##### Table of Contents



UNITED STATESSECURITIES
 AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q



|(Mark One)
|----------
|[X]       
|          
|          
|          
|OR        
|          
|[   ]     
|          
|          
|          
|          
|          
|          

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)   
|                                                     
|(858) 674-5000                                       
|                                                     
|(Registrants telephone
 number, including area code)

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 the number of shares outstanding
 of each of the issuers classes of common equity, as of the latest practicable date:



|Common
 Stock, $.00001 par value | 92,832,273                         | 
|-------------------------------- | ---------------------------------- | 
|                                 |                                    | 
|(Class)                          | (Outstanding
 at January 22, 2003) | 



---

TABLE OF CONTENTS



|                                                                            |                                                                                                |                                            |  |  |  |  |  | 
|--------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I- FINANCIAL INFORMATION                                              
|                                                                            | Item 1. Financial Statements                                                                  
|                                                                            |                                                                                                | CONSOLIDATED BALANCE SHEETS               
|                                                                            |                                                                                                | CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                                                            |                                                                                                | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                                            |                                                                                                | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                                                            | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                                                            | Item 3. Quantitative and Qualitative Disclosure About Market Risk                             
|PART II. OTHER INFORMATION                                                 
|                                                                            | Item 1. Legal Proceedings                                                                     
|                                                                            | Item 2. Changes in Securities                                                                 
|                                                                            | Item 6. Exhibits and Reports on Form 8-K                                                      
|SIGNATURES                                                                 
|CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|EXHIBIT 99.8                                                               
|EXHIBIT 99.9                                                               



---



##### Table of Contents





PATRIOT SCIENTIFIC CORPORATION
INDEX

|                                                                          |                                                                                                |                                                                                                                  | Page
|------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ----
|PART I. FINANCIAL INFORMATION                                             |                                                                                               
|                                                                          | Item 1. Financial Statements:                                                                  |                                                                                                                 
|                                                                          |                                                                                                | Consolidated Balance Sheets as of November
 30, 2002 (unaudited) and May 31, 2002                                | 3   
|                                                                          |                                                                                                | Consolidated Statements of Operations for the three
 and six months ended November 30, 2002 and 2001 (unaudited) | 4   
|                                                                          |                                                                                                | Consolidated Statements of Cash Flows for the six
 months ended November 30, 2002 and 2001 (unaudited)           | 5   
|                                                                          |                                                                                                | Notes to Unaudited Consolidated Financial Statements                                                             | 6-17
|                                                                          | Item 2. Management's Discussion and Analysis of
 Financial Condition and Results of Operations | 18-25                                                                                                           
|                                                                          | Item 3. Quantitative and Qualitative Disclosure About
 Market Risk                             | 25                                                                                                              
|PART II. OTHER INFORMATION                                                | 25                                                                                            
|                                                                          | Item 1. Legal Proceedings                                                                      | 25                                                                                                              
|                                                                          | Item 2. Changes in Securities                                                                  | 25                                                                                                              
|                                                                          | Item 3. Defaults upon Senior Securities                                                        | *                                                                                                               
|                                                                          | Item 4. Submission of Matters to a Vote of Security
 Holders                                   | *                                                                                                               
|                                                                          | Item 5. Other Information                                                                      | *                                                                                                               
|                                                                          | Item 6. Exhibits and Reports on Form 8-K                                                       | 26                                                                                                              
|SIGNATURES                                                                | 26                                                                                            
|CERTIFICATIONS PURSUANT TO SECTION 302 OF THE
 SARBANES-OXLEY ACT OF 2002 | 27-28                                                                                         
|                                                                          |                                                                                                |                                                                                                                 
|                                                                          | *       No information provided due to inapplicability
 of the item.                           |                                                                                                                 

2





---



##### Table of Contents






PART I- FINANCIAL INFORMATION





Item 1. Financial Statements





PATRIOT SCIENTIFIC CORPORATION


CONSOLIDATED BALANCE SHEETS




|                                                                                                                  |  | November 30, 2002 |             | May 31, 2002
|----------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | ------------
|                                                                                                                  |  |                   |             |             
|                                                                                                                  |  | (Unaudited)       |             |             
|ASSETS (Notes 4 and 5)                                                                                            |  |                   |             |             
|Current assets:                                                                                                   |  |                   |             |             
|Cash and cash equivalents                                                                                         |  | $                 | 2,210       |             
|Accounts receivable, net of allowance of $6,000 and $6,000 for uncollectible accounts                             |  |                   | 4,235       |             
|Prepaid expenses                                                                                                  |  |                   | 140,803     |             
|                                                                                                                  |  |                   |             |             
|Total current assets                                                                                              |  |                   | 147,248     |             
|Property and equipment, net                                                                                       |  |                   | 219,508     |             
|Other assets, net                                                                                                 |  |                   | 107,621     |             
|Patents and trademarks, net                                                                                       |  |                   | 188,602     |             
|                                                                                                                  |  |                   |             |             
|                                                                                                                  |  | $                 | 662,979     |             
|                                                                                                                  |  |                   |             |             
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                             |  |                   |             |             
|Current liabilities:                                                                                              |  |                   |             |             
|Note payable, net of unamortized debt discount of $0 and $189,516 (Notes 3 and 4)                                 |  | $                 | 635,276     |             
|Notes payable to a related party                                                                                  |  |                   | 150,000     |             
|Accounts payable                                                                                                  |  |                   | 429,167     |             
|Accrued liabilities                                                                                               |  |                   | 195,016     |             
|Current portion of capital lease obligation                                                                       |  |                   | 5,724       |             
|                                                                                                                  |  |                   |             |             
|Total current liabilities                                                                                         |  |                   | 1,415,183   |             
|8% Convertible debentures, net of debt discount of $1,015,086 and $192,802 (Notes 3 and 5)                        |  |                   | 264,914     |             
|Long term portion of capital lease obligation                                                                     |  |                   | 13,708      |             
|Commitments and contingencies (Notes 3, 6, 7 and 9)                                                               |  |                   |             |             
|Stockholders' deficit: (Note 7)                                                                                   |  |                   |             |             
|Preferred stock, $.00001 par value; 5,000,000 shares
 authorized none outstanding                                 |  |                   |            |             
|Common stock, $.00001 par value; 200,000,000
 shares authorized; issued and outstanding 87,489,354 and 81,465,757 |  |                   | 875         |             
|Additional paid-in capital                                                                                        |  |                   | 42,874,769  |             
|Accumulated deficit                                                                                               |  |                   | (43,826,470 | )           
|Note receivable                                                                                                   |  |                   | (80,000     | )           
|                                                                                                                  |  |                   |             |             
|Total stockholders' deficit                                                                                       |  |                   | (1,030,826  | )           
|                                                                                                                  |  |                   |             |             
|                                                                                                                  |  | $                 | 662,979     |             
|                                                                                                                  |  |                   |             |             

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

3



---



##### Table of Contents






PATRIOT SCIENTIFIC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)




|                                                                                |  | Three Months Ended |            | Six Months Ended 
|------------------------------------------------------------------------------- |  | ------------------ | ---------- | -----------------
|                                                                                |  |                    |            |                  
|                                                                                |  | November 30, 2002  |            | November 30, 2001
|                                                                                |  |                    |            |                  
|Net sales                                                                       |  | $                  | 5,160      |                  
|Cost of sales:                                                                  |  |                    |            |                  
|Product costs                                                                   |  |                    | 7,080      |                  
|Inventory obsolescence                                                          |  |                    |           |                  
|                                                                                |  |                    |            |                  
|Cost of sales                                                                   |  |                    | 7,080      |                  
|Gross profit (loss)                                                             |  |                    | (1,920     | )                
|Operating expenses:                                                             |  |                    |            |                  
|Research and development                                                        |  |                    | 164,218    |                  
|Selling, general and administrative                                             |  |                    | 577,133    |                  
|                                                                                |  |                    |            |                  
|                                                                                |  |                    | 741,351    |                  
|                                                                                |  |                    |            |                  
|Operating loss                                                                  |  |                    | (743,271   | )                
|                                                                                |  |                    |            |                  
|Other income (expenses):                                                        |  |                    |            |                  
|Interest income                                                                 |  |                    | 10         |                  
|Interest expense                                                                |  |                    | (334,027   | )                
|                                                                                |  |                    |            |                  
|                                                                                |  |                    | (334,017   | )                
|                                                                                |  |                    |            |                  
|Net loss                                                                        |  | $                  | (1,077,288 | )                
|                                                                                |  |                    |            |                  
|Basic and diluted loss per common share                                         |  | $                  | (0.01      | )                
|                                                                                |  |                    |            |                  
|Weighted average number of common shares outstanding during the period (Note 1) |  |                    | 84,054,186 |                  
|                                                                                |  |                    |            |                  

