U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
(Mark One)
[ X ]             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED MAY 31, 2003
                                       OR

[    ]      TRANSITION REPORT PURSUANT TO 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
             (Exact name of registrant as specified 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)

     (Registrant's telephone number, including area code): (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)

Indicate  by check  mark  whether  the  registrant  (1 ) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  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___

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not 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-K or any
amendment to this Form 10-K. [ X ]

Indicate by check mark whether the registrant is an accelerated filer.
YES      NO
    ---    ---

As of November 29, 2002,  the last  business day of  Registrant's  most recently
completed  second fiscal quarter,  there were 87,489,354  shares of Registrant's
Common Stock  outstanding and the aggregate market value of Common Stock held by
non-affiliates  of Registrant was  $5,614,000  (based upon the closing price for
shares of Registrant's  Common Stock as reported on the OTC Electronic  Bulletin
Board system on November 29, 2002). Shares of Common Stock held by each officer,
director and holder of 5% or more of the  outstanding  Common  Stock  (including
shares  with  respect  to which a holder  has the  right to  acquire  beneficial
ownership  within 60 days) have been excluded in that such persons may be deemed
to be affiliates.  This  determination  of affiliate status is not necessarily a
conclusive determination for other purposes.

At August 28, 2003,  123,518,272  shares of common stock,  par value $.00001 per
share (the registrant's only class of voting stock) were outstanding.

                    DOCUMENTS INCORPORATED BY REFERENCE: None

<PAGE>

                                TABLE OF CONTENTS
                                                                            Page
                                     PART I
ITEM 1.  Description of Business                                               3
ITEM 2.  Description of Property                                              13
ITEM 3.  Legal Proceedings                                                    13
ITEM 4.  Submission of Matters to a Vote of Security Holders                  13

                                    PART II
ITEM 5.  Market for Registrant's Common Equity and Related                    13
           Stockholder Matters
ITEM 6.  Selected Consolidated Financial Data                                 14
ITEM 7.  Management's Discussion and Analysis of Financial                    15
           Condition and Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk           25
ITEM 8.  Financial Statements and Supplementary Data                          25
ITEM 9.  Changes in and Disagreements with Accountants on                     26
           Accounting and Financial Disclosure

                                    PART III
ITEM 10. Directors, Executive Officers of the Registrant                      26
ITEM 11. Executive Compensation                                               28
ITEM 12. Security Ownership of Certain Beneficial Owners and Management       31
ITEM 13. Certain Relationships and Related Transactions                       33
ITEM 14. Controls and Procedures                                              34
ITEM 15. Principal Accountant Fees and Services                               34

                                     PART IV

ITEM 16. Exhibits, Financial Statement Schedules, and Reports on Form 8-K     35




                                       2
<PAGE>





                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This  Annual  Report on Form  10-K,  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 our 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, as 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 25% of our revenue in fiscal 2003. The
balance of our 2003  revenue was  generated  from a  communication  product line
that, subsequent to a completed last buy program, is 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.  We  potentially  could  receive up to an  additional
$250,000  from the sale of the gas plasma  technology  in the form of royalties.
Our  strategy  is to exploit our  microprocessor  technologies  through  product
sales, licensing, and strategic alliances.


                                       3
<PAGE>

         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.

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.  We received net proceeds of $3,343,915 upon the
exercise of those warrants and the issuance of 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,

          o    high-speed data communications technology, and

          o    radar technology.

         Due to a lack of funds to develop and commercialize JUICEtechnology,  a
         technology  introduced  to us in 2001,  we assigned  our rights in this
         technology back to the inventor in April 2003.

         The stages of development 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  currently
               accounts for only 25% of our revenue in fiscal year 2003.


                                       4
<PAGE>

          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  to sell this  product  line.  We have
               decided to concentrate  our efforts on the Ignite  microprocessor
               technology.  Although the  communications  product line accounted
               for  approximately  75% of  our  fiscal  year  2003  revenue,  we
               anticipate  that  the  Ignite  microprocessor  will  be our  main
               product line in the future.

          o    Radar and antenna.  We sold the gas plasma antenna  technology in
               August 1999.  Our radar  technology has not generated any revenue
               and we have suspended  further  development of this technology in
               order to concentrate our resources on our Ignite products.

         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.

         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 impacting 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.


                                       5
<PAGE>

         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
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 commitment to silicon production. We currently have a
0.18-micron  enhancement  of silicon  production  for our Ignite  microprocessor
technology.

         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, wireless communications, 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



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<PAGE>

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  processors  which  results  in less power
consumption  and more  economical  prices  compared  to other  embedded  control
applications.   This  creates  the  opportunity  for  the  development  of  new,
cost-effective applications.

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

         Our   technology   is   fundamentally   different   from   most   other
microprocessors in that the data is stored in groups. 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


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<PAGE>

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  I  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
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.


                                       8
<PAGE>

         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 made
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 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  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.

         We have three 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. 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 ours.
The market for microprocessors and for embedded control applications is at least
as competitive.


                                       9
<PAGE>

         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 ours.

         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.

         JUICETECHNOLOGY

         During 2001 we introduced a technology to enhance the users  experience
of the wireless  internet by expanding the  capabilities of his device (either a
cell  phone,  PDA,  smart phone or pocket PC). By varying the speed at which the
microprocessor   processes   information,   the  device  could  have   presented
information in a richer format than was available from current technologies and,
additionally, doing so with less drain on the device's battery. Due to a lack of
funds to develop and  commercialize  JUICEtechnology,  we assigned our rights in
this technology back to the inventor in April 2003.

         HIGH SPEED DATA COMMUNICATIONS PRODUCTS.

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

              VME Product Line - a line of intelligent high-speed communications
              engines in a virtual  memory  European  form  factor.  Some of our
              customers  for these  products  included  the  military as well as
              large satellite based data communications companies.

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

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

         RADAR AND ANTENNA TECHNOLOGY.

         General  Background.  We  commenced  active  development  of our ground
penetrating  radar  technology  in April  1992.  By May  1993,  we were  able to
demonstrate the sensing,  processing and crude  visualization of images from our
technology,  and by May 1994 we had completed our  prototype  device.  Since May
1994,  we have  focused  our  efforts and  limited  financial  resources  on the
microprocessor  technology and communication  products,  effectively  suspending
development and marketing efforts related to ground penetrating radar.

         Gas Antenna Technology Description.

         We sold our gas plasma technology in August 1999.

         RESEARCH AND DEVELOPMENT.  Our current  development efforts are focused
on improvement of and additional features for the Ignite family  microprocessor.
The development of this  technology has taken longer than  anticipated and could


                                       10
<PAGE>

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  $723,287,
$1,372,421  and  $2,218,433  for our fiscal years ended May 31,  2003,  2002 and
2001. 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  continue  to  expend  substantial  funds 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  six  U.S.   patents   issued  dating  back  to  1989  on  the
microprocessor  technology. We have one microprocessor technology patent pending
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 the 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  other  semiconductor
companies and companies that use  semiconductors  with capabilities in excess of
125 MHz in their  products.  In 2003 we  initiated  contacts  with  companies we
believe are infringing on methodologies  covered by our patents.  If discussions
with potential infringers do not result in favorable business relationships,  we
may resort to legal  actions to enforce our  patents.  However,  there can be no
assurance  that we will be successful  in enforcing any potential  patent claims
against larger competitors.

         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. 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's  technology.  In June
               1998, we exercised an option under that agreement to license from
               Sun,  personalJava,  a  smaller  platform  on  which  to run Java
               applications  that  did  not  include  an  operating  system.  We
               determined  that  personalJava  was better  suited to the markets
               available  to the  Ignite.  We have  ported  personalJava  to the
               Ignite.

          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.


                                       11
<PAGE>

          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 had one U.S. patent on our gas plasma antenna technology that was
sold in August 1999.

         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:
                                        2003           2002           2001
                                        ----           ----           ----

              Domestic sales             91%            99%            75%

              Foreign sales
                  Asia                   - %            - %             7%
                  Europe                  9%             1%             6%
                  North America          - %            - %            12%
                                       -----           ----           ----


              Total sales               100%           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:

                                   2003              2002            2001
                                   ----              ----            ----

         Long Wave, Inc.           $43,000          $    -          $      -
         General Dynamics           23,000               -                 -
         Centratech                 15,000               -                 -
         Advanced Relay             15,000         151,000                 -
         Schindler                       -          59,000                 -
         Raytheon                        -               -            88,000
         SAIC                            -               -            41,000
         Spellcaster                     -               -            40,000


          All of the above sales were shipped against  multiple  purchase orders
from each customer.

         We had no backlog as of May 31, 2003 or 2002.


                                       12
<PAGE>

         EMPLOYEES. We currently have eight personnel. Four persons 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
service 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  January  1999,  we were  sued in the  Superior  Court of San  Diego
County,  California  by the Fish Family  Trust,  a  co-inventor  of the original
ShBoom  technology.  The suit also named as  defendants  nanoTronics  and Gloria
Felcyn  on behalf of the Falk  Family  Trust.  The suit  sought a  judgment  for
damages, a rescission of the Technology  Transfer Agreement and a restoration of
the technology to the co-inventor. In March 1999, we joined with nanoTronics and
Gloria Felcyn and filed our response and cross-complaint against the Fish Family
Trust.  In  November  2000,  the judge  issued a summary  ruling in favor of the
defendants on all counts. The Fish Family Trust filed an appeal in January 2001.
In June 2003, the Appellate Court  confirmed the trial court's ruling,  thereby,
bringing the dispute to a favorable conclusion.

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

         None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         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.


                                       13
<PAGE>

         The following  table sets forth the high and low closing bid quotations
for the Common Stock for the fiscal years ended May 31, 2003 and 2002.

                                                         BID QUOTATIONS
                                                    HIGH             LOW
         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

         Fiscal Year Ended May 31, 2002
           First Quarter                            $0.53            $0.25
           Second Quarter                           $0.25            $0.10
           Third Quarter                            $0.15            $0.07
           Fourth Quarter                           $0.14            $0.07

         We have  approximately  550  shareholders of record as of May 31, 2003.
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
stockholders  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, 2003,  we offered and
sold  the  following  common  stock  for cash  without  registration  under  the
Securities  Act  of  1933,  as  amended,   and  exemption  for  such  sale  from
registration under the Act is claimed in reliance upon the exemption provided by
Section 4(2) thereof on the basis that such offer and sale was a transaction not
involving any public  offering.  Appropriate  precautions  against transfer have
been taken,  including  the placing of a restrictive  legend on the  certificate
evidencing  such   securities.   The  sale  was  effected  without  the  aid  of
underwriters, and no sales commissions were paid.


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

         You should  read the  selected  consolidated  financial  data set forth
below in  conjunction  with  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated  financial  statements
and the  notes  to those  statements  included  elsewhere  in this  report.  The
selected consolidated  financial data set forth below for the fiscal years ended
May 31, 2003, 2002, 2001, 2000, and 1999 have been derived from our consolidated
financial  statements  which have been audited by Nation  Smith Hermes  Diamond,
independent auditors, for the years ended May 31, 2003 and 2002 and BDO Seidman,
LLP, independent auditors, for the preceding three years.

<TABLE>
<CAPTION>
                                                                         YEARS ENDED MAY 31,
                                          ----------------------------------------------------------------------------------

                                                2003             2002            2001             2000             1999
                                          ---------------  ---------------  --------------   --------------   --------------

<S>                                       <C>              <C>              <C>              <C>              <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
     Sales                                $      123,903   $      358,809   $     337,384    $     716,960    $   1,134,545
                                          ---------------  ---------------  --------------   --------------   --------------

Costs and expenses:
     Cost of sales                                18,660          393,980         544,320          725,008          711,195
     Research and development                    723,287        1,372,421       2,218,433        3,170,166        2,149,361
     Selling, general and administrative       1,821,902        2,708,579       2,588,579        3,501,128        2,015,058
                                          ---------------  ---------------  --------------   --------------   --------------
        Total costs and expenses               2,563,849        4,474,980       5,351,332        7,396,302        4,875,614
                                          ---------------  ---------------  --------------   --------------   --------------
Operating loss                                (2,439,946)      (4,116,171)     (5,013,948)      (6,679,342)      (3,741,069)
Other income (expense), net                   (1,448,353)      (1,370,880)         45,045         (809,366)        (535,387)
                                          ---------------  ---------------  --------------   --------------   --------------
Net loss                                  $   (3,888,299)  $   (5,487,051)  $  (4,968,903)   $  (7,488,708)   $  (4,276,456)
                                          ===============  ===============  ==============   ==============   ==============

Basic and diluted loss per common share   $        (0.04)  $        (0.08)  $       (0.09)   $       (0.17)   $       (0.11)

Weighted average number of shares-
     basic and diluted                        93,791,470       66,810,028      53,433,788       44,156,418       38,042,734

                                                                                   MAY 31,
                                          ----------------------------------------------------------------------------------

                                                2003             2002            2001             2000             1999
                                          ---------------  ---------------  --------------   --------------   --------------

BALANCE SHEET DATA:
Cash and cash equivalents                 $       32,663   $       88,108   $     464,350    $   2,100,242    $      35,813
Working capital (deficiency)                  (1,457,003)        (918,768)        328,605        1,769,340       (1,545,055)
Total assets                                     465,234          934,526       1,543,693        2,733,148        1,145,027
Long-term obligations, net of current
  maturities                                     290,436          331,929               -                -                -
Total stockholders' equity (deficit)          (1,411,764)        (444,825)        922,388        2,209,882         (981,234)
</TABLE>



                                       14
<PAGE>





ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         Our Results of  Operations  have been and may continue to be subject to
significant  variations.  The results for a particular  period may vary due to a
number of factors. These include:

          o    the overall state of the semiconductor industry,
          o    the development status of and demand for our products,
          o    economic conditions in our markets,
          o    the timing of orders,
          o    the timing of expenditures in anticipation of future sales,
          o    the mix of products sold by us,
          o    the introduction of new products,
          o    product enhancements by us or our competitors, and
          o    pricing and other competitive conditions.



                                       15
<PAGE>

CRITICAL ACCOUNTING POLICIES

         We  believe  that  the  following  represent  our  critical  accounting
policies:

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 from 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.

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.

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.

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.

         Statement of Financial  Accounting  Standards No. 123,  "Accounting for
Stock-Based Compensation," requires 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.


                                       16
<PAGE>

Use of Estimates
         The  preparation of financial  statements in conformity with accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the  consolidated  financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates. During the year ended May 31, 2002, based upon information
then  available,  we  revised  our  estimates  regarding  the  recovery  of  our
inventories.  As a result,  we increased  existing  reserves for obsolescence by
$111,381.

