Microprocessors   are  generally   available  in  4-bit   through   64-bit
architectures,  which  refers  to the  amount of data  they can  process.  4-bit
microprocessors  are  relatively  inexpensive,  typically  less than $1.00 each.
Although they lack certain performance and features,  they account for more than
40% of  worldwide  microcontroller  volume.  Also in general use today are 8-bit
architectures,  generally  costing  $1.00 to $10.00 each and  accounting  for an
additional 40% of worldwide  microcontroller  volume. To date 16-bit, 32-bit and
64-bit architectures,  with typical costs of over $10.00 each, have offered very
high performance,  but are generally  considered to be expensive for high-volume
embedded   control   applications.   The  use  of  16-bit,   32-bit  and  64-bit
architectures offers fewer internal  limitations,  making programming easier and
providing  higher  performance.  Although  generally more expensive per unit and
requiring more support logic and memory, these devices offer many advantages for
more sophisticated embedded control systems.


                                       6
<PAGE>

      Electronic system  designers,  driven by competitive  market forces,  seek
semiconductor  products with more  intelligence,  functionality and control that
can be used to reduce system costs and improve performance. For these needs, the
Ignite product family was designed to be a sophisticated  32-bit  microprocessor
with  advanced  features.  The Ignite  product  family uses a smaller  number of
transistors   compared  to  other  RISC  (reduced   instruction   set  computer)
processors,  which results in less power  consumption and more economical prices
compared to other embedded  control  applications.  This creates the opportunity
for the development of new, cost-effective applications.

      Technology Description.  Conventional high-performance microprocessors are
register-based   with  large  register  sets.   These   registers  are  directly
addressable  storage  locations  requiring a complex  architecture that consumes
costly silicon.  This conventional  architecture  provides  processing power for
computer  applications  but  complicates  and slows the  execution of individual
instructions and increases silicon size,  thereby  increasing the microprocessor
cost.

      Our technology is fundamentally different from most other microprocessors,
in that the data is stored in groups and certain  information  is known to be at
the top of a stack as opposed to being stored in a register.  Our microprocessor
employs  certain  features of both  register and stack  designs.  The  resultant
merged  stack-register  architecture improves program execution for a wide range
of embedded  applications.  Our design  combines  two  processors  in one highly
integrated   package,  a  microprocessing   unit  for  performing   conventional
processing  tasks,  and an  input-output  processor for performing  input-output
functions. This replaces many dedicated peripheral functions supplied with other
processors. The microprocessor's design simplifies the manipulation of data. Our
architecture  employs  instructions that are shrunk from 32-bits to 8-bits. This
simplified   instruction   scheme   improves   execution   speed  for   computer
instructions.  Our architecture incorporates many on-chip system functions, thus
eliminating the requirement of support  microprocessors and reducing system cost
to users.

      The 0.8-micron microprocessor was designed to operate at a speed of 50Mhz;
the  0.5-micron   microprocessor   at  a  speed  of  100Mhz;   the   0.35-micron
microprocessor  at 150MHz;  and the  0.18-micron  operates at a speed of 360Mhz.
They are all  compatible  with a wide range of memory  technology  from low cost
dynamic  random  access memory to high-speed  static random access  memory.  The
microprocessors can be packaged in various surface-mount and die-form packaging.
There can be no  assurance  that the  designed  speed will be achieved  with the
production  model of the 0.18-micron  microprocessor  or future versions or that
all of the desired functions will perform as anticipated.

      Our  technology  is not  designed  or targeted  to compete  with  high-end
processors for use in personal  computers.  It is targeted for embedded  control
applications.  We believe that the features  described above  differentiate  the
Ignite family from other 8-bit to 64-bit  microprocessors  targeted for embedded
control   applications.   Considering   the  reduced   requirement  for  support
microprocessors,  the Ignite family is intended to be available at a high volume
price that should be price  competitive with high-end 8-bit  microprocessor  and
general 16-bit  microprocessor  systems but with higher  performance  (speed and
functional capability).  The Ignite family has been designed to allow high-speed
and  high-yield   fabrication   using  generally   available  wafer  fabrication
technology and facilities.

      The Ignite  Microprocessor  as a Java  Processor.  We  believe  the Ignite
microprocessor  architecture is capable of being an efficient and cost effective
Java  programming  language  processor,  because  Java is  designed  to run on a
stack-oriented  architecture  and the Ignite  architecture  executes the virtual
stack machine internal to Java efficiently. Many Java byte codes or instructions
require only a single 8-bit Ignite family instruction to be executed,  providing
a performance advantage over other more expensive processors that require six or
more 32-bit  instructions to do the same task. This feature allows the execution
of Java programs  with  increased  speed and reduced code size thereby  enabling
lower system memory costs. In addition, the incorporation of many on-chip system
functions  is expected to allow the Ignite  family to perform  most of the other
functions  required of an Internet computer device or Java accelerator,  thereby
eliminating components.  Since Internet computers are designed to be inexpensive
appliances for Internet  access,  cost, speed and performance are expected to be
key  requirements  for designers.  We believe the Ignite  technology can compete
favorably on the basis of such requirements,  although there can be no assurance
we can successfully  exploit Java related  applications or that competitors will
not create superior Java processors.

      We have ported the Java operating  environment to the Ignite family, which
currently  uses  the C  programming  language  for  software  support.  We are a
licensee of Sun  Microsystems  Inc.  This  enables us to develop and  distribute
products  based  on  Sun's  personalJava,  a  platform  on  which  to  run  Java
applications.  We have  also  licensed  from  Wind  River an  operating  system,
VxWorks,  and entered into a  relationship  with Forth Inc.  whereby  Forth will
provide software support and operating  system  development  tools for the Forth
Programming  language.  We believe  this  solution  is  competitive  in the Java
virtual  machine and embedded  applications  markets.  We believe  that,  if the
implementation is successfully completed,  the Ignite family will be competitive
with Java  microprocessors  announced by competitors.  However,  there can be no
assurance  of  successful  implementation  of this  package of  software or of a
market for an Ignite family Java microprocessor.


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<PAGE>

      Stage of Development. In early 1994, nanoTronics initiated production of a
first  generation  of wafers at a  contract  fabrication  facility  using 6 inch
wafers employing 0.8-micron double-metal CMOS technology. After the May 31, 1994
acquisition,  we improved the original design,  added new features and performed
simulations  and tests of the improved  designs.  In October  1995, a run of six
wafers of second  generation  0.8-micron  microprocessors  was  fabricated  by a
contract fabrication facility.  Subsequently,  we tested these  microprocessors,
while  completing  a C computer  language  compiler  and  preparing  application
development tools. The compiler and application  development tools are necessary
to  enable   system   designers  to  program  the  Ignite  family  for  specific
applications.  We made  corrections  to the design  suggested  by the testing of
prototype   units  and  produced  an   additional   run  of  second   generation
microprocessors  from  remaining  wafers in May 1996.  In July 1996, we employed
these  microprocessors  in  demonstration  boards  for  use  by  developers  and
prospective customers and licensees.

      In December  1997,  we  completed  development  of and started  shipping a
0.5-micron  microprocessor  based  on  the  Ignite  technology  and  found  that
0.5-micron  double-metal CMOS technology improved operating speed, reduced power
requirements,  reduced physical size and reduced  fabrication cost. In May 1998,
we began a production run of a 0.35-micron microprocessor that further increased
operating speed and cost performance over the previous generations of the Ignite
family of microprocessors.

      At each stage of development, microprocessors require extensive testing to
ascertain performance limitations and the extent and nature of errors (bugs), if
any. When significant limitations or errors are discovered, additional rounds of
design modifications and fabrication are required prior to having functional and
demonstrable  microprocessors for prospective customers and licensees.  Although
our 0.5 and 0.35-micron  microprocessors have been sent to prospective customers
in anticipation of production orders,  there can be no assurance that we, during
our continued  testing of these  products,  will not identify  errors  requiring
additional  rounds of design and  fabrication  prior to  commercial  production.
Additional  delays  could have an  adverse  effect on the  marketability  of our
technology and financial condition.

      In September  2000, we completed the VHDL soft-core  version of the Ignite
microprocessor  family. The hardware design inside a microprocessor,  or silicon
device, can be represented as a software program. This, in essence, replaces the
old style of designing microprocessors using schematics. VHDL is the predominant
software  language  used to design  semiconductors.  In  addition  to the design
aspects,  sophisticated  simulation  tools and PLD development  kits can execute
VHDL,  allowing the designer to simulate the  functionality of the entire design
before committing to silicon.  Also VHDL enables a designer to easily modify and
enhance  the  design.  A design  represented  in VHDL goes  through a  synthesis
process  whereby it is converted to the most basic element of a design,  logical
gates.  This  gate  level  representation  in turn is used with  computer  aided
engineering tools to translate the design into the most fundamental component of
semiconductors, transistors. The characteristics of the transistors can be given
as a library to a foundry. Therefore, a design represented in VHDL is technology
and foundry  independent and can be targeted for any given  transistor  geometry
(such as 0.18, 0.25, or 0.35- micron) for any foundry of choice.

      We have developed  marketing  materials,  product  manuals and application
development  tools, and we are working on additional tools, for use by licensees
and customers. The manuals and tools are necessary to enable system designers to
quickly and easily program the Ignite family for specific applications.

      We  believe  that  the  Ignite  family  is  low  cost,  low  power,   high
performance,  proven  technology  providing  a  competitive  solution  to system
designers. We also believe the core technology is ready for licensing for use by
others to develop custom microprocessors.

      Business  Strategy.  The increasing demand for embedded control has helped
to make the  market  for  microprocessors  one of the  largest  segments  of the
semiconductor  logic  market.  This  demand  will  drive  the need for  embedded
processors.  Our strategy does not entail competing  directly with suppliers who
have multiple  microprocessor types addressing all parts of the embedded systems
market, but on identifying certain market niches that the Ignite  microprocessor
would best address due to its low cost, low power  consumption,  small number of
transistors and higher performance.


                                       8
<PAGE>

      Because  of the above  factors,  we intend  to focus the  majority  of our
efforts on the embedded microprocessor business, a market without an established
base  of   microprocessor   products   and  for  which  we  believe  the  Ignite
microprocessor has desirable technical and market advantages.

      We believe that our  architecture  is suited for  controller  applications
requiring  high  performance  and low system  cost,  such as smart  cards,  cell
phones,  printers,  video terminals,  robotics,  motion controllers,  industrial
controllers,  digital  communication  devices,  video games,  kiosks,  cable and
satellite  modems  and TV  set  top  boxes.  We  expect  that  licensing  of the
technology and product applications will focus on embedded control.

      We have  business  development  representatives  for  domestic and foreign
markets. We utilize industry experts for market  communications and advertising.
We also have a strategic alliance with an outside microprocessor design house.

      We believe the  appropriate  approach for us initially  lies in a balanced
effort of cultivating  licensees and  developing  specific  product  enhancement
partnerships,  producing original equipment manufactured products, and providing
technical  support to third parties on a contract basis.  The overall balance of
these  approaches  will be monitored and modified as we attempt to ascertain and
capitalize on the highly dynamic and competitive embedded microprocessor market.
There can be no assurance that we can  successfully  exploit our  microprocessor
technology.

      Subject to the availability of financial and personnel resources, while we
market the Ignite family and the core technology, our strategy is to also design
and develop future versions of the microprocessor with more demanding sub-micron
technology and with more features. However, our resources are limited, and there
can be no assurance that we will be able to continue microprocessor enhancement.

      Initial  fabrications  of the 0.8-micron and  0.5-micron  processors  were
performed by contract fabrication facilities. The 0.35-micron microprocessor was
fabricated  by a  contract  fabrication  facility  that had  agreed  to  provide
production quantities for our customers.  We have completed work with a contract
fabrication  facility  and our design  house  partner  to produce a  0.18-micron
version of the Ignite family. There can be no assurance  fabrication  facilities
will be available  to produce the Ignite  family in the future.  However,  since
there are a large  number  of  fabrication  facilities  with the  capability  to
produce the Ignite family of microprocessors,  we believe microprocessors can be
produced on a contract basis. Industry shortages of fabrication  facilities that
may exist and are predicted to exist in the future are generally  limited to the
more demanding architectures.  If a shortage of fabrication facilities develops,
it could have a material adverse effect on our financial condition.

      Competition.  The semiconductor  industry is intensely competitive and has
been  characterized  by price erosion,  rapid  technological  change and foreign
competition  in many  markets.  The  industry  consists  of major  domestic  and
international  semiconductor  companies,  most of which have greater  financial,
technical, marketing, distribution,  development and other resources than we do.
The market for microprocessors and for embedded control applications is at least
as competitive.

      While our strategy is to target  high-volume  licensees and microprocessor
customers  requiring  more  sophisticated  but low-cost,  low-power  consumption
devices,  we can still  expect  significant  competition.  We may also  elect to
develop  embedded  control system products  utilizing our own architecture or by
contract for other manufacturers.

      We expect that the Ignite family,  if successfully  commercialized  in the
embedded   controller   market,   will  compete  with  a  variety  of  16/64-bit
microprocessors including those based on intellectual property from ARM and MIPS
and  microprocessors  from Hitachi,  Motorola and IBM. As a Java  processor,  we
expect our Ignite  family will  compete  with a broad  range of  microprocessors
including  those  incorporating   co-processor  accelerator  technologies.   The
producers of these  microprocessors have significantly greater resources than we
do.

      A new entrant, such as ours, is at a competitive  disadvantage compared to
these and other established  producers.  A number of factors contribute to this,
including:

      o     the lack of product performance experience,

      o     lack of  experience  by customers in using  application  development
            systems,

      o     no record of technical service and support, and


                                       9
<PAGE>

      o     limited marketing and sales capabilities.

      HIGH SPEED DATA COMMUNICATIONS PRODUCTS.

      The communication products that reached the end of their life cycles are:

      VME Product Line - a line of high-speed  communications products developed
      under  European  standards.  Some  of our  customers  for  these  products
      included the military as well as large satellite based data communications
      companies.

      Atcomm2/4  Product Line - an intelligent  two or four channel product that
      was used for high-speed data communications.

      Except for minor repeat orders, we no longer support this product line. We
have disposed of or fully reserved the communication  product line inventory and
are concentrating our efforts and resources on Ignite.

      RESEARCH AND DEVELOPMENT.  Our current  development efforts are focused on
improvement   of,  and   additional   features   for,   the  Ignite   family  of
microprocessors.  The  development  of this  technology  has taken  longer  than
anticipated and could be subject to additional delays.  Therefore,  there can be
no assurance of timely or successful marketing of this technology.

      We incurred research and development expenditures of $294,735 and $549,756
for our fiscal years ended May 31, 2005 and 2004, respectively.  The majority of
these  expenditures  have been  devoted  to our  microprocessor  technology.  We
believe that technical  advances are essential to our success and expect that we
will,  conditioned on the availability of funds,  continue to expend substantial
amounts on research and development of our technology.  However, there can be no
assurance that such research and  development  efforts will result in the design
and development of a competitive technology in a timely manner.

      LICENSES,  PATENTS, TRADE SECRETS AND OTHER PROPRIETARY RIGHTS. We rely on
a combination of patents,  copyright and trademark laws, trade secrets, software
security measures,  license  agreements and nondisclosure  agreements to protect
our proprietary technologies. Our policy is to seek the issuance of patents that
we consider  important to our business to protect inventions and technology that
support our microprocessor technology.

      We  have  seven  U.S.   patents   issued   dating  back  to  1989  on  our
microprocessor   technology  (the   "Microprocessor   Patents").   We  have  one
microprocessor  technology  patent  issued in five  European  countries  and one
patent issued in Japan and may file additional  applications under international
treaties  depending on an evaluation of the costs and anticipated  benefits that
may be obtained by expanding possible patent coverage.  In addition, we have one
U.S. patent issued on ground  penetrating  radar  technology and one U.S. patent
issued on one of the communications products.

      In addition to such factors as  innovation,  technological  expertise  and
experienced  personnel,  we believe  that a strong  patent  position is becoming
increasingly important to compete effectively in the semiconductor  industry. It
may become  necessary  or  desirable  in the future for us to obtain  patent and
technology licenses from other companies relating to certain technology that may
be  employed in future  products or  processes.  To date,  we have not  received
notices of claimed  infringement  of patents based on our existing  processes or
products;  but, due to the nature of the industry, we may receive such claims in
the future.

      We believe that we may have claims  against  numerous  companies  that use
semiconductors  with  capabilities  in excess of 125 MHz in their  products.  In
December 2003, we initiated  legal actions against five companies to enforce our
patents.  There can be no assurance  that we will be successful in enforcing any
potential  patent claims  against these or other  companies.  In February  2004,
Intel  initiated a legal action against us and we filed a  counterclaim  against
them  related to the initial  five  lawsuits.  That  litigation  was settled and
dismissed  in June  2005,  and  Intel  is now  under  license  for our  patented
technology. See Legal Proceedings.

      Based on the asset purchase  agreement and plan of reorganization  between
Patriot,  nanoTronics  and Mr.  Falk,  we were the  recipients  of a  number  of
warranties and indemnities.  We believe nanoTronics has been liquidated and, due
to Mr.  Falk's death in July 1995, we may be limited in our ability or unable to
obtain  satisfaction should we have any future claims against nanoTronics or its
successor, the Falk Family Estate, which we believe has also been liquidated.


                                       10
<PAGE>

      We have entered into the following  licenses related to the microprocessor
technology:

      o     Sierra  Systems.  In June 1994,  we entered into an  agreement  with
            Sierra Systems  whereby we could provide the C programming  language
            on the  Ignite  microprocessor.  We  currently  provide  development
            boards with the C programming language.

      o     Sun  Microsystems,  Inc. In June 1997,  we entered into an agreement
            with Sun Microsystems, Inc. ("Sun"), which enabled us to develop and
            distribute products based on Sun's Java technology. In June 1998, we
            exercised  an option  under  that  agreement  to  license  from Sun,
            personalJava,  a smaller platform on which to run Java  applications
            that  did not  include  an  operating  system.  We  determined  that
            personalJava is better suited to the markets available to the Ignite
            microprocessor.   We  have   ported   personalJava   to  the  Ignite
            microprocessor.

      o     Wind River.  In July 1997,  we entered into an  agreement  with Wind
            River  that  provided  us with a license  for an  operating  system,
            VxWorks, to be used in conjunction with personalJava. We have ported
            VxWorks to the Ignite.

      o     Forth Inc. In July 1997,  we entered into a license  agreement  with
            Forth Inc. whereby Forth will provide software support and operating
            system development tools for the Forth programming language.

      On  June  7,  2005,  we  entered  into a  Master  Agreement  (the  "Master
Agreement") with Technology  Properties  Limited Inc., a California  corporation
("TPL"),  and Charles H. Moore, an individual  ("Moore" and together with us and
TPL, the "Parties"). We, TPL and Moore were parties to certain lawsuits filed by
us alleging  infringement (the "Infringement  Litigation") of our Microprocessor
Patents and a lawsuit also filed by us alleging claims for declaratory  judgment
for determination and correction of inventorship of the  Microprocessor  Patents
(the  "Inventorship  Litigation").  The  transactions  described  in the  Master
Agreement and related agreements (the "Transactions") included the settlement or
dismissal of the Inventorship Litigation.

      Pursuant to the Master Agreement we agreed with TPL and Moore as follows:

      o     We entered into a patent  license  agreement  (the "Intel  License")
            with  Intel  Corporation  ("Intel")  pursuant  to which we  licensed
            certain rights in the Microprocessor Patents to Intel.

      o     We entered into an Escrow Agreement along with TPL pursuant to which
            the proceeds  arising from the Intel License were  allocated for the
            benefit of us and TPL. Pursuant to the Escrow Agreement, our initial
            capitalization  obligations  and those of TPL with  regard to the JV
            LLC (defined  below) were  satisfied,  our payment  obligations  and
            those of TPL with regard to the Rights Holders  (defined below) were
            made,  we  received  $6,672,349,  and the  remaining  proceeds  were
            allocated to or for the benefit of TPL.

      o     We caused certain of our respective  interests in the Microprocessor
            Patents to be licensed to a limited  liability  company owned 50% by
            us and 50% by TPL (the "JV LLC").

      o     The JV LLC engaged TPL to commercialize the  Microprocessor  Patents
            pursuant to a Commercialization  Agreement among the JV LLC, TPL and
            us (the "Commercialization Agreement").

      o     We paid  $1,327,651  and TPL paid  $1,000,000 to certain  holders of
            rights in the Microprocessor  Patents ("Rights Holders") in exchange
            for the consent of such Rights Holders to the Transactions.

      o     We agreed with TPL and Moore to settle or cause to be dismissed  all
            litigation  among all of us pursuant to a stipulated final judgment,
            including the Inventorship Litigation.

      o     We issued  warrants  to TPL to acquire  shares of our common  stock.
            1,400,000  warrants were  exercisable  upon issue;  700,000 warrants
            will  become  exercisable  if our common  stock  trades at $0.50 per
            share; an additional 700,000 warrants will become exercisable if our
            common stock trades at $0.75 per share;  and an  additional  700,000
            warrants will become exercisable if our common stock trades at $1.00
            per share.


                                       11
<PAGE>

      o     We agreed  with TPL and Moore to  indemnify  each other  for,  among
            other   things,   any   inaccuracy  or   misrepresentation   to  any
            representation or warranty  contained in the Master  Agreement,  any
            breach of the Master Agreement,  certain liabilities relating to the
            respective interests of each of us in the Microprocessor Patents and
            the Transactions, and certain tax liabilities.

      Pursuant to the Commercialization Agreement, the JV LLC granted to TPL the
exclusive right to grant licenses and sub-licenses of the Microprocessor Patents
and to pursue claims against violators of the  Microprocessor  Patents,  in each
case, on behalf of JV LLC, us, TPL and Moore,  and TPL agreed to use  reasonable
best efforts to commercialize  the  Microprocessor  Patents in accordance with a
mutually agreed business plan. Pursuant to the Commercialization  Agreement, the
JV LLC agreed to  reimburse  TPL's  expenses  incurred  in  connection  with the
commercialization  of the Microprocessor  Patents. All proceeds generated by TPL
in connection with the  commercialization of the Microprocessor  Patents will be
paid directly to the JV LLC.

      Pursuant to the Master Agreement, we and TPL have entered into the Limited
Liability Company Operating  Agreement of the JV LLC ("LLC  Agreement").  We and
TPL each own 50% of the membership  interests of JV LLC, and each have the right
to appoint one member of the three (3) member management committee.  The two (2)
appointees  are  required to select a mutually  acceptable  third  member of the
management  committee.  Pursuant  to the LLC  Agreement,  we and TPL  must  each
contribute  to  the  working   capital  of  the  JV  LLC  (in  addition  to  the
Microprocessor  Patent  licenses  described  above),  and are  obligated to make
future  contributions  in equal  amounts in order to maintain a working  capital
fund.  The LLC Agreement  provides that the JV LLC shall  indemnify its members,
managers,  officers and employees to the fullest extent  permitted by applicable
law, for any liabilities  incurred as a result of their  involvement with the JV
LLC, if the person seeking  indemnification  acted in good faith and in a manner
reasonably believed to be in the best interest of the JV LLC.