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

4



---



##### Table of Contents






PATRIOT SCIENTIFIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)




|                                                                                        |  | Six Months Ended 
|--------------------------------------------------------------------------------------- |  | -----------------
|                                                                                        |  |                  
|                                                                                        |  | November 30, 2002
|                                                                                        |  |                  
|Decrease in Cash and Cash Equivalents                                                   |  |                  
|Operating activities:                                                                   |  |                  
|Net loss                                                                                |  | $                
|Adjustments to reconcile net loss to cash used in operating activities:                 |  |                  
|Amortization and depreciation                                                           |  |                  
|Provision for doubtful accounts                                                         |  |                  
|Provision for inventory obsolescense                                                    |  |                  
|Non-cash interest expense related to convertible debentures, notes payable and warrants |  |                  
|Common stock issued for services and litigation settlements Changes in:                 |  |                  
|Accounts receivable                                                                     |  |                  
|Inventories                                                                             |  |                  
|Prepaid expenses and other assets                                                       |  |                  
|Accounts payable and accrued liabilities                                                |  |                  
|                                                                                        |  |                  
|Net cash used in operating activities                                                   |  |                  
|                                                                                        |  |                  
|Investing activities:                                                                   |  |                  
|                                                                                        |  |                  
|Purchase of property, equipment and patents                                             |  |                  
|                                                                                        |  |                  
|Financing activities:                                                                   |  |                  
|Proceeds from the issuance of short term notes payable                                  |  |                  
|Proceeds from the issuance of convertible debentures                                    |  |                  
|Proceeds from the issuance of common stock                                              |  |                  
|Principal payments for capital lease obligations                                        |  |                  
|Proceeds from sales of accounts receivable                                              |  |                  
|Proceeds from exercise of common stock warrants and options                             |  |                  
|                                                                                        |  |                  
|Net cash provided by financing activities                                               |  |                  
|                                                                                        |  |                  
|Net decrease in cash and cash equivalents                                               |  |                  
|Cash and cash equivalents, beginning of period                                          |  |                  
|                                                                                        |  |                  
|Cash and cash equivalents, end of period                                                |  | $                
|                                                                                        |  |                  
|Supplemental Disclosure of Cash Flow Information:                                       |  |                  
|Cash payments for interest                                                              |  | $                
|Warrants and options issued for prepaid services                                        |  | $                
|Capital lease obligation                                                                |  | $                
|Cancellation of options issued for prepaid services                                     |  | $                
|Common stock issued on conversion of debentures, notes payable and accrued interest     |  | $                
|Debt discount                                                                           |  | $                
|                                                                                        |  |                  

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

5



---



##### Table of Contents






PATRIOT SCIENTIFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.     BASIS OF PRESENTATION

The consolidated financial statements of Patriot Scientific Corporation
 (Patriot) presented herein have been prepared pursuant to the rules of the
 Securities and Exchange Commission for quarterly reports on Form 10-Q and do
 not include all of the information and footnotes required by accounting
 principles generally accepted in the United States of America. These statements
 should be read in conjunction with our audited consolidated financial
 statements and notes thereto for the year ended May 31, 2002.

In the opinion of management, the
 interim consolidated financial statements reflect all adjustments of a normal recurring
 nature necessary for a fair statement of the results for interim periods. Operating
 results for the three and six month periods are not necessarily indicative of the results that
 may be expected for the year.

Loss Per Share

We follow Statement of Financial
 Accounting Standards (SFAS) No. 128, Earnings per Share.
 Under SFAS No. 128, basic loss per share is calculated as loss available to common
 stockholders divided by the weighted average number
 of common shares outstanding. Diluted loss per share is calculated as net loss divided by
 the diluted weighted average number of common shares. The diluted weighted average number
 of common shares is calculated using the treasury stock method for common stock issuable
 pursuant to outstanding stock options and common stock warrants. Common stock options and
 warrants of 48,744,320 and 13,450,923 for the three and six months ended
 November 30, 2002 and 2001, respectively, were not included in diluted loss per
 share for the periods as the effect was antidilutive due to our recording losses in each
 of those periods. See Notes 5 and 7 for discussion of commitments to issue additional
 shares of common stock and warrants.

Sale of Accounts Receivable

We follow SFAS No. 140, Accounting
 for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
 a replacement of SFAS No. 125. SFAS No. 140 provides consistent standards
 for distinguishing transfers of financial assets that are sales from transfers that are
 secured borrowings. A $400,000 factoring line we established with a bank enables us to
 sell selected accounts receivable invoices to the bank with full recourse against us.
 These transactions qualify for a sale of assets since (1) we have transferred all of
 our rights, 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) we have no effective control over the selected accounts receivable invoices
 since we are not entitled to or obligated to repurchase or redeem the invoices before
 their maturity and we do not have the ability to unilaterally cause the bank to return
 the invoices. Under SFAS No.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 the first six months of fiscal 2003,
 we sold $14,846 of our accounts receivable to a bank under the factoring agreement for
 $11,877. Pursuant to the provisions of SFAS No. 140, we reflected the transactions
 as sales of assets and established a receivable from the bank for the retained amount
 less the costs of the transactions and less any anticipated future loss in the value of
 the retained asset. The retained amount was equal to 20% of the total accounts receivable
 invoices sold to the bank less 1% of the total invoices 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 was based on the payment history of the accounts receivable customer.
 As of November 30, 2002, there were no qualifying accounts receivable invoices
 available to factor resulting in no balance outstanding under the factoring line and
 $400,000 remaining available for future factoring of accounts receivable invoices.

6



---



##### Table of Contents



Patriot Scientific Corporation
Notes to Consolidated Financial Statements (Continued)

Reclassifications

Certain items in the unaudited November 30, 2001
 consolidated financial statements have been reclassified to conform to the current presentation.

2.     RECENT ACCOUNTING
 PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board
 (FASB) issued SFAS No.133, Accounting for Derivative Instruments and Hedging Activities,
 amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities-
 Deferral of the Effective Date of FASB No. 133, and SFAS No. 138, Accounting
 for Certain Derivative Instruments and Certain Hedging Activities which
 requires companies to record derivatives on the balance sheet as assets or
 liabilities, measured at fair market value. Gains or losses resulting from
 changes in the values of those derivatives would be accounted for depending on
 the use of the derivative and whether it qualifies for hedge accounting. The
 key criterion for hedge accounting is that the hedging relationship must be
 highly effective in achieving offsetting changes in fair value or cash flows.
 SFAS No. 133 was effective for us on June 1, 2001. The adoption of this
 statement had no material impact on our consolidated financial statements.

In June 2001, the FASB issued SFAS No. 141,
 Business Combinations and SFAS No. 142, Goodwill and Other
 Intangible Assets. SFAS No. 141 requires the use of the purchase method of
 accounting and prohibits the use of the pooling-of-interests method of accounting for
 business combinations initiated after June 30, 2001.  SFAS No. 141 also
 requires that companies recognize acquired intangible assets apart from goodwill if the
 acquired intangible assets meet certain criteria.  SFAS No. 141 applies to all
 business combinations initiated after June 30, 2001 and for purchase business
 combinations completed on or after July 1, 2001.  It also requires, upon adoption of
 SFAS No. 142, that companies reclassify the carrying amounts of intangible assets
 and goodwill based on the criteria in SFAS No. 141.

SFAS No. 142 requires, among other
 things, that companies no longer amortize goodwill, but instead test goodwill for impairment
 at least annually. In addition, SFAS No. 142 requires that companies identify
 reporting units for the purposes of assessing potential future impairments of goodwill,
 reassess the useful lives of other existing recognized intangible assets, and cease
 amortization of intangible assets with an indefinite useful life. An intangible asset
 with an indefinite useful life should be tested for impairment in accordance with the
 guidance in SFAS No. 142. SFAS No.142 is required to be applied in fiscal years
 beginning after December 15, 2001 to all goodwill and other intangible assets
 recognized at that date, regardless of when those assets were initially recognized. SFAS
 No. 142 requires companies to complete a transitional goodwill impairment test six
 months from the date of adoption.  Companies are also required to reassess the useful
 lives of other intangible assets within the first interim quarter after adoption of SFAS
 No. 142. The adoption of this statement had no material impact on our consolidated
 financial statements.