RESULTS OF OPERATIONS FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001

         OUR NET SALES IN FISCAL 2003, 2002 AND 2001 WERE AS FOLLOWS:

         Fiscal Year    Amount            % Change from the Previous Fiscal Year
         -----------    ------            --------------------------------------

           2003         $   123,903           Decrease of  65.5%
           2002         $   358,809           Increase of 6.3%
           2001         $   337,384

         Net sales. Net sales for the year ended May 31, 2003 decreased over the
previous year as a result of minimal sales for the  communications  products all
of which  reached  the end of their life  cycles and only  minimal  sales of the
microprocessor  products.  Net sales for the year ended May 31,  2002  increased
slightly  over the  previous  year as a result  of a last  buy  program  for the
communications  products.  We  have  stopped  production  of our  communications
products  and are now  concentrating  on the  microprocessor  product  line.  We
anticipate only minor, if any, future communication product revenue. We have not
been  successful in selling this line and have liquidated  substantially  all of
the  inventory  related  thereto.  Future  sales will be  derived  from sales of
microprocessors and licensing of microprocessor technology.

         OUR COST OF SALES IN FISCAL 2003, 2002 AND 2001 WERE AS FOLLOWS:

         Fiscal Year      Amount          % Change from the       % of Net Sales
         -----------      -------         Previous Fiscal Year    --------------
                                          --------------------

            2003         $   18,660       Decrease of  95.3%            15.1%
            2002         $  393,980       Decrease of 27.6%            109.8%
            2001         $  544,320                                    161.3%

         Cost of sales.  Cost of sales as a  percentage  of net sales  decreased
significantly  in the fiscal  year ended May 31, 2003  compared to the  previous
fiscal  year.  This  reduction  was a  result  of the end of  production  of our
communication  products and the elimination of manufacturing  and overhead costs
necessary  to support that product  line.  Cost of sales as a percentage  of net
sales  decreased in the fiscal year ended May 31, 2002  compared to the previous
fiscal  year.  This  decrease  was due to a  reduction  in  fixed  manufacturing
overhead as a result of cost cutting programs instituted in conjunction with the
completion of the communication product line during the current fiscal year.

         OUR RESEARCH  AND  DEVELOPMENT  EXPENSES IN FISCAL 2003,  2002 AND 2001
WERE AS FOLLOWS:

         Fiscal Year       Amount         % Change from the Previous Fiscal Year
         -----------       ------         --------------------------------------

           2003            $  723,287              Decrease of 47.3%
           2002            $1,372,421              Decrease of 38.1%
           2001            $2,218,433

         Research  and  development  expenses  decreased  during the fiscal year
ended May 31, 2003 compared to the previous  fiscal year.  This decrease was due
primarily to a reduction  of  approximately  $428,000 in  personnel  costs and a
$143,000 reduction in the costs of outside consultants. Research and development
expenses  decreased  during the fiscal year ended May 31,  2002  compared to the
previous  fiscal  year.  This  decrease  was due  primarily  to a  reduction  of


                                       17
<PAGE>

approximately $406,000 in personnel costs, a $221, 000 reduction in the costs of
outside  consultants and a reduction in software  maintenance  costs of $77,000.
The  reductions  in costs were as a result of a cost cutting  program  initiated
during the first half of the 2002 fiscal year.

         OUR SELLING,  GENERAL AND ADMINISTRATIVE  EXPENSES IN FISCAL 2003, 2002
AND 2001 WERE AS FOLLOWS:

         Fiscal Year      Amount          % Change from the Previous Fiscal Year
         -----------      ------          --------------------------------------

            2003          $1,821,902       Decrease of 32.7%
            2002          $2,708,579       Increase of 4.6%
            2001          $2,588,579

         Selling,  general  and  administrative  expenses  decreased  during the
fiscal year ended May 31,  2003,  compared to the  previous  fiscal  year.  This
decrease was due primarily to a reduction of approximately $519,000 in personnel
costs,  $178,000 in consulting  expenses and $134,000 in professional  expenses.
The  reductions  in costs were as a result of a cost cutting  program  initiated
during  the  first  half  of  the  2002  fiscal  year.   Selling,   general  and
administrative  expenses  increased  during the fiscal year ended May 31,  2002.
This increase was due primarily to approximately  $294,000 of legal,  accounting
and shareholder  costs  associated with several  registrations of securities and
two shareholder meetings,  non-cash compensation of $105,000 related to services
provided to support our merger and acquisition activities,  offset by reductions
in consulting expenses of $286,000.

         OUR  OTHER  INCOME  (EXPENSES)  IN FISCAL  2003,  2002 AND 2001 WERE AS
FOLLOWS:

         Fiscal Year     Amount         % Change from the Previous Fiscal Year
         -----------     ------         --------------------------------------

              2003       $(1,448,353)               Not meaningful
              2002       $(1,370,880)               Not meaningful
              2001       $    45,045

         Other income (expense) increased for the fiscal year ended May 31, 2003
compared to the previous fiscal year.  This change  resulted  primarily from the
recognition of non-cash interest expense of approximately  $1,305,000 related to
the  amortization of the debt discount  associated with the issuance of warrants
under the convertible debentures and interest expense of $144,000 related to our
debt. Other income (expense) changed significantly for the fiscal year ended May
31, 2002 compared to the previous fiscal year.  This change  resulted  primarily
from the recognition of non-cash  interest expense of  approximately  $1,324,000
related to the amortization of the debt discount associated with the issuance of
warrants under the secured note payable, convertible debentures, and equity line
of credit and  interest  expense  related to the excess of the market price over
the  carrying  value of the common  shares sold to Swartz for which the proceeds
were applied to the note payable balance.

LIQUIDITY AND CAPITAL RESOURCES

         In  connection  with  their  report  on  our   consolidated   financial
statements  as of and for the year  ended  May 31,  2003,  Nation  Smith  Hermes
Diamond,  our independent  certified public accountants,  expressed  substantial
doubt about our ability to continue as a going concern  because of recurring net
losses and negative cash flow from operations.

         At May 31, 2003, we had deficit  working capital of $1,457,003 and cash
and cash  equivalents  of $32,663.  We have  historically  funded our operations
primarily through the issuance of securities and debt financings.  Cash and cash
equivalents decreased $55,445 during the year ended May 31, 2003 due to net cash
used in operations of $1,885,762  offset by funds  generated  primarily from the
issuance of convertible debentures of $1,507,000 and short term notes payable of
$180,000.  The net cash used in operations was $1,855,762 for the year ended May
31, 2003 compared to  $3,632,534  for the  corresponding  period of the previous
fiscal year.  The decrease in cash required in operations was due primarily to a
$1,400,801  reduction  in net loss as  adjusted  to  reconcile  to cash  used in
operating  activities  coupled  with a $299,529  change in prepaid  expenses and
other assets  between the two periods.  Cash used in  investing  activities  was
$2,194  for  the  year  ended  May  31,  2003   compared  to  $146,156  for  the
corresponding  period of the previous  fiscal year. This decrease was the result
of a paydown of $60,000 on a note receivable coupled with a $83,962 reduction in
additions  to  property,  equipment  and  patents.  Cash  provided by  financing
activities was $1,832,511 for the year ended May 31, 2003 compared to $3,402,448


                                       18
<PAGE>

for the  corresponding  period of the previous  fiscal year.  This  decrease was
primarily  the result of a reduced  issuance of common stock of $759,255  during
the current  fiscal year  compared to the  previous  fiscal year  coupled with a
reduction  in the  issuance  of notes  payable  and  convertible  debentures  of
$611,000 and the sale of accounts receivable of $123,881.

         We estimate our current  cash  requirements  to sustain our  operations
through  August 2004 to be $2.1 million.  Since we are no longer  supporting the
communications   product   line,   we  are  assuming   that  there  will  be  no
communications product revenue. We have a note payable to Swartz Private Equity,
LLC  ("Swartz")  of $635,276 at May 31, 2003 which is due March 1, 2004. We also
have  convertible  debentures  with a group  of  investors  as of May  31,  2003
aggregating  $1,165,000 and advances of $50,000 on a convertible  debenture that
closed subsequent to May 31, 2003. At the option of the debenture holders,  they
may purchase additional  debentures up to $1 million at any time during the next
two  years as long as the  price of our  common  stock is in excess of $0.20 per
share. During the year ended May 31, 2003, we obtained $120,350 from the sale of
equity to several  private  investors and $180,000 from short term notes entered
into with a related party. Subsequent to May 31, 2003, we obtained an additional
$422,500 from the issuance of convertible  debentures net of advances  discussed
above,  $50,100 from the exercise of a warrant,  $10,000 from a loan issued to a
related party, and $31,000 from the sale of common stock.

         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 may need to secure additional short-term
debt,  private  placement  debt and/or  equity  financings  with  individual  or
institutional  investors.  In  addition,  we may  need to make  additional  cost
reductions  if our cash  requirements  cannot be met from external  sources.  We
expect that the $2.1 million requirement will be provided by:

     o    additional debt and/or equity financings; and

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


         In addition,  we have formulated  additional cost reduction plans which
can be  implemented  if the required  funds are not  obtainable.  We also have a
$400,000 accounts  receivable  factoring  agreement with our bank. As of May 31,
2003 there was a balance due under the factoring agreement of $3,811.

         We anticipate our future revenue to be derived  primarily from the sale
of licenses and royalties.  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.
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
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 we will be able
to timely  receive  shareholder  approval to increase  the number of  authorized
shares or 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.

$25 MILLION EQUITY LINE OF CREDIT

         Overview.  On  September  17,  2001,  we  entered  into  an  investment
agreement with Swartz.  The investment  agreement  entitles us to issue and sell
our common  stock to Swartz for up to an  aggregate  of $25 million from time to
time during a three-year period following the effective date of the registration
statement.  This is also  referred  to as a put right.  We filed a  registration
statement  on Form S-1 on  October  11,  2001  that was  declared  effective  on
November 5, 2001 for  15,000,000  shares of our common  stock which we issued to


                                       19
<PAGE>

Swartz during the fiscal year ended May 31, 2002.  There  remains  approximately
$24  million  available  under  this line  conditioned  on us filing one or more
additional  registration  statements.  As of May 31,  2003,  we have not filed a
statement  requesting  the  registration  of additional  shares to put to Swartz
under the $25 million equity line of credit.

         Put Rights.  In order to invoke a put right,  we must have an effective
registration statement on file with the SEC registering the resale of the common
shares which may be issued as a consequence of the invocation of that put right.
Additionally,  we must give at least ten but not more than twenty  business days
advance notice to Swartz of the date on which we intend to exercise a particular
put right,  and we must  indicate the number of shares of common stock we intend
to sell to Swartz.  At our option, we may also designate a maximum dollar amount
of common stock (not to exceed $3 million)  which we will sell to Swartz  during
the put and/or a minimum  purchase  price per common  share at which  Swartz may
purchase  shares  during the put. The number of common shares sold to Swartz may
not exceed 20% of the aggregate daily reported trading volume during each of two
consecutive  ten business day periods  beginning on the business day immediately
following the day we invoked the put right.

         The price  Swartz will pay for each share of common stock sold in a put
is equal to the lesser of (i) the market  price for each of the two  consecutive
ten business day periods beginning on the business day immediately following the
day we invoked the put right minus $0.10,  or (ii) X percent of the market price
for each of the two ten day  periods,  where,  X is  equal to 90% if the  market
price is below $2.00 and 93% if market  price is equal to or greater than $2.00.
Market  price is defined as the lowest  closing  bid price for the common  stock
during each of the two  consecutive  ten  business  day  periods.  However,  the
purchase price may not be less than the designated  minimum per share price,  if
any, that we indicated in our notice.

                  Limitations and Conditions Precedent to Our Put Rights. We may
not initiate a put if, as of the proposed date of such put:

          o    we have issued shares of our common stock that have been paid for
               by Swartz and the amount of proceeds we have received is equal to
               the maximum offering amount;

          o    the  registration  statement  covering  the  resale of the shares
               becomes ineffective or unavailable for use;

          o    our common  stock is not  actively  trading  on the OTC  Bulletin
               Board,  the Nasdaq Small Cap Market,  the Nasdaq National Market,
               the American Stock Exchange,  or the New York Stock Exchange,  or
               is  suspended  or  delisted  with  respect to the trading on such
               market or exchange.

         If any of the  following  events occur during the pricing  period for a
put, the volume  accrual shall cease.  For the put, the pricing  period shall be
adjusted  to end 10  business  days after the date that we notify  Swartz of the
event, and any minimum price per share we specified shall not apply to the put:

          o    we have  announced or implemented a stock split or combination of
               our common stock between the advanced put notice date and the end
               of the pricing period;

          o    we  have  paid  a  common  stock   dividend  or  made  any  other
               distribution  of our common stock between the advanced put notice
               date and the end of the pricing period;

          o    we have made a distribution to the holders of our common stock or
               of all or any portion of our assets or evidences of  indebtedness
               between the put notice date and the end of the pricing period;

          o    we have consummated a major transaction (including a transaction,
               which  constitutes  a change of control)  between the advance put
               notice date and the end of the pricing period,  the  registration
               statement  covering the resale of the shares becomes  ineffective
               or unavailable for use, or our stock becomes delisted for trading
               on our then primary exchange; or

          o    we discover the  existence of facts that cause us to believe that
               the registration  statement contains an untrue statement or omits
               to state a material fact.


                                       20
<PAGE>

         Short Sales.  Swartz and its affiliates are prohibited from engaging in
short sales of our common stock  unless they have  received a put notice and the
amount of shares  involved  in a short sale does not exceed the number of shares
specified in the put notice.

         Shareholder  Approval.  We may  currently  issue  more  than 20% of our
outstanding  shares under the investment  agreement.  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.

         Termination of Investment Agreement. We may also terminate our right to
initiate further puts or terminate the investment  agreement by providing Swartz
with notice of such intention to terminate;  however,  any such termination will
not affect any other rights or  obligations  we have  concerning  the investment
agreement or any related agreement.

         Restrictive Covenants.  During the term of the investment agreement and
for  a  period  of  two  months  thereafter,  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  or with a fixed  conversion  or
exercise price subject to adjustment  without  obtaining  Swartz's prior written
approval.

         Right of First Refusal. Swartz has a right of first refusal to purchase
any variable priced  securities  offered by us in any private  transaction which
closes  on or  prior to two  months  after  the  termination  of the  investment
agreement and a right of participation for any equity  securities  offered by us
in any  private  transaction  which  closes on or prior to two months  after the
termination of the investment agreement.

         Swartz's Right of Indemnification. We are obligated to indemnify Swartz
(including their stockholders,  officers, directors,  employees and agents) from
all liability and losses  resulting from any  misrepresentations  or breaches we
made in  connection  with the  investment  agreement,  our  registration  rights
agreement, other related agreements, or the registration statement.

