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, 2004

[_]   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 is not 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. [X]

State issuer's revenues for it most recent fiscal year. $76,417

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant on August 12, 2004 was $7,256,203 based on a
closing price of $0.04 as reported on the OTC Electronic Bulletin Board system..

At August 12, 2004, 185,958,290 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
<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
                                     PART I
<S>                                                                                   <C>
ITEM 1.     Description of Business                                                    3
ITEM 2.     Description of Property                                                   12
ITEM 3.     Legal Proceedings                                                         12
ITEM 4.     Submission of Matters to a Vote of Security Holders                       13

                                     PART II

ITEM 5.     Market for Common Equity, Related Stockholder Matters and Small
              Business Issuer Purchases of Equity Securities                          13
ITEM 6.     Management's Discussion and Analysis or Plan of Operation                 14
ITEM 7.     Financial Statements                                                      24
ITEM 8.     Changes in and Disagreements with Accountants on                          24
              Accounting and Financial Disclosure
ITEM 8A.    Controls 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                        22
ITEM 10.    Executive Compensation                                                    27
ITEM 11.    Security Ownership of Certain Beneficial Owners and Management
             and Related Stockholder Matters                                          30
ITEM 12.    Certain Relationships and Related Transactions                            32
ITEM 13.    Exhibits                                                                  33
ITEM 14.    Principal Accountant Fees and Services                                    42
</TABLE>


                                        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.

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. 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. The microprocessor technology
product line accounted for approximately 18% of our revenue in fiscal 2004. The
balance of our fiscal 2004 revenue was generated from a communications product
line that, subsequent to a completed last buy program, is now generating minimal
revenue. 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.

      In 1997, we emerged from the development stage primarily as a result of
the acquisition of Metacomp Inc. There can be no assurance that we can achieve
profitable operations, and we may need additional financial resources during the
next twelve months.


                                        3
<PAGE>

BACKGROUND

      In February 1989, we completed our initial public offering under a
registration statement on Form S-18 under the Securities Act of 1933. This
offering raised gross proceeds of $50,000 and net proceeds of approximately
$28,640 upon the sale of 2,500,000 units at $.02 per unit. Each unit sold in the
public offering consisted of one common share and one Class A common stock
purchase warrant exercisable to acquire one share of common stock and one Class
B common stock purchase warrant. All Class A and Class B warrants have since
been exercised or have lapsed.

      On May 12, 1992, we redomiciled ourselves from Colorado to Delaware by
merging into a wholly owned Delaware subsidiary, Patriot Scientific Corporation,
organized for that purpose. The reincorporation resulted in a reverse stock
split. Three shares of the Colorado corporation, par value $.00001, were
converted into one share of the Delaware corporation, par value $.00001. The
reincorporation also effected a change in our charter and bylaws and a name
change to Patriot Scientific Corporation.

      In May 1993, we registered under the Securities Act of 1933 a total of
7,631,606 shares issuable upon the exercise of outstanding Class A and Class B
common stock purchase warrants. Upon the exercise of those warrants, we received
net proceeds of $3,343,915 and issued 7,538,102 common shares. None of such
warrants remain outstanding.

      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. We issued a total of 8,500,000 restricted common shares
to nanoTronics to acquire certain microprocessor technology of nanoTronics. The
technology acquired was used to develop a sophisticated yet low cost
microprocessor. 5,000,000 of the shares were issued on a non-contingent basis,
and the remaining 3,500,000 shares were issued subject to the terms of an
earnout escrow arrangement, which concluded on May 31, 1999.

      Effective December 26, 1996, we acquired 96.9% of the outstanding shares
of Metacomp, Inc., a California corporation, from 56 shareholders in exchange
for the issuance of 1,272,068 shares of our common stock. Based on the closing
price of our common stock of $1.375 on the date of the acquisition, the price of
the acquisition was $1,749,094. This business combination was accounted for as a
pooling-of-interests.

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 is generating minor
                  amounts of revenue from the sale of development boards,
                  microprocessors and initial license fees related to the
                  microprocessor application. 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. Although we anticipate the Ignite technology to be
                  our main product line, it accounted for only about 18% of our
                  revenue in fiscal year 2004.

            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
                  have decided to concentrate our efforts on the Ignite
                  microprocessor technology. 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.


                                        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.

      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. In 1991, nanoTronics Corporation was formed and
acquired a base technology for an advanced microprocessor integrated on a single
computer chip. nanoTronics subsequently engaged in substantial technical
development and fabricated a first-generation microprocessor in early 1994.

      Since the acquisition of the technology from nanoTronics, effective May
31, 1994, we have been engaged in enhancing the microprocessor design, adding
additional technical features to further modernize the design, and improving and
testing the new design. 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


                                        5
<PAGE>

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.

      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 computor)
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.


                                        6
<PAGE>

      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 to operate at speeds in excess of
300Mhz. 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 operation 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.

      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


                                        7
<PAGE>

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, VHDL also contains sophisticated simulation tools that allow 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 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 ready for licensing or sale and that
any additional changes encountered in current testing will be minor and can be
made during subsequent production runs of Ignite family microprocessors for
customers, when and if orders are obtained. 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.

      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 early licensing of the
technology and product applications will focus on embedded control.


                                        8
<PAGE>

      We have two international representatives for foreign markets and are
addressing the domestic market with an in-house business development person. 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
are commercializing 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 technology. 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

            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.


                                        9
<PAGE>

            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 $549,756 and $723,287
for our fiscal years ended May 31, 2004 and 2003, 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. 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. In February 2004, Intel initiated a legal action against us and we
filed a counterclaim against them related to the initial five lawsuits. There
can be no assurance that we will be successful in enforcing any potential patent
claims against these or other companies. Also in February 2004, we initiated a
legal action against several entities, one of which was a co-inventor for some
of the technology, to clarify the inventorship and ownership of each of our
granted patents. 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 to obtain
satisfaction should we have any future claims against nanoTronics or its
successor, the Falk Family Estate.

      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., 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


                                       10
<PAGE>

                  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.

      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:

                                               2004            2003
                                               ----            ----
            Domestic sales                       92%             91%

            Foreign sales
                Europe                            8%              9%
                                               ----            ----
            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.

      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 31as follows:

                                             2004              2003
                                           -------           -------
            nTelesis                       $25,000           $    --
            Blue Tech Inc.                  18,000                --
            Litton Systems                   9,000                --
            Long Wave, Inc.                     --            43,000
            General Dynamics                    --            23,000
            Centratech                          --            15,000
            Advanced Relay                      --            15,000

      All of the above sales were shipped against multiple purchase orders from
each customer. nTelesis is owned by an executive officer of the company.

      We had no backlog as of May 31, 2004 or 2003.


                                       11
<PAGE>

      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 term of the sublease coincides with the remaining term of our lease.
The reduced floor space provides adequate and suitable facilities for all of our
corporate functions.

ITEM 3. LEGAL PROCEEDINGS

      In December 2003, we 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

      We are requesting the courts to enjoin the defendants from making use of
our patent and are requesting damages for past infringements. In February, with
the consent of the defendants and ourselves, 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 us in the
United States District Court- Northern District of California, case number
C040439, in which they are requesting a declaratory judgment that their
microprocessors, used by the defendants in our consolidated suit, do not
infringe our patent. We 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.

      Also in February 2004, we filed a lawsuit in the United States District
Court- Northern District of California, case number C040618, against Charles H.
Moore, Technology Properties Limited, and Daniel E. Leckrone. We are requesting


                                       12
<PAGE>

the court to declare inventorship and ownership on each of our granted patents
related to the suits discussed above and other unasserted claims of infringement
Patriot believes it has.

      The Intel lawsuit has been stayed pending the results of the Moore
lawsuit.

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

      None.

PART II

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

      Our 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, 2004 and 2003.

                                                                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, 2003
           First Quarter                                       $0.08      $0.06
           Second Quarter                                      $0.14      $0.04
           Third Quarter                                       $0.09      $0.04
           Fourth Quarter                                      $0.09      $0.04

      We have approximately 550 shareholders of record as of May 31, 2004.
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, 2004, we offered and sold
the following 1) a convertible debenture and associated warrant in exchange for
a previously issued secured promissory note and 2) warrants associated with the
sale of 8% convertible debentures all without registration under the Securities
Act of 1933, as amended, and exemption for such sales from registration under
the Act is claimed in reliance upon the exemption provided by Section 4(2)
thereof on the basis that such offers and sales were transactions not involving
any public offering. Appropriate precautions against transfer will be taken,
including, should the debenture be converted or the warrants exercised into
common stock, the placing of a restrictive legend on the certificates evidencing
such securities. The sales were effected without the aid of underwriters, and no
sales commissions were paid.


                                       13
<PAGE>

<TABLE>
<CAPTION>
CONVERTIBLE DEBENTURE
                                                         Amount of         Initial Conversion
     Debenture Holder          Date of Sale       Convertible Debenture     Price Per Share      Consideration
     ----------------          ------------       ---------------------     ---------------      -------------
<S>                           <C>                        <C>                     <C>           <C>
Swartz Private Equity         March 23, 2004             $ 723,167               $0.090        Note conversion

WARRANTS
                                                                            Initial Exercise      Expiration
      Warrant Holder         Date of Issuance        Number of Shares       Price Per Share          Date
      --------------         ----------------        -----------------      ---------------          ----

Swartz Private Equity         March 23, 2004             8,035,192               $0.090          April 1, 2011
Lincoln Ventures  LLC         March 24, 2004             3,366,727               $0.094          April 1, 2011
Swartz Private Equity          April 1, 2004             5,240,211               $0.081          April 1, 2009
Lincoln Ventures  LLC          May 11, 2004              6,951,428               $0.070          April 1, 2011
</TABLE>

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

OVERVIEW

      Patriot Scientific Corporation ("the Company") develops, markets, and
sells 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
telecommunication networks. The microprocessor technology product line accounted
for approximately 18% of our revenue in fiscal 2004. The balance of our fiscal
2004 revenue was generated from a communications product line that, subsequent
to a completed last buy program, is now generating minimal revenue. 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 fiscal 2004 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.

      Management's discussion and analysis of results of operations and
financial condition are based upon the Company's financial statements. These
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America. These principles require management to
make certain estimates, judgments and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates based on historical experience and various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

      We have identified nine accounting principles that we believe are key to
an understanding of our financial statements. These important accounting
policies require management's most difficult, subjective judgments.


                                       14
<PAGE>

1.    Going Concern

      These financial statements are presented on the basis that the Company is
a going concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. The Company has incurred significant operating losses and has
had negative cash flows from operating activities for each of the years ended
May 31, 2004 and 2003, had negative working capital and a stockholders' deficit
for the year ended May 31, 2003 and used convertible debentures for raising
substantially all of its working capital. These factors raise substantial doubt
as to the Company's ability to continue as a going concern.

      Management's plans to eliminate the going concern situation include, but
are not limited to, the following:

      1.    Obtain additional equity or debt financing from investors including
            the exercise of outstanding warrants.

      2.    Obtain revenue producing contracts by successfully negotiating
            licensing, development and product opportunities within the
            microprocessor market place.

      3.    Aggressively pursue patent infringement opportunities by litigating
            with companies alleged to be infringing on our issued patents.

      4.    If funds are not satisfactorily available to continue operations at
            our current level, put in place cost reduction programs. Such
            reduction programs could include a scale back in the support of the
            microprocessor technology with total emphasis being placed on patent
            infringement activity. If, in the future, there is patent
            infringement success, additional funds would be available for the
            microprocessor technology.

2.    Marketable Securities

      As part of the sale of our gas plasma antenna technology we received
restricted securities in a company that is traded on the OTC bulletin board. The
securities can be traded under Rule 144 after July 2004. We reflect the value of
those securities based on the closing price as of the end of our reporting
period. Any unrealized gain or loss between reporting periods is reflected in
our consolidated statement of operations as non-operating income or loss.

3.    Property, Equipment and Depreciation

      Property and equipment are stated at cost. Depreciation is computed over
the estimated useful life of three to five years using the straight-line method.
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. We continuously evaluate the recoverability of our long-lived
assets based on estimated future cash flows and the estimated fair value of such
long-lived assets, and provide for impairment if such undiscounted cash flows
are insufficient to recover the carrying amount of the long-lived asset.

4.    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.