      Payments totaling approximately $960,000 were made in the first quarter of
fiscal 2006 to the co-inventors of the technology. Additionally, a legal advisor
who had  previously  provided  services  to the Company may assert a success fee
against  the Company  based upon  proceeds  received  by the  Company  under the
license agreement. See further discussion in Item 3.

      We have one U.S. patent on our ground  penetrating  radar  technology.  No
foreign  application has been made. There are a large number of patents owned by
others in the radar field generally and in the field of ground penetrating radar
specifically.   Accordingly,   although  we  are  not  aware  of  any   possible
infringement and have not received any notices of claimed  infringement,  we may
receive such claims in the future.

      There can be no assurance  that any patents will be issued from pending or
future  applications or that any patents that are issued will provide meaningful
protection or other  commercial  advantages to us. Although we intend to protect
our rights  vigorously,  there can be no assurance  that these  measures will be
successful.

      We generally  require all of our employees and consultants,  including our
management,  to sign a non-disclosure  and invention  assignment  agreement upon
employment with us.

      MARKETING  AND   DISTRIBUTION.   Our  products  are  marketed   through  a
combination  of direct sales and  distributors.  Approximate  sales by principal
geographic area (as a percentage of sales) for fiscal years ended May 31 were as
follows:

                                            2005         2004
                                            ----         ----
         Domestic sales                     100%          92%

         Foreign sales
         Europe                              --           8%

         Total sales                        100%         100%
                                            ====         ====

      All of our operating  assets are located within the United  States.  While
sales to certain  geographic  areas  generally vary from year to year, we do not
expect that changes in the geographic  composition of sales will have a material
adverse effect on operations.


                                       12
<PAGE>

      DEPENDENCE  UPON  SINGLE  CUSTOMERS.  Ten  percent  (10%)  or  more of our
consolidated  net sales were derived from  shipments to the following  customers
for the fiscal years ended May 31 as follows:

                                            2005                 2004
                                            ----                 ----
                AMD                       $2,956,250                --

                nTelisis                                       $25,000

                Blue Tech Inc.                                  18,000

                Litton                                          9,000

      All of the above sales were shipped against multiple  purchase orders from
each customer.  nTelesis is owned by a former  executive  officer of the company
who resigned in May 2005.

      We had no backlog as of May 31, 2005 or 2004.

      EMPLOYEES.  We currently  have six  personnel.  Two people are employed in
research and  development,  one in marketing  and sales and three are engaged in
general and administrative activities. We also engage additional consultants and
part-time persons as needed from time to time.

      Our future success depends in significant part upon the continued services
of our key technical and senior management personnel. The competition for highly
qualified  personnel is intense,  and there can be no assurance  that we will be
able to retain our key  managerial  and  technical  employees or that we will be
able to attract and retain additional highly qualified  technical and managerial
personnel in the future.  None of our employees is represented by a labor union,
and we  consider  our  relations  with our  employees  to be  good.  None of our
employees is covered by key man life insurance policies.

      GOVERNMENT REGULATION.  To our knowledge,  our products are not subject to
governmental  regulation  by any  federal,  state or local  agencies  that would
affect the  manufacture,  sale or use of our products,  other than  occupational
health and safety  laws and labor laws which are  generally  applicable  to most
companies.  We cannot, of course,  predict what sort of regulations of this type
may be imposed in the future but do not anticipate any unusual  difficulties  in
complying with governmental regulations which may be adopted in the future.

      We have not incurred costs associated with  environmental  laws and do not
anticipate such laws will have any significant effect on our future business.

ITEM 2. DESCRIPTION OF PROPERTY

      We have one 10,300 square foot office  located at 10989 Via Frontera,  San
Diego,  California.  The facility is leased  through July 2006. In July 2002, we
sublet  approximately  5,000 square feet of our facility to an independent third
party.  The third party  vacated its portion of the facility in 2005 and paid us
$47,000  in  consideration  for all  future  amounts  owed  under  the  sublease
agreement.  We then  determined  that this vacated portion of the facility would
not provide any future benefit to us and probably  could not be subleased  again
to another  party.  Therefore,  we  accrued  $100,000  related to our  remaining
contractual  lease  obligation in connection with this space.  The current floor
space  provides  adequate  and  suitable  facilities  for  all of our  corporate
functions.

ITEM 3. LEGAL PROCEEDINGS

      In December 2003, Patriot Scientific  Corporation,  a Delaware corporation
(hereinafter  referred to as the  "Company")  filed  several  lawsuits in United
States District Courts against companies we contend are infringing on our patent
number 5,809,336 entitled "High Performance Microprocessor Having Variable Speed
Clock." The defendants and suits are as follows:

Defendant                       U.S. District Court                 Case Number
---------                       -------------------                 -----------

Sony Corporation of America     Southern District of New York       03CV10142

Fujitsu                         Northern District of California     C035787

Toshiba America, Inc.           Southern District of New York       03CV10180

NEC USA, Inc.                   Eastern District of New York        CV036432

Matsushita                      District of New Jersey              03CV06210


                                       13
<PAGE>

      The Company was  requesting  that the courts  enjoin the  defendants  from
making  use of our patent  and  requested  damages  for past  infringements.  In
February,  with the  consent  of the  defendants,  the above five  actions  were
consolidated  into the Fujitsu  action in the  Northern  District of  California
under case number C035787.

      In February 2004, Intel Corporation filed a lawsuit against the Company in
the United States District Court- Northern  District of California,  case number
C040439,   in  which  they   requested  a   declaratory   judgment   that  their
microprocessors,  used  by the  defendants  in  our  consolidated  suit,  do not
infringe our patent.  The Company filed a counterclaim  against Intel contending
that they also are  infringing on our patent,  and Intel asserted an affirmative
defense that our 5,809,336 patent is invalid.

      In  February  2004,  the  Company  filed a lawsuit  in the  United  States
District Court- Northern  District of California,  case number C040618,  against
TPL,  Charles H. Moore,  an individual  ("Moore"),  and Daniel E.  Leckrone,  an
individual.  Counterclaims  were filed seeking a declaration from the Court that
the inventors as stated in the original patent filings were the inventors of the
respective patents.

      On June 7, 2005, the Company entered into a Master  Agreement by and among
the Company,  TPL and Moore  (Moore and  together  with the Company and TPL, the
"Parties").  The Parties were parties to certain  lawsuits  filed by the Company
alleging  infringement  of certain  microprocessor  science  and design  patents
("Patents")  and a lawsuit filed by the Company  alleging claims for declaratory
judgment for  determination  and correction of inventorship of the Patents.  The
transactions  described in the Master  Agreement and related  agreements  form a
part of the settlement or dismissal of the Inventorship Litigation.

Pursuant to the Master Agreement the Parties have agreed,  in pertinent part, as
follows:

(a) The Company  entered into a patent license  agreement (the "Intel  License")
with Intel Corporation  ("Intel") pursuant to which the Company licensed certain
rights in the Patents to Intel.

(b) The Company and TPL will cause certain of their respective  interests in the
Patents to be licensed to a limited  liability company that will be owned 50% by
the Company and 50% by TPL (the "JV LLC").

(c) The JV LLC will  engage  TPL to  commercialize  the  Patents  pursuant  to a
Commercialization  Agreement  among  the  JV  LLC,  TPL  and  the  Company  (the
"Commercialization Agreement").

(d) The Parties will settle all or cause to be dismissed  all  litigation  among
them  pursuant  to a  stipulated  final  judgment,  including  the  Inventorship
Litigation.

      On June 7, 2005,  in  connection  with the Master  Agreement,  the Company
entered  into the  Commercialization  Agreement by and among the JV LLC, TPL and
the Company. Pursuant to the Commercialization Agreement, the JV LLC has granted
to TPL the exclusive right to grant licenses and sub-licenses of the Patents and
to pursue claims against violators of the patents.


                                       14
<PAGE>

      The  Parties  executed  and  filed  a  stipulated  final  judgment  in the
Inventorship  Litigation,  which provided for a dismissal of the Company's third
amended  complaint  and  final  judgment  in  favor  of TPL and  Moore  on their
counterclaims.

      The  infringement  cases  referenced  above  have  been  stayed  by  Judge
Armstrong  until late  September  2005, in order to give the parties  sufficient
time to settle the litigation. Intel, as noted above, has been granted a license
and is no longer a party to the proceedings.

Additional Litigation:

      Beatie and Osborne, LLP v. Patriot Scientific Corporation, et al.,
      United States District Court, Case No. 05-CV-6425 (S.D.N.Y)

      This is an action by a New York law firm,  Beatie  and  Osborn  ("BandO"),
that  formerly  represented  the  Company  in  patent  infringement   litigation
commenced  by  the  Company   against  certain   various   microprocessor   chip
manufacturers,  in litigation still pending, with the exception of Intel, in the
Northern District of California.  In addition,  BandO represented the Company in
separate  litigation also in the Northern  District of California  against Moore
and TPL, as defined above. BandO undertook such representation of the Company on
a contingency fee basis and had previously reached an agreement with the Company
with respect to transmission of anticipated  litigation costs in connection with
those underlying litigation matters.  BandO is believed to presently hold in its
trust  account  approximately  $210,000  of the  Company's  funds  advanced  for
litigation costs, and BandO claims it is entitled to be reimbursed approximately
$240,000 in  litigation  costs.  The  Company  disputes  BandO's  claim to those
litigation costs.

      On March 8, 2005,  BandO was  disqualified by United States District Judge
Jeremy Fogel in the patent  ownership  litigation  described above against Moore
and TPL. BandO subsequently  withdrew from  representation of the Company in the
patent infringement litigation.

      BandO  initiated  litigation  in the Supreme Court of New York on or about
June 8, 2005, claiming breach of contract, quantum meruit and unjust enrichment,
and  alleging  claims  against the Company  and former  Company  representatives
Jeffery  Wallin  and  Lowell  Giffhorn,  for  fraud  and  interference  with the
contractual relationship.  BandO claims a contingency fee under the terms of its
contingency  fee  agreement,  with respect to licensing  agreements  entered and
possibly to be entered into by the Company.  The Company denies past, present or
future liability to BandO, and intends to vigorously defend this action.

      The Company  caused a removal of the action to the United States  District
Court for the Southern  District of New York, and has filed a motion to have the
litigation  transferred  to  California.  A decision is expected by the District
Court in late September 2005.  Discovery has yet to be commenced in the New York
litigation.  However,  the disqualification of BandO in the ownership litigation
and its withdrawal  from the patent  infringement  litigation are claimed by the
Company to have caused a forfeiture of any rights of BandO to a contingency fee.
Further, the Company is evaluating  commencing a legal malpractice claim against
BandO that the Company believes will exceed the claims asserted by BandO. As for
the agreement  regarding  costs and fees, the Company expects to show that BandO
breached  the terms of the  agreement  and is not entitled to any costs from the
escrow. This assumes, for the sake of argument,  that BandO would have any right
to the funds in escrow as a result of Judge Fogel's Order disqualifying BandO on
various  grounds,  including  violation of the California  Rules of Professional
Responsibility.

      Litigation is inherently uncertain and while the Company believes that the
claims   brought   by  BandO  have  no  merit,   especially   in  light  of  the
disqualification  previously  described,  there  can be no  assurances  that the
resolution  of the matter will not  negatively  impact the  Company's  financial
position or its results of operations in the future.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      At our fiscal 2005 Annual Meeting of Shareholders  held on April 14, 2005,
the following individuals were elected to the Board of Directors of the Company:
David H. Pohl, Lowell W. Giffhorn, Carlton M. Johnson, Jr., Helmut Falk, Jr. and
Gloria H. Felcyn.


                                       15
<PAGE>

      The  following   proposals   were  approved  at  our  Annual   Meeting  of
Shareholders:

      1. Proposal to approve an amendment to our Certificate of Incorporation to
increase the number of authorized  shares of common  stock,  $0.00001 par value,
from 400,000,000 to 500,000,000:

      Votes For                 Votes Against            Votes Abstaining
      186,975,606               18,543,948               212,173

      2. Proposal to ratify management's  selection of Mayer Hoffman McCann P.C.
as the Company's independent auditors:

      Votes For                 Votes Against            Votes Abstaining
      202,189,565               2,241,373                1,300,789

      3. Election of Directors:

      Director                               Votes For      Votes Withheld

      David H. Pohl                          190,412,526        11,175,969

      Lowell W. Giffhorn                     194,859,555         6,728,940

      Carlton M. Johnson, Jr                 195,997,869         5,590,626

      Helmut Falk, Jr                        193,816,210         7,772,285

      Gloria H. Felcyn                       199,967,120         7,621,375


                                       16
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES

      Our Common Stock ("Common Stock") is traded in the over-the-counter market
and is quoted on the NASD OTC Bulletin  Board system  maintained by the National
Association of Securities Dealers, Inc. Prices reported represent prices between
dealers, do not include markups, markdowns or commissions and do not necessarily
represent actual  transactions.  The market for our shares has been sporadic and
at times very limited.

      The following table sets forth the high and low closing bid quotations for
the Common Stock for the fiscal years ended May 31, 2005 and 2004.

                                                            BID QUOTATIONS
                                                            --------------
                                                          HIGH           LOW
Fiscal Year Ended May 31, 2004
   First Quarter                                          $0.07         $0.04
   Second Quarter                                         $0.08         $0.04
   Third Quarter                                          $0.17         $0.03
   Fourth Quarter                                         $0.15         $0.08

Fiscal Year Ended May 31, 2005
   First Quarter                                          $0.09         $0.03
   Second Quarter                                         $0.05         $0.03
   Third Quarter                                          $0.25         $0.05
   Fourth Quarter                                         $0.18         $0.07

      We have  approximately  648  shareholders  of record  as of May 31,  2005.
Because  most of our Common Stock is held by brokers and other  institutions  on
behalf of stockholders, we are unable to estimate the total number of beneficial
owners  represented by these record holders.  We have never paid a cash dividend
on our Common Stock and do not expect to pay one in the foreseeable future.

RECENT SALE OF UNREGISTERED SECURITIES

      During the fourth fiscal  quarter ended May 31, 2005, we did not offer for
sale any unregistered securities.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW

      During the third  quarter of the fiscal year ended May 31, 2005 and in the
first  quarter of fiscal  2006,  the Company  entered  into  agreements  for the
licensing of its technology  with Advanced Micro Devices Inc.  ("AMD") and Intel
Corporation,   respectively,   among   the   largest   of   the   microprocessor
manufacturers.  We believe the agreements  represent validation of the Company's
position  that its  intellectual  property  was and is being  infringed by major
manufacturers  of  microprocessor  technology.  Also, we believe the  agreements
demonstrate  value of the  Company's  intellectual  property  based  upon  "arms
length" transactions with major electronics manufacturers.

      In June 2005, the Company entered into a series of agreements with TPL and
others to facilitate the pursuit of  infringers,  many of which are large scale,
of its  intellectual  property.  It is the  intention  of  management  that  the
recently  signed  license  agreements  will be used as a starting  point to work
toward more favorable  terms in future  negotiations.  Management  believes that
utilizing the option of working through TPL, as compared to creating and using a
Company  licensing  team for those  activities,  is a prudent way to achieve the
desired  results as the Company seeks to obtain fair value from the users of its
intellectual property.

      The Company  continues to develop,  market and sell  microprocessors,  the
technology behind the  microprocessors  and complementary  products which enable
computers and other data processing  devices to communicate.  These products can
be used to connect to the Internet or other telecommunications networks.


                                       17
<PAGE>

CRITICAL ACCOUNTING POLICIES

      Our  consolidated  financial  statements  have been prepared in accordance
with accounting  principles  generally accepted in the United States of America,
which require us to make estimates and judgments that  significantly  affect the
reported  amounts of assets,  liabilities,  revenues and  expenses,  and related
disclosure of contingent  assets and  liabilities.  Actual  results could differ
from  those  estimates,  and  such  differences  could  affect  the  results  of
operations  reported  in future  periods.  We  believe  the  following  critical
accounting policies affect our most significant  estimates and judgments used in
the preparation of our consolidated financial statements.

1.    Revenue Recognition

      Accounting   for  revenue   recognition   is  complex   and   affected  by
interpretations of guidance provided by several sources, including the Financial
Standards  Accounting Board ("FASB") and the Securities and Exchange  Commission
("SEC").  This guidance is subject to change. We follow the guidance established
by the SEC in Staff Accounting  Bulletin No. 104, as well as generally  accepted
criteria  for  revenue  recognition,  which  require  that,  before  revenue  is
recorded,  there is persuasive  evidence of an arrangement,  the fee is fixed or
determinable, collection is reasonably assured, and delivery to our customer has
occurred.  Applying  these  criteria  to  certain  of our  revenue  arrangements
requires  us to  carefully  analyze  the terms  and  conditions  of our  license
agreements.   Revenue  from  our  technology  license  agreements  is  generally
recognized  at the time we enter into a contract and provide our  customer  with
the  licensed  technology.  We  believe  that this is the point at which we have
performed all of our obligations  under the agreement;  however,  this remains a
highly  interpretive area of accounting and future license agreements may result
in a different method of revenue recognition. Fees for maintenance or support of
our licenses are recorded on a straight-line basis over the underlying period of
performance.

2.    Assessment of Contingent Liabilities

      We  are  involved  in  various  legal   matters,   disputes,   and  patent
infringement  claims which arise in the  ordinary  conduct of our  business.  We
accrue for estimated losses at the time when we can make a reliable  estimate of
such loss and it is probable  that it has been  incurred.  By their very nature,
contingencies  are difficult to estimate.  We continually  evaluate  information
related  to all  contingencies  to  determine  that  the  basis on which we have
recorded our estimated exposure is appropriate.

3.    Stock Options

      The  Company  applies  Accounting  Principles  Board  ("APB")  Opinion 25,
"Accounting  for Stock  Issued to  Employees,"  and related  Interpretations  in
accounting for all stock option plans.  Under APB Opinion 25,  compensation cost
has been recognized for stock options granted to employees when the option price
is less than the  market  price of the  underlying  common  stock on the date of
grant.

      SFAS No. 123, "Accounting for Stock-Based Compensation," and SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and disclosure," require the
Company to provide pro forma information regarding net income as if compensation
cost for the Company's stock option plans had been determined in accordance with
the fair value based method  prescribed in SFAS No. 123. To provide the required
pro forma information, the Company estimates the fair value of each stock option
at the grant date by using the Black-Scholes  option-pricing model. SFAS No. 148
also provides for  alternative  methods of transition for a voluntary  change to
the fair value based method of accounting for stock-based employee compensation.
The Company  has  elected to  continue  to account for stock based  compensation
under APB No. 25.

      The Company applies SFAS No. 123 in valuing options granted to consultants
and  estimates   the  fair  value  of  such  options  using  the   Black-Scholes
option-pricing  model.  The fair  value is  recorded  as  consulting  expense as
services are  provided.  Options  granted to  consultants  for which  vesting is
contingent  based on future  performance are measured at their then current fair
value at each period end, until vested.


                                       18
<PAGE>

4.    Debt Discount

      We  issue  warrants  as  part  of our  convertible  debentures  and  other
financings. We value the warrants using the Black-Scholes pricing model based on
expected fair value at issuance and the estimated fair value is recorded as debt
discount.  The debt discount is amortized to non-cash  interest over the life of
the debenture  assuming the debenture will be held to maturity which is normally
2 years.  If the debenture is converted to common stock previous to its maturity
date,  any debt  discount  not  previously  amortized  is  expensed  to non-cash
interest.

5.    Patents and Trademarks

      Patents and trademarks are carried at cost less  accumulated  amortization
and are amortized over their estimated  useful lives of four years. The carrying
value of patents and trademarks is  periodically  reviewed and  impairments,  if
any,  are  recognized  when the  expected  future  benefit to be derived from an
individual intangible asset is less than its carrying value.

6.    Income Taxes

      Deferred   income  taxes  are  provided  for  by   recognizing   temporary
differences  in certain income and expense items for financial and tax reporting
purposes.  Deferred tax assets consist primarily of income tax benefits from net
operating loss carry-forwards.  A valuation allowance has been recorded to fully
offset the deferred tax asset as it is more likely than not that the assets will
not be utilized. The valuation allowance increased approximately $42,000 for the
year ended May 31, 2005, from  $14,732,000 at May 31, 2004 to $14,690,000 at May
31, 2005.

RESULTS OF OPERATIONS

      In the third quarter of fiscal year 2005 we entered into an agreement with
AMD that  granted  licenses  for our  Ignite  microprocessor  and for our patent
portfolio of microprocessor technologies. The Ignite license called for payments
totaling  $1,220,000 with $300,000 paid upon closing of the agreement,  $292,500
to be paid in the fourth quarter of fiscal 2005 and the remaining  balance to be
paid in the first three  quarters of fiscal 2006. The revenues  associated  with
the Ignite license were all recognized in fiscal 2005. The agreement also called
for a maintenance fee totaling $100,000 connected with the Ignite license.  That
fee,  payable in equal  amounts of  $25,000 on April 1, 2005,  August 15,  2005,
November 15, 2005 and February 15,  2006,  is  considered  to support the Ignite
license over a period of four years and is being  recognized  as revenue  evenly
over the four year period. The Ignite license contains  provisions for royalties
based upon deliveries of products using the  technology.  However we cannot make
reliable projections of quantities or the timing of shipments that could lead to
royalty  payments  resulting  from this  agreement.  The agreement with AMD also
included a non-exclusive  license for our portfolio of intellectual  property. A
one-time license fee amounting to $1,730,000 was agreed upon with equal payments
of $432,500 to be paid on the following dates:  April 1, 2005,  August 15, 2005,
November 15, 2005 and February  15, 2006.  The entire  amount of the license fee
was recognized as revenue in fiscal 2005.

      We continue to receive small orders for communications  products that have
reached the end of their life cycle.  We no longer market these  products but we
do fill orders  received,  primarily from prior  customers.  We continue to fill
small orders for microprocessor products from existing inventory that is carried
at zero value.

      Total sales from  communications  and microprocessor  technology  products
decreased from  approximately  $74,000 to approximately  $25,000 from the fiscal
year ended May 31, 2004 to the fiscal year ended May 31, 2005.

      Research and development  expenses decreased from  approximately  $550,000
for the fiscal year ended May 31, 2004 to approximately  $295,000 for the fiscal
year ended May 31, 2005. The decrease was primarily due to staff reductions from
five employees during the 2004 fiscal period to two employees during most of the
2005 fiscal period.  Expenditures for tools and administrative expenses declined
in  the  2005  fiscal  year  as  compared  with  the  2004  fiscal  year.  Also,
depreciation  expense for research and development  declined from  approximately
$44,000 for the fiscal year ended May 31, 2004 to approximately  $11,000 for the
fiscal year ended May 31, 2005 as fixed assets became fully depreciated and were
not replaced.