Our previous business combinations
 were accounted for using the pooling-of-interests method. The pooling-of-interests
 method does not result in the recognition of acquired goodwill or other intangible
 assets. As a result, the adoption of SFAS No. 141 and No. 142 will not affect
 the results of past acquisition transactions. However, all future business combinations
 will be accounted for under the purchase method, which may result in the recognition of
 goodwill and other intangible assets, some of which will be recognized through
 operations, either by amortization or impairment charges, in the future.

In June 2001, the FASB issued SFAS No. 143,
 Accounting for Asset Retirement Obligations. SFAS No. 143 requires the fair value of a liability
 for an asset retirement obligation to be recognized in the period in which it is incurred if
 a reasonable estimate of fair value can be made. The associated asset
 retirement costs are capitalized as part of the carrying amount of the
 long-lived asset. SFAS No. 143 is effective for the fiscal year ending May 31,

7



---



##### Table of Contents



Patriot Scientific Corporation
Notes to Consolidated Financial Statements (Continued)

2003. The adoption of this statement had no material impact on our
 consolidated financial statements.

In August 2001, the FASB issued SFAS
 No. 144, Accounting for the Impairment or Disposal of Long-Lived
 Assets. SFAS No. 144 requires that those long-lived assets be measured at the
 lower of carrying amount or fair value less cost to sell, whether reported in continuing
 operations or in discontinued operations.  Therefore, discontinued operations will no
 longer be measured at net realizable value or include amounts for operating losses that
 have not yet occurred. SFAS No. 144 is effective for financial statements issued for
 fiscal years beginning after December 15, 2001 and, generally, is to be applied
 prospectively. The adoption of this statement had no material impact on our consolidated
 financial statements.

In April 2002, FASB issued SFAS
 No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
 Statement No. 13, and Technical Corrections.  This statement eliminates the current
 requirement that gains and losses on debt extinguishment must be classified as
 extraordinary items in the income statement. Instead, such gains and losses will be
 classified as extraordinary items only if they are deemed to be unusual and infrequent,
 in accordance with the current GAAP criteria for extraordinary classification. In
 addition, SFAS 145 eliminates an inconsistency in lease accounting by requiring that
 modifications of capital leases that result in reclassification as operating leases be
 accounted for consistent with sale-leaseback accounting rules. The statement also
 contains other nonsubstantive corrections to authoritative accounting literature. The
 changes related to the debt extinguishment are effective for fiscal years beginning after
 May 15, 2002. Adoption of this standard did not have any effect on the
 Companys consolidated financial statements.

In June 2002, the FASB issued SFAS
 No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which
 addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes
 previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue
 No. 94-3. The Company will adopt the provisions of SFAS No. 146 for
 restructuring activities initiated after December 31, 2002. SFAS No. 146
 requires that the liability for costs associated with an exit or disposal activity be
 recognized when the liability is incurred. Under EITF No. 94-3, a liability for an
 exit cost was recognized at the date of a companys commitment to an exit plan. SFAS
 No. 146 also establishes that the liability should initially be measured and
 recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of
 recognizing future restructuring costs as well as the amount recognized. Adoption of this
 standard will not have any effect on the Companys consolidated financial statements.

3.     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 $2,020,729, $5,487,051 and
 $4,968,903 and negative cash flow from operations of $1,108,120, $3,632,534 and
 $4,839,180 in the six months ended November 30, 2002 and the years ended May 31,
 2002 and 2001, respectively. At November 30, 2002, we had deficit working capital of
 $1,267,935 and cash and cash equivalents of $2,210. We have historically funded our
 operations primarily through the issuance of securities and debt financings. Cash and
 cash equivalents decreased $85,898 during the six months ended November 30, 2002.

We estimate our current cash
 requirements to sustain our operations for the next twelve months through November 2003
 to be $2.4 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

8



---



##### Table of Contents



Patriot Scientific Corporation
Notes to Consolidated Financial Statements (Continued)

(Swartz) of $635,276
 at November 30, 2002 which was originally due in January 2003 and subsequent to the
 end of the quarter has been extended to April 2003.  We also have convertible debentures
 with a group of investors as of November 30, 2002 aggregating $1,280,000. 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 first six months ended November 30, 2002, we
 obtained $50,000 from the sale of equity to several private investors and $150,000 from
 short term notes entered into with a related party. Subsequent to November 30, 2002, we
 obtained an additional $28,350 from the sale of equity to several private investors,
 $200,000 from the issuance of additional convertible debentures and $30,000 from a short
 term note entered into with a related party. In addition, we are negotiating the terms of
 a $12 million equity line of credit.

If we are not successful at
 obtaining and drawing down on the $12 million equity line of credit or 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 receive additional advances from Swartz, 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
$2.4 million requirement will be provided by:



| |  |  | additional funds under
 the $12 million equity line of credit if we are successful in negotiating with the
 potential investor and are able to register additional shares of common stock, and such
 available funding exceeds the remaining balance of the note payable to Swartz;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | proceeds from the
 exercise of outstanding stock options and warrants; and                                                                                                                                                                                                         
|
| |  |  | additional debt
 and/or equity financings.                                                                                                                                                                                                                                         

In addition, we have formulated additional cost reduction plans which
 can be implemented if the required funds are not obtainable. We also have remaining a
$400,000 accounts receivable factoring agreement with our bank; however, we
 have no eligible accounts receivable to factor as of November 30, 2002.

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 and JUICEtechnology 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.

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 and an Addendum to

9



---



##### Table of Contents



Patriot Scientific Corporation
Notes to Consolidated Financial Statements (Continued)

Amended Secured Promissory Note dated March 12, 2002. The
 amended note, which originally was to mature on January 9, 2003, has been extended to April 2003
 and amounts outstanding under the note bear interest at the rate of 5% per
 annum. Per the addendum to the amended note, principal and interest payments
 are deferred until April 2003.

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, if after March 12, 2002, we
 issue common stock to any parties other than Swartz, we are obligated to issue
 to Swartz warrants equal to 20% of the common stock so issued. The amended
 note also gives to Swartz the right of first refusal and rights to participate
 in subsequent debt or equity transactions entered into by us through March 15,
 2003.

As of November 30, 2002 we issued warrants to purchase up
 to 14,817,481 shares of our common stock in accordance with the amended note agreements. 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. See Note 7 to the consolidated financial statements for
 discussion of the terms of the warrants

The note is secured by our assets.

All debt discounts are to be amortized as additional
 interest expense over the term of the note payable. As of November 30, 2002, $1,107,238 had been
 reflected as debt discount of which $917,722, $86,781 and $189,516 was
 amortized to interest expense during the year ended May 31, 2002 and the three
 and six months ended November 30, 2002, respectively.



|                                                              |  |  |            |   |  |   |           |   | 
|------------------------------------------------------------- |  |  | ---------- | - |  | - | --------- | - | 
|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 November 30, 2002                             |  |  |            |   |  | $ | 635,276   |  
|                                                              |  |  |            |   |  |   |           |  

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 the $30 million equity
 line of credit discussed below.

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 below.

5.     8% CONVERTIBLE DEBENTURES

Overview.From April 23, 2002 through November 30, 2002,
 we sold an aggregate of $1,355,000 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.

10



---



##### Table of Contents



Patriot Scientific Corporation
Notes to Consolidated Financial Statements (Continued)

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 $0.05126 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. If the volume weighted average price for our common
 stock for the ten days previous to the reset date is less than the conversion
 price in effect at the time of the reset date, then the number of common shares
 issuable to the selling shareholder on conversion will be increased. If the
 conversion price is reset, the debenture can be converted into a number of our
 common shares based on the following calculation: the amount of the debenture
 plus any unpaid accrued interest divided by the reset conversion price which
 shall equal the volume weighted average price for our common stock for the ten
 days previous to the reset date. On October 29, 2002, the date the
 registration statement for the first $1,000,000 of principal became effective,
 the conversion price for debentures dated April 23, 2002 in an amount of
 $225,000 and June 10, 2002 in amounts accumulating $775,000 were reset to
 $0.04457 from initial conversion prices of $0.10289 and $0.08616.

Warrants.Concurrent with the issuance
 of the convertible debentures, we issued to the debenture holders warrants to purchase up to 19,665,438 shares of our
 common stock. These warrants are exercisable for five years from the date of
 issuance at initial exercise 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. On October 23, 2002, the six month anniversary
 for a debenture dated April 23, 2002 in an amount of $225,000, the warrant
 exercise price was reset to $0.04685 from an initial exercise price of
$0.10289.

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.