         Waiver and  Agreement.  On March 12,  2002,  we entered into an amended
waiver and  agreement  with Swartz which  replaced and  superseded  all previous
waivers and agreements.  This amended waiver and agreement  extended the time of
the put beyond  twenty days and  redefined the price of the put to be the lesser
of the factor of (a) the volume weighted  average price per share, as defined by
Bloomberg  L.P.,  for each day of the put  multiplied  by .70 or (b) the  volume
weighted average price per share minus $0.05 multiplied by 20% of the acceptable
daily  volume as defined in the waiver.  At the  discretion  of Swartz,  the 20%
daily volume  limitation  could be increased up to 30% of the daily  volume.  In
addition,  the amended  waiver and  agreement  increased  the intended put share
amount  for the first put to  14,100,000  shares,  which is the total  number of
shares we had registered so far under the $25 million equity line of credit.  On
May 30, 2002 we closed the first put under the $25 million equity line of credit
by applying  the  proceeds of $926,924  to the secured  note  payable  discussed
below.

         Warrants.  In  connection  with closing the $25 million  equity line of
credit,  we issued to Swartz a commitment  warrant to purchase 900,000 shares of
our common stock as discussed  further in Note 6 to the  consolidated  financial
statements. This warrant was valued on the issuance date using the Black-Scholes
pricing model and the value was recorded as a debt discount.

SECURED NOTE PAYABLE

         On March 12,  2002,  we 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. The amended note,  which  originally
was to mature on January 9, 2003, has been extended to March 1, 2004 and amounts
outstanding  under the note bear  interest at the rate of 5% per annum.  Per the
antidilution agreement, principal and interest payments are deferred until March
1, 2004.

         As part of the  consideration for entering into the above 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


                                       21
<PAGE>

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 unreserved 20,007,350 shares that have 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 exceeds  $0.375 for
10 consecutive trading days.

         As of May 31, 2003 we issued  warrants  to  purchase  up to  18,243,712
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.

         The note is secured by our assets.

         All debt discounts were amortized as additional  interest  expense over
the initial term of the note payable.  As of May 31, 2003,  $1,107,238  had been
reflected as debt  discount of which  $917,722  and  $189,516  was  amortized to
interest expense during the years ended May 31, 2002 and 2003, respectively.

<TABLE>
<CAPTION>
<S>                                                                              <C>
         Advances against the note                                               $1,790,000
         Less amount applied against $30 million equity line of credit             (227,800)
         Less amount applied against $25 million equity line of credit             (926,924)

         Less debt discount
                  Total                                          1,107,238
                  Amount amortized to expense                   (1,107,238)           -
                                                               ------------      ----------
         Note payable at May 31, 2003                                            $  635,276
                                                                                 ==========
</TABLE>

On November 9, 2001, an offset of $227,800 from the sale of 2,500,000  shares of
common stock was applied  against the final put under a $30 million  equity line
of credit.

On May 30, 2002,  an offset of $926,924  from the sale of  14,100,000  shares of
common  stock was  applied  against the first and only put under the $25 million
equity line of credit discussed above.

8% CONVERTIBLE DEBENTURES

         Overview.  From April 23,  2002  through  August 26,  2003,  we sold an
aggregate  of  $2,437,500  of 8%  convertible  debentures  to a group of  eleven
investors.  The 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.  In addition,  the debenture holders received warrants
exercisable into a number of our common shares.

         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 $0.041 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,  October 29, 2002 for the
first  $1,000,000  of  principal,  March 7,  2003  for the  second  $605,000  of
principal and June 26, 2003 for the third  $510,000 of principal.  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


                                       22
<PAGE>

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.
On  October  29,  2002,  the  date  the  registration  statement  for the  first
$1,000,000 of principal became  effective,  the conversion  prices were reset to
$0.04457 from initial  conversion  prices ranging from $0.08616 to $0.10289.  On
March 7, 2003, the date the  registration  statement for the second  $605,000 of
principal became  effective,  the conversion  prices were reset to $0.04722 from
initial  conversion  prices ranging from $0.05126 to $0.0727.  On June 26, 2003,
the date the  registration  statement for the third $510,000 of principal became
effective,  the conversion prices for debentures with initial  conversion prices
of $0.065 were reset to $0.06346.

         Warrants.  Concurrent with the issuance of the convertible  debentures,
we issued to the debenture  holders warrants to purchase up to 33,471,953 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 subject to being
reset on each six month anniversary of its issuance.

         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.

         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.  We are responsible for registering the resale of
the shares of our common  stock  which will be issued on the  conversion  of the
debentures.  On October 29, 2002, a  registration  statement  covering the first
$1,000,000 of debentures  was declared  effective by the Securities and Exchange
Commission.  On March 7, 2003,  a  registration  statement  covering  the second
$605,000 of debentures  was declared  effective by the  Securities  and Exchange
Commission.  On June 26,  2003,  a  registration  statement  covering  the third
$510,000 of debentures  was declared  effective by the  Securities  and Exchange
Commission.



                                       23
<PAGE>

              The convertible debentures are secured by our assets.

<TABLE>

<S>                                                                     <C>                 <C>
Convertbile debenture dated April 23, 2002                                                  $       225,000
Convertbile debentures dated June 10, 2002                                                          775,000
Convertbile debenture dated August 23, 2002                                                         175,000
Convertbile debentures dated October 29, 2002                                                       180,000
Convertbile debenture dated December 16, 2002                                                       100,000
Convertbile debenture dated January 24, 2003                                                        150,000
Convertbile debenture dated March 24, 2003                                                          162,500
Convertbile debenture dated April 15, 2003                                                           10,000
Convertbile debenture dated May 20, 2003                                                            187,500
Advances against debenture issued subsequent to May 31, 2003                                         50,000
Less amounts converted to common stock                                                             (800,000)
Less debt discount
                            Total discounts recorded                    $     1,965,000
                            Amount amortized to expense                        (624,922)
                            Amount cancelled on conversion                     (527,067)           (813,011)
                                                                           -------------    ----------------
Convertible debentures at May 31, 2003                                                              401,989
Less current portion                                                                                121,879
                                                                                            ----------------
Long term portion                                                                           $       280,110
                                                                                            ================
</TABLE>


NEW ACCOUNTING PRONOUNCEMENTS

         In December 2002,  the Financial  Accounting  Standards  Board ("FASB")
issued Statement of Financial  Accounting Standard ("SFAS") No. 148, "Accounting
for Stock-Based  Compensation-Transition and Disclosure-an amendment of SFAS No.
123." SFAS No. 148 amends the  disclosures in both annual and interim  financial
statements about the method of accounting for stock-based employee  compensation
and the effect of the method used on reported results. SFAS No. 148 is effective
for fiscal  years ending  after  December 15, 2002 and is effective  for interim
periods  beginning  after December 15, 2002. The Company's  adoption of SFAS No.
148 did not have a  material  effect  on the  Company's  financial  position  or
results of operations.

         In November 2002, the FASB issued  Interpretation No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of  Indebtedness  of Others." This  interpretation  elaborates on the
disclosures  required  in  financial  statements  concerning  obligations  under
certain  guarantees.   It  also  clarifies  the  requirements   related  to  the
recognition   of  liabilities  by  a  guarantor  at  the  inception  of  certain
guarantees. The disclosure requirements of this interpretation were effective on
December 31, 2002. We adopted the recognition  provisions of the  interpretation
in the quarter ended February 28, 2003. The adoption of this  interpretation did
not impact our financial position or results of operations.

         In January 2003, the FASB issued  Interpretation No. 46, "Consolidation
of  Variable  Interest  Entities,   an  interpretation  of  ARB  No.  51."  This
interpretation provides guidance on: 1) the identification of entities for which
control is achieved  through means other than through  voting  rights,  known as
"variable  interest  entities" (VIEs);  and 2) which business  enterprise is the
primary  beneficiary and when it should  consolidate the VIE. This new model for
consolidation applies to entities: 1) where the equity investors (if any) do not
have a controlling  financial interest; or 2) whose equity investment at risk is
insufficient to finance that entity's  activities  without receiving  additional
subordinated   financial   support  from  other  parties.   In  addition,   this
interpretation  requires  that  both  the  primary  beneficiary  and  all  other
enterprises  with a  significant  variable  interest  in a VIE  make  additional
disclosures.  This  interpretation  is  effective  for all new VIEs  created  or
acquired  after January 31, 2003. For VIEs created or acquired prior to February
1, 2003, the provisions of the interpretation  must be applied no later than the
beginning of the first interim or annual  reporting  period beginning after June
15, 2003. Certain  disclosures are effective  immediately.  The adoption of this
interpretation did not impact our financial position or results of operations.

         In April 2003 the FASB issued 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


                                       24
<PAGE>

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 is not expected to have a material  effect
on the consolidated financial statements

         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 is not expected to have a
material effect on the consolidated financial statements.

TAX LOSS CARRYFORWARDS

         Deferred  income  taxes  are  provided  for  temporary  differences  in
recognizing  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 $845,000 in the
year ended May 31, 2003, from  $13,446,000 at May 31, 2002 to $14,291,000 at May
31, 2003.

ITEM 7A. QUANITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         We are exposed to interest rate risk on investments of our excess cash.
The primary objective of our investment  activities is to preserve  capital.  To
achieve this  objective  and  minimize  the  exposure  due to adverse  shifts in
interest rates, we invest from time to time in high quality short-term  maturity
commercial  paper  and  money  market  funds  operated  by  reputable  financial
institutions  in the United  States.  Due to the nature of our  investments,  we
believe that we do not have a material interest rate exposure.

         As of May 31, 2003, our notes payable to  corporations  and individuals
totaling $2 million bore  interest at fixed rates of 5% to 8%. Our capital lease
obligation totaling $16,731 is discounted at a fixed rate of interest of 22.7%.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The following table presents selected unaudited  quarterly  information
for fiscal 2003 and 2002

<TABLE>
<CAPTION>
                                          FIRST               SECOND               THIRD              FOURTH
                                         Quarter              Quarter             Quarter            Quarter
                                     -----------------   ------------------   ----------------   -----------------

<S>                                  <C>                 <C>                  <C>                <C>
Fiscal 2003:
Total revenues                       $         39,889    $           5,160    $        41,390    $         37,464
Operating loss                               (661,408)            (743,271)          (514,883)           (520,384)
Net loss                                     (943,441)          (1,077,288)          (842,661)         (1,024,909)
Net loss per basic and diluted share $          (0.01)   $           (0.01)   $         (0.01)   $          (0.01)

Fiscal 2002:
Total revenues                       $        314,500    $           7,389    $         4,620    $         32,300
Operating loss                             (1,039,217)          (1,292,564)          (964,703)           (819,687)
Net loss                                   (1,046,970)          (1,558,602)        (1,260,676)         (1,620,803)
Net loss per basic and diluted share $          (0.02)   $           (0.02)   $         (0.02)   $          (0.02)
</TABLE>


         Also see Part IV, Item 14(a).


                                       25
<PAGE>

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

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE


         Effective May 20, 2002, the client-auditor relationship between Patriot
Scientific  Corporation (the "Company") and BDO Seidman, LLP ("BDO") ceased. The
Company  dismissed  BDO on May 20,  2002 as part of its cost  reduction  program
which was initiated earlier in that fiscal year.

         The change in  certifying  accountants  was  approved by the  Company's
board of directors.

         BDO's reports on the consolidated  financial  statements of the Company
for  each of the  past  two  years  did not  contain  an  adverse  opinion  or a
disclaimer of opinion,  nor were qualified as to any  uncertainty in audit scope
or accounting principle;  however the audit opinion of BDO on the Company's most
recent consolidated financial statements as of and for the period ending May 31,
2001 was  modified  to  include  an  explanatory  paragraph  which  contained  a
statement that the Company's  recurring losses from operations and negative cash
flows  raised  substantial  doubt about the  Company's  ability to continue as a
going concern.

         During  the two years  ended May 31,  2001 and the  subsequent  interim
periods  preceding the date of the dismissal of BDO on May 20, 2002,  there were
no disagreements with BDO on any matters of accounting  principles or practices,
financial  statement   disclosure,   or  auditing  scope  or  procedure,   which
disagreement(s),  if not resolved to the  satisfaction of BDO, would have caused
the  former  accountant  to  make a  reference  to  the  subject  matter  of the
disagreement(s) in connection with its reports covering such periods.

         During  the two years  ended May 31,  2001 and the  subsequent  interim
periods  preceding the date of the dismissal of BDO on May 20, 2002,  there were
no "reportable events"  (hereinafter  defined) requiring  disclosure pursuant to
Item 304 (a) (1) (v) of  Regulation  S-K. As used herein,  the term  "reportable
events"  means any of the items  listed in  paragraphs  (a) (1) (v) (A) - (D) of
Item 304 of Regulation S-K.

         Effective  May 20,  2002,  the  Company  engaged  Nation  Smith  Hermes
Diamond,  a  professional  corporation,  which  is a member  of the BDO  Seidman
Alliance ("Nation") , as its independent accountants. During the two years ended
May 31, 2001 and the subsequent  interim periods preceding the effective date of
the  engagement  of May 20,  2002,  neither the Company nor anyone on its behalf
consulted Nation regarding either the application of accounting  principles to a
specified  transaction,  either  completed  or  proposed,  or the  type of audit
opinion  that  might  be  rendered  on  the  Company's   consolidated  financial
statements,  nor has Nation  provided  to the  Company a written  report or oral
advice regarding such principles or audit opinion.

         The Company  requested  that BDO furnish it with a letter  addressed to
the Securities and Exchange Commission stating whether or not it agrees with the
above statements.  A copy of the letter from BDO dated June 4, 2002 was filed as
Exhibit 16.1 to the Form 8-K/A filed June 5, 2002.
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         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, 2003:

<TABLE>
<CAPTION>
NAME                               AGE           POSITION AND OFFICES                              DIRECTOR SINCE
----                               ---           --------------------                              --------------
<S>                                <C>        <C>                                                  <C>
Donald R. Bernier                  61         Chairman and Director                                January 1995
David H. Pohl                      65         Director                                             April 2001
Jeffrey Wallin                     55         President and CEO                                    n/a
Lowell W. Giffhorn                 56         Executive Vice President, CFO, Secretary and         August 1999
                                              Director
Carlton M. Johnson, Jr.            43         Director                                             August 2001
Helmut Falk, Jr.                   46         Director                                             December 1997
Gloria Felcyn                      56         Director                                             October 2002
Joey Maitra                        53         Vice President Engineering                           n/a
Patrick Nunally                    39         Vice President and CTO                               n/a
</TABLE>


                                       26
<PAGE>

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
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


                                       27
<PAGE>

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.


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, 2002 through May 31, 2003, all persons subject to the Section
16(a) reporting requirements timely filed the required reports.

ITEM 11. 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, 2003, 2002, and 2001.

