<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
___ SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended August 31, 1996
Commission File Number 0-22182
PATRIOT SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-1070278
(State or other jurisdiction of (I.R.S. Empl. Ident. No.)
incorporation or organization)
12875 Brookprinter Place, Suite 300, Poway, California, 92064
(Address of principal executive offices)
(619) 679-4428
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
<TABLE>
<S> <C>
Common Stock, $.00001 par value 29,963,558
- ------------------------------- ----------
(Class) (Outstanding at September 30, 1996)
</TABLE>
1
<PAGE> 2
PATRIOT SCIENTIFIC CORPORATION
INDEX
<TABLE>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of August 31, 1996 and
May 31, 1996 (unaudited) 3
Statements of Operations for the three months ended
August 31, 1996 and 1995 and cumulative from
inception to August 31, 1996 (unaudited) 4
Statements of Cash Flows for the three months ended August 31,
1996 and 1995 and cumulative from
inception to August 31, 1996 (unaudited) 5
Notes to Interim Financial Statements 6
Item 2. Plan of Operation 7
PART II. OTHER INFORMATION 9
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
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 9
SIGNATURES 9
</TABLE>
* No information provided due to inapplicability of the item.
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
August 31, May 31,
1996 1996
<S> <C> <C>
Current Assets
Cash and cash equivalents (Note 6) $ 557,297 $ 838,160
Inventories (Note 3) 145,363 145,800
Prepaid expenses and other 56,249 54,000
----------- -----------
758,909 1,037,960
Property and Equipment - net 282,267 274,919
Purchased Technology - net (Note 4) 459,250 612,333
Patents, trademarks and other - net 145,228 155,304
----------- -----------
Total Assets $ 1,645,654 $ 2,080,516
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 176,648 $ 291,360
Stockholders' Equity
Common stock $.00001 par value; authorized
40,000,000 shares; 29,963,558 and 27,762,226
shares issued and outstanding 300 298
Additional paid-in capital 9,831,369 9,591,870
(Deficit) accumulated during the
development stage (8,362,663) (7,803,012)
----------- -----------
1,469,006 1,789,156
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,645,654 $ 2,080,516
=========== ===========
</TABLE>
See notes to interim financial statements.
3
<PAGE> 4
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Inception
Three Months Ended (June 10, 1987)
August 31, to August 31,
1996 1995 1996
<S> <C> <C> <C>
Net sales $ 2,093 $ - $ 2,093
Cost of sales 1,528 - 1,528
----------- ----------- -----------
Gross margin 565 - 565
Operating expenses:
Research and development 235,127 191,611 3,363,327
Sales and marketing 47,537 17,004 436,246
General and administrative 119,723 111,548 3,364,986
Amortization 163,159 153,083 1,399,036
----------- ----------- -----------
565,546 473,246 8,563,595
----------- ----------- -----------
Other income (expenses):
Interest income 5,227 12,629 200,264
Other 103 - 103
----------- ----------- -----------
5,330 12,629 200,367
----------- ----------- -----------
Net loss $ (559,651) $ (460,617) $(8,362,663)
=========== =========== ===========
Loss per share $ (0.02) $ (0.02)
=========== ===========
Weighted average number of
common shares outstanding
during the period (Note 5) 24,815,270 22,762,226
=========== ===========
</TABLE>
See notes to interim financial statements.