      Selling,  general and administrative expenses increased from approximately
$1,254,000  for the fiscal year ended May 31, 2004 to  approximately  $2,600,000
for the fiscal year ended May 31, 2005. This significant  increase resulted from
multiple  changes in our  administrative  operations.  Legal fees increased from
approximately  $102,000 for the fiscal year ended May 31, 2004 to  approximately
$394,000  for the fiscal  year ended May 31,  2005 as a result of our efforts to
pursue  infringers  of our  intellectual  property  as  well  as in  support  of
administrative  and strategic changes for our Company.  Legal expenses amounting
to  approximately  $371,000,  were incurred by our  attorneys and  recognized as
expenses  by us in the  fiscal  year  ended  May  31,  2005 in  connection  with
intellectual  property enforcement efforts.  Similar expenditures for the fiscal
year ended May 31, 2004 amounted to approximately  $21,000.  A law firm involved
in the Company's intellectual property enforcement efforts has asserted a claim,
which the Company disputes,  for contingency fees payable in connection with the
AMD  agreement.  The  disputed  fees have been  accrued  by us in the  amount of
$346,000,  however  payment is  suspended as the  disputed  claim is  litigated.
Undisputed  contingency  fees in connection with the AMD agreement were recorded
in the amount of  approximately  $208,000.  We expect that  resolution  of legal
matters that have led to unusually large legal expenses for the 2005 fiscal year
will  result in reduced  legal  expenses  for the 2006 fiscal  year.  Total rent
expense increased from approximately  $181,000 for the fiscal year ended May 31,
2004 to  approximately  $281,000,  primarily  as a result of the accrual of rent
expense  liability on the unused portion of our leased space.  Other General and
Administrative expense categories increased in fiscal year 2005 as compared with
fiscal year 2004  including  the cost of  insurance,  transfer  agent fees,  and
investor relations.


                                       19
<PAGE>

      Marketing expenses  increased from  approximately  $311,000 for the fiscal
year ended May 31, 2004 to approximately  $325,000 for the fiscal year ended May
31, 2005. The increase  resulted from additional  consulting costs and increases
in  telephone  and  other   administrative   costs   associated  with  marketing
activities.  Partially  offsetting the increases was a reduction of salary costs
from  approximately  $165,000  for  the  fiscal  year  ended  May  31,  2004  to
approximately $134,000 for the fiscal year ended May 31, 2005.

      Other income and expense  items for the Company  amounted to a net expense
of approximately $2,413,000 for the fiscal year ended May 31, 2004 and increased
to a net expense of  approximately  $2,781,000 for the fiscal year ended May 31,
2005.  Other  income in the amount of $75,000  was  recorded  in the fiscal year
ended May 31, 2004 in  connection  with the final  payment  from the sale of gas
plasma technology in 1999. Losses on the value of marketable securities amounted
to   approximately   $45,000  for  the  fiscal  year  ended  May  31,  2004  and
approximately  $21,000 for the fiscal year ended May 31, 2005.  Interest expense
increased from  approximately  $2,443,000 for the fiscal year ended May 31, 2004
to  approximately  $2,820,000  for the  fiscal  year  ended May 31,  2005.  That
increase  primarily  resulted  from an  increase in  non-cash  interest  expense
associated  with the  conversion  of  debentures.  The  value  of debt  discount
features  recorded  upon the  issuance  of a  debenture  is expensed as non-cash
interest over the term of the debt.  However as the  debentures are converted to
common stock any  remaining  balance of debt  discount is recognized as non-cash
interest in that period.  Non-cash interest expense increased from approximately
$2,294,000  for the fiscal year ended May 31, 2004 to  approximately  $2,679,000
for the fiscal year ended May 31, 2005.

      The  Company's net loss for the fiscal year ended May 31, 2005 amounted to
approximately  $2,694,000  compared with a loss of approximately  $4,150,000 for
the fiscal year ended May 31, 2004.

LIQUIDITY AND CAPITAL RESOURCES

      The  Company's  cash,  marketable  securities  and  short-term  investment
balances  increased  from   approximately   $379,000  as  of  May  31,  2004  to
approximately   $1,289,000  as  of  May  31,  2005.  We  also  held  short  term
certificates of deposit  amounting to $200,000 as of May 31, 2005. Total current
assets increased from approximately $702,000 as of May 31, 2004 to approximately
$3,612,000  as of  May  31,  2005.  Total  current  liabilities  increased  from
approximately $548,000 as of May 31, 2004 to approximately  $1,644,000 as of May
31,  2005.  The  improvement  in the current  position of the Company  primarily
resulted  from the AMD  agreement  that was recorded in the third quarter of the
2005 fiscal year.

      During the fiscal years ended May 31, 2005 and May 31, 2004, the Company's
operating  activities  used cash in the amounts of  approximately  $628,000  and
$2,076,000,  respectively.  The  net  cash  used  in  operating  activities  was
primarily  due to the  Company's  reported  net loss as  adjusted  for  non-cash
expense  items.   Investing  activities  in  2005  used  approximately  $893,000
primarily due to the purchase of  certificates  of deposit and other  short-term
investments  and  deposits.   The  Company's  financing   activities   generated
approximately  $1,757,000 and approximately  $2,428,000 in fiscal 2005 and 2004,
respectively,  which  amounts  were  primarily  derived  from  the  issuance  of
convertible debentures of approximately  $490,000 and $2,175,000,  respectively,
proceeds  from the  issuance  of  common  stock of  approximately  $453,000  and
$50,000,  respectively,  and proceeds from the exercise of common stock warrants
and options of approximately $821,000 and 175,000, respectively.

      During  recent years we have relied upon  financing  activities to provide
the funds necessary for the Company's  operations.  During fiscal years 2004 and
2005 we raised  approximately  $4,165,000  through the sale of common stock, the
issuance of convertible debentures and notes payable and related conversions and
exercises of common stock warrants. The number of shares of the Company's common
stock  outstanding  increased from 106,547,807 to 280,492,013  during the fiscal
years 2004 and 2005,  respectively.  We believe that the Company will be able to
avoid such methods of financing operations for the foreseeable future.


                                       20
<PAGE>

      The Company's current position as of May 31, 2005, further supplemented by
the cash  generated by the Intel  agreement in the first quarter of fiscal 2006,
is expected to provide the funds  necessary to support the Company's  operations
through the fiscal year ended May 31, 2006.

RECENT ACCOUNTING PRONOUNCEMENTS

      In December  2004, the FASB issued SFAS 123R,  Share Based  Payment.  This
statement  replaces  SFAS No. 123 and  supersedes  APB Opinion 25. SFAS No. 123R
requires that the cost of share-based payment transactions (including those with
employees  and  non-employees)  be  recognized  as  compensation  based  on  the
estimated fair value of the equity instrument awarded.  SFAS No. 123R applies to
all  share-based  payment  transactions  in which an  entity  acquires  goods or
services by issuing (or offering to issue) its shares,  options, or other equity
instruments  or by incurring  liabilities  in amounts  based on the price of the
entity's  shares or other equity  instruments,  or that require (or may require)
settlement  by the issuance of an entity's  shares or other equity  instruments.
This  statement  applies  to all new  awards  granted  during  the  fiscal  year
beginning  after December 15, 2005 and to previous awards that are remodified or
cancelled after such date. The Company has not yet fully evaluated the effect of
adopting SFAS No. 123R on its financial statements.

      In December  2004,  the FASB issued SFAS No. 153,  Exchange of Nonmonetary
Assets,  an  amendment  of APB  Opinion  No.  29,  Accounting  for  Nonmmonetary
Transaction.  SFAS  No.  153  is  based  on  the  principle  that  exchanges  of
nonmonetary  assets  should be measured  based on the fair  market  value of the
assets exchanged. SFAS No. 153 eliminates the exception of nonmonetary exchanges
of  similar  productive  assets and  replaces  it with a general  exception  for
exchanges of nonmonetary assets that do not have commercial substance.  SFAS 153
is effective for nonmonetary  asset exchanges in fiscal periods  beginning after
June 15, 2005.  The Company does not believe that the provisions of SFAS No. 153
will have a material impact on its financial statements.

      In May 2005,  the FASB issued SFAS No. 154,  Accounting  Changes and Error
Corrections,  which replaces APB Opinion No. 20,  Accounting  Changes,  and FASB
Statement No. 3, Reporting  Accounting Changes in Interim Financial  Statements,
and changes the requirements for the accounting for and reporting of a change in
accounting principle.  SFAS No. 154 requires retrospective  application to prior
periods' financial statements of changes in accounting  principle,  unless it is
impracticable to determine either the period-specific  effects or the cumulative
effect of the  change.  SFAS No. 154 is  effective  for  accounting  changes and
correction  of errors made in fiscal years  beginning  after  December 15, 2005.
Early adoption is permitted for accounting changes and correction of errors made
in fiscal years beginning after the date SFAS No. 154 was issued. At the present
time,  the Company  does not believe  that  adoption of SFAS No. 154 will have a
material effect on its financial statements.

RISK FACTORS

      You should  consider the  following  discussion  of risks as well as other
information  regarding our common stock. The risks and  uncertainties  described
below are not the only ones.  Additional risks and  uncertainties  not presently
known to us or that we currently  deem  immaterial  also may impair our business
operations.  If any of the following risks actually occur, our business could be
harmed.

PATRIOT IS CURRENTLY  INVOLVED IN A LEGAL  DISPUTE WHICH COULD IMPACT OUR FUTURE
RESULTS OF OPERATIONS AND WORKING CAPITAL POSITION

      We are  currently in a dispute with a former  legal  advisor,  pursuant to
which the legal  advisor is  asserting a claim  against the proceeds we received
under our recently  signed  license  agreements.  We believe that the  advisor's
claim lack merit.  However,  if we lose the matter in court, or otherwise settle
the  matter  outside of court,  the cost of the  resolution  of this  matter may
impact our future  reported  results of  operations  and  consume a  significant
amount of cash.

RELATED TO OUR BUSINESS

PATRIOT'S  MICROPROCESSOR  TECHNOLOGIES  HAVE  RESULTED IN LIMITED  REVENUES AND
SEVERAL RELATED PRODUCTS ARE STILL IN THE DEVELOPMENT STAGE


                                       21
<PAGE>

      We  are  in  the   development   stage  on  several   components   of  our
microprocessor  technology  product  line,  and the  products  which  have  been
commercialized  have resulted in limited revenues.  Our other product lines have
not generated enough revenue to support our company.  Therefore, we have limited
financial  results  upon  which you may judge our  potential.  We may not become
profitable.  We have  experienced  in the past and may  experience in the future
many of the  problems,  delays  and  expenses  encountered  by any  early  stage
business, many of which are beyond our control. These include:

      o     substantial  delays and expenses  related to testing and development
            of our new products,

      o     production and marketing problems encountered in connection with our
            new and existing products and technologies,

      o     competition from larger and more established companies, and

      o     lack of market acceptance of our new products and technologies.

PATRIOT HAS A HISTORY OF LOSSES,  EXPECTS  FUTURE  LOSSES AND MAY NOT ACHIEVE OR
SUSTAIN ANNUAL PROFITABILITY

      We have a history of reported  losses.  For the fiscal years ended May 31,
2005  and  2004,  we  reported  net  losses  of  approximately   $2,700,000  and
$4,100,000.   These  losses  have  resulted  primarily  from  significant  costs
associated  with the  development  of our products,  costs  associated  with the
marketing of those products,  and the interest  charges and expenses  related to
equity and debt financings. Although we have entered into two license agreements
in fiscal 2005 and the first  quarter of fiscal 2006 which have  resulted in our
reporting significant revenue, there can be no assurance that we will be able to
achieve  profitable  operations in the future.  Should the funds  generated from
these  agreements be insufficient  to fund our  operations,  we may be forced to
curtail our  operations or seek  additional  external  funding.  There can be no
assurance  that  additional  funding  would  be  available  to us  or,  if it is
available, that it would be on terms favorable to us.

PATRIOT'S LIMITED SALES AND MARKETING EXPERIENCE HAS AFFECTED OUR REVENUE

      Our  operating  results  depend  to a  large  extent  on  our  ability  to
successfully  market and sell our products.  We currently have limited marketing
capabilities and need to hire additional sales and marketing personnel.  In part
as a consequence of our limited resources, we may not be able to recruit, train,
or retain  qualified  personnel  to sell and market our  products and may not be
able to develop a successful  sales and  marketing  strategy.  We also have very
limited  marketing  experience.  There can be no  assurance  that any  marketing
efforts  undertaken by us will be  successful or will result in any  significant
sales of our products. A continued lack of significant revenues from the sale of
our products would require us to cease doing business  and/or  liquidate or sell
our assets.

PATRIOT MAY EXPERIENCE  DIFFICULTIES  IN THE  INTRODUCTION  OF NEW PRODUCTS THAT
COULD RESULT IN PATRIOT HAVING TO INCUR SIGNIFICANT UNEXPECTED EXPENSES OR DELAY
THE LAUNCH OF NEW PRODUCTS

      Our  technologies  and products are in various stages of development.  Our
development  stage products may not be completed in time to allow  production or
marketing due to the inherent risks of new product and  technology  development,
limitations on financing,  competition,  obsolescence, loss of key personnel and
other  factors.  Although we may license some of our  technology  at its current
stage of development, there can be no assurance that we will be able to do so or
that any  revenues  generated  from  licensing  would be  sufficient  to support
operations at their current level.  Unanticipated  technical obstacles can arise
at any time and result in lengthy and costly delays or in a  determination  that
further development is not feasible.  Discovery of microprocessor design errors,
frequent in the industry prior to and after production,  could result in lengthy
and costly redesign,  fabrication  (production) and testing in an industry where
new technology rapidly eclipses prior innovations.

      The development of our  technologies has taken longer than anticipated and
could be additionally  delayed.  Therefore,  there can be no assurance of timely
completion and introduction of improved  products on a cost-effective  basis, or
that such products, if introduced,  will achieve market acceptance such that, in
combination with existing products,  they will sustain us or allow us to achieve
profitable operations.


                                       22
<PAGE>

RELATED TO OUR INDUSTRY

INTENSE COMPETITION IN THE MARKET FOR MICROPROCESSORS COULD PREVENT PATRIOT FROM
INCREASING  OR  SUSTAINING   REVENUE  AND  PREVENT  PATRIOT  FROM  ACHIEVING  OR
SUSTAINING ANNUAL PROFITABILITY

      Our products could be rendered  noncompetitive or obsolete.  Technological
competition  from  larger  and  more  established  microprocessor  companies  is
significant  and  expected  to  increase.  Most of the  companies  with which we
compete  and expect to  compete  have far  greater  capital  resources  and more
significant research and development staffs, marketing and distribution programs
and facilities,  and many of them have  substantially  greater experience in the
production  and  marketing of  products.  Staff cut backs by us, which have been
occasioned by financial constraints,  have increased the differences in capacity
between us and certain of our  competitors.  Our ability to compete  effectively
may be adversely  affected by the ability of these competitors to devote greater
resources to the sale and marketing of their  products than we can. In addition,
one or more of our  competitors  may succeed or may already  have  succeeded  in
developing  technologies  and products that are more effective than any of those
we currently offer or are developing.

PATRIOT'S LIMITED ABILITY TO PROTECT ITS INTELLECTUAL PROPERTY MAY INADVERTENTLY
ADVERSELY AFFECT ITS ABILITY TO COMPETE

      A successful challenge to our ownership of our technology could materially
damage  our  business   prospects.   Our  technologies  may  infringe  upon  the
proprietary  rights of others.  Licenses  required  by us from others may not be
available on commercially  reasonable terms, if at all. We rely on a combination
of  patents,   trademarks,   copyrights,   trade  secret  laws,  confidentiality
procedures  and  licensing  arrangements  to protect our  intellectual  property
rights.  We currently  have eight U.S.,  one  European and one Japanese  patents
issued.  Any issued patent may be challenged  and  invalidated.  Patents may not
issue from any of our pending applications.  Any claims allowed from existing or
pending  patents  may  not  be  of  sufficient  scope  or  strength  to  provide
significant  protection  for our  products.  Patents  may not be  issued  in all
countries where our products can be sold so as to provide meaningful  protection
or any commercial  advantage to us. 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 may assert that our technologies or products infringe
on their patents or  proprietary  rights.  Problems with patents or other rights
could  increase  the  cost of our  products  or delay or  preclude  new  product
development and  commercialization  by us. If infringement claims against us are
deemed valid,  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. See Legal Proceedings.

      We did not develop  the  technology  which is the basis for our  products.
This  technology,  which was  originally  known as the  ShBoom  technology,  was
acquired  through a series of agreements from one of two co- inventors.  We have
been, and may again be, subject to claims from such prior parties related to the
technology.   Such   parties  may  also   attempt  to  exploit  the   technology
independently  of our rights to do so. The asset purchase  agreement and plan of
reorganization between the Company,  nanoTronics Corporation and Helmut Falk was
the agreement under which we acquired the basic ShBoom technology. The agreement
also contained a number of warranties and  indemnities  related to the ownership
of the technology and other matters. We believe nanoTronics Corporation has been
liquidated  and,  due to Mr.  Falk's  death in July 1995,  our ability to obtain
satisfaction  for any future claims as a result of a breach of the agreement may
be limited.

PATRIOT MAY FACE  INTERRUPTION  OF  PRODUCTION  AND  SERVICES  DUE TO  INCREASED
SECURITY MEASURES IN RESPONSE TO TERRORISM

      Our business depends on the free flow of products and services through the
channels  of  commerce.  Recently,  in response to  terrorists'  activities  and
threats aimed at the United States,  transportation,  mail,  financial and other
services have been slowed or at certain times stopped altogether. Further delays
or stoppages in transportation,  mail,  financial or other services could have a
material  adverse  effect on our business,  results of operations  and financial
condition.  Furthermore,  we may experience an increase in operating costs, such
as costs  for  transportation,  insurance  and  security,  as a result  of these
activities and potential activities.  We may also experience delays in receiving
payments  from  payers  that have been  affected  by  terrorist  activities  and
potential activities. The U.S. economy in general is being adversely affected by
terrorist activities and potential  activities,  and any economic downturn could
adversely impact our results of operations,  impair our ability to raise capital
or otherwise adversely affect our ability to grow our business.


                                       23
<PAGE>

RELATED TO OUR DEBT AND EQUITY OFFERINGS AND SHARE PRICE

PATRIOT MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND ITS OPERATIONS WHEN
NEEDED

      A lack of additional  funding could force us to  substantially  curtail or
cease  our  operations,  which  would  have a  material  adverse  effect  on our
business. Our ability to raise additional funds under the debenture agreement is
subject to certain  conditions.  These conditions include the effectiveness of a
registration  statement covering the resale of the shares sold on the conversion
of the debentures or the exercise of the warrants issued  concurrently  with the
debentures.  There can be no assurance  that any future funds  required  will be
generated from operations or from other  potential  sources.  Further,  any such
required funds may only be available on unattractive terms and may significantly
dilute the value of our existing shares.

IF A LARGE  NUMBER OF  PATRIOT  SHARES  ARE SOLD ALL AT ONCE OR IN  BLOCKS,  THE
MARKET PRICE OF OUR SHARES WOULD MOST LIKELY DECLINE

      Our  debenture  holders are not  restricted in the price at which they can
sell common stock acquired  through the conversion of the debentures or exercise
of warrants issued with the debentures. Shares sold at a price below the current
market  price at which the common stock is trading may cause the market price to
decline.  The shares of common  stock that are  issuable  on the  conversion  of
debentures or exercise of the warrants issued  concurrently  with the debentures
represent a significant portion of our outstanding  shares.  Should the price of
our stock drop, the number of common shares  issuable on the conversion of these
debentures  would be  subject  to reset  provisions  which  would  substantially
increase the number of common  shares to be issued.  To the extent the debenture
holders,  and shareholders of currently  outstanding  common stock,  convert and
sell  their  common  stock,  the  common  stock  price may  decrease  due to the
additional shares in the market. This could allow remaining debenture holders to
convert their convertible  debentures into even greater amounts of common stock,
the sales of which would further depress the stock price. Accordingly, we do not
know the exact  number of shares that will be issued on the  conversions  of the
debentures.

      In addition,  at the option of the debenture holder,  interest accruing at
the annual rate of 8% can be  converted  into shares of our common  stock at the
same  time and at the same  conversion  price as the  principal  portion  of the
debenture.  Should the debenture holders accumulate interest, a larger number of
shares  would be issued on  conversion;  and if the  price of the  common  stock
declines,  the reset  provisions  which  allow  greater  amounts of shares to be
issued would also be in effect for the interest portion of the debenture.

THE MARKET FOR PATRIOT'S STOCK IS SUBJECT TO RULES RELATING TO LOW-PRICED  STOCK
WHICH LIMITS OUR ABILITY TO ATTRACT COMPETITIVE FUNDING

      Our  common   stock  is   currently   listed  for   trading  in  the  NASD
Over-The-Counter Bulletin Board Market and is subject to the "penny stock rules"
adopted  pursuant to Section  15(g) of the  Securities  Exchange Act of 1934, as
amended  (the  "Exchange  Act").  In  general,  the penny  stock  rules apply to
non-NASDAQ or non-national stock exchange companies whose common stock trades at
less  than  $5.00  per  share or which  have  tangible  net  worth of less  than
$5,000,000  ($2,000,000  if the  company  has been  operating  for three or more
years).  Such rules require,  among other things,  that brokers who trade "penny
stock"  to  persons  other  than   "established   customers"   complete  certain
documentation,  make  suitability  inquiries of investors and provide  investors
with certain  information  concerning trading in the security,  including a risk
disclosure  document,  quote information,  broker's  commission  information and
rights and remedies  available to investors in penny  stocks.  Many brokers have
decided not to trade  "penny  stock"  because of the  requirements  of the penny
stock rules,  and as a result,  the number of  broker-dealers  willing to act as
market makers in such securities is limited. The "penny stock rules," therefore,
may have an adverse impact on the market for our common stock and may affect our
ability to attract competitive funding.

OUR SHARE PRICE COULD BE LOWERED AS A RESULT OF SHORT SALES

      The downward  pressure on the price of our common  stock as the  debenture
holders convert and sell material  amounts of common stock could encourage short
sales by the debenture  holders or others.  When an investor sells stock that he
does not own, it is known as a short sale.  The  seller,  anticipating  that the
price of the  stock  will go down,  will buy the stock at a later  date.  If the
price of the stock  goes  down,  the  seller  will  profit to the  extent of the
difference  between what he originally sold it for less what he later had to buy
it for.  Short sales enable the seller to profit in a down  market.  Short sales
could place significant downward pressure on the price of our common stock.


                                       24
<PAGE>

ON A SIGNIFICANT DROP IN THE PRICE OF OUR STOCK, WE COULD BE SUBJECT TO A CHANGE
IN CONTROL

      There is a  possibility  that a  significant  number of shares,  the exact
number  of which we do not  know,  of our  common  stock  could be issued on the
conversion of the debentures.  This possibly could result in a change in control
of our Company. Such a change in control could have a material adverse effect on
our operations and business  plans. We are unable to determine the impact such a
change in control could have on our Company.

ITEM 7. FINANCIAL STATEMENTS

      The financial  statements required by this item begin on page F-1 with the
index to consolidated financial statements.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

      None.