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                        2003          $127,650 (1)     Nil             250,000      None             None
  President and CEO                2002           $68,800 (1)     Nil           1,000,000      None             None

Lowell W. Giffhorn                 2003          $150,779 (1)     Nil             115,000      None             None
  Exec. V.P., CFO and Secy.        2002          $139,908 (1)     Nil             255,000      None             None
                                   2001          $126,650 (1)     Nil             125,000      None             None

Joey Maitra                        2003          $131,040 (1)     Nil             100,000      None             None
  VP Engineering                   2002          $125,058 (1)     Nil             335,000      None             None
                                   2001          $120,000         Nil                None      None             None

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


                                       28
<PAGE>

         (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.

               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, 2003, 2002 and 2001.

OPTION GRANTS

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

             OPTION GRANTS TABLE FOR FISCAL YEAR ENDED MAY 31, 2003

<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         Price       Date         5% ($)       10% ($)
        ----           ---------------        -----------         -----       ----         ------       -------

<S>                       <C>                    <C>               <C>       <C>              <C>          <C>
Jeffrey E. Wallin         250,000                20.6%             $ 0.043   4/15/2008        $ 2,935      $ 6,563

Lowell W. Giffhorn        115,000                9.5%              $ 0.070   8/12/2007        $ 2,224      $ 4,915

Joey Maitra               100,000                8.2%              $ 0.059    1/2/2008        $ 1,630      $ 3,602

Patrick Nunally           400,000                32.9%             $ 0.043   4/15/2008        $ 4,697     $ 10,379
</TABLE>


(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, 2003 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 and 2001 Stock Option Plans to the officers  reflected in
the Summary Compensation Table shown above.


                                       29
<PAGE>

         The fair market value of the  unexercised  in-the-money  options at May
31, 2003 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, 2003,
$0.065.

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




COMPENSATION COMMITTEE

          The  Compensation  Committee  reviews and  recommends to the Board the
salaries,  bonuses and prerequisites of the Company's  executive  officers.  The
Compensation  Committee  also  reviews  and  recommends  to the  Board  any  new
compensation  or retirement  plans and  administers the Company's 1992, 1996 and
2001 Stock Option Plans.

          The  Compensation   Committee  currently  consists  of  three  outside
directors.  Each member of the Compensation  Committee is independent as defined
under the National Association of Securities Dealers' listing standards.

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 7,
2002, with SDMC,  Inc.  whereby SDMC would provide the services of Mr. Wallin to
be the  President  and Chief  Executive  Officer.  The  agreement  is for a term
through  March 18,  2004  providing  for  payments of  $133,200  per annum.  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,  $0.40- $20,000, $0.50- $20,000, $0.60-
$30,000,  $0.80- $30,000,  $1.00- $50,000, $1.50- $100,000, and $2.00- $150,000.
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 1,000,000 common shares,
500,000  vesting on March 7, 2002,  250,000 vesting on March 7, 2003 and 250,000
vesting on March 7, 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.


                                       30
<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 December
23, 2002,  with Mr.  Maitra  providing for his  employment as Vice  President of
Engineering. The agreement is for a term through January 2, 2004 providing for a
base salary initially of $126,000 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. 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) 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. 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  100,000 common shares,  50,000 vesting on January 2,
2004 and 50,000 vesting on January 2, 2005.

         The Company entered into a letter of intent dated May 31, 2001 with Dr.
Nunally  providing  for his  employment  as the Chief  Technical  Officer of the
Company.  The terms of the letter  provide  for a base  salary of  $180,000  per
annum.  The  letter  provides  for  a  bonus  up  to  50%  of  the  annual  base
consideration  for the  applicable  year. In addition,  the letter  provided for
monthly  payments  of  $4,500  for the  purchase  from Dr.  Nunally  of  certain
intellectual property assets and assignment of worldwide patent rights. On March
30, 2001, the Company  entered into an agreement with Dr. Nunally  providing for
additional  monthly  payments  of $3,000 for  additional  intellectual  property
assets.  On April 16, 2003, the  agreements  were amended to reflect a return of
the intellectual  property assets to Dr. Nunally,  forgiveness by Dr. Nunally of
payments due him for the intellectual  property assets  subsequent to January 1,
2003  and  termination  of  the  $7,500  per  month  payments  accruing  on  the
intellectual  property assets. In exchange the Company granted a stock option to
Dr.  Nunally  for the  purchase  of up to 400,000  shares of common  stock at an
exercise price of $0.0425. The option vested upon grant.

ITEM 12.  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 28,  2003,  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.


                                       31
<PAGE>

<TABLE>
<CAPTION>
                                Name and Address               Amount & Nature
       Title                     of Beneficial                  of Beneficial              Percent
     of Class                        Owner                        Ownership               of Class
     --------                        -----                        ---------               --------

<S>                     <C>                                        <C>                    <C>
Common stock            Gloria Felcyn, CPA                          18,214,527 (1)         15.4%
par value               10989 Via Frontera
 $0.00001               San Diego, CA 92127

SAME                    Donald R. Bernier                              487,500 (2)        *
                        10989 Via Frontera
                        San Diego, CA 92127

SAME                    Helmut Falk, Jr.                               149,500 (3)        *
                        10989 Via Frontera
                        San Diego, CA 92127

SAME                    Lowell W. Giffhorn                             536,614 (4)        *
                        10989 Via Frontera
                        San Diego, CA 92127

SAME                    SDMC, Inc.                                   1,020,000 (5)        *
                        10989 Via Frontera
                        San Diego, CA 92127

SAME                    David H. Pohl                                  325,000 (6)        *
                        10989 Via Frontera
                        San Diego, CA 92127

SAME                    Patrick O. Nunally                             799,500 (7)        *
                        10989 Via Frontera
                        San Diego, CA 92127

SAME                    Joey Maitra                                    512,342 (8)        *
                        10989 Via Frontera
                        San Diego, CA 92127

SAME                    Carlton M. Johnson, Jr.                         75,000 (9)        *
                        10989 Via Frontera
                        San Diego, CA 92127

                        All directors & officers                    22,119,983 (10)     18.2%
                        as a group (8 persons)
</TABLE>

                    *  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 11,548,304 shares
        that are issuable on the conversion of 8% Convertible Debentures and the
        exercise  of  warrants  into  shares of common  stock and 50,000  shares
        issuable upon the exercise of outstanding stock options.


                                       32
<PAGE>

        2) Includes  262,500  shares  issuable upon the exercise of  outstanding
        stock options.

        3) Includes  115,000  shares  issuable upon the exercise of  outstanding
        stock options.

        4) Includes  311,666  shares  issuable upon the exercise of  outstanding
        stock options.

        5) Includes  1,020,000  shares issuable upon the exercise of outstanding
        stock options.

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

        7) Includes  787,500  shares  issuable upon the exercise of  outstanding
        stock options.

        8) Includes  335,000  shares  issuable upon the exercise of  outstanding
        stock options.

        9) Includes  75,000  shares  issuable  upon the exercise of  outstanding
        stock options.

        10) Includes  7,290,013  shares issued and  outstanding  and  14,829,970
        shares   issuable  upon  exercise  of  stock   options,   conversion  of
        convertible debentures and exercise of warrants.

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                   5,054,000                  $0.28                      250,188

Equity compensation plans not
approved by security holders                  58,992,468                  $0.06                       None
                                       ---------------------------------------------------------------------------------

Total                                         64,046,468                  $0.08                      250,188
                                       =================================================================================
</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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         There were no transactions,  or series of  transactions,  during fiscal
2003, 2002 or 2001, 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.


                                       33
<PAGE>

         During the fiscal  years ended May 31, 2002 and 2001,  we paid  $70,292
and $139,253 to Webster  Incorporated for design and maintenance of our web site
and for marketing support and materials.  The principal in Webster Incorporated,
Christine  Blum,  is the daughter of our previous  Chairman,  President and CEO,
Richard Blum.

         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 are
subject to a downward  revisions if the price of our stock is lower on any three
month anniversary of the debentures or on the date that a statement  registering
the  resale of the common  stock  issuable  upon  conversion  of the  debentures
becomes 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 an 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.

         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.


ITEM 14. 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, 2003. 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 15.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

         Nation Smith Hermes  Diamond was our  principal  accountant  during the
year  ended May 31,  2003 and for the year end audit for the year  ended May 31,
2002. 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, 2003 and 2002.

<TABLE>
<CAPTION>
                            Nation Smith Hermes Diamond          BDO Seidman
                           -------------------------------     -----------------------------
                                 2003             2002              2003            2002
                                 ----             ----              ----            ----

<S>                        <C>               <C>               <C>             <C>
Audit fees                 $       72,902    $     14,875      $          -    $    121,890
Audit-related fees                 40,099               -            20,000          50,550
Tax fees                              635               -                 -           6,300
All other fees                         57               -                 -           9,149
                           ---------------   -------------     -------------   -------------

Total                      $      113,693    $     14,875      $     20,000    $    187,889
                           ===============   =============     =============   =============
</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.


                                       34
<PAGE>

         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. The 2002 fees are primarily  related
         to travel expenses and retention review fees.


        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.

        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.

                                     PART IV

ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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

          1.   Financial  Statements.   The  following   consolidated  financial
               statements  and  supplementary  information  of the  Company  and
               Report of  Independent  Auditors  are included in Part II of this
               Report:

               Report  of  Nation  Smith  Hermes   Diamond,   Certified   Public
               Accountants

               Report of BDO Seidman, LLP, Certified Public Accountants

               Consolidated Balance Sheets- As of May 31, 2003 and 2002

               Consolidated  Statements of Operations- Years Ended May 31, 2003,
               2002 and 2001

               Consolidated  Statement of Stockholders'  Equity (Deficit)- Years
               Ended May 31, 2003, 2002 and 2001

               Consolidated  Statements of Cash Flows- Years Ended May 31, 2003,
               2002 and 2001

               Notes to Consolidated Financial Statements

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



                                       35
<PAGE>


Exhibit No.   Document
-----------   --------

2.0           PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION  (1)
              OR SUCCESSION.

2.1           Agreement  to  Exchange   Technology  for  Stock  in  Patriot  (1)
              Scientific Corporation,  incorporated by reference to Exhibit
              2.1 to Form 8-K dated August 10, 1989

2.2           Assets Purchase  Agreement and Plan of  Reorganization  dated  (1)
              June 22, 1994, among the Company, nanoTronics Corporation and
              Helmut  Falk,  incorporated  by  reference to Exhibit 10.4 to
              Form 8-K dated July 6, 1994

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

2.3           Form of  Exchange  Offer dated  December 4, 1996  between the  (1)
              Company   and  certain   shareholders   of   Metacomp,   Inc.
              incorporated  by  reference  to Exhibit 2.3 to Form 8-K dated
              January 9, 1997


                                    36
<PAGE>


Exhibit No.   Document
-----------   --------

2.4           Letter of Transmittal to Accompany  Shares of Common Stock of  (1)
              Metacomp,  Inc. 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  (1)
              predecessor,  Patriot Financial Corporation,  incorporated by
              reference  to Exhibit 3.1 to  registration  statement on Form
              S-18, file no. 33-23143-FW

3.2           Articles of Amendment of Patriot  Financial  Corporation,  as  (1)
              filed with the Colorado  Secretary of State on July 21, 1988,
              incorporated  by  reference  to Exhibit  3.2 to  registration
              statement on Form S-18, File No. 33-23143-FW

3.3           Certificate of  Incorporation  of the Company,  as filed with  (1)
              the   Delaware   Secretary   of  State  on  March  24,  1992,
              incorporated  by  reference  to Exhibit 3.3 to Form 8-K dated
              May 12, 1992

3.3.1         Certificate of Amendment to the Certificate of  Incorporation  (1)
              of the Company, as filed with the Delaware Secretary of State
              on April 18, 1995, incorporated by reference to Exhibit 3.3.1
              to Form 10-KSB for the fiscal year ended May 31, 1995

3.3.2         Certificate of Amendment to the Certificate of  Incorporation  (1)
              of the Company, as 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  (1)
              of the Company, as filed with the Delaware Secretary of State
              on April 28, 2000, incorporated by reference to Exhibit 3.3.3
              to Registration Statement on Form S-3 dated May 5, 2000

3.3.4         Certificate of Amendment to the Certificate of  Incorporation  (1)
              of the Company, as filed with the Delaware Secretary of State
              on May 6, 2002, incorporated by reference to Exhibit 3.3.4 to
              Registration Statement on Form S-3 dated June 27, 2002

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

3.5           Certificate  of Merger  issued by the  Delaware  Secretary of  (1)
              State on May 8, 1992,  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  (1)
              State on May 12, 1992,  incorporated  by reference to Exhibit
              3.6 to Form 8-K dated May 12, 1992


                                    37
<PAGE>

Exhibit No.   Document
-----------   --------

3.7           Bylaws of the Company,  incorporated  by reference to Exhibit  (1)
              3.7 to Form 8-K dated May 12, 1992

4.0           INSTRUMENTS ESTABLISHING RIGHTS OF SECURITY HOLDERS.

4.1           Specimen common stock certificate,  incorporated by reference  (1)
              to Exhibit 4.1 Form 8-K dated May 12, 1992

4.2           Form of Stock Purchase  Warrant  (Labway  Corporation)  dated  (1)
              February 29, 1996,  exercisable  to purchase  253,166  common
              shares at $1.58 per share until August 31,  1996,  granted to
              investors in connection  with an offering of securities  made
              in reliance upon  Regulation S,  incorporated by reference to
              Exhibit 4.2 to Form 10-QSB for fiscal  quarter ended February
              29, 1996

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

4.4           Form of 5% Convertible Term Debenture (CC  Investments,  LDC)  (1)
              due June 2,  1999  aggregating  $2,000,000  to two  investors
              incorporated  by  reference  to Exhibit 4.4 to Form 8-K dated
              June 16, 1997

4.5           Form of Stock Purchase  Warrant (CC  Investments,  LDC) dated  (1)
              June 2, 1997  exercisable to purchase an aggregate of 400,000
              common  shares at  $1.69125  per share  until  June 2,  2002,
              granted to two investors in  connection  with the offering of
              securities  in  Exhibit  4.4  incorporated  by  reference  to
              Exhibit 4.5 to Form 8-K dated June 16, 1997

4.6           Registration Rights Agreement dated June 2, 1997 by and among  (1)
              the Company  and CC  Investments,  LDC and the Matthew  Fund,
              N.V.  related to the registration of the common stock related
              to Exhibits 4.4 and 4.5  incorporated by reference to Exhibit
              4.6 to Form 8-K dated June 16, 1997

4.7           Form of Warrant  to  Purchase  Common  Stock  (Swartz  Family  (1)
              Partnership, L.P.) dated June 2, 1997 exercisable to purchase
              an aggregate of 211,733  common  shares at $1.69125 per share
              until  June 2,  2002,  granted  to a group  of  investors  in
              connection  with the  offering of  securities  in Exhibit 4.4
              incorporated  by  reference  to Exhibit 4.7 to Form 8-K dated
              June 16, 1997