                                       15
<PAGE>

5.    Revenue Recognition

      We recognize revenue on the shipment to our customers of communication
products, microprocessor integrated chips and evaluation boards. We also derive
revenue from fees for the transfer of proven and reusable intellectual property
components or the performance of engineering services. We enter into licensing
agreements that will provide licensees the right to incorporate our intellectual
property components in their products with terms and conditions that will vary
by licensee. Generally, these payments will include a nonrefundable technology
license fee, which will be payable upon the transfer of intellectual property,
or a nonrefundable engineering service fee, which generally will be payable upon
achievement of defined milestones. In addition, we anticipate these agreements
will include royalty payments, which will be payable upon sale of a licensee's
product, and maintenance and limited support fees. We will classify all revenue
that involves the future sale of a licensee's products as royalty revenue.
Royalty revenue will be generally recognized in the quarter in which a report is
received from a licensee detailing the shipments of products incorporating our
intellectual property components (i.e., in the quarter following the sale of
licensed product by the licensee). We will classify all revenue that does not
involve the future sale of a licensee's products, primarily license fees and
engineering service fees and maintenance and support fees, as contract revenue.
License fees will be recognized upon the execution of the license agreement and
transfer of intellectual property, provided no further significant performance
obligations exist and collectibility is deemed probable. Fees related to
engineering services contracts, which will be performed on a best efforts basis
and for which we will receive periodic milestone payments, will be recognized as
revenue over the estimated development period, using a cost-based percentage of
completion method. Annual maintenance and support fees, which will be renewable
by the licensee, will be classified as contract revenue and will be amortized
over the period of support, generally 12 months.

6.    Research and Development Costs

      Research and development costs are expensed as incurred.

7.    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.

8.    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 $441,000 for
the year ended May 31, 2004, from $14,291,000 at May 31, 2003 to $14,732,000 at
May 31, 2004.

9.    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.


                                       16
<PAGE>

SELECTED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                    Year Ended
                                                                                Increase
                                           5/31/2004         5/31/2003         (Decrease)          %
<S>                                       <C>               <C>               <C>                 <C>
Statements of Operations
  Revenue                                 $    76,417       $   123,903       $   (47,486)        -38.3%
  Cost of revenue                              10,472            18,660            (8,188)        -43.9%
    % of revenue                                   14%               15%              -1%          -9.0%
  Gross profit                                 65,945           105,243           (39,298)        -37.3%
    % of revenue                                   86%               85%                1%          1.6%
  Operating expenses
    Research and development                  549,756           723,287          (173,531)        -24.0%
    General and administrative              1,253,559         1,821,902          (568,343)        -31.2%
 Total operating expenses                   1,803,315         2,545,189          (741,874)        -29.1%
 Gain on sale of technology                    75,500                --            75,500         NM
 Loss on marketable securities                (45,354)               --           (45,354)        NM
 Interest expense                          (2,443,024)       (1,448,544)          994,480           68.7%
 Interest income                                  270               191                79           41.4%
 Net loss                                  (4,149,978)       (3,888,299)          261,679            6.7%
 Net loss per share basic and diluted           (0.03)            (0.04)            (0.01)        -25.0%
</TABLE>

RESULTS OF OPERATIONS

Year ended May 31, 2004, compared to year ended May 31, 2003.

Revenues

      Our revenue decrease of $47,486, or 38.3%, was due to a continuing lack of
significant revenue producing contracts. Although our bid and proposal activity
remains high, our microprocessor product line has failed to generate any
significant contracts. We continue to receive minor follow-on orders for the
communication products that have reached the end of their life cycle. We no
longer market these products but do fill follow-on orders when economically
feasible. During fiscal 2004, we had an engineering design contract for
approximately $25,000 with a company owned by one of our executive officers. We
anticipate that future revenue will be derived from successful microprocessor
technology efforts in the form of licensing and royalties and the successful
collection of patent infringement proceeds from litigation and settlement.

Cost of Revenue

      Our cost of revenue decrease of $8,188, or 43.9%, was commensurate with
the reduction in revenue. We fully reserved our inventory in fiscal 2002 and,
therefore, minor amounts of existing inventory can be resold at a zero cost
basis. However, in order to fulfill the minor follow-on orders for communication
products, we normally must procure a portion of additional components and
assemblies. We anticipate that future cost of revenue will be commensurate with
the success of receiving microprocessor licenses and royalties and patent
infringement proceeds.


                                       17
<PAGE>

Research and Development

<TABLE>
<CAPTION>
                                                    Year Ended
                                                                         Increase
                                              5/31/2004     5/31/2003    (Decrease)        %
<S>                                           <C>           <C>           <C>            <C>
Research and Development
  Personnel (including consultants)           $ 480,967     $ 610,416     $(129,449)     -21.2%
  Facilities                                     66,294       104,832       (38,538)     -36.8%
  Other research and development expenses         2,495         8,039        (5,544)     -69.0%
                                              ---------     ---------     ---------
</TABLE>

      The $173,531, or 24%, reduction in research and development was attributed
to a reduction in personnel costs, primarily consulting costs, as the
development of our softcore microprocessor technology has reached a leveling off
point. In addition, there has been no significant increase in depreciable
equipment related to research and development for the past three years resulting
in a lower depreciation amount charged to facilities expense. When and if funds
become available, we anticipate an increase in research and development to
upgrade the tools which are used by our potential customers to implement the
microprocessor technology and to expand our offerings on which our
microprocessor can run to include additional operating systems.

General and Administrative

<TABLE>
<CAPTION>
                                                        Year Ended
                                                                                   Increase
                                                  5/31/2004      5/31/2003        (Decrease)         %
<S>                                             <C>             <C>              <C>               <C>
General and Administrative
  Personnel (including consultants)             $   491,898     $   891,851      $  (399,953)     -44.8%
  Professional fees                                 228,935         272,296          (43,361)     -15.9%
  Facilities                                        308,207         324,726          (16,519)     -5.1%
  Other general and administrative expenses         224,519         333,029         (108,510)     -32.6%
                                                -----------     -----------      -----------
                                                $ 1,253,559     $ 1,821,902      $  (568,343)     -31.2%

                                                $   549,756     $   723,287      $  (173,531)     -24.0%
</TABLE>

      The $568,343, or 31.2%, reduction in general and administrative expenses
was attributed to a reduction in personnel costs, including consulting
($87,000), prior employee legal settlement costs ($76,000), and non-cash
compensation related to investor relations ($207,000). Professional fees
decreased as a result of fewer registration statements being filed during fiscal
2004. Other general and administrative expenses decreased as a result of a one
time write off of prepaid royalties in fiscal 2003 ($48,000), a one time write
off of impaired patent costs in fiscal 2003 ($77,000), and reduced insurance
costs ($35,000) partially offset by an increase in shareholder costs ($112,000)
which includes annual meeting expenses and investor relations. We anticipate
general and administrative expenses to remain stable at the fiscal 2004 levels
until such time as contract revenue and patent litigation proceeds are
recognized at which time additional personnel and other fees would be expected
to increase.


                                       18
<PAGE>

Other income (expense)

<TABLE>
<CAPTION>
                                                         Year Ended

                                                  5/31/2004        5/31/2003         Change          %
<S>                                             <C>              <C>              <C>              <C>
Other income (expense)
  Sale of technology                            $    75,500      $        --      $    75,500      NM
  Loss on marketable securities                     (45,354)              --          (45,354)     NM
  Interest income                                       270              191               79      41.4%
  Interest expense, paid in cash or accrued        (149,102)        (143,587)          (5,515)      3.8%
  Non-cash interest expense                      (2,293,922)      (1,304,957)        (988,965)     75.8%
                                                -----------      -----------      -----------
                                                $(2,412,608)     $(1,448,353)     $  (964,255)     66.6%
</TABLE>

      The increase in other expenses, net of other income, of $964,255, or
66.6%, was primarily attributable to the non-cash interest expense recognized on
the amortization and cancellation of debt discounts related to our convertible
debentures and the recognition of expense on the issuance of warrants related to
our financings. We anticipate that the non-cash interest expense will increase
over the fiscal 2004 amount due to a large debt discount remaining on our books
as of May 31, 2004 ($2,075,146) which will be recognized as expense via
amortization over 24 months if the underlying debentures are not converted or
written off in their entirety on the conversion of the underlying debentures.

CAPITAL RESOURCES

Working Capital

                                          Year Ended
                                                                        Increase
                                    5/31/2004       5/31/2003        (Decrease)

Current assets                     $   701,879     $   129,559      $   572,320
Current liabilities                    548,042       1,586,562       (1,038,520)
                                   -----------     -----------      -----------
  Working capital (deficit)        $   153,837     $(1,457,003)     $ 1,610,840
                                   ===========     ===========      ===========

Long-term debt                     $   230,007     $   290,436      $   (60,429)
                                   ===========     ===========      ===========

Stockholders' equity (deficit)     $   148,179     $(1,411,764)     $ 1,559,943
                                   ===========     ===========      ===========


Statements of Cash Flows Select Information

                                         Year Ended
                                                                        Increase
                                  5/31/2004        5/31/2003         (Decrease)

Net cash provided (used) by:
  Operating activities           $(2,075,972)     $(1,885,762)     $  (190,210)
  Investing activities           $   (28,623)     $    (2,194)     $   (26,429)
  Financing activities           $ 2,427,872      $ 1,832,511      $   595,361


                                       19
<PAGE>

Balance Sheet Select Information

                                                Year Ended
                                                                      Increase
                                        5/31/2004     5/31/2003     (Decrease)

Cash and cash equivalents              $   355,940   $    32,663   $   323,277
                                       ===========   ===========   ===========

Prepaid expenses                       $   322,068   $    93,030   $   229,038
                                       ===========   ===========   ===========

Accounts payable and accrued expesnes  $   294,702   $   643,002   $  (348,300)
                                       ===========   ===========   ===========

      The increase in working capital of $1,610,840 and stockholders' equity of
$1,559,943 was attributable to the continued financing of the company by issuing
convertible debentures ($2,175,000), the issuance of common stock ($50,440), and
the exercise of common stock warrants and options ($175,237). The proceeds from
these financings were used, in addition to funding our operating needs, to
increase our cash balances ($323,277), create a legal fund for anticipated
protracted legal fees related to the patent enforcement litigation ($240,719),
and reduce our outstanding accounts payable and accrued expenses ($348,300).

LIQUIDITY

      We estimate our current cash requirements to sustain our operations for
the next twelve months through May 2005 to be $1.8 million. Since we are no
longer supporting the communications product line, we are assuming that there
will be no communications product revenue. We have issued 8% convertible
debentures as our primary source of funding since 2002. At the option of the
debenture holders, they may purchase additional debentures up to $1 million at
any time during the two years following their purchase as long as the price of
our common stock is in excess of $0.20 per share. During the year ended May 31,
2004, we obtained $2,175,000 from the issuance of convertible debentures,
$50,440 from the sale of equity to several private investors, $175,237 from the
exercise of warrants and $12,320 from short term notes entered into with a
related party.

      If the optional amounts under the convertible debentures are not raised in
sufficient amounts, then we may not have funds sufficient to meet our cash
requirements. In such circumstances, we would need to secure additional debt
and/or equity financings with individual or institutional investors. In
addition, we would be required to make additional cost reductions if our cash
requirements cannot be met from external sources. We expect that the $1.8
million requirement will be provided by:

      o     additional debt and/or equity financings;

      o     proceeds from the exercise of outstanding stock options and
            warrants; and

      o     proceeds from revenue contracts and patent enforcement activities.

      In addition, we have formulated additional cost reduction plans which can
be implemented if the required funds are not obtainable. As of May 31, 2004, we
also have remaining $400,000 under an accounts receivable factoring agreement
with our bank.

      We anticipate our future revenue to be derived primarily from the sale of
licenses, royalties and the proceeds from litigation of patent infringement
cases. To receive this revenue, we may require additional equipment,
fabrication, components and supplies during the next twelve months to support
potential customer requirements and further develop our technologies and to fund
the expenses of protracted patent enforcement litigation. Product introductions
such as those currently underway for the Ignite microprocessor may require
significant product launch, marketing personnel and other expenditures that
cannot be currently estimated. Further, if expanded development is commenced or
new generations of microprocessor technology are accelerated beyond current
plans, additional expenditures we cannot currently estimate, may be required. It
is possible therefore, that higher levels of expenditures may be required than
we currently contemplate resulting from changes in development plans or as
required to support new developments or commercialization activities or
otherwise.


                                       20
<PAGE>

      If we are unable to obtain the necessary funds, we could be forced to
substantially curtail or cease operations, which would have a material adverse
effect on our business. Further, there can be no assurance that required funds,
if available, will be available on attractive terms or that they will not have a
significantly dilutive effect on our existing shareholders. As such, there is
substantial doubt about our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from our possible
inability to continue as a going concern.

NEW ACCOUNTING PRONOUNCEMENTS

      In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 requires that contracts with comparable
characteristics be accounted for similarly. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of this statement did
not impact our financial position or results of operations.

      In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS No. 150 is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003, except for mandatorily redeemable financial instruments of
nonpublic entities. The adoption of this statement did not impact our financial
position or results of operations.

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.

RELATED TO OUR BUSINESS

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

      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 expect to incur operating losses in the future. Sales of our products
may never generate sufficient revenues to fund our continuing operations. We may
never generate positive cash flow or attain profitability. To date, we have
incurred significant losses. As of May 31, 2004, our accumulated deficit was
$49,844,018. For the fiscal years ended May 31, 2004 and 2003, we incurred net


                                       21
<PAGE>

losses of $4,149,978 and $3,888,299. Because of this record of losses, there is
substantial doubt about our ability to continue as a going concern. These losses
have resulted primarily from:

      o     significant costs associated with the development of our products,

      o     costs associated with the marketing of those products, and

      o     the interest charges and expenses related to equity and debt
            financings.