As of November 30, 2002 we issued warrants to purchase up
 to 19,665,438 shares of our common stock in accordance with the convertible debentures. The
 warrants issued were valued using the Black-Scholes pricing

11



---



##### Table of Contents



Patriot Scientific Corporation
Notes to Consolidated Financial Statements (Continued)

model based on the expected fair value
 at issuance and the estimated fair value was also recorded as debt discount. See Note 7 to the consolidated financial
 statements for discussion of the terms of the warrants. Debt discounts related
 to the warrant valuations are to be amortized as additional interest expense
 over the term of the convertible debenture. As of November 30, 2002, $950,268
 has been reflected as debt discount of which $108,689, $203,104 and $8,383 was
 amortized to interest expense during the three and six months ended November
 30, 2002 and the year ended May 31, 2002, respectively.

In addition, the convertible debentures contain
 beneficial conversion features. Such features require us to allocate the proceeds received to both the
 warrants and the debt and to calculate an intrinsic value for the debt portion
 if the per share price allocated to debt is less than the fair market per share
 price as of the first date the debenture is sold. Accordingly, during the
 three and six months ended November 30, 2002, we recorded $58,842 and $404,732
 to additional paid in capital to reflect the intrinsic value of the convertible
 debentures. The intrinsic value of the beneficial conversion feature of the
 convertible debenture is amortized to non-cash interest expense over the life
 of the convertible debenture. Accordingly, we amortized to non-cash interest
 expense $45,688 and $71,139 during the three and six months ended November 30,
 2002.

During November 2002, holders converted debentures accumulating $75,000 of
 principal and $394 of accrued interest into 1,691,597 shares of our common
 stock. The balance of unamortized debt discount related to the beneficial
 conversion features and debt discount on the date of conversion of $57,288 was
 charged to additional paid in capital.

The convertible debentures are secured by our assets.



|Convertible debenture dated April 23, 2002    |                                |  |  |             | $ | 225,000  |           
|--------------------------------------------- | ------------------------------ |  |  | ----------- | - | -------- | ----------
|Convertible debentures dated June 10, 2002    |                                |  |  |             |   | 775,000  |           
|Convertible debenture dated August 23, 2002   |                                |  |  |             |   | 175,000  |           
|Convertible debentures dated October 29, 2002 |                                |  |  |             |   | 180,000  |           
|                                              |                                |  |  |             |   |          |           
|Less amounts converted to common stock        |                                |  |  |             |   | ( 75,000 | )         
|                                              |                                |  |  |             |   |          |           
|Less debt discount                            |                                |  |  |             |   |          |           
|                                              | Total                          |  |  | 1,355,000   |   |          |           
|                                              | Amount amortized to expense    |  |  | (  282,626  | ) |          |           
|                                              | Amount cancelled on conversion |  |  | (    57,288 | ) |          | (1,015,086
|                                              |                                |  |  |             |   |          |           
|Convertible debentures at November 30, 2002   |                                |  |  |             | $ | 264,914  |           
|                                              |                                |  |  |             |   |          |           

6.     INVESTMENT AGREEMENTS

$5 Million Equity Line of Credit Agreement

In February 1999, the Company entered into an
 investment agreement with Swartz. The investment agreement entitled the Company, at the Companys option, to
 issue and sell its common stock for up to an aggregate of $5 million from time
 to time during a three-year period through February 24, 2002, subject to
 certain conditions including (1) an effective registration statement must be on
 file with the SEC registering the resale of the common shares, and (2) a
 limitation on the number of common shares which could be sold to Swartz within
 a 30 day time period based on the trading volume of the stock, among others.
 Swartz could purchase the common stock from the Company at a discount ranging
 from 10% to 20% depending on the price of the common stock. In addition to the
 common stock purchased, Swartz received warrants to purchase an additional 15%
 of the common stock equal to 110% of the market price as determined during the
 pricing period, subject to further semi-annual price adjustments if the price
 of the common stock goes down.

In July 1999, the Company amended and restated the investment
 agreement with Swartz to eliminate the discretion

12



---



##### Table of Contents



Patriot Scientific Corporation
Notes to Consolidated Financial Statements (Continued)

of Swartz as to the timing of its purchase of the
 Companys common stock.

The amended and restated investment agreement
 required Swartz, after the Company put shares of common stock to it, to purchase the Companys common
 stock on the twentieth day following the put. The previous agreement enabled
 Swartz, in its sole discretion, to purchase the Companys common stock at any
 time during a twenty-day period following the Companys put to it.

The registration statement went effective on October 5, 1999.
 As a result of an increase in the market price and trading volume of the Companys common
 stock, the Company completed the $5 million placement of shares in February
 2000. The total number of shares placed with Swartz was 13.9% of the total
 number of shares outstanding at the time or 7,014,796 common shares at prices
 ranging from $0.248 to $0.9775. The average price per share paid by Swartz was
$0.71 compared to the average closing price during the twenty day pricing
 periods of $1.34 per share.

An additional 1,052,219 shares of common stock at exercise prices ranging
 initially from $0.341 to $1.265 are issuable to Swartz upon the exercise of
 warrants issued under the investment agreement. The warrants contain a reset
 provision which may reduce the exercise price if the price, as defined in the
 agreement, is lower on any subsequent six month anniversary. As a result of
 the reset provision, the exercise prices have been reduced to a range of $0.066
 to $0.077 as of November 30, 2002. None of the warrants had been exercised as
 of November 30, 2002.

$30 Million Equity Line of Credit Agreement

In May 2000, we entered into an investment agreement with Swartz. The
 investment agreement entitled us , at our option, to issue and sell our common
 stock for up to an aggregate of $30 million from time to time during a three-
 year period, subject to certain conditions including among other items (1) an
 effective registration statement being on file with the SEC registering the
 resale of the common shares, and (2) a limitation on the number of common
 shares that could have been sold to Swartz within a 30 day time period based on
 the trading volume of the stock. Swartz could purchase the common stock from us
 at a discount. If the market price was less than $1.00 per share, the discount
 was $.10 per share; if the market price was between $1.00 to $1.99 per share,
 the discount was 10%; and if the market price was $2.00 or greater, the
 discount was 7%. In addition to the common stock purchased, Swartz received
 warrants to purchase an additional 15% of the common stock equal to 110% of the
 market price as determined during the pricing period, subject to further
 semi-annual price adjustments if the price of our common stock goes down.

The registration statement went effective on June 23,
 2000 and we received a total of $4,381,601 from the sale of 12,000,000 shares of common stock . Per
 the terms of the investment agreement, we issued ten five-year warrants for
 1,800,000 shares of common stock exercisable initially at prices ranging from
 $0.091 to $1.562. The warrants contain a reset provision which may reduce the
 exercise price if the price, as defined in the agreement, is lower on any
 subsequent six month anniversary. As a result of the reset provision, the
 exercise prices have been reduced to a range of $0.0385 to $0.0858 as of
 November 30, 2002. None of the warrants had been exercised as of November 30,
 2002.

On September 17, 2001, we entered into a $25 million
 equity line of credit agreement with Swartz, thereby, effectively concluding the $30 million equity
 line of credit at the conclusion of the put in effect on that date.

On September 24, 2001, we entered into
 a waiver and agreement with Swartz whereby Swartz was able to advance us $227,800 prior to the close of the final
 put under the $30 million equity line of credit. The 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 waiver included the issuance of a
 purchase warrant to purchase

13



---



##### Table of Contents



Patriot Scientific Corporation
Notes to Consolidated Financial Statements (Continued)

2,125,000 shares of common stock at an initial
 exercise price of $0.0911. The purchase warrant shares were issued to Swartz as restricted shares subject to
 piggyback registration rights and are subject to repricings on each six
 month anniversary if 110% of the lowest closing bid price for the five days
 previous to the anniversary date is less than the initial or subsequent reset
 exercise prices. As a result of the reset provision, the exercise price has
 been reduced to $0.0858 as of November 30, 2002. None of the warrants had
 been exercised as of November 30, 2002.
 See Note 7 for further information on the warrants.

$25 Million Equity Line of Credit Agreement

On September 17, 2001, we entered into an
 investment agreement with Swartz. The investment agreement entitled 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.
 We filed a registration statement on Form S-1 that was declared effective on
 November 5, 2001 for 15,000,000 shares of our common stock. We issued the
 15,000,000 shares of common stock to Swartz during the fiscal year ended May
 31, 2002 to be applied against a note payable that Swartz had issued to us.

We issued to Swartz a commitment warrant to purchase up to 900,000
 shares of our common stock concurrent with the execution of the investment agreement.
 This warrant is exercisable through September 17, 2006 at an initial exercise
 price of $0.22. The commitment warrant exercise price is subject to being
 reset on each six month anniversary of its issuance. As a result of the reset
 provision, the exercise price has been reduced to $0.0858 as of November 30,
 2002. None of the warrants had been exercised as of November 30, 2002.