4.8           Registration Rights Agreement dated June 2, 1997 by and among  (1)
              the  Company  and  Swartz  Investments,  LLC  related  to the
              registration  of the common  stock  related  to  Exhibit  4.7
              incorporated  by  reference  to Exhibit 4.8 to Form 8-K dated
              June 16, 1997

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


                                    38
<PAGE>

Exhibit No.   Document
-----------   --------

4.10          Form of Stock Purchase  Warrant (CC  Investments,  LDC) dated  (1)
              November  24, 1997  exercisable  to purchase an  aggregate of
              200,000  common shares at $1.50 per share until June 2, 2002,
              granted to two investors in  connection  with the offering of
              securities described in Exhibit 4.9 incorporated by reference
              to  Exhibit  4.10 to Form  10-KSB  for the year ended May 31,
              1998

4.11          Form of Warrant  to  Purchase  Common  Stock  (Swartz  Family  (1)
              Partnership,  L.P.) dated  November 24, 1997  exercisable  to
              purchase an aggregate of 105,867  common  shares at $1.50 per
              share until June 2, 2002,  granted to a group of investors in
              connection  with the  offering  of  securities  described  in
              Exhibit 4.9 incorporated by reference to Exhibit 4.11 to Form
              10-KSB for the year ended May 31, 1998

4.12          Form  of  Warrant  to   Purchase   Common   Stock   (Investor  (1)
              Communications  Group,  Inc.) dated June 16, 1997 exercisable
              to purchase an aggregate of 130,000  common  shares at prices
              ranging  from $2.50 to $7.50 per share  until  June 15,  1999
              incorporated  by reference to Exhibit 4.12 to Form 10-KSB for
              the year ended May 31, 1998

4.13          Warrant  to  Purchase  Common  Stock  issued  to  Spellcaster  (1)
              Telecommunications,  Inc. dated April 28, 1998 exercisable to
              purchase an aggregate of 100,000  common  shares at $1.25 per
              share until  April 28,  2000  incorporated  by  reference  to
              Exhibit 4.13 to Form 10-KSB for the year ended May 31, 1998

4.14          Investment  agreement  dated February 24, 1999 by and between  (1)
              the  Company  and Swartz  Private  Equity,  LLC for a maximum
              aggregate  amount of $5,000,000  incorporated by reference to
              Exhibit 4.14 to Form  10-QSB/A for the fiscal  quarter  ended
              November 30, 1998

4.15          Registration  Rights Agreement dated February 24, 1999 by and  (1)
              between the Company and Swartz Private Equity, LLC related to
              the  registration of the common stock related to Exhibit 4.14
              incorporated  by reference  to Exhibit 4.15 to Form  10-QSB/A
              for the fiscal quarter ended November 30, 1998

4.16          Form of Warrant to  Purchase  Common  Stock  (Swartz  Private  (1)
              Equity,  LLC) dated February 24, 1999 exercisable to purchase
              common shares in  connection  with the offering of securities
              in Exhibit 4.14  incorporated by reference to Exhibit 4.16 to
              Form 10-QSB/A for the fiscal quarter ended November 30, 1998

4.17          Amended and Restated Investment Agreement dated July 12, 1999  (1)
              by and between the Company and Swartz Private Equity, LLC for
              a maximum  aggregate  amount of  $5,000,000  incorporated  by
              reference to Exhibit 4.17 to Pre-Effective Amendment No. 2 to
              Registration Statement on Form SB-2 dated July 14, 1999


                                    39
<PAGE>

Exhibit No.   Document
-----------   --------

4.18          Investment  Agreement dated April 28, 2000 by and between the  (1)
              Company  and  Swartz  Private  Equity,   LLC  for  a  maximum
              aggregate amount of $30,000,000  incorporated by reference to
              Exhibit 4.18 to Registration  Statement on Form S-3 dated May
              5, 2000

4.18.1        Waiver and  Agreement  dated  September 24, 2001 amending the  (1)
              Investment  Agreement 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  (1)
              incorporated  by reference  to Exhibit  4.19 to  Registration
              Statement on Form S-8 dated March 26, 2001

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

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

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

4.23          Financial  Consulting  Services Agreement between the Company  (1)
              and M. Blaine Riley,  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  (1)
              June  10,  2004  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  (1)
              June  10,  2002  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


                                    40
<PAGE>

Exhibit No.   Document
-----------   --------

4.26          Form of Registration Rights Agreement (Lincoln Ventures, LLC)  (1)
              dated  June  10,  2002  by and  among  the  Company  and  six
              investors  related to the  registration  of the common  stock
              related to Exhibit 4.24  incorporated by reference to Exhibit
              4.26 to  Registration  Statement  on Form S-3 dated  June 27,
              2002

10.0          MATERIAL CONTRACTS.

10.1          1992 Incentive Stock Option Plan of the Company, incorporated  (1)
              by reference to Exhibit 10.1 to Form 8-K dated May 12, 1992

10.1.1        Amendment to 1992  Incentive  Stock Option Plan dated January  (1)
              11, 1995, incorporated 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,  (1)
              incorporated  by  reference to Exhibit 10.2 to Form 8-K dated
              May 12, 1992

10.2.1        Amendment  to 1992  Non-Statutory  Stock  Option  Plan  dated  (1)
              January 11, 1995  incorporated by reference to Exhibit 10.2.1
              to Form 10-KSB for fiscal year ended May 31, 1996

10.3          Lease Agreement  between the Company's  subsidiary  Metacomp,  (1)
              Inc.  and  Clar-O-Wood  Partnership,   a  California  limited
              partnership dated April 11, 1991 as amended November 11, 1992
              and  November 2, 1995  incorporated  by  reference to Exhibit
              10.3 to Form 10-KSB for fiscal year ended May 31, 1997

10.4          Stock  Purchase  Agreement  dated  November 29 and 30,  1995,  (1)
              between the Company and 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  (1)
              21, 1996, between the 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,  (1)
              incorporated  by reference to 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  (1)
              between the Company and Robert E. Crawford, Jr., incorporated
              by  reference  to  Exhibit  10.6 to Form  10-QSB  for  fiscal
              quarter ended February 29, 1996

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

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


                                    41
<PAGE>

Exhibit No    Document
----------    --------

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

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

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

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

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

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

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

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

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


                                    42
<PAGE>

Exhibit No.   Document
-----------   --------

10.15         Sales  Contractual  Agreement dated July 31, 1996 between the  (1)
              Company and Premier  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  (1)
              Company and Norman J. 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  (1)
              Company and Jayanta K. 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,  (1)
              1997   between  the  Company  and  Sun   Microsystems,   Inc.
              incorporated by reference to Exhibit 10.18 to Form 10-KSB for
              the fiscal year ended May 31, 1997

10.19         Employment Agreement dated March 23, 1998 between the Company  (1)
              and James T.  Lunney  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  (1)
              and Phillip  Morettini  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  (1)
              and Lowell W. 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  (1)
              Company  and James T. 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  (1)
              and 4S 37/38,  LLC incorporated by reference to Exhibit 10.23
              to Form 10-KSB for the fiscal year ended May 31, 2000

10.24         Employment  Agreement  dated  October  2,  2000  between  the  (1)
              Company and Miklos B. 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  (1)
              Company  and Richard G. 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  (1)
              Company  and Serge J. Miller  incorporated  by  reference  to
              Exhibit  10.26 to Form  10-KSB for the fiscal  year ended May
              31, 2001


                                    43
<PAGE>


Exhibit No.   Document
-----------   --------

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

10.28         Employment  Agreement  dated  January  1,  2001  between  the  (1)
              Company  and  David H.  Pohl  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  (1)
              and David H. Pohl  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  (1)
              Company and Lowell W. 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  (1)
              Company and  Jayanta  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  (1)
              and SDMC, Inc.  incorporated by reference to Exhibit 10.32 to
              Registration Statement on Form S-3 dated June 27, 2002

14.0          CODE OF ETHICS.

14.1          Code of Ethics for Senior Financial Officers                   (1)

23.0          CONSENTS OF EXPERTS AND COUNSEL.

23.1          Consent  of Nation  Smith  Hermes  Diamond,  LLP  independent  (1)
              certified public accountants

23.2          Consent of BDO  Seidman,  LLP  independent  certified  public  (1)
              accountants


                                    44
<PAGE>

Exhibit No.   Document
-----------   --------

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

31.1          Certification of Jeffrey E. Wallin, CEO                        (1)

31.2          Certification of Lowell W. Giffhorn, CFO                       (1)

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

321.1         Certification of Jeffrey E. Wallin, CEO                        (1)

32.2          Certification of Lowell W. Giffhorn, CFO                       (1)

99.0          ADDITIONAL EXHIBITS.

99.1          Form  of  ISO  Plan  Option  (Gaspar)  dated  May  29,  1992,  (1)
              incorporated  by reference  to Exhibit  28.2 to  registration
              statement on Form SB-2, file no. 33-57858

99.2          Form  of  NSO  Plan  Option  (Berlin)  dated  May  29,  1992,  (1)
              incorporated  by reference  to Exhibit  28.3 to  registration
              statement on Form SB-2, file no. 33-57858

99.3          Form of  Incentive  Stock Option  Agreement to the  Company's  (1)
              1996 Stock Option Plan  (individual  agreements  differ as to
              number of shares, dates, prices and vesting), incorporated by
              reference to  Pre-Effective  Amendment No. 2 to  Registration
              Statement on Form SB-2 dated May 23, 1996

99.4          Form of NonQualified  Stock Option Agreement to the Company's  (1)
              1996 Stock  Option Plan  (individual  agreement  differ as to
              number of shares, date, prices and vesting),  incorporated by
              reference to  Pre-Effective  Amendment No. 2 to  Registration
              Statement on Form SB-2 dated May 23, 1996

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

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

99.7          Form of Non-Qualified Stock Option Agreement to the Company's  (1)
              2001 Stock Option Plan  incorporated  by reference to Exhibit
              99.7 to  Registration  Statement  on Form S-8 filed March 26,
              2001


         (1) Previously filed in indicated registration statement or report.
         (2) Exhibit  filed  herewith  this  Annual  Report on Form 10-K for the
fiscal year ended May 31, 2003


(b)  Financial Statement Schedules

         The following  financial statement schedule filed herein as a part
of this report at F-33


                                    45
<PAGE>

         Schedule II- Valuation and Qualifying Accounts

         All other schedules have been omitted because the information  required
         to be  set  forth  therein  is  not  applicable  or  is  shown  in  the
         Consolidated Financial Statements or the Notes thereto.

(c) Reports on Form 8-K - None.




                                    46
<PAGE>


Patriot Scientific Corporation

<TABLE>
<CAPTION>
Index to Consolidated Financial Statements

<S>                                                                                   <C>
         Report of Nation Smith Hermes Diamond, Independent Certified Public
           Accountants...............................................................   F-2

         Report of BDO Seidman, LLP, Independent Certified Public Accountants........   F-3

         Consolidated Balance Sheets as of May 31, 2003 and 2002.....................   F-4

         Consolidated Statements of Operations for the Years Ended May 31,
           2003, 2002 and 2001.......................................................  F-5

         Consolidated Statement of Stockholders' Equity (Deficit) for the
           Years Ended May 31, 2003, 2002 and 2001...................................  F-6

         Consolidated Statements of Cash Flows for the Years Ended
           May 31, 2003, 2002 and 2001...............................................  F-7

         Summary of Accounting Policies..............................................  F-8-
                                                                                       F-13

         Notes to Consolidated Financial Statements.................................. F-14-
                                                                                      F-32

         Schedule II- Valuation and Qualifying Accounts..............................  F-33
</TABLE>



                                    F-1
<PAGE>



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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, 2003 and 2002, 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, 2003. We have also audited the
schedule  listed in the  accompanying  index.  These  financial  statements  and
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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,  2003 and  2002,  and the  consolidated  results  of its
operations and its cash flows for each of the years in the two year period ended
May 31, 2003, in conformity with accounting principles generally accepted in the
United States of America.

Also, in our opinion,  the schedule presents fairly,  in all material  respects,
the information set forth therein.

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

August 14, 2003, except for note 1, dated as of August 26, 2003.




                                    F-2
<PAGE>





REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


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

We  have  audited  the  accompanying   consolidated  statements  of  operations,
stockholders'  equity and cash flows for the year  ended May 31,  2001.  We have
also audited the schedule  listed in the  accompanying  index for the year ended
May 31, 2001. These financial  statements and schedule are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.

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

In our opinion,  the financial  statements referred to above, present fairly, in
all  material   respects,   the  consolidated   results  of  Patriot  Scientific
Corporation's  operations  and cash  flows for the year ended May 31,  2001,  in
conformity with accounting principles generally accepted in the United States of
America.

Also, in our opinion,  the schedule presents fairly,  in all material  respects,
the information set forth therein for the year ended May 31, 2001.

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
and has negative  cash flows 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/ BDO Seidman, LLP

Los Angeles, California
August 9, 2001,  except for Note 1, dated as
of August 15, 2001



                                    F-3
<PAGE>

                       PATRIOT SCIENTIFIC CORPORATION
                        Consolidated Balance Sheets

<TABLE>
<CAPTION>

May 31,                                                                          2003                    2002
-----------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                    <C>

ASSETS  (Notes 4 and 5)

CURRENT ASSETS:
      Cash and cash equivalents                                            $       32,663         $       88,108
      Accounts receivable, net of allowance
        of $10,000 and $6,000 for uncollectible accounts                            3,866                  4,797
      Prepaid expenses                                                             93,030                 35,749
-----------------------------------------------------------------------------------------------------------------

Total current assets                                                              129,559                128,654

PROPERTY AND EQUIPMENT, net (Note 2)                                              153,530                285,488

OTHER ASSETS, net of accumulated amortization of none and $20,333                  53,220                330,863

PATENTS AND TRADEMARKS, net of accumulated amortization
  of $522,948 and $400,158                                                        128,925                189,521
-----------------------------------------------------------------------------------------------------------------
                                                                           $      465,234         $      934,526
-----------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
      Secured note payable, net of debt discount of none and $189,516 (Note$4)    635,276         $      445,760
      Current portion of 8% Convertible Debentures, net of debt discount of
         $103,121 and  none (Note 5)                                              121,879                      -
      Secured notes payable to shareholder                                        180,000                      -
      Accounts payable                                                            397,180                385,255
      Accrued liabilities                                                         245,822                211,291
      Current portion of capital lease obligation                                   6,405                  5,116
-----------------------------------------------------------------------------------------------------------------

Total current liabilities                                                       1,586,562              1,047,422

8% CONVERTIBLE DEBENTURES, net of debt discount of $709,890 and $192,802 (Note 5) 280,110                315,198

LONG TERM PORTION OF CAPITAL LEASE OBLIGATION                                      10,326                 16,731

COMMITMENTS AND CONTINGENCIES (Notes 1, 7 and 11)

STOCKHOLDERS' DEFICIT (Notes 4, 5, 6 and 7):
      Preferred stock, $.00001 par value; 5,000,000 shares
        authorized: none outstanding                                                    -                      -
      Common stock, $.00001par value; 200,000,000 shares authorized:
        106,547,807 and 81,465,757 issued and outstanding at May 31, 2003
        and 2002, respectively                                                      1,066                    815
      Additional paid-in capital                                               44,281,210             41,440,101
      Accumulated deficit                                                     (45,694,040)           (41,805,741)
      Note receivable (Note 3)                                                          -                (80,000)
-----------------------------------------------------------------------------------------------------------------
Total stockholders' deficit                                                    (1,411,764)              (444,825)
-----------------------------------------------------------------------------------------------------------------
                                                                           $      465,234         $      934,526
-----------------------------------------------------------------------------------------------------------------
</TABLE>

See  accompanying  reports of  independent  certified  public  accountants,
summary  of  accounting  policies  and  notes  to  consolidated   financial
statements.