      Should our losses continue and should we be unable to fund our operations
from external sources, we would need to cease doing business and/or liquidate or
sell our assets.

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.

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


                                       22
<PAGE>

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. Also, we have initiated legal actions
against companies we believe are infringing on our patents. 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 Patriot, 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.

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. We estimate our current annual cash requirements to sustain our
operations to be $1.8 million. 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 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


                                       23
<PAGE>

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. 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 effect 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.

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.


                                       24
<PAGE>

ITEM 8A.  CONTROLS AND PROCEDURES

      Our President and Chief Executive Officer and our Executive Vice President
and Chief Financial Officer conducted an evaluation of our disclosure controls
and procedures (as defined in Securities Exchange Act Rules 13a-14 and 15d-14)
as of July 1, 2004. Based on their evaluation, they concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms. There have been no significant changes
in our internal controls or in other factors that could significantly affect
these controls subsequent to the date of this evaluation. ITEM 8B. OTHER
INFORMATION

      None.

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 June 1, 2004:

<TABLE>
<CAPTION>
NAME                               AGE           POSITION AND OFFICES                              DIRECTOR SINCE
----                               ---           --------------------                              --------------
<S>                                <C>        <C>                                                  <C>
Donald R. Bernier                  62         Chairman and Director                                January 1995
David H. Pohl                      66         Director                                             April 2001
Jeffrey Wallin                     56         President and CEO                                    n/a
Lowell W. Giffhorn                 57         Executive Vice President, CFO,                       August 1999
                                              Secretary and Director
Carlton M. Johnson, Jr.            44         Director                                             August 2001
Helmut Falk, Jr.                   47         Director                                             December 1997
Gloria Felcyn                      57         Director                                             October 2002
Joey Maitra                        54         Vice President Engineering                           n/a
Patrick Nunally                    40         Vice President and CTO                               n/a
</TABLE>

BIOGRAPHICAL INFORMATION

      DONALD R. BERNIER. Mr. Bernier was appointed Chairman of the Board on
August 5, 2001. Since 1971, Mr. Bernier has been the owner and President of
Compunetics Incorporated, a Troy, Michigan-based electronics firm of which he is
the founder. Compunetics engages in contract research and development,
specializing in microelectronics primarily for the automotive industry.

      DAVID H. POHL. Mr. Pohl has served on our board of directors since April
2001, and served as an officer of the Company from January 2001 to March 2002.
Except for his service with PTSC, 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. 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 corporations. 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.

      JEFFREY E. WALLIN. Mr. Wallin has served as our Chief Executive Officer
and President since March 2002. Since 1999, Mr. Wallin was president of SDMC
Inc., a consulting company serving the multimedia system integration and
communications markets. From 1996 to 1999, Mr. Wallin was President and CEO of


                                       25
<PAGE>

TV/COM International, a division of Hyundai that developed and manufactured
end-to-end digital communications systems. Previously Mr. Wallin held senior
level management positions with Snell & Wilcox, General Instrument, now a major
division of Motorola, and Teledyne Corporation. Mr. Wallin obtained a B.S.
degree from Bemidji State University in 1970.

      LOWELL W. GIFFHORN. Mr. Giffhorn was the principal in his own financial
management consulting firm from August 1996 until joining Patriot as Chief
Financial Officer (CFO) in May 1997. 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 a 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.

      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 practiced law in Alabama
since 1986, Florida since 1988, and Georgia since 1997. He has been a
shareholder in the Pensacola, Florida AV 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 Patriot 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.

      GLORIA 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. Ms. Felcyn received a B.S. degree
in Business Economics for Trinity University in 1968.

      PATRICK O. NUNALLY. Dr. Nunally joined us as Vice President of Business
Development and Chief Technical Officer in June 2001, previous to which he had
been providing consulting services to us since May 2000. Dr. Nunally has more
than 20 years of entrepreneurial experience in semiconductor and embedded
processor design. From December 1998 to May 2000, he was President and CEO of
Intertech, a company he founded specializing in intellectual property
development for embedded processor and communications systems. From June 1998 to
December 1998, he was President and CEO of Gruppe Telekom, Inc., a licensee of
Interactive Video and Data Service Spectrum. From April 1996 to June 1998, he
served as Chief Technical Officer and co-founder of Aristo, now PlayNet Inc., a
Java-based games company. Dr. Nunally also held other senior management
positions with Wave Interactive Network, Sensormatic Video Products Division,
Intellisys Automation Inc., E-Metrics Inc., General Dynamics Corporation and
Interstate Electronics. Dr. Nunally received his PhD in Electrical Engineering
from the Pacific Western University in 1996, a MBA from the University of
LaVerne in 1993 and a BS in Electrical and Electronics Engineering from
California State Polytechnic University in 1987.

      JOEY MAITRA. Mr. Maitra was Vice President of Engineering for Metacomp
since 1990 and was appointed Vice President of Engineering of Patriot in
December 1996 through February 2001. Mr. Maitra was reappointed to the same
position in November 2001. Previously Mr. Maitra held various engineering
positions with several computer related technology companies. Mr. Maitra
obtained a B.S. in Electrical Engineering from the Indian Institute of
Technology in 1972 and a M.S. in Electrical Sciences at State University of New
York in 1973.

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

COMMITTEES OF THE BOARD OF DIRECTORS

      Our Board has standing Audit and Compensation Committees.


                                       26
<PAGE>

      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 four times during fiscal
2004, is composed of two directors, both of whom were determined by the Board to
be independent directors. During fiscal 2004 and to date, the Audit Committee
consists 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 Securities and Exchange Commission. 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.

      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 Securities and Exchange
Commission. 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, 2003 through May 31, 2004, all persons subject to the Section
16(a) reporting requirements timely filed the required reports.

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, 2004, 2003, and 2002.


                                       27
<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                         Annual Cash Compensation                     Long-Term Compensation
             Name and             Fiscal                                                      Repriced         All Other
      Principal Position           Year             Salary       Bonus      (# of Shares)      Options       Compensation
      ------------------           ----             ------       -----      -------------      -------       ------------
<S>                                <C>            <C>             <C>            <C>            <C>              <C>
Jeff Wallin                        2004           $145,933 (1)    Nil              673,000      None             None
  President and CEO                2003           $127,650 (1)    Nil              250,000      None             None
                                   2002            $68,800 (1)    Nil            1,000,000      None             None

Lowell W. Giffhorn                 2004           $148,800 (1)    Nil              239,000      None             None
  Exec. V.P., CFO and Secy.        2003           $150,779 (1)    Nil              115,000      None             None
                                   2002           $139,908 (1)    Nil              255,000      None             None

Joey Maitra (3)                    2004           $131,040 (1)    Nil              125,000      None             None
  VP Engineering                   2003           $131,040 (1)    Nil              100,000      None             None
                                   2002           $125,058 (1)    Nil              335,000      None             None

Patrick O. Nunally                 2004           $180,000 (1)    Nil              173,000      None             None
  VP and CTO                       2003           $189,521 (1)    Nil              400,000      None          $52,500 (2)
                                   2002           $173,046 (1)    Nil              250,000      None         $105,000 (2)
</TABLE>

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

      (2)   Payments through November 30, 2002 to Dr. Nunally for assignments to
            the Company of intellectual property rights. The rights were
            returned to Dr. Nunally in April 2003.

      (3)   Mr. Maitra's employment was terminated in July 2004 per the terms of
            his employment contract.

      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, 2004, 2003 and 2002.

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, 2004

<TABLE>
<CAPTION>
                                                                                                 Potential Realizable Value
                                           Percent of Total                                       of Assumed Annual Rates
                                            Options Granted                                      of Stock Price Appreciation
                          Number of         to Employees in      Exercise         Expiration        for Option Term (1)
        Name           Options Granted        Fiscal Year         Prices             Dates          5% ($)       10% ($)
        ----           ---------------        -----------         ------             -----          ------       -------
<S>                              <C>             <C>            <C>            <C>                    <C>          <C>
Jeffrey E. Wallin                673,000         30.5%          $0.035-$0.11   12/18/08-3/18/09       $ 16,844     $ 37,222

Lowell W. Giffhorn               239,000         10.8%          $0.035-$0.05   10/23/08-12/18/08      $  2,706     $  5,981

Joey Maitra                      125,000         5.7%                $ 0.035      12/18/2008          $  1,191     $  2,633

Patrick Nunally                  173,000         7.8%                $ 0.035      12/18/2008          $  1,649     $  3,644
</TABLE>


                                       28
<PAGE>

      (1)   These amounts represent certain assumed rates of appreciation only.
            Actual gains, if any, on stock option exercises are dependent upon
            the future performance of the company's common stock, overall market
            conditions and the executive's continued involvement with the
            company. The amounts represented in this table will not necessarily
            be achieved.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

      There were no exercises of stock options for the fiscal year ended May 31,
2004 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>
                                 Number of Unexercised             Value of Unexercised
                                    Options Held At               In-The-Money Options At
                                      May 31, 2004                      May 31, 2004
                                      ------------                      ------------
           Name              Exercisable      Unexercisable    Exercisable     Unexercisable
           ----              -----------      -------------    -----------     -------------
<S>                           <C>               <C>            <C>               <C>
Jeffrey E. Wallin             1,520,000         423,000        $ 7,875           $ 6,834
Lowell W. Giffhorn              565,000         169,000        $ 2,740           $ 5,541
Joey Maitra                     385,000         175,000        $   750           $ 5,688
Patrick Nunally                 950,000         173,000        $12,600           $ 6,834
</TABLE>

      The fair market value of the unexercised in-the-money options at May 31,
2004 was determined by subtracting the option exercise price from the last sale
price as reported on the over the counter bulletin board on May 31, 2004,
$0.074.

      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 has been paid or is payable by us to
the directors in their capacity as directors other than the granting of stock
options. We expect that, during the next twelve months, we will not pay any
direct or indirect remuneration to any directors of ours in their capacity as
directors other than in the form of stock option grants or the reimbursement of
expenses of attending directors' or committee meetings.

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 previous to any anniversary date. The
agreement provides for a bonus 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.


                                       29
<PAGE>

      The Company entered into an employment agreement dated as of November 17,
2001, with Mr. Giffhorn providing for his employment as Executive Vice President
and Chief Financial Officer. The agreement is for a term through September 4,
2004, 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 up to 50% of the annual base salary for the applicable year. The
agreement also provides Mr. Giffhorn 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 the lesser of (i) four months of the then current
base salary or (ii) the balance remaining of the current base salary 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. 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.

      The Company entered into an employment agreement dated as of January 2,
2004, with Mr. Maitra providing for his employment as Vice President of
Engineering. The agreement is for a term through January 2, 2005 providing for a
base salary initially of $126,240. The base salary may be increased at the
discretion of the Board of Directors. The agreement provides for a bonus up to
50% of the annual base salary for the applicable year. The agreement also
provides Mr. Maitra a monthly car allowance of $400. The Company may terminate
Mr.Maitra's employment with or without cause, but termination without cause
(other than disability or death) would result in severance payments equal to the
lesser of (i) two months of the then current base salary or (ii) the balance
remaining of the current base salary 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. Maitra 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.
Maitra options to purchase 125,000 common shares with vesting tied to the
Company's customer billings.

      The Company entered into employment agreement dated June 1, 2004, as
amended on July 12, 2004, with Dr. Nunally providing for his employment as the
Chief Technical Officer of the Company. The agreement is for a term through June
1 2005, providing for a base salary initially of $124,800. The base salary may
be increased at the discretion of the Board of Directors. The agreement provides
for a bonus up to 50% of the annual base salary for the applicable year. The
agreement also provides Dr. Nunally a monthly car allowance of $400. The Company
may terminate Dr. Nunally's employment with or without cause, but termination
without cause (other than disability or death) would result in severance
payments equal to the lesser of (i) two months of the then current base salary
or (ii) the balance remaining of the current base salary 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 Dr. Nunally 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 the
lesser of (i) two months of the then current base salary or (ii) the balance
remaining of the current base salary for the term of his agreement.

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 12, 2004, 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.