ITEM 8A. CONTROL AND PROCEDURES

      As required by Rule 13a-15(e)  under the Exchange Act, as of May 31, 2005,
the end of the period to which this annual report relates we have carried out an
evaluation  of the  effectiveness  of the design and  operation of the Company's
disclosure  controls and  procedures.  This evaluation was carried out under the
supervision and with the  participation of our Company's  management,  including
our President and our Chief Financial Officer.  Based upon that evaluation,  the
Company's  executive  and  financial  officers  concluded  that  the  disclosure
controls and  procedures  are  effective.  There was no change in the  Company's
internal  control over  financial  reporting (as defined in Rules  13a-15(f) and
15d-15(f)  under the Exchange Act) during the Company's most recently  completed
fiscal  quarter  that  has  materially  affected,  or is  reasonably  likely  to
materially affect, the Company's internal control over financial reporting.

      Disclosure  controls and procedures are controls and other procedures that
are designed to ensure that  information  required to be disclosed in our report
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported,  within the time  periods  specified  in the  Securities  and Exchange
Commission's  rules and  forms.  Disclosure  controls  and  procedures  include,
without limitation,  controls and procedures designed to ensure that information
required to be disclosed in the  Company's  reports filed under the Exchange Act
is accumulated and communicated to management, including the President and Chief
Executive Officer as appropriate,  to allow timely decisions  regarding required
disclosure.

ITEM 8B. OTHER INFORMATION

      None.


                                       25
<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

      The following  table and  biographical  summaries  set forth  information,
including principal occupation and business experience,  about our directors and
the executive officers at August 1, 2005:

NAME                          AGE         POSITION, OFFICE and TERM
----                          ---         -------------------------

David H. Pohl                  67         Director (since April 2001)/ President
                                          and Chief Executive Officer
Thomas J. Sweeney              55         Chief Financial Officer/Secretary
Carlton M. Johnson, Jr.        45         Director (since August 2001)
Helmut Falk, Jr.               48         Director (since December 1997)
Gloria Felcyn                  58         Director (since October 2002)
Lowell W. Giffhorn             58         Director (since August 1999)

BIOGRAPHICAL INFORMATION

      DAVID H. POHL.  Mr. Pohl has served on our board of directors  since April
2001. He served as an officer of the Company from January 2001 to March 2002. He
was elected  President and Chief Executive  Officer on June 13, 2005. Except for
his service with the Company,  Mr. Pohl has been in the private  practice of law
counseling  business  clients  since  1997,  and from  1995 to 1996 was  Special
Counsel to the Ohio Attorney General  regarding  investments in  entrepreneurial
firms by state pension funds.  Previously he was a senior  attorney with a large
U.S. law firm,  and held  positions as a senior  officer and general  counsel in
large  financial  services.  Mr. Pohl earned a J.D. degree in 1962 from the Ohio
State University College of Law, and also holds a BS in Administrative  Sciences
from Ohio State.  Mr. Pohl is also a director and member of the Audit  Committee
of Peregrine Pharmaceuticals, Inc., a publicly held company.

      THOMAS J.  SWEENEY.  Mr.  Sweeney  became our Chief  Financial  Officer on
August 3, 2005.  Since  2000,  Mr.  Sweeney  has been a Partner in the San Diego
office of Tatum CFO  Partners,  a national  financial  services firm that is the
largest professional services provider of strategic,  financial, and information
technology leadership in the country. While a Partner of Tatum and for three and
one-half years, Mr. Sweeney served as the Chief Financial  Officer of New Visual
Corporation, a publicly held development stage company in the telecommunications
industry with more than 8,000 shareholders.  Also while with Tatum, he served as
the Chief Financial Officer of Mitchell  International,  Inc., a 700 person firm
that is a  provider  of  information  software,  print  publications  and  total
business  solutions.  Also while with Tatum,  Mr. Sweeney worked in Johannesburg
and Cape Town,  South Africa on a project basis for an investment group that was
organized  under  Astrata  Group,  Inc.,  a publicly  held U.S.  company,  as it
completed  acquisitions  of satellite  technology  subsidiaries.  Earlier in his
career Mr.  Sweeney  worked as an auditor for Ernst & Young LLP, where he earned
his CPA certificate, and he also worked for the international consulting firm of
McKinsey  &  Company.  Mr.  Sweeney  earned  his BBA and MBA  degrees  from  The
University  of Texas at Austin  and is a member  of the  American  Institute  of
CPA's.

      CARLTON M. JOHNSON,  JR. Mr. Johnson was appointed a Director on August 5,
2001.  Mr.  Johnson is in-house  legal  counsel for Swartz  Investments,  LLC, a
position  he has held since June 1996.  Mr.  Johnson  has been  admitted  to the
practice of law in Alabama  since  1986,  Florida  since 1982 and Georgia  since
1997. He has been a shareholder in the  Pensacola,  Florida NJ rated law firm of
Smith,  Sauer,  DeMaria  Johnson  and  as  President-Elect  of  the  500  member
Escambia-Santa  Rosa Bar  Association.  He also  served on the Florida Bar Young
Lawyers   Division   Board  of  Governors.   Mr.  Johnson  earned  a  degree  in
History/Political  Science  at Auburn  University  and Juris  Doctor at  Samford
University - Cumberland School of Law. Mr. Johnson is also a director and member
of the audit  committee of  Peregrine  Pharmaceuticals,  Inc.,  a publicly  held
company.

      HELMUT FALK,  JR. Since 1992, Dr. Falk has been the Director of Anesthesia
for the Johnson Memorial  Hospital in Franklin,  Indiana.  Dr. Falk received his
D.O.  from the  College of  Osteopathic  Medicine of the Pacific in 1987 and his
B.S. in Biology from the University of  California,  Irvine in 1983. Dr. Falk is
the son of the late Helmut Falk, who was the sole shareholder of nanoTronics and
the  Chairman and CEO of the Company  until his death in July 1995.  Dr. Falk is
also an heir to the Helmut Falk  Estate,  which is the  beneficial  owner of the
Company's shares held by the Helmut Falk Family Trust.


                                       26
<PAGE>

      GLORIA H. FELCYN.  Ms. Felcyn was appointed a Director and Chairman of our
audit  committee  on October  10,  2002.  Since  1982,  Ms.  Felcyn has been the
principal in her own public accounting firm. Prior to establishing her own firm,
Ms. Felcyn was employed by Main Hurdman & Cranston from 1969 through 1970 and at
Price  Waterhouse  & Co, in the San  Francisco  and New York  offices  from 1970
through 1976.  Subsequent  to that,  Ms. Felcyn worked in the field of off shore
tax planning with a major Real Estate Syndication  Company.  Ms. Felcyn received
her B.S. degree in Business  Economics from Trinity  University in 1968 and is a
member of the American Institute of CPA's.

      LOWELL W.  GIFFHORN.  Mr.  Giffhorn was the principal in his own financial
management  consulting  firm from August 1996 until May of 1997,  when he joined
the Company as our Chief Financial  Officer, a position which he held until June
13, 2005. Mr.  Giffhorn has served on our board of directors  since August 1999.
From June 1992 to August  1996 and from  September  1987 to June 1990 he was the
CFO of Sym-Tek  Systems,  Inc. and Vice  President of Finance for its successor,
Sym-Tek,  Inc.,  a major  supplier  of capital  equipment  to the  semiconductor
industry.  Mr. Giffhorn  obtained an M.B.A.  degree from National  University in
1975 and he obtained a B.S. in  Accountancy  from the  University of Illinois in
1969. Mr. Giffhorn is also a director and chairman of the audit committee of DND
Technologies, Inc., a publicly held company.

      There is no family relationship  between any of our executive officers and
directors.

COMMITTEES OF THE BOARD OF DIRECTORS

      Our Board has standing Audit, Compensation and Executive Committees.

      Audit  Committee.  The Audit  Committee is  responsible  for assisting the
Board of  Directors in  monitoring  and  oversight  of (1) the  integrity of the
Company's  financial  statements  and its  systems of  internal  accounting  and
financial  controls and (2) the  independence  and  performance of the Company's
independent auditors. The Audit Committee, which met 3 times during fiscal 2005,
is  composed  of two  directors,  both of whom were  determined  by the Board of
Directors to be independent directors. During fiscal 2005 and to date, the Audit
Committee has consisted of Ms. Felcyn (Chairman) and Mr. Johnson.

      The  Board  of  Directors  has  determined  that  Ms.  Felcyn  is an audit
committee  financial expert as defined in Item 401 of Regulation S-B promulgated
by the SEC. The Board's  conclusions  regarding the qualifications of Ms. Felcyn
as an audit committee financial expert were based on her standing as a certified
public accountant and her degree in business economics.

      Compensation   Committee.   The  Compensation  Committee  establishes  the
compensation  philosophy  for the company and has all the authority of the Board
of  Directors  to  act  or  exercise   corporate  powers  with  respect  to  the
compensation of the executive  officers and the  administration of the company's
equity  compensation  plans.  The  Compensation  Committee  is  composed  of Mr.
Johnson, as Chairman, Ms. Felcyn and Mr. Falk.

      Executive  Committee.  The Executive Committee exercises certain powers of
the Board of Directors  between normally  scheduled Board meetings,  administers
the Company's stock option plan and oversees  executive  compensation along with
other  responsibilities.  The  Executive  Committee  is  composed  of  Mr.  Pohl
(chairman), Ms. Felcyn and Mr. Johnson.

      Each  member  of  the  Audit  Committee  and  Compensation   Committee  is
independent  as defined under the National  Association  of Securities  Dealers'
listing standards.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

      Section  16(a) of the  Exchange  Act  requires  our  directors,  executive
officers and persons who  beneficially  own 10% or more of a class of securities
registered  under  Section 12 of the Exchange Act to file reports of  beneficial
ownership and changes in beneficial ownership with the SEC. Directors, executive
officers  and  greater  than 10%  shareholders  are  required  by the  rules and
regulations  of the Commission to furnish us with copies of all reports filed by
them in compliance with Section 16(a).

      Based  solely on our  review of copies of the  reports  we  received  from
persons required to make such filings and our own records,  we believe that from
the period June 1, 2004  through May 31, 2005,  Mr.  Pohl,  as an officer of the
Company, Ms. Felcyn, a director of the Company, and Mr. Giffhorn, a director and
former  officer of the  Company,  each failed to file timely one Form 4 with the
SEC to report changes in beneficial ownership.

CODE OF ETHICS

      The Company has adopted a Code of Ethics  which  applies to its  principal
executive  and  financial  officers.  The Code of Ethics will be provided to any
person  requesting it,  without  charge,  by contacting the Company's  corporate
office.


                                       27
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

      There is shown below information  concerning the compensation of our chief
executive  officer  and the most highly  compensated  executive  officers  whose
salary and bonus exceeded $100,000 (each a "Named Officer") for the fiscal years
ended May 31, 2005, 2004, and 2003.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                              Long-Term Compensation
                                                                                       -------------------------------------
                                                   Annual Cash Compensation              Awards                Payouts
                                         -----------------------------------------------------------------------------------
                                                                                                                       All
                                                                     Other       Restricted    Securities             Other
           Name and             Fiscal                               Annual        Stock       Underlying    LTIP    Compen
      Principal Position         Year       Salary        Bonus   Compensation    Award(s)    Options/SARs  Payouts  -sation
      ------------------         ----       ------        -----   ------------    --------    ------------  -------  -------
<S>                              <C>     <C>               <C>    <C>             <C>           <C>         <C>      <C>
Jeff Wallin                      2005    $146,317 (1)      Nil                                  250,000
  President and CEO (2)          2004    $145,933 (1)      Nil                                  673,000
                                 2003    $127,650 (1)      Nil                                  250,000

Lowell W. Giffhorn               2005    $148,227 (1)      Nil                                  650,000
  Exec. V.P., CFO and            2004    $148,800 (1)      Nil                                  239,000
  Secy. (3)                      2003    $150,779 (1)      Nil                                  115,000

Patrick O. Nunally               2005    $122,734 (1)      Nil                                  200,000
  VP and CTO                     2004    $180,000 (1)      Nil                                  173,000
                                 2003    $189,521 (1)      Nil                                  400,000
</TABLE>

      (1)   Included  in  Messrs.   Wallin,   Giffhorn,   and  Nunally  is  cash
            compensation of $400 per month for car allowance.

      (2)   Mr.  Wallin  left the Company in June 2005.  He was  replaced by Mr.
            David H. Pohl who became the Company's President and CEO on June 13,
            2005.

      (3)   Mr.  Giffhorn  left the Company in June 2005. He was replaced by Mr.
            Thomas J. Sweeney who became the Company's CFO on August 3, 2005.

      The Company maintains  employee  benefits that are generally  available to
all of its employees,  including medical, dental and life insurance benefits and
a 401(k)  retirement  savings  plan.  The  Company  did not  make  any  matching
contributions  under the 401(k) plan for any of the above named officers  during
the fiscal years ended May 31, 2005, 2004 and 2003.

EMPLOYMENT CONTRACTS

      The Company  entered  into a consulting  agreement,  dated as of March 18,
2004, with SDMC, Inc. whereby SDMC will provide the services of Mr. Wallin to be
the President and Chief Executive Officer of the Company. The agreement is for a
term  through  March 18, 2005  providing  for payments of $145,200 per annum and
provides for automatic  one-year  renewals unless either party gives a notice at
least 30 days but not more  than 60 days  prior  to any  anniversary  date.  The
agreement provides for a bonus of up to 50% of the annual base consideration for
the applicable  year.  The agreement  also provides for potential  bonuses to be
paid based on the increase in the price of the Company's  Common  Stock.  Should
the price of the Common  Stock reach  $0.25 for twenty  consecutive  days,  SDMC
would  receive a cash payment of $10,000.  Additional  payments  will be made to
SDMC in the following amounts if the price of the Company's Common Stock reaches
the following thresholds: $0.40- $20,000, $0.50- $20,000, $0.60- $30,000, $0.80-
$30,000,  and $1.00- $50,000. The Company may terminate SDMC's agreement with or
without cause,  but  termination  without cause (other than disability or death)
would result in severance payments equal to the lesser of (i) four months of the
then  current  compensation  or  (ii)  the  balance  remaining  of  the  current
compensation for the term of his agreement.  If a change in control,  as defined
in the  agreement,  occurs during the term of his  agreement,  and if Mr. Wallin
refuses to accept or voluntarily  resigns from a position other than a qualified
position,  as that term is defined in the  agreement,  then SDMC will  receive a
lump  sum  severance  payment  equal  to  twelve  months  of  the  then  current
compensation.  Under the agreement, the Company granted SDMC options to purchase
500,000 Common Shares,  250,000 vesting on March 18, 2004 and 250,000 vesting on
September  18,  2004.  The Company also placed in escrow four months of payments
which shall be released to SDMC on the termination of Mr. Wallin's  services for
any reason other than cause or his resignation.  By mutual agreement SDMC agreed
to the release of the funds in escrow during the fourth  quarter of fiscal 2005.
Mr.  Wallin's  employment  with the  Company  ceased  on June  12,  2005 and the
Company's  agreement with SDMC  terminated on that date. In September  2005, the
Company agreed to pay Mr. Wallin  approximately  $148,700 in full  settlement of
all amounts owed to him under his employment contract.


                                       29
<PAGE>

      The Company entered into an employment  agreement dated as of September 1,
2004, with Mr. Giffhorn providing for his employment as Executive Vice President
and Chief Financial  Officer.  The agreement is for a term through  September 1,
2005,  providing for a base salary of $144,000 per annum. The base salary may be
increased at the  discretion of the Board of Directors.  The agreement  provides
for a bonus of up to 50% of the annual base salary for the applicable  year. The
agreement  also provides Mr.  Giffhorn with a monthly car allowance of $400. The
Company  may  terminate  Mr.Giffhorn's  employment  with or without  cause,  but
termination  without  cause  (other than  disability  or death)  would result in
severance  payments  equal to four months of the then current base salary.  If a
change in control,  as defined in the  agreement,  occurs during the term of his
agreement,  and if Mr. Giffhorn refuses to accept or voluntarily  resigns from a
position  other  than a  qualified  position,  as that  term is  defined  in the
agreement,  then he will receive a lump sum  severance  payment  equal to twelve
months of his then current salary. Under the agreement,  the Company granted Mr.
Giffhorn a fully vested stock option to purchase up to 300,000  Common Shares as
of September 1, 2004 and, in February 2005, granted Mr. Giffhorn a stock option,
which will vest 125,000 Common Shares on August 31, 2005 and August 31, 2006. On
February  17, 2005 the Board of  Directors  approved  the  immediate  vesting of
250,000 of Mr. Giffhorn's  options.  Mr. Giffhorn's  employment with the Company
ceased on June 13, 2005.

OPTION GRANTS

      Shown  below is  information  on grants of stock  options  pursuant to the
Company's  1992,  1996,  2001 and 2003 Stock Option Plans to the Named  Officers
reflected in the Summary Compensation Table shown above.

             OPTION GRANTS TABLE FOR FISCAL YEAR ENDED MAY 31, 2005

<TABLE>
<CAPTION>
                                                        Percent of Total Options
                                       Number of         Granted to Employees in      Exercise
              Name                  Options Granted            Fiscal Year             Prices        Expiration Dates
              ----                  ---------------            -----------             ------        ----------------
<S>                                       <C>                       <C>                <C>            <C>
Jeffrey E. Wallin                         250,000                   7%                 $    0.10      February 16, 2010

Lowell W. Giffhorn                        100,000                   3%                 $    0.07      December 15, 2009
                                          300,000                   9%                 $    0.04      September 1, 2009
                                          250,000                   7%                 $    0.10      February 16, 2010
------------------------------------------------------------------------------------------------------------------------

Patrick Nunally                           200,000                   6%                 $    0.10          July 25, 2005
</TABLE>

          AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

      There were no exercises of stock options for the fiscal year ended May 31,
2005 by any of the officers  reflected in the Summary  Compensation  Table shown
above.  Shown below is information on fiscal year-end values under the Company's
1992,  1996,  2001 and 2003 Stock Option Plans to the officers  reflected in the
Summary Compensation Table shown above.

<TABLE>
<CAPTION>
                                                             Value of Unexercised In-The-
                          Number of Unexercised Options             Money Options
                              Held at May 31, 2005                 At May 31, 2005
                              --------------------                 ---------------
      Name                Exercisable    Unexercisable      Exercisable      Unexercisable
      ----                -----------    -------------      -----------      -------------
<S>                        <C>                    <C>      <C>               <C>
Jeffrey E. Wallin          2,020,000                --     $     118,875     $          --
Lowell W. Giffhorn         1,120,000                --     $      82,550     $          --
Patrick Nunally              600,000                --     $      19,600     $          --
</TABLE>


                                       30
<PAGE>

      The fair market value of the unexercised  in-the-money  options at May 31,
2005 was determined by subtracting  the option exercise price from the last sale
price reported on the over the counter bulletin board on May 31, 2005.

      The  Company  has not  awarded  stock  appreciation  rights  to any of its
employees. The Company has no long-term incentive plans.

COMPENSATION OF DIRECTORS

      No direct or indirect remuneration was paid or is payable to the Company's
directors during the fiscal years ended May 31, 2005 and May 31, 2004 other than
the granting of stock options. In the first quarter of fiscal 2006 cash payments
that aggregated  $170,000 were made to certain of the Company's board members in
connection  with their  efforts in the  consummation  of the TPL and  Charles H.
Moore  Agreement.  Expenses of the Company's  directors in  connection  with the
attendance of board or committee  meetings and company  related  activities  are
reimbursed by the Company

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth, as of August 31, 2005, the stock ownership
of each officer and director of the  Company,  of all officers and  directors of
the  Company  as a  group,  and of each  person  known  by the  Company  to be a
beneficial  owner of 5% or more of its Common Stock.  Except as otherwise noted,
each person listed below is the sole beneficial owner of the shares and has sole
investment  and voting  power over such shares.  No person  listed below has any
option,  warrant or other right to acquire additional securities of the Company,
except as otherwise noted.

<TABLE>
<CAPTION>
                                                                 Amount & Nature
                                     Name and Address of          of Beneficial
         Title of Class               Beneficial Owner              Ownership          Percent of Class
         --------------               ----------------              ---------          ----------------
<S>                                 <C>                            <C>                   <C>
Common stock par value $0.00001     Gloria Felcyn, CPA             1,937,050(1)          *
                                    10989 Via Frontera
                                    San Diego, CA 92127

SAME                                Helmut Falk, Jr.               2,728,231(2)          *
                                    10989 Via Frontera
                                    San Diego, CA  92127

SAME                                David H. Pohl                  475,000(3)            *
                                    10989 Via Frontera
                                    San Diego, CA  92127

SAME                                Carlton M. Johnson, Jr.        275,000(4)            *
                                    10989 Via Frontera
                                    San Diego, CA  92127

SAME                                Lowell W. Giffhorn             1,269,848(5)          *
                                    10875 Kemah Lane
                                    San Diego, CA 92131

SAME                                All directors & officers       6,685,129(6)          2.23%
                                    As a group (6 persons)
                                    * Less than 1%
</TABLE>

1) As trustee of the Helmut  Falk Family  Trust and  executor of the Helmut Falk
estate,  Ms. Felcyn effectively  controls 1,500,000 shares,  comprised of shares
which  were  subject  to  an  escrow   arrangement  (as  described  in  "Certain
Transactions"  below)  originally  issued to nanoTronics in connection  with the
ShBoom technology acquisition and shares that remain from 5,000,000 non-escrowed
shares that were originally  issued to nanoTronics in connection with the ShBoom
technology  acquisition  and were  subsequently  transferred  to the Helmut Falk
Family Trust.  Includes 200,000 shares issuable upon the exercise of outstanding
stock options.


                                       31
<PAGE>

2) Includes  315,000  shares  issuable  upon the exercise of  outstanding  stock
options.

3) Includes  325,000  shares  issuable  upon the exercise of  outstanding  stock
options.

4) Represents shares issuable upon the exercise of outstanding stock options.

5) Includes  1,095,000  shares  issuable upon the exercise of outstanding  stock
options.

6)  Includes  4,475,129  shares  issued and  outstanding  and  2,210,000  shares
issuable upon exercise of stock options.

EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
Plan category                                                                               Number of securities
                                    Number of securities to       Weighted average        remaining available for
                                    be issued upon exercise       exercise price of        future issuance under
                                    of outstanding options,     outstanding options,        equity compensation
                                      warrants and rights        warrants and rights               plans
--------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                         <C>                       <C>
Equity compensation plans                   7,148,000                  $ 0.13                    5,852,000
approved by security holders

Equity compensation plans not             109,122,581                  $ 0.04
pproved by security holders                                                                             --
--------------------------------------------------------------------------------------------------------------------

Total                                     116,570,581                  $ 0.05                    5,852,000
====================================================================================================================
</TABLE>

      Common  shares  issuable on the exercise of stock  warrants  have not been
approved by the security holders and,  accordingly,  have been segregated in the
above table.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Other   than  those   transactions   described   herein,   there  were  no
transactions,  or series of  transactions,  during fiscal 2005 and 2004, nor are
there any currently proposed transactions,  or series of transactions,  to which
the Company is a party, in which the amount exceeds $60,000, and in which to its
knowledge  any director,  executive  officer,  nominee,  five percent or greater
shareholder,  or any  member of the  immediate  family  of any of the  foregoing
persons, has or will have any direct or indirect material interest other than as
described below.