Restrictive Covenants.For a period of two years after
 the termination of the agreeement, 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 years 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 years after the
 termination of the investment agreement.

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 under the $25 million equity line of credit.
 On May 30, 2002 we closed the first put and effectively 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 7 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.

14



---



##### Table of Contents



Patriot Scientific Corporation
Notes to Consolidated Financial Statements (Continued)

7.     STOCKHOLDERS DEFICIT

The following table summarizes equity transactions during
 the six months ended November 30, 2002:



|                                                                       | CommonShares |  | Dollars
|---------------------------------------------------------------------- | ------------ |  | -------
|                                                                       |              |  |        
|Balance June 1, 2002                                                   | 81,465,757   |  | $      
|Sale of common stock                                                   | 1,932,000    |  |        
|Stock issued for services                                              | 2,000,000    |  |        
|Stock issued to settle litigation                                      | 400,000      |  |        
|Stock issued on conversion of debentures and accrued interest          | 1,691,597    |  |        
|Non-cash interest and debt discount related to warrants and debentures |             |  |        
|                                                                       |              |  |        
|Balance November 30, 2002                                              | 87,489,354   |  | $      
|                                                                       |              |  |        

Stock Options

At November 30, 2002, we had 17,500 options
 outstanding pursuant to our 1992 ISO Stock Option Plan exercisable at $1.325 per share expiring in 2005; 50,000
 options outstanding pursuant to our 1992 NSO Stock Option Plan
 exercisable at $1.325 per share expiring in 2005; 2,204,405 options outstanding
 pursuant to our 1996 Stock Option Plan exercisable at a range of $0.0575 to
 $1.41 per share expiring beginning in 2002 through 2007; and 2,305,000 options
 outstanding pursuant to our 2001 Stock Option Plan exercisable at a range of
 $0.07 to $0.70 per share expiring beginning in 2002 through 2007.

Some of the options outstanding under these plans are not
 presently exercisable and are subject to meeting vesting criteria.

Warrants

At November 30, 2002, we had warrants outstanding exercisable
 into 44,167,415 common shares at exercise prices ranging from $0.033 to $1.12 per share
 expiring beginning in 2002 through 2007. During the six months ended November
 30, 2002, we issued warrants to purchase 17,150,629 shares of common stock
 which are subject to repricings at the six month anniversary of the issuance
 of the warrant. At each anniversary date the warrants will be repriced to the
 lesser of the initial exercise price or 110% of the lowest closing bid price
 of our common stock for the five trading days ending on such six month
 anniversary date. During the six months ended November 30, 2002, warrants to
 purchase 14,202,869 shares of common stock with initial or reset exercise
 prices ranging from $0.0657 to $0.1320 have been repriced to exercise prices
 ranging from $0.033 to $0.077.

During the six months ended November 30, 2002, we issued
 to two individuals warrants exercisable for five years into 1,000,000 common shares at an
 exercise price of $0.05 per share. These individuals are acting as our
 marketing representatives and the warrants are scheduled to vest based on
 sales activity as defined in their contracts.

Also, during the six months ended November 30, 2002, we
 issued to Swartz snap shot warrants exercisable for five years into 1,929,331 common shares at
 exercise prices ranging from $0.047 to $0.068 per share. These snap shot

15



---



##### Table of Contents



Patriot Scientific Corporation
Notes to Consolidated Financial Statements (Continued)

warrants were issued under an agreement with Swartz whereby we
 will issue to Swartz warrants to purchase
 common shares equal to 20% of any common stock or warrants we issue to parties
 other than Swartz or their affiliates after March 12, 2002.

Common Stock

During the six months ended November 30, 2002, we sold to a group of
 individual private investors a total of 1,932,000 shares of common stock at
 prices ranging from $0.025 to $0.0301 for an accumulated total of $50,000.
 The investors have agreed to hold these shares for a minimum of one year.

In October 2002, we entered into an agreement with Barry Clark
 whereby he will provide consulting services through April 2003 to help structure financing,
 provide innovative capital resources and advise us on other strategic
 decisions. In October 2002 we issued to Mr. Clark 2,000,000 shares of our
 common stock as compensation for the consulting services. We recorded
 $110,000, the value of the common stock on the day it was issued, as a prepaid
 expense and additional paid-in capital of which, during the six months ended
 November 30, 2002, we amortized to expense $36,667 as non-cash compensation.

In October 2002, we entered into a settlement agreement with a former
 executive officer of the Company. As part of the agreement, we issued to him
 400,000 shares of our common stock. During the six months ended November 30,
 2002, we recorded $16,000, the value of the common stock on the day of the
 settlement, as litigation expense. The shares are subject to registration and
 will be included in our next registration statement.

In December 2001, we entered into a series of agreements with iCapital
 Corporation (iCapital) and several principals of iCapital whereby they
 provided consulting services through December 2002 to help structure financing,
 provide innovative capital resources, identify and assist with merger and
 acquisition opportunities and advise us on other strategic decisions. In
 January 2002, based on meeting several performance criteria, we issued to
 iCapital and the principals of iCapital 2,200,000 shares of our common stock as
 compensation for the consulting services. During our previous fiscal year, we
 recorded $198,000, the value of the common stock on the day it was issued, as a
 prepaid expense and additional paid-in capital of which, during the six months
 ended November 30, 2002, we amortized to expense $99,000 as non-cash
 compensation.

8.     NOTE RECEIVABLE

In June 2000, we 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 Patriot. On September 25, 2000, he requested and was
 relieved of his duties as an executive officer and director of Patriot. The
 note bears interest at the 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 our common stock that he held on the date
 of issuance as security for this note.

9.     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.
 Management believes that it is unlikely that the appellate court will overturn
 the trial courts ruling and that the resolution of the appeal process will
 have no impact on our financial position, income or cash flows.

16



---



##### Table of Contents



Patriot Scientific Corporation
Notes to Consolidated Financial Statements (Continued)

In September 2001, an action was filed against us in the Superior Court
 of San Diego County, California by Richard G. Blum, our former Chairman, President and
 Chief Executive Officer. Mr. Blum contended that he was wrongfully terminated
 on August 5, 2001 in violation of his employment agreement dated December 1,
 2000. He sought damages for the alleged breach of his employment agreement,
 age discrimination, as well as other related claims.In October 2002, we
 entered into a settlement agreement with Mr. Blum whereby we agreed to pay him
 $60,000 over twelve months and to issue him 400,000 shares of our common stock.
 This liability has been recorded in our consolidated financial statements for
 the six months ended November 30, 2002.

17



---



##### Table of Contents






Item 2. Managements Discussion and
 Analysis of Financial Condition and Results of Operations.

THE FOLLOWING DISCUSSION
 INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR FUTURE FINANCIAL PERFORMANCE. ACTUAL
 RESULTS MAY DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A
 VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING,
 FUTURE PERFORMANCE AND RISK FACTORS. SEE ALSO OUR ANNUAL REPORT ON FORM 10-K
 FOR THE YEAR ENDED MAY 31, 2002.

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:



| |  |  | Our major product line has had limited revenues                                                                                                                                               
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We have incurred significant losses and may continue to do so                                                                                                                                 
|
| |  |  | Our independent certified public accountants have added an
 explanatory paragraph to their opinion in which they expressed
 substantial doubt about our ability to continue as a going concern
|
| |  |  | The price and the trading volume of our common stock have an
 effect on the amount of capital we can raise                                                                                    
|
| |  |  | We will require additional financing                                                                                                                                                          
|
| |  |  | We may need to increase our authorized shares                                                                                                                                                 
|
| |  |  | Large block sales of our stock may decrease the price of our stock                                                                                                                            
|
| |  |  | We may be impacted as a result of terrorism                                                                                                                                                   
|
| |  |  | Our products may not be completed on time                                                                                                                                                     
|
| |  |  | The market in which we operate is highly competitive                                                                                                                                          
|
| |  |  | Protection of our intellectual property is
 limited; there is a risk of claims for infringement                                                                                               
|
| |  |  | Our products are dependent on the Internet and Java                                                                                                                                           
|
| |  |  | Our stock is subject to penny-stock rules                                                                                                                                                     

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 anticipate
 that in the future we will also derive revenue from fees for the transfer of
 proven and reusable intellectual property components or the performance of
 engineering services. We anticipate to enter into licensing agreements that
 will provide licensees the right to incorporate our intellectual property
 components in their products with terms and conditions that we anticipate to
 vary by licensee. Generally,

18



---



##### Table of Contents



we anticipate 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.