4
<PAGE> 5
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Inception
Three Months Ended (June 10, 1987)
August 31, to August 31,
1996 1995 1996
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net (loss) $(559,651) $ (460,617) $(8,362,663)
Adjustments to reconcile net (loss)
to cash used in operating activities:
Amortization and depreciation 198,885 180,391 1,686,192
Equity issued for services - - 296,180
Stock compensation cost - - 1,875,000
Changes in:
Inventories 437 - (145,363)
Prepaid and other assets (2,249) 32,500 (54,925)
Accounts payable and accrued expenses (114,712) (1,245) 176,648
--------- ----------- -----------
Net cash used in operating
activities (477,290) (248,971) (4,528,931)
Cash Flows from Investing Activities
Purchase of property and equipment (43,074) (100,535) (542,018)
Organization costs paid - - (1,939)
Patent costs and other - - (150,004)
--------- ----------- -----------
(43,074) (100,535) (693,961)
--------- ----------- -----------
Cash Flows from Financing Activities
Proceeds from issuance of common stock
and exercise of common stock warrants 239,501 - 5,780,189
--------- ----------- -----------
Net Increase (Decrease) in Cash (280,863) (349,506) 557,297
Cash and cash equivalents at
beginning of period 838,160 1,105,641 -
--------- ----------- -----------
Cash and cash equivalents at
end of period $ 557,297 $ 756,135 $ 557,297
========= =========== ===========
</TABLE>
See notes to interim financial statements.
5
<PAGE> 6
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. OPERATIONS
Patriot Scientific Corporation (the "Company"), is a development stage company
engaged in the development of semiconductor microprocessor technology ("ShBoom
Technology"), Integrated Services Digital Network ("ISDN") interface technology
(CyberShark digital modem) and radar and antenna technology ("GPR" technology).
2. STATEMENT PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. They do not include all information and footnotes required by
generally accepted accounting principles. The interim financial statements and
notes thereto should be read in conjunction with the Company's audited financial
statements and notes thereto for the year ended May 31, 1996.
In the opinion of management, the interim 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 month period are
not necessarily indicative of the results that may be expected for the year.
3. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method. Inventories consisted of raw materials at
August 31, 1996.
4. PURCHASED TECHNOLOGY
Purchased technology at a cost of $1,837,000 relating to the Company's ShBoom
Technology is being amortized over its estimated useful life of three years.
Amortization expense of $153,083 was recorded related to this technology for the
three months ended August 31, 1996.
5. STOCKHOLDERS' EQUITY
The following table summarizes equity transactions during the three months ended
August 31, 1996:
<TABLE>
<CAPTION>
Common
Shares Dollars
<S> <C> <C>
Balance June 1, 1996 29,811,975 $9,592,168
Exercise of warrants @ $1.58 per share 151,583 239,501
---------- ----------
Balance August 31, 1996 29,963,558 $9,831,669
========== ==========
</TABLE>
A total of 5,000,000 shares of the Company's outstanding common stock was issued
as a contingent cost of the Company's acquisition of its ShBoom Technology and
such shares are subject to an escrow arrangement. The shares are releasable from
escrow at the rate of 500,000 shares for each $500,000 of revenues earned by the
Company and upon the occurrence of certain defined major corporate events. The
shares are issued and outstanding and carry all shareholder rights. Any of the
escrowed shares not released prior to May 31, 1999 are to be returned to the
Company and canceled. These shares are excluded from the calculation of weighted
average number of common shares outstanding for the computation of (loss) per
share until the release conditions are met.
At August 31, 1996 the Company had 665,000 options outstanding pursuant to its
1992 ISO Stock Option Plan exercisable at prices ranging from $0.50 to $2.30 per
share expiring beginning 1997 through 2001. The Company had 700,000 options
outstanding pursuant to its 1992 NSO Stock Option Plan exercisable at prices
ranging from $0.30 to $2.30 per share expiring beginning 1997 through 2002. The
Company also had 1,340,000 options outstanding pursuant to its 1996 Stock Option
Plan exercisable at $2.30 per share expiring beginning in 1999 through 2001.
Some of the options described in this paragraph are not presently exercisable
and are subject to meeting vesting criteria.
6
<PAGE> 7
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
5. STOCKHOLDERS' EQUITY (Continued)
As of October 1, 1995 the Board of Directors adopted the 1995 Employee Stock
Compensation Plan providing for the issuance of up to 250,000 common shares to
Employees, as defined. Executive officers and directors are not eligible under
the Plan. Through August 31, 1996 the Company had issued 195,000 common shares
pursuant to the plan.