      From June 10, 2002 through  August 23, 2002,  we issued to Gloria  Felcyn,
Trustee of the Helmut Falk Family  Trust,  two 8%  Convertible  Debentures  with
accumulative principal balances of $275,000 due June 10, 2004 through August 23,
2004.  The initial  exercise  prices  ranged from  $0.0727 to $0.08616  and were
subject to a downward revisions if the price of our stock was lower on any three
month anniversary of the debentures or on the date that a statement  registering
the resale of the common stock issuable upon conversion of the debentures became
effective.  Also,  in  conjunction  with the  debentures,  we  issued  five year
warrants  to  purchase  up to  4,102,431  shares of cur common  stock at initial
exercise prices ranging from $0.0727 to $0.08616  subject to reset provisions on
each six month anniversary of the issuance of the warrants.  If the price of our
common stock is in excess of $0.20 per share,  Ms.  Felcyn has a two year option
to purchase up to an  additional  $275,000 of 8%  Convertible  Debentures on the
same terms.  Ms. Felcyn converted the debentures into 6,810,102 shares of common
stock in July and November 2003 and exercised the warrants into 4,102,431 shares
of common stock in July 2003 and January 2004.

      During  October  2002  through  December  2002,  we entered  into three 8%
short-term  notes with Gloria  Felcyn,  the  trustee for the Falk Family  Trust,
aggregating  $180,000  with  initial  maturity  dates  ranging from January 1 to
January 31, 2003. In July 2003 we issued a new 8% short-term  note in the amount
of $200,354 with a maturity date of October 7, 2003 in exchange for cancellation
of the three 8% short term notes issued in October  through  December  2002, the
accrued  interest on the cancelled  notes and an additional  $10,000 in cash. In
January  2004,  as part of the exercise of the  warrants,  the $200,354 note was
exchanged for four $25,000 6% notes and shares of common stock which were issued
to the  beneficiaries  of the trust.  The 6% notes have a one year and mature in
January 2005, at which time they were repaid.


                                       32
<PAGE>

ITEM 13. EXHIBITS

      (a)   The following documents are filed as a part of this Report:

      1.    Financial   Statements.   The   following   consolidated   financial
            statements and Report of  Independent  Registered  Certified  Public
            Accounting Firm are included in Part II of this Report:

            Report of Mayer Hoffman McCann P.C.,  Independent  Certified  Public
            Accounting Firm

            Consolidated Balance Sheets-As of May 31, 2005 and 2004

            Consolidated  Statements of Operations-Years  Ended May 31, 2005 and
            2004

            Consolidated Statement of Stockholders' Equity (Deficit)-Years Ended
            May 31, 2005 and 2004

            Consolidated  Statements of Cash Flows-Years  Ended May 31, 2005 and
            2004

            Notes to Consolidated Financial Statements


                                       33
<PAGE>

      2.    Exhibits.   The  following   Exhibits  are  filed  as  part  of,  or
            incorporated by reference into, this Report:

Exhibit No.       Document

2.0               PLAN OF ACQUISITION, REORGANIZATION,  ARRANGEMENT, LIQUIDATION
                  OR SUCCESSION.

2.1               Agreement  to  Exchange   Technology   for  Stock  in  Patriot
                  Scientific  Corporation,  incorporated by reference to Exhibit
                  2.1 to Form 8-K dated August 10, 1989

2.2               Assets  Purchase  Agreement and Plan of  Reorganization  dated
                  June 22, 1994, among the Company,  nanoTronics Corporation and
                  Helmut Falk, incorporated by reference to Exhibit 10.4 to Form
                  8-K dated July 6, 1994

2.2.1             Amendment  to  Development  Agreement  dated  April  23,  1996
                  between  the  Company  and  Sierra  Systems,  incorporated  by
                  reference to Exhibit 2.2.1 to Pre-Effective Amendment No. 1 to
                  Registration Statement on Form SB-2 filed April 29, 1996

2.3               Form of  Exchange  Offer dated  December  4, 1996  between the
                  Company   and   certain   shareholders   of   Metacomp,   Inc.
                  incorporated  by  reference  to Exhibit  2.3 to Form 8-K filed
                  January 9, 1997

2.4               Letter of Transmittal  to Accompany  Shares of Common Stock of
                  Metacomp,  Inc.  Tendered Pursuant to the Exchange Offer Dated
                  December 4, 1996  incorporated  by reference to Exhibit 2.4 to
                  Form 8-K filed January 9, 1997

3.0               ARTICLES AND BYLAWS.

3.1               Original   Articles   of   incorporation   of  the   Company's
                  predecessor,  Patriot Financial  Corporation,  incorporated by
                  reference  to Exhibit 3.1 to  registration  statement  on Form
                  S-18, file no. 33-23143-FW

3.2               Articles of Amendment  of Patriot  Financial  Corporation,  as
                  filed with the  Colorado  Secretary of State on July 21, 1988,
                  incorporated  by  reference  to  Exhibit  3.2 to  registration
                  statement on Form S-18, File No. 33-23143-FW

3.3               Certificate of Incorporation of the Company, as filed with the
                  Delaware Secretary of State on March 24, 1992, incorporated by
                  reference to Exhibit 3.3 to Form 8-K dated May 12, 1992

3.3.1             Certificate of Amendment to the  Certificate of  Incorporation
                  of the Company,  as filed with the Delaware Secretary of State
                  on April 18, 1995,  incorporated by reference to Exhibit 3.3.1
                  to Form 10-KSB for the fiscal year ended May 31, 1995

3.3.2             Certificate of Amendment to the  Certificate of  Incorporation
                  of the Company,  as filed with the Delaware Secretary of State
                  on June 24,1997, incorporated by reference to Exhibit 3.3.2 to
                  Form 10-KSB for the fiscal year ended May 31, 1997, filed July
                  18, 1997

3.3.3             Certificate of Amendment to the  Certificate of  Incorporation
                  of the Company,  as filed with the Delaware Secretary of State
                  on April 28, 2000,  incorporated by reference to Exhibit 3.3.3
                  to Registration Statement on Form S-3 filed May 5, 2000

3.3.4             Certificate of Amendment to the  Certificate of  Incorporation
                  of the Company,  as filed with the Delaware Secretary of State
                  on May 6, 2002,  incorporated by reference to Exhibit 3.3.4 to
                  Registration Statement on Form S-3 filed June 27, 2002

3.3.5             Certificate of Amendment to the  Certificate of  Incorporation
                  of the Company,  as filed with the Delaware Secretary of State
                  on October 16,  2003,  incorporated  by  reference  to Exhibit
                  3.3.5 to  Registration  Statement  on Form SB-2  filed May 21,
                  2004


                                       34
<PAGE>

Exhibit No.       Document

3.4               Articles  and  Certificate  of  Merger  of  Patriot  Financial
                  Corporation into the Company dated May 1, 1992, with Agreement
                  and Plan of Merger attached thereto as Exhibit A, incorporated
                  by reference to Exhibit 3.4 to Form 8-K dated May 12, 1992

3.5               Certificate  of Merger  issued by the  Delaware  Secretary  of
                  State on May 8, 1992, incorporated by reference to Exhibit 3.5
                  to Form 8-K dated May 12, 1992

                  Certificate  of Merger  issued by the  Colorado  Secretary  of
                  State on May 12,  1992,  incorporated  by reference to Exhibit
                  3.6 to Form 8-K dated May 12, 1992

3.7               Bylaws of the  Company,  incorporated  by reference to Exhibit
                  3.7 to Form 8-K dated May 12, 1992

4.0               INSTRUMENTS ESTABLISHING RIGHTS OF SECURITY HOLDERS.

4.1               Specimen common stock  certificate,  incorporated by reference
                  to Exhibit 4.1 Form 8-K dated May 12, 1992

4.2               Form of Stock  Purchase  Warrant  (Labway  Corporation)  dated
                  February  29, 1996,  exercisable  to purchase  253,166  common
                  shares at $1.58 per share until  August 31,  1996,  granted to
                  investors in connection with an offering of securities made in
                  reliance  upon  Regulation  S,  incorporated  by  reference to
                  Exhibit 4.2 to Form 10-QSB for fiscal  quarter ended  February
                  29, 1996, filed March 15, 1996

4.3               Form  of  6%  Convertible  Subordinated  Promissory  Note  due
                  September  30, 1998  aggregating  $1,500,000  to six investors
                  incorporated  by  reference  to Exhibit 4.3 to Form 10-QSB for
                  fiscal quarter ended August 31, 1996, filed October 15, 1996

4.4               Form of 5% Convertible  Term Debenture (CC  Investments,  LDC)
                  due  June 2,  1999  aggregating  $2,000,000  to two  investors
                  incorporated  by  reference  to Exhibit  4.4 to Form 8-K dated
                  June 16, 1997

4.5               Form of Stock  Purchase  Warrant (CC  Investments,  LDC) dated
                  June 2, 1997  exercisable  to purchase an aggregate of 400,000
                  common  shares at  $1.69125  per  share  until  June 2,  2002,
                  granted to two  investors in  connection  with the offering of
                  securities in Exhibit 4.4 incorporated by reference to Exhibit
                  4.5 to Form 8-K filed June 17, 1997

4.6               Registration  Rights Agreement dated June 2, 1997 by and among
                  the Company and CC Investments, LDC and the Matthew Fund, N.V.
                  related to the  registration  of the common  stock  related to
                  Exhibits 4.4 and 4.5  incorporated by reference to Exhibit 4.6
                  to Form 8-K filed June 17, 1997

4.7               Form of  Warrant  to  Purchase  Common  Stock  (Swartz  Family
                  Partnership,  L.P.) dated June 2, 1997 exercisable to purchase
                  an  aggregate of 211,733  common  shares at $1.69125 per share
                  until  June 2,  2002,  granted  to a  group  of  investors  in
                  connection  with the  offering  of  securities  in Exhibit 4.4
                  incorporated  by  reference  to Exhibit  4.7 to Form 8-K filed
                  June 17, 1997

4.8               Registration  Rights Agreement dated June 2, 1997 by and among
                  the  Company  and  Swartz  Investments,  LLC  related  to  the
                  registration  of the  common  stock  related  to  Exhibit  4.7
                  incorporated  by  reference  to Exhibit  4.8 to Form 8-K filed
                  June 17, 1997

4.9               Form of 5% Convertible  Term Debenture (CC  Investments,  LDC)
                  due  June 2,  1999  aggregating  $1,000,000  to two  investors
                  incorporated  by  reference  to Exhibit 4.9 to Form 10-KSB for
                  the fiscal year ended May 31, 1998, filed August 19, 1998

4.10              Form of Stock  Purchase  Warrant (CC  Investments,  LDC) dated
                  November  24, 1997  exercisable  to purchase an  aggregate  of
                  200,000  common  shares at $1.50 per share until June 2, 2002,
                  granted to two  investors in  connection  with the offering of
                  securities  described in Exhibit 4.9 incorporated by reference
                  to  Exhibit  4.10 to Form  10-KSB  for the year  ended May 31,
                  1998, filed August 19, 1998


                                       35
<PAGE>

Exhibit No.       Document

4.11              Form of  Warrant  to  Purchase  Common  Stock  (Swartz  Family
                  Partnership,  L.P.) dated  November  24, 1997  exercisable  to
                  purchase an  aggregate of 105,867  common  shares at $1.50 per
                  share until June 2, 2002,  granted to a group of  investors in
                  connection  with  the  offering  of  securities  described  in
                  Exhibit 4.9  incorporated by reference to Exhibit 4.11 to Form
                  10-KSB for the year ended May 31, 1998, filed August 19, 1998

4.12              Form  of   Warrant  to   Purchase   Common   Stock   (Investor
                  Communications Group, Inc.) dated June 16, 1997 exercisable to
                  purchase  an  aggregate  of  130,000  common  shares at prices
                  ranging  from  $2.50 to $7.50 per share  until  June 15,  1999
                  incorporated  by  reference to Exhibit 4.12 to Form 10-KSB for
                  the year ended May 31, 1998, filed August 19, 1998

4.13              Warrant  to  Purchase   Common  Stock  issued  to  Spellcaster
                  Telecommunications,  Inc. dated April 28, 1998  exercisable to
                  purchase an  aggregate of 100,000  common  shares at $1.25 per
                  share  until  April 28,  2000  incorporated  by  reference  to
                  Exhibit  4.13 to Form 10-KSB for the year ended May 31,  1998,
                  filed August 19, 1998

4.14              Investment  agreement  dated  February 24, 1999 by and between
                  the  Company  and  Swartz  Private  Equity,  LLC for a maximum
                  aggregate  amount of $5,000,000  incorporated  by reference to
                  Exhibit  4.14 to Form  10-QSB/A for the fiscal  quarter  ended
                  November 30, 1998, filed March 5, 1999

4.15              Registration  Rights  Agreement dated February 24, 1999 by and
                  between the Company and Swartz Private Equity,  LLC related to
                  the  registration  of the common stock related to Exhibit 4.14
                  incorporated by reference to Exhibit 4.15 to Form 10-QSB/A for
                  the fiscal  quarter  ended  November 30, 1998,  filed March 5,
                  1999

4.16              Form of Warrant  to  Purchase  Common  Stock  (Swartz  Private
                  Equity,  LLC) dated February 24, 1999  exercisable to purchase
                  common shares in connection with the offering of securities in
                  Exhibit 4.14 incorporated by reference to Exhibit 4.16 to Form
                  10-QSB/A for the fiscal quarter ended November 30, 1998, filed
                  March 5, 1999

4.17              Amended and Restated Investment  Agreement dated July 12, 1999
                  by and between the Company and Swartz Private Equity,  LLC for
                  a maximum  aggregate  amount  of  $5,000,000  incorporated  by
                  reference to Exhibit 4.17 to Pre-Effective  Amendment No. 2 to
                  Registration Statement on Form SB-2 filed July 15, 1999

4.18              Investment  Agreement  dated  May 2, 2000 by and  between  the
                  Company and Swartz Private Equity, LLC for a maximum aggregate
                  amount of  $30,000,000  incorporated  by  reference to Exhibit
                  4.18 to Registration Statement on Form S-3 filed May 5, 2000

4.18.1            Waiver and  Agreement  dated  September  24, 2001 amending the
                  Investment  Agreement (1) dated May 2, 2000 by and between the
                  Company and Swartz Private Equity, LLC for a maximum aggregate
                  amount of  $30,000,000  incorporated  by  reference to Exhibit
                  4.18.1 to Registration Statement on Form S-1 filed October 11,
                  2001

4.19              2001 Stock Option Plan of the Company dated  February 21, 2001
                  incorporated  by  reference  to Exhibit  4.19 to  Registration
                  Statement on Form S-8 filed March 26, 2001

4.20              Investment  agreement  dated September 17, 2001 by and between
                  the  Company  and  Swartz  Private  Equity,  LLC for a maximum
                  aggregate  amount of $25,000,000  incorporated by reference to
                  Exhibit  4.20 to  Registration  Statement  on Form  S-1  filed
                  October 11, 2001

4.21              Registration  Rights Agreement dated September 17, 2001 by and
                  between the Company and Swartz Private Equity,  LLC related to
                  the  registration  of the common stock related to Exhibit 4.20
                  incorporated  by  reference  to Exhibit  4.21 to  Registration
                  Statement on Form S-1 filed October 11, 2001


                                       36
<PAGE>

Exhibit No.       Document

4.22              Warrant to  Purchase  Common  Stock dated  September  17, 2001
                  exercisable to purchase  common shares in connection  with the
                  Offering  of  securities  in  Exhibit  4.20   incorporated  by
                  reference  to Exhibit 4.22 to  Registration  Statement on Form
                  S-1 filed October 11, 2001

4.23              Financial  Consulting  Services  Agreement between the Company
                  and M. Blaine Riley,  Randall  Letcavage  and Rosemary  Nguyen
                  incorporated  by  reference  to Exhibit  4.23 to  Registration
                  Statement on Form S-8 filed January 22, 2002

4.24              Form of 8% Convertible  Debenture (Lincoln Ventures,  LLC) due
                  June  10,  2004   aggregating   $1,000,000  to  six  investors
                  incorporated  by  reference  to Exhibit  4.24 to  Registration
                  Statement on Form S-3 filed June 27, 2002

4.25              Form of Stock Purchase Warrant (Lincoln  Ventures,  LLC) dated
                  June  10,  2002   exercisable  to  purchase  an  aggregate  of
                  12,859,175  common shares at initial  exercise  prices ranging
                  from  $0.08616  to  $0.10289  per share  until June 10,  2007,
                  granted to six  investors in  connection  with the offering of
                  securities described in Exhibit 4.24 incorporated by reference
                  to Exhibit  4.25 to  Registration  Statement on Form S-3 filed
                  June 27, 2002

4.26              Form of Registration Rights Agreement (Lincoln Ventures,  LLC)
                  dated June 10, 2002 by and among the Company and six investors
                  related to the  registration  of the common  stock  related to
                  Exhibit  4.24  incorporated  by  reference  to Exhibit 4.26 to
                  Registration Statement on Form S-3 filed June 27, 2002

4.27              2003  Stock  Option  Plan of the  Company  dated  July 2, 2003
                  incorporated  by  reference  to Exhibit  4.27 to  Registration
                  Statement on Form S-8 filed September 4, 2003

4.28              Form of 8%  Convertible  Debenture,  Stock  Purchase  Warrant,
                  Registration   Rights   Agreement  and   Securities   Purchase
                  Agreement for  financings  entered into between  September 28,
                  2004 and January 17, 2005 incorporated by reference to Exhibit
                  4.28 to Registration  Statement on Form SB-2 filed February 2,
                  2005.

10.0              MATERIAL CONTRACTS.

10.1              1992 Incentive Stock Option Plan of the Company,  incorporated
                  by reference to Exhibit 10.1 to Form 8-K dated May 12, 1992

10.1.1            Amendment to 1992  Incentive  Stock Option Plan dated  January
                  11, 1995,  incorporated by reference to Exhibit 10.1.1 to Form
                  S-8 filed July 17, 1996

10.2              1992   Non-Statutory   Stock   Option  Plan  of  the  Company,
                  incorporated  by  reference  to Exhibit 10.2 to Form 8-K dated
                  May 12, 1992

10.2.1            Amendment  to  1992  Non-Statutory  Stock  Option  Plan  dated
                  January 11, 1995  incorporated  by reference to Exhibit 10.2.1
                  to Form  10-KSB for  fiscal  year  ended May 31,  1996,  filed
                  August 16, 1996

10.3              Lease  Agreement  between the Company's  subsidiary  Metacomp,
                  Inc.  and  Clar-O-Wood   Partnership,   a  California  limited
                  partnership  dated April 11, 1991 as amended November 11, 1992
                  and November 2, 1995 incorporated by reference to Exhibit 10.3
                  to Form 10-KSB for fiscal year ended May 31, 1997,  filed July
                  18, 1997

10.4              Stock  Purchase  Agreement  dated  November  29 and 30,  1995,
                  between the Company and SEA, Ltd.,  incorporated  by reference
                  to Exhibit 10.4 to Form 8-K filed December 11, 1995

10.4.1            Letter Amendment to Stock Purchase Agreement dated January 31,
                  1996,  between  the  Company and SEA,  Ltd.,  incorporated  by
                  reference to Exhibit  10.4.1 to Form 10-QSB for fiscal quarter
                  ended February 29, 1996, filed March 15, 1996

10.5              1995  Employee  Stock   Compensation   Plan  of  the  Company,
                  incorporated  by  reference to Exhibit 10.5 to Form 10-QSB for
                  fiscal  quarter ended  November 30, 1995,  filed  December 28,
                  1995


                                       37
<PAGE>

Exhibit No.       Document

10.6              Letter  Stock and  Warrant  Agreement  dated  January 10, 1996
                  between the Company and Robert E. Crawford,  Jr., incorporated
                  by reference to Exhibit 10.6 to Form 10-QSB for fiscal quarter
                  ended February 29, 1996, filed March 15, 1996

10.7              Non--Exclusive  Manufacturing  and  Line of  Credit  Agreement
                  dated  February  28,  1996,  between  the  Company  and Labway
                  Corporation, incorporated by reference to Exhibit 10.7 to Form
                  10-QSB for fiscal quarter ended February 29, 1996, filed March
                  15, 1996

10.8              Distribution and  Representation  Agreement dated February 28,
                  1996, between the Company and Innoware,  Inc., incorporated by
                  reference  to Exhibit  10.8 to Form 10-QSB for fiscal  quarter
                  ended February 29, 1996, filed March 15, 1996

10.9              Employment  Agreement  dated  November  20,  1995  between the
                  Company and Elwood G.  Norris,  incorporated  by  reference to
                  Exhibit  10.9 to  Registration  Statement  on Form SB-2  filed
                  March 18, 1996

10.9.1            First  Amendment to  Employment  Agreement  dated May 17, 1996
                  between  the  Company and Elwood G.  Norris,  incorporated  by
                  reference to Exhibit 10.9.1 to  Pre-Effective  Amendment No. 2
                  to Registration Statement on Form SB-2 filed May 23, 1996

10.10             Employment  Agreement  dated  November  20,  1995  between the
                  Company  and  Robert  Putnam,  incorporated  by  reference  to
                  Exhibit  10.10 to  Registration  Statement  on Form SB-2 filed
                  March 18, 1996

10.11             Sales  Contractual  Agreement dated March 19, 1996 between the
                  Company and Evolve Software,  Inc.,  incorporated by reference
                  to  Exhibit  10.11  to   Pre-Effective   Amendment  No.  1  to
                  Registration Statement on Form SB-2 filed April 29, 1996

10.11.1           Two Year Stock  Purchase  Warrant dated March 19, 1996 Granted
                  to Evolve Software,  Inc.  Providing for the Purchase of up to
                  50,000  Common Shares at $2.85,  incorporated  by reference to
                  Exhibit   10.11.1  to   Pre-Effective   Amendment   No.  1  to
                  Registration Statement on Form SB-2 filed April 29, 1996

10.12             Employment  Agreement  dated  as of May 8,  1996  between  the
                  Company and Michael A. Carenzo,  including  Schedule A - Stock
                  Option  Agreement,  incorporated by reference to Exhibit 10.12
                  to Pre-Effective  Amendment No. 2 to Registration Statement on
                  Form SB-2 filed May 23, 1996

10.12.1           First  Amendment to  Employment  Agreement  dated as of May 8,
                  1996  between  the  Company  and  Michael  A.  Carenzo   dated
                  September  23,  1996,  incorporated  by  reference  to Exhibit
                  10.12.1 to Form 10-KSB for the fiscal year ended May 31, 1997,
                  filed July 18, 1997

10.13             1996 Stock Option Plan of the Company dated March 25, 1996 and
                  approved by the Shareholders on May 17, 1996,  incorporated by
                  reference to Exhibit 10.13 to Pre-Effective Amendment No. 2 to
                  Registration Statement on Form SB-2 filed May 23, 1996