Use of Estimates
 The preparation of consolidated 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.

Results of Operations for the Three
 months Ended November 30, 2002 and November 30, 2001

Net sales. Total net sales for the second fiscal quarter
 ended November 30, 2002 decreased 30.2% to $5,160 from $7,389 for the corresponding period of the
 previous fiscal year. This decrease was due to the final buys on our matured
 communication products having been substantially completed the previous fiscal
 year. We are currently expending our efforts on marketing and sale of our
 microprocessor technology. The microprocessor technology generated minimal
 revenue during the second fiscal quarter ended November 30, 2002. We
 anticipate that future revenue will be derived from up front license fees and
 royalties as a result of the shift in focus to the commercialization of our
 microprocessor and related technology intellectual property. Previously we
 focused primarily on the sale of silicon products. We cannot estimate when
 significant revenue will be generated from the microprocessor technology.

Cost of sales. Cost of sales as a percentage of net sales decreased
 to 137.2% in the second fiscal quarter ended November 30, 2002 compared to 2,515.1% for
 the corresponding period of the previous fiscal year. This significant
 decrease was due to minor sales during the second quarter of 2003 not having
 associated costs due to our having written off the communication product
 inventory during the second quarter of the previous fiscal year. We wrote-

19



---



##### Table of Contents



off $149,433, the remaining balance, during the
 second quarter ended November 30, 2001. We decided on writing off the inventory as a result of not being
 able to find a buyer for the communication product line and our decision to
 focus future company revenue on the sale of licenses and intellectual property
 related to our microprocessor technology versus the sale of microprocessor
 silicon and related products. The winding down of the communication product
 line did not impair any of our other assets. Also, as a result of eliminating
 the communication product line, overhead expenses charged to cost of sales the
 previous fiscal year are now being charged to general and administrative
 expenses.

Research and development expenses decreased 56.3% from $375,439
 for the second fiscal quarter ended November 30, 2001 compared to $164,218 for the second
 fiscal quarter ended November 30, 2002. This decrease was due to a reduction
 in consulting services compared to the previous fiscal year related to the
 development of a new soft core version of the microprocessor technology in the
 amount of $17,213 and a reduction in payroll expense as a result of downsizing
 the department by six individuals during the second and third fiscal quarters
 of the previous fiscal year in an amount of $170,949.

Selling, general and administrative expenses
 decreased 21.9% to $577,133 for the second fiscal quarter ended November 30, 2002 compared to $738,672 for the
 second fiscal quarter of the previous fiscal year. This decrease was due
 primarily to a reduction in executive, marketing and sales personnel in the
 amount of $124,298 as a result of downsizing the company during the second and
 third fiscal quarters of the previous fiscal year partially offset by an
 increase in professional fees related to financings and litigation.

Other expenses for the second fiscal quarter ended
 November 30, 2002, were $334,017 compared to other expenses of $266,038 for the corresponding period of
 the previous fiscal year. This change resulted primarily from the recognition
 of non-cash interest expense of $296,199 related to the amortization of the
 debt discount associated with the issuance of warrants under a secured note
 payable and convertible debentures coupled with interest expense of $37,828
 related to the note and debentures for the current fiscal period compared to
 $261,068 and $5,029, respectively for the same fiscal period of the previous
 fiscal year.

Results of Operations for the Six months
 Ended November 30, 2002 and November 30, 2001

Net sales. Total net sales for the six months ended November 30, 2002
 decreased 86.0% to $45,049 from $321,889 for the corresponding period of the
 previous fiscal year. This decrease was due to the final buys on our matured
 communication products having been substantially completed the previous fiscal
 year. We are currently expending our efforts on marketing and sale of our
 microprocessor technology. The microprocessor technology generated minimal
 revenue during the six months ended November 30, 2002. We anticipate that
 future revenue will be derived from up front license fees and royalties as a
 result of the shift in focus to the commercialization of our microprocessor and
 related technology intellectual property. Previously we focused primarily on
 the sale of silicon products. We cannot estimate when significant revenue will
 be generated from the microprocessor technology.

Cost of sales. Cost of sales as a percentage of net sales decreased
 to 26.6% in the six months ended November 30, 2002 compared to 121.2% for the
 corresponding period of the previous fiscal year. This significant decrease
 was due to minor sales during the first two quarters of 2003 not having
 associated costs due to having previously written off the communication product
 line inventory. A $149,433 write-down of the inventory to zero during the
 previous fiscal year was a result of not being able to find a buyer for the
 communication product line and our decision to focus future company revenue on
 the sale of licenses and intellectual property related to our microprocessor
 technology versus the sale of microprocessor silicon and related products. The
 winding down of the communication product line did not impair any of our other
 assets. Also, as a result of eliminating the communication product line,
 overhead expenses charged to cost of sales the previous fiscal year are now
 being charged to general and administrative expenses.

Research and development expenses decreased 57.1% from $871,247 for
 the six months ended November 30, 2001 compared to $373,505 for the six months ended
 November 30, 2002. This decrease was due to a reduction in consulting services
 compared to the previous fiscal year related to the development of a new soft
 core version of the microprocessor technology in the amount of $87,802 and a
 reduction in payroll expense as a result of downsizing the department by six
 individuals during the second and third fiscal quarters of the previous fiscal
 year in an amount

20



---



##### Table of Contents



of $370,625.

Selling, general and administrative expenses decreased 23.6% to
 $1,064,234 for the six months ended November 30, 2002 compared to $1,392,412 for the six
 months of the previous fiscal year. This decrease was due primarily to a
 reduction in executive, marketing and sales personnel in the amount of $309,932
 as a result of downsizing the company during the second and third fiscal
 quarters of the previous fiscal year.

Other expenses for the six months ended November 30, 2002,
 were $616,050 compared to other expenses of $273,791 for the corresponding period of the
 previous fiscal year. This change resulted primarily from the recognition of
 non-cash interest expense of $550,566 related to the amortization of the debt
 discount associated with the issuance of warrants under a secured note payable
 and convertible debentures coupled with interest expense of $65,669 related to
 the note and debentures for the current fiscal period compared to $261,068 and
$13,087, respectively for the same fiscal period of the previous fiscal year.

Income Taxes

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 $432,000 in the
 first six months of 2003, from $13,446,000 at May 31, 2002 to $13,878,000 at
 November 30, 2002.

Liquidity and Capital Resources

In connection with their report on our
 consolidated financial statements as of and for the year ended May 31, 2002, 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 November 30, 2002, we had deficit working
 capital of $1,267,935 and cash and cash equivalents of $2,210. We have historically funded our operations
 primarily through the issuance of securities and debt financings. Cash and
 cash equivalents decreased $85,898 during the six months ended November 30,
 2002 due to net cash used in operations of $1,108,120 offset by funds generated
 primarily from the issuance of convertible debentures of $847,000 and short
 term notes payable of $150,000. The net cash used in operations was $1,108,120
 for the six months ended November 30, 2002 compared to $2,073,812 for the
 corresponding period of the previous fiscal year. The decrease in cash
 required in operations was due primarily to a $764,150 reduction in net loss as
 adjusted to reconcile to cash used in operating activities coupled with a
 $167,211 change in prepaid expenses and other assets between the two periods.
 Cash used in investing activities was $34,240 for the six months ended November
 30, 2002 compared to $51,348 for the corresponding period of the previous
 fiscal year. Cash provided by financing activities was $1,056,462 for the six
 months ended November 30, 2002 compared to $1,703,603 for the corresponding
 period of the previous fiscal year. This decrease was primarily the result of
 a reduced issuance of common stock of $761,604 during the current fiscal period
 compared to the corresponding period of the previous fiscal year.

We estimate our current cash requirements to sustain our
 operations for the next twelve months through November 2003 to be $2.4 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 November 30, 2002 which was originally due in
 January 2003 and subsequent to the end of the quarter has been extended to
 April 2003. We also have convertible debentures with a group of investors as
 of November 30, 2002 aggregating $1,280,000. 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 first six months ended November 30, 2002, we
 obtained $50,000 from the sale of equity to several private investors and
$150,000 from short term notes entered into with a related party. Subsequent
 to November 30, 2002, we obtained an additional $28,350 from the sale of equity
 to several private investors, $200,000 from the issuance of additional
 convertible debentures and $30,000 from a short term note entered into with a
 related party. In addition, we are negotiating the terms of a $12 million
 equity line of credit.

