Patriot Scientific Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

Commitments and Contingencies (continued)

Licensing Fee Disputes

In February 2013, PDS received a license fee installment attributable to the January 2013 satisfaction of a contingency contained in an MMP license agreement entered into in May 2012. Alliacense has asserted a claim against PDS for $300,000 under the premise that it is owed a percentage of the license fee installment pursuant to the Program Agreement it entered into with PDS, TPL and us in July 2012. TPL has also asserted a claim against PDS for $225,000 under the premise that it is owed a percentage of the license fee installment pursuant to the terms of the June 2005 Commercialization Agreement between PDS, TPL and us. Our position is that no percentage is due Alliacense as it had not been engaged for services at the time the May 2012 license agreement was entered into, and that it had no role in the satisfaction of the contingency that triggered the installment fee. Regarding TPL, our position is that a percentage to TPL could be justified, subject to, and fully offset by, advances previously made to it by PDS. We intend to vigorously defend our interest in PDS against the assertions made by Alliacense and TPL.

In September 2013, Alliacense asserted it was owed amounts pursuant to a contingency provision of the Program Agreement it entered into with PDS, TPL and us in July 2012. We have requested Alliacense provide additional supporting information. Until such additional information is made available to us we cannot determine if the amounts as requested are owed.

In November 2013, PDS paid Alliacense $300,000 against the licensing fees and contingency amounts in dispute, and against the $500,000 quarterly advance due for the quarter ending February 28, 2014, as the parties’ obligations under the Program Agreement are assessed. We believe pursuant to the criteria defined in Accounting Standards Codification 450-20-50 Disclosure of Certain Loss Contingencies, it is reasonably possible that as a result of the amounts asserted, PDS could recognize additional charges to earnings pertaining to the periods ended November 30, 2013 in the range of $0 to approximately $600,000.