10.14             Sales  Contractual  Agreement  dated June 20, 1996 between the
                  Company and Compunetics Incorporated incorporated by reference
                  to Exhibit  10.14 to Form 10-KSB for fiscal year ended May 31,
                  1996, filed August 16, 1996

10.15             Sales  Contractual  Agreement  dated July 31, 1996 between the
                  Company and Premier  Technical  Sales,  Inc.  incorporated  by
                  reference  to Exhibit  10.15 to Form  10-KSB  for fiscal  year
                  ended May 31, 1996, filed August 16, 1996

10.16             Employment Agreement dated January 1, 1997 between the Company
                  and Norman J.  Dawson  incorporated  by  reference  to Exhibit
                  10.16 to Form 10-KSB for fiscal year ended May 31, 1997, filed
                  July 18, 1997


                                       38
<PAGE>

Exhibit No.       Document

10.17             Employment Agreement dated January 1, 1997 between the Company
                  and Jayanta K. Maitra  incorporated  by  reference  to Exhibit
                  10.17 to Form 10-KSB for fiscal year ended May 31, 1997, filed
                  July 18, 1997

10.18             Technology  License and Distribution  Agreement dated June 23,
                  1997   between  the  Company   and  Sun   Microsystems,   Inc.
                  incorporated  by reference to Exhibit 10.18 to Form 10-KSB for
                  the fiscal year ended May 31, 1997, filed July 18, 1997

10.19             Employment  Agreement dated March 23, 1999 between the Company
                  and James T. Lunney incorporated by reference to Exhibit 10.19
                  to Form 10-KSB for the fiscal year ended May 31,  1998,  filed
                  August 19, 1998

10.20             Employment  Agreement  dated July 28, 1997 between the Company
                  and Phillip  Morettini  incorporated  by  reference to Exhibit
                  10.20 to Form 10-KSB for the fiscal  year ended May 31,  1998,
                  filed August 19, 1998

10.21             Employment  Agreement  dated July 23, 1998 between the Company
                  and Lowell W.  Giffhorn  incorporated  by reference to Exhibit
                  10.21 to Form 10-KSB for the fiscal  year ended May 31,  1998,
                  filed August 19, 1998

10.22             Secured  Promissory  Note  dated  June 12,  2000  between  the
                  Company  and James T.  Lunney  incorporated  by  reference  to
                  Exhibit 10.22 to Form 10-KSB for the fiscal year ended May 31,
                  2000, filed August 29, 200

10.23             Purchase Agreement dated June 29, 2000 between the Company and
                  4S 37/38,  LLC  incorporated  by reference to Exhibit 10.23 to
                  Form 10-KSB for the fiscal year ended May 31, 2000

10.24             Employment Agreement dated October 2, 2000 between the Company
                  and Miklos B.  Korodi  incorporated  by  reference  to Exhibit
                  10.24 to Form 10-QSB for the fiscal quarter ended November 30,
                  2000, filed January 12, 2001

10.25             Employment  Agreement  dated  December  1,  2000  between  the
                  Company  and  Richard G. Blum  incorporated  by  reference  to
                  Exhibit  10.25 to Form  10-QSB  for the fiscal  quarter  ended
                  November 30, 2000, filed January 12, 2001

10.26             Employment  Agreement  dated  January  29,  2001  between  the
                  Company  and Serge J.  Miller  incorporated  by  reference  to
                  Exhibit 10.26 to Form 10-KSB for the fiscal year ended May 31,
                  2001, filed August 29, 2001

10.27             Lease  Agreement  dated  February 23, 2001 between the Company
                  and Arden Realty Finance IV, LLC  incorporated by reference to
                  Exhibit 10.27 to Form 10-KSB for the fiscal year ended May 31,
                  2001, filed August 29, 2001

10.28             Employment Agreement dated January 1, 2001 between the Company
                  and David H. Pohl  incorporated  by reference to Exhibit 10.28
                  to Form 10-KSB for the fiscal year ended May 31,  2001,  filed
                  August 29, 2001

10.29             Employment  Agreement dated April 26, 2001 between the Company
                  and David H. Pohl  incorporated  by reference to Exhibit 10.29
                  to Form 10-KSB for the fiscal year ended May 31,  2001,  filed
                  August 29, 2001

10.30             Employment  Agreement  dated  November  17,  2001  between the
                  Company and Lowell W.  Giffhorn  incorporated  by reference to
                  Exhibit 10.30 to Registration Statement on Form S-3 filed June
                  27, 2002


                                       39
<PAGE>

Exhibit No.       Document

10.31             Employment  Agreement  dated  December  20,  2001  between the
                  Company  and  Jayanta  Maitra  incorporated  by  reference  to
                  Exhibit 10.31 to Registration Statement on Form S-3 filed June
                  27, 2002

10.32             Consulting  Agreement  dated March 7, 2002 between the Company
                  and SDMC,  Inc.  incorporated by reference to Exhibit 10.32 to
                  Registration Statement on Form S-3 filed June 27, 2002

10.33             Employment Agreement dated January 2, 2004 between the Company
                  and Jayanta Maitra  incorporated by reference to Exhibit 10.33
                  to Registration statement on Form SB-2 filed May 21, 2004

10.34             Consulting  Agreement dated March 18, 2004 between the Company
                  and SDMC,  Inc.  incorporated by reference to Exhibit 10.34 to
                  Registration Statement en Form SB-2 filed May 21, 2004

10.35             Employment  Agreement  dated June 1, 2004  between the Company
                  and Patrick Nunally incorporated by reference to Exhibit 10.35
                  to Form 10-KSB for the fiscal year ended May 31,  2004,  filed
                  August 19, 2004.

10.36             Amendment  No. 1 to Employment  Agreement  dated July 12, 2004
                  between  the  Company  and  Patrick  Nunally  incorporated  by
                  reference to Exhibit  10.36 to Form 10-KSB for the fiscal year
                  ended May 31, 2004, filed August 19, 2004.

10.37             Employment  Agreement  dated  September  1, 2004  between  the
                  Company and Lowell W.  Giffhorn  incorporated  by reference to
                  Exhibit  10.37 to  Registration  Statement  on Form SB-2 filed
                  February 2, 2005.

10.38             IGNITE License  Agreement  with Advanced Micro Devices,  Inc.,
                  dated February 21, 2005,  incorporated by reference to Exhibit
                  10.38 to Form 8-K filed February 28, 2005.

10.39             Patent  Portfolio   License   Agreement  with  Advanced  Micro
                  Devices,  Inc.,  dated  February  21,  2005,  incorporated  by
                  reference  to  Exhibit  10.39 to Form 8-K filed  February  28,
                  2005.

10.40             Master  Agreement,  dated as of June 7, 2005, by and among the
                  Company,  Technology  Properties  Limited  Inc.,  a California
                  corporation and Charles H. Moore, an individual,  incorporated
                  by reference to Exhibit 10.40 to Form 8-K filed June 15, 2005.

10.41             Commercialization  Agreement  dated as of June 7,  2005 by and
                  among  the JV  LLC,  Technology  Properties  Limited  Inc.,  a
                  California  corporation,  and  the  Company,  incorporated  by
                  reference to Exhibit 10.41 to Form 8-K filed June 15, 2005.

10.42             Limited  Liability  Company  Operating  Agreement of JV LLC, a
                  Delaware limited liability company,  dated as of June 7, 2005,
                  incorporated  by reference to Exhibit  10.42 to Form 8-K filed
                  June 15, 2005.

10.43             Agreement  for  Part-Time  Employment  dated  August  3,  2005
                  between  the Company and Thomas J.  Sweeney,  incorporated  by
                  reference to Exhibit 99.3 to Form 8-K filed August 9, 2005.

14.0              CODE OF ETHICS.

14.1              Code of Ethics for Senior Financial  Officers  incorporated by
                  reference  to Exhibit  14.1 to Form 10-K for the  fiscal  year
                  ended May 31, 2003, filed August 29, 2003

21.0              SUBSIDIARIES OF THE SMALL BUSINESS ISSUER.

21.1              Subsidiaries of the small business issuer

23.0              CONSENTS OF EXPERTS AND COUNSEL.

23.1              Consent of Mayer Hoffman McCann P.C.,  independent  registered
                  certified public accounting firm

31.0              CERTIFICATIONS  PURSUANT TO SECTION 302 OF THE  SARBANES-OXLEY
                  ACT OF 2002.

31.1              Certification of David H. Pohl, CEO

31.2              Certification of Thomas J. Sweeney, CFO


                                       40
<PAGE>

Exhibit No.       Document

32.0              CERTIFICATIONS  PURSUANT TO SECTION 906 OF THE  SARBANES-OXLEY
                  ACT OF 2002.

32.1              Certification of David H. Pohl, CEO

32.2              Certification of Thomas J. Sweeney, CFO

99.0              ADDITIONAL EXHIBITS.

99.1              Form  of  ISO  Plan  Option   (Gaspar)  dated  May  29,  1992,
                  incorporated  by  reference  to Exhibit  28.2 to  registration
                  statement on Form SB-2, file no. 33-57858

99.2              Form  of  NSO  Plan  Option   (Berlin)  dated  May  29,  1992,
                  incorporated  by  reference  to Exhibit  28.3 to  registration
                  statement on Form SB-2, file no. 33-57858

99.3              Form of Incentive Stock Option Agreement to the Company's 1996
                  stock Option Plan (individual  agreements  differ as to number
                  of  shares,  dates,  prices  and  vesting),   incorporated  by
                  reference to  Pre-Effective  Amendment  No. 2 to  Registration
                  Statement on Form SB-2 filed May 23, 1996

99.4              Form of Non-Qualified  Stock Option Agreement to the Company's
                  1996 Stock  Option  Plan  (individual  agreement  differ as to
                  number of shares,  date, prices and vesting),  incorporated by
                  reference to  Pre-Effective  Amendment  No. 2 to  Registration
                  Statement on Form SB-2 filed May 23, 1996

99.5              Press   Release  of  the  Company   dated   November  4,  1996
                  incorporated  by  reference  to Exhibit 99.5 to Form 8-K filed
                  January 9, 1997

99.6              Form of Incentive Stock Option Agreement to the Company's 2001
                  Stock Option Plan incorporated by reference to Exhibit 99.6 to
                  Registration Statement on Form S-8 filed March 26, 2001

99.7              Form of Non-Qualified  Stock Option Agreement to the Company's
                  2001 Stock  Option Plan  incorporated  by reference to Exhibit
                  99.7 to  Registration  Statement  on Form S-8 filed  March 26,
                  2001

99.8              Form of Incentive Stock Option Agreement to the Company's 2003
                  Stock Option Plan incorporated by reference to Exhibit 99.8 to
                  Registration Statement on Form S-8 filed September 4, 2003

99.9              Form of Non-Qualified  Stock Option Agreement to the Company's
                  2003 Stock  Option Plan  incorporated  by reference to Exhibit
                  99.9 to Registration  Statement on Form S-8 filed September 4,
                  2003

      (1)   Previously filed in indicated registration statement or report.

      (2)   Exhibit  filed  herewith  this Annual  Report on Form 10-KSB for the
            fiscal year ended May 31, 2005

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      Mayer Hoffman McCann P.C. (previously Nation Smith Hermes Diamond) was our
principal  accountant  during the years ended May 31, 2005 and May 31, 2004. BDO
Seidman,  LLP was our principal accountant for previous fiscal years and for the
review of quarterly  reports and registration  statements  through May 20, 2002.
Presented  below are the fees billed  during the fiscal years ended May 31, 2005
and 2004.

                                              2005              2004
                                              ----              ----

      Audit fees                              $ 148,350         $  92,057
      Audit-related fees                              0                 0
      Tax fees                                    6,500            13,000
      All other fees                                150               (57)
                                              ---------         ---------

      Total                                   $ 155,000         $ 105,000
                                              =========         =========


                                       41
<PAGE>

      Audit Fees.  Audit Fees include all services  that are performed to comply
      with generally  accepted auditing  standards.  In addition,  this category
      includes  fees  for  services  that  normally  would  be  provided  by the
      accountant  in  connection  with  statutory  and  regulatory   filings  or
      engagements, such as audits, quarterly reviews, attest services, statutory
      audits,  comfort  letters,  consents,  reports  on  an  issuer's  internal
      controls,  and  review  of  documents  to be filed  with the SEC.  Certain
      services,  such as tax services and accounting  consultations,  may not be
      billed as audit  services.  To the extent that such services are necessary
      to comply with GAAS (i.e., tax accrual work), an appropriate allocation of
      those fees is in this category.

      Audit-related  Fees.  Audit-Related  Fees  includes  assurance and related
      services that are  traditionally  performed by an  independent  accountant
      such as employee benefit plan audits, due diligence related to mergers and
      acquisitions, accounting assistance and audits in connection with proposed
      or consummated  acquisitions,  and special assignments related to internal
      control reviews.

      Tax Fees. Tax Fees includes all services performed by an accounting firm's
      tax division except those related to the audit.  Typical  services include
      tax compliance, tax planning and tax advice.

      All Other Fees. All Other Fees includes fees for any service not addressed
      in the other three categories above.

      To help ensure the  independence  of our  independent  auditor,  the Audit
Committee  of the Board of  Directors  of the Company has approved and adopted a
Policy on Engagement of Independent Auditor, which is available on the Company's
Web site at http:/www.ptsc.com.

      Pursuant to the Policy on Engagement  of  Independent  Auditor,  the Audit
Committee  is  directly  responsible  for  the  appointment,   compensation  and
oversight of the independent auditor. The Audit Committee  preapproves all audit
services and non-audit services to be provided by our independent  auditor.  The
Audit  Committee  may  delegate to one or mere of its members the  authority  to
grant the required  approvals,  provided that any exercise of such  authority is
presented at the next Audit Committee meeting.

      Each  audit,  non-audit  or tax  service  that is  approved  by the  Audit
Committee will be reflected in a written engagement letter or writing specifying
the services to be performed and the cost of such services, which will be signed
by  either a member of the  Audit  Committee  or by an  officer  of the  Company
authorized by the Audit Committee to sign on behalf of the Company.

      The Audit Committee will not approve any prohibited  non-audit  service or
any non-audit  service that  individually or in the aggregate may impair, in the
Audit Committee's opinion, the independence of our independent auditor.

      In addition, beginning on January 1, 2003, our independent auditor may not
provide any  services to the  Company's  officers  or Audit  Committee  members,
including financial counseling and tax services.


                                       42
<PAGE>

Patriot Scientific Corporation

         Index to Consolidated Financial Statements

         Report of Independent Registered
           Certified Public Accounting Firm..................................F-1

         Audit Opinion 2005 .................................................F-2

         Audit Opinion 2004..................................................F-3

         Consolidated Balance Sheets as of May 31, 2005 and 2004.............F-4

         Consolidated Statements of Operations for the Years Ended
           May 31, 2005 and 2004.............................................F-5

         Consolidated Statement of Stockholders' Equity for the
           Years Ended May 31, 2005 and 2004.................................F-6

         Consolidated Statements of Cash Flows for the Years Ended
           May 31, 2005 and 2004.............................................F-7

         Summary of Accounting Policies..............................F-8 to F-11

         Notes to Consolidated Financial Statements.................F-12 to F-22


                                      F-1
<PAGE>

Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors and Stockholders of
Patriot Scientific Corporation
San Diego, California

We  have  audited  the  accompanying   consolidated  balance  sheet  of  Patriot
Scientific  Corporation  as of  May  31,  2005,  and  the  related  consolidated
statements of operations,  stockholders' equity and cash flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the consolidated financial position of Patriot
Scientific  Corporation  at May 31, 2005,  and the  consolidated  results of its
operations  and its cash  flows  for the year then  ended,  in  conformity  with
accounting principles generally accepted in the United States of America.


/s/ Mayer Hoffman McCann P.C.

San Diego, California

August 18, 2005, except for notes 10 and 12, for which the date is September 12,
2005.


                                      F-2
<PAGE>

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
Patriot Scientific Corporation
San Diego, California

We  have  audited  the  accompanying   consolidated  balance  sheet  of  Patriot
Scientific  Corporation  as of  May  31,  2004,  and  the  related  consolidated
statements of operations,  stockholders' equity and cash flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements referred to above, present fairly, in
all material respects, the consolidated financial position of Patriot Scientific
Corporation at May 31, 2004, and the consolidated  results of its operations and
its cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue as a going  concern.  As discussed in Note 1 to the 2004
financial statements, the Company has suffered recurring losses from operations,
has negative cash flows and has negative working capital that raise  substantial
doubt about its ability to continue as a going  concern.  Management's  plans in
regard to these matters are also  described in Note 1. The financial  statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.


/s/ Nation Smith Hermes Diamond

San Diego, California

July 8, 2004


                                      F-3
<PAGE>

                         PATRIOT SCIENTIFIC CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
May 31,                                                              2005              2004
-----------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>
ASSETS (Notes 1, 4, 5 and 7)

Current Assets:
   Cash and cash equivalents                                     $    591,426      $    355,940
   Marketable securities and short term investments                   697,524            22,646
   Restricted short term investment (Note 4)                          201,648                --
   Licenses receivable (Note 3)                                     2,000,000                --
   Prepaid expenses and other current assets                          121,758           323,293
-----------------------------------------------------------------------------------------------

Total current assets                                                3,612,356           701,879

Property and equipment, net (Note 2)                                   21,376            68,389

Other assets                                                           23,891            41,221

Patents and trademarks, net of accumulated amortization of
   $549,563 and $501,235                                               66,411           114,739
-----------------------------------------------------------------------------------------------
                                                                 $  3,724,034      $    926,228
===============================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Line of credit (Note 4)                                       $    100,000      $         --
   Current portion of 8% convertible debentures, net of debt
     discount of $301,320 and $27,180 (Note 7)                        421,847           145,320
   Secured notes payable to affiliates (Note 5)                            --           100,000
   Accounts payable                                                   268,458           134,600
   Accrued liabilities and other (Note 6)                             505,153           160,102
   Current portion of capital lease obligation (Note 10)                2,306             8,020
   Accrued contested fee payable (Note 3)                             346,000                --
-----------------------------------------------------------------------------------------------

Total current liabilities                                           1,643,764           548,042

8% Convertible Debentures, net of discount of $111,559 and
   $2,047,966 (Note 7)                                                 45,942           227,701

Long term portion of capital lease obligation (Note 10)                    --             2,306
-----------------------------------------------------------------------------------------------

    Total liabilities                                               1,689,706           778,049
-----------------------------------------------------------------------------------------------

Commitments and contingencies (Note 1, 3, 7 and 10)

Stockholders' equity (Notes 7 and 8)
   Preferred stock, $.00001 par value; 5,000,000 shares
     authorized: none outstanding                                          --                --
   Common stock, $.00001 par value: 500,000,000 shares
     authorized: 280,492,013 and 171,156,363 issued and
     outstanding                                                        2,805             1,712
   Additional paid-in capital                                      54,569,091        49,990,485
   Accumulated deficit                                            (52,537,568)      (49,844,018)
-----------------------------------------------------------------------------------------------
   Total stockholders' equity                                       2,034,328           148,179
-----------------------------------------------------------------------------------------------

                                                                 $  3,724,034      $    926,228
===============================================================================================
</TABLE>

            See accompanying summary of accounting policies and notes
                     to consolidated financial statements.


                                      F-4
<PAGE>

                         PATRIOT SCIENTIFIC CORPORATION
                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended May 31,                                           2005              2004
-----------------------------------------------------------------------------------------
<S>                                                      <C>                <C>
Net sales (Note 11)
   Product                                               $      25,077      $      74,017
   Licenses and royalties                                    2,957,509              2,400
-----------------------------------------------------------------------------------------
Net sales                                                    2,982,586             76,417

Cost of sales                                                       --             10,472
-----------------------------------------------------------------------------------------

Gross profit                                                 2,982,586             65,945
-----------------------------------------------------------------------------------------

Operating expenses:
   Research and development                                    294,735            549,756
   Selling, general and administrative                       2,600,430          1,253,559
-----------------------------------------------------------------------------------------
Operating expenses                                           2,895,165          1,803,315
-----------------------------------------------------------------------------------------
Operating income (loss)                                         87,421         (1,737,370)
-----------------------------------------------------------------------------------------
Other income (expense):
   Sale of technology                                               --             75,500
   Loss on marketable securities                               (21,180)           (45,354)
   Other income (Note 10)                                       60,379                270
   Interest expense (Notes 4 and 7)                         (2,820,170)        (2,443,024)
-----------------------------------------------------------------------------------------
Other expense                                               (2,780,971)        (2,412,608)
-----------------------------------------------------------------------------------------
Net loss                                                 $  (2,693,550)     $  (4,149,978)
=========================================================================================

Basic and diluted loss per common share                  $       (0.01)     $       (0.03)
=========================================================================================

Weighted average number of common shares outstanding       222,495,047        139,767,276
=========================================================================================
</TABLE>

            See accompanying summary of accounting policies and notes
                     to consolidated financial statements.


                                      F-5
<PAGE>

                         PATRIOT SCIENTIFIC CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended May 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                           Common Stock              Additional
                                                   ----------------------------        Paid-in        Accumulated      Stockholders'
                                                     Shares           Amounts          Capital         Deficit            Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>              <C>              <C>               <C>
Balance, May 31, 2003                              106,547,807     $      1,066     $ 44,281,210     $(45,694,040)     $ (1,411,764)

Issuance of common stock at $.025 and $.034
  per share                                          1,800,752               18           50,422               --            50,440
Exercise of warrants and options at $.02 to
  $.04 per share                                    11,184,175              112          285,832               --           285,944
Issuance of common stock for services at $.04
  and $.12 per share                                 1,126,496               11           59,841               --            59,852
Conversion of debentures payable plus accrued
  interest at $.02 and $.06 per share               50,497,133              505        1,757,123               --         1,757,628
Value of warrants issued                                    --               --        3,556,057               --         3,556,057
Net loss                                                    --               --               --       (4,149,978)       (4,149,978)
-----------------------------------------------------------------------------------------------------------------------------------

Balance, May 31, 2004                              171,156,363            1,712       49,990,485      (49,844,018)          148,179

Issuance of common stock at $.03 and $.10 per
  share                                              4,625,000               46          453,204               --           453,250
Exercise of warrants and options at $.02 to
  $.06 per share                                    39,028,511              390          820,898               --           821,288
Issuance of common stock for services at $.05
  and $.09 per share                                   796,000                8           58,792               --            58,800
Conversion of debentures payable plus accrued
  interest at $.02 and $.05 per share               64,886,139              649        2,169,287               --         2,169,936
Non-cash compensation                                       --               --           59,675               --            59,675
Non-cash interest and debt discount related
  to warrants and debentures                                --               --        1,016,750               --         1,016,750
Net loss                                                    --               --               --       (2,693,550)       (2,693,550)
-----------------------------------------------------------------------------------------------------------------------------------

Balance, May 31, 2005                              280,492,013     $      2,805     $ 54,569,091     $(52,537,568)     $  2,034,328
===================================================================================================================================
</TABLE>

            See accompanying summary of accounting policies and notes
                     to consolidated financial statements.