At August 31, 1996 the Company had a warrant outstanding exercisable into 50,000
common shares at $2.85 per share until March 18, 1998. These warrants are
exercisable only upon the holder meeting certain sales performance criteria.
None were exercisable at August 31, 1996.
6. SUBSEQUENT EVENT
By October 14, 1996 the Company had obtained subscriptions for a private
offering and sale for cash of an aggregate of $1,500,000 of unsecured 6%
Convertible Subordinated Promissory Notes due September 30, 1998 ("Notes") to a
limited number of investors. The principal and interest amount of each Note may
at the election of the Note holder be converted one or more times into fully
paid and nonassessable shares of common stock, $.00001 par value, of the
Company, at a price which is the lower of (i) $2.00 per share or (ii) 80% of
five days market price prior to conversion but not less than $0.80 per share. If
the Company's shares trade at $3.75 or more for ten consecutive days, the
Company may force conversion of the Notes and accrued interest. These securities
were offered and are being sold without registration under the Securities Act of
1933, as amended, upon the exemption provided by Rule 903 of Regulation S
thereunder and an appropriate legend was placed on the Notes.
Net Note proceeds of $1,425,000, after offering costs, is intended for
establishing distribution and support for the Company's CyberShark and ShBoom
products, reduction of the ShBoom to 0.5 micron technology, marketing of gas
antenna and radar technologies and for working capital. There can be no
assurance that the Company can successfully distribute or exploit its various
products and technologies.
ITEM 2. PLAN OF OPERATION
RESULTS OF OPERATIONS
During the fiscal year ended May 31, 1996 and the three months ended August 31,
1996, the Company's operations consisted primarily of research and development
activities towards the development of the ShBoom microprocessor technology and
the CyberShark ISDN technology, administrative activities related towards
financing and administrative operations and marketing expenditures incurred in
initial phases of market exploration.
The Company expended a total of $235,127 as research and development costs
during the three months ended August 31, 1996 primarily consisting of personnel
and consultancy costs. This represented a $43,516 increase from the comparable
period of the prior year with the increase consisting primarily of increased
depreciation. General and administrative costs were $119,723 during the three
months ended August 31, 1996 comparable to the $111,548 for the first quarter of
fiscal 1996. The Company incurred $47,537 of marketing expenditures during the
three months ended August 31, 1996 compared to $17,004 for the comparable period
of the prior year. The $30,533 increase resulted primarily from personnel costs
associated with initial marketing activities on the Company's ShBoom technology
and CyberShark product. The Company expensed $163,159 as amortization expense on
purchased technology and patents for the three months ended August 31, 1996.
During the three months ended August 31, 1996 the Company used cash of $477,290
in operating activities with $114,712 being used to reduce accounts payable and
accrued liabilities. The Company expended $43,074 in investing activities for
the purchase of equipment and software during the first quarter. The Company
anticipates research and development activities related to developing its
technologies to continue at comparable levels during the next twelve months with
an increasing emphasis on marketing initial ShBoom and CyberShark products.
PLAN OF OPERATION FOR NEXT TWELVE MONTHS
Since late 1989, the Company has been engaged in developing its technologies.
The Company has not generated any significant operating revenues to date and
only recently commenced offering CyberShark and ShBoom products for
7
<PAGE> 8
sale. Sales during the first quarter consisted of ShBoom development boards
typically sold to prospective customers for evaluation. There can be no
assurance of future volume orders of ShBoom microprocessors. At August 31, 1996
the Company had received approximately $470,000 of CyberShark product orders,
subject to future delivery anticipated during the current fiscal year. There can
be no assurance the Company can be successful in delivering products to
customers or of future additional orders for the Company's products.
The Company's plan of operation for the next twelve months is to expand the
marketing of CyberShark products, introduce to market and commence sales and
licensing of ShBoom-architecture microprocessors, design future generations of
the ShBoom and ISDN technologies and exploit the radar and antenna technology.