21



---



##### Table of Contents



If we are not successful at obtaining and drawing down on the
 $12 million equity line of credit or 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 receive additional advances from Swartz, 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 $2.4 million requirement will be provided by:



| |  |  | additional funds under the $12 million equity line of credit if we
 are successful in negotiating with the potential investor and are able
 to register additional shares of common stock, and such available
 funding exceeds the remaining balance of the note payable to Swartz;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | proceeds from the exercise of outstanding stock options and warrants; and                                                                                                                                                                                                          
|
| |  |  | additional debt and/or equity financings.                                                                                                                                                                                                                                          

In addition, we have formulated additional
 cost reduction plans which can be implemented if the required funds are not obtainable. We also have remaining a
$400,000 accounts receivable factoring agreement with our bank; however, we
 have no eligible accounts receivable to factor as of November 30, 2002.

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 and JUICEtechnology 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.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards
 Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
 Activities, amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities-
 Deferral of the Effective Date of FASB No. 133, and SFAS No. 138, Accounting
 for Certain Derivative Instruments and Certain Hedging Activities which
 requires companies to record derivatives on the balance sheet as assets or
 liabilities, measured at fair market value. Gains or losses resulting from
 changes in the values of those derivatives would be accounted for depending on
 the use of the derivative and whether it qualifies for hedge accounting. The
 key criterion for hedge accounting is that the hedging relationship must be
 highly effective in achieving offsetting changes in fair value or cash flows.
 SFAS No. 133 was effective for us on June 1, 2001. The adoption of this
 statement had no material impact on our consolidated financial statements.

In June 2001, the FASB issued SFAS No. 141,
 Business Combinations and SFAS No. 142, Goodwill
 and Other Intangible Assets. SFAS No. 141 requires the use of the purchase
 method of accounting and

22



---



##### Table of Contents



prohibits the use of the pooling-of-interests
 method of accounting for business combinations initiated after June 30, 2001. SFAS No. 141 also
 requires that companies recognize acquired intangible assets apart from goodwill if the
 acquired intangible assets meet certain criteria. SFAS No. 141 applies to all
 business combinations initiated after June 30, 2001 and for purchase business
 combinations completed on or after July 1, 2001. It also requires, upon
 adoption of SFAS No. 142, that companies reclassify the carrying amounts of
 intangible assets and goodwill based on the criteria in SFAS No. 141.

SFAS No. 142 requires, among
 other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at
 least annually. In addition, SFAS No. 142 requires that companies identify reporting units for the
 purposes of assessing potential future impairments of goodwill, reassess the
 useful lives of other existing recognized intangible assets, and cease
 amortization of intangible assets with an indefinite useful life. An intangible
 asset with an indefinite useful life should be tested for impairment in
 accordance with the guidance in SFAS No. 142. SFAS No.142 is required to be
 applied in fiscal years beginning after December 15, 2001 to all goodwill and
 other intangible assets recognized at that date, regardless of when those
 assets were initially recognized. SFAS No. 142 requires companies to complete a
 transitional goodwill impairment test six months from the date of adoption.
 Companies are also required to reassess the useful lives of other intangible
 assets within the first interim quarter
 after adoption of SFAS No. 142. The adoption of this statement had no material
 impact on our consolidated financial statements.

Our previous business combinations were accounted for using the
 pooling-of-interests method. The pooling-of-interests method does not result in
 the recognition of acquired goodwill or other intangible assets. As a result,
 the adoption of SFAS No. 141 and No. 142 will not affect the results of past
 acquisition transactions. However, all future business combinations will be
 accounted for under the purchase method, which may result in the recognition
 of goodwill and other intangible assets, some of which will be recognized
 through operations, either by amortization or impairment charges, in the
 future.

In June 2001, the FASB issued SFAS
 No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143
 requires the fair value of a liability for an asset retirement obligation to be
 recognized in the period in which it is incurred if a reasonable estimate of
 fair value can be made. The associated asset retirement costs are capitalized
 as part of the carrying amount of the long-lived asset. SFAS No. 143 is
 effective for the fiscal year ending May 31,
 2003. The adoption of this statement had no material impact on our
 consolidated financial statements.

In August 2001, the FASB issued SFAS
 No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144
 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to
 sell, whether reported in continuing operations or in discontinued operations.
 Therefore, discontinued operations will no longer be measured at net realizable
 value or include amounts for operating losses that have not yet occurred. SFAS
 No. 144 is effective for financial statements issued for fiscal years beginning
 after December 15, 2001 and, generally, is to be applied prospectively. The
 adoption of this statement had no material impact on our consolidated financial
 statements.

In April 2002, FASB issued SFAS No. 145,
 Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
 Technical Corrections. This statement eliminates the current requirement that gains and losses on debt
 extinguishment must be classified as extraordinary items in the income
 statement. Instead, such gains and losses will be classified as extraordinary
 items only if they are deemed to be unusual and infrequent, in accordance with
 the current GAAP criteria for extraordinary classification. In addition, SFAS
 145 eliminates an inconsistency in lease accounting by requiring that
 modifications of capital leases that result in reclassification as operating
 leases be accounted for consistent with sale-leaseback accounting rules. The
 statement also contains other nonsubstantive corrections to authoritative
 accounting literature. The changes related to the debt extinguishment are
 effective for fiscal years beginning after May 15, 2002. Adoption of this
 standard did not have any effect on the Companys consolidated financial
 statements.

In June 2002, the FASB issued
 SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which
 addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous
 accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. The
 Company will adopt the provisions of SFAS No. 146 for restructuring activities initiated
 after December 31, 2002. SFAS No. 146 requires that the

23



---



##### Table of Contents



liability for costs associated
 with an exit or disposal activity be recognized when the liability is incurred. Under EITF
 No. 94-3, a liability for an exit cost was recognized at the date of a companys
 commitment to an exit plan. SFAS No. 146 also establishes that the liability should
 initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect
 the timing of recognizing future restructuring costs as well as the amount recognized.
 Adoption of this standard will not have any effect on the Companys
 consolidated financial statements.

Future Performance and Risk Factors

THIS REPORT CONTAINS A NUMBER OF FORWARD-LOOKING STATEMENTS WHICH
 REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. OUR
 FUTURE BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION ARE SUBJECT TO
 VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE SUMMARIZED BELOW. READERS ARE
 CAUTIONED NOT TO PLACE UNDUE RELIANCE ON 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 OF THIS REPORT.

Since the business combination with Metacomp, effective December
 1996, we have segregated our operations into microprocessor, communication, and radar/antenna
 product lines.

The status of these three major technologies is as follows:



| |  | Ignite I microprocessor technology. This technology is generating minor
 amounts of revenue from the sale of
 evaluation boards, microprocessors and initial license fees related to the
 intellectual property. We have ported the VxWorks operating system and the
 Sun Microsystems personalJava virtual machine to the microprocessor.
 Although we anticipate the sales of licenses and royalties from the
 microprocessor technology will be our main product line, it currently
 accounted for only 10% of our revenue for the six months ended November 30,
 2002.                                      
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | High-speed data communications. Revenue from
 this technology was generated primarily from mature communication products that completed
 their life cycles. We have decided to concentrate our efforts on the
 Ignite I microprocessor technology and have discontinued the sale of
 communication products subsequent to the last buys that were shipped
 during the previous fiscal year. Although minimal shipments of
 communications product accounted for 90% of the revenue shipped during
 the first six months ended November 30, 2002, future revenue will come
 from our microprocessor technologies.
| 
| |  | 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 the Ignite I microprocessor technology.                                                                                                                                                                                                                                                                                                                                

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

We have experienced in the
 past and may experience in the future many of the problems, delays and expenses encountered by any
 business in the early stages of development, some of which are beyond our control. We have had limited
 operating history, have incurred significant cumulated losses, have only
 recently commenced marketing and sales of our products and have not achieved a
 profitable level of operations. There can be no assurance of future
 profitability. We may require additional funds in the future for operations or
 to exploit our technologies. There can be no assurance that any funds required
 in the future can be generated from operations or that such required funds will
 be available from other potential sources. The lack of additional capital
 could force us to substantially curtail or cease operations and would therefore
 have a material adverse effect on our business. Further there can be no
 assurance that any such required funds, if available, will be available on
 attractive terms or that they will not have a significantly dilutive effect on
 our existing shareholders. Our technologies are in various stages of
 development. There can be no assurance that any of the technologies in
 development can be completed to commercial exploitation due to the inherent
 risks of new technology development limitations on financing, competition,
 obsolescence, loss of key technical personnel and other factors. Our
        development projects are high risk in nature, where

24



---



##### Table of Contents



unanticipated technical obstacles can arise at any time and result
 in lengthy and costly delays or result in determination that further development is
 unfeasible. There can be no assurance that the technologies, if completed,
 will achieve market acceptance sufficient to sustain us or achieve profitable
 operations.

