10QSB Oct 24, 2005
CREATION OF CONSOLIDATED VENTURE/LICENSE AGREEMENT

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.

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=107_cong_reports&docid=f:hr610.107.pdf

SARBANES-OXLEY ACT OF 2002

SEC. 2. DEFINITIONS

(5) BOARD.—The term ‘‘Board’’ means the Public Company

Accounting Oversight Board established under section 101.

TITLE I—PUBLIC COMPANY

ACCOUNTING OVERSIGHT BOARD

SEC. 101. ESTABLISHMENT; ADMINISTRATIVE PROVISIONS.

((1) COMPOSITION.—The Board shall have 5 members, appointed

from among prominent individuals of integrity and reputation

who have a demonstrated commitment to the interests

of investors and the public, and an understanding of the responsibilities

for and nature of the financial disclosures required

of issuers under the securities laws and the obligations

of accountants with respect to the preparation and issuance of

audit reports with respect to such disclosures.

(2) LIMITATION.—Two members, and only 2 members, of the

Board shall be or have been certified public accountants pursuant

to the laws of 1 or more States, provided that, if 1 of those

2 members is the chairperson, he or she may not have been a

practicing certified public accountant for at least 5 years prior

to his or her appointment to the Board.

(3) FULL-TIME INDEPENDENT SERVICE.—Each member of the

Board shall serve on a full-time basis, and may not, concurrent

with service on the Board, be employed by any other person or

engage in any other professional or business activity. No member

of the Board may share in any of the profits of, or receive

payments from, a public accounting firm (or any other person,

as determined by rule of the Commission), other than fixed continuing

payments, subject to such conditions as the Commission

may impose, under standard arrangements for the retirement of

members of public accounting firms.

(4) APPOINTMENT OF BOARD MEMBERS.—

(A) INITIAL BOARD.—Not later than 90 days after the

date of enactment of this Act, the Commission, after consultation

with the Chairman of the Board of Governors of

the Federal Reserve System and the Secretary of the Treasury,

shall appoint the chairperson and other initial members

of the Board, and shall designate a term of service for

each.

(B) VACANCIES.—A vacancy on the Board shall not affect

the powers of the Board, but shall be filled in the same

manner as provided for appointments under this section.

(5) TERM OF SERVICE.—

(A) IN GENERAL.—The term of service of each Board

member shall be 5 years, and until a successor is appointed,

except that—

(i) the terms of office of the initial Board members

(other than the chairperson) shall expire in annual increments,

1 on each of the first 4 anniversaries of the

initial date of appointment; and

(ii) any Board member appointed to fill a vacancy

occurring before the expiration of the term for which

the predecessor was appointed shall be appointed only

for the remainder of that term.

(B) TERM LIMITATION.—No person may serve as a

member of the Board, or as chairperson of the Board, for

more than 2 terms, whether or not such terms of service are

consecutivee)

SEC. 406. CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS.

(c) DEFINITION.—In this section, the term ‘‘code of ethics’’ means

such standards as are reasonably necessary to promote—

(1) honest and ethical conduct, including the ethical handling

of actual or apparent conflicts of interest between personal

and professional relationships;