There can be no assurance the Company will be successful in exploiting its
technologies.
At August 31, 1996, the Company had working capital of $558,261 compared to
working capital of $746,600 at May 31, 1996. During October 1996 the Company
obtained subscriptions for $1.5 million of 6% subordinated convertible notes.
Cash on hand at August 31, 1996 was $557,297 and on a pro forma basis assuming
the October convertible note financing had been completed on August 31, 1996,
net of offering costs, cash on hand would have been $1,982,297. The Company has
commenced the redesign of its ShBoom microprocessor from 0.8 micron fabrication
to 0.5 micron in order to improve speed and reduce power consumption and
per-part cost. Management estimates it will expend approximately $200,000 on
this effort during the next six months. Other than this planned redesign, the
Company has no material commitments for capital or other expenditures. The
Company has no other material sources of liquidity at this time. Based on the
current fiscal year's rate of cash operating expenditures and current plans and
assuming no revenues, management anticipates a base level of cash operating
expenditures aggregating approximately $1,500,000 during the next twelve months.
With the proceeds of the October financing, the Company anticipates it has
sufficient operating funds for the next twelve months. Should the Company be
successful in producing operating revenues, the Company may require additional
personnel and expenditures not currently estimable by management.
In addition to one full-time and two part-time executive officers, the Company
presently has five full-time and one part-time research and development
employees, one part-time marketing person and two full-time and one part-time
administrative persons. Subject to availability of resources, management is
seeking to hire one additional marketing executive, a new financial executive
and two additional technical personnel. Other than attempting to fill these
slots, management has no current plans to hire additional personnel during the
next twelve months except in response to specific new development opportunities
or funding, or as required to support contract or commercialization activities,
if any. Should CyberShark product or ShBoom product sales or licensing develop,
the Company may be required to add technical and marketing support personnel.
Likewise, if the radar or antenna should prove successful, then during the next
twelve months the Company may require additional development, marketing and
manufacturing personnel, the number dependent upon a variety of factors not
presently determinable by management. The Company has in the past and may also
in the future engage outside consultants for specific development or marketing
tasks.
The Company anticipates that it may require additional equipment, fabrication,
components and supplies during the next twelve months, not included in the
commitments outlined above, to continue development for the Company's
technologies. Product introductions such as those currently underway for ISDN
products and the ShBoom microprocessor may require significant inventory and
other expenditures not presently estimable by management. Further, if expanded
development is commenced or new generations of microprocessors or radar are
accelerated beyond current plans, additional expenditures, not currently
estimable by management, may be required.
It is possible therefore, that higher levels of expenditures may be required
than currently contemplated by management resulting from changes in development
plans or as required to support new developments or commercialization activities
or otherwise.
Based on the above factors including the current rate of expenditures and
anticipated additional expenditures, and given the proceeds of the October
financing, the Company believes it has sufficient funds for the next twelve
months even without funds from the sale of products or technology. However
should the Company's rate of expenditures or plans change materially, then the
Company may require additional funds. Potential sources of future funds, if
required, may include the sale of additional Company equity securities, some
form of debt financing or the sale or licensing of certain of the Company's
technologies. There can be no assurance that any such funds, if required during
the next twelve months or thereafter, can be generated from operations or that
the funds will be available from the aforementioned or other potential sources.
The lack of additional capital in the future, if required, could force the
Company to scale back or curtail operations and could therefore have an adverse
effect on the Company's business.