                                       30
<PAGE>

                     Name and Address            Amount & Nature
    Title             of Beneficial               of Beneficial         Percent
  of Class                Owner                     Ownership           of Class
  --------                -----                     ---------           --------
Common stock       Gloria Felcyn, CPA               1,650,000 (1)          *
par value          10989 Via Frontera
 $0.00001          San Diego, CA 92127

SAME               Donald R. Bernier                  725,000 (2)          *
                   10989 Via Frontera
                   San Diego, CA 92127

SAME               Helmut Falk, Jr.                 2,628,231 (3)        1.4%
                   10989 Via Frontera
                   San Diego, CA 92127

SAME               Lowell W. Giffhorn                 789,948 (4)          *
                   10989 Via Frontera
                   San Diego, CA 92127

SAME               SDMC, Inc.                       1,520,000 (5)          *
                   10989 Via Frontera
                   San Diego, CA 92127

SAME               David H. Pohl                      425,000 (6)          *
                   10989 Via Frontera
                   San Diego, CA 92127

SAME               Patrick O. Nunally                 962,700 (7)          *
                   10989 Via Frontera
                   San Diego, CA 92127

SAME               Joey Maitra                        562,342 (8)          *
                   10989 Via Frontera
                   San Diego, CA 92127

SAME               Carlton M. Johnson, Jr.            175,000 (9)          *
                   10989 Via Frontera
                   San Diego, CA 92127

                   All directors & officers         9,438,221 (10)       4.9%
                   as a group (9 persons)

               *  Less than 1%

      1) As trustee of the Helmut Falk Family Trust and executor of the Helmut
      Falk estate, Ms. Felcyn effectively controls the 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 150,000 shares issuable upon the exercise of
      outstanding stock options.

      2) Includes 500,000 shares issuable upon the exercise of outstanding stock
      options.

      3) Includes 215,000 shares issuable upon the exercise of outstanding stock
      options.


                                       31
<PAGE>

      4) Includes 565,000 shares issuable upon the exercise of outstanding stock
      options.

      5) Includes 1,520,000 shares issuable upon the exercise of outstanding
      stock options.

      6) Includes 425,000 shares issuable upon the exercise of outstanding stock
      options.

      7) Includes 950,000 shares issuable upon the exercise of outstanding stock
      options.

      8) Includes 385,000 shares issuable upon the exercise of outstanding stock
      options.

      9) Includes 175,000 shares issuable upon the exercise of outstanding stock
      options.

      10) Includes 4,553,221 shares issued and outstanding and 4,885,000 shares
      issuable upon exercise of stock options.

EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
            Plan category                Number of securities        Weighted average         Number of securities
                                           to be issued upon        exercise price of          remaining available
                                              exercise of          outstanding options,        for future issuance
                                         outstanding options,      warrants and rights            under equity
                                          warrants and rights                                  compensation plans
                                                                                              (excluding securities
                                                                                             reflected in column (a)
                                                  (a) (b) (c)
------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                         <C>                       <C>
Equity compensation plans
approved by security holders                   7,003,000                  $0.22                     4,196,188

Equity compensation plans not
approved by security holders                  121,349,420                 $0.05                       None
                                       ---------------------------------------------------------------------------------

Total                                         128,352,420                 $0.06                     4,196,188
                                       =================================================================================
</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

      There were no transactions, or series of transactions, during fiscal 2004
and 2003, 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.

      In June 2000, we entered into a three-year, $80,000 secured promissory
note receivable with James T. Lunney, a previous Chairman, President and CEO.
The note bore interest at the rate of 6% with interest payments due
semi-annually and the principal due at the maturity of the note. Mr. Lunney
pledged 100,000 shares of Patriot's common stock that he held on the date of
issuance as security for this note. In April 2003, we negotiated an early
payment discount and Mr. Lunney paid $60,000 to retire this note.

      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


                                       32
<PAGE>

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 our 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 maturity date of
January 9, 2005.

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 Nation Smith Hermes Diamond, Independent Certified Public
            Accounting Firm

            Consolidated Balance Sheets- As of May 31, 2004 and 2003

            Consolidated Statements of Operations- Years Ended May 31, 2004 and
            2003

            Consolidated Statement of Stockholders' Equity (Deficit)- Years
            Ended May 31, 2004 and 2003

            Consolidated Statements of Cash Flows- Years Ended May 31, 2004 and
            2003

            Notes to Consolidated Financial Statements

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

<TABLE>
<CAPTION>
Exhibit No.   Document                                                                                No.
-----------   --------                                                                                ---
<S>           <C>                                                                                     <C>
2.0           PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION.

2.1           Agreement to Exchange Technology for Stock in Patriot Scientific Corporation,           (1)
              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        (1)
              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         (1)
              Sierra Systems, incorporated by reference to Exhibit 2.2.1 to
              Pre-Effective Amendment No. 1 to Registration Statement on Form
              SB-2 dated April 29, 1996
</TABLE>

                                       33
<PAGE>

<TABLE>
<CAPTION>
Exhibit No.   Document                                                                                No.
-----------   --------                                                                                ---
<S>           <C>                                                                                     <C>
2.3           Form of Exchange Offer dated December 4, 1996 between the Company and certain           (1)
              shareholders of Metacomp, Inc. incorporated by reference to Exhibit 2.3 to Form
              8-K dated January 9, 1997

2.4           Letter of Transmittal to Accompany Shares of Common Stock of Metacomp, Inc.             (1)
              Tendered Pursuant to the Exchange Offer Dated December 4, 1996 incorporated by
              reference to Exhibit 2.4 to Form 8-K dated January 9, 1997

3.0           ARTICLES AND BYLAWS.

3.1           Original Articles of Incorporation of the Company's predecessor, Patriot Financial      (1)
              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      (1)
              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       (1)
              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 (1) 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 (1) filed with the Delaware Secretary of State on
              June 19,1997, incorporated by reference to Exhibit 3.3.2 to Form
              10-KSB for the fiscal year ended May 31, 1997

3.3.3         Certificate of Amendment to the Certificate of Incorporation of
              the Company, as (1) 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 dated May 5, 2000

3.3.4         Certificate of Amendment to the Certificate of Incorporation of
              the Company, as (1) 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 dated June 27, 2002

3.3.5         Certificate of Amendment to the Certificate of Incorporation of
              the Company, as (1) 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 dated May 21, 2004+B96

3.4           Articles and Certificate of Merger of Patriot Financial Corporation into the            (1)
              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,        (1)
              incorporated by reference to Exhibit 3.5 to Form 8-K dated May 12, 1992

3.6           Certificate of Merger issued by the Colorado Secretary of State on May 12, 1992,        (1)
              incorporated by reference to Exhibit 3.6 to Form 8-K dated May 12, 1992
</TABLE>

                                       34
<PAGE>

<TABLE>
<CAPTION>
Exhibit No.   Document                                                                                No.
-----------   --------                                                                                ---
<S>           <C>                                                                                     <C>
3.7           Bylaws of the Company, incorporated by reference to Exhibit 3.7 to Form 8-K dated       (1)
              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        (1)
              8-K dated May 12, 1992

4.2           Form of Stock Purchase Warrant (Labway Corporation) dated February 29, 1996,            (1)
              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

4.3           Form of 6% Convertible Subordinated Promissory Note due September 30, 1998              (1)
              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

4.4           Form of 5% Convertible Term Debenture (CC Investments, LDC) due June 2, 1999            (1)
              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                 (1)
              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
              dated June 16, 1997

4.6           Registration Rights Agreement dated June 2, 1997 by and among the Company and CC        (1)
              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 dated June 16, 1997

4.7           Form of Warrant to Purchase Common Stock (Swartz Family Partnership, L.P.) dated        (1)
              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 dated June 16, 1997

4.8           Registration Rights Agreement dated June 2, 1997 by and among the Company and           (1)
              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 dated June 16,
              1997

4.9           Form of 5% Convertible Term Debenture (CC Investments, LDC) due June 2, 1999            (1)
              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

4.10          Form of Stock Purchase Warrant (CC Investments, LDC) dated November 24, 1997            (1)
              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
</TABLE>

                                       35
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Document                                                                                No.
-----------   --------                                                                                ---
<S>           <C>                                                                                     <C>
4.11          Form of Warrant to Purchase Common Stock (Swartz Family Partnership, L.P.) dated        (1)
              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

4.12          Form of Warrant to Purchase Common Stock (Investor Communications Group, Inc.)          (1)
              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

4.13          Warrant to Purchase Common Stock issued to Spellcaster Telecommunications, Inc.         (1)
              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

4.14          Investment agreement dated February 24, 1999 by and between the Company and Swartz      (1)
              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

4.15          Registration Rights Agreement dated February 24, 1999 by and between the Company        (1)
              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

4.16          Form of Warrant to Purchase Common Stock (Swartz Private Equity, LLC) dated             (1)
              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

4.17          Amended and Restated Investment Agreement dated July 12, 1999 by and between the        (1)
              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 dated July 14, 1999

4.18          Investment Agreement dated April 28, 2000 by and between the Company and Swartz         (1)
              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 dated May 5, 2000

4.18.1        Waiver and Agreement dated September 24, 2001 amending the
              Investment Agreement (1) dated April 28, 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 dated October 11, 2001

4.19          2001 Stock Option Plan of the Company dated February 21, 2001 incorporated by           (1)
              reference to Exhibit 4.19 to Registration Statement on Form S-8 dated March 26,
              2001
</TABLE>


                                       36
<PAGE>

<TABLE>
<CAPTION>
Exhibit No.   Document                                                                                No.
-----------   --------                                                                                ---
<S>           <C>                                                                                     <C>
4.20          Investment agreement dated September 17, 2001 by and between the Company and            (1)
              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 dated October 11, 2001

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

4.22          Warrant to Purchase Common Stock dated September 17, 2001 exercisable to purchase       (1)
              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
              dated October 11, 2001

4.23          Financial Consulting Services Agreement between the Company and M. Blaine Riley,        (1)
              Randall Letcavage and Rosemary Nguyen incorporated by reference to Exhibit 4.23 to
              Registration Statement on Form S-8 dated January 22, 2002

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

4.25          Form of Stock Purchase Warrant (Lincoln Ventures, LLC) dated June 10, 2002              (1)
              exercisable to purchase an aggregate of 12,859,175 common shares at initial
              exercise prices ranging form $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 dated June 27, 2002

4.26          Form of Registration Rights Agreement (Lincoln Ventures, LLC) dated June 10, 2002       (1)
              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 dated June 27, 2002

4.27          2003 Stock Option Plan of the Company dated July 2, 2003 incorporated by reference      (1)
              to Exhibit 4.27 to Registration Statement on Form S-8 dated September 4, 2003

10.0          MATERIAL CONTRACTS.

10.1          1992 Incentive Stock Option Plan of the Company, incorporated by reference to           (1)
              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 (1) by reference to Exhibit 10.1.1 to Form S-8
              dated July 17, 1996

10.2          1992 Non-Statutory Stock Option Plan of the Company, incorporated by reference to       (1)
              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 (1) incorporated by reference to Exhibit 10.2.1 to Form
              10-KSB for fiscal year ended May 31, 1996
</TABLE>


                                       37
<PAGE>

<TABLE>
<CAPTION>
Exhibit No.   Document                                                                                No.
-----------   --------                                                                                ---
<S>           <C>                                                                                     <C>
10.3          Lease Agreement between the Company's subsidiary Metacomp, Inc. and Clar-O-Wood         (1)
              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

10.4          Stock Purchase Agreement dated November 29 and 30, 1995, between the  Company and       (1)
              SEA, Ltd., incorporated by reference to Exhibit 10.4 to Form 8-K dated December
              11, 1995

10.4.1        Letter Amendment to Stock Purchase Agreement dated February 21, 1996, between the       (1)
              Company and SEA, Ltd., incorporated by reference to Exhibit 10.4.1 to Form 10-QSB
              for fiscal quarter ended 2/29/96

10.5          1995 Employee Stock Compensation Plan of the Company, incorporated by reference to      (1)
              Exhibit 10.5 to Form 10-QSB for fiscal quarter ended 11/30/95

10.6          Letter Stock and Warrant Agreement dated January 10, 1996 between the Company and       (1)
              Robert E. Crawford, Jr., incorporated by reference to Exhibit 10.6 to Form 10-QSB
              for fiscal quarter ended February 29, 1996

10.7          Non-Exclusive Manufacturing and Line of Credit Agreement dated February 28, 1996,       (1)
              between the Company and Labway Corporation, incorporated by reference to Exhibit
              10.7 to Form 10-QSB for fiscal quarter ended February 29, 1996

10.8          Distribution and Representation Agreement dated February 28, 1996, between the          (1)
              Company and Innoware, Inc., incorporated by reference to Exhibit 10.8 to Form
              10-QSB for fiscal quarter ended February 29, 1996

10.9          Employment Agreement dated November 20, 1995 between the Company and Elwood G.          (1)
              Norris, incorporated by reference to Exhibit 10.9 to Registration Statement on
              Form SB-2 dated March 18, 1996

10.9.1        First Amendment to Employment Agreement dated May 17, 1996 between the Company and      (1)
              Elwood G. Norris, incorporated by reference to Exhibit 10.9.1 to Pre-Effective
              Amendment No. 2 to Registration Statement on Form SB-2 dated May 23, 1996

10.10         Employment Agreement dated November 20, 1995 between the Company and Robert             (1)
              Putnam, incorporated by reference to Exhibit 10.10 to Registration Statement on
              Form SB-2 dated March 18, 1996

