PATRIOT SCIENTIFIC CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Concurrently with forming the JV LLC, the Company entered into a license agreement with a third party pursuant to which it received $10,000,000, which amount was recorded as license revenue during the quarter ended August 31, 2005. In connection with entering into the license agreement and forming the JV LLC,
the Company incurred various cash and non-cash expenses. Direct, incremental cash costs incurred with the transactions included $170,000 paid to a committee of the Company's board of directors for their efforts in consummating the transactions, approximately $1,328,000 paid to certain of the Company's warrant holders to obtain their approval of the agreement, and $960,000 paid to the former co-inventor of the technology. As more fully discussed in Note 4, a former legal advisor of the Company may assert a success fee against the Company based upon proceeds received by the Company under this license agreement. No amount has been accrued for this contingency as the Company believes the probability of any amount being paid to the advisor for this license agreement is remote.