                                    F-4


<PAGE>


                       PATRIOT SCIENTIFIC CORPORATION
                   CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

Years Ended May 31,                                                  2003                  2002                 2001
---------------------------------------------------------------------------------------------------------------------------

<S>                                                          <C>                  <C>                    <C>
Net sales (Note 12):
     Product                                                 $          108,403   $           358,809    $         336,684
     Licenses and royalties                                              15,500                     -                  700
---------------------------------------------------------------------------------------------------------------------------
Net sales                                                               123,903               358,809              337,384
---------------------------------------------------------------------------------------------------------------------------

Cost of sales:
     Product costs                                                       18,660               244,547              444,320
     Inventory obsolescence                                                   -               149,433              100,000
---------------------------------------------------------------------------------------------------------------------------
Cost of sales                                                            18,660               393,980              544,320
---------------------------------------------------------------------------------------------------------------------------

Gross profit (loss)                                                     105,243               (35,171)            (206,936)

Operating expenses:
     Research and development                                           723,287             1,372,421            2,218,433
     Selling, general and administrative                              1,821,902             2,708,579            2,588,579
---------------------------------------------------------------------------------------------------------------------------
Operating expenses                                                    2,545,189             4,081,000            4,807,012
---------------------------------------------------------------------------------------------------------------------------
Operating loss                                                       (2,439,946)           (4,116,171)          (5,013,948)
---------------------------------------------------------------------------------------------------------------------------
Other income (expenses):
     Interest income                                                        191                 2,662               48,329
     Interest expense (Notes 4, 5 and 6)                             (1,448,544)           (1,373,542)              (3,284)
---------------------------------------------------------------------------------------------------------------------------
Other income (expenses)                                              (1,448,353)           (1,370,880)              45,045
---------------------------------------------------------------------------------------------------------------------------
Net loss                                                     $       (3,888,299)  $        (5,487,051)   $      (4,968,903)
---------------------------------------------------------------------------------------------------------------------------

Basic and diluted loss
     per common share (Note 8)                               $            (0.04)  $             (0.08)   $           (0.09)
---------------------------------------------------------------------------------------------------------------------------

Weighted average number of
  common shares outstanding
  during the period (Note 8)                                         93,791,470            66,810,028           53,433,788
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

See  accompanying  reports of  independent  certified  public  accountants,
summary  of  accounting  policies  and  notes  to  consolidated   financial
statements.



                                    F-5
<PAGE>

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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Years Ended May 31, 2003, 2002 and 2001
                                                        Common Stock         Additional        Accumulated     Stockholders'
                                                   -----------------------
                                                    Shares        Amount     Paid-in Capital     Deficit       Equity (Deficit)
----------------------------------------------------------------------------------------------------------------------------


<S>                                                 <C>           <C>       <C>               <C>              <C>
Balance, June 1, 2000                               51,126,675    $   511   $  33,559,158     $ (31,349,787)   $  2,209,882
----------------------------------------------------------------------------------------------------------------------------

Issuance of common stock at $.43 to $1.05
  per share (Note 7)                                 5,411,320         54       3,342,143                 -       3,342,197
Exercise of common stock warrants and
  options at $.25 to $.32 per share (Note 7)           997,416         10         289,063                 -         289,073
Issuance of options for services                             -          -         130,139                 -         130,139
Issuance of note receivable (Note 3)                         -          -         (80,000)                -         (80,000)
Net loss                                                     -          -               -        (4,968,903)     (4,968,903)
----------------------------------------------------------------------------------------------------------------------------

Balance, May 31, 2001                               57,535,411    $   575   $  37,240,503 (1) $ (36,318,690)   $    922,388
----------------------------------------------------------------------------------------------------------------------------

Issuance of common stock at $.07 to $.30
  per share (Notes 6 and  7)                         4,888,680         49         879,556                 -         879,605
Exercise of common stock warrants and
  options at $.25 to $.32 per share (Note 7)           241,666          3          73,830                 -          73,833
Issuance of options for services                             -          -         106,926                 -         106,926
Issuance of common stock for services
  at $.09 per share                                  2,200,000         22         197,978                 -         198,000
Conversion of notes payable
  at $.07 to $.09 per share (Note 4)                16,600,000        166       1,552,885                 -       1,553,051
Value of warrants issued                                     -          -       1,308,423                 -       1,308,423
Net loss                                                     -          -               -        (5,487,051)     (5,487,051)
----------------------------------------------------------------------------------------------------------------------------

Balance, May 31, 2002                               81,465,757    $   815   $  41,360,101 (1) $ (41,805,741)   $   (444,825)
----------------------------------------------------------------------------------------------------------------------------

Issuance of common stock at $.03 to $.05
  per share (Notes 6 and  7)                         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)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

See  accompanying  reports of  independent  certified  public  accountants,
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 $37,320,503 at May 31, 2001 and $41,440,101
at May 31, 2002.


                                    F-6
<PAGE>

                       PATRIOT SCIENTIFIC CORPORATION
                   Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years Ended May 31,                                    2003                2002              2001
-------------------------------------------------------------------------------------------------------
<S>                                                <C>                <C>                <C>
OPERATING ACTIVITIES:
     Net loss                                      $  (3,888,299)     $   (5,487,051)    $  (4,968,903)
     Adjustments to reconcile net loss
       to cash used in operating activities:
         Amortization and depreciation                   258,915             285,759           260,316
         Provision for doubtful accounts                  24,000              76,000            49,000
         Provision for inventory obsolescence                  -             149,433           100,000
         Common stock, options and warrants issued for
             services                                    148,800              99,000           119,565
         Non -cash interest expense related to convertible
             debentures, notes payable and warrants    1,304,957           1,324,431                 -
         Changes in:
             Accounts receivable                         (33,346)            (45,973)         (242,405)
             Inventories                                       -              73,960          (252,229)
             Prepaid and other assets                    216,195             (83,334)           (2,563)
             Accounts payable and accrued expenses        83,016             (24,759)           98,039
-------------------------------------------------------------------------------------------------------
Net cash used in operating activities                 (1,885,762)         (3,632,534)       (4,839,180)
-------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
     Note receivable (Note 3)                             60,000                   -           (80,000)
     Web site development costs                                -                   -           (25,000)
     Purchase of property, equipment and patents, net    (62,194)           (146,156)         (388,557)
-------------------------------------------------------------------------------------------------------
Net cash used in investing activities                     (2,194)           (146,156)         (493,557)
-------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
     Proceeds from issuance of secured notes payable     180,000           1,790,000                 -
     Payments for capital lease obligations               (5,116)             (3,148)                -
     Proceeds from issuance of convertible debentures  1,507,000             508,000                 -
     Proceeds from issuance of common stock              120,350             879,605         3,342,197
     Proceeds from exercise of common stock warrants
       and options                                             -              73,833           289,073
     Proceeds from sale of accounts receivable            30,277             154,158            65,575
-------------------------------------------------------------------------------------------------------
Net cash provided by financing activities              1,832,511           3,402,448         3,696,845
-------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS                (55,445)           (376,242)       (1,635,892)
CASH AND CASH EQUIVALENTS, beginning of year              88,108             464,350         2,100,242
-------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year             $      32,663      $       88,108     $     464,350
-------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Convertible debentures, notes payable and accrued
       interest exchanged for common stock         $     836,560      $    1,154,725     $           -
     Cash payments for interest                    $      15,083      $       19,719     $           -
     Common stock issued for prepaid services      $           -      $      198,000     $           -
     Warrants and options paid issued for prepaid
       services                                                -      $      117,500     $      10,574
     Write-off of inventory                        $           -      $       38,052     $     177,000
     Capital lease obligation                      $           -      $       24,996     $           -
     Debt discount                                 $   1,763,816      $    1,308,423     $           -
     Debt discount cancelled                       $     527,067      $            -     $           -
-------------------------------------------------------------------------------------------------------
</TABLE>

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



                                    F-7
<PAGE>



PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS
Patriot  Scientific  Corporation  (the "Company") 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  2002  and  2001  financial
statements  in  order  for  them  to  conform  to the  2003  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.

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.



                                    F-8
<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 from 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.


                                    F-9
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.

ADVERTISING
The Company expenses  advertising costs as incurred.  Advertising  expenses were
approximately  $3,400,  $9,000 and $7,400 for the years ended May 31, 2003, 2002
and 2001, respectively.

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.

During the year ended May 31, 2002, based upon  information then available,  the
Company
revised  its  estimates  regarding  the  recovery of certain  inventories.  As a
result, the Company increased existing reserves for obsolescence by $111,381.

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, 2003 and
2002 both inventory amounts were fully reserved.


                                   F-10
<PAGE>



PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

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  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 2003 and 2002, the
Company sold approximately $38,000 and $193,000,  respectively,  of its accounts
receivable to a bank under a factoring  agreement for approximately  $30,000 and
$177,000,  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, 2003,  accounts  receivable invoices
totaling $3,811 were outstanding and $396,189 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


                                   F-11
<PAGE>

PATRIOT SCIENTIFIC  CORPORATION
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

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:

<TABLE>
<CAPTION>
                                            2003                  2002                   2001
----------------------------------------------------------------------------------------------------

<S>                                 <C>                   <C>                    <C>
Net loss as reported                $       (3,888,299)   $       (5,487,051)    $       (4,968,903)
Compensation expense                          (289,023)             (567,010)              (379,626)
                                    -------------------   -------------------    -------------------
Net loss pro forma                  $       (4,177,322)   $       (6,054,061)    $       (5,348,529)
                                    ===================   ===================    ===================
As reported per share
     Basic and diluted loss         $            (0.04)   $            (0.08)    $            (0.09)
                                    ===================   ===================    ===================
Pro forma per share
     Basic and diluted loss         $            (0.04)   $            (0.09)    $            (0.10)
                                    ===================   ===================    ===================
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS

In December  2002, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standard  ("SFAS") No. 148,  "Accounting for
Stock-Based  Compensation-Transition  and  Disclosure-an  amendment  of SFAS No.
123." SFAS No. 148 amends the  disclosures in both annual and interim  financial
statements about the method of accounting for stock-based employee  compensation
and the effect of the method used on reported results. SFAS No. 148 is effective
for fiscal  years ending  after  December 15, 2002 and is effective  for interim
periods  beginning  after December 15, 2002. The Company's  adoption of SFAS No.
148 did not have a  material  effect  on the  Company's  financial  position  or
results of operations.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness  of Others."  This  interpretation  elaborates  on the  disclosures
required  in  financial   statements   concerning   obligations   under  certain
guarantees.  It also clarifies the  requirements  related to the  recognition of
liabilities  by  a  guarantor  at  the  inception  of  certain  guarantees.  The
disclosure  requirements of this  interpretation  were effective on December 31,
2002. We adopted the recognition provisions of the interpretation in the quarter
ended February 28, 2003. The adoption of this  interpretation did not impact our
financial position or results of operations.

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable   Interest   Entities,   an   interpretation   of  ARB  No.  51."  This
interpretation provides guidance on: 1) the identification of entities for which
control is achieved  through means other than through  voting  rights,  known as
"variable  interest  entities" (VIEs);  and 2) which business  enterprise is the
primary  beneficiary and when it should  consolidate the VIE. This new model for
consolidation applies to entities: 1) where the equity investors (if any) do not
have a controlling  financial interest; or 2) whose equity investment at risk is
insufficient to finance that entity's  activities  without receiving  additional
subordinated   financial   support  from  other  parties.   In  addition,   this
interpretation  requires  that  both  the  primary  beneficiary  and  all  other
enterprises  with a  significant  variable  interest  in a VIE  make  additional
disclosures.  This  interpretation  is  effective  for all new VIEs  created  or
acquired  after January 31, 2003. For VIEs created or acquired prior to February
1, 2003, the provisions of the interpretation  must be applied no later than the
beginning of the first interim or annual  reporting  period beginning after June
15, 2003. Certain  disclosures are effective  immediately.  The adoption of this
interpretation did not impact our financial position or results of operations.

In April 2003 the FASB issued  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,


                                   F-12
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

"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 is not expected to have
a material effect on the consolidated financial statements

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 is not expected to have a
material effect on the consolidated financial statements.






                                   F-13
<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 $3,888,299,  $5,487,051, and $4,968,903 and negative cash
flow from  operations of  $1,885,762,  $3,632,534,  and  $4,839,180 in the years
ended May 31, 2003, 2002 and 2001, respectively. At May 31, 2003, we had deficit
working capital of $1,457,003 and cash and cash equivalents of $32,663.  We have
historically funded our operations  primarily through the issuance of securities
and debt financings. Cash and cash equivalents decreased $55,445 during the year
ended May 31, 2003.

We estimate  our current cash  requirements  to sustain our  operations  through
August  2004  to be  $2.1  million.  Since  we  are  no  longer  supporting  the
communications   product   line,   we  are  assuming   that  there  will  be  no
communications product revenue. We have a note payable to Swartz Private Equity,
LLC  ("Swartz")  of $635,276 at May 31, 2003 which is due March 1, 2004. We also
have  convertible  debentures  with a group  of  investors  as of May  31,  2003
aggregating  $1,165,000 and advances of $50,000 on a convertible  debenture that
closed subsequent to May 31, 2003. At the option of the debenture holders,  they
may purchase additional  debentures up to $1 million at any time during the next
two  years as long as the  price of our  common  stock is in excess of $0.20 per
share. During the year ended May 31, 2003, we obtained $120,350 from the sale of
equity to several  private  investors and $180,000 from short term notes entered
into  with a related  party.  .  Subsequent  to May 31,  2003,  we  obtained  an
additional $422,500 from the issuance of convertible  debentures net of advances
discussed  above,  $50,100 from the  exercise of a warrant,  $10,000 from a loan
issued to a related party, and $31,000 from the sale of common stock.