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

10.11.1       Two Year Stock Purchase Warrant dated March 19, 1996 Granted to Evolve Software,        (1)
              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 dated April 29, 1996
</TABLE>


                                       38
<PAGE>

<TABLE>
<CAPTION>
Exhibit No.   Document                                                                                No.
-----------   --------                                                                                ---
<S>           <C>                                                                                     <C>
10.12         Employment Agreement dated as of May 8, 1996 between the Company and Michael A.         (1)
              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 dated May
              23, 1996

10.12.1       First Amendment to Employment Agreement dated as of May 8, 1996 between the             (1)
              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

10.13         1996 Stock Option Plan of the Company dated March 25, 1996 and approved by the          (1)
              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 dated May 23,
              1996

10.14         Sales Contractual Agreement dated June 20, 1996 between the Company and                 (1)
              Compunetics Incorporated incorporated by reference to Exhibit 10.14 to Form 10-KSB
              for fiscal year ended May 31, 1996

10.15         Sales Contractual Agreement dated July 31, 1996 between the Company and Premier         (1)
              Technical Sales, Inc. incorporated by reference to Exhibit 10.15 to Form 10-KSB
              for fiscal year ended May 31, 1996

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

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

10.18         Technology License and Distribution Agreement dated June 23, 1997 between the           (1)
              Company and Sun Microsystems, Inc. incorporated by reference to Exhibit 10.18 to
              Form 10-KSB for the fiscal year ended May 31, 1997

10.19         Employment Agreement dated March 23, 1998 between the Company and James T. Lunney       (1)
              incorporated by reference to Exhibit 10.19 to Form 10-KSB for the fiscal year
              ended May 31, 1998

10.20         Employment Agreement dated July 28, 1997 between the Company and Phillip Morettini      (1)
              incorporated by reference to Exhibit 10.20 to Form 10-KSB for the fiscal year
              ended May 31, 1998

10.21         Employment Agreement dated July 23, 1998 between the Company and Lowell W.              (1)
              Giffhorn incorporated by reference to Exhibit 10.21 to Form 10-KSB for the fiscal
              year ended May 31, 1998

10.22         Secured Promissory Note dated June 12, 2000 between the Company and James T.            (1)
              Lunney incorporated by reference to Exhibit 10.22 to Form 10-KSB for the fiscal
              year ended May 31, 2000

10.23         Purchase Agreement dated June 29, 2000 between the Company and 4S 37/38, LLC            (1)
              incorporated by reference to Exhibit 10.23 to Form 10-KSB for the fiscal year
              ended May 31, 2000
</TABLE>


                                       39
<PAGE>

<TABLE>
<CAPTION>
Exhibit No.   Document                                                                                No.
-----------   --------                                                                                ---
<S>           <C>                                                                                     <C>
10.24         Employment Agreement dated October 2, 2000 between the Company and Miklos B.            (1)
              Korodi incorporated by reference to Exhibit 10.24 to Form 10-QSB
              for the fiscal quarter ended November 30, 2000

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

10.26         Employment Agreement dated January 29, 2001 between the Company and Serge J.            (1)
              Miller incorporated by reference to Exhibit 10.26 to Form 10-KSB for the fiscal
              year ended May 31, 2001

10.27         Lease Agreement dated February 23, 2001 between the Company and Arden Realty            (1)
              Finance IV, LLC incorporated by reference to Exhibit 10.27 to Form 10-KSB for the
              fiscal year ended May 31, 2001

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

10.29         Employment Agreement dated April 26, 2001 between the Company and David H. Pohl         (1)
              incorporated by reference to Exhibit 10.29 to Form 10-KSB for the fiscal year
              ended May 31, 2001

10.30         Employment Agreement dated November 17, 2001 between the Company and Lowell W.          (1)
              Giffhorn incorporated by reference to Exhibit 10.30 to Registration Statement on
              Form S-3 dated June 27, 2002

10.31         Employment Agreement dated December 20, 2001 between the Company and Jayanta            (1)
              Maitra incorporated by reference to Exhibit 10.31 to Registration Statement on
              Form S-3 dated June 27, 2002

10.32         Consulting Agreement dated March 7, 2002 between the Company and SDMC, Inc.             (1)
              incorporated by reference to Exhibit 10.32 to Registration Statement on Form S-3
              dated June 27, 2002

10.33         Employment Agreement dated January 2, 2004 between the Company and Jayanta Maitra       (1)
              incorporated by reference to Exhibit 10.33 to Registration Statement on Form SB-2
              dated May 21, 2004

10.34         Consulting Agreement dated March 18, 2004 between the Company and SDMC, Inc.            (1)
              incorporated by reference to Exhibit 10.34 to Registration Statement on Form SB-2
              dated May 21, 2004

10.35         Employment Agreement dated June 1, 2004 between the Company and Patrick Nunally         (2)

10.36         Amendment No. 1 to Employment Agreement dated July 12, 2004 between the Company         (2)
              and Patrick Nunally

14.0          CODE OF ETHICS.

14.1          Code of Ethics for Senior Financial Officers incorporated by reference to Exhibit       (1)
              14.1 to Form 10-K for the fiscal year ended May 31, 2003
</TABLE>


                                       40
<PAGE>

<TABLE>
<CAPTION>
Exhibit No.   Document                                                                                No.
-----------   --------                                                                                ---
<S>           <C>                                                                                     <C>
21.0          SUBSIDIARIES OF THE SMALL BUSINESS ISSUER.

21.1          Subsidiaries of the small business issuer                                               (2)

23.0          CONSENTS OF EXPERTS AND COUNSEL.

23.1          Consent of Nation Smith Hermes Diamond, LLP independent registered certified            (2)
              public accounting firm

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

31.1          Certification of Jeffrey E. Wallin, CEO                                                 (2)

31.2          Certification of Lowell W. Giffhorn, CFO                                                (2)

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

321.1         Certification of Jeffrey E. Wallin, CEO                                                 (2)

32.2          Certification of Lowell W. Giffhorn, CFO                                                (2)

99.0          ADDITIONAL EXHIBITS.

99.1          Form of ISO Plan Option (Gaspar) dated May 29, 1992, incorporated by reference to       (1)
              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       (1)
              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        (1)
              (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 dated May 23, 1996

99.4          Form of NonQualified Stock Option Agreement to the Company's 1996 Stock Option          (1)
              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 dated May 23, 1996

99.5          Press Release of the Company dated November 4, 1996 incorporated by reference to        (1)
              Exbibit 99.5 to Form 8-K dated January 9, 1997

99.6          Form of Incentive Stock Option Agreement to the Company's 2001 Stock Option Plan        (1)
              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         (1)
              Plan  incorporated by reference to Exhibit 99.7 to Registration Statement on Form
              S-8 filed March 26, 2001
</TABLE>


                                       41
<PAGE>

<TABLE>
<CAPTION>
Exhibit No.   Document                                                                                No.
-----------   --------                                                                                ---
<S>           <C>                                                                                     <C>
99.8          Form of Incentive Stock Option Agreement to the Company's 2003 Stock Option Plan        (1)
              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         (1)
              Plan  incorporated by reference to Exhibit 99.9 to Registration Statement on Form
              S-8 filed September 4, 2003
</TABLE>

      (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, 2004

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      Nation Smith Hermes Diamond was our principal accountant during the years
ended May 31, 2004 and May 31, 2003. 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, 2004 and 2003.

<TABLE>
<CAPTION>
                            Nation Smith Hermes Diamond                 BDO Seidman
                           -------------------------------     -----------------------------
                                 2004             2003              2004            2003
                           ---------------   -------------     -------------   -------------
<S>                        <C>               <C>               <C>             <C>
Audit fees                 $       78,000    $     72,902      $      5,500    $          -
Audit-related fees                 22,908          40,099             7,200          20,000
Tax fees                           13,000             635                 -               -
All other fees                        (57)             57                 -               -
                           ---------------   -------------     -------------   -------------
Total                      $      113,851    $    113,693      $     12,700    $     20,000
                           ===============   =============     =============   =============
</TABLE>

         Audit Fees. Represents fees for professional services provided for the
         audit of Patriot Scientific's annual financial statements and review of
         Patriot Scientific's quarterly financial statements, and audit services
         provided in connection with other statutory or regulatory filings.

         Audit-related Fees. Represents fees for assurance services related to
         the audit of Patriot Scientific's financial statements. The fees are
         primarily for review of registration and proxy statements.

         Tax Fees. Represents fees for professional services provided primarily
         for compliance, advice and tax return preparation.

         All Other Fees. Represents fees for products and services not otherwise
         included in the categories above.


      To help ensure the independence of our independent auditor, the Audit
Committee of the Board of Directors of Patriot Scientific has approved and
adopted a Policy on Engagement of Independent Auditor, which is available on
Patriot Scientific'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 more 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.


                                       42
<PAGE>

      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 Patriot Scientific
authorized by the Audit Committee to sign on behalf of Patriot Scientific.

      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 Patriot Scientific officers or Audit Committee members,
including financial counseling and tax services.


                                       43
<PAGE>

Patriot Scientific Corporation

Index to Consolidated Financial Statements

    Report of Nation Smith Hermes Diamond, Independent Registered
             Certified Public Accounting Firm.............................F-2

    Consolidated Balance Sheets as of May 31, 2004 and 2003................F-3

    Consolidated Statements of Operations for the Years Ended May 31,
      2004 and 2003........................................................F-4

    Consolidated Statement of Stockholders' Equity (Deficit) for the
      Years Ended May 31, 2004 and 2003....................................F-5

    Consolidated Statements of Cash Flows for the Years Ended
      May 31, 2004 and 2003............................................... F-6

    Summary of Accounting Policies.........................................F-7-
                                                                           F-11

    Notes to Consolidated Financial Statements.............................F-12-
                                                                           F-26


                                      F-1
<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 sheets of Patriot
Scientific Corporation as of May 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the years in the two year period ended May 31, 2004. 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 audits.

We conducted our audits 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 audits provide 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 2003, and the consolidated results of its
operations and its cash flows for each of the years in the two year period ended
May 31, 2004, 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
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-2
<PAGE>

                         PATRIOT SCIENTIFIC CORPORATION
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
May 31,                                                                                   2004              2003
--------------------------------------------------------------------------------------------------------------------
ASSETS  (Notes 4 and 5)

<S>                                                                                  <C>               <C>
CURRENT ASSETS:
      Cash and cash equivalents                                                      $    355,940      $     32,663
      Marketable securities                                                                22,646                --
      Accounts receivable, net of allowance
        of none and $10,000 for uncollectible accounts                                      1,225             3,866
      Prepaid expenses                                                                    322,068            93,030
--------------------------------------------------------------------------------------------------------------------

Total current assets                                                                      701,879           129,559

PROPERTY AND EQUIPMENT, net (Note 2)                                                       68,389           153,530

OTHER ASSETS                                                                               41,221            53,220

PATENTS AND TRADEMARKS, net of accumulated amortization
  of $501,235 and $450,926                                                                114,739           128,925
--------------------------------------------------------------------------------------------------------------------
                                                                                     $    926,228      $    465,234
--------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
      Secured note payable (Note 4)                                                  $         --      $    635,276
      Current portion of 8% Convertible Debentures, net of debt discount of
         $27,180 and  $103,121 (Note 5)                                                   145,320           121,879
      Secured notes payable to shareholders                                               100,000           180,000
      Accounts payable                                                                    134,600           397,180
      Accrued liabilities                                                                 160,102           245,822
      Current portion of capital lease obligation                                           8,020             6,405
--------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                 548,042         1,586,562

8% CONVERTIBLE DEBENTURES, net of debt discount of $2,047,966 and $709,890 (Note          227,701           280,110

LONG TERM PORTION OF CAPITAL LEASE OBLIGATION                                               2,306            10,326

COMMITMENTS AND CONTINGENCIES (Notes 1, 6 and 10)

          STOCKHOLDERS' EQUITY (DEFICIT) (Notes 5 and 6):
        Preferred stock, $.00001 par value; 5,000,000 shares
  authorized: none outstanding                                                                 --                --
Common stock, $.00001par value; 400,000,000 shares authorized: 171,156,363 and
  106,547,807 issued and outstanding at May 31, 2004 and 2003, respectively                 1,712             1,066
Additional paid-in capital                                                             49,990,485        44,281,210
Accumulated deficit                                                                   (49,844,018)      (45,694,040)
--------------------------------------------------------------------------------------------------------------------
Total stockholders' deficit                                                               148,179        (1,411,764)
--------------------------------------------------------------------------------------------------------------------
                                                                                     $    926,228      $    465,234
--------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying report of independent registered certified public accounting
firm, summary of accounting policies and notes to consolidated financial
statements.