                                      F-6
<PAGE>

                         PATRIOT SCIENTIFIC CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended May 31,                                                                    2005             2004
---------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>              <C>
Operating activities:
   Net loss                                                                        $(2,693,550)     $(4,149,978)
   Adjustments to reconcile net loss to net cash used in operating activities:
       Amortization and depreciation                                                    94,353          135,450
       Non-cash interest expense related to convertible debentures, notes
         payable and warrants                                                        2,679,018        2,293,922
       Gain on sale of technology                                                           --          (75,500)
       Gain on disposal of fixed assets                                                 (4,012)              --
       Unrealized loss on marketable securities                                         21,180           45,354
   Common stock, options and warrants issued for services                              118,475           59,852
   Changes in:
       Prepaid and other current assets                                                218,865         (235,678)
       Licenses receivable                                                          (2,000,000)              --
       Accounts payable and accrued expenses                                           435,645         (149,394)
       Contingency fee payable                                                         501,700               --
---------------------------------------------------------------------------------------------------------------
Net cash used in operating activities                                                 (628,326)      (2,075,972)
---------------------------------------------------------------------------------------------------------------

Investing activities:
   Purchase of short term investments                                                 (897,706)              --
   Proceeds from sale of fixed assets                                                    5,000               --
   Proceeds from sale of technology                                                         --            7,500
   Purchase of property, equipment and patents, net                                         --          (36,123)
---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                 (892,706)         (28,623)
---------------------------------------------------------------------------------------------------------------

Financing activities:
   Payment of shareholder note                                                        (100,000)              --
   Proceeds from line of credit                                                        100,000               --
   Proceeds from issuance of secured notes payable                                          --           12,320
   Payments for capital lease obligations                                               (8,020)          (6,405)
   Proceeds from issuance of convertible debentures                                    490,000        2,175,000
   Proceeds from issuance of common stock                                              453,250           50,440
   Proceeds from exercise of common stock warrants and options                         821,288          175,237
   Proceeds from sale of accounts receivable                                                --           21,280
---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                            1,756,518        2,427,872
---------------------------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents                                              235,486          323,277
Cash and cash equivalents, beginning of year                                           355,940           32,663
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                             $   591,426      $   355,940
===============================================================================================================

Supplemental Disclosure of Cash Flow Information:

   Cash payments for interest                                                      $    15,406      $    17,220
   Convertible debentures, notes payable and accrued interest exchanged for
      common stock                                                                 $ 2,169,936      $ 1,757,628
   Debt discount arising from issuance of detachable warrants                      $   490,000      $ 2,873,167
===============================================================================================================
</TABLE>

            See accompanying summary of accounting policies and notes
                     to consolidated financial statements.


                                      F-7
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS

Patriot  Scientific   Corporation  (the  "Company"),   a  Delaware   corporation
incorporated  in 1987,  is engaged in the  development,  marketing,  and sale of
patented microprocessor  technology and the sale of high-performance  high-speed
data communication products.

BASIS OF CONSOLIDATION

The consolidated  financial  statements  include the accounts of the Company and
its  majority  owned  subsidiaries,   Metacomp,  Inc.  ("Metacomp")  and  Plasma
Scientific Corporation. All material intercompany transactions and balances have
been eliminated in consolidation.

RECLASSIFICATIONS

Certain  reclassifications  have been made to the 2004  financial  statements in
order for them to conform to the 2005 presentation.  Such reclassifications have
no impact on the Company's financial position or results of operations.

FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash, short-term investments and accounts and
licenses receivable.

At times,  the Company's  balance of cash and  investments  in  certificates  of
deposits maintained with its bank may exceed the FDIC insured limit of $100,000.
The Company limits its exposure of loss by maintaining its cash with financially
stable financial  institutions.  When the Company has excess cash, the Company's
cash  equivalents  are placed in high quality  money market  accounts with major
financial  institutions and high grade short-term  commercial paper. The Company
believes this investment  policy limits its exposure to concentrations of credit
risk. Money market accounts are federally insured; however,  commercial paper is
not insured. The Company has not experienced any losses in such accounts.

Concentrations  of credit risk with respect to receivables are primarily limited
due to the high  credit  worthiness  of the  Company's  customers.  The  Company
routinely   assesses  the  financial   strength  of  its  customers  and,  as  a
consequence,  believes  that its  accounts  receivable  credit risk  exposure is
limited. Generally, the Company does not require collateral or other security to
support customer receivables.

The carrying value of financial  instruments,  including cash, cash equivalents,
short-term  investments,  accounts  receivable,  accounts  payable  and  accrued
liabilities,  approximate  fair value  because of the  immediate  or  short-term
maturity of these  instruments.  The  carrying  value of the  Company's  line of
credit  obligation  approximates  its estimated fair value due to the instrument
bearing a variable  rate of interest  which  reflects  the  current  market rate
available to the Company. The fair value of the Company's convertible debentures
at May 31,  2005 and 2004  was  approximately  $880,000  and  $2,450,000,  which
exceeded the  debentures  carrying  amount due to the  discounts  applied to the
instruments for accounting purposes.

CASH EQUIVALENTS, MARKETABLE SECURITIES, AND SHORT TERM INVESTMENTS

For purposes of balance sheet  classification  and the statements of cash flows,
the Company considers all highly liquid investments  acquired with a maturity of
three months or less to be a cash equivalent.

At May 31, 2005 and 2004,  the  Company had  investments  in  marketable  equity
securities  having  a  carrying  value  of  $1,466  and  $22,646,  respectively.
Marketable  equity  securities are carried at their fair value,  with unrealized
gains or losses reflected in the statement of operations. During the years ended
May 31, 2005 and 2004, the Company  recognized  unrealized losses related to the
write down in the carrying value of the securities of approximately  $21,000 and
$45,000.


                                      F-8
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

At May 31, 2005, the Company also has approximately  $696,000 in certificates of
deposit maintained with various financial institutions.  The certificates mature
at various  dates in fiscal 2006,  bear  interest at rates  ranging from 3.1% to
3.6%, and are reported at their original cost plus accrued interest.

PROPERTY, EQUIPMENT AND DEPRECIATION

Property and  equipment are stated at cost.  Depreciation  is computed over each
asset's  estimated  useful  life,  ranging  from three to five years,  using the
straight-line  method.  The Company  follows  the  provisions  of the  Financial
Accounting  Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 144, Accounting for the Impairment of Long-lived Assets. Long-lived
assets and certain  identifiable  intangibles to be held and used by the Company
are reviewed for impairment whenever events or changes in circumstances indicate
that  the  carrying  amount  of an asset  may not be  recoverable.  The  Company
evaluates the  recoverability of its long-lived assets based on estimated future
cash flows and the estimated fair value of such  long-lived  assets and provides
for impairment if such  undiscounted  cash flows are insufficient to recover the
carrying amount of the long-lived asset.

PATENTS AND TRADEMARKS

Patents and trademarks are carried at cost less accumulated amortization and are
amortized  over their  estimated  useful lives of four years.  Estimated  future
annual amortization  expense arising from the patents is approximately  $35,000,
$23,000  and $9,000 in fiscal  years 2006,  2007,  and 2008,  respectively.  The
carrying  value  of  patents  and  trademarks  is   periodically   reviewed  and
impairments,  if any,  are  recognized  when the expected  future  benefit to be
derived  from  individual  intangible  assets  is less than its  carrying  value
determined based on the provisions of SFAS No. 144 as discussed above.

REVENUE RECOGNITION

The Company recognizes revenue from the sale of its product upon shipment to the
customer,  at  which  time  title  transfers  and  the  Company  has no  further
obligations.  Amounts received under  technology  licensing fee arrangements are
recognized at the time the arrangement is executed,  at which time the rights to
the Company's  technology have been  transferred and no significant  performance
obligations   remain.  Fees  for  maintenance  or  support  are  recorded  on  a
straight-line basis over the underlying period of performance.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred.

ADVERTISING

The Company  expenses  advertising  costs as incurred.  Advertising  expense was
approximately $14,000 and $3,000 for the years ended May 31, 2005 and 2004.

INCOME TAXES

The Company accounts for income taxes under SFAS No. 109,  Accounting for Income
Taxes.  Deferred income taxes are recognized for the tax  consequences in future
years of differences  between the tax basis of assets and  liabilities and their
financial  reporting  amounts  at each  year end based on  enacted  tax laws and
statutory  tax rates  applicable  to the  periods in which the  differences  are
expected to affect taxable income.  Valuation  allowances are  established  when
necessary to reduce deferred tax assets to the amount expected to be realized.
 Income tax expense is the  combination  of the tax payable for the year and the
change during the year in deferred tax assets and liabilities.


                                      F-9
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

NET LOSS PER SHARE

The Company  applies SFAS No. 128,  Earnings Per Share,  for the  calculation of
"Basic" and "Diluted" earnings (loss) per share. Basic earnings (loss) per share
includes no dilution  and is computed by dividing  income  (loss)  available  to
common  stockholders by the weighted average number of common shares outstanding
for the  period.  Diluted  earnings  (loss)  per share  reflects  the  potential
dilution of securities that could share in the earnings (loss) of an entity.  At
May 31, 2005 and 2004,  potential  common shares of 143,826,204  and 193,271,524
related to the  Company's  outstanding  convertible  debentures,  warrants,  and
options were not included in the  calculation  of diluted loss per share as they
had an antidilutive effect.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the consolidated  financial  statements and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.  Significant  estimates underlying the Company's financial statements
include the accrual for contested fees payable. Management has made the estimate
based on information  currently  available to it; however,  given the contingent
nature of the  liability,  it is possible  that the ultimate  resolution  of the
liability  could  result in a payment of an amount  greater  or lesser  than the
amount  accrued.  To the extent the ultimate  payment,  if any,  related to this
matter is different than the Company's current  estimate,  the Company's results
of operations in future periods may be impacted.

SALE OF ACCOUNTS RECEIVABLE

The Company accounts for the transfer of trade  receivables  under its factoring
line of credit in accordance with the provisions of SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities.
If the criteria established by SFAS No. 140 are met, the transfer of receivables
are  recorded as a sale;  otherwise  the  transaction  is reflected as a secured
borrowing.

STOCK BASED COMPENSATION

The Company applies Accounting  Principles Board ("APB") Opinion 25, "Accounting
for Stock Issued to Employees,"  and related  Interpretations  in accounting for
all  stock  option  plans.  Under APB  Opinion  25,  compensation  cost has been
recognized for stock options  granted to employees when the option price is less
than the market price of the underlying common stock on the date of grant.

SFAS No.  123,  "Accounting  for  Stock-Based  Compensation,"  and SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure," require the
Company to  provide  pro forma  information  regarding  reported  net loss as if
compensation  cost for the Company's  stock option plans had been  determined in
accordance  with the fair value  based  method  prescribed  in SFAS No.  123. To
provide the required pro forma information, the Company estimates the fair value
of each stock option at the grant date by using the Black-Scholes option-pricing
model.  SFAS No. 148 also provides for  alternative  methods of transition for a
voluntary  change to the fair value based method of accounting  for  stock-based
employee compensation.  The Company has elected to continue to account for stock
based compensation under APB No. 25.

The Company  applies  SFAS No. 123 in valuing  options and  warrants  granted to
consultants and estimates the fair value of such options using the Black-Scholes
option-pricing  model.  The fair  value is  recorded  as  consulting  expense as
services are  provided.  Options  granted to  consultants  for which  vesting is
contingent  based on future  performance are measured at their then current fair
value at each period end, until vested.


                                      F-10
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Had the Company used the  accounting  provisions  of SFAS No. 123, the Company's
net loss per share would have been increased by the pro forma amounts  indicated
below:

                                                      Year Ended May 31,
                                                   2005                 2004
--------------------------------------------------------------------------------
Net loss as reported                           $(2,693,550)         $(4,149,978)
Pro forma Compensation expense                    (138,883)            (152,074)
--------------------------------------------------------------------------------

Net loss pro forma                             $(2,832,433)         $(4,302,052)
--------------------------------------------------------------------------------

As reported per share
   Basic and diluted loss                      $     (0.01)         $     (0.03)
--------------------------------------------------------------------------------

Pro forma per share
   Basic and diluted loss                      $     (0.01)         $     (0.03)
================================================================================

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS 123R, Share Based Payment. This statement
replaces SFAS No. 123 and supersedes APB Opinion 25. SFAS No. 123R requires that
the cost of share-based payment transactions (including those with employees and
non-employees)  be recognized as compensation  based on the estimated fair value
of the equity  instrument  awarded.  SFAS No.  123R  applies to all  share-based
payment  transactions  in which an entity  acquires goods or services by issuing
(or offering to issue) its shares,  options,  or other equity  instruments or by
incurring  liabilities  in amounts based on the price of the entity's  shares or
other equity  instruments,  or that require (or may require)  settlement  by the
issuance of an  entity's  shares or other  equity  instruments,  This  statement
applies  to all new  awards  granted  during the  fiscal  year  beginning  after
December 15, 2005 and to previous  awards that are remodified or cancelled after
such date.  The Company has not yet fully  evaluated the effect of adopting SFAS
No. 123R on its financial statements.

In December 2004, the FASB issued SFAS No. 153, Exchange of Nonmonetary  Assets,
an amendment of APB Opinion No. 29,  Accounting  for  Nonmmonetary  Transaction.
SFAS No. 153 is based on the  principle  that  exchanges of  nonmonetary  assets
should be measured based on the fair market value of the assets exchanged.  SFAS
No. 153 eliminates the exception of nonmonetary  exchanges of similar productive
assets and replaces it with a general  exception  for  exchanges of  nonmonetary
assets  that  do not  have  commercial  substance.  SFAS  153 is  effective  for
nonmonetary asset exchanges in fiscal periods beginning after June 15, 2005. The
Company  does not  believe  that the  provisions  of SFAS  No.  153 will  have a
material impact on its financial statements.

In May  2005,  the FASB  issued  SFAS No.  154,  Accounting  Changes  and  Error
Corrections,  which replaces APB Opinion No. 20,  Accounting  Changes,  and FASB
Statement No. 3, Reporting  Accounting Changes in Interim Financial  Statements,
and changes the requirements for the accounting for and reporting of a change in
accounting principle.  SFAS No. 154 requires retrospective  application to prior
periods' financial statements of changes in accounting  principle,  unless it is
impracticable to determine either the period-specific  effects or the cumulative
effect of the  change.  SFAS No. 154 is  effective  for  accounting  changes and
correction  of errors made in fiscal years  beginning  after  December 15, 2005.
Early adoption is permitted for accounting changes and correction of errors made
in fiscal years beginning after the date SFAS No. 154 was issued. At the present
time,  the Company  does not believe  that  adoption of SFAS No. 154 will have a
material effect on its financial statements.


                                      F-11
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. MANAGEMENT'S PLAN

Through May 31, 2005, the Company has incurred  repeated net losses and has used
significant amounts of cash in its operations. Historically, the Company has had
to rely on obtaining  financing to fund its  operations;  such  financing  often
being at unfavorable  terms to the Company due to its poor financial  condition.
Management of the Company  believes that 2005 represents a turning point for the
Company.  During  2005,  the  Company  was able to resolve  long-standing  legal
disputes   involving   ownership  and  other  issues  related  to  its  patented
technologies.  As a  result,  the  Company  has  been  able to  enter  into  two
significant  license  agreements  for its  technology  which will  result in the
Company obtaining approximately  $13,000,000 in the aggregate.  These agreements
are discussed more fully elsewhere in the notes to these  financial  statements.
Prospectively,  the  Company  anticipates  that it may need to spend  additional
funds in its  efforts  to  further  develop  its  technologies  and  expand  the
technologies'  markets.  The Company  believes that the funds  obtained  through
these  agreements  will be sufficient to meet the Company's  obligations as they
come due for the foreseeable future. If expanded development is commenced or new
generations of microprocessor  technology are accelerated  beyond current plans,
additional  expenditures  may be  required.  At  the  present  time,  management
believes that it has the funds  available to it to meet the  obligations  of the
Company  as the come  due for the  foreseeable  future.  In the  event  that the
Company  cannot do so, it will be required to curtail or alter its future  plans
of operations.

2. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at May 31, 2005 and 2004:

                                                        2005             2004
--------------------------------------------------------------------------------
Computer equipment and software                     $  857,948        $1,660,707
Furniture and fixtures                                 213,458           499,274
Laboratory equipment                                    35,673           205,594
--------------------------------------------------------------------------------
                                                     1,107,079         2,365,575
Less accumulated depreciation and
   amortization                                      1,085,703         2,297,186
--------------------------------------------------------------------------------

Net property and equipment                          $   21,376        $   68,389
================================================================================

Depreciation  expense  was  $46,026 and $85,141 for the years ended May 31, 2005
and 2004.

3. LICENSE AGREEMENTS

In February 2005,  the Company  entered into two separate  licensing  agreements
with one customer for the Company's  Ignite  microprocessor  technology  and the
patent  portfolio  technology.  The  aggregate  amount of the two  licenses  was
$3,050,000,  of which  $2,950,000  was for  licensing  fees and $100,000 was for
deferred maintenance. Maintenance under the agreement is expected to be provided
over a period not to exceed four  years.  The  payment  terms of the  agreements
require aggregate payments of $300,000 at the time of execution, three quarterly
payments of $750,000  each on April 1, August 15, and  November 15, 2005 and one
final payment of $500,000 on February 15, 2006. Total payments  received to date
under the  agreements  include  $1,050,000 in fiscal 2005 and $750,000 in fiscal
2006.  The  agreements  also provide for the future  payment of royalties to the
Company based on sales of product using the licensed  technology.  In connection
with  the  license  agreement,  the  Company  became  obligated  to  the  former
co-inventor  of  the  Ignite  technology  for  $207,600,  payable  in  quarterly
installments of $51,900, of which $155,700 remains outstanding at May 31, 2005.


                                      F-12
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Also, in conjunction with entering into these license agreements, as well as the
license  agreement  described in Note 12, the legal  advisor who had  previously
assisted  the  Company in its  negotiations,  has  asserted a claim  against the
Company for amounts which it believes it is entitled.  The Company is contesting
the matter;  the  outcome of which is  currently  unknown.  Based on its current
assessment  of the matter,  the Company has accrued an expense of $346,000 as of
May 31, 2005.  The Company  intends to vigorously  defend itself in this matter;
however,  it is possible that,  were the Company not to prevail in the suit, the
ultimate  amount  payable to such legal  advisor could be  significantly  higher
based on any future license agreements entered into by the Company.

4. LINES OF CREDIT

The Company has a line of credit with a bank which  provides  for advances up to
$180,000 and which matures in March 2006. Advances under the line, which totaled
$100,000 at May 31, 2005, are secured by a $200,000  certificate of deposit. The
line of credit bears an interest rate at 2.25% above the index (5.31% at May 31,
2005).

Additionally,  the  Company  has a  $400,000  line of  credit  with a  financial
institution,  pursuant to which it may factor accounts receivable. There were no
balances  outstanding  under the line of credit at either May 31,  2005 or 2004.
During fiscal 2004, the Company sold approximately  $27,000 of receivables under
the agreement; no receivables were sold during fiscal 2005.

5. RELATED PARTY TRANSACTIONS

Through  January  2004,  an  affiliate  advanced  approximately  $200,000 to the
Company.  In January  2004,  $100,000 of the  advances,  plus  accrued  interest
thereon of $8,000,  was used to exercise a warrant  held by the  affiliate.  The
balance of $100,000 was converted into four $25,000  notes,  each due in January
2005,  having a stated  interest  rate of 6%,  and  secured by the assets of the
company. The notes were fully repaid in fiscal 2005.

During fiscal 2004, the Company sold services totaling  approximately $25,000 to
an entity owned by an officer.

6. ACCRUED LIABILITIES

At May 31, 2005 and 2004, accrued liabilities consisted of the following:

                                                         2005             2004
--------------------------------------------------------------------------------
Due to co-inventor (Note 3)                            $155,700         $     --
Accrued lease obligation (Note 10)                      100,000               --
Deferred maintenance fee                                 93,750               --
Compensation and benefits                                80,049           97,757
Interest                                                 75,654           62,345
--------------------------------------------------------------------------------
                                                       $505,153         $160,102
================================================================================

7. CONVERTIBLE DEBENTURES

Overview. From fiscal 2002 through fiscal 2005, the Company raised approximately
$5,400,000  through  the  issuance  of  convertible  debentures,  having  stated
interest  rates  ranging from 8% to 12%, to a limited  group of  investors.  The
convertible  debentures  entitle the debenture  holder to convert the principal,
and any accrued interest thereon,  into shares of the Company's common stock for
up to two years from the


                                      F-13
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

date of issuance. The following represents a summary of certain salient features
of the convertible debentures.

Number of Shares of Common Stock Into Which the Debentures May Be Converted. The
debentures were initially  convertible into shares of common stock at conversion
prices that ranging from approximately  $0.02 to $0.10 per share. The debentures
contain provisions which allow for the conversion rate to be reset on a periodic
basis based on a comparison of the market price of the Company's common stock to
the conversion  price of the debentures.  On those  measurement  dates where the
market  price is less than the  conversion  rate, a new  conversion  rate is set
based on a weighted  average  of the market  price for the ten days prior to the
reset  measurement  date.  As of May 31,  2005,  the  reset  conversion  rate on
debentures outstanding range from $0.02 to $0.04.

Warrants.  Concurrent  with the  issuance  of the  convertible  debentures,  the
Company  issued to the  debenture  holders  warrants to  purchase  shares of the
Company's  common stock.  These warrants are exercisable for five years from the
date of issuance at either initial negotiated exercise prices or prices equal to
115% of the volume weighted  average price for our common stock for the ten days
previous to the debenture date. The warrant exercise price is generally  subject
to being reset on each six month  anniversary of its issuance,  however,  if the
warrant holder elects to have the warrant shares  registered,  then the exercise
price is fixed at the price in effect on the date of the election.

Options to Purchase Additional Debentures. Subject to the price of the Company's
common  stock  being  equal to or  greater  than  $0.20 per share and a two year
limitation,  the debenture holders may purchase  additional  debentures equal to
the  value  of their  initial  debentures.  The  price  at  which  the  optional
additional  debentures may be converted would initially equal 115% of the volume
weighted  average price for the Company's common stock for the ten days previous
to the date on  which  the  optional  additional  debentures  were  closed.  The
optional  additional  debentures  would carry the same warrant amounts and reset
privileges as the initial debentures.

Shareholder  Approval.  The  Company  may  currently  issue more than 20% of our
outstanding  shares  under the  convertible  debentures.  If the Company were to
become listed on the NASDAQ Small Cap Market or NASDAQ National Market,  then it
must get shareholder  approval to issue more than 20% of our outstanding shares.
Currently, shareholder approval is not required.

Restrictive  Covenants.  For a period of 18 months  from the date of issuance of
the   debentures,   the  Company  is  prohibited   from  entering  into  certain
transactions.  These include the issuance of any debt or equity  securities in a
private  transaction  which are convertible or exercisable into shares of common
stock at a price  based on the  trading  price of the  common  stock at any time
after the  initial  issuance  of such  securities;  the  issuance of any debt or
equity  securities  with  a  fixed  conversion  or  exercise  price  subject  to
adjustment;  and any private equity line type agreements  without  obtaining the
debenture  holders'  prior  written  approval.  Additionally,  so  long  as  the
debentures  remain  outstanding,  the Company  cannot  declare or pay  dividends
without the debenture holders' approval.