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 may need to secure additional short-term
debt,  private  placement  debt and/or  equity  financings  with  individual  or
institutional  investors.  In  addition,  we may  need to make  additional  cost
reductions  if our cash  requirements  cannot be met from external  sources.  We
expect that the $2.1 million requirement will be provided by:

     o    additional debt and/or equity financings; and

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


In addition,  we have  formulated  additional  cost reduction plans which can be
implemented  if the required funds are not  obtainable.  We also have a $400,000
accounts receivable  factoring agreement with our bank. As of May 31, 2003 there
was a balance due under the factoring agreement of $3,811.


                                      F-14
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

We  anticipate  our  future  revenue to be  derived  primarily  from the sale of
licenses and  royalties.  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.
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
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 we will be able
to timely  receive  shareholder  approval to increase  the number of  authorized
shares or 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

<TABLE>
<CAPTION>
                                                                                           May 31,
                                                                            -----------------------------------
                                                                                 2003                2002
                      -----------------------------------------------------------------------------------------

<S>                                                                      <C>                 <C>
                      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             2,212,045           2,080,087
                                                                         ------------------  ------------------

                      Net property and equipment                         $         153,530   $         285,488
                      -----------------------------------------------------------------------------------------
</TABLE>

                      Depreciation expense was $131,958, $211,850 and $186,621
                      for the years ended May 31, 2003, 2002 and 2001.


                                      F-15
<PAGE>


PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

4. SECURED NOTE PAYABLE

On March 12, 2002,  we 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. The amended note,  which  originally
was to mature on January 9, 2003, has been extended to March 1, 2004 and amounts
outstanding  under the note bear  interest at the rate of 5% per annum.  Per the
antidilution agreement, principal and interest payments are deferred until March
1, 2004.

As part of the consideration for entering into the above 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 unreserved 20,007,350 shares that have 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 exceeds  $0.375 for
10 consecutive trading days.

As of May 31, 2003 we issued warrants to purchase up to 18,243,712 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.


                                      F-16
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The note is secured by our assets.

All debt  discounts  were  amortized  as  additional  interest  expense over the
initial  term of the  note  payable.  As of May 31,  2003,  $1,107,238  had been
reflected as debt  discount of which  $189,516  and  $917,722  was  amortized to
interest expense during the years ended May 31, 2003 and 2002, respectively.

<TABLE>
<S>                                                                             <C>
         Advances against the note                                              $1,790,000
         Less amount applied against $30 million equity line of credit            (227,800)
         Less amount applied against $25 million equity line of credit            (926,924)
                                                                                        -
         Less debt discount
                  Total                                        1,107,238
                  Amount amortized to expense                 (1,107,238)               -
                                                              -----------       -----------
         Note payable at May 31, 2003                                            $  635,276
                                                                                ===========
</TABLE>

On November 9, 2001, an offset of $227,800 from the sale of 2,500,000  shares of
common stock was applied  against the final put under a $30 million  equity line
of credit.

On May 30, 2002,  an offset of $926,924  from the sale of  14,100,000  shares of
common  stock was  applied  against the first and only put under the $25 million
equity line of credit discussed above

5.  8% CONVERTIBLE DEBENTURES

Overview.  From April 23, 2002 through  August 26, 2003, we sold an aggregate of
$2,437,500  of 8%  convertible  debentures to a group of eleven  investors.  The
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. In addition, the debenture holders received warrants exercisable into a
number of our common shares.

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 $0.041 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,  October 29, 2002 for the first
$1,000,000 of principal,  March 7, 2003 for the second $605,000 of principal and
June 26,  2003 for the third  $510,000  of  principal.  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


                                      F-17
<PAGE>

PATRIOT  SCIENTIFIC  CORPORATION  NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

which shall equal the volume weighted average price for our common stock for the
ten  days  previous  to the  reset  date.  On  October  29,  2002,  the date the
registration  statement for the first $1,000,000 of principal became  effective,
the  conversion  prices were reset to $0.04457  from initial  conversion  prices
ranging from $0.08616 to $0.10289.  On March 7, 2003, the date the  registration
statement for the second $605,000 of principal became effective,  the conversion
prices  were reset to $0.04722  from  initial  conversion  prices  ranging  from
$0.05126 to $0.0727.  On June 26, 2003, the date the registration  statement for
the third $510,000 of principal  became  effective,  the  conversion  prices for
debentures with initial conversion prices of $0.065 will reset to $0.06346.

Warrants.  Concurrent with the issuance of the convertible debentures, we issued
to the debenture  holders  warrants to purchase up to  33,471,953  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 subject to being reset on
each six month anniversary of its issuance.

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.

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. We are responsible for registering the resale of the shares
of our common stock which will be issued on the conversion of the debentures. On
October  29,  2002,  a  registration


                                      F-18
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

statement  covering the first $1,000,000 of debentures was declared effective by
the  Securities  and  Exchange  Commission.  On March 7,  2003,  a  registration
statement  covering the second $605,000 of debentures was declared  effective by
the  Securities  and  Exchange  Commission.  On June 26,  2003,  a  registration
statement  covering the third $510,000 of debentures  was declared  effective by
the Securities and Exchange Commission.

The convertible debentures are secured by our assets.

<TABLE>

<S>                                                                     <C>                 <C>
Convertbile debenture dated April 23, 2002                                                  $       225,000
Convertbile debentures dated June 10, 2002                                                          775,000
Convertbile debenture dated August 23, 2002                                                         175,000
Convertbile debentures dated October 29, 2002                                                       180,000
Convertbile debenture dated December 16, 2002                                                       100,000
Convertbile debenture dated January 24, 2003                                                        150,000
Convertbile debenture dated March 24, 2003                                                          162,500
Convertbile debenture dated April 15, 2003                                                           10,000
Convertbile debenture dated May 20, 2003                                                            187,500
Advances against debenture issued subsequent to May 31, 2003                                         50,000
Less amounts converted to common stock                                                             (800,000)
Less debt discount
                            Total discounts recorded                    $     1,965,000
                            Amount amortized to expense                        (624,922)
                            Amount cancelled on conversion                     (527,067)           (813,011)
                                                                           -------------    ----------------
Convertible debentures at May 31, 2003                                                              401,989
Less current portion                                                                                121,879
                                                                                            ----------------
Long term portion                                                                           $       280,110
                                                                                            ================
</TABLE>


6.   INVESTMENT AGREEMENT

$25 Million Equity Line of Credit Agreement

Overview.  On September 17, 2001, we entered into an investment  agreement  with
Swartz. The investment  agreement entitles us to issue and sell our common stock
to Swartz  for up to an  aggregate  of $25  million  from time to time  during a
three-year  period following the effective date of the  registration  statement.
This is also referred to as a put right.  We filed a  registration  statement on
Form S-1 on October 11, 2001 that was declared effective on November 5, 2001 for
15,000,000  shares of our  common  stock  which we issued to Swartz  during  the
fiscal  year  ended  May 31,  2002.  There  remains  approximately  $24  million
available  under  this  line  conditioned  on us filing  one or more  additional
registration  statements.  As of May 31,  2003,  we have not  filed a  statement
requesting the registration of additional  shares to put to Swartz under the $25
million equity line of credit.

Put  Rights.  In  order  to  invoke  a put  right,  we must  have  an  effective
registration statement on file with the SEC registering the resale of the common
shares which may be issued as a consequence of the invocation of that put right.
Additionally,  we must  give at  least  ten but not  more  than  twenty


                                      F-19
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

business  days  advance  notice  to  Swartz  of the date on which we  intend  to
exercise a particular  put right,  and we must  indicate the number of shares of
common stock we intend to sell to Swartz. At our option, we may also designate a
maximum  dollar amount of common stock (not to exceed $3 million)  which we will
sell to Swartz during the put and/or a minimum  purchase  price per common share
at which Swartz may purchase  shares during the put. The number of common shares
sold to Swartz may not exceed 20% of the aggregate daily reported trading volume
during  each of two  consecutive  ten  business  day  periods  beginning  on the
business day immediately following the day we invoked the put right.

The price  Swartz will pay for each share of common stock sold in a put is equal
to the  lesser  of (i) the  market  price  for each of the two  consecutive  ten
business day periods beginning on the business day immediately following the day
we invoked the put right minus $0.10,  or (ii) X percent of the market price for
each of the two ten day periods, where, X is equal to 90% if the market price is
below $2.00 and 93% if market  price is equal to or greater  than $2.00.  Market
price is defined as the lowest  closing  bid price for the common  stock  during
each of the two  consecutive  ten business day  periods.  However,  the purchase
price may not be less than the designated  minimum per share price, if any, that
we indicated in our notice.

Limitations  and Conditions  Precedent to Our Put Rights.  We may not initiate a
put if, as of the proposed date of such put:

          o    we have issued shares of our common stock that have been paid for
               by Swartz and the amount of proceeds we have received is equal to
               the maximum offering amount;

          o    the  registration  statement  covering  the  resale of the shares
               becomes ineffective or unavailable for use;

          o    our common  stock is not  actively  trading  on the OTC  Bulletin
               Board,  the Nasdaq Small Cap Market,  the Nasdaq National Market,
               the American Stock Exchange,  or the New York Stock Exchange,  or
               is  suspended  or  delisted  with  respect to the trading on such
               market or exchange.

If any of the  following  events occur during the pricing  period for a put, the
volume accrual shall cease. For the put, the pricing period shall be adjusted to
end 10 business days after the date that we notify Swartz of the event,  and any
minimum price per share we specified shall not apply to the put:

          o    we have  announced or implemented a stock split or combination of
               our common stock between the advanced put notice date and the end
               of the pricing period;

          o    we  have  paid  a  common  stock   dividend  or  made  any  other
               distribution  of our common stock between the advanced put notice
               date and the end of the pricing period;


                                      F-20
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          o    we have made a distribution to the holders of our common stock or
               of all or any portion of our assets or evidences of  indebtedness
               between the put notice date and the end of the pricing period;

          o    we have consummated a major transaction (including a transaction,
               which  constitutes  a change of control)  between the advance put
               notice date and the end of the pricing period,  the  registration
               statement  covering the resale of the shares becomes  ineffective
               or unavailable for use, or our stock becomes delisted for trading
               on our then primary exchange; or

          o    we discover the  existence of facts that cause us to believe that
               the registration  statement contains an untrue statement or omits
               to state a material fact.

Short Sales.  Swartz and its affiliates  are  prohibited  from engaging in short
sales of our common stock unless they have  received a put notice and the amount
of  shares  involved  in a short  sale  does not  exceed  the  number  of shares
specified in the put notice.

Shareholder  Approval.  We may currently  issue more than 20% of our outstanding
shares under the investment  agreement.  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.

Termination of Investment Agreement. We may also terminate our right to initiate
further  puts or terminate  the  investment  agreement by providing  Swartz with
notice of such intention to terminate;  however,  any such  termination will not
affect  any other  rights  or  obligations  we have  concerning  the  investment
agreement or any related agreement.

Restrictive  Covenants.  During the term of the  investment  agreement and for a
period of two months  thereafter,  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 or with a fixed conversion or exercise price
subject to adjustment without obtaining Swartz's prior written approval.

Right of First  Refusal.  Swartz has a right of first  refusal to  purchase  any
variable priced securities offered by us in any private transaction which closes
on or prior to two months after the termination of the investment  agreement and
a right of participation for any equity securities  offered by us in any private
transaction  which closes on or prior to two months after the termination of the
investment agreement.

Swartz's  Right  of  Indemnification.  We  are  obligated  to  indemnify  Swartz
(including their stockholders,  officers, directors,  employees and agents) from
all liability and losses resulting from


                                      F-21
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

any  misrepresentations  or breaches we made in connection  with the  investment
agreement, our registration rights agreement,  other related agreements,  or the
registration statement.

Waiver and  Agreement.  On March 12, 2002, we entered into an amended waiver and
agreement with Swartz which  replaced and  superseded  all previous  waivers and
agreements.  This  amended  waiver and  agreement  extended  the time of the put
beyond  twenty days and  redefined  the price of the put to be the lesser of the
factor of (a) the  volume  weighted  average  price per  share,  as  defined  by
Bloomberg  L.P.,  for each day of the put  multiplied  by .70 or (b) the  volume
weighted average price per share minus $0.05 multiplied by 20% of the acceptable
daily  volume as defined in the waiver.  At the  discretion  of Swartz,  the 20%
daily volume  limitation  could be increased up to 30% of the daily  volume.  In
addition,  the amended  waiver and  agreement  increased  the intended put share
amount  for the first put to  14,100,000  shares,  which is the total  number of
shares we had registered so far under the $25 million equity line of credit.  On
May 30, 2002 we closed the first put under the $25 million equity line of credit
by applying the  proceeds of $926,924 to the secured  note payable  discussed in
Note 4.

Warrants.  In connection with closing the $25 million equity line of credit,  we
issued to Swartz a commitment  warrant to purchase  900,000 shares of our common
stock.  This  warrant was valued on the  issuance  date using the  Black-Scholes
pricing model and the value was recorded as a debt discount.

7.   STOCKHOLDERS' EQUITY (DEFICIT)

PRIVATE OFFERINGS AND WARRANTS

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.

At May 31, 2003,  the Company had warrants  outstanding  to purchase  58,992,468
common shares 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  common
shares of stock at exercise  prices  ranging from $0.04 to $0.065 per share.  Of
this amount,  warrants to purchase  5,355,562 common shares of stock were issued
to Swartz related to the Addendum to Amended Secured Promissory Note dated March
12, 2002 and an Antidilution  Agreement and Addendum to Warrants dated March 19,
2003  discussed  in Note 4,  warrants  to  purchase  28,649,451  common


                                      F-22
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

shares of stock were  issued to a group of eleven  individual  and  institutions
investors  related to the 8%  Convertible  Debentures  discussed  in Note 5, and
warrants  to  purchase  1,000,000  common  shares  of stock  were  issued to two
consultants.

During fiscal 2002, the Company issued  warrants to purchase  23,197,201  common
shares of stock at exercise  prices  ranging from $0.048 to $0.54 per share.  Of
this amount,  warrants to purchase  3,113,302 common shares of stock were issued
to Swartz related to a $30 million investment  agreement,  a warrant to purchase
900,000  common shares of stock was issued to Swartz  related to the $25 million
investment  agreement,  warrants to purchase  16,519,090  common shares of stock
were issued to Swartz related to the 5% Secured Note Payable of which  3,630,940
were  cancelled,  a warrant to  purchase  2,514,809  common  shares of stock was
issued  to  Lincoln  Ventures  LLC  related  to the first  funding  under the 8%
Convertible  Debenture and a warrant to purchase  150,000 common shares of stock
was issued to a consultant. See Notes 4, 5 and 6 for further discussion.