                                      F-3
<PAGE>

                         PATRIOT SCIENTIFIC CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended May 31,                              2004                  2003
--------------------------------------------------------------------------------
<S>                                           <C>                <C>
Net sales (Note 11):
      Product                                 $      74,017      $     108,403
      Licenses and royalties                          2,400             15,500
--------------------------------------------------------------------------------
Net sales                                            76,417            123,903
--------------------------------------------------------------------------------

Cost of sales                                        10,472             18,660
--------------------------------------------------------------------------------

Gross profit                                         65,945            105,243

Operating expenses:
      Research and development                      549,756            723,287
      Selling, general and administrative         1,253,559          1,821,902
--------------------------------------------------------------------------------
Operating expenses                                1,803,315          2,545,189
--------------------------------------------------------------------------------
Operating loss                                   (1,737,370)        (2,439,946)
--------------------------------------------------------------------------------
Other income (expenses):
      Sale of technology                             75,500                 --
      Loss on marketable securities                 (45,354)                --
      Interest income                                   270                191
      Interest expense (Notes 4, 5 and 6)        (2,443,024)        (1,448,544)
--------------------------------------------------------------------------------
Other income (expenses)                          (2,412,608)        (1,448,353)
--------------------------------------------------------------------------------
Net loss                                      $  (4,149,978)     $  (3,888,299)
--------------------------------------------------------------------------------

Basic and diluted loss
     per common share (Note 7)                $       (0.03)     $       (0.04)
--------------------------------------------------------------------------------
Weighted average number of
  common shares outstanding
  during the period (Note 7)                    139,767,276         93,791,470
--------------------------------------------------------------------------------
</TABLE>

See accompanying report of independent registered certified public accounting
firm, summary of accounting policies and notes to consolidated financial
statements.


                                      F-4
<PAGE>

                         PATRIOT SCIENTIFIC CORPORATION
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended May 31, 2004 and 2003
                                                               Common Stock
                                                          ---------------------- Additional      Accumulated      Stockholders'
                                                            Shares       Amount  Paid-in Capital    Deficit       Equity (Deficit)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>           <C>       <C>                 <C>             <C>
Balance, June 1, 2002                                      81,465,757   $   815   $ 41,360,101(1)    $(41,805,741)   $   (444,825)

Issuance of common stock at $.03 to $.05
  per share (Note 6)                                        3,765,266        38        120,312                  --         120,350
Collection of note receivable (Note 3)                             --        --         80,000                  --          80,000
Issuance of common stock for services
  at $.04 to $.06 per share                                 2,780,000        28        148,772                  --         148,800
Conversion of debentures payable plus accrued interest
  at $.04 to $.05 per share (Note 4)                       18,536,784       185        836,375                  --         836,560
Value of warrants issued                                           --        --      1,735,650                  --       1,735,650
Net loss                                                           --        --             --          (3,888,299)     (3,888,299)
------------------------------------------------------------------------------------------------------------------------------------

Balance, May 31, 2003                                     106,547,807   $ 1,066   $ 44,281,210        $(45,694,040)   $ (1,411,764)
------------------------------------------------------------------------------------------------------------------------------------

Issuance of common stock at $.025 to $.034
  per share (Note 6)                                        1,800,752        18         50,422                  --          50,440
Exercise of warrants and options at $.0172 to $.04 per     11,184,175       112        285,832                  --         285,944
Issuance of common stock for services
  at $.043 to $.117 per share                               1,126,496        11         59,841                  --          59,852
Conversion of debentures payable plus accrued interest
  at $.017 to $.064 per share (Note 5)                     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
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying report of independent registered certified public accounting
firm, summary of accounting policies and notes to consolidated financial
statements.

(1)   Additional Paid-In Capital included a note receivable of $80,000 and
      additional paid-in capital of $41,440,101 at June 1, 2002.


                                      F-5
<PAGE>

              PATRIOT SCIENTIFIC CORPORATION
           Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years Ended May 31,                                               2004          2003
--------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>
OPERATING ACTIVITIES:
      Net loss                                                $(4,149,978)   $(3,888,299)
      Adjustments to reconcile net loss
        to cash used in operating activities:
          Amortization and depreciation                           135,450        258,915
          Provision for doubtful accounts                              --         24,000
          Non -cash interest expense related to convertible
              debentures, notes payable and warrants            2,293,922      1,304,957
      Gain on sale of technology                                  (75,500)            --
      Unrealized loss on marketable securities                     45,354             --
      Common stock, options and warrants issued for
             services                                              59,852        148,800
          Changes in:
              Accounts receivable                                 (18,639)       (33,346)
              Prepaid and other assets                           (217,039)       216,195
              Accounts payable and accrued expenses              (149,394)        83,016
--------------------------------------------------------------------------------------------
Net cash used in operating activities                          (2,075,972)    (1,885,762)
--------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
      Note receivable (Note 3)                                         --         60,000
      Proceeds from sale of technology                              7,500             --
      Purchase of property, equipment and patents, net            (36,123)       (62,194)
--------------------------------------------------------------------------------------------
Net cash used in investing activities                             (28,623)        (2,194)
--------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
      Proceeds from issuance of secured notes payable              12,320        180,000
      Payments for capital lease obligations                       (6,405)        (5,116)
      Proceeds from issuance of convertible debentures          2,175,000      1,507,000
      Proceeds from issuance of common stock                       50,440        120,350
      Proceeds from exercise of common stock warrants
        and options                                               175,237             --
      Proceeds from sale of accounts receivable                    21,280         30,277
--------------------------------------------------------------------------------------------
Net cash provided by financing activities                       2,427,872      1,832,511
--------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS                         323,277        (55,445)
CASH AND CASH EQUIVALENTS, beginning of year                       32,663         88,108
--------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year                        $   355,940    $    32,663
--------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

      Cash payments for interest                              $    17,220    $    15,083
      Convertible debentures, notes payable and accrued
        interest exchanged for common stock                   $ 1,757,628    $   836,560
      Debt discount                                           $ 2,873,167    $ 1,763,816
--------------------------------------------------------------------------------------------
</TABLE>

See accompanying report of independent registered certified public accounting
firm, summary of accounting policies and notes to consolidated financial
statements.


                                      F-6
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS

Patriot Scientific Corporation (the "Company") is engaged in the development,
marketing, and sale of patented microprocessor technology and the sale of
high-performance high-speed data communication products. The Company also owns
innovative radar technology. The Company sold its antenna technology in August
1999.

BASIS OF PRESENTATION AND CONSOLIDATION

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of the
Company, 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 2003 financial statements in
order for them to conform to the 2004 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 temporary cash investments and trade accounts
receivable.

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 investment policy limits the Company's
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 accounts receivable are limited
due to the wide variety of customers and markets which comprise the Company's
customer base, as well as their dispersion across many different geographic
areas. 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,
accounts receivable, accounts payable and accrued liabilities approximate fair
value because of the immediate or short-term maturity of these instruments. With
respect to long-term debt, the carrying amounts approximate fair value due to
the relative consistency in interest rates and the short term nature of the
debt, with all debt maturing within two years of issuance.

MARKETABLE SECURITIES

As part of the sale of our gas plasma antenna technology we received restricted
securities in a company that is traded on the OTC bulletin board. The securities
can be traded under Rule 144 after July 2004. We reflect the value of those
securities based on the closing price as of the end of our reporting period. Any
unrealized gain or loss between reporting periods is reflected in our
consolidated statement of operations as non-operating income or loss.


                                      F-7
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

PROPERTY, EQUIPMENT AND DEPRECIATION

Property and equipment are stated at cost. Depreciation is computed over the
estimated useful life of 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 continuously
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. 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

We recognize revenue on the shipment to our customers of communication products,
microprocessor integrated chips and evaluation boards. We also derive revenue
from fees for the transfer of proven and reusable intellectual property
components or the performance of engineering services. We enter into licensing
agreements that will provide licensees the right to incorporate our intellectual
property components in their products with terms and conditions that will vary
by licensee. Generally, these payments will include a nonrefundable technology
license fee, which will be payable upon the transfer of intellectual property,
or a nonrefundable engineering service fee, which generally will be payable upon
achievement of defined milestones. In addition, we anticipate these agreements
will include royalty payments, which will be payable upon sale of a licensee's
product, and maintenance and limited support fees. We will classify all revenue
that involves the future sale of a licensee's products as royalty revenue.
Royalty revenue will be generally recognized in the quarter in which a report is
received from a licensee detailing the shipments of products incorporating our
intellectual property components (i.e., in the quarter following the sale of
licensed product by the licensee). We will classify all revenue that does not
involve the future sale of a licensee's products, primarily license fees and
engineering service fees and maintenance and support fees, as contract revenue.
License fees will be recognized upon the execution of the license agreement and
transfer of intellectual property, provided no further significant performance
obligations exist and collectibility is deemed probable. Fees related to
engineering services contracts, which will be performed on a best efforts basis
and for which we will receive periodic milestone payments, will be recognized as
revenue over the estimated development period, using a cost-based percentage of
completion method. Annual maintenance and support fees, which will be renewable
by the licensee, will be classified as contract revenue and will be amortized
over the period of support, generally 12 months.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred.


                                      F-8
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

ADVERTISING

The Company expenses advertising costs as incurred. Advertising expenses were
approximately none and $3,400 for the years ended May 31, 2004 and 2003.

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.

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 reflect the potential dilution
of securities that could share in the earnings (loss) of an entity.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles 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.

INVENTORIES

Inventories consist of raw materials, work in process and finished goods and are
valued at the weighted average cost method, which approximates cost on a
first-in, first-out basis, not in excess of market value. As of May 31, 2004 and
2003 both inventory amounts were fully reserved.

SALE OF ACCOUNTS RECEIVABLE

The Company has adopted SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS 140"). SFAS 140
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. A $400,000 factoring
line established by the Company with a bank enables the Company to sell selected
accounts receivable invoices to the bank with full recourse against the Company.
These transactions qualify for a sale of assets since (1) the Company has
transferred all of its right, title and interest in the selected accounts
receivable invoices to the bank, (2) the bank may pledge, sell or transfer the
selected accounts receivable invoices, and (3) the Company has no effective
control over the selected accounts receivable invoices since it is not entitled
to or obligated to repurchase or redeem the invoices before their maturity and
it does not have the ability to unilaterally cause the bank to return the
invoices. Under SFAS 140, after a transfer of financial


                                      F-9
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. During fiscal
2004 and 2003, the Company sold approximately $27,000 and $38,000, respectively,
of its accounts receivable to a bank under a factoring agreement for
approximately $21,000 and $30,000, respectively. Pursuant to the provisions of
SFAS 140, the Company reflected the transaction as a sale of assets and
established an accounts receivable from the bank for the retained amount less
the costs of the transaction and less any anticipated future loss in the value
of the retained asset. The retained amount is equal to 20% of the total accounts
receivable invoice sold to the bank less 1% of the total invoice as an
administrative fee and 1.75% per month of the total outstanding accounts
receivable invoices as a finance fee. The estimated future loss reserve for each
receivable included in the estimated value of the retained asset is based on the
payment history of the accounts receivable customer. At May 31, 2004, there was
no outstanding balance and $400,000 was available for future factoring of
accounts receivable invoices.

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.

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


                                      F-10
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

                                        2004                  2003
-----------------------------------------------------------------------

Net loss as reported                 $(4,149,978)          $(3,888,299)
Compensation expense                    (152,074)             (289,023)
                                     -----------           -----------
Net loss pro forma                   $(4,302,052)          $(4,177,322)
                                     ===========           ===========
As reported per share
     Basic and diluted loss          $     (0.03)          $     (0.04)
                                     ===========           ===========
Pro forma per share
     Basic and diluted loss          $     (0.03)          $     (0.04)
                                     ===========           ===========

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 requires that contracts with comparable
characteristics be accounted for similarly. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of this statement did
not impact our financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS No. 150 is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003, except for mandatorily redeemable financial instruments of
nonpublic entities. The adoption of this statement did not impact our financial
position or results of operations.


                                      F-11
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. CONTINUED EXISTENCE AND MANAGEMENT'S PLAN

Our consolidated financial statements are presented on the going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. Our ability to continue as a going concern is
contingent upon our obtaining sufficient financing to sustain our operations. We
incurred a net loss of $4,149,978 and $3,888,299 and negative cash flow from
operations of $2,171,896 and $1,885,762 in the years ended May 31, 2004 and
2003. At May 31, 2004, we had cash and cash equivalents of $355,940. We have
historically funded our operations primarily through the issuance of securities
and debt financings. Cash and cash equivalents increased $323,277 during the
year ended May 31, 2004.

We estimate our current cash requirements to sustain our operations for the next
twelve months through May 2005 to be $1.8 million. Since we are no longer
supporting the communications product line, we are assuming that there will be
no communications product revenue. We have issued 8% convertible debentures as
our primary source of funding since 2002. At the option of the debenture
holders, they may purchase additional debentures up to $1 million at any time
during the two years following their purchase as long as the price of our common
stock is in excess of $0.20 per share. During the year ended May 31, 2004, we
obtained $2,175,000 from the issuance of convertible debentures, $50,440 from
the sale of equity to several private investors, $183,270 from the exercise of
warrants and $12,320 from short term notes entered into with a related party.