8
<PAGE> 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
4.3 Form of 6% Convertible Subordinated Promissory Note due
September 30, 1998 aggregating $1,500,000 to six investors
(b) Reports on Form 8-K - NONE
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PATRIOT SCIENTIFIC CORPORATION
Date: October 14, 1996 By: /s/ ROBERT PUTNAM
------------------
Robert Putnam, Secretary
Treasurer and Director
(Principal Financial and
Accounting Officer and duly
authorized to sign on behalf
of the Registrant)
9
<PAGE> 1
PATRIOT SCIENTIFIC CORPORATION
EXHIBIT 4.3
Form of 6% Convertible Subordinated Promissory Note
due September 30, 1998 aggregating $1,500,000
(Individual Notes differ as to date, amount and Payee)
<PAGE> 2
EXHIBIT 4.3
THIS INSTRUMENT HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), IN RELIANCE UPON
REGULATION S THEREUNDER, AND CANNOT BE OFFERED OR SOLD IN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, EXCEPT
PURSUANT TO REGULATION S OR ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT.
(ALL AMOUNTS IN U.S. DOLLARS)
PATRIOT SCIENTIFIC CORPORATION
6% CONVERTIBLE SUBORDINATED PROMISSORY NOTE
Due September 30, 1998
October ___, 1996 US$_________. 00
Poway, California
FOR VALUE RECEIVED, Patriot Scientific Corporation, the undersigned
Delaware corporation (together with all successors, "Borrower"), hereby
promises to pay to the order of
Payee:
or his, her or its successors or assigns
(collectively, "Noteholder") at
Address:
or at such other address or addresses as Noteholder may subsequently
designate in writing to Borrower, the full and true sum of____________ and
NO/100 Dollars ($______________.00), due and payable in one (1)
installment on or before September 30, 1998, unless sooner accelerated
("Maturity Date"), plus simple interest thereon at the rate of six percent
(6.00%) per annum, in lawful monies of the United States of America.
Interest shall accrue and be payable at the Maturity Date. If the Maturity
Date should fall on a weekend or national holiday, payment shall be due on
the following business day.
1. Any payment shall be deemed timely made if received by Noteholder
within ten (10) calendar days of the due date. Payments received shall be
imputed first to late or penalty charges then due, next to interest
payments then due, and next to the remaining principal balance.
2. Borrower may not prepay the principal or any accrued interest amount
due under this Note in full or in part without the prior written agreement
of Noteholder.
3. (a) The outstanding principal amount of this Note (or increments
thereof of at least $50,000) and any proportionate accrued interest may,
at any time and from time to time, be converted at the option of the
Noteholder into fully paid, nonassessable shares of Common Stock of the
Borrower, $.00001 par value per share, at the Conversion Price per share
as hereinafter defined, subject to restrictions and limitations set forth
herein. The Conversion Price shall be the lesser of (i) 80% of the average
of the highest and lowest sale prices each day for the five trading days
immediately preceding the date of conversion, but in no event shall the
Conversion Price be less than $0.80 per share, or (ii) $2.00 per share. If
there are no trades on any particular date, such date shall not count as
one of the five trading days. The Common Stock of the Borrower into which
principal is converted ("conversion shares") will not be registered under
the Securities Act of 1933, as amended ("Act"), but shall be sold, issued
and delivered in reliance upon Rule 903 of Regulation S under the Act.
(b) Certificates which are issued evidencing the conversion
shares shall, unless and until removed in accordance with applicable law,
bear an appropriate restrictive legend to the effect that the shares have
not been
1
<PAGE> 3
registered under the Act but have been offered and sold in reliance upon
Regulation S and may not, during the applicable restricted period, be
offered or sold within the United States of America or to any "U.S.
Person" (as defined in Rule 902 of Regulation S).
(c) Conversion shall be effected by Noteholder's writing which
unequivocally expresses Noteholder's intent to effect the conversion and
states the amount of principal being converted (the Company shall compute
the proportionate accrued interest being converted) and tender of such
writing and this original Note to Borrower. Conversion shall be deemed to
occur on the date such writing is presented to Borrower by fax or other
means as long as the original Note is received promptly thereafter. Upon
such conversion duly made, Borrower shall execute a new Note of like tenor
for the balance of the principal amount of this Note not converted to
common stock, and deliver such new Note and common stock to Noteholder.