We rely primarily on patents to protect our intellectual property rights.
 There can be no assurance that patents held by us will not be challenged and
 invalidated, that patents will issue from any of our pending applications or
 that any claims allowed from existing or pending patents will be sufficient in
 scope or strength or be issued in all countries where our products can be sold
 to provide meaningful protection or commercial advantage to us. Competitors
 may also be able to design around our patents.

Our common shares are traded on the OTC Bulletin Board, are thinly
 traded and are subject to special regulations imposed on penny stocks. Our shares may
 experience significant price and volume volatility, increasing the risk of
 ownership to investors.




Item 3. Quantitative 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 November 30, 2002, our notes payable
 and convertible debentures to corporations and individuals totaling $2.1 million bore interest at fixed
 rates of 5% to 8%. Our capital lease obligation totaling $19,432 is discounted
 at a fixed rate of interest of 22.7%.




PART II.     OTHER INFORMATION




Item 1. 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. Management believes that it is unlikely that the appellate court
 will overturn the trial courts ruling and that the resolution of the appeal
 process will have no impact on our financial position, income or cash flows.

In September 2001, an action was filed against
 us in the Superior Court of San Diego County, California by Richard G. Blum, our former Chairman, President and
 Chief Executive Officer. Mr. Blum contended that he was wrongfully terminated
 on August 5, 2001 in violation of his employment agreement dated December 1,
 2000. He sought damages for the alleged breach of his employment agreement,
 age discrimination, as well as other related claims.In October 2002, we
 entered into a settlement agreement with Mr. Blum whereby we agreed to pay him
 $60,000 over twelve months and to issue him 400,000 shares of our common stock.
 This liability has been recorded in our consolidated financial statements for
 the six months ended November 30, 2002.




Item 2. Changes in Securities

(a)         We offered and
 sold the following common stock, either for cash or in consideration of services rendered
 as indicated below, without registration under the Securities Act of 1933, as amended, and exemption
 for such sales from registration under the Act is claimed in reliance upon the exemption provided
 by Section 4(2) thereof on the basis that such offers and sales were
 transactions not involving any public offering. Appropriate precautions
 against

25



---



##### Table of Contents



transfer have been taken, including the placing of a
 restrictive legend on all certificates evidencing such securities. All such sales were effected without
 the aid of underwriters, and no sales commissions were paid.



|Name                 |  | Date of Sale       |  | Number ofShares |  | AggregatePurchase Price |        | Purchase Price PerShare
|-------------------- |  | ------------------ |  | --------------- |  | ----------------------- | ------ | -----------------------
|                     |  |                    |  |                 |  |                         |        |                        
|Robert Crawford      |  | September 24, 2002 |  | 1,000,000       |  | $                       | 25,000 |                        
|REC Music Foundation |  | September 24, 2002 |  | 600,000         |  | $                       | 15,000 |                        
|Donald Longo         |  | October 28, 2002   |  | 166,000         |  | $                       | 5,000  |                        
|Red Oak Inc.         |  | October 28, 2002   |  | 166,000         |  | $                       | 5,000  |                        
|Richard Blum         |  | October 23, 2002   |  | 400,000         |  | $                       | 16,000 |                        




Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits 
|--- |  | ----------



| |  | 99.8 Certification of Chief Executive Officer pursuant
 to Section 906 of the Sarbanes-Oxley Act of 2002
| |  | --------------------------------------------------------------------------------------------------------
|
| |  | 99.9 Certification of Chief Financial
 Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



|(b) |  | Reports on Form 8-K  NONE
|--- |  | --------------------------




SIGNATURES

Pursuant to the requirements 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.



|                       |  |                                |  |                                                                                                     
|---------------------- |  | ------------------------------ |  | ----------------------------------------------------------------------------------------------------
|                       |  | PATRIOT SCIENTIFIC CORPORATION
|                       |  |                                |  |                                                                                                     
|Date: January 22, 2003 |  | By:                            |  | /s/ LOWELL W. GIFFHORN                                                                              
|                       |  |                                |  |                                                                                                     
|                       |  |                                |  | Executive Vice President and
 Chief Financial Officer                                               
|                       |  |                                |  |                                                                                                     
|                       |  |                                |  | (Principal Financial and
Accounting Officer and duly
authorized to sign on behalf
of the Registrant)

26



---



##### Table of Contents






CEO Certification pursuant to
 Section 302 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on
 Form 10-Q of Patriot Scientific Corporation (the Issuer) for the period ended
 November 30, 2002, as filed with the Securities and Exchange Commission on the date hereof
 (the Report), I, Jeffrey E. Wallin, Chief Executive Officer of the Issuer, certify that:



| | 1. | I have reviewed the report being filed;                                                                                                                                                                                                                                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. | Based on my knowledge, the report does not contain any untrue
 statement of a material fact or omit to state a material fact necessary
 to make the statements made, in light of the circumstances under which
 such statements were made, not misleading with respect to the period
 covered by the report;                                                            
|
| | 3. | Based on my knowledge, the financial statements, and other
 financial information included in the report, fairly present in all
 material respects the financial condition, results of operations and
 cash flows of the issuer as of, and for, the periods presented in the
 report;                                                                                   
|
| | 4. | I and the other certifying officers are responsible for
 establishing and maintaining disclosure controls and procedures (as
 defined in Exchange Act Rules 13a-14 and 15d-14) for the issuer and
 have:                                                                                                                                                                
|
| |    |                                                                                                                                                                                                                                                                                                                                                                         
|
| |    |                                                                                                                                                                                                                                                                                                                                                                         
|
| |    |                                                                                                                                                                                                                                                                                                                                                                         
|
| | 5. | I and the other certifying officers
 have disclosed, based on their most recent evaluation, to the issuers auditors and the audit
 committee of issuers board of directors (or persons performing the
 equivalent function):                                                                                                                                          
|
| |    |                                                                                                                                                                                                                                                                                                                                                                         
|
| |    |                                                                                                                                                                                                                                                                                                                                                                         
|
| | 6. | I and the other certifying officers have
 indicated in the report whether or not there were significant changes in internal controls or
 in other factors that could significantly affect internal controls
 subsequent to the date of their most recent evaluation, including any
 corrective actions with regard to significant deficiencies and material
 weaknesses.



| | /S/ JEFFREY E. WALLIN
Name: Jeffrey E. Wallin
Title: President and CEO
Date: January 22, 2003
| | ---------------------------------------------------------------------------------------------

27



---



##### Table of Contents






CFO Certification pursuant to Section 302 of
 the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q
 of Patriot Scientific Corporation (the Issuer) for the period ended November 30, 2002, as filed
 with the Securities and Exchange Commission on the date hereof (the Report),
 I, Lowell W. Giffhorn, Chief Financial Officer of the Issuer, certify that:



| | 1. | I have reviewed the report being filed;                                                                                                                                                                                                                                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. | Based on
 my knowledge, the report does not contain any untrue statement of a
 material fact or omit to state a material fact necessary to make the
 statements made, in light of the circumstances under which such
 statements were made, not misleading with respect to the period
 covered by the report;                                                           
|
| | 3. | Based on my knowledge, the financial statements, and other
 financial information included in the report, fairly present in all
 material respects the financial condition, results of operations and
 cash flows of the issuer as of, and for, the periods presented in the
 report;                                                                                   
|
| | 4. | I and the other certifying officers are responsible for
 establishing and maintaining disclosure controls and procedures (as
 defined in Exchange Act Rules 13a-14 and 15d-14) for the issuer and
 have:                                                                                                                                                                
|
| |    |                                                                                                                                                                                                                                                                                                                                                                         
|
| |    |                                                                                                                                                                                                                                                                                                                                                                         
|
| |    |                                                                                                                                                                                                                                                                                                                                                                         
|
| | 5. | I and the other certifying officers have
 disclosed, based on their most recent evaluation, to the issuers auditors and the audit
 committee of issuers board of directors (or persons performing the
 equivalent function):                                                                                                                                          
|
| |    |                                                                                                                                                                                                                                                                                                                                                                         
|
| |    |                                                                                                                                                                                                                                                                                                                                                                         
|
| | 6. | I and the other certifying officers have indicated in the
 report whether or not there were significant changes in internal controls or
 in other factors that could significantly affect internal controls
 subsequent to the date of their most recent evaluation, including any
 corrective actions with regard to significant deficiencies and material
 weaknesses.



| | /S/ LOWELL W. GIFFHORN
Name: Lowell W. Giffhorn
Title: Exec. V.P. and CFO
Date: January 22, 2003
| | ------------------------------------------------------------------------------------------------

28