Right of First Refusal.  The debenture  holders have a right of first refusal to
purchase or participate in any equity  securities  offered by the Company in any
private transaction which closes on or prior to the date that is two years after
the issue date of each debenture.

Registration  Rights.  Except for one  debenture  issued on March 23, 2004,  the
Company is responsible  for  registering  the resale of the shares of its common
stock which will be issued on the  conversion of the  debentures.  As of May 31,
2005, there have been six registration statements (designated A through F).

Security Interest.  The convertible  debentures are secured by substantially all
assets of the Company.


                                      F-14
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The  following   tables  present  the  status  and  activity  of  the  Company's
convertible debentures as of and through May 31, 2005:

<TABLE>
<CAPTION>
                                                  Principal                                         Shares
                                                   Balance          Conversion Prices              Converted         Warrant
             Dates of           Aggregate           at May     ----------------------------        as of May         Shares
 Series      Issuance           Principal          31, 2005      Initial          Reset            31, 2005          Issued
------------------------------------------------------------------------------------------------------------------------------
<S>           <C>              <C>               <C>           <C>             <C>                <C>               <C>
    A         4/23/02-         $1,000,000        $      --     $  0.08616-     $  0.04190-        24,099,548        12,859,175
              6/10/02                                              0.10289         0.04457

    B         8/23/02-            605,000               --        0.05126-        0.04381-        14,777,350        11,234,835
              1/24/03                                               0.0727         0.04722

    C         3/24/02-            510,000               --          0.041-          0.041-        10,470,554         9,377,943
              6/9/03                                                 0.065           0.065

    D         8/1/03-             547,500               --         0.0172-         0.0172-        25,178,803        22,455,355
              10/21/03                                               0.048          0.0477

    E         12/1/03-          1,527,500               --         0.0267-         0.0267-        46,794,618        30,395,392
              5/11/04                                                 0.10            0.10

    F         3/23/04             723,168          723,168            0.09            0.09                --         8,035,192

    G         9/28/04-            490,000          157,500       0.016710-        0.01670-        12,433,273        21,690,815
              1/17/05                                                 0.04            0.04
------------------------------------------------------------------------------------------------------------------------------

                               $5,403,168        $ 880,668                                        133,754,146      116,048,707
==============================================================================================================================
</TABLE>

Convertible debentures issued since April 2002                      $ 5,403,168
Less debentures converted to common stock                            (4,522,500)
--------------------------------------------------------------------------------
                                                                        880,668
Less debt discount                                                     (412,879)
--------------------------------------------------------------------------------

Convertible debentures at May 31, 2005                                  467,789
Less current portion                                                   (421,847)
--------------------------------------------------------------------------------

Long term portion                                                   $    45,942
================================================================================

Maturity dates of outstanding convertible debentures
    March 23, 2006                                                  $   723,168
    November 17, 2006                                                   157,500
--------------------------------------------------------------------------------

                                                                    $   880,668
================================================================================

At May 31, 2005, the Company's  convertible  debentures  were  convertible  into
approximately 27,556,000 shares of the Company's common stock. Subsequent to May
31, 2005, holders of debentures having a principal balance of $132,500 converted
their  debentures,  together  with  accrued  interest  thereon of  approximately
$6,000, into 8,295,789 shares of the Company's common stock.


                                      F-15
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCKHOLDERS' EQUITY

During  fiscal  2004,  the  Company's  shareholders  approved an increase in the
authorized  number of common  shares from  200,000,000  to  400,000,000.  During
fiscal  2005,  the   authorized   number  of  common  shares  was  increased  to
500,000,000.

Private Stock Offerings

During fiscal 2005, 4,625,000 restricted shares of common stock were issued to a
group of  individual  investors  in exchange  for  $453,250.  Additionally,  the
Company issued 796,000 shares of common stock, valued at $58,800, to a vendor in
exchange for services.

During fiscal 2004, 1,800,752 restricted shares of common stock were issued to a
group of individual  investors for $50,440 and 1,126,496  shares of common stock
were issued to a vendor in satisfaction of $59,852 of trade accounts payable.

Warrants

At May 31, 2005, the Company had warrants  outstanding  to purchase  109,122,581
shares of common stock at exercise  prices ranging from  approximately  $0.02 to
$0.065 per share expiring at various dates through 2012. During fiscal 2005, the
Company  issued  warrants  to  purchase  29,021,363  shares of  common  stock at
exercise  prices  ranging  from $0.02 to $0.08 per share and  issued  38,358,511
shares of common  stock on the exercise of warrants at exercise  prices  ranging
from $0.02 to $0.04 per share.

At May 31, 2004, the Company had warrants  outstanding  to purchase  121,349,420
shares of common stock at exercise  prices  ranging from $0.02 to $0.6 per share
expiring  through  2011.  During  fiscal 2004,  the Company  issued  warrants to
purchase 73,436,127 shares of common stock at exercise prices ranging from $0.02
to $0.10 per share and issued  11,079,175 shares of common stock on the exercise
of warrants at exercise prices ranging from $0.02 to $0.04 per share.

The following table presents outstanding warrants at May 31, 2005 and 2004:

                                                      2005               2004
--------------------------------------------------------------------------------

Issued in conjunction with
    Convertible debentures                          75,196,854        83,278,716
    Anti-dilution agreements                        20,813,081        15,398,058
    Equity lines of credit                           9,965,369        18,765,369
    Other                                            3,147,277         3,907,277
--------------------------------------------------------------------------------

        Total warrants outstanding                 109,122,581       121,349,420
================================================================================

1992 Incentive Stock Option Plan ("ISO")

The Company has an ISO Plan which expired March 20, 2002.  The ISO Plan provided
for grants to either full or part time employees, at the discretion of the board
of directors,  to purchase  common stock of the Company at a price not less than
the fair  market  value of the  shares  on the date of  grant.  In the case of a
significant  stockholder,  the option  price of the share could not be less than
110  percent  of the fair  market  value of the share on the date of grant.  Any
options  granted  under the ISO Plan must be  exercised  within ten years of the
date they were granted (five years in the case of a significant stockholder). At
May 31, 2005, there were no remaining, outstanding options to purchase shares of
common stock under the ISO Plan.


                                      F-16
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1992 Non-Statutory Stock Option Plan("NSO")

The Company has an NSO Plan which expired March 20, 2002. The NSO Plan provided,
at the  discretion of the board of directors,  for grants to either full or part
time  employees,  directors and  consultants  of the Company to purchase  common
stock of the  Company  at a price  not less  than the fair  market  value of the
shares  on the date of grant.  Any  options  granted  under the NSO Plan must be
exercised within ten years of the date they were granted. At May 31, 2005, there
were no remaining,  outstanding options to purchase shares of common stock under
the NSO Plan.

1996 Stock Option Plan

Effective  March 1996,  as amended,  the Company  adopted the 1996 Stock  Option
Plan. Under the 1996 Stock Option Plan, which expires in March 2006,  options to
purchase up to 4,000,000 shares of common stock of the Company may be granted to
either full or part time employees,  directors and consultants of the Company at
a price not less than the fair market  value on the date of grant for  incentive
stock options or not less than 85% of the fair market value on the date of grant
for non-qualified stock options. In the case of a significant  stockholder,  the
option  price of the share is not less than 110 percent of the fair market value
of the  shares on the date of grant.  Any  option  granted  under the 1996 Stock
Option  Plan must be  exercised  within  ten years of the date they are  granted
(five years in the case of a  significant  stockholder).  During the fiscal year
ended May 31, 2005, the Company  granted  options to purchase  645,000 shares of
common stock under the 1996 Stock Option  Plan.  No options were granted  during
fiscal 2004.

2001 Stock Option Plan

The 2001 Stock Option Plan,  which  expires in February  2011,  provides for the
granting of options to purchase up to 3,000,000  shares of the Company's  common
stock to either full or part time  employees,  directors and  consultants of the
Company at a price not less than the fair market  value on the date of grant for
incentive  stock  options or not less than 85% of the fair  market  value on the
date of grant for  non-qualified  stock  options.  In the case of a  significant
stockholder,  the option  price of the share is not less than 110 percent of the
fair market value of the shares on the date of grant.  Any option  granted under
the 2001 Stock Option Plan must be  exercised  within ten years of the date they
are granted  (five years in the case of a significant  stockholder).  During the
fiscal  year  ended May 31,  2005,  the  Company  granted  options  to  purchase
1,150,000 shares of its common stock. During the fiscal year ended May 31, 2004,
no options were granted.

2003 Stock Option Plan

The 2003 Stock Option Plan, which expires in 2013,  provides for the granting of
options to acquire  up to  6,000,000  shares of the  Company's  common  stock to
either full or part time employees,  directors and consultants of the Company at
a price not less than the fair market  value on the date of grant for  incentive
stock options or not less than 85% of the fair market value on the date of grant
for non-qualified stock options. In the case of a significant  stockholder,  the
option  price of the share is not less than 110 percent of the fair market value
of the  shares on the date of grant.  Any  option  granted  under the 2003 Stock
Option  Plan must be  exercised  within  ten years of the date they are  granted
(five years in the case of a significant  stockholder).  During the fiscal years
ended May 31, 2005 and 2004, the Company granted  options to purchase  1,695,000
and 2,210,000 shares of the Company's common stock at market value.


                                      F-17
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SFAS No. 123, "Accounting for Stock-Based Compensation," requires the Company to
provide pro forma  information  regarding  net loss and net loss per share as if
compensation  costs for the Company's  stock option plans and other stock awards
had been determined in accordance with the fair value based method prescribed in
SFAS No. 123.  The Company  estimates  the fair value of each stock award at the
grant date by using the  Black-Scholes  option-pricing  model with the following
weighted-average assumptions used for the two years ended May 31, 2005 and 2004,
respectively: dividend yield of zero percent for both years; expected volatility
of 121% to 129% and 107% to 127%,  risk-free  interest rates of 3.4% to 4.0% and
2.1% to 3.9%; and expected lives of three to five years for both years.

A summary of the status of the  Company's  stock option plans and warrants as of
May 31,  2005 and 2004 and  changes  during the years  ending on those  dates is
presented below:

<TABLE>
<CAPTION>
                                                                Options                        Warrants
                                                    ------------------------------    -----------------------------
                                                                       Weighted
                                                                        Average                         Weighted
                                                                       Exercise                          Average
                                                       Shares            Price           Shares      Exercise Price
-------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>            <C>                <C>             <C>
Outstanding, May 31, 2003                            5,054,000      $       0.28       58,992,468      $       0.06
   Granted                                           2,210,000              0.06       73,436,127              0.05
   Cancelled                                          (156,000)             0.13               --                --
   Exercised                                          (105,000)             0.05      (11,079,175)             0.03
-------------------------------------------------------------------------------------------------------------------

Outstanding, May 31, 2004                            7,003,000              0.21      121,349,420              0.05
   Granted                                           3,490,000              0.08       29,021,363              0.04
   Cancelled                                        (2,675,000)             0.31       (2,889,691)             0.07
   Exercised                                          (670,000)             0.05      (38,358,511)             0.03
-------------------------------------------------------------------------------------------------------------------

Outstanding, May 31, 2005                            7,148,000              0.13      109,122,581              0.04
===================================================================================================================

Exercisable, May 31, 2004                            5,904,434              0.24      120,149,420              0.05
===================================================================================================================

Exercisable, May 31, 2005                            5,748,000              0.14      108,622,581              0.04
===================================================================================================================

Weighted average fair value of options and
   warrants granted during the year ended May
   31, 2004                                                         $       0.05                       $       0.06

Weighted average fair value of options and
   warrants granted during the year ended May
   31, 2005                                                         $       0.04                       $       0.05
===================================================================================================================
</TABLE>

Included in the above table are certain  options for which vesting is contingent
based on various future performance measures.

Subsequent to May 31, 2005, 1,201,942 warrants were exercised, through which the
Company received approximately $53,000.


                                      F-18
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The  following  table  summarizes  information  about stock options and warrants
outstanding at May 31, 2005:

<TABLE>
<CAPTION>
                                                          Outstanding                                   Exercisable
                                       ------------------------------------------------------  -----------------------------
                                                            Weighted
                                                             Average                                                Weighted
                                                            Remaining           Weighted                            Average
            Range of Exercise            Number         Contractual Life        Average            Number           Exercise
                  Prices               Outstanding           (Years)         Exercise Price      Exercisable         Price
----------------------------------------------------------------------------------------------------------------------------
<S>          <C>                        <C>                    <C>             <C>                 <C>              <C>
Options      $  0.04-0.05               1,055,000              3.50            $  0.04             1,055,000        $   0.04
                0.07-0.09               3,135,000              3.64               0.08             1,985,000            0.08
                0.10-0.13               2,633,000              3.05               0.11             2,383,000            0.10
                0.61-1.18                 325,000              0.38               1.09               325,000            1.09
----------------------------------------------------------------------------------------------------------------------------
             $  0.04-1.18               7,148,000              3.25            $  0.13             5,748,000        $   0.14
============================================================================================================================


Warrants     $ 0.02-0.039              42,117,446              5.84            $  0.03            42,117,446        $   0.03
               0.04-0.044              43,162,252              5.39               0.04            43,162,252            0.04
              0.045-0.049               9,365,058              3.99               0.05             9,365,058            0.05
                0.05-0.08              11,030,548              5.65               0.07            10,530,548            0.07
                0.10-0.65               3,447,277              2.06               0.12             3,447,277            0.12
----------------------------------------------------------------------------------------------------------------------------
             $  0.02-0.65             109,122,581              5.36            $  0.04           108,622,581        $   0.04
============================================================================================================================
</TABLE>

9. INCOME TAXES

The net deferred tax asset recorded and its approximate tax effect  consisted of
the following at May 31, 2005 and 2004:

                                                   2005                2004
--------------------------------------------------------------------------------

Net operating loss carryforwards               $ 13,686,000        $ 12,873,000
Depreciation and amortization                     1,240,000           1,434,000
Purchased technology                                322,000             371,000
Contingency fee payable                             201,000                  --
License receivable                                 (800,000)                 --
Lease obligation accrual                             40,000                  --
Other, net                                            1,000              54,000
--------------------------------------------------------------------------------
                                                 14,690,000          14,732,000
Valuation allowance                             (14,690,000)        (14,732,000)
--------------------------------------------------------------------------------

Net deferred tax asset                         $         --        $         --
================================================================================

A  reconciliation  of the  income  taxes at the  federal  statutory  rate to the
effective tax rate is as follows:

<TABLE>
<CAPTION>
                                                                               Year Ended May 31,
                                                                              2005            2004
------------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>
    Federal income tax benefit computed at the Federal statutory rate     $  (916,000)     $(1,411,000)
    State income tax benefit, net of Federal benefit                         (157,000)        (242,000)
    Other- permanent differences, primarily nondeductible interest          1,115,000        1,212,000
    Change in valuation allowance                                             (42,000)         441,000
------------------------------------------------------------------------------------------------------

Income tax benefit                                                        $        --      $        --
======================================================================================================
</TABLE>


                                      F-19
<PAGE>

As of May 31, 2005 and 2004, a valuation allowance equal to the net deferred tax
asset has been recorded, as management has not determined that it is more likely
than not that the deferred tax asset will be realized.  No current tax provision
was recorded for fiscal 2005 and 2004 due to reported losses.

At May 31, 2005,  the Company has federal net operating  loss  carryforwards  of
approximately  $36,000,000  that expire  through  2025 and whose annual usage is
subject to certain  limitations imposed under the Internal Revenue Code of 1986,
as amended. As such, certain federal net operating loss carryforwards may expire
unused. Additionally,  at May 31, 2005, the Company has state net operating loss
carryforwards of approximately $22,000,000 that expire through 2015.

10. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is  involved,  both as a plaintiff  and as a  defendant,  in several
patent  infringement  lawsuits  pertaining  to various  issues  surrounding  the
Company's  technology.  During  2005,  several  of the suits were  settled,  the
outcome of which being the license  agreements  described in Notes 3 and 12. The
Company is also involved in a legal matter  related to disputed  legal  services
performed for the Company related to obtaining the license agreements,  which is
also  discussed  in Note 3. At various  times the  Company is  involved in other
legal matters which arise in the ordinary  conduct of its business and which, at
the present  time,  are not expected to have a material  impact on the Company's
financial position, cash flow, or results of operations.

Profit Sharing Plan

The Company has a savings and  profit-sharing  plan that allows  participants to
make  contributions  by  salary  reduction  pursuant  to  Section  401(k) of the
Internal  Revenue  Code.  At the  Company's  discretion,  the  Company may match
contributions  at 20% of the employee's  contribution up to 6% of the employee's
salary.  The Company  contributions  are vested 20% per year  beginning with the
first year of service. The Company made no matching contributions to the plan in
fiscal 2005 or 2004.

Employment Contracts

The Company is obligated under  employment  contracts with certain key employees
to pay severance upon termination under certain defined  conditions.  Generally,
unless relieved of their duties for cause,  the executive  officers are entitled
to  severance  pay equal to two to four  months of their  then  current  monthly
salary. In the case of a change in control,  generally,  the executive  officers
are  entitled  to  severance  pay equal to twelve  months of their then  current
monthly salary unless they continue to work for the new controlling  interest in
the same  function as previous to the change.  Subsequent  to May 31, 2005,  two
officers  covered under  employment  contracts were  terminated.  The Company is
currently in negotiations  with one of the individuals to finalize his severance
agreement.  In September  2005, the Company agreed to pay the other key employee
approximately  $148,700 in full  settlement of all amounts owed to him under his
employment contract.


                                      F-20
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Operating and Capital Leases

At May 31, 2005,  the Company has  equipment  acquired  through a capital  lease
arrangement.  The  equipment  was  recorded  at an  original  cost  of  $24,995;
accumulated  depreciation  on the equipment at May 31, 2005 and 2004 was $24,995
and $21,524.  The Company's  obligation  under the capital lease at May 31, 2005
was approximately $2,300, which amount is due in fiscal 2006.

The  Company  has  a   non-cancelable   operating   lease  for  its  office  and
manufacturing facilities located in San Diego, California.  Future minimum lease
payments  required  under the  operating  lease are  $141,658 in fiscal 2006 and
$23,782 in fiscal  2007.  Rent expense for fiscal 2005 and 2004 was $180,527 and
$181,135,  respectively.  Through the first quarter of fiscal 2005,  the Company
had sublet a portion of this facility to a third-party.  The third-party vacated
its portion of the facility in 2005 and paid the Company  approximately  $47,000
in  consideration  for all future  amounts  owed the Company  under the sublease
agreement.  This amount is reflected  in other  income in the 2005  statement of
operations.  During the fourth quarter of 2005, the Company determined that this
vacated  portion of the  facility  will not  provide  any future  benefit to the
Company,   nor  is  it  probable  that  the  space  could  be  subleased  again.
Accordingly,  the Company accrued $100,000 related to its remaining  contractual
lease obligation related to this space.

11. SALES INFORMATION

The Company is engaged in one business segment, the development and marketing of
microprocessor technology related products and licenses. During the fiscal years
ended May 31, 2005 and 2004,  the  Company's  product  sales of high  technology
computer products were  approximately  $9,000 and $14,000 and  telecommunication
products were $16,000 and $63,000.  Substantially all of the Company's  products
were sold to customers  located in the United States.  During the year ended May
31, 2004, three customers accounted for 33%, 23%, and 12% of the Company's total
product sales. During the year ended May 31, 2005, there were no major customers
related to the Company's  product  sales.  Additionally,  during the fiscal year
ended  May 31,  2005,  the  Company  recorded  license  revenues  as more  fully
described in Note 3.

12. SUBSEQUENT EVENT

In June 2005,  the Company  entered into an agreement  with the  co-inventor  of
certain  of the  Company's  technology  pursuant  to which the  Company  and the
co-inventor  resolved  all  legal  disputes  between  them.  As a result  of the
agreement,  the Company  formed a new joint  venture with the  co-inventor  into
which both parties  contributed their rights to the  technologies.  Concurrently
therewith, the joint venture entered into a license agreement with a third party
pursuant  to which it  received  $20,000,000.  Both the  Company and the venture
partner  agreed to  establish  a working  capital  fund for the new  venture  of
$4,000,000, as well as to fund future working capital requirements. Net proceeds
received  by  the  Company   from  the  license   agreement   transaction   were
approximately $6,700,000. In connection with this transaction,  the Company paid
amounts aggregating $170,000 to certain of its board members in consideration of
their efforts in the consummation of this transaction.

Payments  totaling  approximately  $960,000  were made in the first  quarter  of
fiscal 2006 to the co-inventors of the technology. Additionally, a legal advisor
who had  previously  provided  services  to the Company may assert a success fee
against  the Company  based upon  proceeds  received  by the  Company  under the
license agreement. See further discussion in Note 3.

The Company  granted a warrant to its venture partner to acquire up to 3,500,000
shares of the Company's common stock at a per share price of $0.125. The warrant
has a term of seven years. At the date of grant, the right to acquire  1,400,000
shares of common  stock  vested;  the right to acquire the  remaining  2,100,000
shares will vest in 700,000  increments  only upon the Company's per share stock
price reaching $0.50, $0.75, and $1.00.


                                      F-21
<PAGE>

In order to complete the agreement,  the Company was required to obtain approval
from various warrant holders.  The Company believes,  based on consultation with
its  attorneys,  it  was  not  required  by  applicable  law or  other  existing
agreements to obtain  approval from  shareholders  or any parties other than the
various warrant holders.  To obtain the approval of those warrant  holders,  the
Company  paid them  approximately  $1,890,000  and agreed to reset the per share
exercise  price of  approximately  34,900,000  warrants  to $0.015 for which the
warrant  holders  conveyed  warrants  to acquire  12,000,000  shares back to the
Company. Further, other warrant holders were paid $438,000 and issued additional
warrants to acquire approximately 290,000 shares of the Company's common stock.

                                      F-22
<PAGE>

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

DATED: September 13, 2005               PATRIOT SCIENTIFIC CORPORATION


                                        /S/ DAVID H. POHL
                                        -------------------------------
                                        David H. Pohl
                                        Chief Executive Officer

      In accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.


Signature                  Title                              Date


/S/ DAVID H. POHL          President, Chief Executive         September 13, 2005
------------------------   Officer, and Director
 David H. Pohl


/S/ THOMAS J. SWEENEY      Chief Financial Officer and        September 13, 2005
------------------------   Principal Accounting Officer
 Thomas J. Sweeney


/S/ CARLTON M. JOHNSON     Director                           September 13, 2005
------------------------
 Carlton M.  Johnson


/S/ GLORIA FELCYN          Director                           September 13, 2005
------------------------
Gloria Felcyn


                           Director                           September 13, 2005
------------------------
 Lowell W. Giffhorn


                           Director                           September 13, 2005
------------------------
Helmut Falk Jr.


                                      F-23