If the optional amounts under the convertible debentures are not raised in
sufficient amounts, then we may not have funds sufficient to meet our cash
requirements. In such circumstances, we would need to secure additional debt
and/or equity financings with individual or institutional investors. In
addition, we would be required to make additional cost reductions if our cash
requirements cannot be met from external sources. We expect that the $1.8
million requirement will be provided by:

      o     additional debt and/or equity financings;

      o     proceeds from the exercise of outstanding stock options and
            warrants; and

      o     proceeds from revenue contracts and patent enforcement activities.

In addition, we have formulated additional cost reduction plans which can be
implemented if the required funds are not obtainable. As of May 31, 2004, we
also have remaining $400,000 under an accounts receivable factoring agreement
with our bank.

We anticipate our future revenue to be derived primarily from the sale of
licenses, royalties and the proceeds from litigation or settlements of patent
infringement cases. To receive this revenue, we may require additional
equipment, fabrication, components and supplies during the next twelve months to
support potential customer requirements and further develop our technologies and
to fund the expenses of protracted patent enforcement litigation. Product
introductions such as those currently underway for the Ignite I may require
significant product launch, marketing personnel and other expenditures that
cannot be currently estimated. Further, if expanded development is


                                      F-12
<PAGE>

PATRIOTSCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

commenced or new generations of microprocessor technology are accelerated beyond
current plans, additional expenditures we cannot currently estimate, may be
required. It is possible therefore, that higher levels of expenditures may be
required than we currently contemplate resulting from changes in development
plans or as required to support new developments or commercialization activities
or otherwise.

If we are unable to obtain the necessary funds, we could be forced to
substantially curtail or cease operations, which would have a material adverse
effect on our business. Further, there can be no assurance that required funds,
if available, will be available on attractive terms or that they will not have a
significantly dilutive effect on our existing shareholders. As such, there is
substantial doubt about our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from our possible
inability to continue as a going concern.

2.    PROPERTY AND      Property and equipment consisted of the following:
      EQUIPMENT
                                                             May 31,
                                                 -------------------------------
                                                     2004                2003
--------------------------------------------------------------------------------
Computer equipment and software                   $1,660,707          $1,660,707
Furniture and fixtures                               499,274             499,274
Laboratory equipment                                 205,594             205,594
                                                  ----------          ----------
                                                  ----------          ----------

                                                   2,365,575           2,365,575

Less accumulated depreciation and amortization     2,297,186           2,212,045
                                                  ----------          ----------
                                                  ----------          ----------

Net property and equipment                        $   68,389          $  153,530
--------------------------------------------------------------------------------

Depreciation expense was $85,141 and $131,958 for the
years ended May 31, 2004 and 2003.

3. NOTE RECEIVABLE

In June 2000, the Company entered into a three-year, $80,000 Secured Promissory
Note Receivable with an individual who was, at the time of the issuance of the
note, an executive officer of the Company. The note had an interest rate of 6%
per annum with interest payments due semi-annually and the principal due at the
maturity of the note. The individual pledged 100,000 shares of the Company's
common stock that he held on the date of issuance as security for this note. In
April 2003, the Company negotiated an early payment discount and the individual
paid $60,000 to retire this note. The balance of $20,000 was written off to bad
debt expense during the year ended May 31, 2003.


                                      F-13
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. SECURED NOTES PAYABLE

We previously replaced and superceded a previously issued Secured Promissory
Note with Swartz with an Amended Secured Promissory Note and Agreement with an
effective date of October 9, 2001, an Addendum to Amended Secured Promissory
Note dated March 12, 2002 and an Antidilution Agreement and Addendum to Warrants
dated March 19, 2003. On March 23, 2004, the amended note, which had a principal
balance of $635,276 plus accrued interest of $87,891, was exchanged for an 8%
convertible debenture for $723,167 with a maturity date of March 23, 2006.

As part of the consideration for entering into the original amended note, we
agreed to issue warrants to Swartz related to each advance against the note. In
connection with each advance, we issued to Swartz a warrant to purchase a number
of shares of common stock equal to the amount of the advance multiplied by 8.25
at an initial exercise price equal to the lesser of (a) the factor of the
average of the volume weighted average price per share, as defined by Bloomberg
L.P., for each trading day in the period beginning on the date of the previous
advance and ending on the trading day immediately preceding the date of the
current advance multiplied by .70 or (b) the volume weighted average price per
share minus $0.05. In addition, we were obligated under the addendum to the note
to issue to Swartz warrants equal to 20% of the common stock issued between
March 12, 2002 and April 1, 2003 and we are obligated under the antidilution
agreement to issue to Swartz warrants equal to 30% of the common stock issued
subsequent to April 1, 2003 to any parties other than Swartz. In addition, we
agreed to extend the expiration date to December 31, 2006 on certain warrants
that were to expire previous to December 31, 2006. In exchange for these
concessions, Swartz agreed to extend the due date to March 1, 2004 on a note for
$635,276 net of accrued interest and allowed us to unreserve 20,007,350 shares
that had been reserved for the exercise of warrants for a period the sooner of
1) March 19, 2004, or 2) 90 days after the date on which our common stock
exceeded $0.375 for 10 consecutive trading days.

As of May 31, 2004 we issued warrants to purchase up to 28,286,208 shares of our
common stock in accordance with the amended note agreements and antidilution
agreement. The warrants issued were valued using the Black-Scholes pricing model
based on the expected fair value at issuance and the estimated fair value was
also recorded as debt discount.

As part of the consideration for exchanging the note for an 8% convertible
debenture, we agreed to extend the expiration dates on certain outstanding
warrants to April 1, 2011.

In January 2004, a note held by an affiliate for $200,353 plus accrued interest
of $8,033 was partially used to exercise a warrant with the balance of $100,000
converted into four one year $25,000 notes due January 9, 2005 issued to four
heirs of the estate over which the affiliate is a trustee. The interest rate on
the four notes is 6% and the notes are secured by the assets of the company.


                                      F-14
<PAGE>

5. CONVERTIBLE DEBENTURES

Overview. From April 23, 2002 through May 11, 2004, we sold an aggregate of
$4,913,167 of convertible debentures, ranging from 8% to 12%, to a group of
twenty-four investors. The PATRIOT SCIENTIFIC CORPORATION NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

convertible debentures entitle the debenture holder to convert the principal and
unpaid accrued interest into our common stock for two years from the date of
closing.

Number of Shares Debentures May Be Converted Into. The debentures can be
converted into a number of our common shares at conversion prices that initially
equaled $0.0172 to $0.10289 per share.

Resets of Conversion Price and Conversion Shares. A reset date occurs on each
three month anniversary of the closing date of each debenture and on the date
the registration statement becomes effective. If the volume weighted average
price for our common stock for the ten days previous to the reset date is less
than the conversion price in effect at the time of the reset date, then the
number of common shares issuable to the selling shareholder on conversion will
be increased. If the conversion price is reset, the debenture can be converted
into a number of our common shares based on the following calculation: the
amount of the debenture plus any unpaid accrued interest divided by the reset
conversion price which shall equal the volume weighted average price for our
common stock for the ten days previous to the reset date.

Warrants. Concurrent with the issuance of the convertible debentures, we issued
to the debenture holders warrants to purchase shares of our 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 our 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
could be converted would initially equal 115% of the volume weighted average
price for our 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. We may currently issue more than 20% of our outstanding
shares under the convertible debentures. If we become listed on the NASDAQ Small
Cap Market or NASDAQ National Market, then we must get shareholder approval to
issue more than 20% of our outstanding shares. Since we are currently a bulletin
board company, we do not need shareholder approval.

Restrictive Covenants. For a period of 18 months from the date of the
debentures, we are prohibited from 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.


                                      F-15
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Right of First Refusal. The debenture holders have a right of first refusal to
purchase or participate in any equity securities offered by us 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, we are
responsible for registering the resale of the shares of our common stock which
will be issued on the conversion of the debentures. As of May 31, 2004, there
have been five registration statements (designated A through E).

Security Interest.  The convertible debentures are secured by our assets.

The following tables present the status, as of May 31, 2004, of our convertible
debentures:

<TABLE>
<CAPTION>
                                         Principal                                Effective         Shares         Warrant
           Dates of      Aggregate        Balance        Conversion Prices       Registration    Converted at      Shares
                                                      -------------------------
 Series    Issuance     cc Principal      at 5/31/04      Initial      Reset           Date        May 31, 2004      Issued
 ------    --------        ---------      ----------      -------      -----           ----       -------------      ------

<S>        <C>             <C>                <C>        <C>         <C>                <C>            <C>             <C>
    A     4/23/2002-      $ 1,000,000        $ 25,000   $0.08616-   $0.04190-          10/29/2002     23,441,662      12,859,175
           6/10/2002                                    $0.10289    $0.04457

    B     8/23/2002-        $ 605,000       $ 107,500   $0.05126-   $0.04381-            3/7/2003     11,620,528      11,234,835
           1/24/2003                                    $0.0727     $0.04722

    C     3/24/2002-        $ 510,000        $ 10,000   $0.041-     $0.041-             6/26/2003     10,179,007       9,377,943
           6/9/2003                                     $0.065      $0.065

    D      8/1/2003-        $ 547,500        $ 55,000   $0.0172-    $0.0172-           11/18/2003     23,792,725      22,455,355
          10/21/2003                                    $0.048      $0.0477

    E     12/1/2003-      $ 1,527,500     $ 1,527,500   $0.0267-    $0.0267-             6/7/2004              --     30,395,392
           5/11/2004                                    $0.10       $0.10

    F      3/23/2004        $ 723,167       $ 723,167   $0.09       $0.09        Not  Registered               --      8,035,192
                          -----------     -----------                                                   ----------    ----------
Totals                    $ 4,913,167     $ 2,448,167                                                   69,033,922    94,357,892
</TABLE>


                                      F-16
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Convertible debentures issued since April 23, 2002            $ 4,913,167
Less amounts converted to common stock                         (2,465,000)
                                                              -----------
                                                                2,448,167
Less debt discount                                             (2,075,146)
                                                              -----------
Convertible debentures at May 31, 2004                            373,021
Less current portion                                              145,320
                                                              -----------
Long term portion                                             $   227,701
                                                              ===========
Maturity dates of outstanding convertible debentures
  June 10, 2004                                               $    25,000
  October 29, 2004                                                107,500
  April 15, 2005                                                   10,000
  August 1, 2005                                                   25,000
  September 30, 2005                                               30,000
  December 1, 2005                                                 25,000
  January 23, 2006                                                275,000
  February 2, 2006                                                325,000
  March 23, 2006                                                  723,167
  March 24, 2006                                                  315,900
  April 26, 2006                                                  100,000
  May 11, 2006                                                    486,600
                                                              -----------
                                                              $ 2,448,167
                                                              ===========

6. STOCKHOLDERS' EQUITY (DEFICIT)

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.

PRIVATE STOCK OFFERINGS

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.

During fiscal 2003, 3,765,266 restricted shares of common stock were issued to a
group of individual investors for $120,350; 2,000,000 shares of common stock
were issued to a consultant in exchange for services valued at $110,000; and
400,000 shares valued at $16,000 were issued to a former executive of the
company as partial settlement of a legal action. The fair value (as determined
by the quoted market price) for the consulting services and legal settlement
were recorded as additional general and administrative expense during the year
ended May 31, 2003. Also, during fiscal 2003, the Company issued 380,000 shares
of common stock to a vendor in satisfaction of $22,800 of trade accounts
payable.

WARRANTS

At May 31, 2004, the Company had warrants outstanding to purchase 121,349,420
shares of common stock at exercise prices ranging from $0.0172 to $0.65 per
share expiring beginning in

                                      F-17
<PAGE>


PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2004 through 2011. During fiscal 2004, the Company issued warrants to purchase
73,436,127 shares of common stock at exercise prices ranging from $0.0172 to
$0.10 per share and issued 11,079,175 shares of common stock on the exercise of
warrants at exercise prices ranging from $0.0172 to $0.04 per share.

At May 31, 2003, the Company had warrants outstanding to purchase 58,992,468
shares of common stock at exercise prices ranging from $0.033 to $1.12 per share
expiring beginning in 2004 through 2008. During fiscal 2003, the Company issued
warrants to purchase 35,005,013 shares of common stock at exercise prices
ranging from $0.04 to $0.065 per share.

The following table presents the outstanding warrants at May 31:

                                            2004                 2003
                                         -----------          -----------
Issued in conjunction with
  Convertible debentures                  83,278,716           31,164,260
  Anti-dilution agreements                15,398,058            5,355,562
  Equity lines of credit                  18,765,369           18,765,369
  Other                                    3,907,277            3,707,277
                                         -----------          -----------
     Total warrants outstanding          121,349,420           58,992,468
                                         ===========          ===========

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, 2004, options to purchase up to 17,500 shares of common stock remained
outstanding and will expire in July 2004.