Also, during fiscal 2002, the Company's shareholders approved an increase in the
authorized number of common shares from 100,000,000 to 200,000,000.

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, 2003,  options to purchase up to 17,500 shares of common stock  remained
outstanding and will expire in 2005.

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,  2003,
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  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



                                      F-23
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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, 2003 and 2002,
the Company granted options to purchase 340,500 and 1,000,000 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,  2003 and 2002,  the  Company  granted  options  to
purchase 875,000 and 3,145,000 shares of stock at market value.

During  fiscal  2000,  the Company  repriced a stock  option to purchase  36,000
shares of common  stock at an exercise  prices  originally  of $0.40 using fixed
accounting  rules in effect at the time.  The stock  option was  repriced  to an
exercise  price of $.32 and no  additional  compensation  expense was  recorded.
Subsequent to the repricing, the Company adopted accounting principles generally
accepted in the United  States of America that require  stock  options that have
been modified to reduce the exercise  price to be accounted  for using  variable
accounting.  Accordingly,  if the market price of the Company's  stock increases
subsequent to July 1, 2000, it will recognize  additional  compensation  expense
that it otherwise  would not have  incurred.  As of May 31,  2003,  there was no
additional  compensation  expense  recorded  because  the  market  price  of the
Company's  common stock was lower than the price at July 1, 2000.  However,  the
ultimate  impact  cannot be  determined  as it is dependent on the change in the
market price of the stock from July 1, 2000 until the stock option is exercised,
forfeited or expires unexercised.

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 three years ended May 31, 2003, 2002,
and 2001  respectively:  dividend yield of zero percent for all years;  expected
volatility  of 100 to  120,  90 and


                                      F-24
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

90 percent;  risk-free  interest rates of 2.3 to 4.3, 3.5 to 4.8, and 4.8 to 6.4
percent; and expected lives of 3 to 5 years for all years.

A summary of the status of the  Company's  stock option plans and warrants as of
May 31, 2003,  2002 and 2001 and changes  during the years ending on those dates
is presented below:




                                      F-25
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                              Options                                Warrants
                                                 ---------------------------------    -------------------------------------
                                                                        Weighted                               Weighted
                                                                        Average                                Average
                                                                        Exercise                               Exercise
                                                      Shares             Price             Shares               Price
---------------------------------------------------------------------------------------------------------------------------

<S>                                                   <C>           <C>                    <C>           <C>
Outstanding, June 1, 2000                             1,431,324     $        0.38          4,756,181     $            0.40
     Granted                                          2,092,500              1.16            836,698                  0.74
     Cancelled                                         (580,000)             0.72                  -                     -
     Exercised                                         (366,000)             0.32           (631,416)                 0.27
---------------------------------------------------------------------------------------------------------------------------
Outstanding, May 31, 2001                             2,577,824              0.92          4,961,463                  0.42
---------------------------------------------------------------------------------------------------------------------------
     Granted                                          4,145,000              0.21         23,197,201                  0.09
     Cancelled                                       (2,281,419)             0.67         (3,630,940)                 0.10
     Exercised                                         (191,666)             0.32            (50,000)                 0.25
---------------------------------------------------------------------------------------------------------------------------
Outstanding, May 31, 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
---------------------------------------------------------------------------------------------------------------------------


---------------------------------------------------------------------------------------------------------------------------
Exercisable, May 31, 2001                             1,200,158     $        0.68          4,961,463     $            0.42
---------------------------------------------------------------------------------------------------------------------------
Exercisable, May 31, 2002                             2,418,072     $        0.48         24,477,724     $            0.11
---------------------------------------------------------------------------------------------------------------------------
Exercisable, May 31, 2003                             4,138,633     $        0.29         57,992,468     $            0.06
---------------------------------------------------------------------------------------------------------------------------

Weighted average fair value of options and warrants
     granted during the year ended May 31, 2001                     $        0.86                        $            0.44
Weighted average fair value of options and warrants
     granted during the year ended May 31, 2002                     $        0.07                        $            0.11
Weighted average fair value of options and warrants
     granted during the year ended May 31, 2003                     $        0.04                        $            0.05
---------------------------------------------------------------------------------------------------------------------------
</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, 2003:




                                      F-26
<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
-----------------------------------------------------------------------------------------------------

OPTIONS

<S>                        <C>                <C>    <C>                   <C>         <C>
   $    0.0425-0.059         850,000          4.74   $        0.05           525,000   $        0.04
           0.07-0.09       1,365,500          3.89            0.08         1,213,467            0.08
         0.11-0.1325       1,885,000          3.36            0.11         1,530,000            0.11
           0.32-0.69         291,000          1.53            0.64           291,000            0.64
          1.16-1.325         662,500          2.04            1.26           579,166            1.25
-----------------------------------------------------------------------------------------------------
   $    0.0425-1.325       5,054,000          3.46   $        0.28         4,138,633   $        0.29

WARRANTS

   $     0.033-0.495      38,464,610          4.07   $        0.04        38,464,610   $        0.04
         0.05-0.0592       8,013,741          3.84            0.06         7,013,741            0.06
       0.0616-0.0715       9,806,840          3.76            0.07         9,806,840            0.07
           0.25-0.40       2,607,277          1.36            0.28         2,607,277            0.28
           0.59-1.12         100,000          1.64            0.68           100,000            0.68
-----------------------------------------------------------------------------------------------------
   $      0.033-1.12      58,992,468          3.86   $        0.06        57,992,468   $        0.06
</TABLE>


8.  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,  2003,  2002 and 2001,
common stock options and warrants  convertible or exercisable into approximately
64,046,468,  28,727,463,  and 7,539,287 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-27
<PAGE>






PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.   INCOME TAXES The net deferred tax asset recorded
     and its approximate tax effect  consisted of the
     following:

                                                            May 31,
                                                 ------------------------------
                                                  2003               2002
     --------------------------------------------------------------------------

     Net operating loss carryforwards         $  12,073,000   $     11,030,000
     Purchased technology                           420,000            470,000
     Depreciation and amortization                1,607,000          1,754,000
     Other, net                                     191,000            192,000
     -------------------------------------------------------  -----------------
                                                 14,291,000         13,446,000
     Valuation allowance                         14,291,000         13,446,000
     -------------------------------------------------------  -----------------

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


As of May 31, 2003 and 2002,  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  2003,  2002 and 2001 due to  reported
losses.  The valuation  allowance  increased $845,000 for the year ended May 31,
2003 and $1,457,00 for the year ended May 31, 2002.

At May 31, 2003,  the Company has federal net operating  loss  carryforwards  of
approximately  $31,814,000  that expire  through 2022 and are subject to certain
limitations under the Internal


                                      F-28
<PAGE>


PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Revenue Code of 1986, as amended.  As such,  certain  federal net operating loss
carryforwards may expire unused.

At May 31,  2003,  the Company has state net  operating  loss  carryforwards  of
approximately  $20,927,000 that expire through 2010. The state of California has
suspended the utilization of net operating losses for 2002 and 2003.

10.   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 2003, 2002 or 2001.

11.      COMMITMENTS AND CONTINGENCIES

In  January  1999,  we were  sued in the  Superior  Court of San  Diego  County,
California  by the Fish Family  Trust,  a  co-inventor  of the  original  ShBoom
technology.  The suit also named as defendants  nanoTronics and Gloria Felcyn on
behalf of the Falk Family  Trust.  The suit  sought a judgment  for  damages,  a
rescission  of  the  Technology  Transfer  Agreement  and a  restoration  of the
technology to the  co-inventor.  In March 1999, we joined with  nanoTronics  and
Gloria Felcyn and filed our response and cross-complaint against the Fish Family
Trust.  In  November  2000,  the judge  issued a summary  ruling in favor of the
defendants on all counts. The Fish Family Trust filed an appeal in January 2001.
In June 2003, the Appellate Court  confirmed the trial court's ruling,  thereby,
bringing the dispute to a favorable conclusion.

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 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.



                                      F-29
<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:

<TABLE>
<CAPTION>
      Years ending May 31,
      ----------------------------------------------------------------------------------------------
                                                  Gross            Sublease                Net
                                                 Payments           Income              Payments
<S>                                         <C>               <C>                  <C>
      2004                                  $       129,250   $         68,850     $         60,400
      2005                                          135,454             70,470               64,984
      2006                                          141,658             72,540               69,118
      2007                                           23,782             12,150               11,632
      ----------------------------------------------------------------------------------------------

      Total minimum lease payments          $       430,144   $        224,010     $        206,134
      ----------------------------------------------------------------------------------------------
</TABLE>

      Rent expense for fiscal 2003,  2002 and 2001 was $189,423,  $147,373,  and
$149,494, respectively.

The Company has one capital lease at May 31, 2003.

Future minimum lease payments are as follows:

Year ending May 31,
        2004                                       $        9,562
        2005                                                9,562
        2006                                                2,391
------------------------------------------------------------------
Total minimum lease payments                               21,515
Amount representing interest                                4,784
------------------------------------------------------------------
Present value of minimum lease payments                    16,731

Total obligation                                           16,731
Less current portion                                       (6,405)
------------------------------------------------------------------
Long-term portion                                  $       10,326
------------------------------------------------------------------

Capital leases  included in fixed assets at May 31, 2003 and 2002,  were $11,803
and  $20,135,  net of an  allowance  for  depreciation  of $13,192  and  $4,860.
Depreciation  expense related to the capitalized lease was $8,332 and $4,860 for
the years ended May 31, 2003 and 2002.

12.      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


                                      F-30
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

reached  the end of their life  cycles  and no longer  provide  any  significant
sales.  During the fiscal years ended May 31, 2003, 2002 and 2001, the Company's
product sales of high  technology  computer  products and licenses were $31,340,
$9,625,  and $50,511 and  telecommunication  products and licenses were $92,563,
$349,184, and $286,173.

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, 2003,  2002 and 2001, the Company's  sales by geographic  location
consisted of the following:

<TABLE>
<CAPTION>
                                                   2003             2002              2001
                                               -------------    -------------    --------------

<S>                                          <C>              <C>              <C>
              Domestic sales                 $      113,000   $      355,000   $       253,000

              Foreign sales:
                    Europe                           11,000            4,000            19,000
                    North America                         -                -            40,000
                    Asia                                  -                -            25,000
                                             --------------------------------------------------
              Total foreign sales                    11,000            4,000            84,000
                                             --------------------------------------------------

              Total net product sales        $      124,000   $      359,000   $       337,000
                                             ==================================================
</TABLE>



The Company has no foreign assets.

SALES TO MAJOR CUSTOMERS

During  the  fiscal  years  ended May 31,  2003,  2002 and 2001,  revenues  from
significant customers consisted of the following:

<TABLE>
<CAPTION>
                                   2003                              2002                              2001
                       -------------------------------  ---------------------------------   -----------------------------
         Customer            Sales         Percent             Sales           Percent           Sales         Percent
         --------
                       ---------------   -------------  ------------------   ------------   --------------   ------------

<S>                    <C>                      <C>     <C>                  <C>            <C>                  <C>
         A             $       43,000           34.3%   $               -              -    $           -              -
         B                     23,000           18.6%                   -              -                -              -
         C                     15,000           11.9%                   -              -                -              -
         D                     15,000           11.9%             151,000          42.0%                -              -
         E                          -               -                   -              -                -              -
         F                          -               -              59,000          16.4%                -              -
         G                          -               -                   -              -           88,000          26.1%
         H                          -               -                   -              -           41,000          12.2%
         I                          -               -                   -              -           40,000          11.9%
</TABLE>



                                      F-31
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13.  RELATED PARTY TRANSACTIONS

During fiscal years 2002 and 2001, the Company contracted with a company,  which
was owned by the daughter of our previous  President,  Chairman and CEO, for web
site development, marketing support and other various services. The Company paid
$70,292 and $139,253, respectively, in fiscal years 2002 and 2001 to the related
party for these  services.  No such related party  transactions  occurred during
fiscal year 2003.

14.  SUBSEQUENT EVENTS

Subsequent to year end, we concluded  additional  fundings of our 8% Convertible
Debentures. We received advances against these closings of $50,000 as of May 31,
2003 and the  balance of  $295,000  subsequent  to year end from a group of four
investors.  In  conjunction  with the  debentures  we also  issued  warrants  to
purchase up to 7,870,191  shares of our common stock at initial  exercise prices
of $0.03  to  $0.065  per  share,  subject  to  being  reset  at each six  month
anniversary to the closings.









                                      F-32
<PAGE>

PATRIOT SCIENTIFIC CORPORATION
SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
Allowance for Doubtful Accounts

                                            Balance at       Charged to                         Balance at
                                           beginning of       costs and                           end of
              Description                     period          expenses         Deductions         period

<S>                                              <C>              <C>             <C>               <C>
Year ended May 31, 2003                          $  6,000          $ 24,000        $  20,000          $ 10,000

Year ended May 31, 2002                          $ 54,000          $ 76,027        $ 124,027          $  6,000

Year ended May 31, 2001                          $  5,000          $ 49,000        $       -          $ 54,000

<CAPTION>

Reserve for Inventory Obsolescence

                                            Balance at       Charged to                         Balance at
                                           beginning of       costs and                           end of
              Description                     period          expenses         Deductions         period

<S>                                             <C>               <C>               <C>              <C>
Year ended May 31, 2003                         $ 373,381         $       -        $ 301,343         $  72,038

Year ended May 31, 2002                         $ 262,000         $ 149,433        $  38,052         $ 373,381

Year ended May 31, 2001                         $ 339,000         $ 100,000        $ 177,000         $ 262,000
</TABLE>



                                      F-33
<PAGE>






                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.



DATED:  August 29, 2003        PATRIOT SCIENTIFIC CORPORATION


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

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

                Signature                          Title                               Date

<S>                                        <C>                                        <C>
        /s/JEFFREY E. WALLIN               President and Chief Executive              August 29, 2003
        --------------------               Officer
        Jeffrey E. Wallin


        /s/LOWELL W. GIFFHORN              Chief Financial Officer, Principal         August 29, 2003
        ---------------------              Financial Officer, Principal
        Lowell W. Giffhorn                 Accounting Officer, Secretary
                                           and Director

        /s/DAVID POHL                      Director                                  August 29, 2003
        -------------
        David Pohl

        /s/CARLTON JOHNSON                 Director                                  August 29, 2003
        -------------------
        Carlton Johnson


        /s/DONALD BERNIER                  Chairman of the Board and                 August 29, 2003
        -----------------                  Director
        Donald Bernier


        /s/HELMUT FALK JR.                 Director                                  August 29, 2003
        ------------------
        Helmut Falk Jr.


        /s/GLORIA FELCYN                   Director                                  August 29, 2003
        ----------------
        Gloria Felcyn
</TABLE>