Borrower shall bear all expenses and charges of issuing and delivering the
conversion shares.
(d) The conversion rate set forth in paragraph 3(a) will be
subject to adjustment if the Borrower is reorganized, merged, consolidated
or party to a plan of exchange with another corporation pursuant to which
shareholders of the Borrower receive any shares of stock or other
securities, or in the event of any sale or other transfer of all or
substantially all of the Borrower's assets, or in case of any
reclassification of Borrower's common stock. Noteholder shall be entitled,
after the occurrence of any such event, to receive on conversion thereof
the kind and amount of shares of stock or other securities, cash or other
property receivable upon such event by a holder of the number of Common
Shares into which the principal balance of this Note at such time might
have been converted immediately prior to occurrence of the event. In
addition, the conversion rate set forth in paragraph 3(a) of this Note
will be appropriately adjusted if the Borrower's common stock is split or
combined.
4. Forced Conversion. The Company is entitled, at its option, at any
time when the trading price (being the average of the highest and lowest
sale price of the Company's common stock on a particular date) of the
Company's common stock has equaled or exceeded US$3.75 per share for ten
consecutive trading days during which market sales occurred, upon five (5)
days' prior written notice ("Notice of Mandatory Conversion") to the
holders of the Notes, to require the holders of the Notes to convert the
amount of principal outstanding and all interest accrued under the Notes
through the date of the Notice of Mandatory Conversion into fully paid and
nonassessable shares of Common Stock at a conversion price of US$2.00 per
share of Common Stock. The Company shall notify the holder of the
Company's intent to force conversion by giving written notice to the
holder by facsimile or other electronic means, if possible, with original
notice to follow by two-day courier. Conversion pursuant to this Section 4
shall be effective with respect to each holder on the fifth (5th) day (the
"Mandatory Conversion Effective Date") following the confirmed receipt by
the holder or any other person at the holder's designated address of the
original notice referred to in the preceding sentence.
Upon the effective date of forced conversion of a Note, the
Note shall be deemed void and no longer shall constitute an obligation of
the Company or evidence of an obligation, irrespective of when surrendered
to the Company. This provision requires the Company to convert all
principal and interest owing under all Notes outstanding at the time of
forced conversion. The holder of a Note so converted shall be required to
surrender the original of the forcibly converted Note as promptly as
possible to the Company, which shall mark the Note "canceled" upon receipt
and retain permanent custody of it. Upon the Company's receipt of the
original Note, the Company shall deliver to the surrendering holder the
shares of Common Stock called for by this provision.
5. In the event that this Note is placed with an attorney for
collection or that Noteholder resorts to legal process in order to enforce
any rights under this Note, Borrower shall pay all reasonable costs,
including attorneys' fees, thereby incurred by the Noteholder.
IN WITNESS WHEREOF, the undersigned Borrower has executed this
Promissory Note and has affixed hereto its corporate seal.
PATRIOT SCIENTIFIC CORPORATION
By /s/ ROBERT PUTNAM
----------------------
AUTHORIZED OFFICER
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
interim statements for the three months ended August 31, 1996 and is
qualified in its entirety by reference to such quarterly report on Form
10-QSB for the quarterly period ended August 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 557,297
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 145,363
<CURRENT-ASSETS> 758,909
<PP&E> 577,920
<DEPRECIATION> 295,653
<TOTAL-ASSETS> 1,645,654
<CURRENT-LIABILITIES> 176,648
<BONDS> 0
0
0
<COMMON> 300
<OTHER-SE> 9,831,369
<TOTAL-LIABILITY-AND-EQUITY> 1,645,654
<SALES> 2,093
<TOTAL-REVENUES> 2,093
<CGS> 1,528
<TOTAL-COSTS> 1,528
<OTHER-EXPENSES> 565,546
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (559,651)
<INCOME-TAX> 0
<INCOME-CONTINUING> (559,651)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (559,651)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