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, 2004,
options to purchase up to 50,000 shares of common stock remained outstanding and
will expire in 2005.

1996 STOCK OPTION PLAN

Effective March 1996, the Company adopted the 1996 Stock Option Plan, which was
amended by the Stockholders in December 1997, expiring March 24, 2006, reserving
for issuance 4,000,000 PATRIOT SCIENTIFIC CORPORATION NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)


                                      F-18
<PAGE>

shares of the Company's common stock. The 1996 Stock Option Plan provides, 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 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 years ended May 31, 2004 and 2003, the Company granted options to
purchase none and 340,500 shares of stock at market value.

2001 STOCK OPTION PLAN

Effective February 2001, the Company adopted the 2001 Stock Option Plan,
expiring February 21, 2011, reserving for issuance 3,000,000 shares of the
Company's common stock. The 2001 Stock Option Plan provides, 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 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 years ended May 31, 2004 and 2003, the Company granted options to
purchase none and 875,000 shares of stock at market value.

2003 STOCK OPTION PLAN

Effective July 2003, the Company adopted the 2003 Stock Option Plan, expiring
July 2, 2013, reserving for issuance 6,000,000 shares of the Company's common
stock. The 2003 Stock Option Plan provides, 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 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 year
ended May 31, 2004, the Company granted options to purchase 2,210,000 shares of
stock at market value.

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, 2004 and 2003,
respectively: dividend yield of zero percent for both years; expected volatility
of 107 to 127 and 100 to PATRIOT SCIENTIFIC CORPORATION NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)


                                      F-19
<PAGE>

120, risk-free interest rates of 2.1 to 3.9 and 2.3 to 4.3; and expected lives
of 3 to 5 years for both years.

A summary of the status of the Company's stock option plans and warrants as of
May 31, 2004, 2003 and 2002 and changes during the years ending on those dates
is presented below:

<TABLE>
<CAPTION>
                                                              Options                              Warrants
                                                 ---------------------------------  ---------------------------------------
                                                                        Weighted                             Weighted
                                                                        Average                              Average
                                                                        Exercise                             Exercise
                                                      Shares             Price            Shares              Price
<S>                                                  <C>                   <C>             <C>                          <C>
----------------------------------------------------------------------------------------------------------------------------
Outstanding, June 1, 2002                            4,249,739           $ 0.39            24,477,724           $       0.11
----------------------------------------------------------------------------------------------------------------------------
     Granted                                         1,215,500             0.05            35,005,013                   0.05
     Cancelled                                        (411,239)            0.81              (490,269)                  0.30
     Exercised                                              --                0                    --                     --
----------------------------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Exercisable, May 31, 2003                            4,138,633           $ 0.29            57,992,468           $       0.06
----------------------------------------------------------------------------------------------------------------------------
Exercisable, May 31, 2004                            5,904,434           $ 0.24           120,149,420           $       0.05
----------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options and warrants
     granted during the year ended May 31, 2003                          $ 0.04                                 $       0.05
Weighted average fair value of options and warrants
     granted during the year ended May 31, 2004                          $ 0.05                                 $       0.06
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

The following table summarizes information about stock options and warrants
outstanding at May 31, 2004:



                                      F-20
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                      Outstanding                              Exercisable
                      ----------------------------------------------   -------------------------------
                                           Weighted
                                           Average         Weighted                          Weighted
           Range of                        Remaining         Average                           Average
           Exercise         Number        Contractual       Exercise          Number          Exercise
           Prices        Outstanding         Life             Price        Exercisable          Price
-----------------------------------------------------------------------------------------------------
<S>            <C>         <C>                <C>        <C>              <C>              <C>
OPTIONS
   $    0.0345-0.059       2,380,000          4.24       $   0.04         1,370,000        $    0.05
           0.07-0.09       1,365,500          2.96           0.08         1,526,934             0.08
         0.11-0.1325       2,340,000          2.93           0.11         2,090,000             0.11
           0.61-1.18         525,000          1.02           0.93           525,000             0.93
               1.325         392,500          1.00           1.33           392,500             1.33
---------------------------------------------------    --------------------------------    ----------
   $    0.0345-1.325       7,003,000          3.13       $   0.21         5,904,434        $    0.24

WARRANTS

   $    0.0172-0.039      29,634,938          6.79       $   0.03        29,634,938        $    0.03
          0.04-0.044      39,156,429          6.26           0.04        39,156,429             0.04
         0.045-0.049      21,057,218          5.95           0.05        21,057,218             0.05
          0.05-0.094      27,793,558          6.32           0.08        26,593,558             0.08
           0.10-0.65       3,707,277          2.87           0.13         3,707,277             0.13
---------------------------------------------------    --------------------------------    ----------
   $     0.0172-0.65     121,349,420          6.25       $   0.05       120,149,420        $    0.05
</TABLE>


7. NET LOSS PER SHARE

The Company has implemented Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share." SFAS No. 128 provides for the calculation of
"Basic" and "Diluted" earnings per share ("EPS"). Basic EPS includes no dilution
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution of securities that could share in the earnings
of an entity. The Company's net losses for the periods presented cause the
inclusion of potential common stock instruments outstanding to be antidilutive
and, therefore, in accordance with SFAS No. 128, the Company is not required to
present a diluted EPS. During the years ended May 31, 2004 and 2003, common
stock options and warrants convertible or exercisable into approximately
128,352,420 and 64,046,468 shares of common stock were not included in diluted
loss per share as the effect was antidilutive due to the Company recording
losses in each of those years.


                                      F-21
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES

The net deferred tax asset recorded and its approximate tax effect consisted of
the following:

                                                      May 31,
--------------------------------------------------------------------------------
                                              2004                  2003
--------------------------------------------------------------------------------
Net operating loss carryforwards          $12,873,000          $12,073,000
Purchased technology                          371,000              420,000
Depreciation and amortization               1,434,000            1,607,000
Other, net                                     54,000              191,000
--------------------------------------------------------------------------------
                                           14,732,000           14,291,000
Valuation allowance                        14,732,000           14,291,000
--------------------------------------------------------------------------------

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>
May 31,                                                                            2004                  2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                   <C>

     Federal income tax benefit computed at the Federal statutory rate          $(1,411,000)          $(1,322,000)
     State income tax benefit net of Federal benefit                               (242,000)             (139,000)
     Other- permanent differences                                                 1,212,000               521,000
     Expiration of state net operating loss carryforwards                                --                95,000
     Change in valuation allowance                                                  441,000               845,000
-----------------------------------------------------------------------------------------------------------------

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

As of May 31, 2004 and 2003, valuation allowances equal to the net deferred tax
asset recognized have 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 2004 and 2003 due to reported losses. The
valuation allowance increased $441,000 for the year ended May 31, 2004 and
$845,000 for the year ended May 31, 2003.

At May 31, 2004, the Company has federal net operating loss carryforwards of
approximately $34,290,000 that expire through 2023 and are subject to certain
limitations under the Internal Revenue Code of 1986, as amended. As such,
certain federal net operating loss carryforwards may expire unused.

At May 31, 2004, the Company has state net operating loss carryforwards of
approximately $20,244,000 that expire through 2011. The state of California
suspended the utilization of net operating losses for 2002 and 2003.


                                      F-22
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. PROFIT-SHARING PLAN

Effective July 1, 1993, the Company adopted 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
contribution in fiscal 2004 or 2003.

10. COMMITMENTS AND CONTINGENCIES

LITIGATION

In December 2003, the Company filed several lawsuits in United States District
Courts against companies it contends are infringing on its 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

The Company is requesting the courts to enjoin the defendants from making use of
our patent and are requesting damages for past infringements. In February, with
the consent of the defendants and the Company, 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 are requesting a declaratory judgment that their
microprocessors, used by the defendants in our consolidated suit, do not
infringe the Company's patent. The Company filed a counterclaim against Intel
contending that they also are infringing on its patent, and Intel asserted an
affirmative defense that the Company's 5,809,336 patent is invalid.

Also in February 2004, the Company filed a lawsuit in the United States District
Court- Northern District of California, case number C040618, against Charles H.
Moore, Technology Properties Limited, and Daniel E. Leckrone. The Company is
requesting the court to declare inventorship and ownership on each of its
granted patents related to the suits discussed above and other unasserted claims
of infringement Patriot believes it has.


                                      F-23
<PAGE>

PATRIOT SCIENTIFIC CORPORATION NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         The Intel lawsuit has been stayed pending the results of the Moore
lawsuit.

OPERATING AND CAPITAL LEASES

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.

The Company granted a lien and security interest in substantially all of its
assets to the bank under the accounts receivable factoring line and to investors
under its notes payable and convertible debentures.

The Company has one capital lease at May 31, 2004.

Future minimum lease payments are as follows:
Year ending May 31,
     2005                                        $  9,562
     2006                                           2,391
-----------------------------------------------------------
Total minimum lease payments                       11,953
Amount representing interest                        1,627
-----------------------------------------------------------
Present value of minimum lease payments            10,326

Total obligation                                   10,326
Less current portion                               (8,020)
-----------------------------------------------------------
Long-term portion                                $  2,306
-----------------------------------------------------------

Capital leases included in fixed assets at May 31, 2004 and 2003, were $3,471
and $11,803, net of an allowance for depreciation of $21,524 and $13,192.
Depreciation expense related to the capitalized lease was $8,332 and $8,332 for
the years ended May 31, 2004 and 2003.


                                      F-24
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company has a non-cancellabe operating lease for its office and
manufacturing facilities located in San Diego, California.

Future minimum lease payments required under the operating lease are as follows:

 Years ending May 31,
--------------------------------------------------------------------------
                                   Gross       Sublease             Net
                                  Payments      Income           Payments
2005                           $   135,454   $    70,470     $     64,984
2006                               141,658        72,540           69,118
2007                                23,782        12,150           11,632
Thereafter                               -             -                -
--------------------------------------------------------------------------

Total minimum lease payments   $   300,894   $   155,160     $    145,734
--------------------------------------------------------------------------

 Rent expense for fiscal 2004 and 2003 was $181,135 and $189,423, respectively.

11. SEGMENT INFORMATION

EXPORT SALES

The Company is engaged in one business segment, the development and marketing of
microprocessor technology related products and licenses. Telecommunication
products have reached the end of their life cycles and no longer provide any
significant sales. During the fiscal years ended May 31, 2004 and 2003, the
Company's product sales of high technology computer products and licenses were
$13,615 and $31,340 and telecommunication products and licenses were $62,802 and
$92,563.

For the purpose of allocating revenues by geographic location, the Company uses
the physical location of its customers as its basis. During the fiscal years
ended May 31, 2004 and 2003, the Company's sales by geographic location
consisted of the following:

                                   2004             2003
                                 --------          --------
Domestic sales                   $ 70,000          $113,000

Foreign sales:
      Europe                        6,000            11,000
                                 --------          --------
Total foreign sales                 6,000            11,000
                                 --------          --------
Total net product sales          $ 76,000          $124,000
                                 ========          ========


The Company has no foreign assets.


                                      F-25
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SALES TO MAJOR CUSTOMERS

During the fiscal years ended May 31, 2004 and 2003, revenues from significant
customers consisted of the following:

                        2004                          2003
              --------------------------  ---------------------------
Customer        Sales         Percent       Sales           Percent
--------
              ----------   -------------  ------------   ------------
A             $  25,000           33.2%   $         -              -
B                18,000           22.9%             -              -
C                 9,000           11.9%             -              -
D                     -               -        43,000          34.3%
E                     -               -        23,000          18.6%
F                     -               -        15,000          11.9%
G                     -               -        15,000          11.9%

12. RELATED PARTY TRANSACTIONS

During fiscal year 2004, we sold services totaling $25,352 to a company owned by
one of our officers.


                                      F-26
<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:  August 18, 2004          PATRIOT SCIENTIFIC CORPORATION


                                 By: /s/ LOWELL W. GIFFHORN
                                     ------------------------------------------
                                     Lowell W. Giffhorn
                                     Executive Vice President, Chief Financial
                                     Officer and Secretary

      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/JEFFREY E. WALLIN      President and Chief Executive        August 18, 2004
 --------------------
 Jeffrey E. Wallin         Officer


 /s/LOWELL W. GIFFHORN     Chief Financial Officer, Principal   August 18, 2004
 ---------------------
 Lowell W. Giffhorn        Financial Officer, Principal
                           Accounting Officer, Secretary
                           and Director

 /s/DAVID POHL             Director                             August 18, 2004
 -------------
 David Pohl

 /s/CARLTON JOHNSON        Director                             August 18, 2004
 -------------------
 Carlton Johnson


 /s/DONALD BERNIER         Chairman of the Board and            August 18, 2004
 -----------------         Director
 Donald Bernier


/s/HELMUT FALK JR.         Director                             August 18, 2004
------------------
Helmut Falk Jr.


/s/GLORIA FELCYN           Director                             August 18, 2004
----------------
Gloria Felcyn


                                      F-27